Servicios Funerarios GG, S.A. de C.V. v. Advent International Corporation

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

SERVICIOS FUNERARIOS, GG, S.A., DE *

C.V., *

*

Plaintiff/Counter-Defendant, *

v. * Civil Action No. 1:23-cv-10684-IT

*

ADVENT INTERNATIONAL *

CORPORATION, *

*

Defendant/Counter-Plaintiff. *

MEMORANDUM & ORDER

July 23, 2024

TALWANI, D.J.

Plaintiff Servicios Funerarios’ Complaint [Doc. No. 1] against Defendant Advent

International Corporation alleges fraud in the inducement (Count I), violation of M.G.L. c. 93A

(Count II), negligent misrepresentation (Count III), unjust enrichment (Count IV), and violation

of the Uniform Fraudulent Transfer Act (Count V). Pending before the court is Defendant’s

Motion for Judgment on the Pleadings [Doc. No. 233] seeking judgment in its favor on all five

counts. Servicios Funerarios opposes the motion. For the reasons set forth herein, the Motion is

DENIED.

I. Factual Background as Alleged in the Complaint

A. The Parties and Related Entities

Gayosso, S.A. de C.V. (“Gayosso”) is Mexico’s oldest active funeral-services company.

Compl. ¶ 6 [Doc. No. 1]. Gayosso provides integrated funeral services, which cover pre-burial,

burial, and post-burial services. Id.

Plaintiff Servicios Funerarios (“SF”) is a Mexican corporation. Id. ¶ 2. As of January

2021, it is the owner of 99.9% of the shares of Gayosso. Id.

Defendant Advent International Corporation (“AIC” or “Advent”) is a U.S. private equity

investment company. Id. ¶ 3.

Seven entities (collectively, the “Twibel entities”) were special-purpose entities

incorporated in Belgium. Id. ¶ 8. The Twibel entities’ only purpose was to own Gayosso shares.

Id.

The Twibel entities were owned by seven special-purpose entities incorporated in

Luxemburg (collectively, the “Twilux entities”). Id. ¶ 9. The Twilux entities’ only purpose was

to own the Twibel entities. Id. Neither the Twibel nor Twilux entities had their own operative

management structure. Id. ¶ 39.

B. AIC’s Relationship to the Twibel Entities and Gayosso

Prior to the sale of Gayosso to SF, and for the purpose of the preceding Gayosso

acquisition, the Mexican government recognized that AIC and the Twibel entities constituted a

single economic interest. Id. ¶ 38. AIC “control[led]” and “manage[d]” both the Twibel and

Twilux entities. Id. During the negotiations and execution of the sale and purchase agreement for

Gayosso, the Twibel entities took no independent action; the Twibel representative was a lawyer

selected by AIC. Id. ¶ 39. As a result of the original Gayosso acquisition, the Twibel entities

owned 99.9% of the shares of Gayosso. Id. ¶ 8.

After the Twibel entities purchased Gayosso, AIC installed one of AIC’s managing

directors, Enrique Pani Bano, as the Chairman of Gayosso’s board of directors. Id. ¶ 37. Pani

Bano remained an AIC Managing Director during the negotiation and execution of the Gayosso

stock sale to SF. Id. ¶ 42. The installation of Pani Bano as head of Gayosso was in line with

AIC’s publicly stated investment practice, which was to ensure that “[m]embers of Advent’s

senior management oversee, and are ultimately responsible for, ensuring Advent’s approach to

Responsible Investment is implemented.” Id. ¶ 37.

C. The Sale of Gayosso to SF

1. The Stock Purchase Agreement

On January 24, 2020, at the direction of AIC, the Twibel entities entered into a Stock

Purchase Agreement (“SPA”) with SF. Id. ¶ 7; see Decl. of Daniel Ward, Ex. A (Dec. 18, 2020

Stock Purchase Agreement) [Doc. No. 235-1]. The SPA was amended four times: on January 27,

2020; September 30, 2020; December 18, 2020; and January 27, 2021. Compl. ¶ 7 [Doc. No. 1].

The purpose of the SPA was the sale and purchase of Gayosso’s capital stock and real estate

assets. Id. ¶ 10. The purchase price was $224.7 million. Id.

Section 5 of the SPA was titled “Representations of the Sellers and the Company.” SPA

at 19 [Doc. No. 235-1]. Under Section 5.1(h), entitled “Ratification, Accuracy and Purpose,” the

SPA stated that: “Each of the representations that the Sellers make and grant in this Contract and

the documentation presented to the other Parties to this Contract, which is attached thereto, is

true and complete and does not contain false or incorrect data.” Id. at 24; see Compl. ¶ 11 [Doc.

