ARK National Holdings LLC v. WeCampaign LLC

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

CIVIL ACTION NO. 21-10893-RGS

ARK NATIONAL HOLDINGS LLC

v.

WE CAMPAIGN LLC, TITAN DIGITAL LLC,

WEOFFERS LLC, and ARMEN YOUSSEFIAN

MEMORANDUM AND ORDER ON

DEFENDANTS’ MOTION TO DISMISS

December 15, 2021

STEARNS, D.J.

Defendants WeCampaign LLC, WeOffers LLC, and Armen Youssefian

are seeking dismissal of the Second Amended Complaint (SAC), brought by

plaintiff ARK Holdings LLC. Defendants argue that ARK has failed to state

a claim upon which relief may be granted. Upon review of the parties’ briefs,

the court will allow-in-part and deny-in-part defendants’ motion.

BACKGROUND

ARK owns and manages multiple behavioral health centers, which

provide drug and alcohol rehabilitation services. SAC ¶ 2. Northeast

Addiction Treatment Center, LLC (NEATC), based in Quincy,

Massachusetts, is one such health center. Id. ¶ 20. In 2017, Richard

McDonald, ARK’s co-owner, hired Youssefian, the managing member of

WeCampaign, to “curate [ARK’s] Digital Assets, coordinate online marketing

activities, drive traffic to the Centers, analyze the Customer Data, and grow

NEATC’s brand.” Id. ¶¶ 33-39. ARK utilizes a third party, Call Tracking

Metrics, LLC (CTM), to capture and preserve data about all in-bound phone

calls to ARK’s call centers, including the callers’ names and phone numbers.

Id. ¶¶ 25-28. Youssefian and WeCampaign were granted access to NEATC’s

CTM account, allowing them to examine NEATC’s customer data. Id. ¶ 39.

On November 18, 2018, WeCampaign set up a CTM username that

downloaded a call log for the NEATC call center each Sunday and exported

the data to an email domain owned and controlled by Youssefian. Id. ¶ 41.

Over a period of several years, defendants imported 244 call logs from ARK’s

CTM account. Id.

On December 15, 2018, Youssefian signed a Statement of

Understanding with McDonald and ARK’s other co-owner, Pete McLoughlin,

giving Youssefian a one-third ownership interest in ARK’s health centers in

exchange for Youssefian’s exclusive commitment to ARK’s business

endeavors. Id. ¶¶ 49-50. This agreement was formalized in an Operating

Agreement signed on December 31, 2019, in which Youssefian agreed not to

compete with ARK and to keep ARK’s proprietary information confidential.

Id. ¶ 64. Additionally, Youssefian executed a Profits Interest Award

Agreement (backdated to December 1, 2019), promising to “devote his full

business time, attention and efforts to the business affairs” of ARK, id. ¶ 62,

and he signed a Buy-Sell Agreement declaring that his common units were

subject to purchase by ARK in the event of Youssefian’s termination for

cause, id. ¶ 66. On November 1, 2019, WeCampaign executed a Digital

Marketing Agreement undertaking to provide digital marketing and data

reporting services “exclusively” to ARK and to keep “Proprietary

Information” – including market information, contacts, and customer lists –

confidential. Id. ¶¶ 53-54, 57. Defendants’ practice of downloading ARK’s

call logs continued unabated despite these agreements. Id. ¶ 41.

ARK alleges that Youssefian and WeCampaign “failed to deliver” on

their promise to “take ARK to the top of Google’s search results.” Id. ¶ 84.

As a result, ARK states that it “had to drive admissions [to its Centers]

through paid media including purchasing customer leads from lead

aggregators.” Id. ¶ 85. When Eric Mitchell was installed as ARK’s Chief

Revenue Officer, he became “suspicious at the disparity between the

exorbitant fees ARK was paying WeCampaign and the resulting traffic to the

Centers’ web sites.” Id. ¶¶ 87-88.

