STROUDWATER ASSOCIATES v. KIRSCH

UNITED STATES DISTRICT COURT

DISTRICT OF MAINE

STROUDWATER ASSOCIATES, )

)

Plaintiff, )

)

v. ) Docket No. 2:21-cv-00086-NT

)

ROBERT KIRSCH, et al., )

)

Defendants. )

ORDER ON COUNTER-CLAIMANTS’ MOTION TO AMEND AND

COUNTER-DEFENDANTS’ MOTION TO DISMISS

Before me are two related motions: a motion by the Counter-Claimants to

amend their counterclaims (“Counter-Claimants’ Mot. to Amend”), and a motion

by the Counter-Defendants to dismiss the counterclaims. For the reasons stated

below, the motion to amend is GRANTED, and the motion to dismiss is DENIED.

BACKGROUND1

I. The Agreements

Around April 2018, Plaintiff/Counter-Defendant Stroudwater Associates

(“Stroudwater”) entered into a series of Purchase Money Loan Agreements (“Loan

Agreements”) with five Stroudwater employees,2 Defendants/Counter-Claimants

John Behn, Laurie Daigle, Douglas Johnson, Robert Kirsch, and C. Ryan Sprinkle

1 The facts below are drawn from the allegations in the Counterclaims and the Amended

Counterclaims, which I take as true for the purposes of deciding a motion to dismiss. Alston v. Spiegel,

988 F.3d 564, 571 (1st Cir. 2021).

2 Stroudwater Associates entered into Purchase Money Loan Agreements with other employees,

too, but those employees’ agreements are not germane to the disposition of these motions.

(the “Noteholders”). Countercls. ¶¶ 11, 13, 18 (ECF Nos. 12, 13, 14, 15, 16); Loan

Agreements (ECF Nos. 12-2, 13-2, 14-2, 15-2, 16-2).3 In exchange for an agreement to

pay each of the Noteholders a particular sum of money—which was secured by a

Purchase Money Note (the “Note”)—the Noteholders agreed to lend Stroudwater

money to buy up the Noteholders’ stock (the “deal”) in order to create an Employee

Stock Ownership Plan (“ESOP”). Countercls. ¶¶ 11, 13–14. These Notes were entered

into simultaneously with the Loan Agreements. Loan Agreements § 3(c). And the

Loan Agreements say that the Notes and Loan Agreements “have been made under

substantially similar terms as” described in the Loan Agreements unless the Notes

say otherwise. Loan Agreements § 3(c).

Stroudwater agreed to pay interest on the Notes, and the Loan Agreements

specify that “[p]ayments of interest shall be made bi-annually” on the first of January

and on the first of July each year for a period of twenty years. Loan Agreements §§ 1,

2(a), (f). The Loan Agreements state that Stroudwater will be in default if it “fail[s]

to make any payment of the principal of the . . . Note within twenty (20) days after”

it becomes due. Loan Agreements § 6. But there exists no such provision for the

failure to pay interest. Rather, if Stroudwater fails to pay any interest due on the

Note within twenty days of its due date, that “unpaid interest shall be added to” the

3 Because the Counter-Claimants’ counterclaims and the attached exhibits are identical in most

respects, for the sake of convenience, I refer to the counterclaims and exhibits collectively unless it is

necessary to specify a particular Counter-Claimant’s counterclaim or attached exhibit. These

counterclaim references only refer to the originally filed Counterclaims, not the Amended

Counterclaims that two of the Counter-Claimants now seek to file.

unpaid principal, causing the principal amount due under the Note to be adjusted.

Loan Agreements § 6.

Three other provisions of the Loan Agreements are relevant here. One is a

requirement that Stroudwater permit the Noteholders to access and copy

Stroudwater’s books and records upon the Noteholders’ requests. Loan Agreements

§ 5(g). The second is that Stroudwater “shall pay all Collection Costs promptly upon

the [Noteholders’] demand from time to time.” Loan Agreements § 5(f). The Loan

Agreements define “Collection Costs” as:

any and all costs and expenses of enforcing [the Loan Agreement]

including, without limitation, any and all costs and expenses of

collecting [on] the [Note] and exercising the [Noteholder’s] rights and

remedies . . . and any and all other expenses incurred by the

[Noteholder] after the occurrence of any Default . . . . In all such events,

such costs and expenses shall include, without limitation, the

reasonable fees, expenses and disbursements of the [Noteholder’s] legal

counsel.

Loan Agreements § 1.

And the third relevant provision of the Loan Agreements is that the Note and

any accrued interest are secured by the assets of Stroudwater but are always

subordinate to any security interest “by a bank lender or other creditor of”

Stroudwater. Loan Agreements § 2(h). This provision is consistent with the Junior

Security Agreements (“JSAs”) that the Noteholders entered into with Stroudwater a

few months before the Loan Agreements. JSAs (ECF Nos. 12-3, 13-3, 14-3, 15-3, 16-

3). The JSAs state that the Noteholders’ security interests are “subject and

subordinate to [a] Senior Security Agreement” and obligate the Noteholders “to

confirm such subordination in writing at the request of [a] holder of [a] Senior

Security Interest.” JSAs § 2. In the JSAs, Stroudwater agreed to perform its

obligations “in any agreement creating a Senior Security Interest or a Pari Passu

Security Interest.” JSAs § 4(f). The JSAs define a “Pari Passu Security Interest” as

“the security interest granted by” Stroudwater to the Noteholders. JSAs § 1. The JSAs

also prohibit Stroudwater from merging with another entity, at least under certain

circumstances. JSAs § 6.

In conjunction with the JSAs, the Noteholders also entered into Intercreditor

Agreements. Intercreditor Agreements (ECF Nos. 12-4, 13-4, 14-4, 15-4, 16-4). In

signing the Intercreditor Agreements, the Noteholders agreed that their security

interests were “of equal priority.” Intercreditor Agreements § 2 (emphasis deleted).

