Holcombe v. Ingredients Solutions, Inc.

          RULING ON MOTION TO DISMISS

          STEFAN R. UNDERHILL UNITED STATES DISTRICT JUDGE

         Margaret Holcombe (“Holcombe”) brought this action against her former employer, Ingredients Solutions, Inc. (“ISI”), for breach of contract, breach of the covenant of good faith and fair dealing, promissory estoppel, negligent misrepresentation, violations of the Connecticut Unfair Trade Practices Act (“CUTPA”), and practices actionable under Conn. Gen. Stat. § 42-482, et seq. Am. Compl, Doc. No. 27. Holcombe's original complaint was filed on June 30, 2017. Compl., Doc. No. 1. ISI moved to dismiss the complaint, which I granted on December 11, 2017. See Doc. Nos. 15, 23. Thereafter, Holcombe filed an Amended Complaint in which she raises the same claims against ISI. See Am. Compl., Doc. No. 27. ISI filed a Motion to Dismiss the Amended Complaint. See Mot. to Dism., Doc. No. 30. For the following reasons, the Motion to Dismiss is granted and the amended complaint is dismissed with prejudice.

         I. Background

         A. Factual Allegations in the Amended Complaint

         Holcombe alleges the following facts in her Amended Complaint (Doc. No. 27). Holcombe began working with ISI in 1999 as an independent sales representative for ISI's carrageenan products. Am. Compl., Doc. No. 27 at ¶¶ 18-19. Carrageenan “is a common food additive that is extracted from red seaweed … [and] is used as a thickener and emulsifier to improve the texture of many processed foods.” Id. at ¶ 6, n.1. ISI agreed to give her “full access to ISI documents and records regarding its carrageenan sourcing”, and agreed to pay her “under the same plan or structure that applied to Frank Holcombe, ” Holcombe's father-in-law, who had worked for ISI in the same capacity as Holcombe. Id. at ¶¶ 16-17. Further, ISI agreed to pay her “4% of all revenue derived from sales to any customers [she] secured for ISI” and, in addition, “a base stipend” of $2, 000 per month until her revenues grew. Id. at ¶ 20. That arrangement was “partially communicated” to her in an October 31, 2000 “proposal” from Scott Rangus, then-Vice President of ISI, “as well as verbally, in multiple oral communications” Holcombe had with Rangus and Donna Ravin, then-President of ISI. Id. at ¶ 21. ISI “assured [her] that the 4% of revenue ‘from October 1, 2000 on' would be derived from sales to any customers that [Holcombe] secured for ISI, for as long as that customer continued purchasing carrageenan for the product lines [Holcombe] had participated in securing.” Id. at ¶ 22. Further, “on various occasions from 2000-2012” Ravin “specifically represented and confirmed” to Holcombe that she “would continue to receive commissions on all sales ISI made to customers on product lines procured, regardless of whether [Holcombe] was in fact servicing the account at the time sales were made.” Id. at ¶ 23. Holcombe “reasonably relied” on those representations when agreeing to work for ISI. Id. at ¶ 24. Further, “[h]istorically, ” ISI paid sales representatives, including her father-in-law, commissions “into their 70s and 80s (or until their death) in connection with sales made to customers they procured for accounts whenever secured, despite little or no activity.” Id. at ¶ 25.

         Holcombe procured for ISI numerous major customers, and those customers eventually accounted for $10 million in annual revenue for ISI, and two-thirds to three-quarters of all of ISI's carrageenan customers. Id. at ¶¶ 26-27, 38. Most of the customers Holcombe procured received documentation related to ISI's carrageenan-sourcing, and most of those customers had strict requirements related to the specific identity or certification status of carrageenan sources for the products they purchased from ISI. Id. at ¶¶ 29-33, 37. Although some customers procured by Holcombe would engage in their own carrageenan-source inspection and testing, many simply relied on Holcombe's and ISI's assurances that ISI's sources complied with any relevant requirements. Id. Some customers procured by Holcombe even required her to “enter into contracts with them, including, but not limited to . . . nondisclosure agreements, code of ethics agreements, and letters of guarantees executed both by [Holcombe] and ISI” in which “ISI, and, in some cases, [Holcombe], were required to guarantee that the carrageenan . . . would not be adulterated or misbranded within the meaning of, inter alia, the” Food Drug and Cosmetics Act (“FDCA”).^[1] Id. at ¶ 42.

