From the 3rd Amended AACT:
COUNT III: FRAUDULENT INDUCEMENT (Term Sheet) (Industrial Heat against Rossi, Leonardo, JMP, and Johnson)
134. Industrial Heat realleges the allegations in Paragraphs 1 through 88 as if fully set forth herein.
135. Rossi, Leonardo, JMP, and Johnson falsely represented to Industrial Heat that JMP was a manufacturing company with a real commercial use for the steam power generated by the Plant.
136. In reality, JMP was not a manufacturing company, had no commercial use for the steam power generated by the Plant, and was created solely as a ruse to induce Industrial Heat to ship the Plant to Florida.
137. Rossi, Leonardo, JMP, and Johnson made such false representations to induce Industrial Heat to enter into the Term Sheet so that Leonardo and Rossi could operate the Plant without Industrial Heat’s direct supervision or oversight, thereby allowing them to manipulate the operation of the Plant, any measurement of the operation of the Plant, and any purported “Guaranteed Performance” testing of the Plant.
138. Industrial Heat justifiably relied on such false representations in entering into the Term Sheet. Industrial Heat would not have agreed to the Term Sheet but for such false representations.
139. As a result of Rossi, Leonardo, JMP, and Johnson’s fraudulent inducement, Industrial Heat has suffered and continues to suffer damages. Among the damages are the following: the cost of transporting the Plant to Florida; the cost of operating the Plant in Florida; the cost of engaging and paying two independent contractors, one of whom was Fabiani; and a host of additional expenses charged to Industrial Heat in connection with the operation and maintenance of the Plant in Florida.
My plan was to copy and study the arguments from the MTD, the response and the reply, but I found immediately that I would be copying much redundant material. Instead, I’m most interested in the thinking of the judge, so I will review that first. As in other analyses, I add links to relevant documents and where possible to cited cases or other informative pages.
From the Order:
II. LEGAL STANDARD
“To survive a motion to dismiss, a complaint must contain 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 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To meet this “plausibility standard,” a plaintiff must “plead: factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (alteration added) (citing Twombly, 550 U.S. at 556). “[I]t simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal [behavior].” Twombly, 550 U.S. at 556 (alterations added). The mere possibility a defendant acted unlawfully is insufficient to survive a motion to dismiss. See Chaparro v. Carnival Corp., 693 F.3d 1333, 1337 (11th Cir. 2012) (citing Iqbal, 556 U.S. at 678).
A. Count III: Fraudulent Inducement
Counter-Plaintiffs claim J.M. Products, Johnson, and Counter-Defendants fraudulently induced Industrial Heat to enter into the Term Sheet by falsely representing J.M. Products was a manufacturing company with real commercial use for the steam power generated by the Plant.
(See Third-Party Claims ¶¶ 134–39).
To state a claim for fraudulent inducement in Florida, a plaintiff must plead: “(1) the defendant made a false statement about a material fact; (2) the defendant knew the statement was false when he made it or was without knowledge of its truth [or] falsity; (3) the defendant intended that the plaintiff rely and act on the false statement; and (4) the plaintiff justifiably relied on the false statement to his detriment.” Persaud v. Bank of Am., N.A., No. 14-21819-CIV, 2014 WL 4260853, at *12 (S.D. Fla. Aug. 28, 2014) (alteration added) (quoting Barrett v. Scutieri, 281 F. App’x 952, 953 (11th Cir. 2008)). Additionally, Rule 9(b) requires plaintiffs to plead the circumstances constituting fraud with particularity, see FED. R. CIV. P. 9(b), setting forth the precise oral and written statements made, when and where these statements were made, to whom and by whom they were made, and/or what was obtained as a result. See Ziemba v. Cascade Int’l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (quoting Brooks, 116 F.3d at 1371).
