Warren v. Preti,Flaherty,Beliveau & Pachios

• Court: Superior Court of Maine
• Decided: October 25, 2011
• Docket: CUMcv-11-28
• Status: Unpublished

Opinion

/

STATE OF MAINE BUSINESS AND CONSUMER COURT

Cumberland, ss Location: Portland Docket No.: BCD-CV-11-28 j f) f'l\ H- - Cv f\1 ,_ /Oj;;t 5; :l.o 11 ) KAILE R. WARREN, JR., ) RENT-A-HUSBAND LLC, ) RENT-A-HUSBAND ENTERPRISES, ) LLC, and KW ENTERPRISES, INC., ) ) Plaintiffs, ) ) v. ) ) PRETI, FLAHERTY, BELIVEAU & ) PACHIOS, LLC, MARCUS, CREGG & ) MISTRETTA, P.A., and ACE ) HARDWARE CORP., ) ) Defendants ) )

ORDER ON PLAINTIFFS' MOTION TO AMEND COMPLAINT AND DEFENDANT ACE HARDWARE CORP.'S MOTION TO DISMISS

This Order addresses Defendant Ace Hardware Corp.'s motion to dismiss the amended

complaint pursuant to Rule 12(b)(6) ofthe Maine Rules of Civil Procedure, and the subsequent

motion of Plaintiffs Kaile R. Warren, Jr., Rent-A-Husband LLC, Rent-A-Husband Enterprises,

LLC, and KW Enterprises, Inc. to amend their complaint for a second time.

Defendant Ace's motion to sever the claims against it from those against the other two

defendants, citing M.R. Civ. P. 20 and 21 is addressed in a separate order. The court held oral

argument on all pending motions in this case on October 12, 2011.

Ordinarily Ace's motion to dismiss would be addressed before the Plaintiffs' subsequent

motion to amend, but that motion was directed to Plaintiffs' first amended complaint, which

would be superseded if Plaintiffs' motion to amend were granted. Accordingly, the court

focuses initially on the motion to amend, solely to determine whether leave to amend would be

1 granted, without reference to the substantive sufficiency of the claims in the proposed second

amended complaint. Then the court addresses the motion to dismiss, the question being

whether any of the counts relating to Ace in either the first amended complaint or the proposed

second amended complaint should be dismissed for failing to state a viable claim for relief

against Ace.

1. The Standard for Granting Leave to Amend

After a responsive pleading is served, a plaintiff may amend its complaint "only by leave

of court or by written consent of the adverse party; and leave shall be freely given when justice

so requires." M.R. Civ. P. 15(a); see also Ejstathiou v. Aspinquid, Inc., 2008 ME 145, ~ 21, 956

A.2d 110, 118. 1 "Whether to allow a pleading amendment rests with the court's sound

discretion." Holden v. Weinschenk, 1998 ME 185, ~ 6, 715 A.2d 915, 917 (quoting Diversifi'ed

Foods, Inc. v. First Nat'l Bank cifBoston, 605 A.2d 609, 616 (Me. 1992)).

Courts should freely allow an amendment to a complaint except for bad faith, dilatory

tactics, or undue delay resulting in prejudice to the opponent. Longley v. Knapp, 1998 ME 142,

~ 19, 713 A.2d 939, 945. However, where "a proposed amended complaint would be subject to

a motion to dismiss, the court is well within its discretion in denying leave to amend." See

Glynn v. City cif S. Portland, 640 A.2d 1065, 1067 (Me. 1994).

Plaintiffs assert that Ace is not entitled to object to their motion to amend because its motion to dismiss is not a "responsive pleading" for purposes of Rule 15(a). The court is inclined to agree with Ace's contrary position that a response of either an answer or a Rule 12 motion cuts offthe complaining party's right to amend without leave of court, especially when the complaining party has already amended once as of right. The court assumes therefore that leave to amend is required, albeit under the "freely given" standard ofRule 15. 2 Counts IX to XIII are against all Defendants.

3 Maine Rule of Civil Procedure 8 mirrors its federal counterpart, but Maine has yet to adopt federal

pleading requirements for civil cases, contrary to Ace's argument under Ashcrrift v. Iqbal, 129 S. Ct 1937, 17S L. Ed 2d 868, (2009). Indeed, as the Supreme Judicial Court of Maine, sitting as the Law Court, has noted on occasion, Maine rules of procedure are not necessarily to be given the same interpretation as identically worded federal rules of procedure. See e.g. State qf Maine v. Dumond, 2000 ME 95, ~ 10, 7 51 A.2d 1014, 1017 (stating that although Maine Rule of Criminal Procedure SO(b) tracks the counterpart

2 The proposed amended complaint does not add any claims against any of the

defendants; it purports instead to clarify what the Plaintiffs claim to be the connections

between the asserted actions of the several defendants. Only Defendant Ace opposes the

Plaintiffs' proposed amendment, on the ground that granting the motion to amend would be

futile in light of its motion to dismiss pursuant to M.R. Civ. P. 12(b)(6). But for that

contention, the court would grant the motion to amend, because it has been timely made and

does not cause any cognizable prejudice to any party. Therefore, the analysis turns to Ace's

motion to dismiss to determine whether any of the counts against Ace should be dismissed.

2. Ace's Motion to Dismiss

The counts pertaining to Ace are as follows:

Count V: Defamation Count VI: False Light Count VII: Negligent Misrepresentation Count VIII: Intentional Misrepresentation Count IX: Intentional Infliction of Emotional Distress as to Plaintiff Warren 2 Count X: Negligent Infliction of Emotional Distress as to Plaintiff Warren Count XI: Vicarious Liability Count XII: Punitive Damages Count XIII: Economic Damages for Restitution Count XIV: Promissory Estoppel

"In reviewing O a motion to dismiss, [the court] consider[s] the facts in the complaint

as if they were admitted." Bonney v. Stephens Mem. Hosp., 2011 ME 46, ~ 16, 17 A.3d 123, 127.

The court will "'examine the complaint in the light most favorable to the plaintiff to determine

whether it sets forth elements of a cause of action or alleges facts that would entitle the plaintiff

to reliefpursuant to some legal theory."' Id. (quoting Saunders v. Tisher, 2006 ME 94, ~ 8, 902

A.2d 830, 832). "'Dismissal is warranted when it appears beyond a doubt that the plaintiff is

not entitled to relief under any set offacts that he might prove in support of his claim."' !d.

2 Counts IX to XIII are against all Defendants.

3 The Maine Rules of Civil Procedure incorporate principles of notice pleading. See e.g.,

Burns v.-Architectural Doors & Windows, 20 II ME 61, ~ 21, 19 A. 3d 823, 829. Rule 8 calls for

"I) a short and plain statement of the claim showing that the pleader is entitled to relief and (2)

a demand for judgment for the relief which the pleader seeks." M.R. Civ. P. 8; see also Bean v.

Cummings, 2008 ME 18, ~ 8, 939 A.2d 676, 679 (discussing pleading requirements in light of

recent United States Supreme Court decisions, and noting that Rule 9(b) identifies certain

claims that require a heightened pleading standard such as fraud or mistake). Notice pleading

requires the plaintiff to provide the opposing party with "fair notice of the claim." Polk v. Town

ofLubec, 2000 ME 152, ~ 18, 756 A.2d 510,514 (quoting E.N. Nason, Inc. v. Land-Ho Dev.

Corp., 403 A.2d 1173, 1177 (Me. 1979)). 3

With that framework in mind, the analysis turns to the specific counts of the complaint.

Count V: Defamation

The Plaintiffs allege that Ace made defamatory statements to the investigators in State

of Maine Office of Securities and the Maine Attorney General's Office during the pendency of

the criminal investigation against them. They allege that the statements were related to the

"scope and extent of the relationship between [the parties]; the success of the Rent-A-Husband

tested partnerships; and O Ace's interest in obtaining an ownership stake in Rent-A-Husband

including, but not limited to, statements claiming Ace O did not have a longstanding working

partnership with Rent-A-Husband; that the Rent-A-Husband testing was not that successful;

3 Maine Rule of Civil Procedure 8 mirrors its federal counterpart, but Maine has yet to adopt federal pleading requirements for civil cases, contrary to Ace's argument under Ashcrrft v. Iqbal, 129 S. Ct 1937, 173 L. Ed 2d 868, (2009). Indeed, as the Supreme Judicial Court of Maine, sitting as the Law Court, has noted on occasion, Maine rules of procedure are not necessarily to be given the same interpretation as identically worded federal rules of procedure. See e.g. State rif Maine v. Dumond, 2000 ME 95, 1[ 10, 751 A.2d 1014, 1017 (stating that although Maine Rule of Criminal Procedure 30(b) tracks the counterpart federal rule, Maine does not follow the federal rule's same strict requirements); Mondello v. General Elec. Co., 650 A.2d 941, 944 (Me. 1994) (stating that federal court interpretations of federal rules provide guidance, but are not binding, on Maine courts' interpretation of counterpart Maine rules).

4 and that Defendant Ace was not seriously interested in a buy-in or buy-out of Rent-A-Husband

and did not represent to Plaintiffs that it was." (Compl. ~ 16.3.) Ace claims that the statements

were not defamatory, and further argues that they were absolutely privileged as they were

made during a judicial proceeding.

In order to survive a motion to dismiss, a complaint for defamation must allege the

following elements: a false and defamatory statement concerning another; an unprivileged

publication to a third party; fault amounting at least to negligence on the part of the publisher;

and actionability irrespective of special harm or the existence of special harm caused by the

publication. Cole v. Chandler, 2000 ME 104, ~ 5, 7 52 A.2d 1189, 119.3; Vahlsing Christina Corp.

v. Stanley, 487 A.2d 264, 267 (Me. 1985).

The Law Court has stated:

Any person has a qualified privilege to make statements to law enforcement or regulatory agencies regarding the conduct of others, where the person making the statement believes in good faith that the statement is true and indicates that a statutory standard administered by the agency may have been violated.

Truman v. Browne, 2001 ME 182, ~ 15, 788 A.2d 168, 172. This conditional privilege,

however, is lost where the defendant abuses the privilege. Lester, 596 A.2d at 69; see also Cole,

2000 ME 104, ~ 7, 7 52 A.2d at 1194 (noting that "[w]hether the defendant abused his

privilege is a question of fact"[; and o]nce it is determined that the defendant is entitled to the

privilege, the burden shifts to the plaintiff "to come forward with evidence that could go to a

jury that [the defendant] abused the privilege") (citing Rippett v. Bemis, 672 A.2d 82, 87 (Me.

1996) and Gautschi v. Maisel, 565 A.2d 1009, 1011 (Me. 1989)).

As "[a] motion to dismiss a complaint for failure to state a claim should not be granted

if the pleading alleges facts which would entitle the plaintiff to relief upon some theory, or ifit

avers every essential element of a claim," see Vahlsing Christina Corp. v. Stanley, 487 A.2d 264,

267 (Me. 1985). Whether Ace's allegedly defamatory statements were privileged is a question

5 offact. Because the Plaintiffs have alleged the elements of a defamation claim, Ace's motion

must be denied as to Count V.

Count VI: False Light

Plaintiffs also allege that Ace made statements that portrayed them in a false light with

the public.

One who gives publicity to a matter concerning another that places the other before the public in a false light is subject to liability to the other for invasion ofhis privacy, if(a) the false light in which the other was placed would be highly offensive to a reasonable person, and (b) the actor had knowledge of or acted in reckless disregard as to the falsity of the publicized matter and the false light in which the other would be placed. Restatement (Second) ofTorts § 652E (1977).

Cole v. Chandler, supra, 2000 ME 104, ~ 17,752 A.2d at 1197.

Plaintiffs allege that Ace made false statements to the media concerning the scope and

extent ofits business relationship with Plaintiffs; Ace's interest in obtaining an ownership stake

in Rent-A-Husband; and Ace's knowledge of Rent-A-Husband investors, and allege further that

these statements placed Plaintiffs in a light that would be highly offensive to a reasonable

person. Further, Plaintiffs assert that Ace made the statements knowing they were false, or in

reckless disregard of their falsity, and that the Plaintiffs suffered various forms of harm and

damages as a result.

Ace argues that the only alleged offensive statement that Plaintiffs could possibly be

referring to is its Media Statement issued in response to news reports in 2009 in which

Plaintiffs made unfavorable statements about Ace. Ace asserts that its Media Statement was

issued in order to protect its business reputation from these unfavorable statements, and

requests that the court consider the attached documentation of these statements in making its

decision.

The general rule is that only the facts alleged in the complaint may be considered on a

6 motion to dismiss. Moody v. State Liquor and Lottery Comm. 'n, 2004 ME 20, ~ 8, 843 A.2d 43,

47. However, Rule 12(b) states that "[i]f, on a motion asserting the defense numbered (6) to

dismiss for failure ofthe pleading to state a claim upon which relief can be granted, matters

outside the pleadings are presented to and not excluded by the court, the motion shall be treated as

one for summary judgment." M.R. Civ. P. 12(b) (emphasis added). Whether the court accepts

documents, additional factual claims, and other evidence is a discretionary determination. In

this case, for the court to accept and consider Ace's additional materials or its characterization

of the basis of Count VI as necessarily being limited to those statements would require

Plaintiffs to be given leave to provide more material, and would in effect convert a Rule 12(b )( 6)

motion into a Rule 56 summary judgment procedure, without the benefit of the filings required

by Rule 56 to help narrow or eliminate factual issues. Thus, the court declines to consider the

extrinsic material tendered by Ace and limits review to the face of Plaintiffs' pleading.

Assessing Count VI under the Rule 12(b)(6) standard, the court concludes that the

Plaintiffs have adequately alleged a claim for false light. See Burns, 2011 ME 61, ~ 21, 19 A.3d

at 829 (noting Maine's "forgiving" notice pleading standard, and recognizing that "an initial

pleading may be presented in general terms," however, "by the time the parties are addressing a

motion for summary judgment, a plaintiff must be prepared to clearly identify the asserted

cause or causes of action and the elements of each claim," ... [as w]ithout such definition, the

parties may waste time and money litigating extraneous issues not generated by the

pleadings"). Accordingly, Ace's motion to dismiss must be denied as to Count VI.

Counts VII and VIII: Negligent and Intentional Misrepresentation

In Rand v. Bath Iron Works Corp., 2003 ME 122, ~ 13, 832 A.2d 771, the Law

Court addressed both claims for intentional misrepresentation and negligent

misrepresentation.

7 To prevail on a claim for intentional misrepresentation,

the plaintiff must prove by clear and convincing evidence: (1) that the defendant made a false representation, (2) of a material fact, (S) with knowledge ofits falsity or in reckless disregard of whether it is true or false, (4) for the purpose of inducing the plaintiff to act in reliance upon it, and, (5) the plaintiff justifiably relied upon the representation as true and acted upon it to the plaintiffs damage.

