Opinion
NO. 226-2013-CV-00233
05-28-2014
Greg Gendron Associates, LLC v. Nashua Circuits, Inc. and Robert V. Moncada, Sr.
ORDER
The Plaintiff, Greg Gendron Associates, LLC ("GGA"), brought this action against the Defendant, Nashua Circuits, Inc. ("Nashua Circuits") asserting the following claims: breach of contract (Count I); failure to pay a sales commission, contrary to RSA 339-E (Count II); unfair trade practices, contrary to RSA 358-A, the Consumer Protection Act ("CPA") (Count III). The Plaintiff also alleges that Robert V. Moncada, ("Moncada") a shareholder of Nashua Circuits, is personally liable for these claims and that the Court should disregard the corporate form, and pierce the corporate veil. (Count IV). The Defendants move for summary judgment on all of the Plaintiff's claims, arguing that they are all barred by the statute of limitations. In the alternative, the Defendants move to dismiss Count III and Count IV of the Complaint. The Plaintiff objects.
For the reasons stated in this Order, the Motion for Summary Judgment is DENIED with respect to any claims against Nashua Circuits occurring after August 21, 2009. Whether the statute of limitations bars earlier claims against Nashua Circuits, will be decided after an evidentiary hearing on whether or not the discovery rule tolls the statute of limitations. The Clerk will schedule an evidentiary hearing at the Court's early convenience. The Motion to Dismiss is DENIED with respect to Plaintiff's RSA 358-A claims, and GRANTED with respect to the individual claim against Moncada.
I
In deciding whether to grant summary judgment, the Court considers the pleadings, affidavits and other evidence, as well as all inferences properly drawn from them, in the light most favorable to the non-moving party. See Purdie v. Attorney General, 143 N.H. 661, 663 (1999). "[S]ummary judgment may be granted only where no genuine issue of material fact is present, and the moving party is entitled to judgment as a matter of law." Id.; see also RSA 491:8-a, III. "An issue of fact is 'material' for purposes of summary judgment if it affects the outcome of the litigation under the applicable substantive law." Vandemark v. McDonald's Corp., 153 N.H. 753, 756 (2006) (citation omitted). To defeat summary judgment, the non-moving party "must set forth specific facts showing that there is a genuine issue [of material fact] for trial." Panciocco v. Lawyers Title Ins. Corp., 147 N.H. 610, 613 (2002). Mindful of this standard, the Court sets forth the following facts in a light most favorable to the non-moving Plaintiff.
II
GGA acts as an outsource manager and outside sales representative for customers in the printed circuit board ("PCB") market. GGA is owned and operated by its sole member, Greg Gendron. Nashua Circuits is a fabricator and manufacturer of PCBs and specializes in double-sided or multi-layer circuit board prototypes, pre-production and small to medium production jobs. Nashua Circuits is owned and operated by Moncada and a minority shareholder, Paul Linehan.
In 2002, GGA was introduced to Nashua Circuits. At the suggestion of a mutual contact, Gendron, on behalf of GGA, entered into a number of discussions with Nashua Circuits regarding the terms of a commissioned sales representative arrangement between the parties. On or about December 15, 2002, the parties executed a contract entitled "Sales Representative Agreement" (the "Agreement"). While there is no dispute regarding the execution of this agreement, the parties dispute the interpretation and circumstances under which it was executed. As GGA asserts, one such dispute surrounds "Attachment A," which is defined as "an assigned account list." While GGA states that this attachment was included at the time the contract was executed, Nashua Circuits asserts that Attachment A was inserted at the last minute.
In 2003, after the Agreement had been signed, Gendron began attending sales meetings with Nashua Circuits' management. GGA received monthly guaranteed minimum commission payments through the end of January 2004 ("Guaranty Period"). However, beginning in February 2004, Moncada directed that GGA be paid actual commissions earned on its accounts.
Each time Nashua Circuits made a commission payment to GGA, Gendron received "Detail Reports." These reports show the date, number, payment date and amount of each invoice on which GGA's commission payments were based. While entitled to receive copies of original invoices under the terms of the Agreement, Gendron did not request them. According to the Plaintiff, the relevant invoice information appeared to be contained in the Detail Reports and, therefore, Gendron believed that the Detail Reports disclosed the sales to GGA accounts.
After the end of the Guaranty Period, the Plaintiff noticed that Nashua Circuits did not receive any commission on certain sales from the discounted rate applicable during the Guaranty Period to the five and ten percent rates required by the general commission structure set forth in the Agreement. Other than these particular sales, the Plaintiff contends that it appeared that commissions on all other sales to GGA accounts were being calculated properly.