No. 1]. Gayosso’s audited financial statement for 2019 and unaudited financial statement for

2020 were among the “documentation submitted” with the final version of the SPA. Id. ¶ 12.

Information contained in Gayosso’s audited financial statements for 2016, 2017, and 2018 was

included in an amendment to the final version of the SPA, and the statements themselves had

been previously attached to earlier versions of the SPA. Id.

Section 5.2 of the SPA, entitled “Representations of the Company,” provided a list of

representations regarding Gayosso. These representations included that Gayosso complied with

various applicable legislation; that Gayosso had provided a list of its outstanding liabilities in the

SPA; that Gayosso’s tax returns were true and accurate; that Gayosso had provided a list of its

real estate assets in the SPA; that Gayosso’s real estate assets were unencumbered; and that

Gayosso’s representations were true and accurate. Id. ¶ 13(a)–(l). Section 5.2 contained a

representation that each of AIC’s subsidiaries (presumably including the Twibel entities) “did

not intend to file a voluntary declaration of dissolution, liquidation . . . or commercial

insolvency.” Id. ¶ 13(k). The transaction closed in January 2021. Id. ¶ 10.

2. AIC Personnel Involved in Negotiating and Executing the SPA

The SPA was negotiated and executed on the Sellers’ side by Pani Bano, the AIC

managing director installed by AIC as the Chairman of Gayosso’s Board, and Carlos Alfredo Paz

Perez, a Senior Director and co-head of Portfolio Support Group, Latin America, for Advent

International PE Advisors (“Advent Advisors”). Id. ¶ 43. Advent Advisors is an agent of AIC.

Id. The sale was overseen by James Westra, who was at the time the General Counsel and

Managing Partner of AIC, based in Boston. Id. ¶ 44. A committee of additional AIC employees

and representatives also assisted in overseeing the Gayosso sale. Id. ¶ 45. Veronica Stenner, an

“agent, representative, or employee” of AIC, was responsible for placing Gayosso’s financial

statements and other documentation related to Gayosso’s financial condition in a virtual data

room. Id. ¶ 15.

D. Gayosso’s Financial Situation

SF alleges that the financial representations made in the SPA did not reflect the reality of

Gayosso’s financial situation. Specifically, AIC depressed the costs associated with certain of

Gayosso’s contracts by (a) deleting invoices from the financial statements, id. ¶ 21, and (b)

reporting only a portion of the true costs associated with the sale of “Pre-Need” contracts, which

were paid for in advance of a person’s death, id. ¶¶ 25–26. SF also alleges that Gayosso

misrepresented the cost of purchasing caskets in its financial statements, id. ¶ 29, and failed to

disclose liabilities associated with grave construction and other burial-related construction

projects, id. ¶¶ 30, 32–33. Finally, SF alleges that Gayosso failed to disclose that under an

existing contract it had with a Mexican government agency for which payment was rendered in

1982, it was obligated to reserve 400,000 square meters of real estate for pre-purchased burial

plots and to provide burial services. Id. ¶ 31.

E. AIC Dissolves the Twibel Entities

After the transaction had concluded, AIC dissolved the Twibel entities. Id. ¶ 40. As a

result, the proceeds of the Gayosso sale were moved upstream to other investment funds

managed by AIC and to AIC itself. Id.

II. Standard of Review

Where “a motion for judgment on the pleadings ‘is employed as a vehicle to test the

plausibility of a complaint, it must be evaluated as if it were a motion to dismiss.’” Shay v.

Walters, 702 F.3d 76, 82 (1st Cir. 2012).

In evaluating a motion to dismiss for failure to state a claim, the court assumes “the truth

of all well-pleaded facts” and draws “all reasonable inferences in the plaintiff's favor.” Nisselson

v. Lernout, 469 F.3d 143, 150 (1st Cir. 2006). To survive dismissal, a complaint must contain

sufficient factual material to “state a claim to relief that is plausible on its face.” Bell Atl. Corp.

v. Twombly, 550 U.S. 544, 570 (2007). “While a complaint attacked by a Rule 12(b)(6) motion

to dismiss does not need detailed factual allegations . . . [f]actual allegations must be enough to

raise a right to relief above the speculative level . . . .” Id. at 555 (internal citations omitted). “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). In addition, “an adequate complaint must include not only a

plausible claim but also a plausible defendant.” See Peñalbert-Rosa v. Fortuno-Burset, 631 F.3d

592, 594 (1st Cir. 2011).

