Warren Environmental, Inc. v. Source One Environmental, LTD

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

CIVIL ACTION NO. 18-11513-RGS

WARREN ENVIRONMENTAL, INC.

v.

SOURCE ONE ENVIRONMENTAL, LTD., et al.

MEMORANDUM AND ORDER ON

DEFENDANTS’ RULE 12(b)(2) AND 12(b)(6) MOTION TO DISMISS

April 24, 2020

STEARNS, D.J.

By way of a First Amended Complaint (FAC), Warren Environmental,

Inc. (WEI), sues three corporate defendants for claims arising from the

defendants’ alleged “contractual failure to maintain Warren Environmental’s

patent in Europe for a proprietary epoxy pumping system.” FAC (Dkt # 4) ¶

1. Defendants include: Fernco, Inc. (Fernco), a Michigan-based corporation;

Flex-Seal Couplings, Ltd. (Flex-Seal), a wholly owned subsidiary of Fernco,

based in England; and Source One Environmental, Ltd., successor in interest

to Fernco Environmental, Ltd. (Source One), a wholly owned subsidiary of

Flex-Seal, also based in England.

WEI’s FAC sets out five claims against defendants in varying

combinations: breach of contract (Count 1) against Source One and Flex-

Seal; breach of the duty of good faith and fair dealing (Count 2) against

Source One and Flex-Seal; negligence (Count 3) against Source One and

Flex-Seal; violations of Mass. Gen. Laws ch. 93A (Count 4) against all

defendants; and interference with contractual relations (Count 5) against

Fernco. WEI also seeks an accounting of sales and profits resulting from the

defendants’ sales of non-WEI epoxy spray systems and epoxy resins, and

injunctive relief and damages.

Defendants move to dismiss Counts 4 and 5 as against Fernco for lack

of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2). Defendants also

move under Rule 12(b)(6) to dismiss the following claims for failure to state

a claim upon which relief can be granted: Counts 1 and 2 as to Flex-Seal only;

Count 3 against Source One and Flex-Seal; Count 4 as to all defendants; and

Count 5 against Fernco.

For the reasons to be explained, defendants’ Fed. R. Civ. P. 12(b)(2)

motion will be allowed, resulting in dismissal of Count 4 as to Fernco and

Count 5. The Rule 12(b)(6) motion will be allowed as to Counts 1, 2, and 3

against Flex-Seal only, and Count 4 against both Flex-Seal and Source One.

Counts 1, 2, and 3 may move forward as to Source One.

BACKGROUND

The essential facts, drawn from the FAC and documents incorporated

by reference, and viewed in the light most favorable to WEI as the nonmoving

party, are as follows. WEI, headquartered in Massachusetts, owns a U.S.

patent for a spray epoxy application system known as the Warren

Environmental System (WES). The WES “revolutionized how epoxy could

be applied to infrastructure repair jobs,” in part because the WES permitted

spray application of a heated epoxy, which “decreased labor costs and

increased the amount of daily square foot coverage.” FAC ¶ 16. WEI also

developed epoxies that “outperform competitors on industry tests,” id. ¶ 19,

and apparently are recognized as among the best on the global market.

In 2006, WEI filed an international patent application for its epoxy

products and spray system. Beginning in 2007 and continuing into early

2008, Source One approached WEI about overseas use of WEI’s products.

In 2008, Source One – allegedly operating “under the orders of the parent

company Fernco, Inc. of Michigan,” id. ¶ 29 – entered into a licensing

agreement with WEI.1 The agreement granted Source One “directly or

through its agent Flex-Seal Couplings, LTD, . . . [the exclusive right] to use

1 The references in the signed Agreements to “Fernco” refer to “Fernco

Environmental, Ltd.” – the entity now known as Source One – not Fernco,

Inc., the parent company and separate defendant in this litigation. Fernco

Environmental, Ltd. became Source One in January of 2014. See FAC ¶ 37.

and sub-license WEI’s patented pumping system and its epoxy products in

an ‘[A]greed [T]erritory’ which included Europe, Australia, New Zealand and

Norway.” Id. ¶ 30; Dkt # 31-1 ¶ 16.1. WES was to be sold under the name

“Ultracoat.” Among other obligations, Source One agreed to be held

“responsible for the maintenance and policing of the Warren patent within

its territories.” Dkt # 31-1 ¶ 14.3.

In July of 2008, on the same date that WEI and Source One signed the

licensing agreement, WEI and Flex-Seal executed a Deed of Assignment in

which WEI assigned to Flex-Seal its patent rights in the “Agreed Territories.”

See id. at 16-17. Flex-Seal, as the assignee of the patent rights, was

designated to act in an agency capacity f0r its subsidiary Source One in

arranging for the protection of the patent rights. FAC ¶ 34. In that role, Flex-

Seal hired the English law firm Wilson Gunn to prosecute the patent before

the European Patent Office (EPO) and designated its Commercial Director,

Steve Riding, as the liaison with Wilson Gunn.

Through February of 2015, Wilson Gunn periodically reported on the

status of WEI’s patent application to Andrew Williams, who served as the

Finance Director for both Flex-Seal and Source-One. Williams regularly

shared progress reports with Glenn Cartledge, who was appointed Managing

Director of Source One in February of 2015.2

In November of 2014, Wilson Gunn notified Riding that it had received

a notice (Rule 71(3) EPC) from the EPO requiring Flex-Seal to file a “fee for

grant and publish[] and file a translation of the claims in the two official

languages of the [EPO] other than the language of the proceedings” by March

10, 2015. FAC ¶¶ 48-49. In a February 2015 meeting with Wilson Gunn,

Riding learned that WEI’s assignment of rights to Flex-Seal had never been

recorded. Immediate steps were then taken to record the assignment, but

Wilson Gunn was given no instructions regarding the Rule 71(3) filing date.