According to the Plaintiff, Nashua Circuits continued to honor the contractual commission rates for sales until the spring of 2012. When Gendron raised this issue with Nashua Circuits' management, he was told that Moncada directed them to leave certain commissions at four percent. Gendron was not in agreement with this modification and protested Moncada's interpretation of the Agreement. On June 7, 2012, GGA received a letter from Moncada terminating it as a sales representative of Nashua Circuits.
Following the termination of their agreement, GGA and Nashua Circuits attempted to resolve GGA's claims for underpaid or unpaid commissions outside of court. The discussions led to a tolling agreement between the parties in which they agreed that the limitations period would be tolled. While the parties attempted to arrange a meeting and discuss settlement, these efforts failed. The instant action followed.
During informal discovery, Nashua Circuits provided a spreadsheet that purported to reflect all sales made to accounts identified by GGA. Upon review of the spreadsheet, the Plaintiff discovered sales to GGA accounts that had not been disclosed to GGA in Detail Reports.
The Defendants now move for summary judgment. In their motion, they make several arguments. First, the Defendants assert that all of the Plaintiff's claims are barred by the statute of limitations. Additionally, they argue that the Plaintiff fails to state a viable claim under RSA 358-A. Finally, the Defendants argue that the Plaintiff fails to state a viable claim against Moncada personally. In response, the Plaintiff asserts that all of its claims are timely under the applicable statute of limitations. Moreover, it argues that its allegations are susceptible of a construction that would permit recovery under RSA 358-A, and which would allow a trier of fact to pierce the corporate veil and find Moncada personally liable for Nashua Circuits' acts. The Court addresses the parties' arguments in turn.
Neither party disputes the applicability of the CPA. Compare Ellis v. Candia Trailers et al., 164 N.H. 457, 465 (2012).
III
The Defendants first argue that all of the Plaintiff's claims are barred by the statute of limitations contained in RSA 508:4, I. In response, the Plaintiff first asserts that the Defendants mischaracterize the Plaintiff's cause of action. The Plaintiff separates its claim for breach of contract into two separate categories: disclosed sales and undisclosed sales. The Plaintiff contends that it is only seeking damages related to disclosed sales that accrued three years prior to the tolling date—August 21, 2012. With regard to its breach of contract claim for undisclosed sales and accounts as well as its remaining claims, the Plaintiff argues that these claims are saved by the application of the discovery rule.
The parties agree, in the first instance, that the limitations period is governed by RSA 508:4, I. Under RSA 508:4, I:
[A]ll personal actions . . . may be brought only within 3 years of the act or omission complained of, except that when the injury and its causal relationship to the act or omission were not discovered and could not reasonably have been discovered at the time of the act or omission, the action shall be commenced within 3 years of the time the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, the injury and its causal relationship to the act or omission complained of.
"The statute of limitations constitutes an affirmative defense, and the defendant bears the burden of proving that it applies in a given case." Beane v. Dana S. Beane & Co., 160 N.H. 708, 712 (2010) (brackets, ellipsis, and quotation omitted). "That burden . . . is met by a showing that the [plaintiff's] action was not brought within 3 years of the act or omission complained of." Id. (quotations omitted). "Once the defendant has established that the statute of limitations would bar the action, the plaintiff has the burden of raising and proving that the discovery rule is applicable to an action otherwise barred by the statute of limitations." Id. at 713. "The statutory discovery rule is designed to provide relief in situations where the plaintiff is unaware of either his injury or that the injury was caused by a wrongful act or omission." Id.
Since the Plaintiff asserts that it seeks to collect only commissions disclosed and payable during the applicable three-year statute of limitations prior to the tolling agreement, and is willing to release any claim for disclosed sales that fall outside of the statutory period, the Plaintiff's claim for those damages is timely. Whether claims for undisclosed sales which accrued more than three years prior to the tolling agreement are viable depends upon the discovery rule. "Under the discovery rule exception, the statute of limitations does not accrue until: (1) the plaintiff knows or reasonably should have known of the injury; and (2) the plaintiff knows or reasonably should have known of the causal connection between the injury and the alleged conduct of the defendant." Kelleher v. Marvin Lumber & Cedar Co., 152 N.H. 813, 824 (2005). A plaintiff will only be entitled to tolling of the statute of limitations under the discovery rule where "he did not have, and could not have had with due diligence, the information essential to bring the suit." Portsmouth Country Club v. Town of Greenland, 152 N.H. 617, 624 (2005). "A party attempting to invoke th[e] doctrine will be held to a duty of reasonable inquiry." Id. Whether the Plaintiff has exercised reasonable diligence in discovering the causal connection between an injury and the Defendants' alleged act or omission is a question of fact. See Kelleher, 152 N.H. at 825 (2005). The Plaintiff asserts that the discovery rule tolls its cause of action for the breach of contract and other claims based upon unpaid commissions not disclosed.