Mitchell initiated an audit of ARK’s CTM account and learned that

defendants had been routinely downloading ARK’s call logs. Id. ¶ 90.

Further, American Addiction Centers, Inc. (AACI) – the entity that owns the

directory website “Rehabs.com,” id. ¶¶ 29-30 – informed ARK that

individuals at WeCampaign were managing accounts for several businesses

other than ARK on Rehabs.com, id. ¶ 91. Mitchell also “suspected the

authenticity of” defendants’ invoices, “because of the lack of specificity in

expenses, the lack of back up documentation, and the multiple ‘round

numbers’ for reimbursable costs.” Id. ¶ 104.

ARK then discovered Youssefian’s ownership of WeOffers, a business

that advertises a “cost-effective approach to generating quality leads” of

individuals seeking behavioral health services. Id. ¶ 46.1 ARK asserts that

WeOffers is a “shadow firm” utilized by Youssefian to sell ARK’s customer

data to competitors. Id. ¶ 92. ARK further learned that call logs were being

exported from its CTM account to email addresses ending in

“@weoffers.com.” Id. ¶ 83. ARK asserts that because defendants had no

legitimate reason for exporting the call logs, id. ¶ 43, “[p]ulling Call Logs

1 The SAC avers that Youssefian never disclosed the existence of

WeOffers to the other members of ARK. Id. ¶ 93.

every week like WeCampaign was doing is consistent with one thing and one

thing only: selling the Customer Data as leads to competitors.” Id. ¶ 45.

On April 15, 2021, ARK terminated Youssefian for cause. Id. ¶ 106.

ARK filed this lawsuit against defendants on May 27, 2021. See Compl. (Dkt

# 1). On September 14, 2021, ARK sent Youssefian a written tender offering

to purchase his common units in ARK pursuant to the terms of the Buy-Sell

Agreement. SAC ¶ 112. As of the filing of the SAC, Youssefian has not

responded to the tender offer. See id. ¶ 114.

DISCUSSION

“The sole inquiry under Rule 12(b)(6) is whether, construing the well-

pleaded facts of the complaint in the light most favorable to the plaintiffs, the

complaint states a claim for which relief can be granted.” Ocasio-Hernandez

v. Fortuno-Burset, 640 F.3d 1, 7 (1st Cir. 2011). In most circumstances, the

plaintiff need not demonstrate a “heightened fact pleading of specifics,” but

rather must present “only enough facts to state a claim to relief that is

plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

“A claim has facial plausibility when the plaintiff pleads factual content that

allows the court to draw the reasonable inference that the defendant is liable

for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Accordingly, facts that are “merely consistent with” a defendant’s liability are

inadequate. Id. Further, the recitation of the elements of a claim, “supported

by mere conclusory statements,” is insufficient to establish facial plausibility.

Id.

(1) Counts I (Breach of Contract), II (Breach of Implied Covenant of Good

Faith and Fair Dealing), and VI (Breach of Fiduciary Duty)

Defendants argue that because ARK failed to proffer any “well-pleaded

allegations of an actual breach of any agreement or fiduciary duty or of any

actual, cognizable damage thereby,” Counts I, II, and VI of the SAC do not

state a claim upon which relief can be granted. Defs.’ Mem. (Dkt #49) at 7.

The court disagrees. Defendants executed written agreements promising not

to compete with ARK and to keep ARK’s proprietary information – including

its customer data – confidential. Accepting the factual allegations of the SAC

as true, defendants’ sale of ARK’s customer data to generate leads for

competing behavioral health businesses plainly constitutes a breach of these

agreements, see Brooks v. AIG SunAmerica Life Assur. Co., 480 F.3d 579,

586 (1st Cir. 2007), as well as a breach of the implied covenant of good faith

and fair dealing inherent in any contract, see, e.g., Uno Restaurants, Inc. v.