         In entering into such contracts with customers, Holcombe relied on “promises and assurances made to her by ISI, as well as the written materials provided to her by ISI, in order to personally make such guarantees.” Id. At unidentified times in their relationship, ISI, “through documents provided to [Holcombe] and promises made to [her] by Donna Ravin, Scott Rangus and others, assured [Holcombe] that the ISI carrageenan she represented would comply with” customer certification and supplier requirements, and applicable federal regulations. Id. at ¶¶ 34-36. Holcombe routinely requested and received documentation from ISI indicating appropriate compliance with customer and regulatory requirements. Id. at ¶¶ 39-41. Holcombe alleges that “from 2000-2012, [she] had no reason to believe that ISI was not abiding by the law or was not disclosing accurate information to her or [her] customers … regarding the source or quality of … carrageenan.” Id. at ¶ 46.

         In 2012, Ravin retired as President/CEO and majority owner, titles that Rangus took over. Am. Compl., Doc. No. 27 at ¶ 47. At some point thereafter, and without her knowledge, ISI “began surreptitiously obtaining carrageenan from sources unapproved and untested by [her] customers.” Id. at ¶ 48. ISI did not inform of her of the changes, “purposely used product codes that were identical to” approved sources, continued to represent that the carrageenan sources were approved, and “provide[d] [Holcombe] with hundreds of documents in which ISI falsely certified the details” of the carrageenan sourcing. Id. at ¶¶ 49, 52. Holcombe “continued to rely on” ISI's inaccurate documents, representations, and certifications “throughout 2014 and 2015 when conducting her business, negotiating with and procuring customers for ISI.” Id. at ¶ 53.

         Beginning in 2014, Holcombe “became aware of major quality issues with one of ISI's flagship carrageenan products” and, when she asked ISI lab managers about it, they alleged that a “hot UPS truck” created the issues. Id. at ¶ 56. Around the same time, Holcombe's customers began complaining to her about the quality issues, “specifically taste and smell problems.” Id. at ¶ 57. Holcombe requested sourcing information for that carrageenan product and learned that ISI had been sourcing carrageenan from “Accel” and other new plants for over two years without informing either Holcombe or her customers. Id. at ¶¶ 59-64, 83. Accel and many of the other new suppliers had no Global Food Safety Initiative (“GFSI”) certifications and were not approved sources, although ISI was falsely representing to Holcombe that the pre-approved sources were being used. Id. at ¶¶ 64, 71, 73. ISI “was able to implement these fraudulent tactics since the only form of its carrageenan manufacturer identification is contained in . . . documents [that] ISI had stopped providing” to Holcombe. Id. at ¶ 65. ISI had “intentional[ly] attempt[ed] to mislead [Holcombe] and the customers with whom she worked . . . [by] provid[ing] documents to [Holcombe] which fraudulently included the same product codes used by the new supply lines . . . as had been provided in connection with . . . approved suppliers . . . despite there being material differences in food safety, manufacturing site, country of origin, Kosher/Halal requirements and other quality concerns.” Id. at ¶ 69. ISI's sourcing changes were “not only violating the promises and representations made to [Holcombe] that she would only be representing ISI carrageenan that complied with all applicable federal regulations, as well as the numerous specific mandates of the customers she represented, but ISI was also putting public health in jeopardy by not disclosing the true source of the carrageenan being supplied, thereby exposing [Holcombe] to adverse government action.” Id. at ¶ 66.

         ISI's use of Accel and other carrageenan suppliers “contravened … the representations and promises ISI made to [Holcombe] that the ISI carrageenan she represented would comply with customer mandates” and directly contradicted product materials that ISI gave her. Id. at ¶ 71. Further, Holcombe was denied access to documents about the new plants despite “having been promised and granted access to such documents in connection with different suppliers throughout the course of her relationship with ISI and in breach of the terms of its agreement” with her. Id. at ¶ 72, 74. Further, ISI provided her with a “bogus certificate” which purported to show that ISI had proper GFSI certification, and that she was told that ISI does not guarantee that “a given product comes from a specific plant”, which she alleges conflicted with previous assurances she was given. Id. at ¶ 75-76. Holcombe informed ISI that she “could not knowingly participate in this ongoing wrongful activity by making false representations to the customers she represented.” Id. at ¶ 79. “In an attempt to salvage her relationship with ISI, ” Holcombe offered to assist ISI in complying with federal regulations and customer specifications, but her offers were denied and she was told that ISI would follow the ‘less said, the better policy.'” Id. at ¶ 80-81.