Rand v. Bath Iron Works Corp., 2003 ME 122, ~ 9, 832 A.2d 771, 773. "When a plaintiff alleges

a failure to disclose rising to the level of a misrepresentation, the plaintiffmust prove either (1)

active concealment of the truth, or (2) a specific relationship imposing on the defendant an

affirmative duty to disclose." Fitzgerald v. Gamester, 658 A.2d 1065, 1069 (Me. 1995).

The Law Court has adopted the following definition of negligent

misrepresentation:

One who, in the course ofhis business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, ifhe fails to exercise reasonable care or competence in obtaining or communicating the information.

Rand v. Bath Iron Works Corp., 2003 ME 122, ~ IS, 832 A.2d 771, 774 (emphasis omitted)

(quoting Restatement (Second) Torts§ 552(a)(l)).

Plaintiffs allege that Ace performed a successful corporate test of the pilot model

partnership that resulted in further purchases of Rent-A-Husband franchises by Ace franchises.

They also allege that Ace "repeatedly expressed to plaintiffs its interest and then its intention

of purchasing Rent-A-Husband outright, or alternatively, of obtaining a controlling financial

interest in Rent-A-Husband;" that at least two meetings were held between Ace and Warren on

the subject; that Ace knew of Plaintiffs' efforts in raising business capital through a private

offering, and that Ace met with investors as well as the SBA for purposes of securing funding to

facilitate the proposed buy-in or buy-out. Plaintiffs allege that Ace made false representations

to them for the purpose of inducing them to act or refrain from acting.

8 Plaintiffs also claim that once Ace stopped the buy-in and buy-out negotiations, it

continued to communicate with the Plaintiffs through funding, advice, counsel, and research

and advertising assistance. Plaintiffs claim that these representations caused them to take

"innumerable steps and/ or measures in its business to facilitate the Ace buy-in or buy-out," and

that when Ace decided not to pursue an ownership interest it caused a material change to the

business and affected potential investors' interest, resulting in the Plaintiffs' loss of income and

business opportunities.

Ace argues that the Plaintiffs' claim is barred because it is based on an alleged promise

of future performance. Although claims for intentional and negligent misrepresentation both

generally require that the defendant's misrepresentation be based on a past or existing fact, not

merely a statement of opinion or a promise of future performance, in certain circumstances '"the

relationship of the parties ... may transform into an averment offact that which under

ordinary circumstances would be merely an expression of opinion.'" Wildes v. Pens Unlimited

Co., 389 A.2d 837,840 (Me. 1978) (citing Shine v. Dodge, ISO Me. 440,444, 157 A. 318,319

(193 I)). No such relationship is alleged here. 4 Therefore, were the Plaintiffs alleging only

misrepresentation of future performance, Ace's motion would likely be granted.

However, Plaintiffs allege that Ace intentionally or with reckless disregard or

negligently supplied false information as to existing facts for Plaintiffs' guidance in their

+"In order to survive a motion to dismiss a claim for breach of fiduciary duty, the plaintiff must set forth specific facts constituting the alleged relationship with sufficient particularity to enable the court to determine whether, if true, such facts could give rise to a fiduciary relationship." Fortin v. Roman Catholic Bishop of Portland, 2005 ME 57, ~ 26, 871 A.2d 1208, 1218. A fiduciary duty is created when "one standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation." Bryan R. v. Watchtower Bible and Tract Soc'y of New York, Inc., 1999 ME 144, ~ 15,738 A.2d 839, 845 (quoting RESTATEMENT(SECOND) OF TORTS 874 ( 1965)). The Plaintiffs have not established sufficient facts supporting the allegation that a fiduciary relationship existed between Plaintiffs and Ace simply because there were ongoing business discussions. See e.g., Clappison v. Foley, 148 Me. 492, 497-99, 96 A.2d 325, 327-28 (1953) (noting that where the complaint does not demonstrate evidence of a fiduciary relationship, but instead only conventional business dealings, the motion to dismiss must be granted).

9 business transactions, for the purpose of inducing the Plaintiffs to act and/ or refrain from

acting, and which did induce such reliance. Accordingly, Ace's motion must be denied as to

Counts VII and VliJ.5

Count IX: Intentional Infliction ofEmotional Distress as to PlaintiffWarren

To prevail in an action for intentional infliction of emotional distress (liED), a plaintiff

must establish that:

( 1) the defendant intentionally or recklessly inflicted severe emotional distress or was certain or substantially certain that such distress would result from [its] conduct; (2) the conduct was so extreme and outrageous as to exceed all possible bounds of decency and must be regarded as atrocious, utterly intolerable in a civilized community; (3) the actions of the defendant caused the plaintiffs emotional distress; and (4) the emotional distress suffered by the plaintiffwas so severe that no reasonable [person] could be expected to endure it.

Curtis v. Porter, 200 1 ME 15 8, ~ 10, 7 84 A.2d 18, 22-23. "A person acts reckless! y if [heJ

knows or should know that [his] conduct creates an unreasonable risk of harm to another

person and the unreasonableness of [his] actions exceeds negligence." Id.

Moreover, severe emotional distress "means emotional distress, created by the

circumstances ofthe event, that is so severe that no reasonable person could be expected to

endure it." Botka v. S.C. Noyes & Co., 2003 ME 128, ~ 17, 834 A.2d 947, 952. Finally, in an

liED claim, the court determines "in the first instance whether the defendant's conduct may

reasonably be regarded as so extreme and outrageous to permit recovery." Champagne v. Mid-

Maine Med. Ctr., 1998 ME 87, ~ 16, 711 A.2d 842, 847 (internal quotations omitted) (citations

omitted).

PlaintiffKaile Warren's liED claim is based on the allegations ofmisrepresentations

regarding the purchasing of an ownership interest in Rent-A-Husband and the alleged

5 Ace's memorandum does not specifically assert that Plaintiffs' claim for intentional misrepresentation is insufficiently pleaded for purposes ofM.R. Civ. P. 9(b). See e.g., Diversified Foods, Inc. v. First Nat'! Bank, 605 A.2d 609, 615 (Me. 1992).

10 defamatory and false light statements Ace made about Rent-A-Husband. Ace's

characterization of the circumstances as being insufficient may well prevail on a more fully

developed factual record-after all, PlaintiffWarren's claim arises out of a business transaction

or series of transactions rather than a situation that is by definition emotionally charged, such

as a bereavement or a family conflict. See Latremore v. Latremore, 584 A.2d 626, 631 (Me. 1990)

(finding that where the son was aware of the plaintiff parents' age and poor health, yet still

made cruel remarks to them and sought to have his father committed, his conduct was extreme

and outrageous); Rubin v. Matthews International Corp., 503 A.2d 694, 699-700 (Me. 1986)

(concluding that whether defendant's repeated misrepresentations to the plaintiff that the

headstone she purchased would be delivered in time for the funeral of a loved one was extreme

and outrageous conduct was an issue of fact for the jury).

On the other hand, PlaintiffWarren alleges much more than just the failure of a

business plan-he asserts that Ace's actions contributed to his criminal prosecution and the

destruction ofhis business. Viewed in a light most favorable to PlaintiffWarren, as it must be

at this stage, Count IX states a cognizable claim for liED. Champagne, 1998 ME 87, ~ 16, 711

A.2d at 847 (citing Loe v. Town cifThomaston, 600 A.2d 1090, 1093 (Me. 1998)).

Accordingly, Ace's motion is denied as to Count IX.

Count X: Negligent Infliction of Emotional Distress as to PlaintiffWarren

In Count X Warren alleges a claim ofnegligent infliction of emotional distress (NIED). 6

There is no general duty to avoid negligently causing emotional harm to others. Curtis v.

Porter, 2001 ME 158, ~ 18, 784 A.2d 18, 25. In Maine, independent claims for NIED has been

recognized only in so-called bystander situations or when a special relationship exists between

the actor and the person emotionally harmed. !d. ~ 19, 784 A.2d at 25-26. PlaintiffWarren

6 This claim also may well amount to surplusage in light of the liED and defamation claims as there can

only be one recovery for the same loss or damage. See Theriault v. Swan, 558 A.2d 369, 372 (Me. 1989).

11 has not alleged bystander status nor has he sufficiently alleged the existence of a special

relationship on which to base an independent claim for NIED. Ace's motion is granted as to

Count X.

Count XI: Vicarious Liability

Ace seeks to dismiss Count XI on the grounds that vicarious liability is not a separate

and distinct cause of action, "but a theory ofimputation by which an employer may be held

responsible for the tortious acts of its employees." Frank v. L.L. Bean, Inc., 352 F. Supp. 2d 8,

14 (D. Me. 2005) (citations omitted). "Since vicarious liability is only meaningful insofar as it is

asserted in support of a valid cause of action," id., Count XI fails to state a cognizable

independent and freestanding claim, and must be dismissed under Rule 12(b)(6). Plaintiffs

can still seek to hold Ace vicariously liable for acts or omissions of its employees and agents on

those claims against Ace that survive dismissal.

Count XII: Punitive Damages

Ace also seeks to dismiss Count XII on the grounds that punitive damages constitute a

remedy, not a separate cause of action, and that even when viewing the facts ofthe complaint in

a light most favorable to the plaintiff, they would not support an award of punitive damages.

Ace "is correct that punitive damages is not a separate and distinct cause of action under

Maine law. Rather, it is a type of remedy." Frank v. L.L. Bean, Inc., 352 F. Supp. 2d 8, 14 (D.

Me. 2005) (citing Southport Marine, LLC v. Gulf Oil Limited Partnership, 234 F.3d 58, 64 (1st

Cir. 2000); Connors v. Town cifBrunswick, Civil No. 99-331-P-C, 2000 U.S. Dist. LEXIS 12253,

*40 (D. Me. Aug. 16, 2000)). Accordingly, Count XII must be dismissed.

Plaintiffs have sought punitive damages in their prayers for relief, and may pursue an

award of such damages on their liED and intentional misrepresentation claims ifthe predicate

showing of malice-express or implied-is made. Tuttle v. Raymond, 494 A.2d 1353 (Me. 1985);

12 see also Morgan v. Kooistra, 2008 ME 26, ~ 29, 941 A.2d 447, 455. 7

Count XIII: Economic Damages For Restitution

The Plaintiffs claim that the defendants "directly and/ or proximately caused the actual

damages to Plaintiffs of a Consent Judgment requiring Plaintiffs to pay a maximum of

$1,994,657.08 in restitution to the State ofMaine." Under Maine law, a restitution claim is

premised on the equitable doctrine of unjust enrichment. Count XIII fails to allege that the

alleged restitutionary payment to the State benefited or unjustly enriched Ace.

Thus, what purports to be an independent, freestanding claim in Count XIII is more

properly characterized as an element of Plaintiffs' alleged damages under some oftheir other

counts against Ace. Ace's motion is granted as to Count XIII, but Plaintiffs remain able to

pursue recovery of the alleged restitution payment under at least some of their remaining

theories ofliability.

Count XIV: Promissory Estoppel

Ace has also moved to dismiss the Plaintiffs' promissory estoppel claim against it,

alleging that it made no promises to the Plaintiffs, and even if it did, the promises alleged are

barred by the Statute of Frauds because they could not have been performed in one year and

they were not in writing.

The Law Court, in Harvey v. Dow, clarified that Maine has

Malice may be proven through evidence showing either that the party acted with ill will toward the claimant or that the party's conduct was so outrageous that malice can be implied. Id. at 1361. Thus, any lesser state of mind, such as gross negligence or recklessness, is insufficient to allow a punitive damages award. Id. at 1361-62 (noting that a gross negligence or reckless requirement "covers too broad and too vague an area ofbehavior, resulting in an unfair and inefficient use of the doctrine of punitive damages" that would "allow virtually limitless imposition ofpunitive damages," and would dull "the potentially keen edge of the doctrine as an effective deterrent of truly reprehensible conduct"). Accordingly, punitive damages are only available if a defendant acts with actual or implied malice. I d. Implied malice is defined as more than a "mere reckless disregard of the circumstances." I d. at 1361. The clear and convincing standard of proof aids in ensuring that punitive damages are not inappropriately awarded. Batchelder v. Realty Res. Hospitality, LLC, 2007 ME 22, 1[ 13, 914 A.2d 1116, 1124.

13 adopted the definition ofpromissory estoppel set out in the Restatement (Second) of Contracts, which states: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. Restatement (Second) of Contracts§ 90(1) (1981); Bracale v. Gibbs, 2007 ME 7, ~ 14, 914 A.2d 1112, 1115.

2008 ME 192, ~ 11, 962 A.2d 322, 325. Although "promissory estoppel applies to promises

that are otherwise unenforceable, [it] cannot be applied to avoid the statute offrauds

requirement ... " Daigle Cammer. Group, Inc. v. St. Laurent, 1999 ME 107, ~ 14, 734 A.2d 667,

672 (noting that promissory estoppel cannot be used to avoid the statute of frauds in

employment contracts exceeding one year) (internal citations and quotations omitted); see also

Wells Fargo Home Mortg., Inc. v. Spaulding, 2007 ME 116, ~ 23, 930 A.2d 1025, 1030. Plaintiffs

assert that Ace's alleged promises are not subject to the Statute of Frauds by alleging the

doctrine of partial performance, specifically that Rent-A-Husband, in reliance on the promises

made by Ace, gave up other business opportunities.

Part performance in reliance on an otherwise unenforceable contract can remove the

contract from the ambit of the Statute of Frauds "ifit is established that the party seeking

enforcement, in reasonable reliance on the contract and on the continuing assent of the party

against whom enforcement is sought, has so changed his position that injustice can be avoided

only by specific enforcement." Gage v. Stevens, 1997 ME 88, ~ 14, 696 A.2d 411, 416, quoting

RESTATEMENT (SECOND) OF CoNTRACTS § 129 ( 1981 ); see Busque v. Marcou, 147 Me. 289,

294-95, 86 A.2d 873 (1952).

It is doubtful that the Plaintiffs can recover damages against Ace, because their remedy

is likely limited to the benefit of the bargain or their expenditures incurred in reliance, as

opposed to the value of alleged lost opportunities elsewhere. However, because Plaintiffs have

alleged reasonably specific promises by Ace and detrimental reliance by them, the allegations of

14 Count XIV could, if proved, entitle the Plaintiffs to relief of some kind. For that reason, Ace's

motion is denied as to Count XIV.

