ARP Wave, LLC v. Salpeter

Background

The court considered Defendants Garrett M. Salpeter; Neurological Fitness Equipment and Education, LLC; Neurological Fitness and Recovery Facilities, LLC; and ARPwave Austin, LLC’s motion for leave to amend their answer. The proposed amendment primarily added a fraud counterclaim against ARP WAVE, LLC.

The proposed counterclaim alleged that, beginning in 2008, ARP WAVE promised Salpeter that it would fully support an Austin clinic, make him the exclusive provider in the greater Austin area, refer clients to him, provide its treatment protocols, and treat methods and protocols he independently developed as his own intellectual property. It alleged that ARP WAVE knew these statements were false when made and wanted Salpeter to open and grow the clinic so ARP WAVE could profit from equipment sales. Salpeter allegedly later learned that ARP WAVE was competing with him, was not referring all potential clients, and had not provided all of its treatment protocols.

Timeliness

The scheduling order set September 15, 2019, as the deadline for motions to amend pleadings. Defendants filed their motion on September 16, 2019. Although September 15 was a Sunday, the court explained that the deadline was a fixed date in a scheduling order, so the ordinary rule extending a deadline that falls on a weekend did not automatically apply. Nevertheless, exercising its discretion and recognizing counsel’s intent to file timely, the court found the motion timely. It also concluded that denying the motion as untimely would likely lead to additional litigation over whether Defendants had good cause for the late filing.

Fraud allegations and futility

Under Minnesota law, fraud generally must involve a misrepresentation about a past or present fact. A promise about a future act can support fraud, however, if the promisor had no intention of performing when the promise was made. The court held that the proposed counterclaim adequately alleged that ARP WAVE knew its promises were false when made and alleged a reason for making them: to induce Salpeter to open and grow the clinic and purchase additional equipment. The claim was therefore not futile at the pleading stage, although Salpeter would ultimately need affirmative evidence that ARP WAVE lacked an intent to perform when it made the promises.

Particularity

Federal Rule of Civil Procedure 9(b) requires fraud to be pleaded with particularity, including the circumstances of who made the statements, what was said, where and when it was said, and how it was fraudulent. The court found that the proposed counterclaim’s factual allegations about explicit promises made during conversations concerning Salpeter becoming an ARP WAVE licensee and affiliate were sufficiently particular. The court found the allegations about ARP WAVE’s making “implicit and/or explicit” representations insufficient as to implicit representations and ordered Defendants to omit references to ARP WAVE making implicit representations from paragraph 15 of the proposed counterclaim.

Contract provisions and limitations period

The court rejected ARP WAVE’s argument that the agreements’ integration clauses barred the fraud counterclaim. Those clauses stated that the written agreements were the entire agreements but did not specifically disclaim reliance on prior representations. The court also concluded that the waiver provisions did not make the fraud counterclaim futile at this stage.

The agreements described Salpeter’s license as nonexclusive, directly contradicting the alleged promise that he would be the exclusive provider in Austin and central Texas. The court nevertheless held that the fraud counterclaim was not futile because the agreements did not appear to directly contradict the alleged promises of support, client referrals, or provision of all ARP WAVE protocols, and possible exceptions to the parol-evidence rule could apply. The court noted that Defendants might prevail on this issue at summary judgment.

The court also declined to find the claim barred by Minnesota’s six-year fraud limitations period. The proposed counterclaim alleged that Salpeter discovered the alleged false representations in late 2013 through 2014. Whether he should have discovered them earlier involved a fact-specific inquiry that the court said should be addressed on summary judgment rather than on this motion to amend.

Disposition

The court granted in part and denied in part Defendants’ motion for leave to amend their answer. Defendants were ordered to file an amended answer and counterclaim consistent with the order by March 10, 2020, unless an appeal was sought. Plaintiff was directed to respond under the Federal Rules of Civil Procedure. Judge Elizabeth Cowan Wright signed the order.