Opinion
CIVIL ACTION NO. 21-141-JWD-EWD
2022-02-24
DELAWARE VALLEY FISH COMPANY v. 3SOUTH LLC, et al.
Kriste T. Utley, Richard Biddle Ehret, Boykin & Utley, New Orleans, LA, Evan A. Blaker, Pro Hac Vice, Cohen Seglias Pallas Greenhall & Furman, Philadelphia, PA, for Delaware Valley Fish Company. Jeanne C. Comeaux, Danielle Lauren Borel, Breazeale Sachse & Wilson, Baton Rouge, LA, for 3South LLC, et al.
Kriste T. Utley, Richard Biddle Ehret, Boykin & Utley, New Orleans, LA, Evan A. Blaker, Pro Hac Vice, Cohen Seglias Pallas Greenhall & Furman, Philadelphia, PA, for Delaware Valley Fish Company.
Jeanne C. Comeaux, Danielle Lauren Borel, Breazeale Sachse & Wilson, Baton Rouge, LA, for 3South LLC, et al.
RULING AND ORDER
JOHN W. deGRAVELLES, UNITED STATES DISTRICT JUDGE
This matter comes before the Court on the Rule 12(b)(6) Motion for Partial Dismissal of Complaint (Doc. 17) filed by Defendants 3South, LLC ("3South") and Charlotte Johnston ("Ms. Johnston") (collectively "Defendants"). Plaintiff Delaware Valley Fish Company ("DVFC" or "Plaintiff") opposes the motion. (Doc. 27.) Defendants then responded to Plaintiff's opposition, (Doc. 28), and Plaintiff subsequently filed a sur-reply, (Doc. 33). Oral argument is not necessary. The Court has carefully considered the law, facts in the record, and arguments and submissions of the parties and is prepared to rule.
For the following reasons, Defendants’ motion is granted in part and denied in part. First, Plaintiff is entitled to bring a LUTPA claim here in addition to its breach of contract claim because Plaintiff satisfies the narrow exception allowing both claims to be brought. In addition, the Court concludes that Plaintiff has sufficiently pled a cause of action under LUTPA and that the claims against Ms. Johnston individually, as an LLC member, are appropriate under Louisiana's limited liability law. Consequently, Defendants’ motion with respect to these claims is denied. Lastly, the Court finds that Plaintiff failed to state a claim for treble damages under LUTPA. Accordingly, Defendants’ motion in this respect is granted, and Plaintiff's claim for treble damages will be dismissed without prejudice.
I. Relevant Factual Background
This suit arises out of a COVID-19 related commercial transaction that went awry. Plaintiff, DVFC, is a Pennsylvania corporation that typically specializes in the exportation of eels and other seafood delicacies. (First Amended Complaint ("FAC ") ¶ 8, Doc. 12.) In early 2020, however, amid the early stages of the COVID-19 pandemic, DVFC's President "decided to shift the company's focus from the fish industry" toward procurement of personal protective equipment ("PPE") "in order to fulfill the shortage and the public's need for KN95 masks." (Id. ¶ 9.) In or around early April 2020, third-party John Coppolino ("Mr. Coppolino") informed Plaintiff that 3South—a company owned by Ms. Johnston that recommends and provides safety equipment, training, service, and equipment maintenance to a large cliental, including first responders—was interested in obtaining KN95 masks to be supplied to its various customers. (Id. ¶¶ 11-12.)
Mr. Coppolino and Ms. Johnston communicated throughout April 2020 about 3South's need for KN95 masks, and they specifically discussed "the KN95 mask that [Plaintiff] was able to import, known as Ace Neale model 9560." (Id. ¶ 13.) At one point, and at Ms. Johnston's request, Mr. Coppolino conducted a "burn test" of an Ace Neale model 9560 KN95 mask over FaceTime for Ms. Johnston to watch. (Id. ¶ 14.) Plaintiff claims that, upon conclusion of the burn test, Ms. Johnston indicated that she was satisfied with the quality of the masks and wanted to purchase them. (Id. )
According to the allegations in the FAC , Plaintiff explained to Ms. Johnston that it could advance the funds needed to import, store, and re-ship the masks to 3South, but it would not assume risk of nonpayment once the masks cleared United States customs. (Id. ¶ 16.) Plaintiff claims that Defendants never indicated there would be any issues paying Plaintiff for the masks and, specifically, that they deliberately failed to inform Plaintiff that the masks would only be purchased if 3South was able to sell them (Id. ¶ 17.) Thereafter, on April 24, 2020, 3South issued a purchase order to Plaintiff for 100,000 masks. (Id. ¶ 18.)
Plaintiff claims that it emailed Ms. Johnston on May 1, 2020, stating that the masks were to be considered non-sterile, nonmedical masks and that they could not be guaranteed for hospital use. (Id. ¶¶ 20-21.) Ms. Johnston allegedly responded by emailing Plaintiff "We'll take them then." (Id. ¶ 22.) The next day, Plaintiff issued an invoice to Defendants in the amount of $332,800.00, "specifically noting that payment from 3[S]outh was due upon receipt after goods inspected at [Plaintiff]’s warehouse." (Id. ¶ 23.) Ms. Johnston never rejected this invoice, and it remains unpaid. (Id. ) On May 11, 2020, Plaintiff informed Ms. Johnston that the masks had arrived at Plaintiff's warehouse and asked whether a representative of 3South would be coming to inspect the masks. (Id. ¶ 25.) Neither Ms. Johnston nor any representative at 3South responded. (Id. ) To date, 3South has made no payment to Plaintiff, and most of the masks at issue remain in Plaintiff's warehouse. (Id. ¶ 27.)
On March 4, 2021, Plaintiff filed the present suit claiming, inter alia , that Defendants’ actions violated Louisiana's Unfair Trade Practices and Consumer Protection Act ("LUTPA"), La. R.S. 51:1401, et seq. , and seeking treble damages and attorney's fees under that Act. (Id. ¶¶ 44, 46.) Specifically, Plaintiff alleges that Defendants’ failure to make payment despite their "continuous representation" that the masks at issue were sufficient and their "continued assurance" that Plaintiff would be paid for the masks "constitutes fraud, misrepresentation, deception, and/or other unethical conduct as prohibited by the Act." (Id. ¶ 44.)
In addition to its LUTPA claim (Count III) against both Defendants, Plaintiff brings claims of breach of contract (Count I) and detrimental reliance (Count II) against 3South. (See FAC ¶¶ 28-39, Doc. 12.) Because Defendants’ motion only seeks dismissal of the LUTPA claim, however, Plaintiff's other claims will not be discussed.
II. Rule 12(b)(6) Standard
In Johnson v. City of Shelby, Miss. , 574 U.S. 10, 135 S.Ct. 346, 190 L.Ed.2d 309 (2014), the Supreme Court explained "Federal pleading rules call for a ‘short and plain statement of the claim showing that the pleader is entitled to relief,’ Fed. R. Civ. P. 8(a)(2) ; they do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted." Johnson , 574 U.S. at 11, 135 S.Ct. 346 (citation omitted).
Interpreting Rule 8(a) of the Federal Rules of Civil Procedure, the Fifth Circuit has explained:
The complaint (1) on its face (2) must contain enough factual matter (taken as true) (3) to raise a reasonable hope or expectation (4) that discovery will reveal relevant evidence of each element of a claim. "Asking for [such] plausible grounds to infer [the element of a claim] does not impose a probability requirement at the pleading stage; it simply calls for enough facts to raise a reasonable expectation that discovery will reveal [that the elements of the claim existed]."
Lormand v. U.S. Unwired, Inc. , 565 F.3d 228, 257 (5th Cir. 2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).
Applying the above case law, the Western District of Louisiana has stated:
Therefore, while the court is not to give the "assumption of truth" to conclusions, factual allegations remain so entitled. Once those factual allegations are identified, drawing on the court's judicial experience and common sense, the analysis is whether those facts, which need not be detailed or specific, allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." [Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)] ; Twombly , 55[0] U.S. at 556 . This analysis is not substantively different from that set forth in Lormand, supra , nor does this jurisprudence foreclose the option that discovery must be undertaken in order to raise relevant information to support an element of the claim. The standard, under the specific language of Fed. R. Civ. P. 8(a)(2), remains that the defendant be given adequate notice of the claim and the grounds upon which it is based. This standard is met by the "reasonable inference" the court must make that, with or without discovery, the facts set forth a plausible claim for relief under a particular theory of law provided that there is a "reasonable expectation" that "discovery will reveal relevant evidence of each element of the claim." Lormand , 565 F.3d at 257 ; Twombly , 55[0] U.S. at 556 .