The Defendants set forth a variety of arguments that attempt to show that the Plaintiff knew, or should have known, that it had a claim against them, at the latest, in 2004. See generally (Def.'s Mem. Summ. J., 8-9.) However, the Plaintiff has made a sufficient showing, supported by affidavit, that the Defendants had not disclosed the disputed sales to the Plaintiff:
In producing this spreadsheet [in August 2013] Nashua Circuits revealed, for the first time, hundreds of sales to GGA accounts which had not previously been disclosed to GGA in Detail Reports. Many of the undisclosed sales were to accounts for which GGA had received a commission from Nashua Circuits throughout the term of the Agreement. Moreover, the spreadsheet did not contain any sales information for a number of additional GGA accounts added by mutual agreement. In answers to Interrogatories propounded by GGA, the defendants acknowledged that, prior to providing the spreadsheet, it had not disclosed sales to a number of GGA accounts listed on Attachment A.(Pl.'s Mem. Obj. Summ. J., 11-12) (citing Affidavit of Gregory Gendron.)
The Plaintiff argues that the facts pled establish that the Defendants engaged in "fraudulently concealing commissions due to GGA during the course of their contractual relationship" and that this conduct constitutes "unfair or deceptive acts or practices within the meaning of the CPA." (Id., 13.) Therefore, construing the facts in a light most favorable to the non-moving Plaintiff, as the Court must, there are genuine issues of material fact surrounding whether the Plaintiff exercised reasonable diligence in discovering the causal connection in this case between its injuries and the Defendants' alleged acts. Summary judgment is inappropriate at this stage on the Defendants' statute of limitations argument. An evidentiary hearing is required to resolve this factual dispute. See Keshishian v. CMC Radiologists, 142 N.H. 168, 179 (1997).
Because application of the discovery rule is equitable in nature, the trial judge acts as the trier of fact to determine its applicability. Id.; see also Dion v. Cheshire Mills, Inc., 92 N.H. 414, 416-18 (1943). Accordingly, an evidentiary hearing must be held before the Court on the issue of whether or not the Defendants are entitled to summary judgment on statute of limitations grounds. The Clerk shall schedule a hearing at the Court's early convenience.
The parties agree that this statute of limitation analysis is applicable to the CPA claim.
IV
In the alternative, the Defendants move to dismiss the Plaintiff's 358-A claim and the Plaintiff's claim against Moncada personally, in which Plaintiff seeks to pierce the corporate veil. "The standard of review in considering a motion to dismiss is whether the plaintiff's allegations are reasonably susceptible of a construction that would permit recovery." Beane, 160 N.H. at 711 (quotation omitted). This determination requires the court to test the facts contained in the petition against applicable law. Jay Edwards, Inc. v. Baker, 130 N.H. 41, 44 (1987). In rendering a determination, the court "assume[s] the truth of all well-pleaded facts alleged by the plaintiff and construe[s] all inferences in the light most favorable to the plaintiff." Bohan v. Ritzo, 141 N.H. 210, 212 (1996) (quoting Wenners v. Great State Beverages, 140 N.H. 100, 102 (1995), cert. denied, 516 U.S. 1119 (1996)). "The plaintiff must, however, plead sufficient facts to form a basis for the cause of action asserted." Mt. Springs Water Co. v. Mt. Lakes Vill. Dist., 126 N.H. 199, 201 (1985). "Dismissal is appropriate if the facts pled do not constitute a basis for legal relief." Beane, 160 N.H. at 711 (quotation omitted).
A
The Defendants argue that even assuming the truth of the allegations, the allegations do not rise to the level of a sufficient claim under RSA 358-A, as the facts merely establish a claim for ordinary breach of contract. According to the Defendants, the Plaintiff alleges that the Defendants acted unfairly and deceptively by not paying commissions when they were due. The Plaintiff objects and argues that the facts establish a claim under RSA 358-A.