Wilson Gunn reminded Riding three more times after the meeting about the

upcoming filing deadline.

On March 6, 2015, in response to a request from Riding for further

information, Wilson Gunn advised of a “further processing procedure”

permitting a two-month extension of the filing deadline. Id. ¶ 52. Riding

“instructed Wilson Gunn to monitor the further processing deadline and

issue reminders to him.” Id. ¶ 53. Wilson Gunn determined that the

2 Prior to February of 2015, Tony Leland served as Managing Director

of both Flex-Seal and Source One. FAC ¶¶ 37-38. Leland’s signature appears

both on WEI’s Agreement with Source One and on the Deed of Assignment

with Flex-Seal.

extended deadline was June 26, 2015, after receiving a loss of rights

notification dated April 16, 2015. Flex-Seal did not inform WEI of the filing

fiasco. Over the next two months, Wilson Gunn periodically notified Riding

of the looming June 26, 2015 deadline. Riding forwarded each of the Wilson

Gunn reminders to Williams and Cartledge, who “informed Mr. Riding that

he need not take any action without further instructions.” Id. ¶ 56. Cartledge

and Williams, however, never provided further instructions to Riding, and

when the June 26 deadline passed, WEI’s patent lapsed.

In November of 2015, Wilson Gunn sought to re-instate the patent with

the EPO, describing the sorry story of the miscommunications that had led

to its lapse. The EPO provisionally declined to reinstate the patent in May of

2016, but called for the submission of supplemental filings. Included among

the submitted supplemental filings was a confessional affidavit from

Cartledge, admitting that he had “failed to provide [Riding] with instructions

to respond to the R71(3) communication.” Dkt # 4-3 ¶ 19.

According to the EPO, “[i]n accordance with Article 122(1) EPC, an

applicant has his rights re-established upon request if he was unable to

observe a time limit vis-à-vis the EPO in spite of all due care required by the

circumstances having been taken.” Dkt # 4-4 ¶ II.4. On March 5, 2018, the

EPO rejected the request to re-establish the patent, after concluding that

Flex-Seal had “not taken all the due care required by the circumstances.” Id.

¶ II.21. At the same time, the EPO concluded that WEI had “fulfilled the

prerequisite of all due care,” id. ¶ II.10, as had Wilson Gunn. Id. ¶ II.23.

As a result of the patent’s lapse, WEI’s technology is no longer

“protected technology in the European Union.” FAC ¶ 69. Accordingly, WEI

asserts that “WEI’s ability to market, license, and sell its proprietary systems

and products in the EU has substantially diminished.” Id. ¶ 70. WEI also

alleges that WEI’s technology may now “be duplicated and used in the EU

without fear of patent infringement . . . [thus] significantly decreas[ing]

WEI’s competitive advantage in the EU.” Id. ¶ 71. On September 27, 2016,

Source One and Flex-Seal executed an Assignment of Rights and Interests,

transferring all rights in the patent back to WEI.

WEI alleges other contractual breaches apart from those involving the

loss of its European patent. In particular, WEI alleges that under the

direction of Chris Cooper, Chief Executive Officer (CEO) of Fernco, and

allegedly in violation of contractual obligations, “the defendants had secretly

designed, engineered and created drawings for a spray system to compete

with WEI’s system [and] filed for a patent application in Australia for their

system.” Id. ¶ 116. WEI further alleges that under Cooper’s supervision,

defendants “attempted to design and test a knock-off epoxy” and “solicited,

bought, sold and/or manufactured a copycat epoxy product.” Id. ¶ 118. WEI

asserts that Cooper directed Source One in particular “to have WEI epoxies

reverse[] engineered and/or manufactured by a German company who then

produced copycat epoxy resins for the defendants.” Id. ¶ 119. WEI contends

that “defendants secretly sold knock-off, non-WEI epoxies to its European

licensees under the Ultracoat name for use with WEI’s licensed spray

system,” id. ¶ 120, and that they “also manufactured, built, sold and/or used

competing spray systems other than the WEI’s systems.” Id. ¶ 121.

WEI filed its FAC before the court in August of 2018, after which time

the parties unsuccessfully attempted to mediate their various disputes. In

October of 2019, this court authorized limited jurisdictional discovery, after

determining that “WEI ha[d] made a colorable claim for specific jurisdiction

at this early motion to dismiss stage.” Dkt # 39. WEI and the defendants

then filed supplemental memoranda with attached exhibits for the court’s

review.

DISCUSSION

I. Personal Jurisdiction over Fernco

As a rule, a court should determine whether Article III jurisdiction

exists before considering the merits of a plaintiff’s claim. Steel Co. v. Citizens

for a Better Env’t., 523 U.S. 83, 88-89 (1998). “In personam jurisdiction ‘is

of two varieties, general and specific. General personal jurisdiction . . . is the

power of a forum-based court . . . which may be asserted in connection with

suits not directly founded on [that defendant’s] forum-based conduct . . . .’”

In re Lupron Mktg. & Sales Practices Litig., 245 F. Supp. 2d 280, 288 (D.

Mass. 2003) (alteration in original), quoting Donatelli v. Nat’l Hockey

League, 893 F.2d 459, 462-463 (1st Cir. 1990). “Under the Fifth

Amendment, a court may exercise general or specific jurisdiction over an

out-of-state defendant only if that defendant has ‘certain minimum contacts

with [the forum state] such that the maintenance of the suit does not offend

“traditional notions of fair play and substantial justice.”’” Copia Commc’ns,

LLC v. AMResorts, L.P., 812 F.3d 1, 4 (1st Cir. 2016), quoting Int’l Shoe Co.

v. Washington, 326 U.S. 310, 316 (1945).