Diamond Servs. Corp. v. Oceanografia, S.A. De C.V. , No. 10-00177, 2011 WL 938785, at *3 (W.D. La. Feb. 9, 2011) (citation omitted).
The Fifth Circuit further explained that, in deciding a Rule 12(b)(6) motion, all well-pled facts are taken as true and viewed in the light most favorable to the plaintiff. Thompson v. City of Waco, Tex. , 764 F.3d 500, 502–03 (5th Cir. 2014). The task of the Court is not to decide if the plaintiff will eventually be successful, but to determine if a "legally cognizable claim" has been asserted. Id. at 503.
III. Discussion
A. Parties’ Arguments
1. Defendants’ Original Memorandum (Doc. 17-1)
In support of their motion, Defendants first argue that Plaintiff's LUTPA claim must be dismissed because the factual allegations in the FAC clearly go toward Plaintiff's claim that Defendants breached the parties’ agreement, and "[o]ur courts have consistently held that LUTPA is not a substitute for a breach of contract claim." (Doc. 17-1 at 6.) According to Defendants, the jurisprudence makes clear that "[w]here there is a breach of contract claim, the plaintiff may not also bring a LUTPA claim based on the same allegations." (Id. ) Defendants state that the Louisiana Supreme Court, the United States Court of Appeals for the Fifth Circuit, and this Court have all held that "LUTPA does not provide an alternative remedy for simple breaches of contract." (Id. (citing Cenac v. Orkin, LLC , 941 F.3d 182, 194 (5th Cir. 2019) ) (citing Cheramie Services, Inc. v. Shell Deepwater Prod. Inc. , 2009-1633 (La. 4/23/10), 35 So. 3d 1053, 1059 ); Shaw Industries Inc. v. Brett , 884 F.Supp. 1054 (M.D. La. 1994) ; Landreneau v. Fleet Financial Group , 197 F.Supp.2d 551 (M.D. La. 2002) (cleaned up).) More specifically, Plaintiff alleges that 3South breached its contract with Plaintiff by neither accepting nor paying for the masks at issue. (Id. ) Defendants argue that this allegation is "clearly governed by Louisiana contract law," and because the LUTPA cause of action is premised on the same factual allegations, Plaintiff is using its LUTPA claim to seek an "alternative remedy" for a simple breach of contract. (Id. at 7.) As such, the LUTPA claim should be dismissed.
Second, Defendants assert that dismissal is warranted because Plaintiff's "blanket conclusion" that 3South's failure to pay for the masks "constitutes fraud, misrepresentation, deception, and/or other unethical conduct" is not sufficient to adequately plead a violation of LUTPA. (Id. at 8 (quoting FAC ¶ 44, Doc. 12).) According to Defendants, sustaining a cause of action under LUTPA requires a plaintiff to prove that it suffered an ascertainable loss resulting from "another's use of unfair methods of competition and unfair or deceptive acts or practices." Moreover, a plaintiff must show that "the conduct offends public policy, is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers[,]" and that the conduct was "undertaken with specific intent to harm the competitor." (Id. at 7.) Here, Defendants state that the only conduct complained of by Plaintiff is that 3South agreed to purchase the masks and later failed to accept or pay for them, which is not the type of "unethical, oppressive, unscrupulous" behavior that LUTPA was designed to resolve. (Id. ) Additionally, Defendants argue that Plaintiff made no claim that Defendants acted with the intent to harm Plaintiff. (Id. ) Thus, Defendants assert that dismissal of this claim is warranted.
Next, Defendants maintain that, in the "unlikely event" Plaintiff can prove a cause of action under LUTPA, Plaintiff's claim for treble damages is still unsupportable and thus should be summarily dismissed. (Id. at 9.) Treble damages are only available under LUTPA "if the court finds that the unfair or deceptive method, act, or practice was knowingly used, after being put on notice by the Attorney General[.]" (Id. at 8) (citing La. R.S. 51:1409(A).) Defendants rely on B & G Crane Serv., L.L.C. v. Duvic , 2005-1798 (La. App. 1 Cir. 5/5/06), 935 So. 2d 164, 170, where the court stated that a "claim [for treble damages] is defeated unless plaintiff can prove that they properly served the Director of Governor's Consumer Protection Division or the Attorney General, and that the defendants were given the requisite notice that any continued use and/or disclosure of the allegedly misappropriated information would subject them to a claim for treble damages." The court continued, explaining that this statutory requirement "serves the specific purpose of a ‘cease and desist’ notice to the defendants that they may be subject civilly to a treble damage claim. Moreover, the award of treble damages is punitive in nature and must be strictly construed." (Id. at 8-9 (quoting B & G Crane Serv. , 935 So. 2d at 170 ).)
According to Defendants, Plaintiff's FAC lacks any allegation that the Attorney General was notified of the LUTPA claim. (Id. at 9.) Defendants also state that they have received nothing to establish that Plaintiff put the Attorney General on notice, nor have they received statutory notice from the Attorney General. (Id. ) Thus, because Plaintiff has failed to meet the statutory requirements, Defendants argue Plaintiff is not entitled to treble damages and that claim should be dismissed.
Finally, Defendants maintain that even if the Court disagrees with the aforementioned arguments for dismissal, Ms. Johnston should be dismissed from this suit entirely because, by bringing the LUTPA claim against her individually and personally, Plaintiff is attempting to sidestep Louisiana's limited liability law. (Id. ) Plaintiff has named Ms. Johnston individually as a defendant in this action and alleges that she personally violated LUTPA. (Id. ) Defendants claim that the Louisiana Supreme Court and the United States Fifth Circuit have clearly stated that LLC members cannot be held liable for liabilities of the LLC unless one of the "narrow exceptions" to that rule applies. (Id. at 9-10.) Specifically, Defendants rely on Nunez v. Pinnacle Homes, L.L.C. , 2015-0087 (La. 10/14/15), 180 So. 3d 285 as explaining that an LLC member must commit "near criminal conduct" or meet the exceptions in Louisiana Revised Statutes 12:1320(D) to be held liable. Defendants also point to Brand Coupon Network, L.L.C. v. Catalina Mktg. Corp. , 748 F.3d 631, 637 (5th Cir. 2014), where the court held that "status as an agent protects an individual from LUTPA liability unless the circumstances support the extraordinary remedy of piercing the corporate veil." (Id. at 10.)
According to Defendants, Plaintiff has not alleged that Ms. Johnston acted in her personal capacity, nor has it alleged any conduct by Ms. Johnston that would amount to depriving her of her statutory limited liability protections. (Id. ) The contract was between Plaintiff and 3South and Ms. Johnston acted on behalf of 3South at all times; no allegations in the FAC support otherwise. (Id. ) Additionally, Defendants point to Louisiana Revised Statutes 12:1320(C), which states that "[a] member, manager, employee, or agent of a limited liability company is not a proper party to a proceeding by or against a limited liability company except when the object is to enforce such a person's rights against or liability to the limited liability company." Because Ms. Johnston is an improper party under the statute and Plaintiff has failed to show how Ms. Johnston has made herself personally liable as an LLC member, Defendants ask the Court to dismiss Ms. Johnston from this suit.
2. Plaintiff's Opposition (Doc. 27)
Plaintiff opposes the motion, arguing first that, although LUTPA is indeed not an alternative remedy for breach of contract claims, a LUTPA claim can be brought simultaneously with a breach of contract claim when there are "deceptive and unethical undertones that would allow a LUTPA claim to stand in addition to the breach of contract claims." (Doc. 27 at 6-7 (citing D.H. Griffin Wrecking Co., Inc. v. 1031 Canal Dev., LLC , 463 F. Supp. 3d 713, 724 (E.D. La. 2020) (cleaned up); Tubos de Acero de Mexico, S.A. v. Am. Int'l Inv. Corp. , 292 F.3d 471, 482 (5th Cir. 2002) ).) Plaintiff uses D.H. Griffin and Tubos de Acero to support its position that when a plaintiff has alleged misrepresentations by a defendant—as Plaintiff claims it has alleged here—then the "deceptive and unethical undertones" requirement to simultaneously bring a LUTPA and breach of contract claim is satisfied (Id. at 7.)
