Total Asset Recovery Services LLC v. Huddleston Capital Partners VIII LLC

Background

Total Asset Recovery Services (TARS), its individual members, RZE Holdings, and the Ferraro Law Firm sued several defendants. TARS had been formed to act as a representative in whistleblower lawsuits seeking recovery of unremitted life-insurance proceeds. The Ferraro Law Firm represented TARS under a contingency contract.

TARS and G3 Analytics LLC, acting through Kenneth Platt Elder, entered consulting and financing arrangements connected to TARS’s whistleblower lawsuit. A nonparty lender later made a nonrecourse loan secured by documents tied to that litigation. The opinion states that Huddleston ultimately acquired the loan and later demanded more than $64 million from TARS and related plaintiffs, alleging events of default. Huddleston also directed the Ferraro Law Firm to stop working on the whistleblower lawsuit and sought to act as TARS’s attorney-in-fact and replace the firm.

The plaintiffs alleged that Huddleston, Elder, G3, and Nolan Cooper acted together to interfere with the relationship between TARS and the Ferraro Law Firm, take control of TARS, and deprive the firm of legal fees. They asserted claims including interference with business and contractual relationships, breach of fiduciary duty, and civil conspiracy.

Motions and rulings

The defendants moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Because Huddleston had already answered the amended complaint, the court treated Huddleston’s motion as a motion for judgment on the pleadings under Rule 12(c).

Interference with a prospective business relationship

The court held that the plaintiffs adequately pleaded this claim against Huddleston, Elder, and G3. The alleged business relationship was the ongoing attorney-client relationship between TARS and the Ferraro Law Firm. The court found that the complaint adequately alleged that these defendants knew about the relationship, intentionally interfered with it, acted maliciously or through improper means, and caused injury.

The claim against Cooper was dismissed. The court found that the complaint made only unsupported and conclusory allegations that Cooper knew about the relationship or intentionally interfered with it. The complaint also did not adequately allege that Cooper acted maliciously.

Interference with contractual relations

The court declined to dismiss the contractual-interference claims against Huddleston, Elder, and G3. Although the plaintiffs acknowledged that the contingency contract could be terminated at will and did not allege an intentional breach, the court treated the relationship as a prospective contractual relationship requiring allegations of malice or wrongful conduct. It concluded that the plaintiffs had adequately pleaded those allegations.

The contractual-interference claim against Cooper was dismissed for failure to plead malice or wrongful conduct.

Breach of fiduciary duty

The court dismissed the breach-of-fiduciary-duty claims against Elder and G3. The plaintiffs based those claims on an alleged joint venture with TARS. The court found that the complaint did not adequately allege a joint venture because the consulting agreement described G3 as an independent contractor, Elder was alleged to have served only as a consultant, and the complaint did not show that Elder or G3 had joint decision-making control.

Civil conspiracy

The court held that the plaintiffs adequately pleaded civil conspiracy claims against Huddleston, Elder, and G3. The court found that the complaint alleged an underlying interference tort, an agreement, acts advancing the agreement, intentional participation in a common plan, and resulting injury.

The conspiracy claim against Cooper was dismissed because the complaint did not adequately allege an underlying tort against him.

Standing and conclusion

The court rejected the defendants’ argument that TARS lacked constitutional standing. It held that TARS adequately alleged a real and immediate threat that its relationship with the Ferraro Law Firm would be terminated, which could frustrate TARS’s purpose. The court did not decide issues concerning TARS’s authority to bring the case because those issues depended on factual questions, including the validity of the assignment and whether an event of default occurred.

The court granted Cooper’s motion, denied Huddleston’s motion, and denied in part and granted in part the motion filed jointly by G3 and Elder. The opinion does not state that the entire action was resolved.