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The Laurel Management Group, LLC v. White Sheep Corporation

United States District Court, W.D. Pennsylvania

September 23, 2019

THE LAUREL MANAGEMENT GROUP, LLC and DENISE MUELLER, Plaintiffs,
v.
WHITE SHEEP CORPORATION and HAMISH SUTHERLAND, Defendants.

          OPINION

          DAVID STEWART CERCONE SENIOR UNITED STATES DISTRICT JUDGE.

         Laurel Management Group, LLC (“Laurel”) and Denise Mueller (“Mueller”) (collectively “plaintiffs”) commenced this contract action against White Sheep Corporation (“White Sheep”) and Hamish Sutherland (“Sutherland”) (collectively “defendants”) seeking redress for the alleged failure to follow through on an arrangement aimed at procuring a license to produce medical marijuana in the state of Pennsylvania. Presently before the court is defendants’ motion for partial dismissal. For the reasons set forth below, the motion will be granted.

         It is well-settled that in reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “[t]he applicable standard of review requires the court to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the non-moving party.” Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989). Under the Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 561 (2007), dismissal of a complaint pursuant to Rule 12(b)(6) is proper only where the averments of the complaint plausibly fail to raise directly or inferentially the material elements necessary to obtain relief under a viable legal theory of recovery. Id. at 544. In other words, the allegations of the complaint must be grounded in enough of a factual basis to move the claim from the realm of mere possibility to one that shows entitlement by presenting "a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).

         "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." Id. In contrast, pleading facts that only offer "'labels or conclusions' or 'a formulaic recitation of the elements of a cause of action will not do, '" nor will advancing only factual allegations that are "'merely consistent with' a defendant's liability." Id. Similarly, tendering only "naked assertions" that are devoid of "further factual enhancement" falls short of presenting sufficient factual content to permit an inference that what has been presented is more than a mere possibility of misconduct. Id. at 1949-50; see also Twombly, 550 U.S. at 563 n. 8 (A complaint states a claim where its factual averments sufficiently raise a "'reasonably founded hope that the [discovery] process will reveal relevant evidence' to support the claim.") (quoting Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 347 (2005) & Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 741 (1975)); accord Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir. 1997) (a court need not credit "bald assertions" or "legal conclusions" in assessing a motion to dismiss) (citing with approval Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (2d ed. 1997) ("courts, when examining 12(b)(6) motions, have rejected 'legal conclusions, ' 'unsupported conclusions, ' 'unwarranted inferences, ' 'unwarranted deductions, ' 'footless conclusions of law, ' or 'sweeping legal conclusions cast in the form of factual allegations.'").

         This is not to be understood as imposing a probability standard at the pleading stage. Iqbal, 556 U.S. at 678 ("'The plausibility standard is not akin to a 'probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.'"); Phillips v. County of Allegheny, 515 F.3d 224, 235 (3d Cir. 2008) (same). Instead, "[t]he Supreme Court's Twombly formulation of the pleading standard can be summed up thus: 'stating ... a claim requires a complaint with enough factual matter (taken as true) to suggest the required element ... [and provides] enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element.'" Phillips, 515 F.3d at 235; see also Wilkerson v. New Media Technology Charter School Inc., 522 F.3d 315, 321 (3d Cir. 2008) ("'The complaint must state 'enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element.'") (quoting Phillips, 515 F.3d at 235) (citations omitted). "Once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Twombly, 550 U.S. at 563.

         The facts averred in the complaint as viewed in the light most favorable to plaintiffs are as follows. Mueller was a resident of Pennsylvania and the CEO of Laurel, a Pennsylvanian company. On behalf of Laurel she orally agreed to enter into a business relationship with White Sheep, a Canadian company.[1] In doing so she interacted with defendant Sutherland, a resident of Canada and the CEO of White Sheep. Complaint at ¶¶ 1-4, 12, 21. The general purpose of the business relationship was to apply for a commercial and/or clinical research license to produce medical cannabis in Pennsylvania, and, if awarded the license, to operate jointly a cannabis cultivation facility in Pennsylvania. Id. at ¶ 12. As part of the business relationship Laurel was promised 8.33% and Mueller 10% of the initial equity in any resulting company that earned a clinical research license. Id. at ¶¶ 22, 31. Mueller was additionally promised a suitable role of employment therein. Id.

