United States District Court, D. Connecticut
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.
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