“Specific personal jurisdiction, by contrast, is narrower in scope and

may only be relied upon ‘where the cause of action arises directly out of, or

relates to, the defendant’s forum-based contacts.’” Pritzker v. Yari, 42 F.3d

53, 60 (1st Cir. 1994), quoting United Elec., Radio & Mach. Workers of Am.

v. 163 Pleasant St. Corp., 960 F.2d 1080, 1088-1089 (1st Cir. 1992). The

three elements of specific jurisdiction are relatedness (the nexus of plaintiff’s

claim with the defendant’s contact with the forum), purposeful availment

(something more than an isolated contact or the unilateral activity of a third

person), and the reasonableness of the exercise of jurisdiction (the five

Gestalt factors). Baskin-Robbins Franchising LLC v. Alpenrose Dairy, Inc.,

825 F.3d 28, 35 (1st Cir. 2016).

“In determining whether a non-resident defendant is subject to its

jurisdiction, a federal court exercising diversity jurisdiction ‘is the functional

equivalent of a state court sitting in the forum state.’” Sawtelle v. Farrell, 70

F.3d 1381, 1387 (1st Cir. 1995), quoting Ticketmaster-New York, Inc. v.

Alioto, 26 F.3d 201, 204 (1st Cir. 1994). “The plaintiff has the burden of

establishing that jurisdiction over the defendant lies in the forum state.”

Baskin-Robbins, 825 F.3d at 34. “For the purpose of examining the merits

of such a jurisdictional proffer, . . . [a] district court [may] take the facts from

the pleadings and whatever supplemental filings (such as affidavits) are

contained in the record, giving credence to the plaintiff’s version of genuinely

contested facts . . . [while also] tak[ing] into account undisputed facts put

forth by the defendant.” Id. (internal citation omitted).

The court seeks to determine “whether the plaintiff has proffered

evidence that, if credited, is enough to support findings of all facts essential

to personal jurisdiction.” Daynard v. Ness, Motley, Loadholt, Richardson &

Poole, P.A., 290 F.3d 42, 51 (1st Cir. 2002), quoting Foster-Miller, Inc. v.

Babcock & Wilcox Canada, 46 F.3d 138, 145 (1st Cir. 1995). This entails

satisfying “the requirements of both the Due Process Clause of the federal

Constitution and the Massachusetts long-arm statute, Mass. Gen. Laws ch.

223A, § 3.” Baskin-Robbins, 825 F.3d at 34.

With respect to Fernco, WEI alleges tortious interference with

contractual relations (Count 5) and a violation of the Massachusetts Unfair

Business Practices Statute, Chapter 93A (Count 4). WEI does not argue that

Fernco’s virtually non-existent independent contacts with Massachusetts

give this court a basis for personal jurisdiction over it.3 Rather, WEI argues

3 As this court noted previously, “Fernco contends, and WEI implicitly

agrees, that Fernco does not have sufficient ‘continuous and systematic’

contacts with Massachusetts to be subject to general jurisdiction in this

forum.” Dkt # 39. The Supreme Court has explained that “[a] court may

assert general jurisdiction over foreign (sister-state or foreign-country)

corporations to hear any and all claims against them when their affiliations

with the State are so ‘continuous and systematic’ as to render them

essentially at home in the forum State.” Daimler AG v. Bauman, 571 U.S.

117, 127 (2014) (alteration in original), quoting Goodyear Dunlop Tires

Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011). The inquiry “is not

whether a foreign corporation’s in-forum contacts can be said to be in some

sense ‘continuous and systematic,’ it is whether that corporation’s

‘affiliations with the State are so “continuous and systematic” as to render

[it] essentially at home in the forum State.’” Id. at 138-139, quoting

Goodyear, 564 U.S. at 919. “In the absence of general jurisdiction, a court’s

power depends upon the existence of specific jurisdiction.” Daynard v.

Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 51 (1st Cir.

2002), quoting Massachusetts Sch. of Law at Andover, Inc. v. Am. Bar

Ass’n, 142 F.3d 26, 34 (1st Cir. 1998).

Nor does WEI’s allegation that Fernco sells certain products in

Massachusetts through Home Depot outlets, see FAC ¶ 9, suffice to serve as

a basis for personal jurisdiction because WEI is unable to show that it

that “[t]he control by Fernco over Source One, and [the fact] that Fernco

sought to benefit from [this] control and decision making position, created a

principal-agent relationship with Source One [subjecting] Fernco [to]

jurisdiction here.” Dkt # 31 at 3.4 WEI alleges that “Fernco directed its

subsidiaries to solicit and execute a licensing agreement with WEI in

Massachusetts, authorized its subsidiaries to meet and train with WEI at its

Massachusetts facility and oversaw, controlled and/or directed its England

subsidiaries when dealing with WEI,” FAC ¶ 10 – and that in approaching

WEI, Source One acted “under the orders of the parent company Fernco,

Inc.” Id. ¶ 29.

suffered any injury arising from these sales. See Stanton v. AM Gen. Corp.,

50 Mass. App. Ct. 116, 118 (2000) (“Even were we to determine that because

[a defendant’s products] were sold . . . in Boston, [the defendant] is doing

business in Massachusetts, the plaintiff has not shown that his injury grew

out of that business.”). WEI also alleges that “[b]efore entering into the

license with WEI, Fernco required Danny Warren of WEI to meet with the

Cooper family, the owners of Fernco, in Michigan before any deal would be

approved.” FAC ¶ 10. This allegation does little to support WEI’s cause. See

United Elec., Radio & Mach. Workers, 960 F.2d at 1090 (“If the negotiations

occurred outside the forum state, their existence cannot serve to bolster the

argument for the assertion of jurisdiction in the forum.”).

