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A Lesson in Avoiding Dismissal and Potential Sanctions in Maryland Federal Court

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A complaint missing key factual pleadings and setting forth bare legal conclusions masquerading as facts was recently dismissed in a scathing opinion by the Maryland Federal Court in Temescal Wellness of Maryland, LLC T/A Evermore Cannabis Company, v. Faces Human Capital, LLC, et al., No. CV GLR-20-3648, 2021 WL 4521343 (D. Md. Oct. 4, 2021).  The Court added a warning that while it was not granting sanctions, it could under such circumstances where plaintiff’s opposition defendants’ summary judgment motion advocated and reaffirmed frivolous claims from the complaint and misrepresented material facts. Temescal 2021 WL 4521343 at *8.  This case should serve as a warning for all practitioners to not lead with a threadbare complaint and assume that formulaic recitations of legal conclusions are sufficient.  The second and important misstep to avoid, is that in pleading diversity jurisdiction, the citizenship of all parties must be stated, and in the case of limited liability companies, the citizenship of the members as well. 

In this action, plaintiff alleged that it hired the corporate defendant to process plaintiff’s payroll, move funds from plaintiff to its own accounts in order to pay plaintiff’s employees direct deposits, taxes and benefits.  Plaintiff alleges that the corporate defendant did not make the payments and used the money for the benefit of the other named defendants, who were alleged to be either owners or officers/managers of the corporate defendant.  Plaintiff alleged that, despite repeated demands, the corporate defendant did not return the money.  The corporate defendant is now bankrupt.

Plaintiff brought an action alleging claims for breach of contract against the corporate defendant and its CEO/manager, fraud against the corporate defendant and its CEO/manager, and conversion, unjust enrichment and civil conspiracy against all Defendants in their individual capacities.

Various defendants brought immediate motions seeking dismissal of the complaint, and several were voluntarily dismissed.  Remaining at the time of the Court’s decision were the corporate defendant and its CEO/manager, a second alleged manager of the corporate defendant, and one alleged additional owner.  

The defendants argued, either together or individually, that the plaintiff failed to establish subject matter jurisdiction, personal jurisdiction or the requirements of the claims themselves.  Plaintiff, in its insufficiently pled complaint, and in the opposition where it ignored defendants’ arguments and also failed to make factual averments, lost on every front.

A federal court that does not have subject matter jurisdiction must dismiss the case.  In diversity cases, the plaintiffs must reside in different states than the defendants.  In the case of limited liability companies, not only is the residence of the company considered, but also the residence of all of its members.  In the second manager’s motion to dismiss, he argued that plaintiff had omitted the state citizenships of the members of the LLCs – a fundamental  omission by the Plaintiff’s counsel.   Indeed,  the Court recognized that the plaintiff ignored this argument in its opposition in favor of an unsuccessful attack on the second manager’s ability to bring the motion.  The Court noted that the complaint only “baldly asserted” jurisdiction with no factual underpinning, which is insufficient to adequately allege diversity jurisdiction involving LLCs.  Id. at *5.  The Court found that this failure alone requires dismissal of the action against all of the defendants (not just the second manager who made the argument), but proceeded to address the other widespread deficiencies in the pleadings.

Both the alleged second manager and the alleged owner also argued that they were not subject to personal jurisdiction.  In Maryland, the long arm statute against foreign defendants requires a plaintiff to specifically identify a provision of the statute that authorizes jurisdiction.  Id.  This requirement was also omitted from the Complaint and also ignored in the plaintiff’s opposition.  The court therefore found that plaintiff had abandoned its claims of personal jurisdiction and, as such, the action failed against the second manager and the remaining owner.

Beyond this even, the Court also found that the plaintiff failed to state a claim on each of its causes of action against the individual defendants, again premised upon facial factual deficiencies in the complaint.    More specifically, the plaintiff failed to allege that the CEO/manager as an individual was a party to the contract at issue or agreed to personal liability under the contract, and so the breach of contract claim was dismissed against him.  Again, the plaintiff’s opposition neglected to address the failure to show an agreed-to personal liability by the CEO/manager.  The Court dismissed the fraud claim as well due to its failure to plead specific factual details concerning any alleged false representations, which is well-settled to be required for such a claim.  The Court was unable to discern the basic “who, what, when, where, and how” of the alleged fraud, and so dismissed the claim against the alleged CEO/manager and the corporate defendant as well.  Id. at *7.  The conversion claim was dismissed because such a claim generally cannot be premised upon   fungible money generally.  Finally, without an underlying tort, the claims sounding in unjust enrichment and civil conspiracy could not stand under Maryland law, and the civil conspiracy allegation was also lacking in facts to support the claim and additionally should not have been pled as a separate cause of action.

Time and again when addressing the plaintiff’s complaint, the Court found that there were insufficient facts (Id. at *4, 7), legal conclusions unsupported by factual allegations or without factual basis (Id. at *7, 8), and legal conclusions “couched” or “masquerading” as factual allegations (Id. at *7).  Therefore, in order to avoid dismissal (and avoid the real risk of sanctions  premised upon the fact that plaintiff and its counsel were aware of the frivolous nature of plaintiff’s pleading) a prudent practitioner should never neglect to set forth the factual underpinnings for the claims at bar.  Holding back key information and setting forth only a threadbare conclusory complaint will often leave no opportunity to set forth those facts later.


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