For the reasons stated it is ORDERED AS FOLLOWS:

Plaintiffs' Motion to Amend is granted except as to Count X for negligent inflection of

emotional distress, Count XI for vicarious liability, Count XII for punitive damages, and Count

XIII for economic damages for restitution. Defendant Ace Hardware Corp.'s Motion to

Dismiss is granted as to Counts X, XI, XII and XIII and is otherwise denied.

Pursuant to M.R. Civ. P. 79, the clerk shall incorporate this order into the docket by

reference. ~ Dated: October 25, 2011 l. 1\.. M. Horton Justice, Business and Consumer Court

Entered on the Docket: I 0 .?.5 · I \ Copies sent via Mail_ Electronically_::::-

15 BUSINESS AND CONSUMER COURT

Kaile R. Warren, Jr. et al v. Preti, Flaherty, Beliveau & Pachios, LLC et al BCD-CV-2011-28

Counsel ofRecord

Attorney Name Party Name

Daniel Lilley, Esq. Kaile Warren, Jr. et al (Plaintiffs) Tina Nadeau, Esq. Kaile Warren, Jr. et al (Plaintiffs)

John Aromando, Esq. Preti, Flaherty, Beliveau & Pachios (Defendant) Mark Porada, Esq. Preti, Flaherty, Beliveau & Pachios (Defendant)

Peter DeTroy, Esq. Marcus, Clegg & Mistretta (Defendant) Russel Pierce, Esq. Marcus, Clegg & Mistretta (Defendant)

Thimi Mina, Esq. Ace Hardware Corp (Defendant) Samuel Moulthrop, Esq. Ace Hardware Corp (Defendant) /

STATE OF MAINE BUSINESS AND CONSUMER COURT Cumberland, ss Location: Portland Docket No.: BCD-CV-11-28 1 A 1-4M . . . Cu.M- Jo j • '5 ;;;..'0 1 1 1 ) I

ORDER ON DEFENDANT ACE HARDWARE CORPORATION'S MOTION TO SEVER

Defendant Ace Hardware Corporation (Ace) moves, pursuant to M.R. Civ. P. 20 and 21, to

sever the Plaintiffs' claims relating to it from those relating to the other two Defendants, Preti,

Flaherty, Beliveau & Pachios, LLC (Preti) and Marcus, Clegg & Mistretta, P.A. (MCM). Plaintiffs

Kaile R. Warren, Jr., Rent-A-Husband LLC, Rent-A-Husband Enterprises, LLC, and KW

Enterprises, Inc. oppose the motion, but neither Preti nor MCM objects to the motion to sever. 1

The court heard oral argument on the motion on October 12, 2011.

FACTUAL BACKGROUND

A motion to sever for misjoinder may be brought at any point in the action. See M.R. Civ. P.

21. At this early stage in the litigation, the only alleged facts that have been presented to the court

1 Preti has requested that should the court grant the motion to sever, that the court also issue a protective

discovery order to prohibit duplicative discovery in the two proceedings. upon which to base its decision are those in the Second Amended Complaint. Those allegations are

summarized below, initially as to the law firm defendants and then as to Ace.

Factual Allegations Pertaining to Preti and MCM

Plaintiff Kaile Warren is the majority owner and controller of the Plaintiff corporate entities,

Rent-A-Husband LLC, Rent-A-Husband Enterprises, LLC, and KW Enterprises, Inc. (Corporate

Plaintiffs). (Compl. ~ 1f In approximately April 2000, Preti began representing the Corporate

Plaintiffs as corporate counsel and Warren as personal counsel. (Compl. ~~ 11, 13.) In 2002, after

allegedly following advice from counsel, Plaintiffs began to raise business capital for Rent-A-

Husband through a private offering that was designed and overseen by Preti. (Compl. ~~ 24-25.)

Promissory notes and subscription agreements were issued through Plaintiffs Rent-A-Husband LLC

and KW Enterprises, Inc. as part of the private offering. (Compl. ~ 28.)

Plaintiffs allege that despite organizing and designing the private offering, Preti failed to

ensure that the Rent-A-Husband private offering complied with all state and federal securities laws,

to advise Plaintiffs to properly register promissory notes in compliance with the Maine Uniform

Securities Act, to inform the Plaintiffs of the requirements for securities registration and licensing.

(Compl. ~~ 28-31, 33-35.) After the SBA, with whom Plaintiffs were negotiating to obtain funding

for the purpose of facilitating buy-in, buy-out of Rent-A-Husband by Ace, called into question the

legality of the private offering in 2007 or 2008, Preti withdrew from further legal representation of

Plaintiffs effective May 6, 2008. (Compl. ~~ 37-38, 44.)

Preti referred Plaintiffs to MCM, who, in June 2008, began representing the Plaintiffs as their

corporate counsel and securities investigation counsel and acted as personal counsel to Warren

regarding corporate matters, the securities investigation, and the eventual criminal case, which the

2 All citations are to the Second Amended Complaint filed with Plaintiff's motion to amend, which is granted in a separate order.

2 State of Maine Office of Securities began investigating in the summer of 2008. (Compl. ~~ 46, 56-

58.)

Plaintiffs allege that MCM inappropriately advised the Plaintiffs that Warren could properly

and lawfully issue personal promissory notes to raise business capital for Rent-A-Husband. (Compl.

~ 74.) Plaintiffs also allege that MCM inappropriately advised them to waive their attorney-client

privilege with Preti and waive their Fifth Amendment rights. Plaintiffs also assert that MCM advised

them to produce voluntarily information and records to the State of Maine that MCMC had not

reviewed beforehand, despite knowing that these statements could be used against the Plaintiffs.

(Compl. ~~ 48-49, 66, 68, 70-71.) Plaintiffs state that deficient legal advice led to the civil

enforcement and criminal actions being brought. (Compl. ~~ 75, 77.) In January 2010, MCM

moved to withdraw from further legal representation of the Plaintiffs based on a conflict of interest.

(Compl. ~ 78.)

As a result of the securities investigation, on December 11, 2009, plaintiff Warren was

indicted for criminal violations of law stemming from the Rent-A-Husband private offering.

(Compl. ~ 51.) While the criminal matter was still pending the State of Maine filed a civil

enforcement action against the Plaintiffs alleging securities violations. (Compl. ~52.) On February

23, 2011, a consent judgment was entered into with the Plaintiffs, pursuant to which the criminal

prosecution was dismissed with prejudice and Plaintiffs agreed to pay restitution to the State of

Maine for the Rent-A-Husband investments of $1,994,657.08 plus interest. (Compl. ~~54-55.)

Facts Pertaining to Ace

Between 2002 and 2008, Plaintiffs had a profitable partnership with Ace of Rent-A-Husband

franchises within Ace stores in Maine, New Hampshire, and Massachusetts. (Compl. ~~ 79-82, 85.)

Plaintiffs claim that Ace repeatedly expressed to Plaintiffs its interest and intention of purchasing

Rent-A-Husband outright or, alternatively, of obtaining a controlling financial interest in it. (Compl.

3 ~ 87.) In November 2007, and again in January 2008, Ace met with Warren to discuss the potential

buy-out or buy-in. (Compl. ~ 88.)

Plaintiffs claim that Ace knew or reasonably should have known that Plaintiffs were

continuing to raise business capital through a Rent-A-Husband private offering. (Compl. ~ 90.)

Ace met with a number of Rent-A-Husband investors, and negotiated some investors for

Rent-A-Husband. (Compl. ~ 91.) Ace also spoke with individuals at the SBA regarding the

proposed partnership to help secure funding for Rent-A-Husband, and to facilitate the buy-in or

buy-out of Rent-A-Husband. (Compl. ~ 92.)

In March of 2008, Plaintiffs claim that Ace suddenly put the ownership stake of Ace in Rent-

A-Husband on hold. (Compl. ~ 93.) Although the potential buy-in or buy-out was suspended, Ace

continued to stay in contact with the Plaintiffs and continued to state that the partnership would still

happen. (Compl. ~ 94.) Ace did this by issuing a letter acknowledging the success of the

partnership between Rent-A-Husband and Ace, advising and encouraging Ace franchise stores to

buy Rent-A-Husband franchises, and by providing Plaintiffs with funding, advise, counsel, research,

and advertising assistance. (Compl. ~ 95.) Plaintiffs claim they took innumerable steps to facilitate

the buy-in or buy-out based on the repeated representations by Ace, but Ace never purchased an

ownership stake in Rent-A-Husband although its franchise stores continues to have Rent-a-

Husband franchises. (Compl. ~~ 97-99.) Plaintiffs allege that the issues regarding the legality of the

private offering, the withdrawal of Preti as Plaintiffs' counsel, and the securities investigation all

affected Ace's interest in obtaining an ownership stake in Rent-A-Husband. (Compl. ~~ 103-105.)

Plaintiffs claim that on or about October 2009, Ace made false statements to the media

concerning the scope and extent of its business relationship with Plaintiffs, Ace's interest in

obtaining an ownership stake in Rent-A-Husband, and Ace's knowledge of Rent-A-Husband

investors. (Compl. ~ 108.) Plaintiffs assert that the false statements further fueled the securities

4 investigation that resulted in criminal indictments and a civil enforcement action. (Compl. ~ 109.)

Plaintiffs also claim that during the pendency of the criminal prosecution, Ace made false statements

to the Maine Securities Investigators and the Maine Attorney General's Office regarding the scope

and extent of the relationship between Ace and Rent-A-Husband, the success of the tested pilot

partnership, and Ace's interest in obtaining an ownership stake in Rent-A-Husband. (Compl. ~ 110.)

Plaintiffs claim this further fueled the securities investigation, criminal prosecution, and civil

prosecution of Plaintiffs. (Compl. ~ 11 0.)

PROCEDURAL BACKGROUND

Plaintiffs initiated this litigation in Cumberland County Superior Court on March 22, 2011,

by filing a thirteen-count complaint alleging: 1) professional negligence (Count I) and breach of

fiduciary duty (Count II) against Preti; 2) professional negligence (Count III) and breach of fiduciary

duty (Count IV) against MCM; 3) defamation (Count V), false light (Count VI), negligent

misrepresentation (Count VII), and intentional misrepresentation (Count VIII) against Ace; and 4)

intentional infliction of emotional distress (Count IX), negligent infliction of emotional distress

(Count X), vicarious liability (Count XI), punitive damages (Count XII), and "economic damages for

restitution" (Count XIII) against all three defendants. On April 20, 2011, Plaintiffs amended their

complaint and added a claim for promissory estoppel (Count XIV) against Ace. Both Preti and

MCM flied answers to the First Amended Complaint. The case was assigned to Justice Wheeler.

Ace did not flie an answer to the First Amended Complaint; instead, on May 2, 2011, Ace

flied a M.R. Civ. P. 12(b)(6) motion to dismiss all claims against it along with its motion to sever.

Justice Wheeler heard oral argument on the motion to dismiss and the motion to sever on August 4,

2011. On August 12, 2011, Plaintiffs moved to amend their complaint for a second time. Before

any ruling on the pending motions could issue, the case was accepted for transfer to the Business

5 Court on September 14, 2011. The court granted Plaintiffs' motion to amend in an order dated

October_, 2011.

DISCUSSION

Ace seeks, pursuant to M.R. Civ. P. 20 and 21, to sever the claims against it from the claims

brought against Preti and MCM, essentially arguing that they were misjoined in the litigation. (See

generai!J M. Sever.) Broadly, Ace argues that the basis for the claims against Preti and MCM are

unrelated to the claims against Ace and thus joinder was improper. Ace has indicated throughout

the pleadings that it intends to remove the case to federal district court should the severance be

granted, and thus has requested a ruling on the motion to sever prior to the motion to dismiss.

Plaintiffs counter that the Complaint sets forth facts establishing that Plaintiff Warren and the

Corporate Plaintiffs began a successful business venture with Ace, Preti and MCM were hired to

help grow that business through raising capital, and over the same time period and through various

means, the Defendants together played a substantial role in destroying Plaintiffs' business

enterprise. 3

Pursuant to M.R. Civ. P. 21, "[p]arties may be dropped or added by order of the court on

motion of any party ... at an stage of the action and on such terms as are just. Any claim against a

party may be severed and presented separately." Because the Maine rule regarding severance is

essentially identical to the federal rule, 4 it is proper for the court to consider constructions of the

3 Plaintiffs also argue that Ace is a necessary party pursuant to M.R. Civ. P. 19, because Ace, Preti, and MCM have caused a total, indivisible injury to the Plaintiffs, that culminated from all of the Defendants' conduct. Even were that the case, it would necessarily mean that Ace is a necessary party pursuant to M.R. Civ. P. 19. Even presuming some form of joint liability, joint tortfeasors are not indispensable parties under Rule 19. See Lebel v. Regan, 192 A.2d 28, 30-31, 159 Me. 300, 304 (1963) (cited in 2 C. Harvey, MAINE CIVIL PRACTICE§ 19.1 at 560 n.12 (3d ed. 2011)).

4 The federal rule on severance provides: "Misjoinder of parties is not a ground for dismissing an action. On

motion or on its own, the court may at any time, on just terms, add or drop a party. The court may also sever any claim against a party." Fed. R. Civ. P. 21.

6 federal rule to aid in construing and analyzing the parallel Maine provision. See Bean v. Cummings,

2008 ME 18, ~ 11, 939 A.2d 676, 680. Severance pursuant to Rule 21 provides a mechanism for

dropping defendants when the requirements of permissive joinder under Rule 20 have not been met.

See McCormick v. Festiva Dev. Grp., ILC, 269 F.R.D. 59, 60 (D. Me. 2010); 7 Charles Alan Wright,

Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1683 at 475 (3d ed. 2001).

Thus to succeed on a motion to sever, Ace must show they were improperly joined in this matter.

The Maine Rules of Civil Procedure promote the free joinder of claims and parties to

effectuate "the just, speedy and inexpensive determination of every action. M.R. Civ. P. 1; see also

M.R. Civ. P. 18, 20; 1 Field, McKusick, & Wroth, Maine Civil Practice§ 18.1 at 359-60 (2d ed. 1970).

The rule on permissive joinder of parties provides:

All persons may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief within the subject- matter jurisdiction of the court in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all defendants will arise in the action. 5

M.R. Civ. P. 20(a) (emphasis added). The so-called "same transaction prong" and the "common

question prong" of Rule 20 are cumulative requirements. See 7 Federal Practice and Procedure

§ 1653 at 403-04.

In its motion to sever, Ace argues that Plaintiffs have not shown that the claims against them

do not arise out of the same transaction or involve common questions of law or fact as those claims

alleged against Preti and MCM. Although Ace attacks both prongs of permissive joinder, it is clear

that at a minimum there are common questions of fact in the assessment of damages, as Plaintiffs

seek similar types of damages from Ace, Preti, and MCM and allege that all Defendants caused a

s The federal rule on permissive joinder is nearly identical to the Maine rule; it allows for the joinder of defendants in one action if "any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and ... any question of law or fact common to all defendants will arise in the action." Fed. R. Civ. P. 20(a)(2).