To support their fraudulent inducement claim, Counter-Plaintiffs rely on Johnson’s and J.M. Products’s representations at the August 2014 meeting (see Third-Party Claims ¶ 74), and a written representation made by Johnson on behalf of J.M. Products (see id.).(4)
(4) Johnson and J.M. Products represented J.M. Products was a subsidiary of Johnson Matthey at the August 2014 meeting in North Carolina (see Third-Party Claims ¶ 74), and indicated Johnson Matthey was interested in using the E-Cat technology in connection with a confidential manufacturing process it wanted to operate in Florida (see id.). In an August 2014 document, Johnson on behalf of J.M. Products certified Johnson Matthey was owned by a U.K. entity and neither the Counter-Defendants, Johnson, nor any affiliated parties held any ownership interest in the company. (See id.).
Third-Party Defendants argue Counter-Plaintiffs fail to comply with Rule 9(b) because: (1) they do not
“specify when, specifically, or to whom, specifically, [the meeting] statements were made” (Mot. 6 (alteration added)), and (2) the allegation false statements were made in “August 2014, generally” is insufficient given the Term Sheet’s effective date on August 13, 2014.(5) The November 16 Order already determined Counter-Plaintiffs adequately pleaded their fraudulent inducement claim with respect to the August meeting statements. (See November 16 Order 13). The purpose of the meeting, per Counter-Plaintiffs, was to convince Industrial Heat to permit the Plant to be moved to Miami, Florida. (See Third Party Claims ¶ 74 (stating the meeting was “in furtherance of [the] scheme” to remove the Plant for Industrial Heat’s control (alteration added)). The meeting would not have occurred if the Term Sheet had already been signed; hence the Third Party Claims sufficiently allege the August meeting occurred before the execution of the Term Sheet.
The same cannot be said for J.M. Products’s written representation regarding J.M. Matthey in the document titled “Compliance with OFAC.” (See Compl., Ex. B 25). In the document, Johnson, acting on behalf of J.M. Products, certifies to Industrial Heat that J.M. Products is in compliance with the rules and regulations of the Office of Foreign Asset Control (OFAC). (See id.). The document further states J.M. Products is owned by a U.K. entity and neither the Counter-Defendants, Johnson, nor any affiliated parties hold any ownership interest in the company. (See id.). This is the portion of the document Counter-Plaintiffs fixate on to
support of the fraudulent inducement claim.
(5) Additionally, Industrial Heat argues Johnson and J.M Products have failed to plead the knowledge element of the FDUTPA claim. (See Mot. 7). Because the claim involves Johnson and J.M. Products’s false representations about themselves, at the very least they ought to have known of the falsity of their statements, which is sufficient to establish the knowledge element. See Thor Bear, Inc. v. Crocker Mizner Park, Inc., 648 So. 2d 168, 172–73 (Fla. 4th DCA 1994) (finding knowledge element is satisfied when “the representor ought to have known, if he did not know, of the falsity” of statements (internal quotation marks omitted) (quoting Alexander/Davis Properties, Inc. v. Graham, 397 So. 2d 699, 706 (Fla. 4th DCA 1981))).
However, the document is undated and it is not facially apparent why it was produced (for instance, if it was signed after the execution of the Term Sheet or as part of another agreement between J.M. Products and Industrial Heat). Although Counter-Defendants submitted the document in the same CM/ECF exhibit as the License Agreement and its attachments (see Compl., Ex. B), it is not listed as an attachment and does not appear to be a part of that Agreement (see License Agreement § 16.15 (listing exhibits and schedules)). Without more information, most importantly, the date of signing, the Compliance with OFAC document cannot support the contention Third-Party Defendants intended Counter-Plaintiffs to rely on the misrepresentation to enter the Term Sheet; thus, the document does not meet the heightened pleading standard of Rule 9(b). Nevertheless, because the August meeting statements are sufficient to state a claim, Count III remains intact.
She noticed. I’ve been writing for months that the document was undated, and that the document was accidentally included with the filing of Exhibit B, but indications (from the name of the company) are that it was signed around the time of the meeting in North Carolina, where the Term Sheet was executed. She is quite correct: this document does not show that it was executed in order to induce IH to enter into the Term Sheet agreement. It remains as evidence as to what was being represented to IH. My sense is that IH prepared that document, and gave it to Johnson to sign. The approximate date of this could be established, but the Judge’s point is clear: this doesn’t show the necessary timing.
