State of Maine v. Zealandia Holding Company, Inc.

STATE OF MAINE BUSINESS AND CONSUMER COURT

KENNEBEC, ss DOCKET NO. BCD-CV-14-11

/

STATE OF MAINE,

Plaintiff,

v. ORDER ON MOTION TO

DIMSISS

ZEALANDIA HOLDING COMPANY, INC.,

f/k/a FESTIVIA HOSPITALITY GROUP, INC.,

PATTON HOSPITALITY MANAGEMENT, LLC,

f/k/a FESTIVIA MANAGEMENT GROUP, LLC,

FESTIVIA DEVELOPMENT GROUP, LLC,

ZEALANDIA CAPITAL, INC., f/k/a SETI MARKETING, INC.,

RESORT TRAVEL & XCHANGE, LLC,

f/k/a FESTIVIA TRAVEL AND XCHANGE,

FESTIVIA REAL ESTATE HOLDINGS, LLC,

f/k/a FESTIVIA RESORTS, LLC,

FESTIVIA RESORTS ADVENTURE CLUB MEMBERS' ASSOCIATION,

ZEALANDIA HOLDINGS, LLC,

DONALD K. CLAYTON, and HERBERT H. PATRICK, JR.,

Defendants.

Defendants, Zealandia Holdings, LLC, 1 Zealandia Holding Company, Inc., f/k/a Festivia

Hospitality Group, Inc. ("ZHC"), Donald K. Clayton, and Herbert H. Patrick, Jr. ("Individual

Defendants") move to dismiss the State's complaint for lack of personal jurisdiction pursuant to

M.R. Civ. P. 12(b)(2). ZHC, Clayton and Patrick assert that their contacts with the State of

Maine are insufficient to justify the exercise of either general or specific personal jurisdiction by

Maine courts.

Additionally, Defendants, Patton Hospitality Management, LLC, Festivia Development

Group, LLC, Zealandia Capital, Inc., Resort Travel & Xchange, LLC, Festivia Real Estate

Holdings, LLC, Festivia Resorts Adventure Club Members' Association ("ZHC Subsidiaries")

1

In its Opposition to the Motion to Dismiss, the State agreed to dismiss the Amended Complaint as to

Zealandia Holdings, LLC.

1

moved to dismiss the State's Amended Complaint for failure to plead fraud with particularity

pursuant to M.R. Civ. P. 9(b) or, in the alternative, for failing to aver facts and legal theories with

sufficient clarity to put Defendants on notice of the claims against them pursuant to M.R. Civ. P.

8(a).

Oral argument on the motions took place on May 29, 2014 where Attorney Eric Wycoff

argued on behalf of the Defendants, and Deputy Attorney General Linda Conti argued for the

State of Maine.

FACTUALANDPROCEDURALBACKGROUND

On January 30, 2014, this action was remanded to the Superior Court from federal court.

On February 13, 2014, the State filed an amended complaint, in which the State alleged that

Defendants violated the Maine Unfair Practices Act (the "UTPA") by employing various unfair

and deceptive practices in the sale and marketing of points-based vacation-club membership. The

State alleged that Defendants used unfair and deceptive practices in all of their sales of

membership in the Festivia Adventure Club in generai, and specificaily, in trying to convince:

Rangeley Lake Resort timeshare owners to convert to the Festivia Adventure Club membership

by transferring their timeshares to a trust owned by and created by Festivia Development Group,

LLC and Festivia Resorts Adventure Club Members' Association; and 2) New England

consumers who attended Defendants' sales presentations at 190 Riverside Drive, Portland ME to

enter Defendants' sweepstakes and eventually become members of the Festivia Adventure Club.

ZHC is the parent holding company at the top of the corporate structure consisting of the

ZHC Subsidiaries. Defendants, Clayton and Patrick, are owners, officers, and principals of ZHC

and ZHC Subsidiaries. Throughout the Amended Complaint, the State referred to each of the

eight corporate entities and two individual Defendants, collectively, as "Defendants." The

2

Amended Complaint asserted nine counts against the "Defendants" collectively, without

describing which of the "Defendants" committed which of the alleged acts.

Defendants, ZHC, Clayton, and Patrick assert that this Court does not have personal

jurisdiction over them because their contacts with the State of Maine are insufficient. And all of

the Defendants are seeking dismissal of the Amended Complaint for failure to comply with the

Rule 9(b)' s heightened pleadings standard and for failure to aver facts and legal theories with

sufficient clarity to put Defendants on notice of the claims against them. 2

STANDARD OF REVIEW

Motion to Dismiss for Lack of Personal Jurisdiction

"Maine's jurisdiction over nonresident defendants is controlled by its long-arm statute,"

14 M.R.S. § 704-A (2012), which "is co-extensive with the due process clause of the United

States Constitution, U.S. Canst. amend. XIV,§ 1." Murphy v. Keenan, 667 A.2d 591, 593 (Me.

1995). Tl_lus, the Court need only "consider whether due process requirements have been

satisfied" in addressing the question of personal jurisdiction. Suttie v. Sloan Sales, Inc., 1998

ME 121, ~ 4, 711 A.2d 1285.