As a result, in the event of distribution of Stroudwater’s assets, the Noteholders

agreed that these assets would be distributed “in proportion to [the] amounts owing

to the [Noteholders] on account of their outstanding Loans to” Stroudwater.

Intercreditor Agreements § 3(a) (emphasis deleted).

One final group of documents is relevant to the motions before me. That

consists of the Subordination Agreements entered into by the Noteholders around the

same time as the Loan Agreements. Subordination Agreements 1 (ECF No. 23-1). The

parties to the Subordination Agreements are Stroudwater, Bangor Savings Bank

(“BSB”), and the Noteholders. Subordination Agreements 1. According to the

Subordination Agreements, the Noteholders (the “Junior Creditors”) agreed: (1) to

subordinate “all rights, claims and interests created pursuant to the Loan

Documents” to money owed to BSB (the “Senior Creditor”); (2) that their claims “at

all times remain[ed] fully unsecured”; (3) that they have a “right to receive regularly

scheduled payments of accrued interest (but not principal or any other amounts) on

the remaining unpaid balance of the” Note; and (4) that the Noteholders would not

“make demand for all or any portion of” the money owed to them or “commence any

action or proceeding against [Stroudwater] to recover all or any part of the” money

owed to them, until Stroudwater paid the money it owed to BSB. Subordination

Agreements §§ 1(c), 4, 5, 8.

II. Stroudwater’s Alleged Breaches

The Noteholders allege that beginning in late 2018, Stroudwater began to

struggle financially. Countercls. ¶¶ 32–36. And they allege that Stroudwater’s debts

exceed its assets. Countercls. ¶¶ 47, 51. Among other debts, Stroudwater has a multi-

million dollar outstanding loan to BSB and owes more than two million dollars to the

Noteholders. Countercls. ¶ 49.

As Stroudwater began to founder, Counter-Defendant Jeffrey Sommer, the

managing director of Stroudwater and a member of the Stroudwater Board of

Directors (“BOD”), continued to receive a lucrative compensation package.

Countercls. ¶¶ 3, 61. The Noteholders assume that this continues to be the case, and

they allege that this is improper. Countercls. ¶ 62. The Noteholders allege that the

members of the BOD, including Counter-Defendants Eric Shell and Opal Greenway,

have a duty to review Mr. Sommer’s performance and compensation package and to

make any necessary adjustments to it. Countercls. ¶¶ 4–5, 62.

In 2019, Mr. Sommer took a personal bonus based on anticipated revenue from

a project, but the client then became insolvent, and Stroudwater was left with an

unsecured claim exceeding $300,000. Countercls. ¶ 63. After Stroudwater was

advised that it should expect no recovery on this claim, Mr. Sommer and Mr. Shell

refused to remove this uncollectible receivable from Stroudwater’s books in an effort

“to prop up” its financial statements and overstate Stroudwater’s value. Countercls.

¶ 64. They did so in order to protect their incentive compensation. Countercls. ¶ 64.

The Noteholders contend that, as a result of its financial difficulties,

Stroudwater began to shirk its obligations under the Loan Agreements and the other

contracts outlined above. For example, Stroudwater did not make all of the interest

payments that were due under the Loan Agreements on January 1, 2020, (the

“January Payments”) including the payment owed to Mr. Kirsch. Countercls. ¶ 37.

However, Ms. Greenway received her January Payment. Countercls. ¶ 37. Some

individuals who did not receive their January Payments but remained employed by

Stroudwater or sat on its BOD were reimbursed in some form, but others, like Mr.

Kirsch, have not been. Countercls. ¶¶ 38–39. Stroudwater also failed to make any of

the next two interest payments due to the Noteholders under the Loan Agreements.

Countercls. ¶ 42.

The Noteholders further allege that Stroudwater overstated and

misrepresented its financial performance in 2020, which benefitted Mr. Sommer, Mr.

Shell, and Ms. Greenway (the “Individual Counter-Defendants”). Countercls.

¶¶ 40–41. And Stroudwater refused to allow the Noteholders to review its books and

records to verify this allegation despite a demand by the Noteholders. Countercls.

¶¶ 43, 56, 58.

The Noteholders allege a number of other improprieties by the Individual

Counter-Defendants, including that: (1) as the sole ESOP trustees (and thus the sole

shareholders of Stroudwater), they have used their positions to perpetually appoint

themselves to the BOD; (2) they have acted in their own interests rather than those

to whom they owe a fiduciary duty, such as by taking steps to remove high-performing

employees to ensure that they and their favored employees get the highest bonuses;

and (3) they have authorized and approved bonuses and raises in ways that benefit

themselves and their supporters. Countercls. ¶¶ 15, 66, 68–70.

The Noteholders also allege that Stroudwater violated the JSAs when, in

November 2020, it merged with another entity. Countercls. ¶ 44.

III. Behn and Daigle Allegations of Discrimination

Ms. Daigle began working for Stroudwater in 2010. Daigle Proposed Am.

Countercl. (“Daigle PAC”) ¶ 72 (ECF No. 27-5). In 2013, she was diagnosed with a

chronic illness. Daigle PAC ¶ 74. Stroudwater then determined that Ms. Daigle’s

illness made it too risky for her to travel, which was an essential function of her job.

Daigle PAC ¶ 79. After Ms. Daigle underwent successful treatment and was cleared

to return to work by her doctor, Stroudwater decided to restructure Ms. Daigle’s job

to eliminate travel from her job duties. Daigle PAC ¶¶ 80–81. This impacted Ms.

Daigle’s ability to perform her job, of which travel was a significant part. Daigle PAC

¶ 87. Due to this, Ms. Daigle decided to resign her position in April 2013. Daigle PAC

¶ 98.

In 2014, Mr. Behn became the President of a new Stroudwater subsidiary.