Specifically, Plaintiff asserts that the conduct in the aforementioned cases is similar to the alleged conduct here because "Defendants engaged in a deceptive scheme in which they baited [Plaintiff] into importing the [m]asks into the United States at [Plaintiff]’s expense through the use of misrepresentations that Defendants would make payment upon delivery of the [m]asks into the United States." (Id. at 7-8.) According to Plaintiff, this "deceptive scheme" by Defendants allowed them to obtain inventory at no cost and bare no risk of non-sale, and such conduct constitutes the "deceptive and unethical undertones" sufficient to allow the LUTPA claim to be brought in this case. (Id. ) Thus, Plaintiff's LUTPA claim is not duplicative of its breach of contract claim, and Plaintiff asks the Court to refuse to dismiss it. (Id. at 8.)
Next, Plaintiff claims that it has sufficiently pled a cause of action under LUTPA because, once again, Defendants "induced" Plaintiff into importing the masks by misrepresenting their intentions regarding payment. (Id. at 9.) "Courts have routinely held that a plaintiff states a claim for violation of LUTPA, where the defendant is alleged to have made misrepresentations in connection with the underlying contract or transaction." (Id. (citing Markerson v. Composite Architectural Design Sys., LLC , 2017-1252 (La. App. 1 Cir. 7/10/18), 255 So. 3d 1065, 1074) (finding that defendant's misrepresentations regarding the noise at its facility, made in connection with the purchase of a property, amounted to "unfair or deceptive trade practices" under LUTPA); Tubos de Acero , 292 F.3d at 482 (finding that the plaintiff stated a claim for violation of LUTPA where it alleged that defendant made misrepresentations regarding its ability and intent to perform the underlying contract); D.H. Griffin , 463 F. Supp. 3d at 724 (discussed above).) Plaintiff argues it alleged that Defendants made misrepresentations in the FAC in connection with the underlying transaction for the masks; thus, Defendants violated LUTPA and the claim should not be dismissed. (Id. )
In addition, Plaintiff reasons that it is entitled to seek an award of treble damages—despite noncompliance with LUTPA's treble damages provision—because putting the Defendants on notice of their violation of LUTPA would have been futile. (Id. at 9-10 (citing Lindy Invs. v. Shakertown Corp. , 209 F.3d 802, 808 (5th Cir. 2000) ("the law does not require one to do a vain and useless thing") (citing Southern Sawmill Co. v. Ducote , 120 La. 1052, 46 So. 20 (1908) ; Dwyer v. Tulane Educ. Fund's Adm'rs. , 47 La.Ann. 1232, 17 So. 796 (La. 1895) )).) In support of this argument, Plaintiff emphasizes the fact that it did notify the Attorney General of Defendants’ alleged violations of LUTPA on May 11, 2021, after which Defendants still refused to pay for the masks. (Id. at 10.) Hence, in Plaintiff's words, "it is [thus] clear that notice to the Attorney General has no effect on Defendants’ behavior, and [Plaintiff] should not be foreclosed from collecting treble damages simply because [notice] was not supplied sooner." (Id. ) Lastly, Plaintiff asserts that its LUTPA claim against Ms. Johnston individually and her being named as a party are both proper because personal liability attaches to a member of an LLC under La. R.S. 12:1320(D) if that member (i) engages in fraud, (ii) commits a negligent or wrongful act, or (iii) breaches a professional duty. (Id. (citing Priority Hosp. Grp., Inc. v. Manning , 53,564 (La. App. 2 Cir. 9/23/20), 303 So. 3d 1106, 1113 ).) Plaintiff specifically relies on Priority Hosp. as illustrating the broad applicability of Section 1320(D) because there the court found that the member's misrepresentations constituted "sufficient allegations of fraud," such that "the fraud exception under [Section] 1320(D) could be triggered and the members could be held liable." (Id. at 11 (citing Priority Hosp. , 303 So. 3d at 1113 ; see also Korrapati v. Augustino Bros. Constr., LLC , 19-426 (La. App. 5 Cir. 7/31/20), 302 So. 3d 147, 155 (affirming the trial court's finding of liability against individual LLC members under Section 1320(D), where they made an "intentional misrepresentation of a material fact with the intent to deceive")).)
Plaintiff argues that, in the FAC , it alleged that Ms. Johnston personally made a "material misrepresentation regarding Defendants’ intent to pay ... to induce [Plaintiff] to import the [m]asks from China at its own cost[.]" (Id. ) Thus, Plaintiff concludes that Ms. Johnston's actions "constitute[d] fraudulent and wrongful conduct for which she may be held personally liable under Section 1320(D)." (Id. )
3. Defendants’ Reply (Doc. 28)
Defendants acknowledge that a breach of contract claim and LUTPA claim can be brought simultaneously "in extreme cases" like those cited by Plaintiff but maintain that such a narrow exception is not present in this case. (Doc. 28 at 3.) For example, the demolition contractor in D.H. Griffin allegedly engaged in price-gouging and lobbied city officials to demand, through coercion, that the other party hire the contractor for the demolition work. (Id. ) Similarly, in First Am. Bankcard, Inc. v. Smart Bus. Tech., Inc. et al. , 178 F. Supp. 3d 390 (E.D. La. 2016), the "strategic, egregious nature" of the additional offenses alleged in support of the LUTPA claim—such as theft of plaintiff's trade secrets and threats to destroy plaintiff's business by disabling the software system—fell outside of the mere failure to perform under the contract. (Id. at 4.) Finally, Tubos de Acero dealt with allegations of "theft of trade secrets, extensive damage to equipment, and ongoing fraudulent [behavior] to gain advantage." (Id. at n.1.)
According to Defendants, these cases are distinguishable as they concern allegations of "outrageous and malicious conduct" that justifies allowing both remedies to proceed in the same litigation. (Id. at 5.) In contrast, Defendants claim that the issues between Plaintiff and Defendants "are typical disputes between those with business relationships." (Id. ) The allegations in the FAC support a simple contractual claim—not a freestanding unfair trade practice allegation—and thus Plaintiff's "LUTPA claim should not be allowed to provide a substitute avenue for redress." (Id. )
Next, Defendants reiterate their argument that there is simply no viable cause of action under LUTPA here. Again, LUTPA prohibits conduct that is "immoral, unethical, oppressive, unscrupulous, or substantially injurious.... LUTPA does not prohibit sound business practices, the exercise of permissible business judgment, or free enterprise transactions." (Id. at 2 (citing Cheramie Services, Inc. , 35 So. 3d at 1059, 1060 ).) Defendants state that their decision to not accept delivery of the masks was because they were not listed on FDA's approved emergency use list at the time delivery was to take place, meaning their clients would not and could not purchase such masks. (Id. ) In making this decision, Defendants simply exercised "sound business judgment" with no intent to harm Plaintiff. (Id. at 2-3.) Such a decision "does not fit within the narrow definition of an unfair trade practice" and thus the LUTPA claim should be dismissed. (Id. 3.)
Thirdly, Defendants again assert that treble damages are legally unavailable to Plaintiff. (Id. ) The statutory requirements for seeking treble damages under LUTPA have not been met here because Plaintiff only notified the Attorney General of the alleged LUTPA violations after the present motion was filed. (Id. ) Moreover, as of the date of this reply, Defendants have still never been notified by the Attorney General. (Id. ) Defendants argue that Plaintiff cannot "save its flawed request" for treble damages by providing late notice to the Attorney General and then arguing that the statutorily required notice would have been futile. (Id. ) "Nothing in Louisiana law allows LUTPA's notice requirement to be sidestepped by an allegation of futility." (Id. at 6.) Accordingly, the defect is incurable, and the request should be dismissed. (Id. at 7.)