4 WEI further avers that “because Fernco was fully aware of the

agreement between Source One and WEI, Fernco knew that Source One

would be subject to personal jurisdiction in this forum.” Dkt # 31 at 3. The

import of this allegation, as true as it may be, is unclear when it comes to the

issue of Fernco’s presence in the forum.

The issue is whether WEI, with the benefit of the jurisdictional

discovery authorized by the court, is able to establish that Fernco’s control

over Source One or Flex Seal was so pervasive as to overcome the strong

Massachusetts presumption against the piercing of the corporate form, or

more colloquially, the corporate veil. See United Elec., Radio & Mach.

Workers, 960 F.2d at 1091 (“[I]f the record contains facts that warrant

disregarding [a wholly owned subsidiary’s] corporate independence, the

district court [is] entitled to find [the parent company] subject to personal

jurisdiction in Massachusetts on the basis of its relationship with its

subsidiary.”).5

5 Defendants do not move to dismiss the claims against Source One and

Flex-Seal pursuant to Rule 12(b)(2). They do assert in a responsive pleading

that “Source One did not consent to personal jurisdiction in Massachusetts.”

Dkt # 38 at 5. In this regard, defendants highlight the fact that the forum

selection clause in Source One’s Agreement with WEI makes no reference to

Massachusetts. See CRG Fin., LLC v. Two Diamond Capital Corp., 2020 WL

1308193, at *5 (D. Mass. Mar. 19, 2020) (quotations and citations omitted,

alteration in original) (“Although the mere fact that a company in

Massachusetts executes a contract with an entity in another state does not

automatically mean that the foreign [entity] transacted business within the

meaning of the statute, meaningful contact with a Massachusetts company

and the forum will confer jurisdiction.”). However, the Agreement does

contain a dispute resolution clause committing disputes between Source One

and WEI to resolution “before a Massachusetts mediator mutually selected

by the parties.” Dkt # 31-1 ¶ II.19.1. The defendants state nonetheless that

they intend to preserve the argument that “the courts of the United Kingdom

are most relevant to this dispute.” Dkt # 38 at 5 n.4.

WEI faces a stiff climb. “Only in rare instances, in order to prevent

gross inequity, will a Massachusetts court look beyond the corporate form.”

Spaneas v. Travelers Indem. Co., 423 Mass. 352, 354 (1996). “[T]he concept

that ‘a parent corporation (so-called because of control through ownership

of another corporation’s stock) is not liable for the acts of its subsidiaries,’ is

‘deeply “ingrained in our economic and legal systems.”’” Scott v. NG U.S. 1,

Inc., 450 Mass. 760, 766 (2008), quoting United States v. Bestfoods, 524

U.S. 51, 61 (1998); see also United Elec., Radio & Mach. Workers, 960 F.2d

at 1091, quoting Sher v. Johnson, 911 F.2d 1357, 1365 (9th Cir. 1990)

(“[W]hile it is generally true that questions of ‘[l]iability and jurisdiction are

independent,’ the factors that we must consider for purposes of piercing the

veil separating two corporations in the liability context also inform the

jurisdictional inquiry.”); Scott, 450 Mass. at 767 (“In Massachusetts, the

equitable doctrine of corporate disregard differs in no material respect from

the description in United States v. Bestfoods, 524 U.S. at 62-63.”).

The usual Massachusetts veil-piercing test requires more than a

parental exercise of “some form of pervasive control” over the subsidiary.

Scott, 450 Mass. at 767. There must also be a showing of “some fraudulent

or injurious consequence of the intercorporate relationship.” Id. “Corporate

formalities also may be disregarded ‘when there is a confused intermingling

of activity of two or more corporations engaged in a common enterprise with

substantial disregard of the separate nature of the corporate entities, or

serious ambiguity about the manner and capacity in which the various

corporations and their respective representatives are acting.’” Id. (emphasis

in original), quoting My Bread Baking Co. v. Cumberland Farms, Inc., 353

Mass. 614, 619 (1968). Under either branch, the presumption of corporate

separateness can only be overcome by clear evidence. See Escude Cruz v.

Ortho Pharm. Corp., 619 F.2d 902, 905 (1st Cir. 1980).

“In determining whether one entity exercised ‘pervasive control’ over

another, and whether ‘confused intermingling’ exists sufficient to disregard

the corporate formalities, [a court should] focus on the events giving rise to

liability . . . .” Scott, 450 Mass. at 770. A claim of “overall financial or policy

control” by the parent is insufficient. Andresen v. Diorio, 349 F.3d 8, 12 (1st

Cir. 2003). Twelve factors in particular

should be considered in deciding whether to penetrate the

corporate form: (1) common ownership; (2) pervasive control;

(3) confused intermingling of business activity assets, or

management; (4) thin capitalization; (5) nonobservance of

corporate formalities; (6) absence of corporate records; (7) no

payment of dividends; (8) insolvency at the time of the litigated

transaction; (9) siphoning away of corporate assets by the

dominant shareholders; (10) nonfunctioning of officers and

directors; (11) use of the corporation for transactions of the

dominant shareholders; [and] (12) use of the corporation in

promoting fraud.

Evans v. Multicon Constr. Corp., 30 Mass. App. Ct. 728, 733 (1991), citing

Pepsi-Cola Metro. Bottling Co. v. Checkers, Inc., 754 F.2d 10, 14-16 (1st Cir.