Daigle PAC ¶ 100. And in November 2014, Stroudwater re-hired Ms. Daigle to work

for this new subsidiary. Daigle PAC ¶ 99. In these positions, Mr. Behn and Ms. Daigle

performed audits of the functionality of a pricing tool that Stroudwater had developed

for some of its clients. Behn Proposed Am. Countercl. (“Behn PAC”) ¶¶ 74, 79 (ECF

No. 27-4); Daigle PAC ¶ 105. While in this new position, Ms. Daigle’s performance

and employment continued to be evaluated through the lens of Stroudwater’s

unfounded concerns about her health. Daigle PAC ¶¶ 118–19.

Beginning in 2016, Mr. Behn and Ms. Daigle repeatedly notified Stroudwater

management that their audits had revealed problems that would create issues for

Stroudwater’s clients and for Stroudwater’s ability to maintain compliance with the

state and federal grants and funds used to build the pricing tool. Behn PAC ¶¶ 80–

82, 84–85, 96–97; Daigle PAC ¶¶ 111–16. This compounded Stroudwater’s already-

disparate treatment of Ms. Daigle. Daigle PAC ¶ 130. Mr. Behn did not receive a

response to at least some of the concerns that he raised. Behn PAC ¶¶ 83, 86.

Beginning in 2016, Mr. Behn’s stock award and pay raises began to decrease

over prior years despite his increasing performance. Behn PAC ¶ 98. When

Stroudwater transitioned to the ESOP, he was not given shares of the ESOP that

matched his level of contributions to the company, and his Note was undervalued by

at least $800,000. Behn PAC ¶¶ 99–102. Employees who were less tenured and lower

producers received more shares than Mr. Behn did. Behn PAC ¶ 103. In the case of

Ms. Daigle, she received lower raises, less recognition, and fewer shares and stock

options than other Stroudwater employees who were not performing as highly as she

was. Daigle PAC ¶ 117.

On May 19, 2020, Mr. Behn and Ms. Daigle notified Stroudwater that they

were resigning, and all parties agreed that June 30, 2020, would be their final day of

employment at Stroudwater. Behn PAC ¶ 109; Daigle PAC ¶ 131. In this interim

period, Mr. Behn and Ms. Daigle both had discussions with Stroudwater about an

ongoing contract employment relationship to help transition Stroudwater clients

after their departures. Behn PAC ¶ 110; Daigle PAC ¶ 140.

On June 26, 2020, Mr. Behn and Ms. Daigle were notified that their

employment was terminated for cause, effective June 29, 2020, because they had sent

a proposal to a current Stroudwater client for the purpose of providing services

without Stroudwater’s consent and in an effort to compete with Stroudwater for such

services, in violation of their employment agreements. Behn PAC ¶ 112; Daigle PAC

¶¶ 132–33. While Mr. Behn and Ms. Daigle did submit two such proposals, they were

submitted on behalf of Stroudwater pursuant to the transition discussions in which

Mr. Behn, Ms. Daigle, and Stroudwater had previously engaged. Behn PAC ¶¶ 117–

19; Daigle PAC ¶¶ 135–138.

At the time of Mr. Behn’s and Ms. Daigle’s separations from Stroudwater, they

were each entitled to certain compensation for calendar years 2019 and 2020 that

Stroudwater had not paid them. Behn PAC ¶¶ 122–25, 128; Daigle PAC ¶¶ 146–49,

152.

IV. The Counterclaims

In March 2021, Stroudwater sued the Noteholders, for alleged breaches of their

employment agreements, Compl. (ECF No. 1), the particulars of which are not

relevant here. In conjunction with their Answers, the Noteholders brought various

counterclaims against Stroudwater, Mr. Sommer, Mr. Shell, and Ms. Greenway (the

“Counter-Defendants”). Counterclaim Count I—asserted by each of the

Noteholders—alleges that the Counter-Defendants have breached § 5(g) of the Loan

Agreements by denying the Noteholders access to Stroudwater’s books and records.

Johnson Countercl. ¶¶ 71–77; Kirsch Countercl. ¶¶ 71–77; Sprinkle Countercl.

¶¶ 71–77; Behn Countercl. ¶¶ 87–93; Daigle Countercl. ¶¶ 86–92. To remedy this

alleged breach, the Noteholders are seeking a decree of specific performance requiring

Stroudwater to provide the requested books and records and an award of attorneys’

fees. Johnson Countercl. ¶¶ 78–79; Kirsch Countercl. ¶¶ 78–79; Sprinkle Countercl.

¶¶ 78–79; Behn Countercl. ¶¶ 94–95; Daigle Countercl. ¶¶ 93–94.

Counterclaim Count II—also asserted by each of the Noteholders—alleges that

the Counter-Defendants have breached their fiduciary duties, in particular their duty

to Stroudwater’s creditors (which include the Noteholders). Johnson Countercl.

¶¶ 80–101; Kirsch Countercl. ¶¶ 80–101; Sprinkle Countercl. ¶¶ 80–101; Behn

Countercl. ¶¶ 96–117; Daigle Countercl. ¶¶ 95–116. Specifically, the Noteholders

allege that the Counter-Defendants have breached their fiduciary duties in the

following ways: (1) the BOD disparately treated Stroudwater creditors in violation of

the various contracts signed as a part of the deal; (2) the BOD engaged in self-dealing

by making interest payments to Ms. Greenway but not to all of other creditors who

were owed interest payments (including Mr. Kirsch); (3) the BOD approved a merger

in violation of the JSAs, and at a time when Stroudwater was unable to pay its debts;

(4) the Counter-Defendants failed to allow the Noteholders access to Stroudwater’s

books and records; (5) the Complaint is frivolous and was only filed by Stroudwater

to try to gain leverage over the Noteholders; (6) Mr. Sommer and Mr. Shell overstated

and misrepresented the financial position and value of Stroudwater, and received

inflated compensation as a result, to the detriment of the ESOP participants and

Stroudwater’s creditors; and (7) the Individual Counter-Defendants have forced out

some Stroudwater employees (and favored others) in order to elevate their own

standing at the expense of the ESOP participants and Stroudwater’s creditors.