Finally, the fact that Ms. Johnston personally negotiated the contract between 3South and Plaintiff does not mean she was acting in her personal capacity; Defendants claim that this alone is insufficient to circumvent the protections given to LLC members, especially because "every LLC acts only through its managers/members." (Id. ) Further, Defendants argue that—contrary to what Plaintiff stated in its opposition— Priority Hosp. , 303 So. 3d 1106, does not stand for the proposition that LLC members can be held personally liable if there is an allegation of misrepresentation. First, that case turned on the Second Circuit Court of Appeal of Louisiana finding that genuine issues of material fact as to whether fraud occurred prevented summary judgment. (Id. at 8.) Defendants state that such a "premise is inapplicable here, as this Rule 12(b)(6) motion is based on the legal fiction that all facts pled by [Plaintiff] are true." (Id. ) Additionally, Defendants claim that—unlike in Priority Hosp. —the allegations in this case do not support an allegation of fraud and that "no claim for fraud has [even] been made by [Plaintiff]." (Id. ) Again, "[a]ll of Ms. Johnston's dealings with [Plaintiff] were conducted in her official capacity on behalf of 3South," and Plaintiff has not alleged fraud or any intentional wrong by Ms. Johnston individually. (Id. )
4. Plaintiff's Sur-Reply (Doc. 33)
Plaintiff reasserts its argument for treble damages, stating that "[b]ecause providing notice earlier would have been futile, [Plaintiff] should not be found to have waived its right to seek treble damages for not doing so." (Doc. 33 at 1.) After Defendants filed the present motion on April 27, 2021, and after Plaintiff notified the Attorney General of the alleged LUTPA violation on May 11, 2021, the Attorney General furnished Defendants with a Notice of R.S. 51:1401 on June 8, 2021. (Id. at 1-2.) Plaintiff asserts that, because Defendants have continued their refusal to pay for or take delivery of the masks even after receipt of this notice, earlier notice would not have affected their actions—hence making the notice "futile." (Id. ) However, Plaintiff fails to cite any legal authority supporting its assertion that a party is allowed to seek treble damages under LUTPA—despite noncompliance with the statute's treble damages provision—based on a finding that notice would have been a futile act. B. Applicable Law
1. Louisiana's Unfair Trade Practices and Consumer Protection Act
LUTPA prohibits "[un]fair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." La. R.S. 51:1405(A). It provides a private action for damages to "[a]ny person who suffers any ascertainable loss of money or movable property, corporeal or incorporeal, as a result of the use or employment by another person of an unfair or deceptive method, act, or practice." La. R.S. 51:1409. "Because of the broad sweep of this language, Louisiana courts determine what a LUTPA violation is on a case-by-case basis." J&J Sports Prods., Inc. v. Tienda y Taqueiria "La Frontera," LLC , No. 16-568, 2017 WL 3166734, at *13 (M.D. La. July 25, 2017) (deGravelles, J.) (quoting Quality Envtl. Processes, Inc. v. I.P. Petroleum Co., Inc. , 13-1582 (La. 5/7/14), 144 So. 3d 1011, 1025 ). "The Louisiana Supreme Court has consistently held that, in establishing a LUTPA claim, plaintiff must show that ‘the alleged conduct offends established public policy and is immoral, unethical, oppressive, unscrupulous, or substantially injurious.’ " Id. (quoting Quality Envtl. Processes , 144 So. 3d at 1025 ).
Moreover, "the range of prohibited practices under LUTPA is extremely narrow, as LUTPA prohibits only fraud, misrepresentation, and similar conduct, and not mere negligence." Id. (quoting Quality Envtl. Processes , 144 So. 3d at 1025 ) (internal quotations omitted); see also Mapp v. UMG Recordings, Inc. , No. 15-602, 2017 WL 3675419, at *6 (M.D. La. May 3, 2017) (deGravelles, J.). In a similar vein, "LUTPA does not provide an alternative remedy for simple breaches of contract. There is a great deal of daylight between a breach of contract claim and the egregious behavior the statute proscribes." Cenac v. Orkin, LLC , 941 F.3d 182, 194 (5th Cir. 2019) (citing Cheramie Services, Inc. v. Shell Deepwater Prod. Inc. , 2009-1633 (La. 4/23/10), 35 So. 3d 1053, 1060 ) (cleaned up); City of Baton Rouge/E. Baton Rouge Par. v. Bank of Am., N.A. , No. 19-725, 2021 WL 1201665, at *4 (M.D. La. Mar. 30, 2021) (slip copy). However, the Fifth Circuit has indicated that, in situations where the behavior forming the basis of the breach has "deceptive and unethical undertones," both a LUTPA claim and a breach of contract claim may be brought. Tubos de Acero de Mexico, S.A. v. Am. Int'l Inv. Corp. , 292 F.3d 471, 482 (5th Cir. 2002) ; see also D.H. Griffin Wrecking Co., Inc. v. 1031 Canal Dev., LLC , 463 F. Supp. 3d 713, 724 (E.D. La. 2020) (citation omitted).
The jurisprudence generally describes an unfair practice as one that "is unethical, oppressive, unscrupulous, or substantially injurious." Pinero v. Jackson Hewitt Tax Serv. Inc. , 594 F. Supp. 2d 710, 721-22 (E.D. La. 2009) (quoting Jefferson v. Chevron U.S.A. Inc. , 97-2436 (La. App. 4 Cir. 5/20/98), 713 So. 2d 785, 792 ). Louisiana courts have distinguished between an unfair practice and a deceptive one, stating that "[a] trade practice is deceptive when it amounts to ‘fraud, deceit, or misrepresentation.’ " Id. at 722 (quoting Jefferson , 713 So. 2d at 793 ); see also Computer Mgmt. Assistance Co. v. Robert F. DeCastro, Inc. , 220 F.3d 396, 404 (5th Cir. 2000).
2. Federal Rule of Civil Procedure 9(b)
In addition, and importantly here, the Eastern District of Louisiana has stated that when a "plaintiff's LUTPA claim is based on defendants’ allegedly fraudulent misrepresentation, plaintiff's LUTPA claim must meet the heightened pleading requirements of Rule 9(b)." Pinero , 594 F. Supp. 2d at 721 (reasoning that, because plaintiff's fraud claim was dismissed for failure to explain "how" and "why" the statements were fraudulent, her LUTPA claim must likewise be dismissed). "Generally, a plaintiff's complaint will survive a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss if the complaint plausibly states a claim for relief, assuming its factual allegations are true." Trinity Med. Servs., L.L.C. v. Merge Healthcare Sols., Inc. , No. 17-592, 2018 WL 3748399, at *5 (M.D. La. Aug. 7, 2018) (deGravelles, J.) (citing Local 731 I.B. of T. Excavators and Pavers Pension Trust Fund v. Diodes, Inc. , 810 F.3d 951, 956 (5th Cir. 2016) (citing Ashcroft , 556 U.S. at 678, 129 S.Ct. 1937 )). "However, when the complaint involves a fraud allegation, Federal Rule of Civil Procedure 9(b) requires a higher pleading standard." Id. Specifically, this pleading standard requires the plaintiff to "state with particularity the circumstances constituting fraud." Id. (citing Fed. R. Civ. P. 9(b) ).
In full, Federal Rule of Civil Procedure 9(b) provides the following: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally."
"The Fifth Circuit has interpreted Federal Rule of Civil Procedure 9(b) strictly, requiring the plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." Id. (quoting Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp. , 565 F.3d 200, 207 (5th Cir. 2009) ) (cleaned up). "In short, plaintiffs must plead enough facts to illustrate ‘the who, what, when, where, why and how’ of the alleged fraud." Schott, Tr. for Est. of InforMD, LLC v. Massengale , No. 18-759, 2019 WL 4741811, at *12 (M.D. La. Sept. 27, 2019) (deGravelles, J.) (quoting Williams v. Bell Helicopter Textron, Inc. , 417 F.3d 450, 453 (5th Cir. 2005) ).
Fraud by omission claims, however, are "by nature difficult to plead with particularity." Id. (citing First Am. Bankcard , 178 F. Supp. 3d at 402 ). Thus, "the Fifth Circuit has adopted a somewhat more relaxed standard for such cases: ‘In cases concerning fraudulent misrepresentation and omission of facts, Rule 9(b) typically requires the claimant to plead the type of facts omitted, the place in which the omissions should have appeared, and the way in which the omitted facts made the representations misleading.’ " Id. (quoting Carroll v. Fort James Corp. , 470 F.3d 1171, 1174 (5th Cir. 2006) (cleaned up)).