Jones Day may have fallen into a common trap here. Johnson was almost certainly lying (or being grossly misleading) in signing that certification, but so what? It only matters here if IH suffered damage as a result. (We see commentary on Planet Rossi all the time claiming that this or that alleged fact shows IH to be Bad People and therefore … therefore what? Similarly, Rossi uses sock puppets on his blog. Therefore …. therefore what? I am only interested in that because people and how they think are of high interest to me. It has no legal significance beyond the unlikely but possible filing of a defamation suit. Rossi might be held accountable for what he pretended was said by someone else.
In this case, the error did not harm IH, because at this point all that matters for IH is that Count III remained intact. That document could be introduced as evidence, easily, at trial and might have an effect on a jury.
From the 3rd Amended AACT:
COUNT IV: FLORIDA DECEPTIVE AND UNFAIR TRADE PRACTICES ACT
(Industrial Heat and IPH against all Counter-Defendants and Third-Party Defendants)
140. Counter-Plaintiffs reallege the allegations in Paragraphs 1 through 135 as if fully set forth herein.
141. As described in greater detail above, Rossi, Leonardo, Johnson, JMP, Penon, Fabiani, USQL, and Bass (the “FDUTPA Defendants”) were all engaged in a common scheme against Counter-Plaintiffs.
142. The first part of the scheme was to manipulate Counter-Plaintiffs into allowing the Plant to be sent from the Industrial Heat facility in North Carolina – where any work on, operation of, or testing of the Plant could be supervised and overseen by Counter-Plaintiffs – to Florida, where Leonardo, Rossi, USQL, Fabiani, and Penon could operate the Plant and purportedly conduct measurements of the Plant’s operations away from the oversight and control of Counter-Plaintiffs.
143. The second part of the scheme was to manipulate the operation of the Plant and the measurements of the Plant’s operations to create the false and deceptive appearance and impression that the Plant was performing at astronomical levels, with COP measurements not only well in excess of anything achieved by any third party testing of the E-Cat technology, but in fact many multiples higher than anything achieved by any third party testing. For example, notwithstanding flaws in their testing methodology that would have caused them to overstate their conclusions of the COP they were measuring from an E-Cat reactor, the Lugano scientists concluded that the E-Cat reactors they measured were producing a COP of 2.6, 2.9, 3.2, 3.6 or 5.6. According to the manipulated and fabricated testing and measurements of the FDUTPA Defendants, they – through Leonardo, Rossi, and Penon – claimed that they were achieving COPs more than 10 times greater than the Lugano scientists, and in fact as high as 40+ times greater than the Lugano scientists.
144. The final part of the scheme, of course, was for Leonardo and Rossi, based on the false and deceptive operations of the Plant in Florida, to claim to Counter-Plaintiffs that they were required to pay Leonardo and Rossi $89 million and, when Counter-Plaintiffs rightfully refused, to institute litigation against Counter-Plaintiffs.
145. Another goal of the scheme was to obtain various payments from CounterPlaintiffs for work that one or more of the FDUTPA Defendants was performing not to benefit Counter-Plaintiffs, but in fact with the goal of harming Counter-Plaintiffs. Among these payments were service payments to USQL, Fabiani, and Penon; expense reimbursements to Leonardo, Rossi, USQL, Fabiani, and Penon (including for travel, apartment rentals, visa-related costs, repair work to the Plant, patent attorneys, and patent application fees); and payments for equipment (or the transportation of equipment) to be used – or purportedly to be used – by the FDUTPA Defendants.