7 single indivisible harm to the Plaintiffs. See Wjiatt v. Charleston Area Med. Ctr., Inc., 651 F. Supp. 2d

492, 498 (S.D. W. Va. 2009) (explaining how apportionment of damages between defendants is a

common question of fact). Thus, whether or not joinder is proper is based on the same transaction

prong.

As noted, for perrruss1ve joinder, the "right to relief" must "aris[e] out of the same

transaction, occurrence, or series of transactions or occurrences." M.R. Civ. P. 20(a). Ace posits in

its memo that "whether separate transactions or occurrences constitute a series is determined by

examining whether there is some systemic pattern or logical relation between the tortious events."

(M. Sever 3 (quoting Gruening v. Sucic, 89 F.R.D. 573, 574 (E.D. Penn. 1981).) Ace argues the

complaint alleges distinct torts committed by different defendants at different times. The test,

however, is not based on the nature of the cause of action; the test is whether the right to relief

arises out of the same series of transactions or occurrences. See Jonas v. Conrath, 149 F.R.D. 520, 523

(S.D. W.Va. 1993) (refusing to sever a malpractice claim against an optometrist from a breach of

contract claim for non-coverage against the insurer when the incidents for each right to relief arose

during the same time period); Pepper v. SRO Concerts, Inc., No. 90 Civ. 5902 (MBM), 1992 U.S. Dist.

LEIXS 2204, at *3-*5 (E.D.N.Y. Feb. 24, 1992) (refusing to sever legal malpractice claims brought

by plaintiff clients and the attorneys' counterclaims for unpaid fees from claims brought against

various other defendants for breach of employment agreements which the attorneys had negotiated

and drafted). But see Gruening, 89 F.R.D. at 573 (concluding that distinct torts committed at distinct

times warranted severance of parties); Pena v. McArthur, 889 F. Supp. 403, 406 (E.D. Cal. 1994)

(severing claims against an insurer for breach of fiduciary duty from claims against an uninsured

motorist for personal injury based on the reasoning in GrueniniJ.

In the present case, Plaintiffs allege that Preti and MCM were involved in advising Plaintiffs

on how to raise capital in order to effectuate a buy-out with Ace, through corporate promissory

8 notes and personal promissory notes. Plaintiffs allege that Ace knew about Plaintiffs' attempts to

raise capital, and used those attempts while meeting with investors of Rent-A-Husband and relied on

the proceeds for its own self-promotion. Plaintiffs further allege that the issues regarding the legality

of the private offering, the withdrawal of Preti as Plaintiffs' counsel, the legality of the personal

promissory notes, and the securities investigation all affected Ace's interest in obtaining an

ownership stake in Rent-A-Husband.

The court is cognizant that the only facts upon which it can make its decision are those in

the complaint, allegations that have been untested and unchallenged as of yet. The court also notes

that the claims for breach of fiduciary duty and legal malpractice brought against Preti and MCM

make no mention of Ace at all, focusing solely on the allegedly inadequate advice that was provided

to Plaintiffs. Read alone, those counts have nothing in common with any of the claims brought

against Ace. Plaintiffs make much of the overlap in time and the effect of the civil and criminal

proceedings, but it is less than clear to the court those facts give rise to Plaintiffs' causes of action

against Ace or that these tortious actions are even logically related. The legal proceedings could be

considered just a circumstance that forms the basis of knowledge for Ace's actions, or it could be

considered an essential part of the privacy torts and misrepresentation claims alleged against Ace.

Nevertheless, based on these allegations in the complaint, the court cannot say at this point

in the proceedings that the events giving rise to Plaintiffs right to relief do not "aris[e] out of the

same transaction, occurrence, or series of transactions or occurrences." M.R. Civ. P. 20(a).

The court must thus deny Ace's motion to sever without prejudice. The parties are

encouraged to conduct discovery in a manner that will expediently and fully explore the connection

between the actions of Preti, MCM, and Ace, as Ace has indicated its intent to move for severance

again with a more fully developed evidentiary record.

9 Based on the foregoing, Ace's motion to sever is DENIED without prejudice. Pursuant to

M.R. Civ. P. 79(b), the clerk is hereby directed to incorporate this Order and Judgment by

~ incorporation in the docket.

Dated October 25, 2011 A.M. Horton Justice, Business and Consumer Court

Entered on the Docket: l 0 • 2..5 · l\ Copies sent via Mail _ Electronically 5::::'

10 BUSINESS AND CONSUMER COURT

Kaile R. Warren, Jr. et al v. Preti, Flaherty, Beliveau & Pachios, LLC et al BCD-CV-2011-28

Daniel Lilley, Esq. Kaile Warren, Jr. et al (Plaintiffs) Tina Nadeau, Esq. Kaile Warren, Jr. et al (Plaintiffs)

John Aromando, Esq. Preti, Flaherty, Beliveau & Pachios (Defendant) Mark Porada, Esq. Preti, Flaherty, Beliveau & Pachios (Defendant)

Peter DeTroy, Esq. Marcus, Clegg & Mistretta (Defendant) Russel Pierce, Esq. Marcus, Clegg & Mistretta (Defendant)

Thimi Mina, Esq. Ace Hardware Corp (Defendant) Samuel Moulthrop, Esq. Ace Hardware Corp (Defendant) STATE OF MAINE BUSINESS AND CONSUMER COURT Cumberland, ss Location: Portland Docket No.: BCD-CV-11-28 I

( ( ;

) KAILE R. WARREN, JR. et als. ) ) Plaintiffs ) ) v. ) ) PRETI, FLAHERTY, BELIVEAU & ) PACHIOS, LLC, et als. ) ) Defendants )

ORDER ON DEFENDANTS' JOINT MOTION TO COMPEL AND PLAINTIFFS' MOTION FOR PROTECTIVE ORDER

Defendants' Joint Motion to Compel Documents Reflecting Communications Between

Attorney Lilley and Assistant Attorney General Colleran, and Plaintiffs' Motion for Protection are

before the court. The court elects to decide bod1 motions wid10ut oral argument, see M.R. Civ. P.

7(b)(7).

The subject matter of bod1 motions is a senes of communications between Plaintiffs'

counsel and one or more attorneys in d1e Office of tl1e Maine Attorney General in d1e context of

now-concluded criminal and civil cases instituted by tl1e State against Plaintiffs in tl1e Cumberland

County Unified Criminal Docket and tl1e Cumberland County Superior Court. State v. Warren,

Docket No. CUMCD-09-9716; State v. Rent-A-Husband et als., Docket No. CUMSC-CV-11-07.

The materials at issue are listed in a "privilege log" attached as Exhibit A to d1e Plaintiffs'

Motion for Protection. In d1at log, d1e disputed materials are listed by Bates number, all wid1 d1e

prefix ofKWC.'

1 The privilege log also includes documents withheld on the ground of attorney-client privilege-all assigned Bates numbers with a KWE prefix-that are not at issue and therefore are excluded from the scope of this Order. The following points are clearly established:

• All of the materials are communications between Plaintiffs' counsel and the counsel for the

State in the two cases•

• The State and the Plaintiffs were adverse parties (parties on opposite sides of the claims or

charges at issue in the cases), as opposed to being co-parties with similar or identical interests

• All of the communications were prepared in anticipation of, or in the course of litigation or for

trial, in the civil and criminal cases between d1e State and tl1e Plaintiffs

• The sole ground asserted by Plaintiffs in d1eir Motion for Protection for objecting to disclosure

of d1e communications and related materials is d1e provision in Rule 26(b)(3) of d1e Maine

Rules of Civil Procedure tl1at affords protection against disclosure of an attorney's work

product

Plaintiffs contend d1at because all of the materials at issue were prepared in anticipation of

litigation or trial in one or botl1 of tl1e two prior cases within tl1e meaning of Rule 26(b) (3), the

Defendants are required to make a showing of "substantial need" for tl1em, widrin d1e meaning of

d1e rule. Plaintiffs contend Defendants have failed to make tl1e required showing and tl1at, in any

case, the court should preclude discovery because d1e requested materials contain "mental

impressions, conclusions, opinions or legal tl1eories" of Plaintiffs' counsel and d1erefore constitute

attorney work product.

Defendants counter d1at d1e "substantial need" and work product provisions of Rule

26(b) (3) do not apply because all of tl1e disputed materials were disclosed by Plaintiffs' counsel to

counsel for an adverse party. They also contend tl1at the attorney work product does not apply in

2 The court agrees with the Defendants that Plaintiffs cannot assert an attorney work product objection as to work product of the State's counsel, so only the work product of Plaintiffs' own counsel is at issue.

2 any event because the disputed material was all prepared in connection with litigation other than

the present case.

Neither side has identified any Law Court or other Maine court precedent directly on

point, but both rely on federal court precedent addressing the counterpart federal rule, Fed. R.

Civ. P. 26(b)(3). The Law Court as well has relied on federal authority as guidance in analyzing

Rule 26(b)(3). See Boccaleri v. Maine Medical Center, 534 A.2d 671, 672-73 (Me. 1987). Tllis

court likewise looks to federal authority for guidance.

"The work-product doctrine, codified for tl1e federal courts in Fed. R. Civ. P. 26(b)(3), is intended to preserve a zone of privacy in wllich a lawyer can prepare and develop legal tl1eories and strategy "witl1 an eye toward litigation," free from unnecessary intrusion by }lis adversaries. Analysis of one's case "in anticipation of litigation" is a classic example of work product and receives heightened protection under Fed. R. Civ. P. 26(b)(3).

United St-1tes v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998), quoting NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 154(1975); Hickman v. Taylor, 329 U.S. 495,510-11 (1947).

However, as the United States Supreme Court has held, "[t]he privilege derived from tl1e

work-product doctrine is not absolute. Like otl1er qualified privileges, it may be waived." United

States v. Nobles, 422 U.S. 225, 239 (1975).

Based on logic as well as tl1e clear weight of autl10rity, tllis court concludes that when an

attorney voluntarily communicates the attorney's "mental impressions, conclusions, opinions or

legal tl1eories" to opposing counsel in litigation, that disclosure operates to waive whatever Rule

26(b)(3) protection might otherwise attach to tl1at communication. See. e.g., United States v.

Massachusetts Institute of'Teclmology, 129 F.3d 681, 687 (1" Cir. 1997), citing Westinghouse

Elec. Corp. v. Republic ofd1e Philippines, 951 F.2d 1414, 1428-29 (3d Cir.l991); In re Steinhardt

Partners, L.P., 9 F.3d 230, 235 (2d Cir.1993); In re Subpoenas Duces Tecum, 738 F.2d 1367,

1371-75 (D.C.Cir.1984); In re Martin Mariett-1 Corp., 856 F.2d 619, 625 (4tll Cir.1988), cert.

3 denied, 490 U.S. 1011 (1989); In re Chrysler Motors Corp. Overmght Evaluation Program Lif.Jg.,

860 F.2d 844, 846-47 (8th Cir.1988). See also 8 C. Wright, A. Miller & R. Marcus, FEDERAL

PRACTICE AND PROCEDURE§ 2024, at 368-69 (1994) (citing cases).

"Disclosure to an adversary waives the work product protection as to items actually

disclosed, even where disclosure occurs in settlement." Grumman Aerospace Corp. v. Titanium

Metals Corp. ofAmerica, 91 F.R.D. 84, 90 (E.D.N.Y.1981); see also Chubb Integrated Systems

Ltd. v. Naa·onal Bank, 103 F.R.D. 52, 67 (D.D.C.l984).

Here, all of the materials at issue either were, or were included in, communications

between Plaintiffs' counsel and opposing counsel in two cases in which the State and the Plaintiffs

were plainly adverse. The court concludes that such disclosure operates to waive any basis for

objection to discovery under the Rule 26(b)(3) "substantial need" and attorney work product

provisions and in fact removes the materials in question from within the ambit of Rule 26(b) (3).

This conclusion makes it unnecessary, at least in tins Order, to address ti1e Defendants'

alternate argument ti1at Rule 26(b)(3) does not protect ti1e materials at issue because ti1ey were

generated in anticipation of, or during, different litigation. See, e.g. Hunnewell, Inc. v. Piper

Aircraft Corp., 50 F.R.D. 117, 119 (M.D. Pa. 1970); Hanover Shoe, Inc. v. United Shoe

Machinery Corp., 207 F. Supp. 407, 410 (M.D. Pa. 1962). The Plaintiffs have a reasonable

argument ti1at ti1e connection between ti1e State's claims and charges in ti1e prior civil and criminal

cases on ti1e one hand and ti1eir claims in ti1is case on ti1e oti1er hand is sufficient to extend ti1e

protection of Rule 26(b) (3) to ti1eir counsels' work product as to which ti1at protection has not

been waived, even ti1ough ti1e prior litigation is concluded. See Federal Trade Commission v.

Grolier, Inc., 462 U.S. 19, 28 (1983) (in Freedom oflnformation Act appeal, "attorney work

product is exempt from mandatory disclosure witi10ut regard to ti1e status of ti1e litigation for wllich

4 it was prepared"). See also Philadelphia Elec. Co. v. Anaconda American Brass Co., 27 5 F. Supp.

146, 148 (E.D. Pa. 1967), citing Republic Gear Company v. Borg-Warner Co., 381 F.2d 551 (2d

Cir. 1967). However, the court need not and does not decide the broader question of how Rule

26(b)(3) applies to Plaintiffs' counsels' work product materials beyond those that have been

communicated to opposing counsel in the prior cases.

The 6-page privilege log filed as Exhibit A on its face indicates that all of the documents at

issue-assigned Bates numbers with a KWC prefix-were communications between Plaintiffs'

counsel and one or more representatives of the Office of the Attorney General and, in some cases,

others. On their face therefore, all of the disputed materials are outside the protection of Rule

26(b) (3) based on waiver by means of voluntary disclosure to opposing counsel. It is thus

unnecessary for the court to conduct any in camera review of the enumerated materials.

IT IS ORDERED AS FOLLOWS:

(1) Defendants' Joint Motion to Compel is hereby granted. Plaintiffs' Motion for

Protection is hereby denied. All documents listed with a KWC Bates number prefix in the

privilege log attached to Plaintiffs' motion as Exhibit A shall be disclosed by Plaintiffs' counsel

forthwith to the Defendants' counsel within 10 days of tllis Order.

Pursuant to M.R. Civ. P. 79(b), tl1e clerk is hereby directed to incorporate tllis Order by

reference in tl1e docket.