"Additionally, under Louisiana law, claims of fraud by silence or omission first require a duty to disclose." Id. at *13. In Louisiana, the duty to speak up and "supply correct information does not immediately arise." Trinity Med. Servs., L.L.C. v. Merge Healthcare Sols., Inc. , No. 17-592, 2019 WL 3240048, at *9 (M.D. La. July 18, 2019) (deGravelles, J.). If, however, a party "volunteers to speak and to convey information which may influence the conduct of the other party, he is bound to disclose the whole truth" and ensure that the information volunteered is correct. Id. (quoting Kadlec Med. Ctr. v. Lakeview Anesthesia Assocs. , 527 F.3d 412, 419 (5th Cir. 2008) ) (cleaned up).
C. Analysis
1. Asserting Both a Breach of Contract Claim and a LUTPA Claim in the Same Action
In the case at hand, Defendants maintain that Plaintiff's LUTPA claim is duplicative of its breach of contract claim and thus it cannot stand. For support, they point to the well-known rule that "[w]here there is a breach of contract claim, the plaintiff may not also bring a LUTPA claim based on the same allegations." (Doc. 17-1 at 6.) As mentioned above, however, a narrow exception to that rule exists. When there are "deceptive and unethical undertones" to the parties’ contractual relationship, the claimant is not merely repackaging its breach of contract claim into a LUTPA claim to seek an alternative remedy; thus, in such a situation, courts have allowed both claims to be brought. See D.H. Griffin Wrecking Co. , 463 F. Supp. 3d at 724 (quoting Tubos de Acero de Mexico, S.A. , 292 F.3d at 482 and citing First Am. Bankcard , 178 F. Supp. 3d at 406 ). Plaintiff argues here that—based on the allegations of misrepresentation in the FAC —the "deceptive and unethical undertones" exception applies. (Doc. 27 at 5.) On this point, the Court agrees.
Several cases support this conclusion. First, in Tubos de Acero de Mexico, S.A. , the Fifth Circuit dealt with a commercial dispute between the plaintiff—TAMSA—and one of the defendants—American—regarding a "lease of ultrasonic testing pipe inspection equipment (‘UT unit’)." 292 F.3d at 474. In response to TAMSA's action, American counterclaimed alleging breach of contract and unfair trade practices in violation of LUTPA. Id. at 477. Subsequently, TAMSA filed a motion for summary judgment seeking dismissal of American's LUTPA counterclaim because—according to TAMSA—the LUTPA claim was a "mere breach of contract" claim that did "not rise to the level of ‘egregious’ behavior that LUTPA proscribes." Id. at 482. The Fifth Circuit affirmed the district court's denial of TAMSA's motion for summary judgment on the LUTPA counterclaim. The court's reasoning is summarized as follows:
While TAMSA correctly points out that LUTPA "does not provide an alternative remedy for simple breaches of contract," Turner v. Purina Mills, Inc. , 989 F.2d 1419, 1422 (5th Cir. 1993), considering the deceptive and unethical undertones of TAMSA's alleged behavior during the 1997 lease period, we conclude that American's LUTPA counterclaim is not properly characterized as a mere breach of contract claim.
Id. (emphasis added).
Likewise, in D.H. Griffin Wrecking Co. , the defendant brought counterclaims alleging—among other things—fraud, breach of contract, and violations of LUTPA. 463 F. Supp. 3d at 719. With respect to its coercion-based LUTPA claim, the defendant alleged that the plaintiff "misrepresented key terms in the [contract], lobbied City officials to demand that the contract be completed by [plaintiff], and filed the instant lawsuit." Id. at 722. The plaintiff sought dismissal of the LUTPA counterclaim under Rule 12(b)(6), arguing that—because the LUTPA claim was based on alleged misrepresentations regarding the contract—it was nothing more than a "repackaged inadequate breach of contract claim[.]" Id.
The Eastern District disagreed, finding that the defendant's "LUTPA claim [was] based on allegations of more than the simple failure to perform contract terms, but rather the allegedly ‘deceptive and unethical undertones’ of [plaintiff]’s conduct." Id. at 724 (quoting Tubos de Acero de Mexico, S.A. , 292 F.3d at 482 ) (emphasis added); see also First Am. Bankcard , 178 F. Supp. 3d at 406 (where the Eastern District denied the defendant's 12(b)(6) motion to dismiss, holding that the plaintiff could bring a LUTPA claim and a breach of contract claim because the allegations supporting the LUTPA claim were "similar to" those supporting the breach of contract claim, but not identical, as "different elements [were] alleged for each claim").
In the present action, the Court finds that—like in Tubos de Acero de Mexico, S.A., D.H. Griffin Wrecking Co. , and First Am. Bankcard —Plaintiff has alleged conduct with "deceptive and unethical undertones" sufficient to show that its LUTPA claim is more than simply a repackaged breach of contract claim. Defendants urge the Court to recognize that the "unique and extreme factual circumstances" in those cases explains why those courts allowed both claims to proceed in the same litigation. (Doc. 28 at 5.) Defendants argue that the narrow exception applied because—unlike in the instant dispute—those were "extreme cases where the LUTPA claim was based on much more than the breach of contract." (Id. at 3.)
The Court acknowledges that the fraudulent conduct alleged by Plaintiff is not as egregious as the misbehavior alleged in the aforementioned cases where the exception was met. A careful reading of those opinions, however, reveals that it does not have to be.
As mentioned above, in Tubos de Acero de Mexico, S.A. , the Fifth Circuit concluded that the LUTPA counterclaim was more than a mere breach of contract claim because of "the deceptive and unethical undertones of TAMSA's alleged behavior during the 1997 lease period[.]" 292 F.3d at 482. In applying this exception, however, the court did not specify what level of deceptive and unethical behavior is required for both claims to proceed. There, TAMSA had breached the lease with American, made fraudulent misrepresentations concerning its intention to satisfy its obligations under the lease to gain advantage, engaged in theft of trade secrets, and damaged the equipment it rented from American. 292 F.3d at 476-77. A broad reading of that case leads this Court to infer that any allegedly "deceptive and unethical" behavior—as long as it is more than a party's mere failure to perform as contracted—is sufficient to trigger the exception, especially fraudulent conduct.
Moreover, in First Am. Bankcard and D.H. Griffin Wrecking Co. , the Eastern District was more explicit. In both of those cases, the Eastern District focused more on whether the breach of contract claim and the LUTPA claim were supported by duplicative factual allegations, not on the extremity of the conduct alleged to be in violation of LUTPA. See D.H. Griffin Wrecking Co. , 463 F. Supp. 3d at 724 ; see also First Am. Bankcard , 178 F. Supp. 3d at 406. This distinction is critical because, here, in alleging breach of contract in Count I of the FAC , Plaintiff claims that 3South's "failure to make payment is in breach of the Purchase Order." (FAC ¶ 33, Doc. 12 (emphasis added).) In claiming Defendants violated LUTPA in Count III, however, Plaintiff does more than allege a simple failure to comply with the Purchase Order: "3[S]outh's failure to compensate DVFC despite its and Defendant Johnston's continuous representation that the masks listed in the Purchase Order were sufficient, and the continued assurance that DVFC would be paid for purchasing the masks, does not constitute basic business honesty, and constitutes fraud, misrepresentation, deception, and/or unethical conduct[.]" (Id. ¶ 44 (emphasis added).)
Before a binding agreement was reached, Plaintiff allegedly made clear to Ms. Johnston that it was willing to advance the funds needed to import, store, and re-ship the masks to 3South, but under no circumstances would Plaintiff assume risk of nonpayment once those masks cleared United States customs. (Id. ¶ 16.) In response, Plaintiff alleges that Ms. Johnston and 3South not only failed to indicate there would be any issues paying, but also "deliberately failed to inform [Plaintiff] that 3[S]outh would only pay for the masks if it was able to sell them, thus placing the risk of non-payment on [Plaintiff.]" (Id. ¶ 17 (emphasis added).) Further, Plaintiff alleges that at no time did Defendants condition the purchase of the masks on them being approved by the FDA "and/or listed on the Emergency Authorization List[,]" which is purportedly the reason the masks were ultimately rejected as non-suitable. (Id. ¶ 19.) In addition, in an email dated May 1, 2020—after 3South issued the Purchase Order but before Plaintiff actually placed the order for the masks—Plaintiff allegedly advised Ms. Johnston that the masks were to be considered "non-sterile," "non-medical," and "[could not] be guaranteed for hospital use." (Id. ¶¶ 20-21.)
Hence, Plaintiff's LUTPA claim is based on much more than the fact that Defendants allegedly breached the respective agreement by refusing to pay for the masks. Rather, Plaintiff alleges that Defendants intentionally misrepresented and withheld their true intentions in order to gain an advantage.