Personal jurisdiction over a nonresident defendant may be either general or specific;

satisfaction of one form of jurisdiction is sufficient to justify the exercise of jurisdiction by

Maine Courts. See Harlow v. Children's Hasp., 432 F.3d 50, 57 (1st Cir. 2005). "General

jurisdiction broadly subjects the defendant to suit in the forum state's courts in respect to all

matters, even those that are unrelated to the defendant's contacts with the forum." Cossaboon v.

Me. Med. Ctr., 600 F.3d 25,31 (1st Cir. 2010). Specific jurisdiction exists when "the cause of

action arises directly out of, or relates to, the defendant's forum-based contacts." !d. (quotation

2

ZHC, Patrick, and Clayton join in the motion of ZHC Subsidiaries concerning the State's alleged failure

to meet the pleading standards.

3

marks omitted). See also Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846,

2853-54 (20 11) (distinguishing between general and specific jurisdiction).

Regardless of the type of jurisdiction, the requirements of the due process clause must

still be met.

Due process is satisfied when: (1) Maine has a legitimate interest in the subject

matter of the litigation; (2) the defendant, by his or her conduct, reasonably could

have anticipated litigation in Maine; and (3) the exercise of jurisdiction by

Maine's courts comports with traditional notions of fair play and substantial

justice.

Connelly v. Doucette, 2006 ME 124, ~ 7, 909 A.2d 221 (quotation marks omitted). The State

must satisfy the first two prongs of this test, and then the burden shifts to ZHC, Patrick and

Clayton to "demonstrate that the exercise of jurisdiction does not comport with traditional

notions of fair play and substantial justice." Bicliford v. Onslow Mem 'l Hosp. Found., Inc., 2004

ME 111, ~ 10, 855 A.2d 1150.

Because the Court is proceeding on the motion based upon the pleadings and affidavits,

the State needs only make a prime facie showing that jurisdiction exists over Patrick, Clayton,

and ZHC, and the Court construes the facts in the State's favor. SeeDorf, 1999 ME 133, ~ 14,

735 A.2d 984. Nevertheless, the State's showing must be made on specific facts in the record,

going "beyond the pleadings and mak[ing] affirmative proof ... by affidavit or otherwise." !d. ~

13; see also Cossaboon, 600 F.3d at 31 (discussing plaintiff's burden of proof). For purposes of

considering a Rule 12(b)(2) motion the court will accept properly supported proffers of evidence

as true. Tech. Capital, LLC v. Qua/tech Networks, Inc., 2007 WL 609918 (D. Me. Feb. 15,

2007).

4

Motion to Dismiss pursuant to M.R. Civ. P. 9(b) and 8(a)

On a motion to dismiss, facts are not adjudicated. Instead, the court evaluates the

allegations in the complaint in relation to any cause of action that may reasonably be inferred

from the complaint. Saunders v. Tisher, 2006 ME 94, ~ 8, 902 A.2d 830, 832. The court

considers the facts stated in the complaint as if they were admitted. Libner v. Me. Cnty. Comm 'rs

Ass 'n, 2004 ME 39, ~ 7, 845 A.2d 570, 572; Napieralski v. Unity Church of Greater Portland,

2002 ME 108, ~ 4, 802 A.2d 391, 392. Evaluating the complaint in the light most favorable to

the plaintiff, the court determines whether the complaint "sets forth elements of a cause of action

or alleges facts that would entitle the plaintiffto relief pursuant to some legal theory." In re

Wage Payment Litig., 2000 ME 162, ~ 3, 759 A.2d 217, 220. "Dismissal is warranted when it

appears beyond a doubt that the plaintiff is not entitled to relief under any set of facts that he

might prove in support of his claim." Johanson v. Dunnington, 2001 ME 169, ~ 5, 785 A.2d

1244, 1246.

According to M.R. Civ. P. 8(a), a pleading which sets forth a claim for relief, "shall

contain (1) a short and plain statement of the claim showing that the pleader is entitled to relief,

and (2) a demand for judgment for the relief which the pleader seeks. Relief in the alternative or

of several different types may be demanded." But M.R. Civ. P. 9(b), requires that all averments

of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with

particularity, while malice, intent, knowledge, and other condition of mind of a person may be

averred generally.

Motion Seeking a More Definite Statement Pursuant to M.R. Civ. P. 12(e)

Rule 12(e) of Maine Rules of Civil Procedure allows a party to move for a more definite

statement of a pleading to which a responsive pleading is allowed but which is so vague or

5

ambiguous that the party cannot reasonably prepare a response. If the court orders a more

definite statement and the order is not obeyed within 14 days after notice of the order or within

the time the court sets, the court may strike the pleading or issue any other appropriate order.

M.R. Civ. P. 12(e).

DISCUSSION

Motion to Dismiss for Lack of Personal Jurisdiction

The State concedes that this Court does not have general personal jurisdiction over ZHC,

Patrick or Clayton. Thus, the issue before this Court is whether there is specific jurisdiction over

these Defendants. Defendants, in tum, do not dispute that Maine has a legitimate interest in the

subject matter of the litigation, but assert that neither Patrick, nor Clayton, nor ZHC could have

anticipated litigation in Maine and that the exercise of jurisdiction by Maine courts would not

comport with traditional notions of fair play and substantial justice. Connelly v. Doucette, 2006

ME 124, ~ 7, 909 A.2d 221 (quotation marks omitted). ZHC, Patrick and Clayton argue that their

contacts with Maine are insufficient to hold that they "purposefully avail[ed] [themselves] of the

privilege of conducting activities within the forum State, thus invoking the benefits and

protections of its laws." Cavers v. Houston McLane Co., Inc., 2008 ME 164, ~ 24, 958 A.2d 905

(quotations omitted).

