Marks v. Dann

JEREMY MARKS, Plaintiff - Appellant, v. THOMAS DANN, Defendant - Appellee,andNATHAN CUMMINGS; CARLO DINALLO;STANISLAV LICUL; MAXTENA, INC., Defendants.

No. 13-2491

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: December 9, 2014

January 21, 2015

UNPUBLISHED

Appeal from the United States District Court for the District of Maryland, at Greenbelt. Deborah K. Chasanow, Senior District Judge. (8:13-cv-00347-DKC)

Before KEENAN, FLOYD, and HARRIS, Circuit Judges.

Affirmed by unpublished opinion. Judge Harris wrote the opinion, in which Judge Keenan and Judge Floyd joined.

ARGUED: John Da Grosa Smith, SMITH HORVATH LLC, Atlanta, Georgia, for Appellant. Julia Doyle Bernhardt, OFFICE OF THE ATTORNEY GENERAL OF MARYLAND, Baltimore, Maryland, for Appellee. ON BRIEF: Matthew A. Horvath, SMITH HORVATH LLC, Atlanta,Georgia, for Appellant. Douglas F. Gansler, Attorney General of Maryland, Robert N. Stokes, Assistant Attorney General, OFFICE OF THE ATTORNEY GENERAL OF MARYLAND, Baltimore, Maryland, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

PAMELA HARRIS, Circuit Judge:

Maxtena, Inc. ("Maxtena") is a promising Maryland-based manufacturer of custom antenna solutions. Since 2011, Maxtena's co-founders have been engaged in serial litigation over the ownership stake held by Jeremy Marks ("Marks"), a co-founder and former officer and employee of the company. In the complaint that underlies this case, Plaintiff-Appellant Marks alleges that his former colleagues entered into a sweetheart deal with the Maryland Venture Fund ("MVF"), a Maryland state agency responsible for investing in early-stage technology companies, to dilute his stake in the company at an artificially low valuation. In addition to Maxtena's board members, Marks names as a defendant Thomas Dann ("Dann"), the MVF's managing director. Marks alleges that Dann colluded with Maxtena's board members, breaching his own fiduciary duties to Maxtena and aiding and abetting the others.

The district court dismissed Marks's claims against Dann, holding that Dann was entitled to immunity from personal liability under the Maryland Tort Claims Act ("MTCA"), Md. Code Ann., Cts. & Jud. Proc. § 5-522 (West 2000). The MTCA couples a waiver of the state's sovereign immunity from civil suits in state court with protection for state officials who act without malice and within the scope of their official duties. The district court found that Marks's complaint failed to plausiblyallege that Dann's actions came within either the "malice" or the "scope-of-duty" exception to the MTCA and dismissed the complaint as against Dann under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

For the reasons that follow, we affirm. Under the MTCA, Marks's remedy for the MVF's alleged misconduct was against the state, not against Dann in his personal capacity.

I.

A.

Marks left his position at Maxtena in July, 2010. About one year after what Marks alleges was his "ouster," in April, 2011, Maxtena filed suit against Marks in the district court, alleging that Marks had surreptitiously founded a competing venture while still employed at Maxtena. Maxtena v. Marks, Civ. A. No. 8:11-cv-9450-DKC (D. Md. Apr. 13, 2011). In the Maxtena litigation, Maxtena seeks to enforce contractual provisions that it claims entitle it to repurchase Marks's 34% stake in the company for a nominal sum. Maxtena and Marks agreed that they would mediate the Maxtena litigation, after first engaging in financial and valuation discovery intended to facilitate settlement discussions. It was through that discovery that Marks became aware of negotiations between Maxtena and the MVFregarding a potential early-stage investment by the MVF in Maxtena (the "MVF Transaction").

Dann did not initiate those negotiations, which began under the MVF's former director, Frank Dickson, before Dann joined the MVF. But shortly after he became the MVF's managing director in July 2012, Dann delivered a term sheet to Maxtena proposing a short-term bridge investment. According to the complaint, Dann designed that proposal to "exploit" the Maxtena board's interest in setting a low valuation for the company in advance of its settlement discussions with Marks, in order to secure for the MVF "ownership in a promising and rapidly growing technology company at an exceptionally low price."

