Fossa, Ltd. v. I Jian Lin

FOSSA, LTD., et al., Plaintiffs, v. I JIAN LIN, et al., Defendants.

Case No. 16-cv-11914-LTS

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

September 29, 2017

ORDER ON MOTIONS TO DISMISS (DOCS. 25, 29)

SOROKIN, D.J.

For the reasons that follow, the Court ALLOWS IN PART and DENIES IN PART the Motions to Dismiss Defendants' Counterclaims (Docs. 25, 29). In addition, the Court ORDERS the parties to submit memoranda of law with respect to a contract question arising from Counts II and III. Finally, the Court ORDERS (1) Defendants to submit a memorandum of law, not to exceed ten pages, addressing the viability of Plaintiffs' RICO claims and the basis for subject matter jurisdiction if those claims are dismissed, within 14 days of this Order; and (2) Plaintiffs to submit a response addressing the same issues within 14 days of the filing of Defendants' memorandum of law.

I. BACKGROUND

On September 1, 2016, Plaintiffs Steven Barlow, Fossa Ltd. ("Fossa"), and IcelandicPLUS LLC ("IcelandicPLUS") filed a Complaint in Massachusetts Superior Court against Encompass Communications, Inc. ("Encompass"), which is doing business as BrandIntent, and I Jian Lin, the "sole shareholder, director and officer of BrandIntent." Doc. 1 at 1; Doc. 1-1 at 7. Barlow and Lin allegedly formed Fossa and IcelandicPLUS for the purpose of importing and selling Icelandic natural products, including lamb horns and fish skins, as dog treats.¹ Doc. 1-1 at 10. The Complaint alleges Barlow loaned hundreds of thousands of dollars to Fossa and IcelandicPLUS, much of which Lin embezzled and gave to BrandIntent. Id. at 11-13. Plaintiffs sue for, inter alia, breach of fiduciary duty, breach of contract, fraud, and violation of the Rackateer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962(c), (d). See id. at 24-35.

Defendants removed this case to federal court based solely on the federal question jurisdiction arising from Plaintiffs' RICO claims. Doc. 1-2. Defendants filed their Answer to the Complaint on November 7, 2016. Doc. 11. On November 28, 2016, Defendants filed a 114-page First Amended Answer and Counterclaims. Doc. 13.

In their Counterclaims, Defendants sue Plaintiffs as well as Boston Law Group, P.C. ("BLG"), Valentin Gurvits, and Sonya Livshits.² Doc. 13 at 1. Gurvits is a lawyer and a principal in BLG and, in that capacity, filed the Complaint in this case. Id. at 25; Doc. 1-1 at 37. On October 5, 2016, Gurvits and BLG withdrew as counsel for Plaintiffs, Doc. 8, but Defendants assert that they continue to advise Plaintiffs. Doc. 13 at 26. Livshits is alleged to be a Fossa employee hired by Barlow without Lin's consent. Id.

The Counterclaims and supporting factual allegations run 90 pages and are hardly a model of concision, but Defendants essentially make the following factual allegations:

1. Barlow falsely represented to Lin that Lin would be "owner of 50% of the Lamb Horn Business and of all corporate entities associated with the Lamb Horn Business," in order to induce Lin and Encompass "to provide their substantial Icelandic experience, contacts, ideas, sales, marketing and promotional efforts, and physical and mental work to build the Lamb Horn Business." Id. at 80-81.

2. Barlow "falsely represented to Lin and Encompass that [he] would not pursue Lin's Fish Skin idea [i.e., the idea of importing Icelandic fish skins as dog treats] without Lin's participation and receipt of 50% of all revenues therefrom." Id. at 81. However, Barlow did pursue such business without Lin's participation and without giving him fifty percent of revenue. Seeid. at 76-78.

3. Barlow asked Lin to "establish a bank sub-account (the 'Sub-Account') for Encompass, into which Barlow would deposit, inter alia, funds for use in developing and implementing Lin's idea of the Lamb Horn Business." Id. at 7-8. However, in May 2014, Barlow started making large deposits into the Sub-Account, then "using his debit card to access those funds for personal expenses," on "information and belief" to "hide his connection to the funds and to avoid both taxation and disclosure to his wife, whom he was in the process of divorcing." Id. at 55-56.

4. Gurvits and BLG either currently hold or have transferred to Barlow at least $36,091.40 that Defendants suggest rightfully belongs to them. Id. at 61.

5. Barlow and Livshits have sold lamb horns and deprived Lin of his rightful fifty-percent share of the proceeds from those sales. Id. at 92.6. Barlow, Gurvits, and BLG have "used process in this matter for an ulterior purpose of forcing Lin out of the Lamb Horn Business and obtaining Lin's ownership interest in it." Id. at 106.

