SYT Solutions, LLC v. Burger

Background

SYT Solutions, LLC, Brian Lindemann, and Kris Lindemann sued Cris Burger, Lisa Burger, David McGowan, The ADvantage Companies, Inc., and Advantage Tape Receivables, Inc. The lawsuit arose from SYT’s 2017 purchase of Advantage Tape Receivables’ assets under an Asset Purchase Agreement. The agreement covered tangible property, customer-contract interests, licenses, intellectual property, trademarks, trade names, and goodwill. The purchase price was $1,570,885.00, consisting of $1,010,000.00 paid at closing and a $560,885.00 promissory note.

The plaintiffs alleged that Cris Burger, Lisa Burger, and Advantage Tape Receivables made false statements or withheld important information about the business before the sale. They also alleged that David McGowan used deceptive sales practices, that Cris Burger and McGowan later competed against SYT through The ADvantage Companies, and that the defendants misused trademarks that SYT acquired. The plaintiffs did not dispute that they defaulted on the promissory note. That default affected the court’s analysis of the noncompetition agreements, which automatically ended if SYT defaulted.

The complaint asserted fifteen counts, including contract and warranty claims, unjust enrichment, quantum meruit, fraud, negligent misrepresentation, RICO violations, trademark claims, tortious interference with contract, Minnesota statutory claims, indemnification, and declaratory judgment. The defendants filed four motions to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, and Rule 12(b)(1), which concerns subject-matter jurisdiction. Because David McGowan had already filed an answer and crossclaims, the court treated his motion as a motion for judgment on the pleadings and applied the same standard used for a failure-to-state-a-claim motion.

Rulings on the Claims

The court dismissed the RICO claim with prejudice as to all defendants. It concluded that the alleged conduct did not adequately establish a continuing association-in-fact enterprise, a pattern of racketeering activity, or mail or wire fraud pleaded with the required particularity. The court also stated that the alleged wrongdoing more closely resembled ordinary commercial fraud than the organized, long-term criminal activity covered by RICO.

The court denied the motions directed at the Lanham Act claim against Cris Burger, The ADvantage Companies, and David McGowan. The plaintiffs plausibly alleged that they owned the “Advantage Tape Advertising” trademark, that use of “ADvantage” was likely to confuse customers, and that the defendants intended to cause confusion. For the same reasons, the court denied the motions concerning common-law trademark infringement and Minnesota Deceptive Trade Practices Act claims against those defendants.

The court denied Cris Burger’s motion on the fraud or intentional-misrepresentation claim. It granted Lisa Burger’s and Advantage Tape Receivables’ motions on that claim and dismissed it without prejudice as to them, allowing the plaintiffs an opportunity to plead more specific facts about each party’s alleged conduct.

The court granted the motions on the negligent-misrepresentation claim and dismissed it with prejudice as to Cris Burger, Lisa Burger, and Advantage Tape Receivables. The court reasoned that Minnesota law does not recognize a duty of care for the type of adversarial, arm’s-length commercial transaction alleged here.

The court denied the motions on the unjust-enrichment claim against Cris Burger, Lisa Burger, and Advantage Tape Receivables, and on the quantum-meruit claim against Cris Burger and Lisa Burger. The court allowed those claims to be pleaded as alternatives to the contract claims at the motion-to-dismiss stage.

The court denied the motions on the asset-purchase-agreement breach claim and the breach-of-warranty claim against Cris Burger, Lisa Burger, and Advantage Tape Receivables. It concluded that the plaintiffs had plausibly alleged breaches of express representations, warranties, and disclosure obligations, and that the allegations were sufficient at this stage to permit the plaintiffs to try to establish personal liability against the Burgers.

The court denied Advantage Tape Receivables’ motion on the breach-of-warranty-to-indemnify claim. It granted Cris Burger’s and Lisa Burger’s motions on that claim and dismissed it with prejudice as to them because the agreement did not require the shareholders to provide indemnification.

The court granted the motions on the breach-of-noncompetition-agreement claims and dismissed both claims with prejudice. It concluded that the plaintiffs had not plausibly alleged a violation by Cris Burger before August 2018, and that the agreement was no longer effective after the plaintiffs’ default on the promissory note. The allegations against Lisa Burger also were insufficient.

The court granted the motions on the tortious-interference-with-contract claim and dismissed it with prejudice as to Cris Burger, The ADvantage Companies, and David McGowan. Because Cris Burger’s noncompetition agreement was no longer effective and The ADvantage Companies was not created until 2019, the court found no contract that could support the claim.

The court dismissed the declaratory-judgment claim without prejudice as to all parties because the requested relief was redundant of the other claims and those claims were better suited to resolving the dispute.

Disposition

The court ordered that Advantage Tape Receivables’ motion to dismiss, Lisa Burger’s motion to dismiss, Cris Burger and The ADvantage Companies’ motion to dismiss, and David McGowan’s motion for judgment on the pleadings were each granted in part and denied in part. The case therefore continued on some claims while other claims were dismissed. The opinion’s numbered order states in item 9 that “Count 4” was dismissed with prejudice for the RICO ruling, but the opinion identifies RICO as Count Nine and the surrounding text indicates that item 9 contains a numbering error.

Judge Tunheim signed the order on January 12, 2021.