A defendant's activities are sufficient to establish the requisite minimum contacts when

(1) the activities of the defendant have been directed at the forum's residents; (2) the defendant

deliberately engages in significant activities in the forum; or (3) the defendant creates continuing

obligations between itself and residents of the forum. Cavers v. Houston McLane Co., Inc., 2008

ME 164, ~ 24, 958 A.2d 905, 911 (citations omitted). The pleadings and affidavits submitted by

the parties establish that Defendants have contacts with the State of Maine, which are, in this

6

Court's opinion, related to the claims made by the State and sufficient to satisfy the second part

of the due process analysis.

Clayton and Patrick are each 50% owners of the ZHC stock. In 2008, Patrick and Clayton

travelled to Maine in connection with the purchase of the remaining unsold inventory at the

Rangeley Lake Resort in Rangeley, Maine. They personally notified the existing Rangeley Lake

timeshare owners of the transaction by letter. (Wilkins Aff. ~ 4, Ex. A.) After it acquired

Rangeley Lake Resort's unsold inventory, Festivia began marketing its vacation ownership at the

Resort location in Rangeley and at a sales office on Riverside Drive in Portland. Patrick and

Clayton were featured (portrait pictures and personal messages) in the marketing materials

disseminated in Maine at these sales presentations. (Walker Aff. ~7 3, 5, Ex. B.)

Patrick was involved in the Rangeley Lake Resort homeowners association. In 2011, he

received a deeded timeshare interest at the Rangeley Lake Resort and subsequently served as a

member ofthe board of its homeowners association. (King Aff. ~~ 21(d), (e), (f).) He came to

Maine to attend several homeowners association board meetings in 2011 and 2012 before seiling

his timeshare interest at the Resort in November 2013. (Patrick Aff. ~ 21.)

ZHC has the following contacts with the State of Maine: 1) it is the parent company for

ZHC Subsidiaries 3 and owner of a controlling interest in them and 2) prior to May 2013, ZHC

was a party to a lease relating to real estate located at 190 Riverside Drive in Portland, Maine. 4

3

The fact that ZHC Subsidiaries conduct business in Maine is undisputed.

4

The State alleged existence of additional contacts, which are disputed by Defendants. Specifically, the

State presented some evidence of communication between "Festivia Hospitality Group" and "Festivia

Adventure Club" and several Maine residents. According to the State, Festivia Hospitality Group, Inc.,

now known as "ZHC," is equivalent to "Festivia Hospitality Group" and thus, these contacts are

attributable to ZHC. However, Defendants assert that "Festivia Adventure Club" is not an entity, but a

vacation travel club developed by Festivia Development Group, LLC, one of the ZHC Subsidiaries, the

jurisdiction over which is not disputed. According to Defendants, "Festivia Adventure Club" is merely a

marketing branding device. Furthermore, according to the affidavit of Richard Hartnett, the Senior VP of

Sales for Festivia Development Group, LLC, "Festivia Hospitality Group," although very similar to

7

The real estate office located at 190 Riverside Drive in Portland, Maine was leased and used for

sales presentations intended to induce Maine consumers to become part of the Festivia

Adventure Club.

ZHC, Patrick, and Clayton ague that the State's UTPA claim cannot be said to arise out

oftheir contacts with the State of Maine, but the Court concludes otherwise. Being a party to the

lease of the sales office in Maine which is used for the sales presentations alleged by the State to

be unfair and deceptive is directly related to the cause of action here and is sufficient grounds to

anticipate litigation in Maine in relation to these sales presentations. Similarly related to the

cause of action is Patrick's and Clayton's involvement in the acquisition and ownership of the

Rangeley Lake Resort in Rangeley, Maine, a resort that became one of the destinations available

to allegedly deceived Maine Festivia Adventure Club members. Additionally, Patrick and

Clayton authorized Patton Hospitality Management, LLC and Festivia Development Group, LLC

to use their images and personal statements on the marketing materials in any justification of the

United States. Thus, taking the evidence in light most favorable to the State which the Court

must do, Patrick and Clayton could reasonably anticipate that these images and personal

statements might be featured in the marketing materials distributed in Maine where Festivia, and

Patrick personally, purchased a resort destination and where Festivia had a sales office. As a

result, Patrick and Clayton could reasonably anticipate litigation in Maine based on allegations

that these marketing materials are unfair or deceptive. See Carbonara v. Olmos, 1994 WL

3 70031 (C.D. Cal. Mar. 4, 1994) (noting that defendants' alleged consent, given in some manner,

ZHC's former name-Festivia Hospitality Group, Inc.-is similarly not an entity, but also a marketing a

branding tool used to draw attention to the fact that membership in the Club is more than a way to acquire

accommodations. (Hartnett Aff. ~ 18.) Thus, according to Defendants, these communications with the

State's affiants have no connection with ZHC.