Johnson Countercl. ¶¶ 88–100; Kirsch Countercl. ¶¶ 88–100; Sprinkle Countercl. ¶¶

88–100; Behn Countercl. ¶¶ 104–16; Daigle Countercl. ¶¶ 103–15.

Mr. Kirsch’s counterclaim has another breach of contract claim (“Kirsch

Count III”) that he brings against all of the Counter-Defendants. Kirsch Countercl.

¶¶ 102–08. Specifically, Mr. Kirsch alleges that Stroudwater’s failure to make his

January Payment, while making the January Payment to others, violated

Stroudwater’s contractual obligations to treat all of its noteholders equally. Kirsch

Countercl. ¶¶ 103–07. Although he brings only a breach of contract claim, Mr. Kirsch

asserts that this disparate payout of the January Payments also constitutes

conversion. Kirsch Countercl. ¶ 105.

Mr. Behn and Ms. Daigle bring four additional counterclaims.4 Counterclaim

Count III (“Behn/Daigle Count III”) is a breach of contract claim against

Stroudwater, alleging that Stroudwater breached Mr. Behn’s and Ms. Daigle’s

4 Because, as described below, I ultimately allow Mr. Behn’s and Ms. Daigle’s requested

amendments, for purposes of convenience, I rely on the allegations in their proposed amended

counterclaims.

employment agreements by failing to pay all of their compensation and also because

of how their notice of termination occurred. Behn PAC ¶¶ 160–63; Daigle PAC

¶¶ 184–87. Counterclaim Count IV is a quantum meruit claim against Stroudwater

alleging that Stroudwater failed to pay Mr. Behn and Ms. Daigle for their services.

Behn PAC ¶¶ 166–69; Daigle PAC ¶¶ 190–93. Counterclaim Count V is an unjust

enrichment claim against Stroudwater alleging that Stroudwater received the benefit

of Mr. Behn’s and Ms. Daigle’s services without paying for their value. Behn PAC

¶¶ 172–74; Daigle PAC ¶¶ 196–98. Counterclaim Count VI is an employment

discrimination claim against Stroudwater alleging that Stroudwater mistreated,

under-rewarded, and terminated Mr. Behn and Ms. Daigle because of the respective

concerns they raised about the pricing tool and, in Ms. Daigle's case, because of her

medical condition. Behn PAC ¶¶ 181–82; Daigle PAC ¶¶ 205–07.

DISCUSSION

I. Motion to Amend

A. Procedural History

As a part of their original Counterclaims, which they filed on June 7, 2021, Mr.

Behn and Ms. Daigle mentioned that they had filed complaints of discrimination in

employment against Stroudwater with the Maine Human Rights Commission

(“MHRC”), that they would soon be eligible to request “right to sue” letters from the

MHRC, and that they intended to request those letters. Behn Countercl. ¶¶ 71–72;

Daigle Countercl. ¶¶ 71–72. Each also stated that he/she would “seek to bring

[his/her] claims against Stroudwater by adding an additional counterclaim for

discrimination in employment in this action following receipt of a right to sue letter.”

Behn Countercl. ¶ 73; Daigle Countercl. ¶ 73.

In the interim, each brought a “placeholder” count of sorts. Both Counterclaims

contain a “Count VI” described as a claim for “Discrimination in Employment.” Behn

Countercl., at 51; Daigle Countercl., at 51. But both Counterclaims explicitly

acknowledged that Mr. Behn and Ms. Daigle were “not entitled to assert [their]

claims” at the time the Counterclaims were filed and declared that they were

“notif[ying] the Court and Stroudwater” of their intent to amend their Counterclaims

upon the receipt of their right to sue letters. Behn Countercl. ¶ 135; Daigle Countercl.

¶ 134.

On October 12, 2021, Mr. Behn and Ms. Daigle received their right to sue

letters from the MHRC. Counter-Claimants’ Mot. to Amend 3 (ECF No. 27). And, true

to their earlier stated intentions, on October 14, 2021, both Counter-Claimants filed

motions to amend “to add claims for employment discrimination.” Counter-

Claimants’ Mot. to Amend 3. The Amended Counterclaims introduce new and specific

facts pertaining to Mr. Behn’s and Ms. Daigle’s allegations of employment

discrimination, and they replace the earlier placeholder counts (what used to be

labeled “Count VI”) with specific allegations of employment discrimination (still

labeled “Count VI”). Behn PAC ¶¶ 71–121, 176–85; Daigle PAC ¶¶ 71–145, 200–07.

The Counter-Defendants argue that the motion should be denied on the ground

of futility. Opp’n to Counterclaim Pls. John Behn and Laurie Daigle’s Mot. to Suppl.

or Amend Countercls. (“Counter-Defs.’ Opp’n to Mot. to Amend”) 2–3 (ECF No.

28). The employment discrimination claims are futile, the Counter-Defendants say,

because Mr. Behn and Ms. Daigle filed their employment discrimination claims as a

part of their original Counterclaims (despite their protestations to the contrary), and

they did so without fully exhausting their administrative remedies. Counter-Defs.’

Opp’n to Mot. to Amend 3. The Counter-Defendants then argue that Mr. Behn and

Ms. Daigle cannot receive the only remedies they are seeking (due to this alleged

failure to exhaust), and so the proposed amendments would be futile and should be

denied. Counter-Defs.’ Opp’n to Mot. to Amend 3–4 & n.2.

B. Legal Standard

“The court may permit a party to file a supplemental pleading asserting a

counterclaim that matured or was acquired by the party after serving an earlier

pleading.” Fed. R. Civ. P. 13(e). In addition, Rule 15(a) of the Federal Rules of Civil

Procedure allows for amendment to a pleading with leave of court and directs the

court to “freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). Leave to

amend may be denied for a multitude of reasons, including on the ground of futility.