1985). “Ultimately, the decision to disregard settled expectations

accompanying corporate form requires a determination that the parent

corporation directed and controlled the subsidiary, and used it for an

improper purpose . . . .” Scott, 450 Mass. at 768. “Customary incidents of a

parent-subsidiary relationship – ownership, common personnel, profits, and

managerial oversight” – are “insufficient in and of themselves to permit the

assertion of vicarious jurisdiction.” In re Lupron, 245 F. Supp. 2d at 292.

In its pursuit of the Pepsi-Cola factors, WEI has sufficient evidence to

establish “common ownership”– Fernco owns all of the shares of Flex-Seal

and Flex-Seal, in turn, owns all of the shares of Source One. See Dkt # 46-1.

WEI has also shown intermingling of management – Cooper, the CEO of

Fernco, also serves as a director of Source One, Dkt #46-1 at 1, and as an

officer of Flex-Seal. According to WEI, Cooper “made no [public] effort to

differentiate” among the three leadership positions, noting that “Cooper’s

email correspondence identifies him as follows: ‘Chris Cooper, CEO Fernco,

Flex-Seal, S1E,’” Dkt # 46 at 2, quoting Dkt # 46-4, and at other times only

as the CEO of Fernco. From this constellation of titles, WEI argues that

“[g]iven the sophistication of Fernco, it can be inferred that Fernco and

Cooper maintained this arrangement so that Fernco could keep the U.K.

subsidiaries squarely under its control.” Dkt # 46 at 3. The inference is not

as compelling, however, as WEI would have it, particularly when viewed

through the lens of the obstacles faced when conducting transnational

corporate business in often radically differing national legal environments.

“[C]ourts generally presume ‘that the directors are wearing their

“subsidiary hats” and not their “parent hats” when acting for

the subsidiary.’” Bestfoods, 524 U.S. at 69, quoting P. Blumberg, Law of

Corporate Groups: Procedural Problems in the Law of Parent and Subsidiary

Corporations § 1.02.1 at 12 (1983). Accordingly, “it cannot be enough to

establish liability here that dual officers and directors made policy decisions

and supervised activities.” Id. at 70.

WEI argues that Cooper provided more than general supervision to the

companies in which he was engaged, asserting that he “had his hand in every

major decision made at Source One and Flex-Seal.” Dkt #46 at 3. WEI points

to five discrete categories of direct involvement that seem fairly established

by discovery: (1) that “Capital requests and yearly budgets were scrutinized

in detail by Cooper and had to be approved by Fernco Michigan’s board of

directors,” Dkt # 46 at 3; (2) that “Cooper mandated that all new products

must be approved by him before going to market,” Dkt # 46 at 4; (3) that

“Cooper also used his authority to redraft ‘Position Results Descriptions,’”

id., as part of his managerial oversight; (4) that on at least one occasion

Cooper insisted that the former Managing Director of Flex-Seal and Source

One meet with him in Michigan to discuss the Managing Director’s

responsibilities and impending retirement; and (5) that Cooper engaged in

“micromanagement” of “when [subsidiary] employees took vacations and

how and when employees would receive Christmas bonuses.” Dkt # 46 at 5.

As suggestive as WEI would have the court find it, nothing about the role

Cooper played as CEO of Fernco or, in a change of hats, as a director of

various Fernco subsidiaries, is inconsistent with the functions and duties

that a person in a key management position in a corporate conglomerate

would be expected to perform – nor do his actions appear to relate to the

events that WEI claims give rise to liability on Fernco’s part. See Scott, 450

Mass. at 770.

WEI makes several allegations that appear to have more of a

relationship to the contract at issue in this case.6 Specifically, WEI asserts

6 Danny Warren, Director of WEI, also states in an affidavit that Cooper

“had” him to fly to Michigan to meet with his father, Fernco’s founder and

owner, as well as tour Fernco’s Michigan facilities, before Source One would

enter a deal with WEI. See Dkt # 31-3 ¶ 8. WEI argued, prior to jurisdictional

discovery, that this meeting evinced Fernco’s control over its subsidiaries, as

“[o]nly after WEI was approved by Fernco, did it send [Source One] executive

that “[w]hen a misunderstanding arose about the performance of the

contract [with Source One], Chris Cooper flew from Fernco’s Michigan

headquarters to meet with Danny Warren,” Dkt # 46 at 5, and that Cooper

employed a “good cop/bad cop” routine with Glenn Cartledge of Source One

in negotiating with Warren, id. at 5-6, to whom Cooper referred using an

insulting nickname. Id. at 6. Finally, WEI alleges that “it was Chris Cooper

who personally met with and solicited Reddog, a Utah company, as a back-

up supplier of epoxy resins” and that “it was Cooper who sought a Germany

based epoxy supplier,” Dkt # 46 at 5, in alleged violation of WEI’s Agreement

with Source One. See FAC ¶¶ 90, 119; Dkt # 31-1 ¶¶ 11.2, 14.3, 15.1-15.5, 16.2

(outlining contractual obligations).

Taken together, and in light of the presumption that shared officers are

assumed to be acting on behalf of the subsidiary rather than the parent

company, WEI’s facts, such as they are, do not come anywhere near close to

demonstrating “action by a dual officer plainly contrary to the interests of the

subsidiary yet nonetheless advantageous to the parent.”7 Bestfoods, 524 U.S.

Tony Leland to Middleboro to negotiate and enter into a licensing agreement

with WEI.” Dkt # 31 at 3.