146. In furtherance of this scheme, the FDUTPA Defendants engaged in the unconscionable, unfair, and deceptive acts and practices described above, including:
a. Deceiving Counter-Plaintiffs about JMP, the operations of JMP, the supposed role of Bass, and the reasons for JMP wanting to use the steam power that could be generated by the Plant.
b. Deceiving Counter-Plaintiffs as to the reasons for wanting to move the Plant from North Carolina to Florida.
c. Manipulating the operation of the Plant and the measurements of the Plant’s operations to create the false impression and appearance that it was producing a COP far in excess of the COP it was in fact achieving.
d. Providing false information to Counter-Plaintiffs as to the operation of the Plant and the measurements of the Plant’s operations.
e. Refusing to provide other information properly requested by CounterPlaintiffs, and to which Counter-Plaintiffs were entitled pursuant to the License Agreement, the Term Sheet, the USQL Agreement, and/or the nature of the purportedly (but in fact, not) independent work being done by Penon.
f. Preventing or blocking Counter-Plaintiffs from obtaining truthful information about the Plant’s operations, the measurements of those operations, the role of JMP, the use by JMP of steam provided by the Plant, the role of Penon, or the bases for expenses or costs charged to Counter-Plaintiffs.
g. Charging Counter-Plaintiffs for services, expenses, and equipment that were purportedly being used either for the benefit of, and to further the goals of, Counter-Plaintiffs when in fact no such services, expenses, or equipment were being used for Counter-Plaintiffs’ benefit.
147. The acts and practices alleged above, including in the prior paragraph, were unconscionable, unfair, and deceptive. As such, they have been declared unlawful pursuant to Section 501.204 of the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”).
148. As a result of the foregoing acts and practices declared unlawful under FDUTPA, Counter-Plaintiffs have suffered and continue to suffer actual damages, as described above.
The Judge reasoned:
B. Count IV: the FDUTPA
Counter-Plaintiffs allege Counter-Defendants, Third-Party Defendants, and Penon violated the FDUTPA by engaging in a common scheme focused on moving the Plant to Florida and creating the false impression the Plant was performing at exceptional levels in order to obtain the final $89 million available under the contract as well as other related payments. (See generally Third-Party Claims ¶¶ 140–48). Third-Party Defendants’ main argument is CounterPlaintiffs fail to establish all the elements of a FDUTPA claim.(6) (See Mot. 7, 9–15)
(6) Third-Party Defendants also begin attacking the FDUTPA claim by echoing an argument rejected in the November 16 Order. They contend Counter-Plaintiffs improperly recast their contract claims as FDUTPA tort claims. (See Mot. 7–8; see also Counter-Defendants’ Motion to Dismiss 21). The November 16 Order rejected this argument, finding claims giving rise to a breach of contract may also constitute an unfair or deceptive act under the FDUTPA (see November 16 Order 15–16); and CounterPlaintiffs adequately described deceptive practices “related to but separate from their breach of contract claims” (id. 16).
To state a claim for a FDUTPA violation, a plaintiff must show: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. See Medimport S.R.L. v. Cabreja, 929 F. Supp. 2d 1302, 1319 (S.D. Fla. 2013) (quoting Blair v. Wachovia Mortg. Corp., No. 5:11-CV-566-OC-37TBS, 2012 WL 868878, at *3 (M.D. Fla. Mar. 14, 2012)). “[A] deceptive act occurs when ‘there is a representation, omission, or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer’s detriment.’” Gavron v. Weather Shield Mfg., Inc., 819 F. Supp. 2d 1297, 1302 (S.D. Fla. 2011) (alteration added) (quoting PNR,
Inc. v. Beacon Prop. Mgmt., Inc., 842 So. 2d 773, 777 (Fla. 2003)).