Specifically, the MVF proposed to purchase a one-year note, convertible into equity, from Maxtena. If the MVF were to exercise its option to convert, it would be able to secure a 50% interest in Maxtena for just $500,000. The MVF's offer also included a new employee stock options pool, which would give Maxtena's board members the option to reverse the dilutive effect of the MVF Transaction, and regain their controlling stake in the company, by buying back in at a higher valuation. Marks alleges that this stock-options grant was intended to shift the cost of the dilution caused by the MVF Transaction onto Marks, the only significant shareholder who wasn't also a Maxtena employee.

The MVF's offer as proposed by Dann was not accepted; Maxtena thought the terms were "very expensive" and designed to take advantage of the company's situation. Instead, Maxtena CEO Stanislav Licul ("Licul") proposed various changes to the MVF's term sheet, all of which Marks contends were designed to benefit Licul and the other Maxtena board members personally, but not Maxtena itself. For example, Marks points out that Licul asked for a more favorable options pool, but did not seek a higher valuation for the company. Dann rejected many of these changes. He was willing to invest directly in Maxtena's equity in lieu of the convertible note, but would not agree to a cap on the MVF's return or accept a less favorable place in the Maxtena capital structure. He also rejected Licul's changes to the employee stock options pool, which he described as already "exceptional."

After further negotiations, Dann and Licul signed a binding "commitment letter" on September 20, 2012. The final terms of the MVF Transaction retained the allegedly favorable valuation Dann proposed initially, which Marks contends was designed to manipulate the Maxtena litigation, but also included a slightly larger employee stock options pool. The Maxtena board approved the MVF Transaction on October 3, 2012. Dann became the MVF's representative on the board that same day, and the transaction was publicly announced on November 13, 2012.

B.

Marks filed his complaint on February 1, 2013, alleging that the MVF Transaction was an elaborate "scheme" intended to dilute his stake in the company and provide Maxtena with an artificially low valuation to anchor the ongoing settlement discussions in the Maxtena litigation. Count I of the complaint alleges that Licul and the other members of the Maxtena board negotiated for themselves, rather than Maxtena, in breach of their fiduciary duties. Those claims against Licul and the other board members remain pending in the district court.

Counts II and III of the complaint allege the causes of action against Dann that are the subject of this appeal. In Count II, Marks contends that after becoming a member of the Maxtena board, Dann breached his fiduciary duties by approving the expanded stock options pool, and in Count III, he asserts that Dann aided and abetted Licul and the other Maxtena board members' breach of their fiduciary duties when he "sold" them a transaction intended to provide the MVF with a stake in Maxtena for an "exceptionally low price," at both Marks's and Maxtena's expense.

Maxtena and the other defendants filed answers on February 22, 2013, in which they denied the substance of Marks's allegations. Dann separately filed a motion to dismiss the claims against him under Rule 12(b)(6). In support, Dann arguedthat the claims against him in his individual capacity were statutorily barred by the MTCA because the complaint did not plausibly allege that his actions were malicious or outside the scope of his public duties as the managing director of the MVF.¹

The district court granted Dann's motion to dismiss on July 24, 2013. Marks v. Dann, Civ. A. No. 8:13-cv-00347-DKC (D. Md. July 24, 2013), ECF No. 30. In a detailed memorandum opinion, the district court held that Marks's claims against Dann were barred by the MTCA because the complaint did not plausibly allege that Dann's actions fell within either of the statutory exceptions upon which Marks relied. Marks v. Dann, Civ. A. No. 8:13-cv-00347-DKC, 2013 WL 8292331 (D. Md. July 24, 2013). Canvassing extensive Maryland case law defining "malice" for purposes of the MTCA, the district court found that even crediting Marks's allegation that Dann took advantage of the Maxtena board's conflict to gain a "substantial ownership interest in Maxtena for the MVF at an exceptionally low price," Marks had not provided any facts in support of his theory that Dann did so because of an improper motive, rather than in order to advance the MVF's legitimate commercial interests. Thedistrict court also rejected Marks's alternative theory that Dann's actions were beyond the scope of his role at the MVF, an argument the court found completely lacking in factual support and contradicted by the complaint's allegations that Dann acted to secure a stake in Maxtena for the MVF at a below-market price.

Marks did not seek reconsideration of the district court's decision or leave to amend. Instead, he moved for certification of the district court's dismissal as a final and appealable order under Rule 54(b) of the Federal Rules of Civil Procedure. The district court granted the motion, and Marks timely noted this appeal.

II.

A.

We review de novo the district court's partial dismissal of Marks's action under Rule 12(b)(6). Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 364 (4th Cir. 2012). Like the district court, we must credit the well-pleaded allegations in Marks's complaint as true, and construe "the facts in the light most favorable"...