The New Hampshire CPA is based upon the Federal Trade Commission Act and the statute itself requires that the Court look to the Federal Trade Commission Act for guidance. RSA 358-A:13; State v. Moran, 151 N.H. 450, 453 (2004). The Federal Trade Commission determines if actions are unfair or deceptive by inquiring:
(1) Whether the practice without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law or otherwise - whether in other words it is within at least the penumbra of some common law, statutory or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen).Moran, 151 N.H. at 453 (emphasis supplied).
In cases such as this, in which the conduct alleged does not include one of the specific types of conduct that are set forth in the statute, the New Hampshire Supreme Court has adopted the so-called rascality test, which was first articulated by the Massachusetts courts, to determine if the conduct falls within the purview of the act. Barrows v. Boles, 141 N.H. 382, 390 (1986). In Barrows, the Court held that an ordinary breach of contract case does not present the occasion for remedies under the CPA, and for conduct not specifically enumerated in the statute to violate the Consumer Protection Act, "the offending conduct must obtain a level of rascality that would raise an eyebrow of someone inured to the rough and tumble world of commerce." Milford Lumber Company v. RCB Realty, 147 N.H. 15, 17 (2001) (quoting Barrows, 141 N.H. at 390). However, since Barrows, the New Hampshire Supreme Court has continued to follow the so-called "rascality test" even though the Massachusetts Supreme Judicial Court noted in Mass Employer's Association v. Propac-Mass, Inc., 648 N.E.2d 435, 438 (Mass. 1995) that it found phrases such as "level of rascality" to be uninstructive. See, e.g., Axenics v. Turner Construction Co., 164 N.H. 659, 675-76 (2013).
To determine what conduct not specifically enumerated in the CPA constitutes a violation, it is therefore helpful to look at the facts of the cases decided by the New Hampshire Supreme Court. The following principles can be discerned. First, if a consumer protection claim is made based on false representation in the inducement, the Court has held that the use of the words "deceptive" and "unfair" in the statute require a degree of knowledge or intent. See Kelton v. Hollis Ranch, LLC, 155 N.H. 666, 668 (2007). The existence of a deceptive act does not constitute a consumer protection violation, per se. In Hair Excitement v. L'Oreal USA, the Court held that false representations as to both identity and intent of a representative of the defendant, who was carrying out a so-called "loyalty test" to determine whether or not the plaintiff was violating anti-diversion provisions in the contract, did not violate the CPA because the misrepresentations were made in the context of a "rough and tumble business," and the defendant was exercising its rights under the agreement to insure that the plaintiff was not diverting its product. 158 N.H. 363, 371 (2009).
On the other hand, direct and knowing fraud in the inducement to the contract has been found to result in a CPA violation. For example, in Moran, the Court found that the defendant violated the Act by inducing the plaintiff to give him $2,300 for materials when he in fact never intended to perform the work and made continuous misrepresentations over a period of time about his willingness to do so. 151 N.H. at 454. Moreover, fraud in carrying out the provisions of a contract has been held to violate the CPA. In Milford Lumber v. RCB Realty, the Court found a violation of the CPA, because the defendants did not simply fail to pay the plaintiff's invoices but made intentionally vague representations regarding their relationship with another party to facilitate the use of that other party's account with the plaintiff. 147 N.H. 15, 19 (2001).
In its Complaint, the Plaintiff asserts that the Defendants underpaid, or denied entirely, commissions in direct contravention of the Agreement. Additionally, the Plaintiff argues that the facts show that the Defendants "systematically, surreptitiously and fraudulently" diverted commissions owed to the Plaintiff under the terms of the Agreement. (Pl.'s Mem. Obj. Summ. J., 46.) A claim of fraud in carrying out a contract by misleading another party about repeated occasions for performance falls squarely within the ambit of the Consumer Protection Act. Construing these allegations in the light most favorable to the Plaintiff, with all reasonable inferences therefrom, the Plaintiff has set forth an adequate claim under RSA 358-A. See generally Moran, 151 N.H. at 454; Milford Lumber, 147 N.H. at 19. Therefore, the Defendants' Motion to Dismiss Count III must be DENIED.
B
Finally, the Defendants move to dismiss the Plaintiff's claim seeking to pierce the corporate veil and hold Defendant Moncada personally liable. The New Hampshire Supreme Court has stated that "one of the desirable and legitimate attributes of the corporate form of doing business is the limitation of the liability of the owners to the extent of their investment." LaMontagne Builders, Inc. v. Bowman Brook Purchase Group, 150 N.H. 270, 275 (2003). In New Hampshire, the doctrine of piercing the corporate veil is an equitable remedy. Id. at 274; Terren v. Butler, 134 N.H. 635, 640 (1991). A court may pierce the corporate veil where the owners of the corporation have used the corporate identity to promote injustice or fraud. Norwood Group v. Phillips, 149 N.H. 722, 724 (2003); Michnovez v. Blair, LLC, 795 F. Supp. 2d 177, 185 (D.N.H. 2010). Under settled New Hampshire law, veil piercing is appropriate where the shareholder "creates a false appearance which causes a reasonable creditor to misapprehend the worth of the corporate obligor." Peter R. Previte, Inc. v. McAllister Florist, Inc., 113 N.H. 579, 582 (1973).