Kader v. Sarepta Therapeutics, Inc., 887 F.3d 48, 60 (1st Cir. 2018). An amendment

is futile if the amended claim(s) “would fail to state a claim upon which relief could

be granted.” Rife v. One W. Bank, F.S.B., 873 F.3d 17, 21 (1st Cir. 2017) (quoting

Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir. 1996)).

C. Analysis

Mr. Behn and Ms. Daigle treat Rule 13(e) and Rule 15(a) as alternative bases

for why their proposed amendments should be allowed. Counter-Claimants’ Mot. to

Amend 5. The Counter-Defendants not only do not dispute that these alternative

bases exist, but they ignore the application of Rule 13(e) entirely. Instead, they only

argue that leave to amend should be denied on the ground of futility.

I agree with Mr. Behn and Ms. Daigle that Rule 13(e) permits their

amendment because, at the time they filed their Counterclaims, they did not have

right to sue letters and thus were not permitted to bring their employment

discrimination claims. The Counter-Defendants do not offer any argument or

authority to support the idea that Rule 13(e) has a futility exception. Having failed

to address the Rule 13(e) issue, the Counter-Defendants have waived any objection

to it. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).5 The Motion to

Amend is GRANTED.

At oral argument, I noted that the proposed amended counterclaims do not

appear to allege that Mr. Behn and Ms. Daigle have filed a claim with the MHRC and

received right-to-sue letters. That appears to be a technical requirement required by

the Maine Human Rights Act (“MHRA”). See 5 M.R.S. § 4622(1). As a result, I am

extending to Mr. Behn and Ms. Daigle additional leave to amend to correct that

omission in their Amended Counterclaims should they choose to do so.

5 The Counter-Defendants make an identical version of their futility argument in their motion

to dismiss as a basis for why they say Count VI should be dismissed from Mr. Behn’s and Ms. Daigle’s

Counterclaims. Mem. of Law in Supp. of Counter-Defs.’ Mot. to Dismiss 15–18 (ECF No. 23). While

the analysis with respect to both motions is more or less the same, because of the differing standards

of review, I address the motion to dismiss argument below. And, for the same reasons why I ultimately

find that Count VI should not be dismissed, even if I were to address the Counter-Defendants’ futility

argument, my analysis would dictate the finding that amendment is not futile and should be

permitted.

II. Motion to Dismiss

A. Legal Standard

When evaluating a motion to dismiss, I take “as true all well-pleaded facts

alleged in the complaint and draw all reasonable inferences therefrom in the pleader’s

favor.” Alston v. Spiegel, 988 F.3d 564, 571 (1st Cir. 2021) (quoting Santiago v. Puerto

Rico, 655 F.3d 61, 72 (1st Cir. 2011)). “[A] complaint will survive a motion to dismiss

when it alleges ‘enough facts to state a claim to relief that is plausible on its face.’ ”

Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is

“plausible” if the facts alleged give rise to a reasonable inference of liability. Id.

“Plausible” means “more than merely possible.” Germanowski v. Harris, 854 F.3d 68,

71 (1st Cir. 2017) (quoting Schatz v. Republican State Leadership Comm., 669 F.3d

50, 55 (1st Cir. 2012)). In evaluating the plausibility of a claim, it is helpful to examine

the claim against the background of the elements of a prima facie case for liability.

Id. at 72. But “[i]t is not necessary to plead facts sufficient to establish a prima facie

case at the pleading stage.” Id. (quoting Rodríguez-Reyes v. Molina-Rodríguez, 711

F.3d 49, 54 (1st Cir. 2013)).

On a motion to dismiss, courts “usually consider only the complaint, documents

attached to it, and documents expressly incorporated into it.” Foley v. Wells Fargo

Bank, N.A., 772 F.3d 63, 72 (1st Cir. 2014). But in some circumstances, a court may

consider additional evidence, including documents where the authenticity is not

disputed, “documents central to” the plaintiff’s claim, or “documents sufficiently

referred to in the complaint.” Id. at 74 (quoting Watterson v. Page, 987 F.2d 1, 3 (1st

Cir. 1993)). “When the complaint relies upon a document, whose authenticity is not

challenged, such a document ‘merges into the pleadings’ and the court may properly

consider it under a Rule 12(b)(6) motion to dismiss.” Alt. Energy, Inc. v. St. Paul Fire

& Marine Ins. Co., 267 F.3d 30, 33 (1st Cir. 2001) (quoting Beddall v. State St. Bank

& Tr. Co., 137 F.3d 12, 17 (1st Cir. 1998)).

B. Analysis

1. Count I – Breach of Contract Due to Refusal to Provide

Access to Books and Records

The Counter-Defendants initially moved to dismiss Count I on the ground that

the Counter-Claimants are not entitled to the relief sought (specific performance and

attorneys’ fees). Mem. of Law in Supp. of Counter-Defs.’ Mot. to Dismiss (“Counter-

Defs.’ Mot. to Dismiss”) 5–7 (ECF No. 23). In addition, in reply, the Counter-

Defendants contend that Count I is now moot because they say that they notified the

Noteholders the day before filing their reply that they would make the 2019 books

and records available to the Noteholders within five business days and that they

would make the 2020 records available when completed, by the end of September

2021. Reply in Supp. of Countercl. Defs.’ Mot. to Dismiss Countercls. (“Counter-

Defs.’ Reply”) 7 (ECF No. 25). At oral argument, counsel for the Counter-Defendants

claimed that Stroudwater had now provided the financial records for both 2019 and

2020, but the Counter-Claimants’ counsel represented that the Noteholders had only

received high-level financial summaries and that they had not been given the “access

to all of the Company’s books and records” required by the Loan Agreements. Based

on the representations at oral argument, this claim is clearly not moot as the Counter-

Defendants contend it is.6

The Counter-Defendants also argue that the Noteholders are not entitled to

specific performance because they can pursue a claim for monetary damages. But the

Counter-Defendants fail to identify a way in which damages could offset the harm of

the failure to disclose the company books and records. Other courts to have considered

the issue have found specific performance to be appropriate in similar situations. See,

e.g., JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 579–80, 585 (6th Cir. 2007)

(finding that there existed no “adequate remedy at law to enforce” parties’ credit

agreement allowing for inspection of financial records); Microsoft Corp. v. Weidmann

Elec. Tech. Inc., Case No. 5:15-cv-153, 2016 WL 7165949, at *10 (D. Vt. Dec. 7, 2016)

(“[S]pecific performance is available because there is no adequate remedy at law for

Weidmann’s breach of its verification obligation.”).