8

to the use of their likenesses in the forum state to solicit business constitutes the minimal

contacts sufficient to establish "specific" personal jurisdiction over defendants). 5

Finally, Defendants, ZHC, Patrick and Clayton failed to meet their burden of

demonstrating that personal jurisdiction over them in Maine does not comport with traditional

notions of fair play and substantial justice. In deciding whether a defendant satisfied the third

part of the due process analysis, the Court must consider "a variety of factors including the

nature and purpose of defendant's contacts with [Maine], the connection between the contacts

and the cause of action, the number of contacts, the interest of [Maine] in the controversy, and

the convenience and fairness to both parties." Estate of Hoch v. Stifel, 2011 ME 24, ~ 28, 16

A.3d 137, 147 (citing Cavers, 2008 ME 164, ~ 36, 958 A.2d at 913).

First, as noted above, the Defendants do not challenge the legitimacy of Maine's interest

in this controversy. Second, as noted above, ZHC's, Patrick's and Clayton's contacts with

Maine, although arguably not numerous, are directly related to the sales of membership in the

Festivia Adventure Club, which are the subject of this iawsuit. Lastly, besides the fact that ZHC

is a Nevada corporation with a principal place of business in North Carolina, and that Patrick and

Clayton are citizens ofNorth Carolina, Defendants failed to produce any evidence showing that

it would be so inconvenient for them to be forced to come to court in Maine such that "traditional

notions of fair play and substantial justice" would be offended. Bickford v. Onslow Mem 'l Hasp.

Found., Inc., 2004 ME 111, ~ 15, 855 A.2d 1150, 1156. On the other hand, Maine is a

convenient forum for ZHC Subsidiaries, where they are authorized and in fact do business, and

for important witnesses in this case-Maine consumers who were allegedly deceived by

Defendants' conduct.

5

Because this court finds that ZHC's, Patrick's and Clayton's contacts with Maine are sufficient, it will

not address the State's argument that ZHC Subsidiaries' contacts with Maine should be imputed to

Defendants, ZHC, Clayton and Patrick.

9

Motion to Dismiss pursuant to M.R. Civ. P. 8(a) and 9(b)

In their motion to dismiss pursuant to M.R. Civ. P. 9(b), Defendants argue that the State's

allegations sound in fraud, so they must conform to Rule 9(b)'s heightened pleading standard.

According to Defendants, the State failed to comply with that standard and for that reason its

Amended Complaint should be dismissed. As a threshold matter, then, this Court must decide

whether Rule 9(b) applies to the State's claims under the UTPA.

The Law Court has not yet addressed the issue of whether claims under the UTP A should

be subject to Rule 9(b)'s heightened pleadings standard. Jurisdictions that have addressed the

issue generally focus their analysis on whether their consumer protection statutes require proof

of fraud and mistake and disagree on whether rule 9(b) should apply to actions brought under

consumer protections statutes similar to the UTP A.

For example, in Russo v. NCS Pearson, Inc., the court applied Rule 9(b)'s heightened

pleadings standard to an individual plaintiff's claim under Minnesota False Statement in

Advertising statute, M.S.A. § 325F.67, on the ground that the gravamen of the complaint was

fraud. 462 F. Supp. 2d 981, 1003 (D. Minn. 2006). In Jackson v. Philip Morris Inc., the court

applied rule 9(b) to plaintiff's claim under Utah Consumer Sales Practices Act. 46 F. Supp. 2d

1217, 1222 (D. Utah 1998). However, in dicta, the court explained that under§ 13-11-4(2) of

the Act, a supplier cannot be found to have committed a deceptive act or practice unless done

knowingly or intentionally. Id "Such scienter requirement only serves to bolster the need for

broad application of Rule 9(b) when claims of deception [under the Act] are raised." Id at 1223

n.2. In Burton v. R.J Reynolds Tobacco Co., the court held that allegations of deceptive trade

practices under Kansas Consumer Protection Act are subject to Rule 9(b)'s requirement of

10

particularity because the elements of an action under the KCP A are identical to fraud actions

except for the intent requirement. Burton v. R.J Reynolds Tobacco Co., 884 F. Supp. 1515, 1524

(D. Kan. 1995).

On the other hand, Rule 9(b) does not apply to the consumer protection statutes ofNew

York, Florida, Nebraska, New Hampshire, Connecticut, Texas and Delaware. See Pelman ex rel.

Pelman v. McDonald's Corp., 396 F.3d 508, 511 (2d Cir. 2005) ("[A]n action under [New

York's Consumer Protection Act] is not subject to the pleading-with-particularity requirements

of Rule 9(b), Fed. R. Civ. P., but need only meet the bare-bones notice-pleading requirements of

Rule 8(a), Fed. R. Civ. P."); Fond duLac Bumper Exch., Inc. v. Jui Li Enter. Co., Ltd., 2012 WL

3841397 (E.D. Wis. Sept. 5, 2012) ("Rule 9(b) does not apply to [the plaintiffs' Florida

Deceptive and Unfair Trade Practices] claim because plaintiffs do not need to prove fraud to

prevail."); Leonardv. Abbott Labs., Inc., 2012 WL 764199 (E.D.N.Y. Mar. 5, 2012) ("[I]n light

ofthe similarities between the [New York's Consumer Protection Act] and the analogous New

Hampshire and Texas statutes, the Court finds that the appiicable pleading standard to claims

under all three statutes is the notice pleading requirements of Rule 8(a)); Tatum v. Oberg, 650 F.