Thus, in LaMontagne Builders, the Court sustained a finding that the corporate veil should be pierced where the principal breached an express promise to pay a construction company out of the proceeds of the loan to a development company, the principal made the promise in order to stop the construction company from filing a mechanic's lien for interfering with the loan, the principal's claimed reasons for breach were disingenuous, and the loan proceeds went to the principal's family and family owned businesses. 150 N.H. at 276. In Terren, the Court held that piercing the corporate veil was an appropriate remedy where the individual defendants—the sole shareholders and directors of the corporation—substantially depleted the corporate assets after being advised that defects existed in a condominium project the corporation was developing. 134 N.H. at 640-41. Piercing the corporate veil is appropriate if a shareholder suppresses the fact of incorporation, misleads his creditors as to the corporate assets, or otherwise uses the corporate entity to promote injustice or fraud. Druding v. Allen, 122 N.H. 823, 827 (1982).
Most of the New Hampshire cases are grounded in their specific facts, and do not set forth a broad framework for analysis. The Court finds persuasive Platten v. HG Bermuda Exempted Ltd., 437 F.3d 118, 128 (1st Cir. 2006) as setting forth factors to be considered in whether the corporate veil should be pierced. In Platten, the First Circuit, relying on Massachusetts law, stated that the factors to be considered in determining whether piercing the veil is appropriate may include:
(1) common ownership; (2) pervasive control; (3) confused intermingling of business assets; (4) thin capitalization; (5) nonobservance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends (8) insolvency at the time of the litigated transaction; (9) siphoning away of the corporation's funds by dominant shareholder; (10) nonfunctioning of officers and directors; (11) use of the corporation for transactions of the dominant shareholders; and (12) use of the corporation in promoting fraud.Id. at 128. The Court finds that these criteria provide a helpful framework for analysis.
The Court recognizes that the First Circuit noted that, "Massachusetts has been somewhat more 'strict' than other jurisdictions in respecting the separate entities of different corporations." Birbara v. Locke, 99 F.3d 1233, 1238 (1st Cir. 1996) (quoting My Bread Baking Co. v. Cumberland Farms, Inc., 233 N.E.2d 748, 752 (Mass. 1968)).
--------
Here, the Plaintiff argues that the corporate veil should be pierced and Moncada should be personally liable for any damages assessed against Nashua Circuits. However, the allegations of the Complaint are little more than bare legal conclusions:
72. The allegations contained in paragraphs 1 through 71 are incorporated herein by reference as if repeated in full.(Compl. ¶¶ 72-76.)
73. The allegations set forth above demonstrate that Moncada "used the corporate identity to promote injustice or fraud" on Gendron Associates. Norwood Group v. Phillips, 149 N.H. 722, 724 (2003).
74. Upon information and belief, Moncada failed to properly capitalize NCI and misrepresented its corporate ability to honor its commitments when due "creat[ing] . . . a false appearance which causes a reasonable creditor to misapprehend the worth of the corporate obligor." Michnovez v. Blair, - - - F.Supp.2d - - -, 2011 WL 2414430.
75. Upon information and belief, Moncada continued to draw an excessive salary from NCI while decreasing Gendron Associates' contractual commission and failing to properly capitalize NCI.
76. Accordingly, the Court is entitled to "disregard the fiction that the corporation is independent of its stockholders and treat the stockholders as the corporation's 'alter ego'." Id.
At most, the Plaintiff alleges only undercapitalization of Nashua Circuits and misrepresentation of the corporate ability to honor its commitments. The Plaintiff alleges none of the other factors generally considered in determining whether piercing the corporate veil is appropriate. Compare Lamontagne Builders, 150 N.H. at 275; Terren, 134 N.H. at 640. Moreover, the Plaintiff has not alleged how the supposed insolvency of Nashua Circuits or misuse of the corporate form injured it. It follows that the Defendants' Motion to Dismiss this claim must be GRANTED.
SO ORDERED.
__________
Richard B. McNamara,
Presiding Justice
RBM/