Finally, the Counter-Defendants’ argument that the Noteholders are not

entitled to attorneys’ fees because there is no statute or written agreement entitling

them to fees is undercut by § 5(f) of the Loan Agreements. This section entitles the

Noteholders to “Collection Costs,” which are defined to include “any and all costs and

6 Even if Stroudwater had provided full access to its books, a “defendant cannot automatically

moot a case simply by ending its unlawful conduct once sued. Otherwise, a defendant could engage in

unlawful conduct, stop when sued to have the case declared moot, then pick up where he left off,

repeating this cycle until he achieves all his unlawful ends.” Already, LLC v. Nike, Inc., 568 U.S. 85,

91 (2013) (citation omitted). As a result, “a defendant claiming that its voluntary compliance moots a

case bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior

could not reasonably be expected to recur.” Id. (quoting Friends of the Earth, Inc. v. Laidlaw Env’t

Servs. (TOC), Inc., 528 U.S. 167, 190 (2000)). The Counter-Defendants have failed to meet that burden

here.

expenses of enforcing” the Loan Agreements, including “the reasonable fees, expenses

and disbursement of [their] legal counsel.” Taking all reasonable inferences in the

Noteholders’ favor, I must construe this to mean that they are entitled to attorneys’

fees because they are suing to enforce the Loan Agreements.

The motion to dismiss Count I is DENIED.

2. Count II – Breach of Trust and Fiduciary Duties

The Counter-Defendants levy three attacks against Count II. They argue that

the Subordination Agreements bar Count II, that the Counter-Defendants breached

no duties under the Loan Agreements, and that the Individual Counter-Defendants

owed no duty to the Noteholders. Counter-Defs.’ Mot. to Dismiss 7–11. I address each

in turn.

Pursuant to the Subordination Agreements,7 the Noteholders agreed not to sue

Stroudwater “to recover all or any part of the” money owed to them until Stroudwater

paid the money it owed to BSB. The Counter-Claimants assert that they are suing

7 The parties dispute whether I can properly consider the Subordination Agreements at this

stage of the litigation. The Counter-Claimants insist that I cannot because they “are not attached to

the pleadings or referred to therein.” Mem. in Opp’n to Mot. to Dismiss Countercls. 11 n.3 (ECF No.

24). But in addition to documents sufficiently referred to in a complaint, I can also consider documents

where authenticity is not disputed. The Counter-Claimants do not challenge the authenticity of the

Subordination Agreements. The Loan Agreements and Junior Security Agreements (“JSAs”)—all of

which were attached to the Counterclaims—mention the subordination of the Noteholders’ interests.

And the JSAs specifically obligate the Noteholders to confirm this subordination in writing. This

appears to be a specific reference to the Subordination Agreements.

At oral argument, counsel for the Counter-Claimants asserted that based on the limited

financial information that he has received from Stroudwater, it appears that the Bangor Savings Bank

(“BSB”) loan has been paid off. If that were the case, then the Subordination Agreements should no

longer be in effect. But at the motion to dismiss stage, I am limited to what is contained in the

pleadings, documents that are sufficiently referred to in the pleadings, and documents where

authenticity is not disputed. The Counter-Claimants themselves assert that Stroudwater still owes

BSB over $2,000,000. Countercls. ¶ 49 (ECF Nos. 12, 13, 14, 15, 16). Indeed, the allegation that

Stroudwater owes this money to BSB is part of the basis for the Counter-Claimants’ allegation that

Stroudwater is insolvent. Accordingly, I consider the Subordination Agreements in my analysis.

for damages caused by the Counter-Defendants’ alleged breaches of fiduciary duties

owed to Stroudwater’s creditors; they are not suing to recover the money owed to

them. Mem. in Opp’n to Mot. to Dismiss Countercls. (“Counter-Claimants’ Opp’n”)

13 (ECF No. 24). The Counter-Defendants dispute this by tallying up the number of

times Count II uses the term “interest payments,” and they say that if the Counter-

Claimants are not suing to recover the money owed to them through Count II, then

“it is unclear” what they are seeking. Counter-Defs.’ Reply 4.

The Counter-Defendants misunderstand the purpose of Count II. Count II does

not allege that the Counter-Defendants are obligated to pay any of the money owed

to the Noteholders under the Loan Agreements. Rather, it alleges that the Counter-

Defendants have breached their fiduciary duties to the Noteholders. What the

Counter-Defendants are seeking in terms of a remedy is damages for these alleged

breaches, not repayment of their loans. Johnson Countercl. ¶ 101 (“Sommer, Shell,

and Greenway are liable for their multiple breaches of fiduciary duties and other

duties owed . . . .”); Kirsch Countercl. ¶ 101 (same); Sprinkle Countercl. ¶ 101 (same);

Behn PAC ¶ 159 (same); Daigle PAC ¶ 183 (same).

The Counter-Defendants next contend that they breached no duties under the

Loan Agreements, arguing that Stroudwater was entitled under the Loan

Agreements to defer interest payments. Counter-Defs.’ Mot. to Dismiss 8–9. Even if

I assume that this assertion is true, this argument still fails due to the depth of Count

II. Count II alleges multiple breaches of fiduciary duties beyond the alleged failure to

pay interest payments, including that Mr. Sommer and Mr. Shell overstated and

misrepresented the financial position and value of Stroudwater and that the

Individual Counter-Defendants forced out some Stroudwater employees (and favored

others) in order to elevate their own standing at the expense of the ESOP participants

and Stroudwater’s creditors.

