Opinion ID: 2814722
Heading Depth: 1
Heading Rank: 3

Heading: analysis

Text: The fundamental purpose of our pleadings rules is to protect a defendant's inalienable right to know in advance the nature of the cause of action being asserted against him. Ruiz Rivera v. Pfizer Pharm., LLC, 521 F.3d 76, 84 (1st Cir. 2008) (internal quotation marks omitted). The complaint must provide this notice not with mere conclusions, but rather with 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). As we said in Manning v. Boston Medical Center Corporation, a complaint must allege facts sufficient to show an entitlement to relief. 725 F.3d 34, 43 (1st Cir. 2013). One of the basic elements necessary to showing an entitlement to relief under the FLSA is that the work involved interstate activity. Id. The complaint must therefore allege facts sufficient to establish that either the plaintiff's work or another employee's work involved interstate commerce within the meaning of the Act. Id. On appeal, Martinez abandons his attempt to prove enterprise coverage. He argues, instead, that his complaint's conclusory allegation that Ice Code was a covered employer under the FLSA was sufficient to give notice that he might try to prove - 13 - individual coverage. This argument is twice flawed. First, as we explained in Manning, when we read a complaint, conclusory allegations that merely parrot the relevant legal standard are disregarded. Id. at 43. Second, the only nonconclusory allegations pertinent to establishing FLSA coverage refer to Ice Code's annual sales, and thus point only to enterprise, not individual, coverage. As such, the complaint gave even less notice than a merely conclusory complaint would have given that Martinez's individual activities would provide the grounds upon which coverage depended, because it pointed specifically and exclusively in the other direction. See Ruiz Rivera, 521 F.3d at 85 (It simply will not do for a plaintiff to fail to plead with adequate specificity facts to support a . . . claim, all-the-while hoping to play that card if her initial hand is a dud.); see also Calvi v. Knox Cnty., 470 F.3d 422, 431 (1st Cir. 2006) (stating that a plaintiff is not entitled to raise new and unadvertised theories of liability for the first time in opposition to a motion for summary judgment). Martinez did not file a motion to amend his complaint, so he can hardly complain about being held to his original complaint. It nevertheless reinforces our conclusion to note that, had he filed such a motion when he first announced his reliance on individual coverage after the deadline for amending the pleadings had passed, it is unlikely that we would have found the denial of - 14 - that belated motion to be an abuse of discretion. See Fed. R. Civ. P. 15(a)(2), 16(b)(4); see Torres-Rios v. LPS Labs., Inc., 152 F.3d 11, 16 (1st Cir. 1998) (reviewing denial of motion to amend the pleadings for abuse of discretion). In Torres-Rios, for example, the complaint alleged a product liability claim through facts establishing that the product was defective because its warnings were inadequate. Id. at 12-15. In opposing summary judgment, the plaintiffs then tried to rely on facts said to show that the product was defectively designed, arguing that a design defect theory was implicit in their complaint. Id. at 15-16. Affirming the district court's refusal to allow the plaintiffs to rely on the new theory, we observed that such a change after discovery was completed unquestionably would prejudice defendant, whose focus until that time had been on the adequacy of the warning labels and not on the costs and benefits of the product itself. Id. at 16. But, says Martinez, his change did not present a change in a theory of liability, because he consistently argued that Petrenko was liable for unpaid overtime under the FLSA--all that changed was Martinez's theory of why he should enjoy the FLSA's protections in the first place. However, the nexus to commerce is an element of the claim, without which there is no entitlement to recovery, and Martinez sought to change entirely the theory establishing a nexus. A belated change of the facts Martinez would - 15 - use to establish that nexus implicates precisely the type of unfair misdirection at issue in cases such as Torres-Rios. The default rule is that, before trial, the court should freely give leave to amend the pleadings when justice so requires. Fed. R. Civ. P. 15(a)(2). Once a court sets a deadline for seeking such leave, though, the complaint may be modified only for good cause. Fed. R. Civ. P. 16(b)(4). Good cause does not typically include a change of heart on a litigation strategy. See Trans-Spec Truck Serv., Inc. v. Caterpillar Inc., 524 F.3d 315, 327 (1st Cir. 2008) (affirming a magistrate's refusal to amend the pleadings eleven months after a scheduling order deadline had passed because [t]he explanation for the delay seems to be simply that [the plaintiff] thought that it would prevail . . . without any need to further amend. In that, its calculations were wrong. Nonetheless, [the plaintiff] must be bound by the consequences of its litigation strategy.). Here, we note also that all of the facts upon which Martinez belatedly sought to demonstrate individual coverage were known to him before he filed his complaint. Our decision in Bacou Dalloz USA, Inc. v. Continental Polymers, Inc., 344 F.3d 22 (1st Cir. 2003), is not to the contrary. In that case, we stated that a district court should consider the full record, including affidavits and interrogatories, when considering a motion for summary judgment. - 16 - Id. at 26. Nothing in that case, though, suggests that a district court need look for facts in support of a theory that was not even pleaded. Such a rule would effectively require all litigants to engage in discovery based not on what was pleaded but also on what might have been pleaded. We reject such a requirement.
