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Mwi Veterinary Supply Co v. Harrold M Wotton

July 3, 2012

MWI VETERINARY SUPPLY CO., PLAINTIFF,
v.
HARROLD M WOTTON, III AND DARRROLL SOTTON, DEFENDANTS.



The opinion of the court was delivered by: B. Lynn Winmill Chief JudgeUnited States District Court

MEMORANDUM DECISION AND ORDER

INTRODUCTION

The Court has before it plaintiff MWI Veterinary Supply Co.'s Motion to Dismiss Defendants' Counterclaim (Dkt. 24). The Court has determined oral argument would not significantly assist the decisional process and will decide the motions without a hearing. For the reasons expressed below, the Court will grant the motion to dismiss the fraud claim with leave to amend. The Court will also dismiss the wrongful termination and the negligent misrepresentation claims, as the defendants do not oppose dismissal of these claims. Finally, the Court will stay one aspect of the contract claim, as the parties agree it should be arbitrated. The motion to dismiss will be denied in all other respects.

FACTS

Defendants and Counterclaimants Harold and Darroll Wotton are brothers. Harold is a biomedical engineer. In 1996, he formed a business -- Securos -- that designed, manufactured, and sold surgical implants and instruments for the veterinary orthopedic market. Darroll is an accountant who works in the veterinary business. In 2003, Darrell founded International Veterinary Distribution Network (which does business as "IVDN") "for the purpose of providing wholesale distribution services primarily to the veterinary industry." Shortly after forming IVDN, Darroll joined his brother at Securos as the company accountant.

In June 2007, the Wottons sold Securos and IVDN to MWI Veterinary Supply Co. They joined MWI as employees in charge of running MWI's Securos division. The Wottons allege they were fraudulently induced to sell their businesses to MWI based upon John J. Francis's (an employee of MWI) misrepresentations. Each of these representations is detailed below. The gist of all the alleged misrepresentations, however, is that Francis promised MWI would fully support and promote Securos' business and products within MWI, but failed to do so.

The Wottons further allege that despite MWI's failure to support Securos, they nevertheless managed to increase the Securos division's revenues by 200% in the four and one-half years following the transfer. The Wottons say that this performance would have entitled them to "receive substantial 'earnout' payments on September 30, 2012 . . . ." but MWI preemptively fired them to avoid making these payments.

MWI sued the Wottons around in January 2012. Compl., Dkt. 1-2. MWI alleges numerous state law claims against the Wottons, including breach of contract and numerous tort claims. The Wottons counterclaimed shortly thereafter. In this motion, MWI attacks seven of the Wottons' ten claims, including those for: (1) fraud in the inducement; (2) breach of contract; (3) breach of the duty of good faith and fair dealing; (4) misrepresentation (5) wrongful termination; (6) unjust enrichment; and (7) unfair and deceptive business practices in violation of Massachusetts statutory law.

ANALYSIS

1. Count 1 -- Fraud

MWI argue that the Wottons' fraud counterclaim should be dismissed because (1) it is time barred, (2) it is based upon non-actionable statements regarding future events; and (3) it is not pled with sufficient particularity under Federal Rule of Civil Procedure 9(b). The Court will address each argument in turn, though it will first set out the elements of fraud.

To prove fraud, a plaintiff must establish the following elements: "(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge about its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on the [representation]; (8) his rights to rely thereon; (9) his consequent and proximate injury." Jenkins v. Boise Cascade Corp., 141 Idaho 233, 108 P.3d 380, 386 (Idaho 2005) (internal citation omitted).

The Wottons allege that MWI defrauded them when John Francis of MWI made the following misrepresentations:

A. MWI would pay the Wottons a total of $5 million plus cash incentives to purchase the assets of Securos and IVDN;

B. MWI would set up the Securos Division as an independent division of MWI's Specialty Resources Group for the Wottons to continue the business of Securos and IVDN;

C. MWI's leadership team would fully support and promote the business and products of the Securos Division to grow it rapidly through MWI's extensive distribution network resulting in a realization of substantial cash incentives for the Wottons;

D. MWI was committed to the future success of the Securos Division;

E. MWI's sales teams would fully support and promote the business and products of the Securos Division to grow it rapidly through MWI's extensive distribution network resulting in substantial future compensation for the Wottons;

F. MWI would fully integrate the Securos Division with all of the "state of the art" office technologies of MWI;

G. MWI would provide marketing support for the Securos Division above and beyond the marketing efforts Securos and IVDN had been able to undertake on their own;

H. MWI would provide training support for the employees of the Securos Division and the sales representatives of MWI;

I. MWI would support the expansion of the Securos Division into Europe;

J. MWI would allow H. Wotton to manage the Securos Division and act as entrepreneur as he had done for more than ten (10) years;

K. MWI would allow the Wottons to assist two Securos Division vendors from Germany in retaining their relationships with Webster Veterinary ("Webster"), a competitor of MWI; and

L. MWI would promote the Securos Division to at least two other national distributors besides MWI, namely Webster and Butler ...


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