Williams v. EBX Enters.

ORDER

HON. JANE MAGNUS-STINSON, JUDGE

Plaintiff David Williams and Defendant EBX Enterprises, LLC ("EBX"), acting through its sole member Defendant Elijah Bland, formed Ocean's Promise, Inc. ("Ocean's Promise") to sell sea moss products. After the relationship between Mr. Williams and Mr. Bland soured, they decided to dissolve Ocean's Promise. Mr. Williams brings this action derivatively on behalf of Ocean's Promise, alleging claims against EBX and Mr. Williams for breach of fiduciary duty, self-dealing, and conversion, and seeking an accounting. [Filing No. 23.] EBX and Mr. Bland have filed a Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(6), seeking dismissal of all of Mr. Williams' claims. [Filing No. 27.] That motion is now ripe for the Court's review.

I.

Standard of Review

Under Rule 12(b)(6), a party may move to dismiss a claim that does not state a right to relief. The Federal Rules of Civil Procedure require that a complaint provide the defendant with "fair notice of what the . . . claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007)). In reviewing the sufficiency of a complaint, the Court must accept all well-pled facts as true and draw all

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permissible inferences in favor of the plaintiff. Alarm Detection Sys., Inc. v. Vill. of Schaumburg, 930 F.3d 812, 821 (7th Cir. 2019). A Rule 12(b)(6) motion to dismiss asks whether the complaint "contain[s] sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.(citing Twombly, 550 U.S. at 556). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). Factual allegations must plausibly state an entitlement to relief "to a degree that rises above the speculative level." Munson v. Gaetz, 673 F.3d 630, 633 (7th Cir. 2012). This plausibility determination is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.

II.

Background

The following are the factual allegations contained in the Amended Complaint, [Filing No. 23], which the Court must accept as true at this time.

In early August 2019, Mr. Williams started a business selling "sea moss gel" products under the brand name "Ocean's Promise" to health food stores. [Filing No. 23 at 3.] He hired Mr. Bland to assist with designing product labels and setting up various social media and retail platforms for the business. [Filing No. 23 at 3.]

On March 31, 2020, Mr. Williams and Mr. Bland formally incorporated Ocean's Promise with the Indiana Secretary of State's Office. [Filing No. 1-1 at 15; Filing No. 23 at 3.]^[1] Mr.

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Williams was the Chief Executive Officer ("CEO"), and Mr. Bland was the Chief Operating Officer ("COO"). [Filing No. 1-1 at 15.] The rights and responsibilities of the parties are governed by an amended shareholder agreement ("the Shareholder Agreement") executed on April 28, 2020 between Mr. Williams on one hand and EBX, acting through Mr. Bland, on the other. [Filing No. 1-1 at 18-30; Filing No. 23 at 4.] Pursuant to the Shareholder Agreement, Mr. Williams and EBX each own 500, 000 shares of Ocean's Promise. [Filing No. 1-1 at 20.] The Shareholder Agreement also specified that both Mr. Williams and Mr. Bland were to serve as directors of Ocean's Promise. [Filing No. 1-1 at 21.]

Ocean's Promise registered in its name the trademark "OCEAN'S PROMISE" ("the Trademark") with the United States Patent and Trademark Office ("USPTO"). [Filing No. 1-1 at 16-17; Filing No. 23 at 3.] The Trademark is registered in connection with various dietary supplements. [Filing No. 1-1 at 16.]

Mr. Williams and Mr. Bland operated Ocean's Promise during the spring and early summer of 2020, "securing additional customers and generating a significant growth in profits over this timeframe." [Filing No. 23 at 4.] However, by mid-July, Mr. Williams and Mr. Bland "began experiencing various disagreements relating to operating [Ocean's Promise]." [Filing No. 23 at 4.] "As an apparent result of the parties' internal disagreements, [Mr.] Bland took steps to unilaterally

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block [Mr.] Williams' access from all [Ocean's Promise] retail and social media platforms, in addition to diverting [Ocean's Promise] funds to EBX." [Filing No. 23 at 4.] In response to Mr. Bland's actions, Mr. Williams contacted a lawyer, who in turn contacted Mr. Bland's lawyer, and the parties and their counsel attempted to resolve their differences. [Filing No. 23 at 4.] However, no resolution could be reached, and Mr. Williams and Mr. Bland "ultimately agreed to dissolve [Ocean's Promise] and go their separate ways." [Filing No. 23 at 4.]