When a plaintiff brings claims sounding in fraud, there is an exception to Rule 12(b)(6)’s

general plausibility pleading standard. See N. Am. Catholic Educ. Programming Found., Inc. v.

Cardinale, 567 F.3d 8, 15 (1st Cir. 2009) (holding that the particularity requirement applies not

only to actual fraud claims but also to “associated claims where the core allegations effectively

charge fraud”). Pursuant to Rule 9(b) of the Federal Rules of Civil Procedure, a party must state

“with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Rule

9(b) requires that a plaintiff’s averments of fraud specifically plead the time, place, and content

of the alleged false representation. Mulder v. Kohl’s Dep’t Stores, Inc., 865 F.3d 17, 22 (1st Cir.

2017). The purpose of this requirement is to “give notice to defendants of the plaintiffs’ claim, to

protect defendants whose reputation may be harmed by meritless claims of fraud, to discourage

‘strike suits,’ and to prevent the filing of suits that simply hope to uncover relevant information

during discovery.” Doyle v. Hasbro, Inc., 103 F.3d 186, 194 (1st Cir. 1996).

The First Circuit has interpreted this rule to require that beyond pleading “the false

statements and by whom they were made,” a plaintiff must also identify “the basis for inferring

scienter.” N. Am. Catholic Educ. Programming Found, 567 F.3d at 13. In application, this

renders a “general averment of the defendant’s ‘knowledge’ of material falsity” insufficient. Id.

(quoting Greenstone v. Cambex Corp., 975 F.2d 22, 25 (1st Cir. 1992), superseded by statute on

other grounds by, Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109

Stat. 737). Instead, plaintiffs must put forth “specific facts that make it reasonable to believe that

defendant knew that a statement was materially false or misleading.” Id.

III. Discussion

A. The Court Will Consider AIC’s Motion Despite Extensive Discovery

SF objects to AIC’s motion on the pleadings given the discovery that has already

occurred. As the First Circuit has explained, logic strongly suggests that the plausibility inquiry

occur prior to discovery, and that it makes little sense to “ignore[] the entire panoply of facts

developed during discovery.” Grajales v. Puerto Rico Ports Auth., 682 F.3d 40, 46 (1st Cir.

2012). Thus “once the parties have invested substantial resources in discovery, a district court

should hesitate to entertain a Rule 12(c) motion that asserts a complaint’s failure to satisfy the

plausibility requirement.” Id.

At the same time, Federal Rule of Civil Procedure 12(c) provides that “[a]fter the

pleadings are closed—but early enough not to delay trial—a party may move for judgment on

the pleadings.” Fed. R. Civ. P. 12(c). The court’s scheduling order also allowed the motion to be

filed post-discovery, see Amended Scheduling Order [Doc. No. 254], and no trial date has been

set.

Where neither party has pointed to additional facts in the record that the motion ignores,

the court will consider the motion for judgment on the pleadings on its merits.

B. The Complaint Adequately Alleges that AIC Exercised Direct Control Over

Gayosso and the Twibel Entities

AIC contends that SF has failed to allege sufficient facts that show AIC, rather than

Gayosso and/or the Twibel entities, made the allegedly false statements in the SPA, and that SF

has not attempted to pierce the corporate veil in order to hold AIC liable for statements made by

its subsidiaries. As a result, says AIC, SF’s claims for fraud in the inducement (Count I), chapter

93A violations (Count II), and negligent misrepresentation (Count III)1 must all fail. SF responds

that its Complaint alleges AIC was directly responsible for the statements made in the SPA

because AIC, and AIC alone, directed and controlled the Twibel entities and Gayosso. The court

finds that SF has adequately alleged facts that could support a finding that AIC exercised direct

control over the statements made in the SPA.

The Complaint states that the Twibel entities were owned and controlled by AIC, had no

independent board of directors or other management structure, and existed only to hold Gayosso

shares of stock. When the Twibel entities purchased Gayosso, AIC provided a representative for

the transaction; indeed, AIC and the Twibel entities were so closely intertwined that the Mexican

government recognized them as one common economic interest for the purposes of the

transaction. The Complaint also alleges that once Gayosso was acquired, AIC appointed one of

its own Managing Directors as the Chairman of Gayosso’s Board. And AIC’s General Counsel,

James Westra, along with a team of Boston-based AIC personnel, were responsible for handling

negotiations with SF regarding the Gayosso sale. Representatives from AIC Advisors, an

organization SF alleges is an agent of AIC, also participated in negotiations; one of those

employees, Veronica Stenner, was responsible for transferring the allegedly fraudulent financial

statements into a virtual data room. SF sufficiently alleges that AIC itself was responsible for the

statements made in the SPA, where AIC had substantial (if not total) control over the Twibel

entities and Gayosso itself.