Supp. 2d 185, 195 (D. Conn. 2009) ("CUTPA claims brought in federal court only must satisfy

Rule 9(b) if such claims are based on fraud allegations."); State ex re. Brady v. Publishers

Clearing House, 787 A.2d 111, 118 (Del. 2001) ("Court of Chancery Rule 9(b) is inapplicable to

actions brought by the Attorney General under the Consumer Fraud Act and the Deleware

Uniform Deceptive Trade Practices Act."). And most importantly, Rule 9(b) does not apply to

G.L. c. 93A, the Massachusetts version of Maine's UTPA, which served as a prototype for

Maine's consumer protection statute. See Hoglund ex rel. Johnson v. DiamlerChrysler Corp.,

102 F. Supp. 2d 30,31 (D. Me. 2000) (noting that Massachusetts version of the Unfair Trade

11

Practices Act was a prototype for Maine's UTPA and that the Law Court looked repeatedly to

that law for guidance). In US. Funding, Inc. ofAmerica v. Bank of Boston Corp., the court held

that while Mass. R. Civ. P. 9(b) requires specification of circumstances in "averments of fraud,

mistake, duress or undue influence," the concept of "unfair or deceptive acts or practices" made

actionable by G.L. c. 93A "goes far beyond the scope of the common law action for fraud and

deceit," and does not necessarily require similar pleading specificity. 28 Mass. App. Ct. 404,

407,551 N.E.2d 922,925 (1990) (quotingSlaneyv. Westwood Auto, Inc., 366 Mass. 688,703,

322 N.E.2d 768 (1975)).

Similarly, to G.L. c. 93A, Maine's UTPA goes beyond the scope ofthe common law

action for fraud. To succeed on a claim under the UTPA, a plaintiff must show that the defendant

committed unfair or deceptive acts or practices in the conduct of any trade or commerce. 5

M.R.S.A. § 207. To justify a finding of unfairness under the UTPA, the act or practice: (1) must

cause, or be likely to cause, substantial injury to consumers; (2) that is not reasonably avoidable

by consumers; and (3) that is not outweighed by any countervailing benefits to consumers or

competition. State v. Weinschenk, 2005 ME 28, ~ 16, 868 A.2d 200. An act or practice is

deceptive if it is (1) a material representation, omission, act or practice that is (2) likely to

mislead consumers acting reasonably under the circumstances. Id ~ 17. An act or practice may

be deceptive, within the meaning of Maine's UTP A, regardless of a defendant's good faith or

lack of intent to deceive. Id

Thus, it appears that a claim of unfair practices under the UPTA does not have common

elements with a claim of fraud except for "injury" to consumers, and a claim of deceptive

practices, unlike a claim of fraud, 6 does not require proof of either knowledge or intent and, at

6

In Maine, common law fraud has the following elements: (1) the defendant made a false representation,

(2) of a material fact, (3) with knowledge of its falsity or in reckless disregard ofwhether it is true or

12

least in some circumstances, does not require proof of reliance. See McGregor v. Chierico, 206

F.3d 1378, 1388 (11th Cir. 2000) (holding that generally, liability under the FTCA, which guides

interpretation of the UTP A, is predicated upon certain misrepresentations or misleading

statements, coupled with action taken in reliance upon those statements, however, proof of

individual reliance by each purchasing customer is not a prerequisite to the provision of equitable

relief). Moreover, in State v. Bob Chambers Ford, Inc., the Law Court specifically held that

neither section 207(1) of the UTPA, nor section 209, which allows the Attorney General to seek

relief for violations of section 207, has an intentional fraud requirement. 522 A.2d 362, 365 (Me.

1987). Thus, just like Mass. R. Civ. P. 9(b) does not apply to claims under G.L. c. 93A because

they go beyond the scope of the common law action for fraud and deceit, claims under the UTP A

do not necessarily require pleading specificity because the UTP A provides a remedy for a wider

range of business conduct than does common law fraud.

Furthermore, pursuant to section 207 of the UTP A, in construing the UTP A, courts

should be guided by interpretations given by the Federal Trade Commission and the Federal

Courts to Section 45(a)(1) of the Federal Trade Commission Act (15 United States Code

45(a)(l)). 5 M.R.S. § 207. Federal courts have repeatedly held that claims brought under the

Federal Trade Commission Act are not necessarily subject to Rule 9(b). For example, in F.TC.

v. Free com Communications, Inc., the court held that a section 45 claim "simply is not a claim of

fraud as that term is commonly understood or as contemplated by Rule 9(b)." 401 F.3d 1192,

1204 n. 7 (1Oth Cir. 2005). See also F. T C. v. Consumer Health Benefits Ass 'n, 2012 WL

1890242, at *7 (E.D.N.Y. May 23, 2012) (noting that if it were to reach the issue of whether

claims brought under Section 45 of the F.T.C. Act are subject to Rule 9(b), it would conclude

false, (4) for the purpose of inducing the plaintiff to act in reliance upon it, and, ( 5) the plaintiff justifiably

relied upon the representation as true and acted upon it to the plaintiffs damage. Rand v. Bath Iron Works

Corp., 2003 ME 122, ~ 9, 832 A.2d 771 (citations omitted).

13

that they were not). Thus, based also on guidance from the federal courts, Rule 9(b) should not

automatically apply to claims under Maine's UTPA.