To plead the second element of a FDUTPA claim, a plaintiff must show causation, stating how an alleged deceptive or unfair practice actually resulted in damage. See Kais v. Mansiana Ocean Residences, LLC, No. 08-21492-CIV-MORENO, 2009 WL 825763, at *1 (S.D. Fla. Mar. 26, 2009) (citation omitted). At the time of trial, the plaintiff need not prove reliance on deceptive acts, but “causation must be direct, rather than remote or speculative.” Lombardo v. Johnson & Johnson Consumer Cos, Inc., 124 F. Supp. 3d 1283, 1290 (S.D. Fla. 2015) (quoting Hennegan Co. v. Arriola, 855 F. Supp. 2d 1354, 1361 (S.D. Fla. 2012); citing Fla. Stat. §501.211(2) (A “person who has suffered a loss as a result of a violation of this part . . . may recover actual damages.” (emphasis and alteration added))). Finally, to satisfy the third element of a FDUTPA claim, a plaintiff must show actual damages which “directly flow” from the deceptive or unfair act; consequential damages are not recoverable. Hennegan, 855 F. Supp. 2d at 1361.
Fabiani and Quantum Leap. The crux of the alleged FDUTPA violation is the manipulation of testing and performance data in order to obtain the final $89 million payment and related payments. (See Third-Party Claims ¶¶ 142–45). Even accepting the allegations of the Third-Party Claims as true, Counter-Plaintiffs have not satisfied the first element as to Fabiani and Quantum Leap. While Counter-Plaintiffs lump Fabiani and Quantum Leap into the “FDUTPA Defendants” group, these Third-Party Defendants were not involved in the
substantive acts mentioned in Count IV. The allegations as to Fabiani and Quantum Leap focus on and are based on these parties’ failure to provide information in breach of the Quantum Leap Agreement (See Mot. 15). At most, the Third-Party Claims suggest in conclusory fashion the failure to provide information was tantamount to affirmatively misrepresenting the nature of operations at the facility. Counter-Plaintiffs do not attribute any specific deceptive statements or acts to Fabiani or Quantum Leap. (See Third-Party Claims ¶¶ 84–88). Accordingly, Count IV is dismissed as to Fabiani and Quantum Leap.
Johnson, J.M. Products, and Bass. With regard to Johnson, J.M. Products, and Bass, Counter-Plaintiffs plead the first element of a FDUTPA claim, stating these Third-Party Defendants engaged in at least some deceptive acts or unfair practices. For instance Johnson, J.M. Products, and Bass represented a confidential manufacturing process was being conducted at the Doral facility by a real customer in need of the steam generated by the Plant. (See Third-Party Claims ¶¶ 74, 79). This and other representations were “likely to mislead” CounterPlaintiffs about the actual operations at the facility.(7)
(7) Third-Party Defendants assert Johnson, J.M. Products, and Bass’s relationship with Industrial Heat was limited to mere “rental of the Plant.” (Mot. 11). These Third-Party Defendants maintain the hiring of a fake engineer and the restriction of access to the Doral facility were “not deceptive or unfair . . . pursuant to the Term Sheet” because “access to [the] facility or operation was never promised or required” and “the Term Sheet does not require [them] to provide Counter-Plaintiffs with any details concerning [the] facility or its operations therein.” (Id. (alterations added)). First, an unfair or deceptive act need not be based on a contractual relationship. Further, Third-Party Defendants’ characterizations directly contradict the plain language of the Term Sheet. The Term Sheet expressly provides: “[Industrial Heat] will be allowed to visit the [Plant] at any time” (Term Sheet ¶ 13 (alterations added)), and “J.M. Products will keep records of the operation of the [Plant] as reasonably requested by Leonardo or [Industrial Heat] and will provide copies of such records to Leonardo and [Industrial Heat] upon request” (Id. ¶ 19 (alterations added)).