1 AIC also argues that SF cannot rely on “extracontractual” statements as a basis for its negligent

misrepresentation claim. Mem. ISO Mot. 20 [Doc. No. 234]. The court does not read SF’s

Complaint [Doc. No. 1] to rely on statements made outside of the SPA or its appendices and

attachments. As a result, the court need not address whether the SPA’s merger clause precludes a

negligent misrepresentation claim.

C. The Complaint Satisfies Rule 9’s Particularity Requirements

The Complaint adequately alleges the “who, what, where, and when of the allegedly false

or fraudulent representation[s].” See Rodi v. Southern New England School of Law, 389 F.3d 5,

15 (1st Cir. 2004) (citation omitted). It points to the provisions of the SPA that were allegedly

fraudulent or misleading and provides additional details regarding the facts that SF contends

made those statements false or misleading. See supra Sections I.C.1, I.D.

AIC is incorrect that Rule 9 holds plaintiffs to a heightened pleading standard for the

knowledge and intent elements of fraud. Rather, those elements “may be averred in general

terms.” Rodi, 389 F.3d at 15. The Complaint satisfies this requirement where it alleges that AIC

took a “hands-on approach” to running Gayosso and names specific AIC employees and agents

who were actively involved in the deal with SF. See Nat’l Credit Union Admin. v. Ticor Title

Ins. Co., 873 F. Supp. 718, 726 (D. Mass. 1995) (“The general rule under Massachusetts law is

that the knowledge of directors, officers and agents acquired in the course of official duties is

imputed to the corporation.”) (citing Sperry Rand Corp. v. Hill, 356 F.2d 181, 186 (1st Cir.

1966)).

D. The Complaint Adequately Alleges a Fraudulent Transfer

AIC argues that SF has failed to allege a fraudulent transfer in violation of the Uniform

Fraudulent Transfer Act (Count V) because there was no “resulting diminution in the assets

available to the creditor” where a Guarantee protected SF against any losses. Mem. ISO Mot. 21

[Doc. No. 234]. But the Complaint makes no mention of a Guarantee; the Guarantee is

referenced in AIC’s Counterclaim [Doc. No. 14], not SF’s Complaint.

AIC next argues that SF has not demonstrated that AIC acted with the requisite intent to

“hinder, delay, or defraud” in transferring the proceeds of the sale from the Twibel entities to

itself. Mem. ISO Mot. 22 [Doc. No. 234]. The question of AIC’s actual intent is a fact question

that is inappropriate for resolution at the pleadings stage. And where SF pleads that AIC

concealed Gayosso’s true financial condition in order to effectuate Gayosso’s sale from the

Twibel entities to SF, at which point AIC dissolved the Twibel entities and subsequently

transferred the proceeds of that sale upstream to AIC for little to no equivalent value, SF

sufficiently alleges that AIC acted with the intent to defraud SF. As a result, AIC’s motion is

denied as to SF’s fraudulent transfer claim.

E. SF May Plead Unjust Enrichment in the Alternative

AIC’s attack on SF’s unjust enrichment claim (Count IV) is premature. “[P]laintiffs may

plead alternative theories of recovery, even though those theories are mutually exclusive.”

SalioGen Therapeutics, Inc. v. DNA TwoPointO Inc., 2022 WL 20138601, at *8 (D. Mass.

March 25, 2022); accord SiOnyx, LLC v. Hamamatsu Photonics K.K., 332 F. Supp. 3d 446, 473

(D. Mass. 2018) (collecting cases). If the court determines that SF has an adequate remedy at

law, then AIC is correct that SF may not also recover under a theory of unjust enrichment. But

where SF has adequately pled that AIC committed fraud against it and was enriched by that

fraud, it may continue under an unjust enrichment theory at this stage. Cf. SiOnyx, LLC, 332 F.

Supp. 3d at 473 (dismissing unjust enrichment claim at summary judgment where parties agreed

that contract was valid, enforceable, and covered the dispute).

IV. Conclusion

For the foregoing reasons, AIC’s Motion for Judgment on the Pleadings is DENIED.

IT IS SO ORDERED

July 23, 2024 /s/ Indira Talwani

United States District Judge