         The business relationship was predicated on the distinct benefits each side could provide to the other. As a commercial operator with expertise in building large-scale, regulation-compliant cannabis cultivation facilities (e.g., facilities that cultivate, process, extract, package and distribute cannabis for medical and adult use) as well as a strategic investor with cannabis assets in the United States and Canada, White Sheep possessed financial capital, human resources and operational expertise. Id. at ¶ 13. Laurel brought to the table its local knowledge and a significant network of stakeholders that it previously built as a first-round applicant for a commercial cannabis license.[2] Id. at ¶¶ 14-15.

         The parties’ respective areas of expertise and anticipated contributions identified what was expected of them as part of their business relationship. White Sheep was to provide information and responses relating to the technical and operational aspects of the application. It also was to provide funding for (1) the proposed facility property, (2) the application itself (i.e., the fees and costs relating to its construction), and (3) the build-out and operation of the proposed facility, as well as the needed personnel and expertise. Id. at ¶ 16. Laurel was to lead the overall application process, provide information and responses relating to the diversity and social impact aspects of the application, identify and propose suitable properties for the facility and provide local, in-state support for the build-out and operation. Id. at ¶ 17.

         As a result of their reliance on and investment in this business relationship, plaintiffs were unable to enter into any similar business relationships with other parties seeking to apply for a license and/or to operate a commercial/clinical cannabis cultivation facility. Id. at ¶¶ 18, 22, 31.

         As part of the business relationship, Mueller successfully completed the Pennsylvania Department of General Service’s (DGS) process for obtaining self-certification as a small, minority-owned procurement services business under the DGS’s Small Business Contracting Program. Id. at ¶ 39. This certification was based on her gender. White Sheep contracted with plaintiff in order to receive diversity points and preferential treatment in the application process. Id. at ¶ 37. During the application process defendant learned that it would receive more diversity points by working with other minority contractors and therefore terminated the business relationship. Id. at ¶ 38.[3]

         Plaintiffs advance causes of action for alleged breach of contract, unjust enrichment, promissory estoppel, and discrimination in violation of 42 U.S.C. § 1981. The § 1981 discrimination claim is predicated on plaintiff’s gender. They seek compensatory and punitive damages, costs and attorney fees.

         Defendants move to dismiss Sutherland and the § 1981 discrimination claim. First, they contend that plaintiffs’ discrimination claim fails as a matter of law because gender discrimination is not cognizable under § 1981. Second, the complaint purportedly fails to advance facts that indicate Sutherland personally is liable for the actions of White Sheep. In the alternative, defendant asserts that there was insufficient service of process as to Sutherland.

         Plaintiffs contend that claims of national origin discrimination are cognizable under § 1981 and that national origin is intertwined with plaintiff’s § 1981 claims. In addition, the complaint supposedly states a claim against defendant Sutherland because he was involved personally and was acting on behalf of both himself and White Sheep. Finally, plaintiffs maintain that Sutherland waived any challenge to personal jurisdiction by entering his appearance.

         Plaintiffs’ § 1981 claim fails as a matter of law because the statute does not encompass gender discrimination. Section 1981 provides in pertinent part: “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts … as is enjoyed by white citizens.” 42 U.S.C. § 1981(a). As the Supreme Court has observed, § 1981 was designed specifically to protect against racial discrimination. See, e.g., Georgia v. Rachel, 384 U.S. 780 (1966) (noting that the phrase “as is enjoyed by white citizens” and the statute’s legislative history “clearly indicate[] that Congress intended to protect a limited category of ...


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