Turning to the second and third elements, Counter-Plaintiffs fail to plausibly allege causation between Johnson’s, J.M. Products’s, and Bass’s complained-of deceptive acts and actual damages in the form of service payments, expense reimbursements, and equipment costs.(8)
According to Counter-Plaintiffs, Johnson and J.M. Products contributed to the scheme by inducing the Plant’s move to Florida, while Bass allegedly made false statements about J.M. Products and the confidential operations at the facility. While these actions may have contributed to the scheme, none directly resulted in Counter-Plaintiffs’ damages. Counter-Plaintiffs suffered damages as a result of a scheme that engendered the belief the Plant was performing at the rate specified in the License Agreement. The damages did not “directly flow” from the Plant’s transfer to Florida. The Florida location may have made it more difficult to monitor its operations, but it was Rossi’s and Leonardo’s(9) alleged manipulation of the Plant’s operations and deception about its ability to achieve “Guaranteed Performance”(10) that caused the identified damages. (See Third-Party Claims ¶¶ 80, 142–44, 146c–d). Similarly, Counter-Plaintiffs do not allege how Bass’s statements and his posing as an employee — while misleading — directly caused Counter-Plaintiffs to believe the Plant was performing at the promised productivity rate, and hence, did not directly cause them to incur damages. As a result, Count IV is dismissed as to all Third-Party Defendants.
(8) Counter-Defendants and Third-Party Defendants charged for work and equipment related to the Plant’s operation, causing Counter-Plaintiffs to pay for expenses not truly incurred for their benefit. (See Third-Party Claims ¶ 145; Resp. 12 n.12). These expenses at least constitute actual damages, which flowed directly from the false representation the E-Cat was performing at exceptional levels.
(9) Counter-Plaintiffs also allege Penon engaged in similar acts to manipulate measurements and misrepresent the performance of the E-Cat. (See Third-Party Claims ¶¶ 90–92).
(10) Even accepting Counter-Plaintiffs’ allegations as to the deceptive nature of these acts, issuing falsified invoices (see Third-Party Claims ¶ 77); posing as an employee (see id. ¶ 78); and/or expressing satisfaction with a non-existent product (see id. ¶ 78), do not provide information about the rate at which the Plant generates the energy. (See Mot. 11). This is the relevant inquiry when assessing the Plant’s performance, and the Plant’s supposedly high-level performance is part of the reason Counter-Plaintiffs incurred certain expenses.
COUNT V: BREACH OF CONTRACT (Industrial Heat against Fabiani and USQL)
149. Industrial Heat realleges the allegations in Paragraphs 1 through 88 as if fully set forth herein.
150. Industrial Heat retained USQL and Fabiani to “provide services related to the manufacture and development” of products relating to the E-Cat IP. See USQL Agreement, Page 1. They were required to act in a manner in, and not opposed to, the best interests of Industrial Heat. See id. § 3.
151. The USQL Agreement makes clear that information obtained by USQL and Fabiani arising out of the services they agreed to provide to Industrial Heat is the property of Industrial Heat. For example, the USQL Agreement states: All Confidential Information, records, files, memoranda, reports, drawings, plans, designs, specifications, tests and results, recordings, documents and the like (together with all copies thereof), including any of the foregoing that are electronically maintained, relating to the business of Industrial Heat or the
engagement of USQL [and Fabiani] pursuant to this Agreement that USQL [and Fabiani] shall use or prepare or come in contact with in the course of, or as a result of, the engagement of USQL [and Fabiani] under this Agreement shall remain the sole property of Industrial Heat . . . . Id. § 6.
152. The USQL Agreement also requires that USQL and Fabiani promptly disclose to Industrial Heat (among other things) developments and discoveries relating to the Plant or the ECat IP:
USQL [and Fabiani] further agree that . . . [they] will promptly disclose to Industrial Heat any and all improvements, inventions, developments, discoveries, innovations, systems, techniques, processes, formulas, programs and other things that may be of assistance to Industrial Heat or its affiliates, whether patentable or unpatentable, that (i) relate to the actual or demonstrably anticipated research or development by Industrial Heat or any of its affiliates, or (ii) result from any work performed by USQL [and Fabiani] for or at the request of Industrial Heat, or (iii) are developed on Industrial Heat’s time or using the equipment, supplies or facilities or any Confidential Information or trade secret information of Industrial Heat, or any of its affiliates; and that are made or conceived by USQL [and Fabiani], alone or with others, while engaged by Industrial Heat (collectively referred to herein as the “New Developments”). USQL [and Fabiani] agree that all New Developments shall be and remain the sole and exclusive property of Industrial Heat and that it shall upon the request of Industrial Heat, and without further compensation, but at the cost and expense of Industrial Heat, do all things
reasonably necessary to [e]nsure Industrial Heat’s or its affiliate’s ownership of such New Developments. Id. § 7.