         Rangus informed Holcombe that she should not be discussing carrageenan sourcing with her customers, as that would be “grounds for immediate dismissal” and that she could either “abide by” the rules or “move on.” Id. at ¶ 82. She “had to make the choice of (a) participating in illicit behavior, (b) being dismissed by ISI for refusing to engage in such elicit behavior, or (c) terminating her representation of ISI.” Id. Due to ISI's “breaches and misrepresentations, ” Holcombe alleges that she was “forced to walk away from her book of business and the goodwill she had accrued over 16 years”, and “in an attempt to safeguard her business, ” she filed for an “expedited LLC and promptly ended her representation of ISI on February 1, 2016.” Id. at ¶ 87. She “was left with no alternative but to abandon her ongoing book of business, leaving customers with whom she had longstanding relationships to speculate as to the basis for the sudden departure, thereby harming her goodwill and professional and ethical reputation in the industry.” Id. at ¶ 88. ISI “failed to pay [her] commissions on sales made to, and revenues received from, the customers she procured, contrary to the terms of their contract, the specific promises, representations and assurances made to [Holcombe], and ISI's longstanding policy, custom and practice of paying its independent sales representatives ongoing commissions.” Id. at ¶ 90. Holcombe alleges that although she expected commission revenues of $500, 000 from ISI in 2016, she instead earned only $19, 000 from the alternative sales representative position that she secured with W. Hydrocolloids. Id. at ¶ 89.

         B. Procedural History

         On June 30, 2017, Holcombe filed a complaint against ISI alleging six counts: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) promissory estoppel, (4) negligent misrepresentation, (5) violation of the Connecticut Unfair Trade Practices Act, (6) violation of Conn. Gen. Stat. § 42-482, et seq. See Compl., Doc. No. 1. The first five counts each complained of both ISI's failure to pay Holcombe commissions on sales earned following her departure from ISI and ISI's alleged misdeeds relating to sales of improperly sourced carrageenan. The sixth count, brought under a statute that provides a mechanism to recover sales commissions, only addressed ISI's failure to pay commissions. ISI moved to dismiss the complaint on October 2, 2017. Mot. to Dism., Doc. No. 17.

         At a hearing on December 11, 2017, I characterized Holcombe's claims in two categories: (1) Commissions Claims, allegations regarding ISI's failure to continue to pay Holcombe commissions on the customers she procured; and (2) Sourcing Claims, allegations regarding ISI's misrepresentations and breaches surrounding the sources of carrageenan manufacturing. Dec. 11 Tr., Doc. No. 26 at 2. With respect to the Commissions Claims, I stated that Holcombe had failed to sufficiently plead allegations that she was actually promised any type of ongoing commissions on sales made by ISI following her departure, and that Holcombe seemed to be alleging that she was entitled to the most extreme type of ongoing commissions-perpetual commissions for all sales to customers introduced to ISI by Holcombe-which was particularly implausible. Id. at 29-34. With respect to the Sourcing Claims, I stated that Holcombe had not established standing for the Sourcing Claims and, even if she had, she failed to properly plead a contract that included any sourcing-related agreements that ISI breached. Id. at 3-8, 13. Accordingly, I granted ISI's Motion to Dismiss and dismissed Holcombe's complaint without prejudice.

         On January 1, 2018, Holcombe filed her Amended Complaint, pleading the same six counts against ISI as contained in her original Complaint: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) promissory estoppel, (4) negligent misrepresentation, (5) violation of the Connecticut Unfair Trade Practices Act, (6) violation of Conn. Gen. Stat. § 42-482, et seq. Am. Compl., Doc. No. 27. ISI moved to dismiss the Amended Complaint on March 1, 2018. Mot. to Dism., Doc. No. 30. Holcombe opposed the motion to dismiss (Opp. to Mot. to Dism., Doc. No. 31), and ISI filed a reply (Reply to Mot. to Dism., Doc. No. 32). I held argument on July 11, 2018 and took the Motion to Dismiss under advisement. For the reasons that follow, ISI's motion is granted and Holcombe's Amended Complaint is dismissed with prejudice.

         II. Standard of Review

         A. Motion to Dismiss for Lack of Subject Matter Jurisdiction

         “A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). A party that moves to dismiss for lack of subject matter jurisdiction “may refer to evidence outside the pleadings.” Id. (quoting Kamen v. American Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986)). To survive a motion brought under Rule 12(b)(1), a plaintiff “has the burden of proving by a preponderance of the evidence that [subject matter jurisdiction] exists.” Id. (citing Malik v. Meissner, 82 F.3d 560, 562 (2d Cir. 1996)).

         B. Motion to Dismiss for Failure to State a Claim Upon Which Relief May Be Granted

         A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) is designed “merely to assess the legal feasibility of a complaint, not to assay the weight of evidence which might be offered in support thereof.” Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)).

         When deciding a motion to dismiss pursuant to Rule 12(b)(6), the court must accept the material facts alleged in the complaint as true, draw all reasonable inferences in favor of the plaintiffs, and decide whether it is plausible that plaintiffs have a valid claim for relief. Ashcroft v. ...