Dated 4 January 2012

Justice, Business and Consumer Court

Entered on the Docket I· Lf · ~61 't-- Copies sent via Mail _ Electronically ..V

5 BUSINESS AND CONSUMER COURT

Kaile R. Warren, Jr. et al v. Preti, Flaherty, Beliveau & Pachios, LLC et al BCD-CV-2011-28

Attorney N arne Party Name

Daniel Lilley, Esq. Kaile Warren, Jr. et al (Plaintiffs) Tina Nadeau, Esq. Kaile Warren, Jr. et al (Plaintiffs)

John Aromando, Esq. Preti, Flaherty, Beliveau & Pachios (Defendant) Mark Porada, Esq. Preti, Flaherty, Beliveau & Pachios (Defendant)

Peter DeTroy, Esq. Marcus, Clegg & Mistretta (Defendant) Russel Pierce, Esq. Marcus, Clegg & Mistretta (Defendant)

Thimi Mina, Esq. Ace Hardware Corp (Defendant) Samuel Moulthrop, Esq. Ace Hardware Corp (Defendant) STATE OF MAINE BUSINESS AND CONSUMER COURT CUMBERLAND, ss Location: Portland Docket No.: BCD-CV-11-p28 fTJ\11 H - GuM- -~ 'Z../ ;;L.~)! <.. f ;

) KAILE R. WARREN, JR., ) RENT-A-HUSBAND LLC, ) RENT-A-HUSBAND ENTERPRISES, ) LLC, and KW ENTERPRISES, INC., ) ) Plaintiffs, ) ) V. ) ) PRETI, FLAHERTY, BELIVEAU & ) PACHIOS, LLC, MARCUS, CLEGG & ) MISTRETTA, P.A., and ACE ) HARDWARE CORPORATION, ) ) Defendants ) )

ORDER ON ACE HARDWARE CORPORATION'S SPECIAL MOTION TO DISMISS

Ace Hardware Corporation (Ace) moves to dismiss Plaintiffs' claims for defamation

(Count V) and false light (Count VI) pursuant to Maine's anti-SLAPP statute, 14 M.R.S. § 556

(2011). Plaintiffs oppose the motion on two grounds: first, the statements of ACE on which

those claims are not protected under the anti-SLAPP statute; and second, Ace's statements had

no "reasonable factual support or any arguable basis in law." 14 M.R.S. § 556. By agreement of

the parties, the court did not hold oral argument on Ace's motion.

Viewed in the light most favorable to Ace as the moving party, the pleadings and

affidavits reveal the following facts. See Morse Bros., Inc. v. Webster, 2001 ME 70, ~ 18, 772

A.2d 842. In 2009, in response to media inquiries regarding Rent-A-Husband, Ace issued a

1 media statement regarding its relationship with Plaintiffs. 1 (Boniface Aff. ~ s.) The media

statement provided:

A handful of independently owned and operated Ace stores have or have had relationships with Rent-A-Husband, which is just one of a number of do-it-for-me service providers with whom select Ace stores across the country have partnered.

For six months in 2003, the Ace Hardware Corporation worked with Rent-A-Husband for it to provide certain services to customers of several Ace stores located in Maine and New Hampshire. Over the next several years, Ace had a series of informal discussions with Mr. Warren regarding a potential ownership stake in Rent-A-Husband, but no formal agreement or agreement in principle was ever reached. In early 2008, Ace discontinued these and other conversations with Mr. Warren for a number of business reasons.

Ace has no knowledge of Mr. Warren's conversations with his investors or lenders.

(Boniface Aff. Exh. 1.) On October 21, 2009, September 10, 2009, and September 4, 2009, three

separate articles were published by three separate publications regarding Plaintiffs' business

relationships with Ace. (Boniface Aff. ~ ~ 4-6; see Boniface Aff. Exhs. 2-4.)

On or about November 2, 2009, the Maine State Office of Securities served a subpoena

for documents on Ace, commanding production of documents in Ace's possession pertaining to

Ace's business relationship or prospective business relationship with Plaintiffs. (Bohl Aff. ~ S;

see Bohl Aff. Exh. A at s.) Ace produced the documents on November 19, 2009, and December

15, 2009. (Bohl Aff. ~ S.)

In December of 2009, Ace was advised that Plaintiff Warren had been indicted for

criminal offenses by a grand jury in Maine in the matter of State v. Kaile R. Warren, Jr., docket

number CUM-CR-09-9716. (Bohl Aff. ~ 4.) Following return of the indictment, the Office of

Securities sought the testimony of five Ace employees: John Venhuizen, David Sonnen, Mark

Riebe, Jay Huebner, and Dale Fennel. (Bohl Aff. ~ 5.) The unsworn interviews were

1 It is not clear when Ace issued the media statement, but the court presumes it occurred at or near the time of the criminal and civil investigations ofPlaintiffKaile R. Warren. conducted via telephone on January 14, 2010, January 19, 2010, and January 22, 2010. (Bohl

Aff ~ 5.) Four of these employees were designated as trial witnesses for the criminal case.

(Bohl Aff ~ 6.) All contact between Ace and the Office of Securities was initiated by the state

agency. (Bohl Aff ~~ 7-8.)

While the criminal matter was still pending the State of Maine filed a civil enforcement

action against the Plaintiffs alleging securities violations. (Compl. ~ 52.) On February 23,

2011, a consent judgment was entered into with the Plaintiffs, pursuant to which the criminal

prosecution was dismissed with prejudice and Plaintiffs agreed to pay restitution to the State of

Maine for the Rent-A-Husband investments of$1,994,657.08 plus interest. (Compl. ~~54-55.)

Plaintiffs initiated this litigation in Cumberland County Superior Court on March 22,

2011, which included claims against Ace for defamation (Count V) and false light (Count VI)

based on the foregoing statements to the media and the Office of Securities. Pursuant to this

court's Order on Motion to Modify of Ace Hardware, dated November 29, 2011, the court

allowed Ace to file a special motion to dismiss pursuant to 14 M.R.S. § 556.

Maine's anti-SLAPP statute (Strategic Lawsuit Against Public Participation), 14 M.R.S.

§ 556, "is designed to guard against meritless lawsuits brought with the intention of chilling or

deterring the free exercise of the defendant's First Amendment right to petition the

government by threatening would-be activists with litigation." Schelling v. Lindell, 2008 ME

59, ~ 6, 942 A.2d 1226. The statute provides for a special motion to dismiss when a claim

asserted against the moving party is "based on the moving party's exercise of the moving

s party's right to petition under the Constitution of the United States or the Constitution of

Maine." 2 14 M.R.S. § 556.

The defendant carries the initial burden of showing that the claims to which the anti-

SLAPP motion is directed are based upon "petitioning activities alone and have no substantial

basis other than or in addition to the petitioning activities." 3 Duracrafl Corp. v. Holmes Prods.

Corp., 691 N.E.2d 935, 943 (Mass. 1998). The "focus solely is on the conduct complained of,

and, if the only conduct complained of is petitioning activity, then there can be no other

substantial basis for the claim." The Cadle Co. v. Schlichtmann, 859 N.E.2d 858, 864 (Mass.

2007) (quotation marks omitted). If the moving party meets this burden, then "the party

against whom the special motion is made" must show "that the moving party's exercise of its

right of petition was devoid of any reasonable factual support or any arguable basis in law" and

resulted in "actual injury" to the non-moving party. 14 M.R.S. § 556; accord Schelling, 2008 ME

59,~ 7, 942 A.2d 1226.

The court must first determine whether the Plaintiffs' claims at issue have as their only

substantial basis petitioning activity by Ace that is protected by the statute. 4 Section 556

defines the exercise of the right to petition as follows:

any written or oral statement made before or submitted to a legislative, executive or judicial body, or any other governmental proceeding; any written or oral statement made in connection with an issue under consideration or review by a legislative, executive or judicial body, or any other governmental

2 The First Amendment to the United States Constitution provides, in relevant part: "Congress shall

make no law ... abridging . . . the right of the people to peaceably assemble, and to petition the government for a redress of grievances." Article I, section 15 of the Maine Constitution provides: "The people have a right at all times in an orderly and peaceable manner to assemble to consult upon the common good, to give instructions to their representatives, and to request, of either department of the government by petition or remonstrance, redress of their wrongs and grievances." s As the parties point out, Massachusetts's anti-SLAPP statute is nearly identical to Maine's, and the Law Court has relied upon Massachusetts cases in interpreting Maine's statute. See Morse Bros., Inc. v. Webster, 2001 ME 70, ~ ~ 15, 17-20, 772 A.2d 842; if Copp v. Liberty, Mem-10-2 (Feb. 2, 2010). + Because none of the parties has argued that the Attorney General's Office and the Office of Securities are not executive bodies, the court will assume that both are executive bodies for purposes of the anti- SLAPP statute.

4 proceeding; any statement reasonably likely to encourage consideration or review of an issue by a legislative, executive or judicial body, or any other governmental proceeding; any statement reasonably likely to enlist public participation in an effort to effect such consideration; or any other statement falling within constitutional protection of the right to petition government.

14 M.R.S. § 556; accord, Schelling, 2008 ME 59, ~ 11, 942 A.2d 1226 (characterizing the "right

to petition" as defined "very broadly" under the anti-SLAPP statute).s

In subsequent cases, the "right to petition" protected by the statute has included

administrative appeals by abutting landowners from decisions of planning boards and a state

environmental agency, see Morse Bros, Inc., 2001 ME 70, ~~ 3-6, 19, 772 A.2d 842, statements

made by a citizen and his attorney to the press regarding a contractual dispute on a public

construction project, see Maietta Constr., Inc. v. Wainwright, 2004 ME 53, ~ ~ 2-4, 847 A.2d

1169, and a letter to the editor of a state legislator regarding a bill recently considered by the

Maine Legislature, see Schelling, 2008 ME 59,~~ 13-14, 942 A.2d 1226.

Ace asserts that because all the statements made in the interviews were part of ongoing

investigations, those statements fall within "any written or oral statement made before or

submitted to a legislative, executive or judicial body, or any other governmental proceeding."

14 M.R.S. § 556. Ace also asserts that the media statement falls within "any written or oral

statement made in connection with an issue under consideration or review by a legislative,

executive or judicial body" because the statement was "reasonably likely to enlist public

participation" and garner support for Ace's position. !d.; see also Maietta Constr., Inc., 2004 ME

53, ~ 23, 847 A.2d 1169 (Calkins, J., dissenting).

5 The Massachusetts Supreme Judicial Court has stated that the right to pet1t10n may include: "reporting violations of law, writing to government officials, attending public hearings, testifying before government bodies, circulating petitions for signature, lobbying for legislation, campaigning in initiative or referendum elections, filing agency protests or appeals, being parties in law-reform lawsuits, and engaging in peaceful boycotts and demonstrations." Duracraft Corp. v. Holmes Prods. Corp., 691 N.E.2d 9S5, 940 (Mass. 1998) (quotation marks omitted).

5 Plaintiffs counter that Ace was not engaged in petitioning activity at all because Ace

was not seeking redress for grievances of its own. Plaintiffs characterize Ace's interview

statements as those of witnesses responding to questions, not activists initiating a discussion,

and Ace's media statement as being aimed at dissociating Ace from the Plaintiffs. Plaintiffs

suggest that at no time was Ace "petitioning" a governmental body to take action. Plaintiffs

rely upon a series of Massachusetts Supreme Judicial Court cases in which the Massachusetts

high court has limited the scope of the Massachusetts anti-SLAPP statute.

In Kobrin v. Gastfriend, 821 N.E.2d 60 (Mass. 2005), the court held that an expert

witness hired by an administrative board to provide an expert report and testimony could not

claim the protection of the anti-SLAPP statute for statements made before the board because he

was not exercising his own right to petition or seek redress from the administrative board. Id.

at 64-65. Relying on the language of the statute, the court explained that "[t]he statute

explicitly extends protection to a party based on 'said party's exercise of its right of petition,"'

see id. at 64 (quoting MASS. ANN. LAWS ch. 2.31, § 59H (LEXIS through 2011 Legis. Sess.))

(emphasis in case); accord 14 M.R.S. § 556 ("moving party's exercise of the moving party's right to

petition"; "a party's exercise of its right of petition" (emphasis added)), and the right of petition

protected is that guaranteed by the federal and state constitutions, see 821 N.E.2d at 65. 6 The

expert "was not exercising his right to petition or seek any redress from the board (a

government body), but rather was acting solely on behalfofthe board as an expert investigator

6 The Massachusetts Constitution provides, in relevant part:

The people have a right, in an orderly and peaceable manner, to assemble to consult upon the common good; give instructions to their representatives, and to request of the legislative body, by the way of addresses, petitions, or remonstrances, redress of the wrongs done them, and of the grievances they suffer.

Mass. Const. pt. I, art. XIX.

6 and witness." Kobrin, 821 N.E.2d at 65. Thus, the court held that the anti-SLAPP statute did

not apply to the expert because he was not petitioning on his own behalf. !d. at 69.

Likewise, in Fustolo v. Hollander, 920 N.E.2d 837 (Mass. 2010), a reporter wrote a series

of articles for a neighborhood paper in which she was critical of a developer's proposed projects.

!d. at 839. The reporter was also a resident of the neighborhood in question and an active

member of a community organization similarly critical of neighborhood development projects,

but she did not disclose her membership in the organization in her articles and always wrote in

an objective manner. !d. at 839, 842. When the developer sued for defamation, the reporter

filed an anti-SLAPP motion, arguing that the articles "gave expression to her personal interests

as a member of the community keenly interested in its development and protection" and that

the reporting "played an essential role in facilitating the petitioning activity of [the community

organization] and other members of the community." !d. at 840. The Massachusetts Supreme

Judicial Court held, consistent with Kobrin, that the reporter's articles were not petitioning

activity because they "did not contain statements seeking to redress a grievance or to petition

for relief ofher own." !d. at 842.

Finally, in The Cadle Co. v. Schlichtmann, 859 N.E.2d 858 (Mass. 2007), the court

addressed a website published by an attorney regarding the practices of a debt collection

company; the attorney was also suing that company on behalf of four clients. !d. at 860-61.