Bos. Kenmore Realty Corp., 441 Mass. 376, 385 (2004). Further,

Youssefian’s alleged misappropriation of ARK’s proprietary information for

his own personal gain amounts to a breach of his fiduciary duty as a

managing member of ARK. See, e.g., Demoulas v. Demoulas Super Markets,

Inc., 424 Mass. 501, 535 (1997). ARK has also properly pleaded allegations

of damage stemming from defendants’ actions – namely, financial loss

resulting from defendants’ self-dealing.

Defendants contend that the court’s reasoning for dismissing claims

lodged against former defendant Aram Shirinyan compels a similar result

here. However, while the First Amended Complaint failed to plead any facts

suggesting that Shirinyan was selling ARK’s customer data to other

businesses, the SAC provides well-pleaded allegations that defendants were

doing just that. Notably, the SAC alleges that WeOffers – a lead generating

business for behavioral health centers owned by Youssefian – was receiving

exported call logs from ARK’s CTM account, SAC ¶¶ 46, 83, 92; and that

AACI informed ARK that WeCampaign was managing accounts for several

businesses other than ARK on Rehabs.com, id. ¶ 91. These additional facts,

while not overwhelming, carry ARK’s claims over the line that demarcates

what is merely “possible” from that which is factually “plausible.” Iqbal, 556

U.S. at 678.

(2) Counts III (Fraud), IV (Fraudulent Misrepresentation), and VII

(Unfair and Deceptive Practices)

Defendants maintain that the SAC’s claims alleging fraud (Count III),

fraudulent misrepresentation (Count IV), and unfair and deceptive practices

in violation of Mass. Gen. Laws ch. 93A (Count VII) fail to meet the Rule 9(b)

heightened pleading standard. When bringing claims involving fraud, “a

party must state with particularity the circumstances constituting” the

alleged fraud. Fed. R. Civ. P. 9(b). “In such cases, the pleader usually is

expected to specify the who, what, where, and when of the allegedly false or

fraudulent representation.” Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374

F.3d 23, 29 (1st Cir. 2004). The court concludes that ARK has satisfied Rule

9(b)’s pleading standard with respect to Counts III and VII, but not Count

IV.

“Under Massachusetts law, fraud requires that the defendant made a

knowingly false statement concerning a material matter that was intended

to, and did in fact, induce the plaintiff’s reliance and, through that reliance,

created an injury.” Woods v. Wells Fargo Bank, N.A., 733 F.3d 349, 357 (1st

Cir. 2013). “Proof of intent to deceive is not required, so long as there is proof

of a false representation of fact susceptible of the speaker’s knowledge.”

Cummings v. HPG Int’l, Inc., 244 F.3d 16, 22 (1st Cir. 2001). Although “‘false

statements of opinion, of conditions to exist in the future, or of matters

promissory in nature are not actionable,’ . . . statements about future events

concerning the conduct of a business” are actionable if, “at the time [the

defendant] made the statements [the plaintiff] relies on, [the defendant] had

no intention of following through on them.” Brewster Wallcovering Co. v.

Blue Mountain Wallcoverings, Inc., 68 Mass. App. Ct. 582, 601 n.45 (2007),

quoting Yerid v. Mason, 341 Mass. 527, 530 (1960). A properly stated

fraudulent misrepresentation claim essentially mirrors the necessary

elements of a fraud claim. See Masingill v. EMC Corp., 449 Mass. 532, 540

(2007).

Similarly, “a chapter 93A claimant must show that the defendant’s

actions fell ‘within at least the penumbra of some common-law, statutory, or

other established concept of unfairness,’ or were ‘immoral, unethical,

oppressive or unscrupulous,’ and resulted in ‘substantial injury . . . to

competitors or other business [persons].’” Quaker State Oil Ref. Corp. v.