Finally, it must be noted that several cases cited by Defendants do not control the issue before this Court today. For example, in Shaw Industries Inc. v. Brett , 884 F. Supp. 1054, 1058 (M.D. La. 1994) (Polozola, J.) and Landreneau v. Fleet Financial Group , 197 F. Supp. 2d 551, 557 (M.D. La. 2002) (Polozola, J.), this Court found that the allegations supporting the LUTPA claim were more analogous to a breach of contract claim than one involving unfair or deceptive acts. However, both cases predate Tubos de Acero de Mexico, S.A. , where the Fifth Circuit for the first time articulated the "deceptive and unethical undertones" exception. 292 F.3d at 482. Thus, the reach of Brett or Landreneau is limited.
In conclusion, Plaintiff here—like the LUTPA claimants in the jurisprudence discussed above—asserts fraudulent conduct that constitutes more than a mere failure to perform as contracted. Therefore, the Court finds that the "deceptive and unethical undertones" exception is satisfied here and—in this respect—will allow the LUTPA claim to stand.
2. Sufficiently Pleading a Cause of Action Under LUTPA
The Court now turns to the question of whether the allegations in the FAC are sufficient to plead a cause of action under LUTPA. Again, when a "plaintiff's LUTPA claim is based on defendants’ allegedly fraudulent misrepresentation, plaintiff's LUTPA claim must meet the heightened pleading requirements of Rule 9(b)." Turner v. Ascendium Educ. Grp. , No. 20-660, 2021 WL 5510232, at *6 (M.D. La. Nov. 24, 2021) (deGravelles, J.) (quoting Pinero , 594 F. Supp. 2d at 721 ). The parties did not specifically address pleading fraud in their briefs. Nonetheless, because Plaintiff's LUTPA claim is based on allegations that Defendants made deliberate misrepresentations in order to deceive Plaintiff, (see FAC ¶¶ 17, 44, doc. 12), the Court will analyze Plaintiff's LUTPA claim under the pleading standards of both Rule 12(b)(6) and Rule 9(b).
a. General Pleading Standards under Rule 12(b)(6)
Having considered the matter, the Court finds that Plaintiff—with respect to the LUTPA claim—satisfied the general pleading standards required to survive a Rule 12(b)(6) motion. Defendants first insist that Plaintiff has not adequately pled a LUTPA claim because the FAC fails to allege that Defendants acted with the "specific purpose" of harming Plaintiff. (Doc. 17-1 at 7.) They contend that conduct does not violate LUTPA unless it is undertaken with the specific intent to harm the competitor. (Id. ) The Fifth Circuit, however, has already rejected this argument. See Industrias Magromer Cueros y Pieles S.A. v. Louisiana Bayou Furs Inc. , 293 F.3d 912, 921-22 (5th Cir.), decision clarified on denial of reh'g, 310 F.3d 786 (5th Cir. 2002).
In Louisiana Bayou Furs , the Fifth Circuit was tasked with determining whether the jury's finding of liability under LUTPA was inconsistent with the jury's finding that the defendants did not act with the intent to harm the plaintiff. Id. at 921. The Fifth Circuit ultimately agreed with the district court that "LUTPA does not require a misrepresentation or unethical conduct to be engaged in with the intent to obtain an unjust advantage or to cause a loss or inconvenience." Id. at 921-22 (finding, for this reason, that there was no inconsistency in the jury verdict). Instead, the Fifth Circuit stated that "the statute merely requires a showing of some element of fraud, misrepresentation, deception or other unethical conduct" by a defendant. Id. at 922 (cleaned up); see also Andretti Sports Mktg. Louisiana, LLC v. Nola Motorsports Host Comm., Inc. , 147 F. Supp. 3d 537, 566 (E.D. La. 2015) (where the Eastern District denied a motion to dismiss a LUTPA claim for failure to allege intent to harm competition because the statute does not provide that such specific intent is necessary for there to be a violation under LUTPA). Based on the Fifth Circuit's interpretation, the Court rejects Defendants’ argument here.
Defendants also argue that Plaintiff failed to meet the factual allegation requirements of Rule 12(b)(6) because the FAC makes only "broad conclusory statements" that Defendants violated LUTPA and merely "recit[es] an element of a cause of action." (Id. at 8.) According to Defendants, "[t]he only conduct complained of by [Plaintiff] is that 3South arguably agreed to purchase the masks, then failed to accept them." (Id. at 7.) These assertions are similarly mistaken.
As explained above, Plaintiff asserts that Defendants violated LUTPA because of Ms. Johnston's "continuous representation" and "assurance" that the masks were sufficient and that Plaintiff would be compensated as agreed, despite knowing that the deal might not go through. (FAC ¶ 44, Doc. 12.) Put another way, Defendants allegedly made an intentional and deliberate decision not to inform Plaintiff of their actual plan, which was to only compensate Plaintiff if 3South was able to sell the masks. (Id. ¶ 17.) These factual allegations, taken as true at this stage in the proceedings, certainly raise a "reasonable hope or expectation" that "discovery will reveal relevant evidence of each element of the claim." Lormand v. U.S. Unwired, Inc. , 565 F.3d 228, 257 (5th Cir. 2009). Therefore, the Court finds that Plaintiff stated a plausible claim for relief under LUTPA for purposes of Rule 12(b)(6).
b. Standards for Pleading Fraud under Rule 9(b)
Federal Rule of Civil Procedure 9(b), however, is a higher hurdle to jump. The FAC identifies the alleged fraud here as Defendants’ refusal to pay, despite their "continuous" representations and assurances that the masks listed in the Purchase Order were sufficient and that Plaintiff would be paid regardless of Defendants’ ability to sell the masks. (FAC ¶ 44, Doc. 12.) There are two main factual allegations that Plaintiff is seemingly referring to here: first, Ms. Johnston's response to an email representing that 3South would take the masks, (id. ¶ 22), and second, Defendants’ allegedly deliberate failure to disclose their true intentions about payment, (id. ¶ 17). Because the former alleges an affirmative misrepresentation and the latter alleges fraud by silence or omission, they will be analyzed separately.
To satisfy the Fifth Circuit's strict interpretation of Rule 9(b), Plaintiff must plead enough facts to illustrate the "who, what, when, where, why and how" of the alleged fraud. See Williams v. Bell Helicopter Textron, Inc. , 417 F.3d 450, 453 (5th Cir. 2005) (quoting United States ex rel. Thompson v. Columbia/HCA Healthcare Corp. , 125 F.3d 899, 903 (5th Cir. 1997) ). According to Plaintiff, the May 1, 2020, email—sent one day before placing the order—specifically advised Ms. Johnston that the masks were considered non-sterile, non-medical masks that could not be guaranteed for hospital use. (FAC ¶¶ 20-21, Doc. 12.) The FAC specifies what statement it contends to be fraudulent and who the fraudulent speaker is by alleging that Ms. Johnston "responded [to that email] after fully vetting the masks and confirm[ing] the purchase, representing to [Plaintiff] that ‘We'll take them then.’ " (Id. ¶ 22.) In that one fell swoop, Plaintiff also pled where and when this statement was made: through email sent after Plaintiff's May 1, 2020, email, but before Plaintiff submitted the final order on May 2, 2020.
Lastly, the Court finds that, based on the reasoning in Pinero , 594 F. Supp. 2d 710, Plaintiff has explained why and how this statement was fraudulent with the requisite particularity. Although the Eastern District found that the plaintiff had not adequately explained how or why defendants’ alleged statements were misleading, its analysis here is instructive. The court stated that, while there is generally " ‘no inference of fraudulent intent not to perform from the mere fact that a promise made is subsequently not performed[,]’ ... [f]raudulent intent may be inferred from other probative factors, such as when a short time elapses between the making of the promise and the refusal to perform it." Pinero , 594 F. Supp. 2d at 720 (quoting U.S. ex rel. Willard v. Humana Health Plan of Texas Inc. , 336 F.3d 375, 386 (5th Cir. 2003) ). "Such prompt nonperformance allows an inference that a defendant made a promise without any intention of fulfilling it." Id.