7. In "connection with the sale of lamb horns," Barlow, Fossa, and IcelandicPLUS have used materials to which "Lin and Encompass own all copyright," without compensating either Defendant. Id. at 110.

Defendants sue for, inter alia, fraud, breach of contract, conversion, violation of RICO, and abuse of process. See id. at 79-110. Count I alleges fraud by Barlow in the form of various false representations made to Lin and Encompass about Barlow's business arrangements and intentions. Id. At 79-81. Count II alleges that Barlow breached an oral contract with Lin and Encompass regarding each parties' respective contributions to, financial benefits from, and commitments in relation to the Lamb Horn Business. Id. At 82-83. In Count III, Defendants claim that Barlow breached an implied covenant of good faith and fair dealing in connection with the oral contract alleged in Count II. Id. at 83. Count IV asserts that Barlow, Gurvits, and BLG willfully and knowingly engaged in unfair business practices in violation of Mass. Gen. L. c. 93A, §§ 2 and 11. Id. at 83-86.

Defendants mislabel Counts V through XVIII as Counts III through XVI in their Counterclaims; the Court will refer to them as they appear sequentially in that filing. Counts V, IX, X, XI, and XII seek damages based on unjust enrichment, breach of fiduciary duty, embezzlement and conversion of funds and inventory, and civil conspiracy in connection with the Lamb Horn Business. Id. at 86-87 and 90-94. Count XIII requests equitable relief in the form of a full and complete accounting by the Counterclaim Defendants. Id. at 94-95.

Count XIV alleges that the Counterclaim Defendants and other co-conspirators violated RICO by acting as an enterprise to engage in a pattern of racketeering activity involving wire fraud, monetary transactions in property derived from wire fraud, money laundering, identity fraud, and theft of trade secrets. Id. at 95-105. Count XV additionally alleges RICO conspiracy against Barlow, Gurvits, BLG, and Livshits. Id. at 105-106.

In Count XVI, Defendants claim that Barlow, Gurvits, and BLG used process in this matter for the ulterior purpose of forcing Lin out of the Lamb Horn Business and obtaining Lin's ownership interest in it[.]" Id. at 106-110. Count XVII seeks a preliminary and permanent injunction to address alleged infringement by Barlow, Fossa, Ltd., and IcelandicPLUS LLC of certain copyrights owned by Lin and Encompass. Id. at 110. Finally, Count XVIII requests declaratory judgment (1) that Lin is a 50% owner of Fossa, Ltd., IcelandicPLUS LLC, and any other corporate entity established in connection with the Lamb Horn Business, including without limitation Fossa Enterprises, Ehf. And IcelandicPLUS, Ehf., and (2) that Lin is entitled to no less than 50% of the revenues from those business entities. Id. at 110-111.

Plaintiffs and Livshits have filed a Motion to Dismiss ("Plaintiffs' Motion"), seeking (1) dismissal, under Mass. Gen. Laws ch. 231, § 59H, of Count XIV (Abuse of Process) against Barlow, along with Barlow's costs and fees "in connection thereto"; and (2) dismissal of "all other Counterclaim counts as against" Fossa, Barlow, and Livshits, under Federal Rules of Civil Procedure 9(b) and 12(b). Doc. 29.

Gurvits and BLG have also filed a Motion to Dismiss ("BLG's Motion"), seeking (1) dismissal of Count XVI (Abuse of Process) under § 59H, supra, along with costs and fees "in connection thereto"; and (2) dismissal of Counts XII (Civil Conspiracy), XIV (Civil RICO), XV(Civil RICO Conspiracy), and XVI (Abuse of Process) for failure to state a claim under Rules 9(b) and 12(b). Doc. 25.

Since the instant Motions were filed, Defendants have "withdraw[n]" Count VI for interference with contractual relations, Count VII for interference with prospective contractual relations, and Count VIII for misappropriation of trade secrets. Doc. 40 at 22.

II. RELEVANT LAW

In assessing whether counts in Defendants' Counterclaims survive a motion to dismiss, the Court treats them the same way it would treat counts in a plaintiff's complaint. See, e.g., Riverdale Mills Corp. v. Cavatorta North Am., Inc., 189 F. Supp. 3d 317, 320-21 (D. Mass. 2016). In resolving whether a complaint survives such a motion, the Court "should begin by identifying and disregarding statements in the complaint that merely offer 'legal conclusions couched as fact' or 'threadbare recitals of the elements of a cause of action.'" Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1, 12 (1st Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Once the Court has disregarded such statements, it must then accept "[n]on-conclusory factual allegations in the complaint . . . as true, even if seemingly incredible," and decide whether the legal claim "has facial plausibility," i.e., whether those allegations, accepted as true, "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 12 (citations and internal quotation marks omitted). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678 (citation omitted); see also id. at 679 (stating that a complaint must "permit the court to infer more than the mere possibility of misconduct") (...