7 Defendants have submitted extensive evidence documenting an

alleged scrupulous respect among Fernco and its subsidiaries for corporate

formalities. In light of the court’s determination that WEI has not met its

veil-piercing burden, there is no reason to delve further into this issue.

at 70 n.13. On the contrary, these facts more closely resemble “normal

badges of ownership such as monitoring of the subsidiary’s performance,

supervision of the subsidiary’s finance and capital budget decisions, and

articulation of general policies and procedures, or the sharing of directors,

officers and employees.” In re Lupron, 245 F. Supp. 2d at 291 (internal

citation and quotations omitted). Accordingly, the court declines WEI’s

invitation to pierce the corporate veil with respect to Fernco.8

II. Motion to Dismiss for failure to state a claim

“To survive a motion to dismiss, a complaint must contain sufficient

factual matter, accepted as true, to ‘state a claim to relief that is plausible on

its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), quoting Bell Atl. Corp.

8 As an aside, the court notes that were it to find the exercise of specific

jurisdiction over Fernco proper through a theory of agency, this would

render WEI’s claim of interference with contractual relations under Count 5

legally impossible. “To prevail on a claim of tortious interference with a

contract, a plaintiff must establish that ‘(1) he had a contract with a third

party; (2) the defendant knowingly induced the third party to break that

contract; (3) the defendant’s interference, in addition to being intentional,

was improper in motive or means; and (4) the plaintiff was harmed by the

defendant’s actions.’” Weiler v. PortfolioScope, Inc., 469 Mass. 75, 84

(2014), quoting Psy-Ed Corp. v. Klein, 459 Mass. 697, 715-716 (2011). If

Source One and Flex-Seal were to be considered Fernco’s agents, it would be

impossible for WEI to establish that Fernco interfered with Source One’s

contract as a third party. Separately, as explained below, WEI’s Chapter 93A

claim fails as a matter of law. Fernco is not named in any additional counts.

v. Twombly, 550 U.S. 544, 570 (2007). Two basic principles guide the

court’s analysis. “First, the tenet that a court must accept as true all of the

allegations contained in a complaint is inapplicable to legal conclusions.”

Iqbal, 556 U.S. at 678. “Second, only a complaint that states a plausible claim

for relief survives a motion to dismiss.” Id. at 679. A claim is facially

plausible if its factual content “allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” Id. at 678.

a. Count 1, breach of contract, and Count 2, breach of

duty of good faith and fair dealing, as to Flex-Seal

WEI brings a breach of contract claim against Source One and Flex-

Seal.9 “Under Massachusetts law, a breach of contract claim requires the

9 Specifically, WEI alleges violation of:

numerous provisions of the parties’ Agreement including a)

prohibition against using confidential information in general; b)

prohibition against using confidential information to develop a

competing or similar product or service; c) joint ownership of all

developments and inventions related to the parties’ venture; d)

prohibition against competing with WEI in the defined territory;

e) express obligation that [Source One] inform WEI of

competitor products encountered in the marketplace; f)

obligation to ensure that WEI’s spray system and its epoxy resins

are marketed in the defined territory; g) prohibition on using any

other epoxy resins with WEI’s system; h) prohibition against

making any changes to the equipment and equipment

specifications; i) the obligation to maintain the patent in the EU.

FAC ¶ 84. See also Dkt # 31-1 ¶¶ 11.2, 14.3, 15.1-15.5, 16.2 (outlining

contractual obligations).

plaintiff to show that (1) a valid contract between the parties existed, (2) the

plaintiff was ready, willing, and able to perform, (3) the defendant was in

breach of the contract, and (4) the plaintiff sustained damages as a result.”

Bose Corp. v. Ejaz, 732 F.3d 17, 21 (1st Cir. 2013), citing Singarella v. City of

Boston, 342 Mass. 385, 387 (1961).

Defendants move to dismiss Count 1 as t0 Flex-Seal only, arguing that

WEI’s alleged breaches relate wholly to obligations undertaken by Source

One in its Agreement with WEI, to which Flex-Seal was not a party. WEI

counters that while Flex-Seal was not a signatory to its Agreement with

Source One, “the Agreement and the Deed of Assignment, which Flex-Seal

admits that it is bound by, comprise constituent parts of a single transaction

and should thus be read together.” Dkt # 31 at 5. Defendants respond that

even if that were the case, “the unambiguous contractual language dictates

that only Source One agreed to obligations that [WEI] claims were

breached.” Dkt # 38 at 6. Defendants have the better argument.

Under Massachusetts law, factors relevant to assessing whether

“instruments deriving from a given transaction shall be read together,”

include “simultaneity of execution, identity of subject matter and parties,

cross-referencing, and interdependency of provisions.” Gilmore v. Century

Bank & Tr. Co., 20 Mass. App. Ct. 49, 56 (1985). See also Lass v. Bank of

Am., N.A., 695 F.3d 129, 135 (1st Cir. 2012) (pointing to Gilmore as affirming

a “well established principle” of law). Here, as WEI highlights, the Deed of

Assignment was signed on the same date as WEI’s Agreement with Source

One; the same person, John A. Leland, signed the Agreement and Deed of

Assignment on behalf of both Source One and Flex-Seal, respectively; the

Deed of Assignment is referenced in the text of the Agreement, see Dkt # 31-

1 at 1 (“Other than the rights granted in the Deed of Assignment, attached as

Exhibit 2, to assign an equal and undivided share in the WEI’s patents, as

described therein . . . .”); and Flex-Seal is referenced in Exhibit 1 of the

Agreement as Source One’s agent. See Dkt # 31-1 at 13 (authorizing Source

One to engage in certain actions “either directly or through its agent Flex Seal

Couplings, Ltd.,” within a proscribed territory). The documents are also

interdependent in the sense that the Deed of Assignment facilitates Source

One’s ability to carry out its obligations under the Agreement.