When the debt collection company sued for defamation and other various claims, the attorney

responded with an anti-SLAPP motion that asserted the lawsuit was filed in retaliation for the

attorney's petitioning activities. !d. at 862. On appeal, the court held that the website was not

petitioning activities by an injured member of the public, but was, at least in part, commercial

activity "as an attorney advertising his legal services" and attempting "to attract clients to his

law practice." !d. at 864-65. Although the debt collection company's practices had generated

7 public and governmental interest, the court also noted: "[t]hat a statement concerns a topic

that has attracted governmental attention, in itself, does not give that statement the

[petitioning] character contemplated by the [anti-SLAPPJ statute." !d. at 866-67 (quoting

Global NAPs, Inc. v. Verizon New Eng., Inc., 828 N.E.2d 529, 53S (Mass. App. Ct. 2005)) (third

alteration added). Because the court concluded that the website did not constitute petitioning

activities, the trial court's denial of the anti-SLAPP motions were affirmed. !d. at 867; see also

id. at 864 ("if the only conduct complained of is petitioning activity, then there can be no other

substantial basis for the claim" (quotation marks omitted)). -

The Law Court has not addressed the scope of petitioning activities under Maine's

anti-SLAPP statute in the same depth as have the Massachusetts courts. But see Schelling, 2008

ME 59, ~ 11, 942 A.2d 1226 (indicating the right to petition protected by the anti-SLAPP

statutes is very broad). Nevertheless, in light of the substantial similarity between the Maine

and Massachusetts Constitutions and the Maine a Massachusetts anti-SLAPP statutes and, the

court finds the reasoning of the Massachusetts cases persuasive.

First, the rights protected by the Massachusetts and Maine anti-SLAPP statutes are the

same: the exercise of the rights of petition under the federal and state constitutions. See 14

M.R.S. § 556 (protecting the exercise of the "right of petition under the Constitution of the

United States or the Constitution of Maine"); cf. MASS. ANN. LAws ch. 231, § 59H (protecting

the exercise of the "right of petition under the constitution of the United States or of the

commonwealth"). Second, the Maine and Massachusetts Constitutions' respective guarantees

of the right to petition contain nearly identical language. Compare Me. Const. art. I, § 15, with

Mass. Const. pt. 1, art. XIX. Finally, both anti-SLAPP statutes expressly state that the right of

petition protected is the constitutional right to petition of the party attempting to secure

protection of the anti-SLAPP statue. See 14 M.R.S. § 556 ("moving party's exercise of the moving

8 party's right to petition"; "a party's exercise of its right of petition" (emphasis added)); MASS.

ANN. LAWS ch. 23 I, § 59H ("said party are based on said party's exercise if its right of petition";

"a party's exercise of its right of petition" (emphasis added)).

Based on these similarities, the court concludes that the Law Court would limit the

protection afforded by the Maine anti-SLAPP statute to statements or activities made in the

moving party's exercise of its own right to petition. See Fustolo, 920 N.E.2d at 842; Kobrin, 821

N.E.2d at 65.

Plaintiffs allege that the media statement and the interviews were defamatory in nature

and argue that Ace is not protected by section 566 because Ace was not seeking a redress of

grievances or petitioning on its own behalf by issuing a media statement and cooperating with

the Office of Securities' and Attorney General's respective investigations into Plaintiffs. 7 See

Fustolo, 920 N.E.2d at 842; Kobrin, 821 N.E.2d at 69.

Ace asserts that its motive for what it claims to be petitioning activity is irrelevant.

Motivation for petitioning activity is indeed irrelevant in an anti-SLAPP analysis, see Office One,

Inc. v. Lopez, 769 N.E.2d 749, 757 (Mass. 2002), but Ace must still establish that it was in fact

exercising its own right of petition by engaging in petitioning activity, see 14 M.R.S. § 556.

Nothing in the record suggests that Ace's purpose in issuing the media statement was to

influence any governmental body, enlist public participation, or "expand public consideration"

on any matter relating to the media statement. See id. ~IS, 942 A.2d 1226.

Still, Ace's media statement arguably can be analogized to the letter to the editor in

Schelling. Were the media statement "the only conduct complained of' by Plaintiffs, see The

Cadle Co., 859 N.E.2d at 864, the Schelling decision could support granting Ace's special motion

7 Ace attempts to distinguish Kobrin on the ground that the expert was a government contractor, but the decision in Fustolo makes clear that the essential holding of Kobrin is not about the expert's status as a government contractor but his failure to engage in any activity seeking a redress of his own grievances to a government body.

9 to dismiss. 8 Plaintiffs' claims, however, not only assert defamation in the media statement, but

also assert that Ace employees provided defamatory information in the course of the interviews

with the Maine Office of Securities.

The record does not support Ace's argument that its interview responses reflected

"petitioning" activity on its own behalf. Ace has not identified any grievance it had for which it

was seeking redress, any interest of its own it was pursuing in the course of responding to

questions in the interviews, or any issue under consideration it was attempting to influence or

upon which it was attempting to enlist public participation to effect such consideration. It is

undisputed that Ace did not initiate communications with the Office of Securities and that the

Office of Securities initiated all communication with Ace. Moreover, Ace did not bring the

alleged security violations to the attention of the Office of Securities; had it done so, this

analysis might have had a different outcome. Ace was simply responding to inquiries in the

context of a government investigation of third parties. 10

The court has not located any authority, at least m Maine, for the proposition that

statements responding to information requests, as opposed to statements initiating a discussion

or a complaint, in the course of a civil or criminal prosecution of a third party from a law

enforcement agency or an executive, legislative, or judicial body are protected under the

anti-SLAPP statute. 11 This is not to say that the protection of the anti-SLAPP statute can

s That Schelling would compel a ruling for Ace were the Plaintiffs' claims for defamation and false light limited to the media statement is not clear. The Schelling case reflects a very broad application-perhaps defining the outer limits-of the anti-SLAPP statute. 10 Pertinent anti-SLAPP cases indicate that protected petitioning activity can include reports made to a

law enforcement agency when the moving party initiated the report. See Benoit v. Frederickson, 908 N.E.2d 714, 719 (Mass. 2009) (concluding a teenager's report of rape to the police was petitioning activity protected by the anti-SLAPP statute); McLarnon v. Jokisch, 727 N.E.2d 8 IS, 816-18 (Mass. 2000) (holding that the protection of the anti-SLAPP statute "is broad enough to include filing for abuse protection orders and supporting affidavits"). 11 The court distinguishes between Ace's voluntary responses to activity at issue here and sworn testimony before an executive, legislative, or judicial body, which can be compelled by the governmental body.

10 never extend to statements made in response to a government inquiry, but only to say that

statements initiating by the moving party can more clearly be considered petitioning activity.

CONCLUSION

In Kobrin, the Massachusetts high court said that in analyzing the merits of an

anti-SLAPP motion to dismiss, "our only concern, as required by the statute, is that the person

be truly 'petitioning' the government in the constitutional sense." 861 N.E.2d at 68 n.14. Ace

has not established that the conduct on which Plaintiffs' claims for defamation (Count V) and

false light (Count VI) are based consisted of Ace's own protected petitioning activity. Ace

therefore has not made the initial showing required before the burden is shifted to the

Plaintiffs, and it is unnecessary to proceed to that step of the analysis. See 14 M.R.S. § 556;

Duracrafl Corp., 691 N.E.~d at 943.

On the other hand, the court is satisfied that Ace had ample basis for the motion-based

on the Ace media statement, which is one of the bases for Plaintiffs' claims, arguably being

protected-and therefore that the Plaintiffs' request for sanctions under M.R. Civ. P. 11 is

uncalled for, and it is denied.

Based on the foregoing, Defendant Ace Hardware Corporation's special motion to

dismiss is DENIED. Pursuant to M.R. Civ. P. 79, the clerk shall incorporate this order into ,/7 the docket by reference. //·:~;; /' /IYt. Dated 12 March 2012 j .

A.M. Horton Justice, Business and Consumer Court

~ntered on the Doekat: ~ .J$ .11-._/ Copies sent via Mall _ Electronically~

11 BUSINESS AND CONSUMER COURT

Kaile R. Warren, Jr. et al v. Preti, Flaherty, Beliveau & Pachios, LLC et al BCD-CV-2011-28

Daniel Lilley, Esq. Kaile Warren, Jr. et al (Plaintiffs) Tina Nadeau, Esq. Kaile Warren, Jr. et al (Plaintiffs)

John Aromando, Esq. Preti, Flaherty, Beliveau & Pachios (Defendant) Mark Porada, Esq. Preti, Flaherty, Beliveau & Pachios (Defendant)

Peter DeTroy, Esq. Marcus, Clegg & Mistretta (Defendant) Russel Pierce, Esq. Marcus, Clegg & Mistretta (Defendant)

Thimi Mina, Esq. Ace Hardware Corp (Defendant) Samuel Moulthrop, Esq. Ace Hardware Corp (Defendant) STATE OF MAINE BUSINESS & CONSUMER COURT CUMBERLAND, ss. LOCATION: Portland Docket No. BCD-CV-11-~'i3 J jl tvl jJ .- C~M- 3_jte~/c?.01~

) !-\AILE R. WARREN, JR., ) RENT-A-HUSBAND LLC, ) RENT-A-HUSBAND ENTERPRISES, ) LLC, and 1-\W ENTERPRISES, INC., ) ) Plaintiffs, ) ) v. ) ) PRETI, FLAHERTY, BELIVEAU & ) PACHIOS, LLC, MARCUS, CLEGG & ) MISTRETTA, P.A., and ACE ) HARDWARE CORP., ) ) Defendants ) )

ORDER ON DEFENDANTS' JOINT MOTION TO CO:MPEL

On December 3, 2012, Defendants Preti, Flaherty, Beliveau & Pachios, LLC (Preti),

Marcus, Clegg & Mistretta, P.A. (MCM), and Ace Hardware Corp. (Ace) jointly moved to

compel production of documents from the Maine Attorney General's office as they related to

the civil and criminal prosecutions ofPlaintiffKaile R. Wanen, Jr. See Superseding Indictment,

State v. !Farren, CUMSC-CR-2009-9716 (Me. Super. Ct., Cum. Cty., Apr. 9, 2010). The

Attorney General asserted that both work-product pl'ivilege and deliberative process privilege

protected the documents in question. 1

1 The Attorney Genet·al also asserted work-product protection for the documents. See M.R. Civ. P 26(b)(S). Because, however, I) the Defendants and the Attorney General are not adversaries in this proceeding; 2) the Defendants were not a party to the pl'ior proceeding; and 3) the Attomey General is not a party to the present proceeding, worl~ pwduct protection is inapplicable. The Court does not ncldress this argument any further. The Court heard oral arg·ument on the motion on February s, 2012, but at that time, the

deposition of Assistant Attorney General Colleran had not yet tal

instructed the parties to "proceed with the deposition of [AAGJ Colleran, focusing on

documents already disclosed." (CMC Order No.2, Feb. 9, 2012, at s.)

The parties could then re-pt·esent their arguments with more context fot· the Court and

in light of the actual objections made at the deposition. The Colleran deposition could not be

scheduled before the case was stayed pending Ace's appeal of the Comt's March 12, 2012,

order, which denied Ace's special motion to dismiss. Once the stay was lifted in June of 2012,

the case proceeded and AAG Col1eran's deposition took place on September 18, September 19,

and November 5 of 2012. The parties then supplied the Court with supplemental briefing in

December of2012. The Court heard oral argtunent again on January 9, 201S.

One of the key issues in this case is why the Attorney General decided to forego its

criminal and civil prosecutions against Kaile Warren in favor of a civil consent judgment. In a

letter to Rent-A-Husband investors dated February 18, 2011, AAG Colleran wrote that the

State had been investigating Warren's claim

to have relied upon his attorneys in disclosing information to investors and drafting the promissory notes. We finally obtained documents fi·om [Warren's] former law firm late in 2010 and received further explanatory information from them last month. Tlus evidence has caused us to conclude that we would be unlikely to obtain criminal convictions against Mr. Warren. As a result, we have decided to pmsne a civil enforcement action against Mr. Warren instead of continuing with the criminal prosecution. In civil actions, the State need not prove that Mr. Vv'anen acted knowingly or intentionally, and the extent to which he relied upon counsel is not the obstacle it would be in a criminal case.

After several weeks of discussions, we have reached an agreement with Mr. 'Warren under which a civil judgment will be entered against lum for sale of unregistered securities and failure to disclose material facts in connection with sectu·ities transactions.

(Colleran Depo. Exh. 'J.9.) The civil consentjudg·ment, dated February 2S, 2011, dismissed the

pending criminal charges but obligated Warren, Rent-A-Husband, LLC, and KW Enterprises,

2 Inc. to pay restitution in the amount of$1,994,657.08 (plus post judgment interest at the rate of

6.SO% tl·om the date of judgment) to the State of Maine. Consent Judgment, State v. Rent-A-

Husba11d, LLC, CUMSC-CV-2011-07, at ~ 1 (Me. Super. Ct., Cum. Cty., Feb. 23, 2011)

(hereinafter, "Consent Judgment). 2 The State, in turn, would distribute the restitution pro rata

to the victims identified in the Superseding Indictment. (Consent Judgment ~ 2.)

The Consent Judgment also required that vVruTen, Rent-A-Husband, and KW

Enterprises "make best efforts to recover damages from any person or entity ... who might be

liable to the Defendants in connection with activities that are the subject of the Superseding

Indictment and the Amended Civil Complain in tllis matter." (Consent Judgment ~ S.) The

Consent Judgment further required that Warren, Rent-A-I-Iusbru1d, and KW Enterprises "make

monthly detailed reports to the State regarding these efforts" and prohibited them from

settling claim unless it was on "terms acceptable to the State." (Consent Judgment ~~ s.) Any

funds recovered would go to fund the restitution and interest requirements of the Consent

judgment. (Consent Judgment ~ 3.) The Plaintiffs filed suit in this case against the

Defendants less than one month after the court approved the Consent Judgment.

The Cotu't recognizes the vital importance of the deliberative process privileg·e. 3 The

privilege protects

documents reflecting advisory opinions, recommendations and deliberations comprising prut of a process by which governmental decisions ru1d policies are formulated. The deliberative process privilege rests on the obvious realization that officials will not communicate candidly among themselves if each remark is a potential item of discovery and front page news, and its object is to enhance

~ The Consent Judgment appears in several places in the record: as Exhibit C to Plaintiffs' Complaint; as Exhibit 2 to Defendants' Joint Motion to Compel dated Janua1·y 19, 2012; and attached to Defendants' supplemental briefing on the Joint Motion to Compel. s Although the Law Court has not formally recognized the privilege, the court has consistently forbade inquiry "inquiry into the mental processes of administrative decision maker[s].'' Cutler v. State Purchasing Agent, •1•72 A.2d 913, 918 (Me. 198·1•). Defendants have not asserted that the documents are not subject to the deliberative process privilege. Instead, the parties have asserted theil· substantial need for the information. the quality of agency decisions, by protecting open and fran!< discussion among those who make them within the Government.

Dep't qfthe Iuterior & Bureau cifludian Affairs v. Klamath !Vater Users Protective Ass'u, 532 U.S. 1,

8-9 (2001).