In the case at hand, the first indication to Plaintiff that Defendants did not intend to take and pay for the masks allegedly occurred approximately one week after Ms. Johnston's email that said "We'll take them then." (See FAC ¶¶ 22, 24, 25, Doc. 12.) This is extremely "prompt nonperformance" when compared to the two years in Pinero . 594 F. Supp. 2d at 720. Thus, the Court infers fraudulent intent on behalf of Defendants and finds that—with respect to this allegation—Plaintiff has pled fraud with the requisite particularity.
Under the Fifth Circuit's more relaxed standard for pleading fraud by omission, the claimant must plead: (1) the type of facts omitted; (2) the place in which those omitted facts should have appeared; and (3) how omitting those facts made the representations misleading. Fort James Corp. , 470 F.3d at 1174 (5th Cir. 2006) (citation omitted). In the present case, Plaintiff has identified the facts omitted—the fact that Defendants only intended to pay for the masks if they were able to sell them—as well as the place in which that fact should have been disclosed—before Plaintiff ordered and paid for the masks in anticipation of being reimbursed by Defendants. (FAC ¶¶ 16-17, Doc. 12.) As for the third element, Plaintiff adequately pled how omitting that fact made Defendants’ representations misleading by underscoring that—before agreeing to order the masks—Plaintiff told Defendants "it would not assume risk of nonpayment once the masks cleared United States customs." (Id. ¶ 16.) Allegedly, in response, Defendants did not disclose their intentions to place "the risk of nonpayment on [Plaintiff] in direct contradiction to the agreement." (Id. ¶ 17.)
The next question is whether the allegations in the FAC —taken as a whole—show that Defendants had a duty to disclose this information to Plaintiff, as is required under Louisiana law. This Court was confronted with a similar inquiry in Trinity Med. Servs., L.L.C. , 2019 WL 3240048, at *10. There, the Court denied the defendant's motion to dismiss the plaintiffs’ LUTPA claim because it found that the plaintiffs adequately alleged that the defendant owed a legal duty and breached that duty. Id. The Court specifically focused on the fact that the defendant "touted the reliability and performance of its product" in conversations with the plaintiffs, but failed to mention defects in the product that he allegedly knew about. Id. Relying on the general rule that "a partial disclosure of information gives rise to the duty to provide correct information[,]" the Court found that the defendant's partial disclosure of incorrect information created a duty to provide the plaintiffs with the whole truth, including the product defects. Id.
Like the defendant in Trinity Med. Servs., L.L.C. , Defendants in the present case have allegedly made partial disclosures of information giving rise to a duty to disclose. For example, Plaintiff alleges that Ms. Johnston stated the masks were the type she wanted to purchase and distribute to her contacts, (see FAC ¶ 14, doc. 12), and told Plaintiff "[w]e'll take them" after supposedly fully vetting the masks and confirming the purchase (id. ¶ 14). Plaintiff alleges in the FAC that Ms. Johnston never disclosed to Plaintiff that 3South's purchase of the masks was conditioned on them being approved by the FDA and listed on the Emergency Use Authorization List, which is ostensibly why Defendants ultimately rejected the masks at issue. (Id. ¶ 19.)
Although Defendants dispute this allegation, the Court must take all well-pled facts in the FAC as true and view them in the light most favorable to Plaintiff. Thompson , 764 F.3d at 502–03. Thus, Plaintiff has sufficiently alleged that Defendants—through partial disclosures—created a duty to disclose the whole truth to Plaintiff. Whether Plaintiff will actually succeed in proving these allegations is a question for another day. Accordingly, the Court finds that Plaintiff adequately pled fraud by silence or omission.
3. Treble Damages Under LUTPA
Next, Defendants maintain that, "in the unlikely event that Plaintiff can prove it has a claim under LUTPA," Plaintiff is still not entitled to seek or recover treble damages due to noncompliance with the statute's requirements. (Doc. 17-1 at 9.) Given that the statute's provision allowing an award of treble damages is meant to be "punitive in nature" and thus "must be strictly construed," the Court agrees with Defendants. B & G Crane Serv., L.L.C. v. Duvic , 2005-1798 (La. App. 1 Cir. 5/5/06), 935 So. 2d 164, 170.
LUTPA provides in relevant part: "If the court finds the unfair or deceptive method, act, or practice was knowingly used, after being put on notice by the attorney general , the court shall award three times the actual damages sustained." La. R.S. 51:1409(A) (emphasis added). In Andretti , 147 F. Supp. 3d at 572, the Eastern District dealt with similar facts and ultimately granted the motion to dismiss Andretti's claim for treble damages under LUTPA. The court explained:
Although Andretti asserts that it provided notice of its LUTPA claim to the attorney general, Andretti does not allege anywhere in its complaint or in any amended complaint that the attorney general has put the defendants on notice of a LUTPA violation, as required by the statute in order to be entitled to treble damages. Accordingly, the Court finds that Andretti has failed to state a claim for treble damages. Therefore, the Court grants the motion to dismiss the claim for treble damages under LUTPA.
Andretti , 147 F. Supp. 3d at 573 (emphasis added). Like in Andretti , nowhere in the FAC does Plaintiff here allege that the Attorney General was notified of its LUTPA claims, much less that the Attorney General put Defendants "on notice" of the alleged LUTPA violation. La. R.S. 51:1409(A).
Plaintiff argues that it should be entitled to treble damages—despite conceding to noncompliance with the statutory requirements—because putting "Defendants on notice of their violation of LUTPA would have been an act of futility." (Doc. 27 at 9.) To support this argument, Plaintiff relies on Lindy Invs. v. Shakertown Corp. , 209 F.3d 802, 808-09 (5th Cir. 2000) (citing Southern Sawmill Co. v. Ducote , 120 La. 1052, 46 So. 20 (1908) ; Dwyer v. Tulane Educ. Fund's Adm'rs. , 47 La.Ann. 1232, 17 So. 796 (La. 1895) ). The Court finds Shakertown Corp. far from dispositive on this issue, mainly because the relevant "futility" discussion there involved the return requirement under Louisiana's law of redhibition and the pre-filing tender requirement. 209 F.3d at 808-09. In fact, none of the cases Plaintiff points to involve a claim for violation of LUTPA or anything similar to that statute.
The language of the statute itself is unambiguous on this issue, as it makes clear that a court can only consider granting treble damages for a LUTPA violation "after" the defendants have been "put on notice by the attorney general." La. R.S. 51:1409(A). That clear legislative directive, coupled with the fact that it is to be "strictly construed" by the courts, establishes that notice to Defendants—as required by the statute—is essential and that requirement cannot be waived. B & G Crane Serv., L.L.C. , 935 So. 2d at 170. Accordingly, because Plaintiff did not allege in the FAC that Defendants were put on notice, the Court finds that Plaintiff fails to state a claim for treble damages. Therefore, the Court grants Defendants’ motion to dismiss with respect to Plaintiff's claim for treble damages under LUTPA.
4. Louisiana's Limited Liability Law
Defendants aver that Plaintiff—by suing Ms. Johnston personally and individually—is attempting to sidestep Louisiana's limited liability law. (Doc. 17-1 at 9.) There are two bases for their position. First, Defendants argue that Ms. Johnston is shielded by the general rule of limited liability for LLC members because she was acting on behalf of 3South at all relevant times, not in her personal capacity. See La. R.S. 12:1320(B). Second, Defendants urge the Court to dismiss Ms. Johnston from this lawsuit entirely, arguing that she is an improper party under Louisiana's limited liability rules. See La. R.S. 12:1320(C).
a. The General Rule of Limited Liability and Its Exceptions
Section 1320 of Title 12 of the Louisiana Revised Statutes sets forth the law concerning liability of LLC participants—including members and managers of the LLC—to third parties. See La. R.S. 12:1320. Louisiana Revised Statutes 12:1320(B) provides: "Except as otherwise specifically set forth in this Chapter, no member, manager, employee, or agent of a limited liability company is liable in such capacity for a debt, obligation, or liability of the limited liability company." The Louisiana Supreme Court has characterized Subsection (B) as a presumption of non-liability rather than an absolute rule: "we observe La. R.S. 12:1320 describes limited liability as a general rule for members of an LLC, but nowhere does that statute purport to completely shield a member of an LLC from personal liability." Ogea v. Merritt , 2013-1085 (La. 12/10/13), 130 So. 3d 888, 896 (citing La. R.S. 12:1320(B) ).