Garrity Oil Co., 884 F.2d 1510, 1513 (1st Cir. 1989), quoting PMP Assocs.,

Inc. v. Globe Newspaper Co., 366 Mass. 593, 595 (1975). “In the context of

disputes among businesses, where both parties are sophisticated commercial

players, the ‘objectionable conduct must attain a level of rascality that would

raise an eyebrow to the rough and tumble of the world of commerce.’” Ora

Catering, Inc. v. Northland Ins., 57 F. Supp. 3d 102, 110 (D. Mass. 2014),

quoting Levings v. Forbes & Wallace, Inc., 8 Mass. App. Ct. 498, 502 (1979).

Count III and Count VII share the same basic contention – namely,

that Youssefian, both in his personal capacity and as a principal of

WeCampaign, falsely represented to ARK while negotiating the Profits

Interest Award Agreement that he would not engage with any business

venture other than ARK. Specifically, on November 25, 2019, Youssefian

indicated that he was concerned about restrictive language in the Profits

Interest Award Agreement concerning outside ventures. SAC ¶ 67. On

December 19, 2019, McLoughlin pushed back on Youssefian’s concerns,

stating that Youssefian’s time “should be 100% devoted to this venture,”

which McLoughlin considered to be “a very basic premise for . . . receiving

the equity [Youssefian is] receiving IMO.” SAC Ex. G at 5. McLoughlin

further remarked that “[t]he fact that this . . . is a negotiating point for you is

very troubling to me.” Id. In an email response to McDonald and

McLoughlin the same day, Youssefian wrote: “I shouldn’t devote significant

time to anything other than ARK! . . . I was hoping you’d trust that I’d keep

my eye on the prize without you having to put that in writing.” SAC ¶ 67. All

the while, defendants continued to download ARK’s customer data from

CTM, while allegedly concealing the existence of WeOffers, Youssefian’s

other business venture.

This statement, coupled with the underlying facts surrounding

defendants’ alleged misappropriation of ARK’s data, is sufficient to

surmount Rule 9(b)’s heightened pleading requirement. ARK states with

particularity “the who [Youssefian], what [exclusive commitment to ARK],

where [email communication], and when [December 19, 2019] of the

allegedly false or fraudulent representation.” Synopsys, Inc., 374 F.3d at 29.

Moreover, the SAC clearly asserts that at the time Youssefian, as

WeCampaign’s principal, made the allegedly fraudulent statement, he had

“no intention of following through on” his commitment and was in fact

actively betraying it by exporting and selling ARK’s customer data through

WeOffers, see Brewster Wallcovering Co., 68 Mass. App. Ct. at 601 n.45;

that Youssefian’s statement was made to induce McLoughlin and McDonald

to execute an agreement allowing Youssefian to share in ARK’s profits; and

that McLoughlin and McDonald were in fact induced to execute a profit-

sharing agreement with Youssefian. See Woods, 733 F.3d at 357. Moreover,

Youssefian’s allegedly unethical behavior – furthered by the actions of

WeCampaign and WeOffers in systematically misappropriating ARK’s

customer data – resulted in “serious” financial injury to ARK. Garrity Oil

Co., 884 F.2d at 1513. Accordingly, Counts III and VII of the SAC state claims

upon which relief may be granted.

The same cannot be said of Count IV, which states that invoices

presented to ARK by WeCampaign and Titan Digital “contained intentional

falsehoods in the form of fictitious and overinflated expenses.” SAC ¶ 141.

In support of this contention, ARK pleads only that the invoices lacked

specificity and contained “multiple ‘round numbers’ for reimbursable costs.”

Id. ¶ 104. This conclusory allegation, without more, would be insufficient

even for standard pleading purposes, and it certainly does not state with

particularity a specific false representation necessary to overcome the

heightened pleading requirements of Rule 9(b).

(3) Count V – Civil Conspiracy

Defendants next argue that the SAC fails to elucidate the existence of a

conspiracy between defendants, stating that defendants are all essentially

under the control of the same legal entity – Youssefian. The court agrees.