This Court also disagrees with Defendants that the reasoning in Everest v. Leviton

Manufacturing Co., a Superior Court case, is applicable here. 2006 WL 381832 (Me. Super. Jan.

13, 2006). In Everest, the court held that because plaintiffs claim under the UTP A was premised

on fraud, it must be pled with particularity pursuant to M.R. Civ. P. 9(b). But the complaint in

Everest is distinguishable from the State's Amended Complaint.

First, while the Amended Compliant was brought by the State under sections 209 and

213, the Everest complaint was brought by a private individual pursuant to section 213 of the

UTP A, which was added to the Act to give a private right of action to consumers. Unlike

sections 207 and 209, which are generally liberally construed to effectuate their "beneficent"

purposes, State v. DeCoster, 653 A.2d 891, 897 (Me. 1995), section 213 ofthe UTPA,

historically, has been interpreted by the Law Court narrowly. Hoglund ex rel. Johnson v.

DiamlerChrysler Corp., 102 F. Supp. 2d 30, 31 (D. Me. 2000) (citing Bartner v. Carter, 405

A.2d 194, 202-03 (Me.l979)). Second, the Everest complaint alleged that Defendant, a

manufacturer of electrical receptacles, acted ''fraudulently," in that it either knew or should have

known that the receptacles were dangerously defective, yet "purposefully" failed to inform

consumers of the dangers of the product, and represented the quick-wire receptacles to be as safe

as other receptacles. 2006 WL 381832, at *1. For this allegedly fraudulent conduct, the plaintiff

in Everest sought punitive, restitution and compensatory damages only. He did not seek

injunctive relief. Based on the plaintiffs allegations and types of relief sought, the court in

Everest treated the complaint as a claim of fraud and consequently, required plaintiff plead/prove

reliance.

14

Here, because the State alleges violations of 5 M.R.S. § 207 only, it may and did avoid

altogether any allegations of scienter orreliance. Although the Amended Complaint does assert

that Defendants made statements that were deceptive, those allegations cannot be thought to

constitute "averments of fraud," absent any claim of scienter and reliance. Otherwise, any

allegation of deception, or nondisclosure of material information would be transformed into a

claim of fraud and subjected to Rule 9(b)'s heightened pleadings standard. Compare Shaw v.

Digital Equip. Corp., 82 F.3d 1194, 1223 (1st Cir. 1996) (refusing to apply Rule 9(b) to a

complaint arising out of violations of Section 11 and 12(2) of the Securities Act of 1933 and

containing claims that defendants knowingly failed to disclose material information) (superseded

by statute on other grounds), with Tuttle v. Lorillard Tobacco Co., 118 F. Supp. 2d 954,963 (D.

Minn. 2000) (notwithstanding the relative breadth of the consumer protection statutes, applying

Rule 9(b) to a complaint containing claims of fraud and violation of unlawful and deceptive trade

practices states because the gravamen of the complaint was fraud). That said, the Court

acknowledges that a complaint alleging violations of the UTP A may nevertheless "sound in

fraud," so as to trigger the requirements of Rule 9(b) when fraud lies at the "core of the action."

Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985); Declude, Inc. v. Perry, 593 F. Supp. 2d 290,

297 (D. Mass. 2008) ("[A]ny claim sounding in fraud must satisfy the requirements of the

heightened pleading standard regardless of what label the pleader assigns to it.") But that is not

the case here.

Because this Court construes the Amended Complaint as alleging unfair and deceptive

practices short of fraud, it does not need to satisfy Rule 9(b) and cannot be dismissed on the

ground that it has not pled its allegations with particularity.

15

Defendants further argue that even if Rule 9(b) does not apply to the Amended

Complaint, it should nevertheless be dismissed for failure to comply with Rule 8(a). Pursuant to

Rule 8(a), a pleading "shall contain (1) a short and plain statement of the claim showing that the

pleader is entitled to relief, and (2) a demand for judgment for the relief which the pleader

seeks." M.R. Civ. P. 8(a). Defendants argue that this Court should dismiss the Amended

Complaint because the State failed to aver facts and legal theories with sufficient clarity.

Defendants Clayton and Patrick argue that any claims against them should be dismissed

because the State failed to sufficiently allege that they personally had violated the UPTA. They

purport that the State's theory of liability against them relies on conclusory statements that

Clayton and Patrick: (1) "formulated, directed, controlled, had the authority to control, or

participated in, and had knowledge of, the acts and practices set forth in th[e] Complaint" and (2)

are "an alter ego of the Corporate Defendants." And ZHC argues that the State cannot rely on the

"common enterprise doctrine" to justify failure to make specific allegations as to each Corporate

Defendant or to hold ZHC liable for the conduct of its subsidiaries because the doctrine is

inapplicable to claims under the UTP A.

For purposes of a rule M.R. Civ. P. 12(b)(6) motion, the complaint is examined in the

light most favorable to the plaintiff to determine whether it alleges elements of a cause of action

or facts entitling the plaintiff to relief on some legal theory. State ofMaine v. Catherine Duffy

Petit, 1997 WL 35018763 (Me. Super. Aug. 5, 1997). It should not be dismissed unless it is

beyond doubt that no relief can be granted on any facts that might be proven to support the

plaintiffs claim. !d. Here, the State articulated legal theories based on which a relief may be

sought from Defendants, Clayton, Patrick, and ZHC for violations of the UTPA.

