Boswell v. Babcock

Background

Joseph Boswell and Greg Sarlo sued Michael Babcock, Pure Natures Design, Inc. (PND), and Xtreme Healthy Lifestyles, Inc. (Xtreme). Their claims alleged breach of oral and written contracts, intentional and negligent misrepresentation, and defamation.

Boswell alleged that Babcock made promises about income, ownership interests, products, and the structure of the companies’ distributor organizations. Boswell also alleged that Babcock stopped making promised payments, interfered with his business arrangements, and breached a purchase agreement under which Babcock bought Boswell’s Master Distributor position for $20,000. Sarlo alleged that Babcock promised him a share of CBD sales and a guaranteed monthly income, made statements about PND’s financial condition, and later made statements that harmed Sarlo’s reputation and income.

Babcock moved to dismiss all of the claims against him under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a legal claim. He argued, among other things, that the contracts were with PND or Xtreme rather than him, that the misrepresentation allegations did not meet the heightened pleading standard for fraud, and that Boswell’s claims were barred by the purchase agreement.

Court’s Analysis

The court held that the plaintiffs had not alleged facts supporting personal liability against Babcock for the first two breach-of-contract claims. The plaintiffs conceded that they had not alleged facts supporting an exception that would allow them to hold Babcock personally responsible for corporate obligations. The court therefore granted, in part, Babcock’s motion to dismiss and dismissed those two claims, with leave to amend.

The court also dismissed the intentional and negligent misrepresentation claims, with leave to amend. Although the plaintiffs identified Babcock as the person who made the alleged statements and provided some information about when they were made, the court found that the allegations needed more detail about when the statements were made and why they were false. The court specifically found that Sarlo’s allegations did not explain with enough particularity why Babcock’s statements about PND’s financial security were false when made.

The court granted, as unopposed, Babcock’s motion to dismiss Sarlo’s defamation claim, with leave to amend. The court found that Sarlo’s allegations that Babcock had “bad-mouthed” him were insufficient as pleaded, and Babcock had not shown that amendment would be futile.

The court denied, in part, Babcock’s argument based on the purchase agreement. Although the court considered whether the agreement could be considered under the incorporation-by-reference doctrine, it concluded that the agreement’s language did not definitively bar Boswell’s claims at the motion-to-dismiss stage. The court also stated that it could not consider statements in Babcock’s declaration for this purpose.

Disposition and Next Steps

The court granted, in part, and denied, in part, Babcock’s motion to dismiss, with leave to amend. The plaintiffs had to file an amended complaint by January 8, 2021. All defendants had to answer or otherwise respond by February 5, 2021. The court vacated PND and Xtreme’s previously set deadline to respond to the original complaint and set an initial case-management conference for March 26, 2021, with a joint statement due March 19, 2021.