Nevertheless, as the Attorney General concedes, the privilege is not absolute. The

documents may be disclosed if the court determines that the "plaintiffs need for the information

outweighs the [agency]'s claim of privilege" and the party seeking the documents has the

bmden of establishing that need. See Ass'u for Reductiou cif Violence v. Hall, 7 34• F.2cl 63, 66 ( Ist

Cir. 1981•). "The interest of the party seeldng disclosure tends to be strongest when the

information in question is highly relevant, helpful, and unavailable from other sources." Id.

In the present case, the Court has limited Defendant's inquiry to documents relevant to

the Attorney General's decision to indict Warren and the ultimate decision to pursue a civil

consent judgment instead of a criminal case,·~ and the Court has reviewed in camera the

documents ftled by the Attorney General. The bases of the decision to indict and the decision

to settle are the key causation issues in the malpractice case. Plaintiffs assert that they relied

upon the advice of counsel in issuing promissot·y notes to raise capital for the Rent-A-Husband

venture, notes that violated Maine securities laws and led to the criminal prosecution of

Plaintiff Warren. Defendants assert that Plaintiff Warren made misrepresentations to

investors unrelated to the advice given by Preti and MCM.

+ Defendants' initial motion was quite broad, seeking the State's complete civil and criminal files regarding the prosecution ofWanen and the other Plaintiffs, including notes of AAG Colleran, and the State's complete file regarding the Consent Judgment. Ostensibly, the request covered the time pel"iod from before the ol'iginal indictment in 2009 through the 20 II consent judgment. In its supplemental briefing of this issue, the Attorney General suggested that "[a]ny intrusion" into the deliberative process privilege ''should be limited to documents and testimony regarding the decision to charge \Varren in December of 2009 and documetns and testimony regarding the decision to resolove the case in Janua1·y-February 20 11." (AG's Supp. Opp'n 10.) The Cou1·t agreed and the AG filed those documents with the Court for its in camem review, divided into documents relevant to the indictments and documents relevant to the dismissal. Much has already been produced in discovery related to the Attomey General's

decision-maldng process,·~ and if tllis case were not unusual in two respects the Court would

likely leave the parties to the existing discovery. The Court has reviewed the cases cited by

Defendants in support of the motion and the Attomey General and in opposition to the motion,

but none ofthese cases fully squares with facts of this case.

The two respects that set this case apart are: first, the fact that the agency decision

maker has already made a substantial disclosw·e as to the deliberative process, as reflected in

Mr. Colleran's February 2011 letter to investors, and second, the agency's initial and

continuing role in this civil case, as contemplated in the Consent Judgment, despite the fact that

the agency is not a party. The Consent Judgment required Plaintiffs to bring this action. 6

Moreover, the Attorney General is not a passive spectator in these proceedings. The Attorney

General can prevent Plaintiffs from settling this action if it determines the terms are

"unacceptable," an undefined, and thus highly discretionary standard.

Undet· the peculiar circumstances of this case, the Court concludes that the docmnents

filed in camera should be produced to the Defendants. The U.tformation cannot be obtained fi·om

any other source, and its relevance and central significance to this case can hardly be

overstated. The Court does not reach this decision lightly, and cautions that the analysis is

highly specific to the unusual circumstances of this case. Nevertheless, Defendants have met

their hlll'den and, with one redaction for privileged information unrelated to tllis case in an

internal memorandum,; the Colll't grants Defendant's motion to compel with respect to the

documents filed iu camera. On the other hand, based on the present record, the Court has no

5 (See AG's Supp. Opp'n 5-6 (listing discovery already produced or adduced on this topic).) u The conunon law has long recognized that a party may not put a conmmnication into issue in litigation and then assert a privilege as to that communication, as is evident in modern-day privilege rules. See, e.g., M.R. Evid. 502(d)(:.J); M.R Evicl. 50:J(e)(S). 7 The documents filed in camera were not indexed or Bates stamped, but the redacted document is the

first page of a memo dated March 22, 2010. The Court is redacting the first paragraph and the final, partial pm·agraph of that single-paged document.

5 intention of permitting any ftu·tl1er inquiry into the agency decision making process. No party

will be allowed to bootstrap the disclosure mandated by this Order into further discovery that

would not have been allowed in the absent of the disclosm·e mandated by this Order. In other

words, the parties will have to worl< with the data they have, and will get by virtue of this

Order.

Consistent with the Court's order on Defendant Preti's Motion for Protection, the

Court will hold the documents fot' twenty-two more days to afford the Attorney General the

opportunity to appeal. See Pierce v. Grove lvlfg. Co., 576 A.2d 196, 198 (Me. 1990); Mojfett v. City

ofPortlaud, 4·00 A.2d .'HO, S'i

Based on the foregoing, it is hereby ORDERED as follows:

1. Defendants' motion to compel is GRANTED in part, and DENIED in part. The Court GRANTS the motion with respect to the documents filed in camera with the colU't, with the exception of a redacted document described in footnote 7 of the order. The Court DENIES the motion in all other respects.

2. The Clerk will release only this Order at this time.

S. If the Attorney General files a notice of appeal within 21 days of this Order, those documents shall remain sealed until fmther order.

'i<. If no notice of appeal is filed within 21 days of this Order, or if the Attorney General alerts the Clerk that it intends to file no such notice, the Cieri< shall provide copies of the documents described in paragraph l(a) to the parties. The unredacted, partially-privileged document shall remain sealed.

5. The documents that are the subject of this order shall be subject to the parties' existing Confidentiality Order.

Pursuant to M.R. Civ. P. 79(a), the clerk is hereby directed to incorporate this Order by

reference in the docket.

Dated: March 12, 2013

Justice, Business & Consumer Court

Entered on lhe oocket:.~.J..a_J_~ Copies senl via Mall_ Electronically J;--' 6 BCD-CV-11-28 Warren, et al v. Preti Flaherty, et al

Dan Lilley, Esq John Aromando, Esq Daniel G. Lilley Law Office Pierce Atwood, Merrills Wharf 39 Portland Pier 254 Commercial Street P.O. Box 4803 Portland, Maine Portland, ME Peter DeTroy, Esq. Norman Hanson & Detroy 415 Congress Street P.O. Box 4600 Portland, ME

Thimi Mina, Esq. McCloskey Mina & Cunniff 12 City Center Portland, ME STATE OF MAINE BUSINESS & CONSUMER COURT CUMBERLAND, ss. LOCATION: Portland Docket No. BCD-CV 11-28

) KAILE R. WARREN, JR., ) RENT-A-HUSBAND LLC, ) RENT-A-HUSBAND ENTERPRISES, ) LLC, and KW ENTERPRISES, INC., ) ) Plaintiffs, ) / ) v. ) ) PRETI, FLAHERTY, BELIVEAU & ) PACHIOS, LLC, MARCUS, CLEGG & ) MISTRETTA, P.A., and ACE ) HARDWARE CORP., ) ) Defendants )

ORDER ON ACE'S MOTION TO DISMISS COUNT VITI

On October 16, 2012, the Court issued an order on several pending discovery motions.

As part of that order, the Court required Plaintiffs to "supplement their responses to

interrogatories •1•, 5, and 6 of Ace's first set of interrogatories regarding alleged

misrepresentations by Ace" by November 9, 2012. (Disco. Order 1.) The Court ordered that

Plaintiffs specify "!) each allegedly false statement, 2) who made the statement and to whom

the statement was made, 3) when it was made, 4•) how the statement was conveyed to Plaintiff,

and 5) what about the statement was f.'llse." (Disco. Order I.) Plaintiffs supplemented their

interrogatories to Defendant Ace Hardware Corp. (Ace) on November 9, 2012. Ace now

moves, pursuant to M.R. Civ. P. 9(b) and 4l(b)(2), for involuntary dismissal of Count VIII

(intentional misrepresentation) of the Plaintiffs' Second Amended Complaint for Htiltu·e to

comply with the Maine Rules of Procedure and the Court's October 16, 2012, discovery order. In the altel'l1ative, Ace requests the Court order that Plaintiffs' fraud claims are limited to those

statements that are sufficiently particular in Plaintiffs supplemental interrogatory responses.

Broadly, Ace asserts that despite two amendments of Plaintiffs' complaint,' Plaintiffs'

first responses to Ace's interrogatories, and a court-ordered supplementation of those

responses, Ace still lacks sufficient notice of all the particulars of the allegedly false statements,

most notably, what about those statements Plaintiffs consider to be false. Ace does not

substantively challenge the sufficiency of the pleadings pursuant to M.R. Civ. P. 12 or the

sufficiency of the evidence pursuant to M.R. Civ. P. 56. Rather, Ace "seeks to dismiss or limit

the Plaintiffs' fl·aml claim because it is impossible for Ace to determine what fi·aud allegations it

must defend itself against."

Plaintiffs' opposition to the motion asserts that Ace's motion is premature, as discovery

is ongoing and Plaintiffs have not yet deposed several Ace executives. Plaintiffs assert that Ace

is "attempting to limit discovery on the issue of fi'aud to what has been provided through

Plaintiffs' interrogatory responses" and granting· Ace's motion would unfairly foreclose

Plaintiffs from developing facts through discovery.

Rule 4l(b) stems fi·om the inherent authority of the trial courts to "to manage their own

affairs so as to achieve the ordedy and expeditious disposition of cases." lf/estbrook v. IVa/lace,

1•78 A.2d 687, 689 (1984•) (quoting Link v. TFabaslt R.R. Co., 370 U.S. 626,629-30 (1962)). Thus,

pursuant to Me. R. Civ. P. 41(b)(1), a tl'ial court may dismiss an action sua sponte for faihu·e to

prosecute a case, encompassing a broad range of circumstances fi·om instances where no action

has been tal

fVestbrook, •1·78 A.2d at 689-90. Similarly, Rule 4•l(b)(2) authorizes a trial judge, on motion by a

defendant, to dismiss any claim against the defendant for faillU'e to prosecute or "failure ... to

1 Currently pending before the Court is Plaintiffs motion to amend thei1· complaint for a third time, but not in any

way that affects the present motion. Ace opposes the motion to amend.

2 comply with the[ civil] rules or any order of court." Nevertheless, the Law Court has

cautioned that "[s]uch power should be exercised only with full appreciation and consideration

of the plight of the plaintiff" and the "values underlying our system of justice which favors

resolution on the merits." JVallace, 4•78 A.2d at 690; accord State v. Bowring, 490 A.2d 667, 669

(Me. 1985) ("A court should exercise its inherent power to dismiss only when the party

bringing the action has fc'liled to fulfill its duty to the court").

Ace's motion is not grounded upon lack of prosecution; rather, Ace see]{s dismissal of

Count VIII of Plaintiffs' second amended complaint because Plaintiffs f.'liled to comply with the

court's mandate that Plaintiffs supplement their responses to Defendant's interrogatories. Ace

asserts that Rule 4l(b)(2) is a vehicle for defendant to dismiss a plaintiffs claim for failing to

comply with an order or rule designed to put them on notice of the particulars of the claim.

While this may be true in federal cases, see, e.g., Angulo-Alvarez v. Aponte, 170 F.Sd 24·6,

251-Ml (1st Cir. 1999); Abdullah v. Acands, Inc., SO F.sd 26•1•, 269-70 (1st Cir. 1994), the Law

Court has been more cautious, requiring f.1ir notice of the risk of dismissal to a plaintiff for

failure to comply with the court's order, see !vfiller v. Pen)', 468 A.2d 981, 983 (Me. 1983). The

case cited by Ace, Nevijel v. North Coast Life Insurauce Co., 651 F. 2d 671 (9th Cir. 1981 ), is

consistent with necessitating notice to a plaintiff that continued failure to comply with a court's

order will result in dismissal.

Further, dismissal for failure to properly plead a cause of action is more appropriately

directed to a Rule 12 motion than a Rule •J.l motion. See Heams v. San Bernardino Police Dept.,

530 F.sd 1124• (9th Cir. 2008) (concluding the rule 41 dismissal of a plaintiffs 68-page first

amended complaint solely for the f.'lilure to satisfy the "short and plain statement standard" was

an abuse of discretion); Wynderv. McMahon, 360 F.sd 73,77 (2d Cir. 2001·) (concluding the trial court abused its discretion when, it dismissed plaintiffs claim for failure to comply with a com·t

order that required a complaint that "substantially exceeded the requirements of Rule 8").

Nevertheless, the Court has reviewed Plaintiffs' supplemental interrogatories and finds

that they are not in compliance with the court's discovery order. The Court agrees with Ace

that Plaintiffs have still failed to identify what about each particular statements Ace made was

false at the time it was conveyed to Plaintiffs. Although "Maine is a notice pleading state, ...

only requir[ing] a short and plain statement of the claim to provide fair notice of the cause of

action," Johnston v. lvle. Energy Recovet)' Co., 2010 ME 52, ~ 16, 19 A.8cl 828, fraud is a special

matter that must be plead in more detail than a g·eneral matter. "In all averments of thud or

mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice,

intent, knowledge, and other condition of mind of a person may be averred generally." M.R

Civ. P. 9(b) (emphasis added); cf. M.R. Civ. P. 8.

The requirement to plead fi'aud with particularity is to ensure "the defendant is fairly

apprised of the elements of the claim." 2 Harvey, Maine Civil Practice§ 9:2 at 88•1• (sd ed. 2011).

Notably, pleading fraud with particularity is not a new requirement in Maine. Any party

seeking relief on the ground of fraud, accident or mista]{e, must directly charge the grounds relied upon. The statement should be so full and explicit as to show the court a clear picture of the particulars of the fi·aud, - the manner in which the party was misled, or imposed upon, -- the character and causes of the accident, ot· mistake, and how it occurred. Without such a statement ... the court can not grant relief or even hear evidence in the matter.

Semo v. Goudreau, 147 Me. 17, 20-2 1, 88 A.2cl 209, 21 1 ( 19 5 1).

Plaintiffs assert that their fraud claim has been stated with sufficient particularity, but

the Court disagrees. The Court ordered that Plaintiffs specify" 1) each allegedly false statement,

2) who made the statement and to whom the statement was made, .'3) when it was made, •t•) how

the statement was conveyed to Plaintiff, and 5) what about the statement was false." (Disco.

Order 1.) The Court's review of the supplemental interrogatories filed by Plaintiffs leads the

4· Court to conclude, similar to Ace, that Plaintiffs allegations of fi·aud are at best unclear and at

worst incoherent and intentionally vague. Rather than providing a clear statement comporting

with the Court's order, Plaintiffs submitted a rambling narrative of non-sequential events that

fails to satisfy the Court's mandate-which was essentially a restatement of the requirements of

Rule 9(b). In any event, the responses to do not provide Ace with a fair apprisal of the basis of

Plaintiffs' fraud claim.