16

With respect to Patrick and Clayton, the State's allegations and affidavits in opposition to

this motion set out grounds for "piercing the corporate veil" sufficient to survive a motion to

dismiss. See Weinschenk, 2005 ME 28, ~ 19, 868 A.2d 200. See also Blue Star Corp. v. CKF

Properties, LLC, 2007 WL 4698291 (Me. Super. Oct. 31, 2007) (discussing pleading principal's

liability in general).

Corporations are generally treated as separate legal entities with limited liability, but

courts may disregard the corporate entity, "when used to cover fraud or illegality, or to justify a

wrong." Weinschenk, 2005 ME 28, ~ 19, 868 A.2d 200 (citing Anderson v. Kennebec River Pulp

& Paper Co., 433 A.2d 752, 756 n. 5 (Me.1981 )). A court may pierce the corporate veil if a

plaintiff establishes that: "(1) the defendant abused the privilege of a separate corporate identity;

and (2) an unjust or inequitable result would occur if the court recognized the separate corporate

existence." !d. (quoting Johnson v. Exclusive Properties Unlimited, 1998 ME 244, ~ 6, 720 A.2d

568, 571). See also Blue Star Corp., 2007 WL 4698291 ("[A] plaintiff must show '(1) some

manner of dominating, abusing, or misusing the corporate form; and (2) an unjust or inequitable

result that would arise if the court recognized the separate corporate existence' in order to pierce

the corporate veil.") (quotations omitted)). In deciding whether an unjust result would arise, the

Court may look to the evidence of whether the corporation was undercapitalized, insolvent, or

bankrupt. Advanced Const. Corp. v. Pilecki, 2006 ME 84, ~ 12, 901 A.2d 189, 195.

At the motion to dismiss stage, the courts, generally, will not dismiss a complaint against

the principal if it alleges that the principal personally and actively participated in the deceptive or

unfair conduct. See, e.g., Weinschenk, 2005 ME 28 (affirming the trial court's decision to hold

the principal liable where he personally engaged in direct dealings with buyers and designed

homes found to be defective); Blue Star Corp., 2007 WL 4698291 (refusing to dismiss a

17

complaint against the principal where he personally negotiated and signed the agreement, which

he allegedly knew to contain a provision that the corporation would not be able to comply with).

At the later stages of litigation, the courts draw a distinction between how much a

plaintiff is required to show to be entitled to restitution damages rather than solely injunctive

relief from the principal. In FTC. v. American Standard Credit Systems, the court stated that to

be entitled to injunctive relief, a plaintiff must show only that the principal of the corporation

either participated in deceptive acts or practices, or that he had control over them. 874 F. Supp.

1080, 1089 (C.D. Cal. 1994) (addressing a summary judgment motion, not a motion to dismiss).

Authority to control the corporation can be evidenced by active involvement in business affairs

and the making of corporate policy, including assuming the duties of a corporate officer. !d.

However, to be entitled to restitution, a plaintiff must also show that the principal had knowledge

that the corporation or one of its agents engaged in dishonest or fraudulent conduct, that the

misrepresentations were the type upon which a reasonable and prudent person would rely, and

that consumer injury resulted. !d. (citations omitted). But a decision on whether the State carried

out this burden of proof is premature at the motion to dismiss stage, where only the sufficiency

of the pleading is challenged.

As the Court stated above, the basic pleading requirement ofM.R. Civ. P. 8 applies to the

case at bar. The State complied with the Rule 8's requirement and presented a "short and plain

statement of the claim," i.e. that Patrick and Clayton are "owner[s], officer[s], and principal[s] of

the Corporate Defendants," that they personally "formulated, directed, controlled, had the

authority to control, or participated in, and had knowledge of, the acts and practices set forth in

th[e] Complaint," and that they are "an alter ego of the Corporate Defendants." These statements

are sufficient to put individual Defendants on notice that the State intends to seek the equitable

18

remedy of piercing the corporate veil to hold them liable for violations of the UTP A. 7 (Am.

Compl. ~~ 11-12.) See also Johnston v. Maine Energy Recovery Co., Ltd. P'ship, 2010 ME 52,~

16, 997 A.2d 741 ("Maine is a notice pleading state, and only 'requires a short and plain

statement of the claim to provide fair notice of the cause of action,' ... a complaint need not

identify the particular legal theories that will be relied upon.") (quotations omitted).

Moreover, as long as the Amended Complaint alleges something to show that the State is

entitled to relief from Patrick and Clayton, the State will be allowed to conduct discovery to

establish whether Clayton and Patrick are alter egos for the corporate Defendants. See Blue Star

Corp., 2007 WL 4698291 (where the Court allowed plaintiffto proceed with its complaint and

establish individual defendant's liability through discovery, even though it was not clear from the

pleading whether plaintiff would be able to recover personally from the principal based on the

principles of corporate veil piercing). In sum, the language of the Amended Complaint satisfies

the bare-bone requirement of Rule 8(a) with respect to Patrick and Clayton.

