Focused Impressions, Inc. v. Sourcing Grp., LLC

FOCUSED IMPRESSIONS, INC. ANDFOCUSED IMPRESSIONS TECHNOLOGY, LLC, Plaintiffs, v. THE SOURCING GROUP, LLC, Defendant.

THE SOURCING GROUP, LLC, Third-Party Plaintiff, v. CRAIG STOCKMAL, Third-Party Defendant.

Civil Action No. 19-cv-11307-ADB

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

March 13, 2020

MEMORANDUM AND ORDER ON PLAINTIFFS' MOTION TO PARTIALLY DISMISS COUNTERCLAIM AND THIRD-PARTY DEFENDANT'S MOTION TO DISMISS

BURROUGHS, D.J.

Focused Impressions, Inc. ("FII") and Focused Impressions Technology, LLC ("FIT") (collectively, "Plaintiffs"), brought this action against The Sourcing Group, LLC ("TSG") alleging breach of contract and unfair and deceptive practices. [ECF No. 1-1 at 5, 16]. TSG brought counterclaims against Plaintiffs, including breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, action for accounting, and unjust enrichment. [ECF No. 16]. TSG also filed a third-party complaint against Craig Stockmal, the CEO of FII and the sole member and manager of FIT. [ECF No. 26]. Currently before the Court is Plaintiffs' motion to dismiss Count III of TSG's counterclaims, which alleges a breach of fiduciary duty, and Stockmal's motion to dismiss TSG's third-party complaint. [ECF Nos. 18, 32]. For the reasons set forth below, Plaintiffs' motion, [ECF No. 18], is DENIED and Stockmal's motion, [ECF No. 32] is GRANTED in part and DENIED in part.

I. BACKGROUND

A. Factual Background

For purposes of this motion, the facts are drawn from the amended counterclaim complaint and amended third-party complaint, [ECF Nos. 16, 26], and relevant documents referred to in each, and are viewed in the light most favorable to TSG. Ruivo v. Wells Fargo Bank, N.A., 766 F.3d 87, 90 (1st Cir. 2014).¹

Beginning in 1983, Stockmal worked for a company called Uarco, Inc. (later acquired by Standard Register), which supplied business forms. [ECF No. 16 ¶ 8]. Stockmal's first client at Uarco was Liberty Mutual Insurance ("LMI"). [Id. ¶ 9]. By March 2015, Standard Register was experiencing financial difficulties and filed for Chapter 11. [Id. ¶¶ 13-14]. While still employed at Standard Register, Stockmal met with TSG and offered to use two companies he had incorporated, FII and FIT, to obtain business from LMI as Standard Register seemed at risk of losing this lucrative client. [Id. ¶¶ 15-16, 18]. Stockmal encouraged TSG to enter into a written agreement with FII and FIT, which Stockmal drafted and TSG revised, seeking to keep LMI's business with a company he controlled. [Id. ¶¶ 20-23].

On March 16, 2015, Stockmal met with TSG's William James Caan in Boston to discuss a proposed relationship and to review a draft contract outlining the arrangement (the "Agreement"). [ECF No. 26 ¶ 42].² Stockmal told Caan that if TSG would perform billing services, Stockmal and his companies would perform all other functions. [Id. ¶ 43]. Although the Agreement itself had no expiration or time limit, TSG states that Stockmal and Caan intended to revisit the Agreement in six months, "after things had settled down." [Id. ¶ 44]. Stockmal and Caan signed the Agreement (with Stockmal signing on behalf of FII and FIT) that same day. [Id. ¶ 44].

The Agreement provided that FI would "act as the relationship manager between TSG and LMI in connection with any contract for goods and services entered into between TSG and LMI at any time" and would "provide the following services: [a]ll communication with LMI, inventory management, stock replenishment, and vendor management." [ECF No. 19-1 at 2-3 (the "Agreement")]. In consideration for these services, TSG and FI agreed that "FI will receive 65% of all gross margins, and TSG will receive 35% of all gross margins." [Agreement at 2]. Further, TSG agreed not to "solicit business directly from LMI or enter into any contract with LMI except through FI," though "[t]he contract for services [would] be between TSG and LMI . . . ." [Id.]. On March 23, 2015, TSG and LMI entered into a master services agreement ("MSA") through which TSG agreed to serve as the primary supplier of paper products for LMI's publishing services group. [ECF No. 16 ¶¶ 41-42].³ Stockmal, FII, and FIT are notparties to the MSA nor do they have a direct business relationship with LMI related to sourcing paper products for LMI. [ECF No. 26 ¶¶ 76-77].

TSG states that Plaintiffs failed to act as the relationship manager for LMI as required under their Agreement because Stockmal "attended virtually no meetings, did not handle communications with LMI, and was largely absent from the operation," but was instead focused on developing his software business for FIT. [ECF No. 16 ¶¶ 52-54]. Stockmal had hired Lynn Smith and Lena Spiegel, former employees of Standard Register who were familiar with the LMI account, to assist Plaintiffs with LMI, but "they did not manage the relationship (nor did anyone else working on behalf of FII or FIT)." [Id. ¶¶ 10-12, 17, 55]. This required TSG to perform many of the services it had contracted with Plaintiffs to provide and to expend funds that Plaintiffs should have spent in support of the Agreement. [Id. ¶¶ 55-56, 58-63]. Stockmal purposefully understaffed FII and FIT and did not arrange for the companies to provide the services promised in the Agreement. [ECF No. 26 ¶ 83].