On August 31, 2020, following a special meeting of the shareholders, Mr. Williams and Mr. Bland executed a Shareholders' Resolution of Approval of Dissolution, formally authorizing the dissolution of Ocean's Promise. [Filing No. 1-1 at 31; Filing No. 23 at 4.] The same day, Ocean's Promise filed its voluntary notice of dissolution with the Indiana Secretary of State, and the dissolution became effective the following day, September 1, 2020. [Filing No. 1-1 at 32-34; Filing No. 23 at 5.]

Following the formal dissolution of Ocean's Promise, Mr. Williams and Mr. Bland began the winding down process. [Filing No. 23 at 5.] "To this end, [Mr.] Williams and [Mr.] Bland verbally agreed on the distribution of [Ocean's Promise's] assets and liabilities; however, they were unable to come to an agreement on the disposition of [the Trademark], which necessarily included the related websites and social media platforms which utilized [the Trademark] in selling the Sea Moss Products." [Filing No. 23 at 5.] Although no agreement had been reached concerning disposition of the Trademark, Mr. Bland continued to "wrongfully utilize" the Trademark "for the benefit of EBX and/or his own personal benefit." [Filing No. 23 at 5.] Mr. Bland also "took steps to further exert exclusive control over [the Trademark], including the retail websites and social media platforms, which resulted in [Mr.] Williams' inability to have visibility into and/or exercise his right to access [Ocean's Promise's] business information and related transactions during the

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winding down process." [Filing No. 23 at 5.] In addition, "in furtherance of his scheme to defraud and deny [Mr.] Williams of his legal rights as a member of" Ocean's Promise, Mr. Bland "contacted the USPTO and fraudulently submitted documentation in an attempt to permanently change [Ocean's Promise's] address from its Indiana location to a location solely controlled and operated by [Mr.] Bland in Englewood Cliffs, New Jersey." [Filing No. 23 at 5.] Mr. Bland continues to carry on business using the Trademark and has "wrongfully taken steps to convert [the Trademark] for the benefit of EBX and/or his own personal benefit, thereby generating profits for himself, to the detriment of Ocean's Promise and [Mr.] Williams." [Filing No. 23 at 6.]

Mr. Williams "brings this action derivatively in the right of and for the benefit of Ocean's Promise," and asserts claims for: (1) breach of fiduciary duty; (2) self-dealing; (3) conversion; and (4) an equitable accounting. [Filing No. 23 at 6-11.] Regarding breach of fiduciary duty, Mr. Williams alleges that Mr. Bland and EBX have harmed and continue to harm Ocean's Promise by improperly profiting from the Trademark, thereby generating profits for EBX and Mr. Bland, to the detriment of Ocean's Promise and Mr. Williams. [Filing No. 23 at 6.] He further alleges that Mr. Bland breached his fiduciary duties "by, among other things, wrongfully transferring assets of Ocean's Promise to EBX and directing business opportunities of Ocean's Promise away from Ocean's Promise to EBX" and by "divert[ing] money and business from [Ocean's Promise] and us[ing] [Ocean's Promise's] assets for his own personal gain and benefit, as well as that of EBX." [Filing No. 23 at 6-7.]

In connection with his self-dealing claim, Mr. Williams alleges that Mr. Bland and EBX "have acted to put their personal interests ahead of the interests of Ocean's Promise's shareholders, including [Mr.] Williams." [Filing No. 23 at 8.] Mr. Williams alleges that Mr. Bland and EBX "are attempting to unfairly deprive [Mr. Williams and Ocean's Promise] of the value inherent in

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and arising from" the Trademark and are "excluding [Mr. Williams and Ocean's Promise] from their fair share of profits derived from the wrongful and ongoing use" of the Trademark. [Filing No. 23 at 8.]

Regarding the conversion claim, Mr. Williams alleges that EBX and Mr. Bland "knew or should have known that they could not carry on any further business following the dissolution" of Ocean's Promise, and that they knew or should have known they could not exert unauthorized control over the Trademark because no agreement was reached concerning what was to happen to the Trademark after dissolution. [Filing No. 23 at 9.] According to Mr. Williams, he repeatedly informed EBX and Mr. Bland of their wrongful actions but was ignored, and EBX and Mr. Bland continued to exert unauthorized control over the Trademark for their own benefit without consent from Ocean's Promise or Mr. Williams. [Filing No. 23 at 9.]

Finally,...