“To establish a civil conspiracy claim, a plaintiff must demonstrate that ‘a

combination of persons acted pursuant to an agreement to injure the

plaintiff.’” Gutierrez v. Mass. Bay Transp. Auth., 437 Mass. 396, 415 (2002),

quoting Nolan & Santorio, Tort Law § 99, at 136 (2d ed. 1989). In cases

where several “agents of the same legal entity make an agreement in the

course of their official duties, . . . as a practical and legal matter their acts are

attributed to their principal. And it then follows that there has not been an

agreement between two or more separate people.” Ziglar v. Abbasi, 137 S.

Ct. 1843, 1867 (2017).

Here, the SAC asserts that all the defendant organizations are either

owned or controlled by Youssefian. See SAC ¶ 37 (Youssefian “formed and

was the managing member of WeCampaign”); id. ¶ 13 (“Titan Digital is a

single, integrated enterprise with WeCampaign”); id. ¶ 14 (“WeOffers is an

entity . . . owned and controlled by Youssefian”). Where, as here, “a multiple

team of horses [are] drawing a vehicle under the control of a single driver” –

i.e., Youssefian – there can be no conspiracy. Copperweld Corp. v.

Independence Tube Corp., 467 U.S. 752, 771 (1984).

(4) Counts VIII (Federal Defend Trade Secrets Act) and IX (Massachusetts

Uniform Trade Secrets Act)

According to defendants, the SAC fails to state claims of federal and

state trade secret misappropriation because it does not describe the alleged

trade secrets with the necessary level of specificity. The court is not

convinced.

“Massachusetts trade secret law is nearly equivalent to the [federal]

DTSA.” Allscripts Healthcare, LLC v. DR/Decision Res., LLC, 386 F. Supp.

3d 89, 94 (D. Mass. 2019). “To prevail on a claim of misappropriation of

trade secrets, a plaintiff must show: 1) the information is a trade secret; 2)

the plaintiff took reasonable steps to preserve the secrecy of the information;

and 3) the defendant used improper means, in breach of a confidential

relationship, to acquire and use the trade secret.” Incase, Inc. v. Timex

Corp., 488 F.3d 46, 52 (1st Cir. 2007). The DTSA also requires that the trade

secret be “used in, or intended for use in, interstate or foreign commerce.”

18 U.S.C. § 1836(b)(1).

“A trade secret may consist of any formula, pattern, device or

compilation of information which is used in one’s business, and which gives

him an opportunity to obtain an advantage over competitors who do not

know or use it.” T.H. Glennon Co., Inc. v. Monday, 2020 WL 1270970, at

*14 (D. Mass. Mar. 17, 2020), citing J.T. Healy & Son, Inc. v. James A.

Murphy & Son, Inc., 357 Mass. 728, 736 (1970). “The party asserting the

claim must identify with adequate specificity the trade secret or proprietary

information that was allegedly misappropriated by the defendant.” Ferring

Pharm., Inc. v. Braintree Labs, Inc., 38 F. Supp. 3d 169, 175 (D. Mass. 2014).

The SAC identifies with appropriate specificity the proprietary

information that was allegedly misappropriated by defendants. As pointed

out by ARK in its opposition, “the SAC describes Customer Data as the name,

geographic location, telephone [number], and call duration of in-bound calls

place[d] by prospective patients to ARK’s call centers, which ARK’s vendor,

CTM, records and stores for ARK.” ARK Opp’n (Dkt # 50) at 22, citing

SAC ¶¶ 24-28. This customer data qualifies as a trade secret because it is a

compilation of information that “derives independent economic value from

not being generally known to, or readily ascertainable by proper means by,

the public.” SAC ¶ 166. See Monday, 2020 WL 1270970, at *14.