Martinez also appeals the district court's grant of summary judgment to Petrenko on his state-law claims for unpaid wages under New Hampshire Revised Statutes Annotated §§ 275:43 and 44, breach of contract, and wrongful discharge.5 New Hampshire law governs these claims in this action grounded on diversity jurisdiction. See Hansen v. Sentry Ins. Co., 756 F.3d 53, 57 (1st Cir. 2014). Martinez brought these claims against Petrenko personally under the doctrine of piercing the corporate veil, which allows a person with a claim against a corporation to recover from a principal of that corporation when the principal abuses the corporate form.6 See, e.g., Terren v. Butler, 134 N.H. 635, 638- 5The district court also granted Petrenko summary judgment on Martinez's intentional misrepresentation claim, holding that Martinez had not raised an issue of fact as to whether he had relied on any misrepresentation made by Petrenko. Martinez did not appeal the grant of summary judgment on his intentional misrepresentation claim. 6Petrenko concedes that veil-piercing can apply to limited liability companies (LLCs) under New Hampshire law. See Mbahaba v. Morgan, 163 N.H. 561, 568 (2012) (applying the veil-piercing - 17 - 40 (1991) (affirming the lower court's decision to allow veilpiercing upon a finding that corporate principals divert[ed] corporate assets to their benefit when substantial notice of claims [against the corporation] were outstanding). In granting Petrenko's motion for summary judgment, the district court rejected Martinez's veil-piercing theory on two grounds, holding first that veil-piercing is not available to allow one company insider to recover against another; and second, that even if veilpiercing were potentially available, Martinez had not shown an issue of fact as to whether Petrenko had used the LLC form to perpetrate a fraud on him. Defending the judgment, Petrenko presses the argument that veil-piercing is categorically unavailable to corporate insiders under New Hampshire law. While many states have adopted or come close to adopting such a rule, see 2 F. Hodge O'Neal & Robert B. Thompson, O'Neal and Thompson's Close Corporations and LLCs: Law and Practice § 8:18 (rev. 3d ed. 2014) ([C]ourts rarely permit a corporation to be disregarded for the benefit of its own shareholders.), neither party points us to any New Hampshire case law on point. doctrine to a claim against the principal of an LLC). Because most of the relevant veil-piercing case law involves corporations, in this opinion we use the term corporate broadly to include LLCs. - 18 - We see no need to decide in this case whether New Hampshire law per se bars an insider like Martinez from successfully piercing the corporate veil to hold another insider liable for the corporation's debts. Rather, the record here allows us to affirm on the district court's alternative ground that Martinez has not made out a case for veil-piercing even if he is not categorically barred from doing so. We begin by observing that Martinez points to no case from New Hampshire or elsewhere allowing the piercing of the corporate veil for a type of wrongdoing analogous to that alleged here.7 Under New Hampshire law, corporate owners are not [o]rdinarily liable for corporate debts. Mbahaba v. Morgan, 163 N.H. 561, 568 (2012). The common law veil-piercing exception to that rule only arises when a shareholder suppresses the fact of incorporation, misleads his creditors as to the corporate assets, or otherwise uses the corporate entity to promote injustice or fraud. Druding v. Allen, 122 N.H. 823, 827 (1982); see also Terren, 134 N.H. at 639-40. 7 He relies on Cheney v. Moore, 193 Ga. App. 312, 312 (1989), in which veil-piercing was used to allow a 50% shareholder to recover her start-up capital when her former business partner shut her out of the business and she left the company a month after its incorporation; and Southern California Federal Savings & Loan Association v. United States, 422 F.3d 1319, 1331-32 (Fed. Cir. 2005), where the court rejected a bid by individual shareholders to sue the government for breach of a contract with the corporation. - 19 - Martinez obviously knew that Ice Code was a corporation, and that it was Ice Code that employed him. He therefore trains his argument on his claim that Petrenko induced him to continue working for Ice Code by misrepresenting the value of its assets. The alleged misrepresentation is Petrenko's statement (according to Martinez) that the 10,000 units that Ice Code granted to Martinez were worth [s]omething around $2 million even though he knew that Ice Code was going to fail. The sequence of events, though, was that during a board meeting, Martinez demanded 10,000 equity units as a condition of continuing to work for Ice Code, and Petrenko balked, stating that Martinez's request seemed very high because the value of those equity units was very high, i.e., [s]omething around $2 million.8 The board, with Petrenko in agreement, nevertheless acceded to Martinez's demand.9 As thus described by Martinez, his offer to continue working for 10,000 8 In his deposition testimony, Martinez characterized the value as based on the per-unit price of a recent private placement memorandum the board had authorized, and said that the board members shared a general agreement about the units' value. 