Finally, the Individual Counter-Defendants argue that they owed no duty to

the Noteholders because, under Maine law, corporate directors only owe a duty to the

corporation (i.e., the shareholders), not to creditors. Counter-Defs.’ Mot. to Dismiss

9–11. But in support of this assertion the Counter-Defendants cite to cases that do

not involve creditors, cases involving solvent corporations,8 and cases involving

Delaware law. Counter-Defs.’ Mot. to Dismiss 9–10 (citing various cases). These cases

do not offer answers to the relevant question of whether the directors of an insolvent

corporation (such as Stroudwater, according to the Counter-Claimants’ allegations)

owe a duty to the corporation’s creditors under Maine law. The Counter-Defendants

also point to the Maine Business Corporation Act, which they say does not provide a

cause of action for creditors against directors. Counter-Defs.’ Reply 2 (citing 13-C

M.R.S. § 832). But that statute is not helpful to this inquiry, because it does not lay

out when a corporate director is liable, but only when a corporate director is not. See

13-C M.R.S. § 832(1).

8 The Counter-Defendants lean heavily on Tiernan v. Barresi, which held that “under Maine law

. . . a party who is not a shareholder has no standing to litigate a breach of fiduciary duty claim against

corporate directors,” including creditors. 944 F. Supp. 35, 37 (D. Me. 1996). But it does not appear that

Tiernan involved an insolvent corporation, and, in evaluating corporate duties under Maine law, the

court analyzed a now-repealed statute, which “expressly create[d] a duty on the part of the directors

and officers of a corporation to act in good faith toward the corporation and the shareholders” whereas

no such statute created a duty vis-à-vis creditors. See id.

I agree that “[a]t least while a corporation remains solvent, Maine law has not

recognized any directors’ duty to creditors.” Dev. Specialists, Inc. v. Kaplan, 574 B.R.

1, 13 (D. Me.), aff'd sub nom. Irving Tanning Co. v. Kaplan, 876 F.3d 384 (1st Cir.

2017). But “[a]s a matter of common law . . . when a corporation becomes insolvent

. . . the corporate directors and officers are viewed as trustees of the corporate assets,

and they then become engaged in a fiduciary relationship with the corporation’s

creditors.” Paper, Allied-Indus., Chem. & Energy Workers Int’l Union v. Sherman

Lumber Co., No. CV-00-41, 2001 WL 1719233, at *6 (Me. Super. Ct. June 28, 2001)

(citing Mitsubishi Caterpillar Forklift Am., Inc. v. Superior Serv. Assocs., Inc., 81 F.

Supp. 2d 101, 115–16 (D. Me. 1999) and Symonds v. Lewis, 48 A. 121, 123 (Me. 1901));

see Fletcher Cyclopedia of the Law of Corporations § 1035.60 (2021) (“In most

jurisdictions, when a corporation becomes insolvent, officers and directors of a

corporation owe a fiduciary duty to the corporation’s creditors.”).

This does not necessarily settle the issue. The Counter-Defendants put forward

legitimate arguments as to why I should not follow Mitsubishi or Symonds. But at

the end of the day, neither the Individual Counter-Defendants nor the Counter-

Claimants has identified a case arising under Maine law that fully analyzes this

fiduciary duty issue in the context of a creditor suing a director of an insolvent

corporation. It is the Counter-Defendants’ burden to establish that the Counter-

Claimants have no plausible claim for a breach of fiduciary duty, and they have not

met this burden. The motion to dismiss Count II is DENIED.

3. Kirsch Count III – Breach of Contract Due to Failure to

Make January Payment to Kirsch

Mr. Kirsch alleges in Kirsch Count III that the Counter-Defendants’ failure to

make Mr. Kirsch’s January Payment breached the Loan Agreements’ requirement

that interest payments must be made biannually (§ 2(f)) and breached the JSAs’ and

Intercreditor Agreements’ requirements “to treat all noteholders with equal priority”

(§ 1 and § 3(a), respectively). Counter-Claimants’ Opp’n 2, 15–17. At oral argument,

counsel for the Counter-Claimants clarified that it considers payments of interest to

some Noteholders but not to Mr. Kirsch to be a violation of the Intercreditor

Agreements’ provision on the use of collateral. See Intercreditor Agreements § 3(a).

According to Counter-Claimant Kirsch, because Stroudwater’s cash is an asset that

should be considered collateral, Stroudwater was required to make the interest

payments “in proportion to amounts owing to the [Noteholders] on account of their

outstanding Loans.” Intercreditor Agreements § 3(a) (emphasis deleted). This issue

may ultimately depend on whether the Subordination Agreement is in effect. See

supra note 7. While it is not clear to me that there is any duty under the Agreements

to pay interest, it is plausible that any interest payments that are made must be made

to each of the Noteholders. At this stage of the proceedings, I credit Counter-Claimant

Kirsch’s theory, and I DENY the Motion to Dismiss Count III.

4. Behn/Daigle Counts III (Breach of Contract Due to Breach

of Behn and Daigle Employment Agreements) and IV

(Quantum Meruit)

Proving a breach of contract claim requires proof of a breach of a material

contract term, causation, and damages. Me. Energy Recovery Co. v. United Steel

Structures, Inc., 1999 ME 31, ¶ 7, 724 A.2d 1248, 1250. The Counter-Defendants

argue that Behn/Daigle Count III fails to establish any of those elements because Mr.

Behn’s and Ms. Daigle’s allegations of a breach of their employment agreements is

too nonspecific. Counter-Defs.’ Mot. to Dismiss 12–14. In particular, the Counter-

Defendants complain that Mr. Behn and Ms. Daigle never identify which provision(s)

of their employment agreements was/were breached. Counter-Defs.’ Mot. to Dismiss

12–13.