It does not, however, follow that obligations expressly assumed by

Source One become imputed to Flex-Seal, given Flex-Seal’s express

identification as Source One’s agent. See Dkt # 31-1 at 1, 13. “[A]gents do

not obtain rights or responsibilities from contracts entered into by their

principals, absent additional contractual terms such as third-party

beneficiary provisions or indemnification clauses.” Constantino v.

Frechette, 73 Mass. App. Ct. 352, 358 (2008). Further, while an agent may

bind a principal, without the latter’s consent, the converse is not true.

Walker v. Collyer, 85 Mass. App. Ct. 311, 323, 325 (2014). Here, WEI alleges

breach of provisions of the Agreement it signed with Source One, see FAC ¶

84; WEI does not allege breach of any distinct obligations that Flex-Seal

assumed in signing the Deed of Assignment. No contractual provisions

bound Flex-Seal to uphold the contractual obligations that Source One

assumed in the Agreement it signed with WEI. In sum, WEI has not alleged

facts sufficient to state a breach of contract claim against Flex-Seal.

It follows that WEI’s claim alleging breach of the duty of good faith and

fair dealing also fails with respect to Flex-Seal. It is true that “[e]very

contract implies good faith and fair dealing between the parties to it.”

Warner Ins. Co. v. Comm’r of Ins., 406 Mass. 354, 362 n.9 (1990), quoting

Kerrigan v. Boston, 361 Mass. 24, 33 (1972). However, the duty of good faith

and fair dealing may not “be invoked to create rights and duties not otherwise

provided for in the existing contractual relationship, as the purpose of the

covenant is to guarantee that the parties remain faithful to the intended and

agreed expectations of the parties in their performance.” Uno Restaurants,

Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376, 385 (2004). As

indicated above, the court does not consider Flex-Seal contractually bound

by the provisions of the Agreement which WEI alleges were breached.

Counts 1 and 2 against Flex-Seal therefore will be dismissed.

b. Count 3, negligence, as to Flex-Seal and Source One

Next, WEI alleges that “defendants breached the duty of care they owed

to [WEI] when their employees, agents and/or servants, particularly Mr.

Riding, Mr. Cartledge and Mr. Williams failed to provide the required

instructions to Wilson Gunn to meet the filing deadlines established by the

EPO.” FAC ¶ 112. Defendants argue that WEI’s negligence claims should be

dismissed because they “are premised solely on purported contractual

obligations, which do not give rise to a duty in tort,” Dkt # 20 at 21, and

because WEI “alleges purely economic damages, which are not recoverable

in tort.” Id. at 23.

While “failure to perform a contractual obligation is not a tort in the

absence of a duty to act apart from the promise made,” Anderson v. Fox Hill

Vill. Homeowners Corp., 424 Mass. 365, 368 (1997), when a “duty arises out

of the contract and is measured by its terms, negligence in the manner of

performing that duty as distinguished from mere failure to perform it,

causing damage, is a tort.” Id., quoting Abrams v. Factory Mut. Liab. Ins.

Co., 298 Mass. 141, 144 (1937). “When a party binds himself by contract to

do a work or to perform a service, he agrees by implication to do a

workmanlike job and to use reasonable and appropriate care and skill in

doing it.” Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass. 387,

395-396 (2003), quoting Abrams, 298 Mass. at 143.

Here, WEI alleges here that defendants’ negligence resulted in the loss

of its European patent. The First Circuit has recognized in patents a

“property interest, even at the stage of a patent application.” In re Engage,

Inc., 544 F.3d 50, 54 (1st Cir. 2008); see also Ropes & Gray LLP v. Jalbert,

454 Mass. 407, 410 (2009) (“Fundamentally, a patent is a property right.”).

Accordingly, WEI alleges loss of more than purely economic damages. C.f.

Bay State-Spray & Provincetown S.S., Inc. v. Caterpillar Tractor Co., 404

Mass. 103, 107 (1989) (In Massachusetts, “when economic loss is the only

damage claimed, recovery is not allowed . . . in negligence.”).

Although inartfully pled, when read in the light most favorable to WEI,

the FAC can reasonably be read to allege negligent performance of Source

One’s Agreement with WEI. Accordingly, the court will allow Count 3 to go

forward as against Source One. Because the court has determined that Flex-

Seal did not bind itself to the contractual obligations outlined in the

Agreement, the court will dismiss Count 3 as against Flex-Seal.

c. Count IV, violation of Chapter 93A, as to Flex-Seal

and Source One

Finally, WEI alleges a violation of Chapter 93A of the Massachusetts

General Laws. “To be successful, a plaintiff bringing a claim under [Chapter

93A,] § 11 must establish (1) that the defendant engaged in an unfair method

of competition or committed an unfair or deceptive act or practice, as defined

by G.L. c. 93A, § 2, or the regulations promulgated thereunder; (2) a loss of

money or property suffered as a result; and (3) a causal connection between

the loss suffered and the defendant’s unfair or deceptive method, act, or

practice.” Auto Flat Car Crushers, Inc. v. Hanover Ins. Co., 469 Mass. 813,

820 (2014) (footnote omitted). The jurisdictional threshold for a Chapter

93A claim is whether in their totality, the facts establish that “the center of

gravity of the circumstances that give rise to the claim is primarily and

substantially within the Commonwealth.” Kuwaiti Danish Computer Co. v.

Digital Equip. Corp., 438 Mass. 459, 473 (2003). Here, there is no material

dispute about the various venues in which the acts alleged to comprise a

Chapter 93A violation occurred.

