FRESHPAIR.COM, INC. v. BUTLEIN
2:17-cv-00905
D.N.J.Jul 11, 2017Background
- In July 2016 Freshpair purchased all common stock of Freshpair, Inc. from Matthew, Marc, and Michaele Butlein under a Stock Purchase Agreement (SPA).
- Plaintiff alleges pre-closing assurances by Matthew Butlein about company condition were false: debts were understated, inventory misstated, and the e-commerce site was obsolete, harming Buyer after closing.
- Plaintiff sued in New Jersey state court and amended its complaint in federal court asserting: breach of contract; breach of the implied covenant of good faith and fair dealing; breach of fiduciary duty; and three fraud-based counts (fraud, legal fraud, equitable fraud).
- Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6). Court applies Twombly/Iqbal pleading standards and Rule 9(b) for fraud.
- Court denied dismissal of the breach of contract claim (Count One), dismissed Counts Two (implied covenant), Three (fiduciary duty), and Four–Six (fraud claims) for failure to plead with required specificity or to allege duties independent of the contract.
- Plaintiff may amend: 30 days granted to file a second amended complaint; claim for attorneys’ fees survives at this stage based on SPA indemnity provision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract: whether Plaintiff sufficiently pleaded performance and damages | Freshpair alleges it performed obligations (e.g., tried to retain Matthew as consultant; procured inventory) and suffered damages from sellers’ breaches | Defendants argue complaint fails to allege Plaintiff performed its contractual obligations | Denied dismissal: pleading adequate at this stage to state breach claim |
| Breach of implied covenant: whether allegations sufficiently identify conduct or actors | Freshpair contends defendants acted to defeat the spirit of the SPA | Defendants argue allegations are vague, conclusory, and group-pleaded | Granted: Count Two dismissed for lack of specificity and impermissible group pleading |
| Breach of fiduciary duty: whether an independent fiduciary duty exists outside the SPA | Freshpair alleges Matthew owed fiduciary duties based on trust and superior knowledge | Defendants argue claimed duties flow from the SPA and no independent legal duty was alleged | Granted: Count Three dismissed under economic loss doctrine/no independent duty |
| Fraud claims (fraud, legal fraud, equitable fraud): whether pleaded with Rule 9(b) particularity | Freshpair asserts defendants made material misrepresentations about debts, inventory, website condition | Defendants assert Plaintiffs fail to plead who made what representation, when, where, and with particularity | Granted: Counts Four–Six dismissed for failure to satisfy Rule 9(b); pleadings are vague/group-pleaded |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for Rule 8 pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not entitled to presumption of truth)
- Phillips v. Cty. of Allegheny, 515 F.3d 224 (3d Cir. 2008) (construing complaint in plaintiff’s favor at pleadings stage)
- Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009) (discussing application of Iqbal/Twombly in Third Circuit)
- Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007) (Rule 9(b) particularity requirements for fraud pleadings)
- In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997) (purpose of Rule 9(b) to provide defendants notice of fraud allegations)
- Fields v. Thompson Printing Co., 363 F.3d 259 (3d Cir. 2004) (existence of implied covenant of good faith and fair dealing under New Jersey law)
- Saltiel v. GSI Consultants, Inc., 170 N.J. 297 (2002) (tort remedies barred when duties derive solely from contract/economic loss doctrine)