Further, the SAC demonstrates that ARK took reasonable steps to

preserve the secrecy of its customer data and adequately alleges that

defendants improperly breached their confidential relationship with ARK to

appropriate and exploit the data. ARK paid CTM to securely store its

customer data, see SAC ¶ 26, and ARK required that WeCampaign

employees execute Confidentiality, Intellectual Property Rights, and

Restrictive Covenant Agreements before granting those employees access to

its CTM account, see id. ¶ 72. Youssefian and WeCampaign’s alleged

exportation and sale of ARK’s customer data, if true, constitutes a breach of

the confidentiality agreements with ARK. As a third party that – according

to ARK – knowingly benefited from this confidentiality breach, WeOffers is

culpable as well. See Data Gen. Corp. v. Grumman Sys. Support Corp., 795

F. Supp. 501, 507 (D. Mass. 1992) (“[A] third party who knowingly benefits

from a trade secret which a person in a confidential relationship obtained

from the plaintiff is liable to the plaintiff for the misappropriation of the

trade secret.”).

Finally, the SAC adequately discloses that ARK’s customer data is

“used in, or intended for use in,” interstate commerce. 18 U.S.C.

§ 1836(b)(1). ARK “has three call centers in Massachusetts, Tennessee, and

Florida.” SAC ¶ 25. ARK utilizes the geographic location data obtained from

these call centers to “assess marketing performance and develop its future

marketing strategies.” Id. ¶ 27. It therefore stands to reason that ARK

utilizes its customer data for the purpose of developing an interstate

marketing strategy based in part on the geographic location of its callers.

(5) Count XVI – Unjust Enrichment

Defendants maintain that ARK’s unjust enrichment claim must fail

because there are contracts between ARK, Youssefian, and WeCampaign that

govern the parties’ responsibilities to one another. The court concurs. “It is

well settled that a claim of unjust enrichment ‘will not lie where there is a

valid [underlying] contract that defines the obligations of the parties.’” Zelby

Hldgs., Inc. v. Videogenix, Inc., 92 Mass. App. Ct. 86, 92 (2017), quoting

Metro. Life Ins. Co. v. Cotter, 464 Mass. 623, 641 (2013). Although “it is

generally permissible to pursue alternative theories at the pleading stage,”

Cooper v. Charter Comms. Entm’ts I, LLC, 760 F.3d 103, 112-113 (1st Cir.

2014), the SAC has incorporated the various contracts at issue as Exhibits B,

C, D, E, F, and H, and defendants by and large do not contest their validity

(save for Exhibit C, the Digital Marketing Agreement, see Sanctions Mem.

(Dkt # 53) at 7). Thus, the court, “focus[ing] narrowly on [ARK’s] complaint

along with [its] incorporated documents,” can conclude that valid contracts

exist among the parties that foreclose an equitable claim of unjust

enrichment. Id. at 113.2

(6) Counts X-XV, XVII-XXII – Equitable Remedies

In Counts X-XV and XVII-XXII, ARK seeks a variety of equitable

remedies, including contract rescission and reformation, disgorgement,

declaratory and injunctive relief, and specific performance. Because these

counts are remedies and not independent causes of action, they will be

dismissed as independent Counts of the SAC. See, e.g., Woods, 733 F.3d at

353 n.3. The court’s dismissal of these claims is, however, without prejudice

to ARK’s right to pursue these remedies in one form or another if it prevails

at trial.

2 Despite the lack of a contract between ARK and WeOffers, the SAC

does not plausibly demonstrate that ARK knowingly conferred a benefit on

WeOffers and expected compensation in return – a foundational element of

any unjust enrichment claim. See Stewart Title Guar. Co. v. Kelly, 97 Mass.

App. Ct. 325, 335 (2020).

ORDER

For the foregoing reasons, defendants’ motion to dismiss is

ALLOWED-IN-PART with prejudice as to Counts IV, V, and XVI and without

prejudice as to Counts X-XV and XVII-XXII. Defendants’ motion to dismiss

is DENIED as to all other Counts.

SO ORDERED.

/s/ Richard G. Stearns__________

UNITED STATES DISTRICT JUDGE