Three factors are to be considered in assessing the center of gravity for

purposes of an action under Chapter 93A: “(1) where defendant committed

the deception; (2) where plaintiff was deceived and acted upon the

deception; and (3) the situs of plaintiff’s losses due to the deception.” Roche

v. Royal Bank of Canada, 109 F.3d 820, 829 (1st Cir. 1997), citing Clinton

Hosp. Ass’n v. Corson Grp., Inc., 907 F.2d 1260, 1265-1266 (1st Cir. 1990).

At the same time, “the center of gravity analysis is not solely based on a

formula ‘identified by any particular factor or factors’ because a significant

factor that exists in one case may not exist in another.” Arabian Support &

Servs. Co., Ltd. v. Textron Sys. Corp., 368 F. Supp. 3d 211, 229 (D. Mass.

2019), quoting Kuwaiti Danish Computer Co., 438 Mass. at 473. Whether a

defendant’s actions and transactions occurred primarily and substantially in

Massachusetts for purposes of Chapter 93A jurisdiction is a matter of law.

Campagnie de Reassurance d’Ile de France v. New Eng. Reinsurance Corp.,

57 F.3d 56, 90 (1st Cir. 1995).10 A defendant bears the burden of showing

that the bulk of its alleged transgressions occurred primarily and

substantially outside of Massachusetts. Roche, 109 F.3d at 829.

Defendants move to dismiss Count 4, arguing that WEI “has not

alleged that conduct giving rise to its claim occurred primarily or

substantially in Massachusetts.” Dkt # 20 at 25. WEI responds that it has a

viable Chapter 93A claim because “felt the loss of its intellectual property and

other harms” in Massachusetts, where it is based, Dkt # 31 at 13; because

“Fernco directed its subsidiaries to solicit and execute a licensing agreement

10 In contrast, “[w]hether a certain act or omission (or cluster of acts or

omissions) is actionable under chapter 93A is a question of fact.” Roche, 109

F.3d at 827.

with WEI in Massachusetts, and to meet with and train at WEI’s facilities in

Massachusetts,” id. at 15; and because WEI’s Agreement with Source One

contained a “Dispute Resolution clause specifying that the parties use a

Massachusetts mediator.” Id.; see also id. at 16 (asserting that harm to

“WEI’s brand, marketing position and goodwill” was “felt by WEI at its

home”).

“[W]hen ‘virtually all the conduct that can be said to be unfair or

deceptive’ occurs outside the Commonwealth, there can be no Chapter 93A

liability.” Kenda Corp. v. Pot O’Gold Money Leagues, Inc., 329 F.3d 216,

236 (1st Cir. 2003), quoting Kuwaiti Danish Computer Co., 438 Mass. at

475. Here, the alleged misconduct relates to maintenance of WEI’s European

patent; a separate “patent application in Australia,” FAC ¶ 88; business

dealings with a “German manufacturer,” id. ¶ 90, and “European and other

foreign licensees,” id. ¶ 91; and the defendants’ foreign sales and

manufacturing practices. In addition, as WEI makes clear in the FAC, it has

felt the brunt of the effects of the alleged actions in Europe. WEI complains

that the lapse of its European patent “has prevented WEI from selling [to]

licensees in Europe” and that WEI can no longer claim to possess “protected

technology in the European Union,” id. ¶ 69 (emphasis added), such that

“WEI’s ability to market, license and sell its proprietary systems and

products in the EU has substantially diminished.” Id. ¶ 70 (emphasis added).

WEI also asserts that “[s]ales of Ultracoat in Europe have decreased

significantly,” id. ¶ 70 (emphasis added), and that WEI’s “competitive

advantage in the EU” has “significantly decreased.” Id. ¶ 71 (emphasis

added).

WEI argues that “a ‘dominant event’ giving rise to WEI’s claims here is

the Massachusetts-based WEI entering into the underlying contract with

[d]efendants, a contract which [d]efendants subsequently breached.” Dkt #

31 at 16. Whatever credit is given to this argument, in the context of the

allegations made in the FAC, it is too slender a reed on which to anchor

support for the proposition that the alleged “unfair or deceptive act or

practice” that makes up the gravamen of WEI’s Complaint “occurred

primarily and substantially within the commonwealth.” Mass. Gen. Laws ch.

93A, § 11; see also First Sec. Bank, N.A. v. Nw. Airlines, Inc., 2001 WL 92175,

at *5 (D. Mass. Jan. 3, 2001) (“The plaintiffs, it is true, felt the impact of the

loss in Massachusetts, but . . . that fact is not determinative.”).11 Accordingly,

the court will dismiss Count IV in its entirety.

11 WEI does not separately contend that the defendants’ meetings and

training at WEI’s Massachusetts facilities, nor the defendants’ signing of

contractual agreements, nor the Agreement’s dispute resolution clause

requiring use of a Massachusetts mediator, were themselves unfair and

deceptive practices. See Greg Beeche Logistics, LLC v. Skanska USA Bldg.,

ORDER

For the foregoing reasons, defendants’ motion to dismiss for lack of

personal jurisdiction over Fernco is ALLOWED, consequently Counts 4 and

5 are dismissed as to Fernco. The defendants’ motion to dismiss pursuant to

Rule 12(b)(6) is ALLOWED on Counts 1, 2, and 3 with respect to Flex-Seal

only, and on Count 4 as to both Flex-Seal and Source One.

SO ORDERED.

/s/ Richard G. Stearns _____

UNITED STATES DISTRICT JUDGE

Inc., 2013 WL 5550673, at *3 (D. Mass. Sept. 23, 2013) (dismissing a Chapter

93A claim with prejudice, noting that “where there is no allegation that any

unfair or deceptive acts occurred primarily and substantially within

Massachusetts,” a plaintiff “has failed to allege a plausible basis for this

claim.”).