In June 2016, LMI decided to outsource its printing to Novitex Enterprise Solutions, Inc. ("Novitex"), leading LMI to cease purchasing supplies and services from TSG through the MSA. [ECF No. 16 ¶¶ 93-94]. Caan negotiated with Novitex to supply them with paper and other supplies and entered into a master services agreement dated September 12, 2016. [Id. ¶¶ 97-98].⁴ Although Caan negotiated and entered into the agreement with Novitex without assistance from Stockmal or Plaintiffs, he wrote to Stockmal on January 30, 2017, stating that thearrangement with LMI had changed and offering to split commissions fifty-fifty. [Id. ¶¶ 102-06]. Stockmal appeared to accept this arrangement by accepting and cashing commission checks at this new rate for twenty-seven months. [Id. ¶ 108]. Neither FII nor FIT served as relationship managers for Novitex (and later Exela), though Smith and Spiegel continued to provide "certain subsidiary services on behalf of TSG." [Id. ¶¶ 115-18]. On April 1, 2019, TSG received a demand letter for the original commission rate promised in the Agreement. [Id. ¶ 109].

When Smith and Spiegel did perform tasks on TSG's behalf, they were subject to TSG's control and approval, [ECF No. 16 ¶ 64], and TSG had the "ultimate say" over "how the LMI relationship was to be carried out, what prices would be offered, and what the essential business terms of each transaction would be," [id. ¶ 65]. By November 2017, both Smith and Spiegel had resigned from their employment with Plaintiffs, which further reduced the assistance Plaintiffs were providing to TSG. [Id. ¶¶ 66-69]. Throughout this arrangement, Plaintiffs were operating subject to TSG's ultimate control with regard to the LMI relationship because the MSA was between TSG and LMI. [Id. ¶¶ 70-71 ].

Stockmal exercised control over both FII and FIT, which were defined collectively as "FI" in the Agreement. [Agreement at 2; ECF No. 16 ¶¶ 26-27]. Stockmal moved money between the two entities and intermingled the activities performed by each. [ECF No. 26 ¶¶ 47, 49]. He held all management positions within FII and did not observe corporate formalities for FII or FIT. [Id. ¶¶ 50, 52, 54]. He also made a series of misrepresentations to TSG in order to cut TSG out of transactions that provided direct commissions to Stockmal and Plaintiffs. [ECF No. 16 ¶ 79]. In addition, after insisting that TSG use one vendor, Bay State Envelope ("Bay State"), to provide supplies to LMI, he then received kickbacks from Bay State of approximately $304,000. [Id. ¶¶ 80-81]. Stockmal never disclosed these kickbacks to TSG, and TSG allegesthat he was receiving kickbacks from other vendors, as well. [Id. ¶¶ 81-82]. The kickbacks damaged TSG by inflating the prices they paid to vendors and reducing their profit. [Id. ¶ 83].

B. Procedural Background

On March 12, 2019, Plaintiffs filed a complaint against TSG in Suffolk Superior Court, [ECF No. 1-1 at 3], and then an amended complaint on May 13, 2019, [id.]. TSG filed its answer and counterclaims on June 3, 2019, [id.], and filed a third-party complaint against Stockmal on June 11, 2019, [id. at 4]. TSG then filed a notice of removal on June 12, 2019. [ECF No. 1]. TSG filed amended counterclaims on July 29, 2019, [ECF No. 16], and an amended third-party complaint against Stockmal on August 30, 2019, [ECF No. 26]. On August 12, 2019, Plaintiffs filed a motion to dismiss Count III of the amended counterclaims. [ECF No. 18]. On September 13, 2019, Stockmal filed a motion to dismiss TSG's third-party complaint against him. [ECF No. 32]. TSG filed oppositions to both motions, [ECF Nos. 25, 34], and Plaintiffs and Stockmal filed replies, [ECF Nos. 31, 37].

II. LEGAL STANDARD

In reviewing a motion to dismiss under Rule 12(b)(6), the Court must accept as true all well-pleaded facts, analyze those facts in the light most favorable to the plaintiff, and draw all reasonable factual inferences in favor of the plaintiff. See Gilbert v. City of Chicopee, 915 F.3d 74, 80 (1st Cir. 2019). "[D]etailed factual allegations" are not required, but the complaint must set forth "more than labels and conclusions," Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and must contain "factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory," Gagliardi v. Sullivan, 513 F.3d 301, 305 (1st Cir. 2008) (quoting Centro Medico del Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 6 (1st Cir. 2005)). The alleged facts must be sufficient to "state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570.

"To cross the plausibility threshold a...