9 Although Martinez argues that Petrenko authorized the conveyance, the facts do not seem to support this characterization. The record shows the conveyance was discussed by the board in November 2010 and January 2011, and formalized through a January 2011 agreement signed by Zhigalov. Whether Petrenko authorized the conveyance is not relevant to this appeal, however, because even if he did, this authorization does not constitute an abuse of the corporate form for which veil-piercing is available. - 20 - units came before Petrenko made any assertion of the units' value, and could not have been induced by any such assertion. More generally, there is no evidence that Martinez was unaware of Ice Code's precarious circumstances when he sought additional equity. At the time of the alleged fraud, Martinez knew the company faced significant hurdles--indeed, the underpayment of his salary is why he approached the board in November 2010 seeking additional equity as an alternative form of compensation. Moreover, he did so only weeks after he had voted to approve the special board resolution describing the company's dire financial straits. As any investor knows, the value of a company's equity may rise or fall, or it may disappear completely if the company fails. When Martinez agreed to keep working at Ice Code for company equity, he was assuming a risk that the company could fail, and he assumed that risk knowing the company's finances were in poor shape. The equity grant agreement itself confirmed (in rather desperate-sounding terms) that the company was, at best, hobbling along. In short, the LLC veil had nothing to do with impeding Martinez from knowing that which he says he did not know. Nor, finally, does Martinez claim that Petrenko actually misrepresented any facts concerning Ice Code's assets, or removed any assets from the company. Martinez's response is to point to Petrenko's failure to disclose to Martinez the existence of so-called Plan B. Martinez - 21 - knew that Ice Code did not own its core technology, that it owed [s]everal hundred thousand dollars to the actual owner (Dartmouth), and that it would lose its license if it did not timely pay Dartmouth what it owed.10 However, Martinez says he did not know that (again, according to Martinez) Petrenko had given up on Ice Code, and was working on Plan B to form a new entity to exploit Dartmouth's technology in the event Ice Code's license to the technology expired. An initial hurdle in the way of this argument is, again, the chronology. Martinez points to two February 2011 e-mails in which Petrenko described problems with Plan B and indicated he was still trying to pursue Plan A, (which Petrenko says was a plan to attract new investment to Ice Code); and an April 2011 memo that states that [t]he effort to reorganize [Ice Code] began in earnest in January 2011, but suggests that Petrenko and others did not decide[] to shift to a plan-b until mid-April. Nothing in these documents would seem to support Martinez's assertion that Petrenko had decided to pursue Plan B in November 2010 when Martinez signed the equity agreement. 10 Dartmouth imposed a May 1, 2011, deadline for payment of the debt. It is unclear exactly when it imposed this deadline, but Martinez admits that by March 2011, he and Petrenko had already negotiated several extensions. - 22 - Even if a jury could somehow interpret these documents to support Martinez's claim that Petrenko had decided to pursue Plan B in November 2010,11 we would see no reason to equate one corporate insider's failure to disclose to another insider his own plans to give up on a corporation with the misuse of the corporate veil, at least where the plans involve no use of the corporate form to conceal the plans and no removal of corporate assets without reasonable consideration. Perhaps such an insider, in appropriate circumstances, may owe a duty of disclosure directly to another insider. Whether that is so we need not decide. Martinez has not appealed the dismissal of his intentional misrepresentation claim and otherwise presses no claim against Petrenko directly, resting instead on his attempt to hold Petrenko vicariously liable for the obligations of Ice Code. Ultimately, Martinez's argument that the veil should be pierced to correct an injustice fails to address the distinction between use of the corporate form to protect the owner from liability for an injustice perpetrated by the corporation, and an owner's use of the corporate form to promote or perpetrate the injustice. New Hampshire law allows veil-piercing in the case of the latter. See Terren, 134 N.H. at 639. To allow veil-piercing 11 In granting summary judgment to Petrenko on Martinez's intentional misrepresentation claim, the district court held they could not. - 23 - in the case of the former, however, would essentially eliminate the ordinary rule that the owner is not legally responsible for the liabilities of the corporation. New Hampshire case law rejects the notion of such a flimsy veil. See Druding, 122 N.H. at 82728 (reversing a lower court's piercing of the veil, even though a closely held corporation had failed to observe certain formalities, [i]n view of the dearth of evidence that [the corporation's president] used the corporation to promote injustice or fraud); Village Press, Inc. v. Stephen Edward Co., 120 N.H. 469, 471-72 (1980) (noting that veil-piercing is not allowed simply because a corporation is a one-man operation if there is no evidence of a fraudulent conveyance, of suppressing the fact of incorporation, or of misleading the plaintiff about corporate assets); Peter R. Previte, Inc. v. McAllister Florist, Inc., 113 N.H. 579, 582-83 (1973) (holding that creditor of insolvent family business could not recover from defendants personally because there was no evidence defendants had suppressed the fact of their incorporation or misled the plaintiff as to the corporate assets).12