153. USQL and Fabiani breached the USQL Agreement by failing to provide services to Industrial Heat relating to the manufacture and development of the Plant and the E-Cat IP. More specifically, USQL and Fabiani disregarded their contractual obligations to Industrial Heat in order to assist Leonardo and Rossi in their deceptive operations in Florida. Indeed, instead of working in “the best interests of Industrial Heat,” as required by USQL Agreement § 3, Fabiani and USQL were – as Fabiani publicly admitted – working “under Rossi’s orders,” including assisting Rossi in actions directly against Industrial Heat’s interests as alleged above.
154. USQL and Fabiani also breached the USQL Agreement by failing to provide Industrial Heat with information relating to the scheme to manipulate the operation and testing of the Plant. USQL and Fabiani had an affirmative obligation to inform Industrial Heat of the scheme to manipulate the Plant’s operations and the testing. Such information would constitute a “New Development” that USQL and Fabiani were required to disclose to Industrial Heat pursuant to the USQL Agreement. USQL and Fabiani also refused to provide other information to Industrial Heat, as alleged above. USQL and Fabiani intentionally withheld information from Industrial Heat relating to the scheme and, therefore, breached the USQL Agreement.
155. USQL and Fabiani further breached the USQL Agreement by failing to provide Industrial Heat with information, including reports and data, relating to the operation of the Plant in Doral, Florida. Industrial Heat made several demands for such information and USQL and Fabiani have repeatedly refused to provide Industrial Heat with the reports and data. See, e.g., Ex. 21.
156. Industrial Heat and IPH have suffered harm as a result of USQL and Fabiani’s breaches of the USQL agreement including USQL and Fabiani’s failure to further the best interest of Industrial Heat, failure to provide Industrial Heat with information relating to the scheme pled herein, and failure to provide Industrial Heat with other information requested by Industrial Heat or that they were required to provide Industrial Heat. These breaches have deprived Industrial Heat of the benefit of its bargain with USQL and Fabiani, led to Industrial Heat paying USQL and Fabiani for services not rendered, deprived Industrial Heat of property that is its property per the USQL Agreement, and prevented Industrial Heat from learning of the deceptive scheme as alleged above.
The Judge considers this:
C. Count V: Breach of Contract
Counter-Plaintiffs allege Fabiani and Quantum Leap breached the Quantum Leap Agreement by disregarding contractual obligations to Industrial Heat in assisting Rossi and Leonardo’s deceptive operations in Florida and failing to disclose complete and accurate information related to their work on the Plant. (See id. ¶¶ 86–88, 153–55). Third-Party Defendants argue Count V should be dismissed because: (1) it does not state a cause of action since the alleged breaches occurred after the Quantum Leap Agreement terminated on August 31, 2014; (2) the contract is void as a matter of law with regard to Fabiani; and (3) Fabiani is not bound by the entire agreement, since the Joinder only bound him to certain sections. (See Mot. 17–19). Although the first issue is dispositive, the Court addresses each argument in turn.
Under North Carolina law,(11) “[i]n interpreting a contract the intent of the parties is [the] polar star[.]” Davis v. Woodlake Partners, LLC, 748 S.E. 2d 762, 768 (N.C. App. 2013) (alterations added; citation omitted). The intent of the parties is inferred from the words of the contract if the plain language of the contract is clear. See Tyndall-Taylor v. Tyndall, 580 S.E. 2d 58, 60–61 (N.C. App. 2003).
(11) Although it makes no difference to the result, the Court notes the parties rely on Florida contract law, but the Quantum Leap Agreement states it “shall be construed and enforced in accordance with and governed by the laws of the State of North Carolina.” (Quantum Leap Agreement § 14). Without knowing if any of the purported contract renewals alter this choice of applicable law, the Court hews to the terms of the contract and interprets the Quantum Leap Agreement under North Carolina law.