With respect to ZHC's liability, the Amended Complaint aileges that Corporate

Defendants "have operated as a common enterprise while engaging in unfair and deceptive acts

and practices alleged in this Complaint." (Am. Compl. ~ 13.) ZHC argues that State cannot rely

on the "common enterprise doctrine" to justify failure to make specific allegations as to each

Corporate Defendant or to hold ZHC liable for the conduct of its subsidiaries because the

common enterprise doctrine is a federal common law theory of liability that has not been

explicitly adopted by the courts of Maine.

This Court has concluded that a decision on whether "common enterprise" doctrine

applies to claims under the UTP A is premature at the motion to dismiss stage. The Amended

7

There is also a dispute as to the laws of which state should govern the question of whether the Court

should pierce the corporate veil.

19

Complaint complied sufficiently with the notice requirement of Rule 8 by identifying a theory on

which it intends to hold ZHC liable at a later stage of this litigation.

Defendants' Motion Seeking a More Definite Statement Pursuant to M.R. Civ. P. 12(e)

Finally, Defendants request that this Court order the State to provide a more definite

statement of each Defendant's allegedly wrongful conduct. Presently, the Amended Complaint

refers to each of the eight corporate entities and two individual Defendants, collectively, as

"Defendants" and asserts nine counts against the "Defendants" collectively, without describing

which of the "Defendants" committed which of the alleged acts.

It is not as a rule impermissible to incorporate prior allegation paragraphs into subsequent

paragraphs for efficiency sake, but if the incorporation is so wholesale that it is evident that the

plaintiff made no effort to discern which defendants might fairly be held liable for which counts

based on what alleged facts, it will arise to the level of a "shotgun" pleading. Ames v. Dep 't of

Marine Res. Comm 'r, 256 F.R.D. 22, 29 n.6 (D. Me. 2009). In Ames, the court's decision to

require the plaintiff to file a more definitive statement was based on the fact that it was clear

from the record that some of the defendants would be forced to respond to allegations of the

complaint without clarity as to the portions of the complaint that targeted them specifically. !d. at

30. Defendants argue that similarly in this case, because even according to the State itself, certain

acts were committed only by a limited number of Defendants, it would be unduly burdensome

and likely unnecessary to force each of the eight corporate entities and two individual

Defendants to answer all nine counts of the Amended Complaint.

The State accurately points out that motions for a more definite statement are not favored

"in light of the availability of pretrial discovery procedures." Haghkerdar v. Husson Coli., 226

F.R.D. 12, 13-14 (D. Me. 2005) (quoting Cox v. Maine Mar. Acad., 122 F.R.D. 115, 116

20

(D.Me.1988)). And that Rule 12(e) motions are designed to "strike at unintelligibility, rather than

at lack of detail in the complaint." Id. (quoting Cox, 122 F.R.D. at 116). Nonetheless, during oral

argument, counsel for the State represented that it could, albeit with some difficulty, re-plead the

State's allegations in a manner that would clarify which alleged acts are applicable to which

Defendants. Accordingly, provided that the State can do so consistent with Rule 8 and 12(e), the

State will be ordered to provide a more definitive statement.

The entry will be:

Defendants' motion to dismiss for lack of personal jurisdiction is DENIED. Their motion to

dismiss pursuant to M. R. Civ. P. 9(b) and 8(a) is DENIED. Their motion for a more definite

statement pursuant to M.R. Civ. P. 12(e) is GRANTED. The Amended Complaint, at the request

of the Plaintiff, is dismissed as against Zealandia Holdings, LLC.

DATE SUPERIOR COURT JUSTICE, BUSINESS

AND CONSUMER COURT

Entered on the Docket: 'oz/; i./

Copies sent via Maii_Electro;tieally ../

21

State of Maine v. Zealandia Holding Company, Inc., flkla Festivia

Hospitality Group, Inc., Patton Hospitality Management, LLC, flkla

Festiva Management Group, LLC, Festivia Development Group, LLC,

Zealandia Capital, INC., flkla Seti Marketing, Inc., Resort Travel &

Xchange, Festivia Real Estate Holdings, LLC, flkla Festivia Travel

and Xchange, Festivia Real Estate Holdings, LLC, flkla Festivia

Resorts, LLC, Festivia Resorts Adventure Club Members'

Association, Zealandia Holdings, LLC, Donald K. Clayton, and

Herbert H. Patrick, Jr.

BCD-CV-14-11

State of Maine

Petitioner I Plaintiff

Counsel: Linda Conti, AAG

6 State House Station

Augusta, ME 04333-0006

Zealandia Holding Company, Inc., flkla Festivia Hospitality Group,

Inc., Patton Hospitality Management, LLC, flkla Festiva

Management Group, LLC, Festivia Development Group, LLC,

Zealandia Capital, INC., flkla Seti Marketing, Inc., Resort Travel &

Xchange, Festivia Real Estate Holdings, LLC, flkla Festivia Travel

and Xchange, Festivia Real Estate Holdings, LLC, flkla Festivia

Resorts, LLC, Festivia Resorts Adventure Club Members'

Association, Zealandia Holdings, LLC, Donald K. Clayton, and

Herbert H. Patrick, Jr.

Respondents I Defendants

Counsel: Eric Wycoff, Esq.

Merrills Warf

2 54 Commercial St.

Portland, ME 04101

and

Christian Chandler

One Canal Plaza Suite 1000

PO BOX 7320

Portland, ME 04112-7320