The Court is left with the dilemma of how to reconcile Plaintiffs' noncompliance with its

order and their insufficient pleading with the Ace motion that does not challenge the sufficiency

of the Plaintiffs' pleading. The Court had intended to order Plaintiffs once again to provide a

concise recitation of the circumstances of each allegedly false representation Ace made in a

standardized format, 3 but such an order affords Plaintiffs an opportunity to which they are not

entitled, given the late stage of the proceedings and their repeated noncompliance with the

pleading requirements of a fraud claim.

Instead, the Court will permit Ace to make an appropriate motion regarding the

sufficiency of the pleadings. Plaintiffs have been amply advised in this matter that the

supplementation to their interrogatory responses would define the scope of their fraud claim.

~ To avoid any confusion about what is necessary to comply with M.R. Civ. P. 9(b), the Court provides the following format and an example based on Gorman v. Maine Eye Care Associates, P.tl., 2008 ME 36, 942 A.2d 707:

l. Alleged misrepresentation

Who said it and to whom \Vhen it was made How the statement was conveyed What about the statement is false at the time it was made

A. Dr. Gorman told MECA that she and her partner would buy the MECA practice.

• Dr. Gorman said this to the principals ofMECA • September of 2000 In person • Dr. Gorman and her partner did not in f.1ct want to purchase the p1·actice at the time she said it.

5 (Disco. Order 1 ("what claims Plaintiffs will be permitted to present to the jury will be defined

by the pleadings, as illuminated or claritled by discovery responses").) See also Semo, 147 Me. at

20-21, 83 A.2d at 211. Plaintiffs have supplemented their interrogatory response and in

fairness to Ace the Court will not permit any further supplementation, alteration, or

claritlcation, regardless of developments in discovery. The status of the fraud claim is the state

of the allegations within the Second Amended Complaint and the interrog·atory responses as of

the date of this Order.

Ace's motion to dismiss pm·suant to M.R. Civ. P. 4•1 is hereby denied without prejudice

to its renewal through a motion pm·suant to M.R. Civ. P. 12 and/or 56.

Pursuant to M.R. Civ. P. 79(a), the clerk is hereby directed to incorporate this Order in

the docl

Entered on the Docket:.Q. \ 'Z. . ~ 3 Copies sent via Mall_ Electronk=.aliv V

6 BCD-CV-11-28 Warren, et al v. Preti Flaherty, et al

Dan Lilley, Esq John Aromando, Esq Daniel G. Lilley Law Office Pierce Atwood, Merrills Wharf 39 Portland Pier 254 Commercial Street P.O. Box 4803 Portland, Maine Portland, ME Peter DeTroy, Esq. Norman Hanson & Detroy 415 Congress Street P.O. Box 4600 Portland, ME

Thimi Mina, Esq. McCloskey Mina & Cunniff 12 City Center Portland, ME STATE OF MAINE BUSINESS & CONSUMER COURT Cumbel'land, ss. LOCATION: Portland Docket No. BCD-~.V 1~-2 :·~ ~ \;.; __ r'•'>. ,,,_, . . -3 ;2~"/ £lt )I / .:(Of_J ) !~AILE R. vVARREN, JR., ) RENT-A-HUSBAND LLC, ) RENT-A-HUSBAND ENTERPRISES, ) LLC, and KW ENTERPRISES, INC., ) ) Plaintiffs, ) ) v. ) ) PRETI, FLAHERTY, BELIVEAU & ) PACHIOS, LLC, MARCUS, CLEGG & ) MISTRETTA, P.A., and ACE ) HARDWARE CORP., ) ) Defendants ) )

ORDER ON PLAINTIFFS MOTION TO AMEND COMPLAINT

Plaintiffs Kaile R. Warren, Jr., Rent-A-Husband LLC, Rent-A-Husband Enterprises,

LLC, and KW Enterprises, Inc. move to amend their complaint for a third time to add two

counts against Ace Hardware Corp. (Ace): breach of fiduciary duty (Count V), and violation

of the Uniform Trade Secrets Act, 11• M.R.S. §§ 1541-1•8 (2012), (Count VI). 1 Plaintiffs

assert that the facts to suppm·t these cmmts have been previously pleaded in their Second

Amended Complaint or generated during the course of discovery. Plaintiff.<; further asse1·t

that their motion is not sought in bad faith or for a dilatory reason, and that Ace will suffer

1 Plaintiffs' First Amended Complaint was filed on April 20, 2011, as of right. See M.R. Civ. P. 15(a).

The Court granted Plaintiffs' motion to amend on October 25, 2012, resulting in Plaintiffs' Second Amended Complaint. no undue prejudice from the amendment. The Court held oral argument on the motion on

Mat·ch 20, 2012.

After a responsive pleading is served, a plaintiff may amend its complaint "only by

leave of court o1· by written consent of the adverse party; and leave shall be fi·eely given

when justice so requires." M.R. Civ. P. I6(a); see al.so E.fstatltiou v. Aspinquid, Inc., 2008 ME

146, ~ 21, 956 A.2d 110. "Whether to allow a pleading amendment rests with the court's

sound discretion." Holden v. Tf7eimchenk, 1998 ME 185, ~ 6, 715 A.2d 915 (quoting

Diversified Foods, Inc. v. First Nat'l Bank of Boston, 605 A.2d 609, 616 (Me. 1992)). Courts

should freely allow an amendment to a complaint except for bad faith, dilatory tactics, or

undue delay resulting in prejudice to the opponent. Longley v. Knapp, 1998 ME 14<2, ~ 19,

713 A.2d 939. Nevertheless, a moving party must make a timely request to amend a

pleading, particularly when the deadline for amendment of pleadings has passed. See El-

Hajj v. Fortis Benifits Im. Co., 156 F. Supp. 2d 27, ~H< (D. Me. 2001), quoted in Davis v. G1'0ver,

2002 Me. Super. LEXIS 69, at *9 (Apr. 3, 2002) (Mead, J.). Further, where "a proposed

amended complaint would be subject to a motion to dismiss, the court is well within its

discretion in denying leave to amend." Glynn v. City of S. Portland, 640 A.2d 1066, 1067

(Me. 199'1•).

In the present case, Plaintiffs announced their intention to seek leave to amend

during an argument on a discovery issue on November 1, 2012. Plaintiffs again stated their

intention to file the motion to amend at a hearing on December 17, 2012. At that time, the

Com·t observed that the success of a motion to amend was inversely related to the closeness

of the trial date. Plaintiffs filed the motion to amend on January 9, 2013.

2 As Ace has noted, the proposed amendment is more than a year past the deadline of

January 1, 2012, for amendment of pleadings. Plaintiffs attempt to justify that delay by

arguing that the facts to support each of the proposed new claims were developed dm·ing

ongoing discovery.

As to their proposed breach of fiduciary duty claim, Plaintiffs assert that as facts

regarding the partnership relationship between them and Ace developed during discovery,

the breach of fiduciary duties attendant in such a relationship became clear, but the Court is

not persuaded. Plaintiffs have consistently asserted that they had a partnership relationship

with Ace.~ Thus, if there is indeed any basis for a breach of fiduciary claim against Ace, it

was known to Plaintiff.~ when they filed their initial complaint in March 2011. 3 See lvlclut;yre

v. Nice, 2001 ME 174, ~ 10, 786 A.2d 620. In October 2011, the Court noted that the

Plaintiffs' Second Amended Complaint does not sufficiently allege a fiduciary relationship,

much less a breach claim. (Oct. 25, 2011, Order at 9 n.4 ("The Plaintiffs have not

established sufficient facts supporting the allegation that a fiduciary relationship existed

between Plaintiffs and Ace simply because there were ongoing business discussions.").)

The delay in bringing the breach of tlduciary claim forward has simply not been explained

or justified.

Finally, the Plaintiffs' proposed amendments ru·e mere recitations of the elements of

the cause of action and offer no further specifics about the alleged fiduciary relationship. See

America v. Stmspray Condo. Ass'u, 2013 ME 19, ~ 13, -- A.sd ---; Btyan R. v. lVatchtower Bible

& Tract Soc'y ofN.Y., Inc., 1999 ME 1•H, ~ 21, 738 A.2d 839. The gravamen of Plaintiffs'

~ (See Compl. ~HI 79-80, 82-84,92, 95-97, 163; Amend. Compl. ~~ 79-80, 82-84, 92,95-97, 16.'3, 219; 2d Amend. Compl. ~~ •1<5, 79-80, 82-84, 86, 90, 9•1·-97, 108, 210.) ~ The stay of this case for several months, during which Ace pursued an interlocutory appeal, does not affect this analysis as the amendment of pleadings deadline had already passed at that point. dispute with and against Ace is an arms-length business deal gone south. See America, 2013

ME ~ 15, -- A.sd ---(analyzing the substance of the overall complaint). See also Clappison v.

Foley, 148 Me. •1·92, '1·97-99, 96 A.2d .!325, 327-28 (1953) (noting that where the complaint

does not demonstrate evidence of a fiduciary relationship, but instead only conventional

business dealings, the motion to dismiss must be granted).

With respect to the trade secret claim, Plaintiffs' assertion that it was revealed only

in the cotu·se of discovery that "Ace misappropriated the Plaintiffs' 'hub-and-spoke' model

for Rent-a-Husband's placement in stores for itself' (M. Amend. S) is more plausible.

Nevertheless, as Plaintiffs admit, the UTSA claim is not contemplated by the previous

complaints. In fact, it is a vast depm·ture from the theories presently asserted against Ace

and would open up a completely new and different set of issues between the Plaintiffs and

Ace.

As the Law Court has explained, factors relevant to

determin[ing] whether the information "derives independent economic value ... from not being g·enerally !mown [or] readily asc~rtainable," 10 M.R.S.Q § 154·2( 4 )(A), include: (I) the value of the information to the plaintiff and to its competitors; (2) the amount of effort or money the plaintiff expended in developing the information; (3) the extent of measures the plaintiff tool< to guard the sec1·ecy of the information; (4·) the ease or difficulty with which others could properly acquire or duplicate the information; and (5) the degree to which third parties have placed the information in the public domain or rendered the information "readily ascertainable" through patent applications or unrestricted product marketing.

Spottiswoode v. Levine, 1999 ME 79, ~ 27 n.6, 730 A.2d 166. Similarly, factors relevant to

determin[ing] whether the information "is the subject of efforts that are reasonable under the circumstances to maintain its secrecy," 10 M.R.S. § 1542(4)(B), include: ( 1) the extent to which the information is known outside the plaintiffs business; (2) the extent to which employees and others involved in the plaintiffs business know the information; (3) the nature and extent of measures the plaintiff took to guard the secrecy of the information; (•!•) the existence or absence of an express agreement restricting disclosure; and (5) the circumstances under which the information was disclosed to any employee, to the extent that the circumstances give rise to a reasonable inference that further disclosm·e without the plaintiff's consent is prohibited.

!d.~ 27 n.7.

Trial of this case was originally set fm· June 2013, and it is now set for January-

February 2014. The court is in the process of resetting deadlines to enable discovery,

expert witness activity and dispositive motion bl'iefing to be completed sufficiently ahead of

trial to enable the parties to know what claims will be going to trial. Because the Plaintiffs'

proposed UTSA claim would likely entail discovery well beyond the discovery already

taken in connection with the present claims against Ace, allowing the amendment would

almost certainly require further delays in this two-year-old litigation.

As an aside, the UTSA claim as pleaded in the amendment is arguably facially

deficient. See Glynn, 640 A.2d at 1067. The complaint fails to state how the hub-and-spoke

model "[d]erives independent economic value, actual or potential, from not being generally

known to and not being readily ascertainable by proper means by other persons who can

obtain economic value from its disclosure or use," as required by 10 M.R.S. § 15'1·2(-l•)(A)

(2012).

The Cotu't is cognizant that leave to amend should be fi·eely granted:

The philosophy of the rules is that pleadings are not an end in themselves but only a means of bringing into focus the area of actual controversy. Leave to amend should be fi·eely granted when justice so requil·es. A party should not be precluded by the technicalities of pleading from presenting his claim or defense on its merits unless the pleadings have misled the opposing party to his prejudice.

Bangor kfotor Co. v. Chapman, 452 A.2d 389, 392 (Me. 1982) (quoting I Field, McKusick &

\iVroth, !vfaine Civil Practice § 15.1 ( 1970)). "[PJrejudice means something more than an

5 increased likelihood of defeat in the litigation if the amendment is granted." Id. (quoting 1

Field, Md\usick & Wroth, Maine Civil Practice§ 15.4 ( 1970)).

Undue prejudice to the opponent can occur when the newly asserted claim inserts a

new issue into the case that has not been previously raised or litigated. See id. at 393.

Similarly, the Law Court has affirmed the denial of a motion to amend to add permissive

counterclaims when the request was made more than a year after the litigation between the

parties began and no reasonable excuse for the delay was provided. See Efstatlliou v. The

Aspinquid, Inc., 2008 ME 14·5, ~ ~ 21-22, 956 A.2d I 10; if Kelley v. !vlichaud's Ins. Agency, 651

A.2d 345, 347 (Me. 1994) (a delay of six weeks after a party's responsive pleading is not

undue delay to justify denying a motion to amend). "Although passage of time, alone, is not

grounds for denying a motion to amend, 'undue delay' removes any presumption in favor of

allowing amendment." See Diversified Foods, Inc. v. First Nat'l Bank, 605 A.2d 609, 616 (Me.

1992) (citation omitted) (concluding an intentional delay of seven months to add claims

supported denial of the motion to amend).

In this case, allowing the Plaintiffs to amend again, would almost certainly cause

further substantial delay, and also work undue prejudice to Ace, g·iven the posture of the

case and the lad< of justification for the amendment.

Accordingly, Plaintiffs' Motion to Amend Complaint is DENIED.

Pursuant to M.R. Civ. P. 79, the clerk shall incorporate this order into the docket by .,

reference. ~·· Dated: March 26, 201.'3 A.M. Horton Justice, Business and Consumer Court

Entered on the Docket: ~La::Ll~. copies sent via Mall_•. Electronically V

Dan Lilley, Esq John Aromando, Esq Daniel G. Lilley Law Office Pierce Atwood, Merrills Wharf 39 Portland Pier 254 Commercial Street P.O. Box 4803 Portland, Maine Portland, ME Peter DeTroy, Esq. Norman Hanson & Detroy 415 Congress Street P.O. Box 4600 Portland, ME

Thimi Mina, Esq. McCloskey Mina & Cunniff 12 City Center Portland, ME