The Quantum Leap Agreement unambiguously states it commenced on September 1, 2013 and continued until August 31, 2014, at which point it terminated unless the parties agreed in writing to extend it. (See Quantum Leap Agreement § 8). Thus, unless the parties chose to extend the agreement in writing, it terminated before any of the alleged breaches occurring in 2015 and 2016. Counter-Plaintiffs argue several 2016 emails included as exhibits with the Third-Partly Claims (see Third Party Claims, Ex. 21 [ECF No. 78-21]), “demonstrate and allow the Court to draw the reasonable inference that the USQL Agreement was in effect in 2015 and early 2016” (Resp. 19). The Court disagrees such inference can be drawn.(12)
Counter-Plaintiffs do not provide the actual writing in which the Quantum Leap Agreement was renewed. The 2016 emails at most propose renewal of an agreement with Quantum Leap, but considering the gap in time between the 2014 termination date and the 2016 date of these emails, and lacking an actual writing or allegation (as opposed to a proposal) showing the continued vitality of the Quantum Leap Agreement’s provisions, the Court cannot infer the parties extended the original termination date clearly stated in the original agreement. Count V is thus dismissed on this ground.
Third-Party Defendants’ two other arguments attacking Count V relate specifically to the contract as enforced against Fabiani, stating first, it is void as to Fabiani because no consideration was given at the time Fabiani executed the Joinder on September 9, 2013, and second, even if it is a valid agreement, only some provisions are enforceable against Fabiani.
12 The Court may consider documents attached to the pleadings on a motion to dismiss if they are central to the claims and undisputed. See Fiegl v. Graphic Packaging Int’l, No. 1:13-CV-4125-TWT, 2014 WL 3854223, at *1 n.3 (N.D. Ga. Aug. 5, 2014) (citing Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005)). The Quantum Leap Agreement is discussed in both parties’ written submissions and is central to Count V’s breach-of-contract claim; the parties do not dispute the original contract terminated on August 31, 2014; they merely disagree as to whether it was extended. (See Mot. 16–17; Resp. 19–20). CounterPlaintiffs argue the Court must also consider and accept as true the emails attached as exhibits to the Third-Party Claims (Resp. 19–20). Even disregarding the content of the emails appears to be disputed, and accepting Counter-Plaintiffs’ interpretation of the emails as true, the emails do not support the inference the original contract was extended for the reasons discussed in this section.
In North Carolina, the essential elements of a valid and enforceable contract are: offer, acceptance, and consideration. See Lewis v. Lester, 760 S.E. 2d 91, 93–94 (N.C. App. 2014). “[A]ny benefit, right, or interest bestowed upon the promisor, or any forbearance, detriment, or loss undertaken by the promisee, is sufficient consideration to support a contract.” Burton v. Williams, 689 S.E. 2d 174, 178 (N.C. App. 2010) (alteration in original; internal quotation marks omitted) (quoting Brenner v. Little Red School House, Ltd., 274 S.E. 2d 206, 212 (N.C. 1981))). It is plausible the “requirement of the Joinder was part and parcel of the [Quantum Leap
Agreement] and Fabiani, as the sole member and manager of [Quantum Leap], reaped the benefits” bestowed on the company under the agreement. (Resp. 21 (alterations added)). These benefits include a $126,000 payment for consulting services and reimbursements for a North Carolina–area apartment rental for Fabiani. (See Quantum Leap Agreement § 9). Read this way, consideration was provided.
Finally, Third-Party Defendants argue even if the contract is enforceable, Fabiani is not bound by the entire Quantum Leap Agreement because the Joinder explicitly limits and binds him only to provisions related to confidentiality (section 5), rights to materials (section 6), and new developments (section 7). It is no matter Fabiani is bound by only some provisions of the agreement because Counter-Plaintiffs allege he violated at least one of the provisions included in the Joinder. (See Third-Party Claims ¶¶ 152–55; Resp. 21–22).