"The only exceptions to the rule against personal liability of any participant in the LLC for any obligation of the LLC are set forth in Subsection (D)." 8 Glenn G. Morris & Wendell H. Holmes, Louisiana Civil Law Treatise , Business Organizations § 44:6 (2021) (citing La. R.S. 12:1320(D) ). Specifically, that provision provides:
Nothing in this Chapter shall be construed as being in derogation of any rights which any person may by law have against a member, manager, employee, or agent of a limited liability company because of any fraud practiced upon him, because of any breach of professional duty or other negligent or wrongful act by such person, or in derogation of any right which the limited liability company may have against any such person because of any fraud practiced upon it by him.
La. R.S. 12:1320(D) (emphasis added). Hence, an LLC member, manager, agent, or employee may be held personally liable to a third party if any of the three exceptions listed in Subsection (D) apply. Here, Ms. Johnston is the sole managing member of 3South, a Louisiana limited liability company, and Plaintiff seeks to hold her personally liable for her "unfair, fraudulent, and/or deceptive acts in violation of [LUTPA.]" (FAC ¶ 46, Doc. 12.) This Court is confined to the allegations in the FAC , and the FAC indicates that Plaintiff essentially pursues Ms. Johnston on the basis of fraud. Accordingly, the Court will limit its analysis to the fraud exception set forth in Subsection (D).
Because La. R.S. 12:1320(D) fails to define fraud for purposes of attaching personal liability to LLC members, courts have been forced to turn elsewhere for a definition. Fortunately, the Louisiana Supreme Court has declared that, for purposes of this statutory exception, the Louisiana Civil Code's definition of fraud governs: "Fraud is a misrepresentation or a suppression of the truth made with the intention either to obtain and unjust advantage for one party or to cause a loss or inconvenience to the other. Fraud may also result from silence or inaction." Ogea , 130 So. 3d at 897-98 (citing La. C.C. art. 1953) ; see also Gandhi v. Sonal Furniture & Custom Draperies, L.L.C. , 49,959 (La. App. 2 Cir. 7/15/15), 192 So. 3d 783, 791 (in discussing Section 1320(D)’s fraud exception, the court added that "[f]raud may be predicated on promises made with the intention not to perform at the time the promise is made[,]" and the "above Civil Code provisions on fraud pertain to conventional obligations and the vitiation of consent between the parties to a contract.").
Additionally, in Priority Hospital , the Second Circuit Court of Appeal of Louisiana provided further guidance on when Subsection (D)’s fraud exception is invoked. There, the court found that "genuine issues of material fact" regarding fraud under Subsection (D) remained, thus precluding summary judgment. Priority Hosp. Grp., Inc. , 303 So. 3d at 1113 (reversing the trial court's granting of partial summary judgment on this issue). In its reasoning, the court made clear that it was not opining on whether the plaintiff would be successful in proving its fraud claim, but "if there are sufficient allegations of fraud , the fraud exception under La. R.S. 12:1320(D) could be triggered and the members could be held liable." Id. (emphasis added).
Despite the fact that none of the jurisprudence referenced above dealt with a Rule 12(b)(6) motion to dismiss, the Court finds their discussions of Subsection (D)’s fraud exception instructive for purposes of this motion. Thus, the question before the Court is whether Plaintiff's FAC sets forth "sufficient allegations of fraud," i.e. , whether Plaintiff sufficiently alleged that Ms. Johnston misrepresented or suppressed the truth or failed to speak when she had a duty to do so with the intent to either gain an advantage or cause a loss or inconvenience to Plaintiff. Id. ; see also La. C.C. art. 1953. Incorporating its analysis of whether Plaintiff sufficiently pled fraud from above, the Court finds that the fraud allegations in the FAC are sufficient to trigger La. R.S. 12:1320(D) ’s fraud exception. The Court is not suggesting whether Ms. Johnston will be held personally liable under that exception, but merely concludes that Plaintiff adequately stated a LUTPA claim against her under the standards imposed by Rule 12(b)(6).
b. The Improper Party Rule
Louisiana Revised Statutes 12:1320(C), otherwise known as the improper party rule, provides that "[a] member, manager, employee, or agent of a limited liability company is not a proper party to a proceeding by or against a limited liability company, except when the object is to enforce such a person's rights against or liability to the limited liability company." However, courts and scholars have read the improper party rule in light of the exceptions provided in Subsection (D). See La. R.S. 12:1320(C)-(D) ; see also Priority Hosp. Grp., Inc. , 303 So. 3d at 1113 (where the court looked to the statutory exceptions in Subsection (D) to determine whether the LLC members should be dismissed from the suit entirely); see also 8 Glenn G. Morris & Wendell H. Holmes, Louisiana Civil Law Treatise , Business Organizations § 44:6 (2021) ("Apart from the no-liability rules , the not-a-proper party rule provides that none of the listed LLC participants is a proper party to any proceeding by a third party against an LLC") (emphasis added).
In other words, if one of the Subsection (D) exceptions apply because of an LLC member's conduct, then that member is also considered a proper party to the suit against the LLC. La. R.S. 12:1320(D). Accordingly, for the same reasons Plaintiff's allegations are sufficient to trigger the fraud exception at this stage in the proceedings, the Court finds that that Ms. Johnston—in her individual capacity—is a proper party to the instant lawsuit. Therefore, Defendants’ motion to dismiss the LUTPA claim against her and simultaneously dismiss her from this suit is denied.
IV. Leave to Amend
"[A] court ordinarily should not dismiss the complaint except after affording every opportunity to the plaintiff to state a claim upon which relief might be granted." Byrd v. Bates , 220 F.2d 480, 482 (5th Cir. 1955). The Fifth Circuit has further stated:
In view of the consequences of dismissal on the complaint alone, and the pull to decide cases on the merits rather than on the sufficiency of pleadings, district courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they
are unwilling or unable to amend in a manner that will avoid dismissal.
Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co. , 313 F.3d 305, 329 (5th Cir. 2002). One leading treatise has further explained:
As the numerous case[s] ... make clear, dismissal under Rule 12(b)(6) generally is not immediately final or on the merits because the district court normally will give the plaintiff leave to file an amended complaint to see if the shortcomings of the original document can be corrected. The federal rule policy of deciding cases on the basis of the substantive rights involved rather than on technicalities requires that the plaintiff be given every opportunity to cure a formal defect in the pleading. This is true even when the district judge doubts that the plaintiff will be able to overcome the shortcomings in the initial pleading. Thus, the cases make it clear that leave to amend the complaint should be refused only if it appears to a certainty that the plaintiff cannot state a claim. A district court's refusal to allow leave to amend is reviewed for abuse of discretion by the court of appeals. A wise judicial practice (and one that is commonly followed) would be to allow at least one amendment regardless of how unpromising the initial pleading appears because except in unusual circumstances it is unlikely that the district court will be able to determine conclusively on the face of a defective pleading whether the plaintiff actually can state a claim for relief.
5B Charles A. Wright, Arthur R. Miller, et al., Federal Practice and Procedure § 1357 (3d ed. 2016).
Here, the Court dismissed Plaintiff's claim for treble damages under LUTPA because Plaintiff failed to allege in the FAC that Defendants were put on notice or even that it had notified the Attorney General of its LUTPA claim against Defendants—both of which are mandated by the statute. However, the Court finds that it will act according to the above "wise judicial practice" and grant Plaintiff at least one opportunity to amend the FAC to allege facts sufficient to state a claim for treble damages under La. R.S. 51:1409(A). Accordingly, the Court grants Plaintiff leave to amend the FAC to cure the above deficiencies.
V. Conclusion
Accordingly,
IT IS ORDERED that the Rule 12(b)(6) Motion for Partial Dismissal of Complaint (Doc. 17) filed by Defendants 3South, LLC and Ms. Johnston is GRANTED IN PART and DENIED IN PART. With respect to Defendants’ request that Plaintiff's claim for treble damages under LUTPA be dismissed, the motion is GRANTED , and this claim is DISMISSED WITHOUT PREJUDICE. With respect to Defendants’ request that Plaintiff's LUTPA claims against 3South, LLC and Ms. Johnston personally be dismissed, the motion is DENIED.
IT IS FURTHER ORDERED that Plaintiff shall have twenty-eight (28) days from this ruling in which to amend the operative complaint to cure the deficiencies detailed in this ruling. Failure to do so will result in the dismissal of Plaintiff's treble damages claim with prejudice.