Mr. Behn and Ms. Daigle have both alleged that they had employment

agreements with Stroudwater and that Stroudwater breached material terms of

these contracts by failing to pay them all of the compensation that they are due. Behn

PAC ¶¶ 122–28, 161–62; Daigle PAC ¶¶ 146–52, 185–87. This is sufficient to support

their claims. Contrary to the Counter-Defendants’ assertion, Mr. Behn and Ms.

Daigle allege that their employment agreements required compensation for 2019 and

2020 that they were not paid. And the Counter-Defendants identify no authority for

the idea that Mr. Behn and Ms. Daigle must identify anything more specific in their

pleadings, such as the specific provisions of their employment agreements at issue.

Similarly, the Counter-Defendants’ assertions that Mr. Behn and Ms. Daigle

have insufficiently alleged damages is contradicted by the Amended Counterclaims

(and, for that matter, the Counterclaims). Both Mr. Behn and Ms. Daigle allege that

the Counter-Defendants failed to pay them particular forms of compensation that

they were due, such as their base salaries for June 30, 2020; their 401(k) employer

contribution; and unpaid incentive bonuses and commissions for revenue generated

in 2019 and 2020.

For the same reason, in the context of the quantum meruit claim (Count IV),

although the Counter-Defendants contend that Mr. Behn and Ms. Daigle have not

specified which services were rendered and why they were entitled to payment, the

Amended Counterclaims belie this claim. Behn PAC ¶¶ 122–28; Daigle PAC ¶¶ 146–

52. The motions to dismiss Behn/Daigle Counts III and IV are DENIED.

5. Count V – Unjust Enrichment

The Counter-Defendants move to dismiss Mr. Behn and Ms. Daigle’s unjust

enrichment claim on the ground that the existence of their employment agreements

(which the Counter-Defendants acknowledge) precludes such a claim. Counter-Defs.’

Mot. to Dismiss 15. Nevertheless, the Federal Rules of Civil Procedure specifically

allow a party to plead alternative, and even inconsistent, claims for liability. Fed. R.

Civ. P. 8(d)(2) (“A party may set out 2 or more statements of a claim or defense

alternatively . . . .”), (d)(3) (“A party may state as many separate claims or defenses

as it has, regardless of consistency.”); cf. GMAC Com. Mortg. Corp. v. Gleichman, 84

F. Supp. 2d 127, 136–37 (D. Me. 1999) (“While the Maine Law Court has recognized

‘that the existence of a contract precludes recovery on a theory of unjust enrichment’

. . . a party, nonetheless, is not precluded from pleading both theories because a

factfinder may find that no contract exists and may still award damages on a theory

of unjust enrichment.’ ” (quoting June Roberts Agency, Inc. v. Venture Props., Inc.,

676 A.2d 46, 49 n.1 (Me. 1996)). The motion to dismiss Count VI is DENIED.

6. Count VI – Employment Discrimination9

The MHRA limits a plaintiff’s remedies if, “prior to the filing of the civil action,”

the plaintiff fails to file a complaint with the MHRC and the MHRC fails to act in a

particular manner, such as by issuing a right-to-sue letter. 5 M.R.S. § 4622(1). The

Counter-Defendants allege that Mr. Behn’s and Ms. Daigle’s remedies are so limited

because when they filed their Counterclaims (which was before they received their

right-to-sue letters), they “fil[ed]” their “civil action.” The Counter-Defendants put

forth this argument despite Mr. Behn’s and Ms. Daigle’s explicit statements in their

Counterclaims that they were not yet bringing their employment discrimination

claims. Behn Countercls. ¶ 72 (noting future “eligib[ility] to request a ‘right to sue’

letter”); ¶ 73 (“Behn will seek to bring his claims . . . following receipt of a right to sue

letter.”); ¶ 135 (“Because Behn is not entitled to assert his claims currently pending

before the [MHRC] until his receipt of a right to sue letter, Behn hereby notifies the

Court and Stroudwater that he intends to amend these Counterclaims upon his

receipt of the right to sue letter from the [MHRC].”); Daigle Countercls. ¶¶ 72–73,

134.

9 I recognize that the Counter-Defendants’ motion to dismiss pertained to Mr. Behn’s and Ms.

Daigle’s original Count VI and that that count will now be supplanted by the amended versions of

Count VI. I also recognize that the Amended Counterclaims have not yet been filed. For the sake of

efficiency, I treat the Counter-Defendants’ motion to dismiss, in combination with their opposition to

the motion to amend, as a motion to dismiss the new versions of Count VI for the same reasons as in

that motion and that opposition. However, now that I have allowed the requested amendments, once

the Amended Counterclaims are filed, the Counter-Defendants may still file a motion as to the merits

of the new versions of Count VI (should they wish to do so) to the extent permitted by the Federal

Rules of Civil Procedure.

The Counter-Defendants offer no authority to support their formalistic

contention that the filing of “placeholder counts” is sufficient to trigger the bar on the

particular remedies outlined in § 4622. I credit Mr. Behn and Ms. Daigle’s assertions

that they were not yet bringing their employment discrimination claims but were

merely putting Stroudwater and the Court on notice that those claims were coming

down the pike. I thus conclude that Mr. Behn and Ms. Daigle did not “rush[ ] to assert

Count VI before complying with the provisions of § 4622,” Counter-Defs.’ Mot. to

Dismiss 18, as the Counter-Defendants contend. The Counter-Defendants’ contention

is particularly ironic since Mr. Behn and Ms. Daigle were first hauled into Court by

Stroudwater; they did not race to assert their claims without regard to the MHRA.

The motion to dismiss Count VI is DENIED.

CONCLUSION

For the reasons stated above, the Court GRANTS the motion to amend (ECF

No. 27) and sua sponte GRANTS the Counter-Claimants further leave to amend their

Amended Counterclaims as stated above, within seven days. The Court DENIES the

motion to dismiss (ECF No. 22).

SO ORDERED.

/s/ Nancy Torresen

United States District Judge

Dated this 7th day of December, 2021.