Live Brands Holdings v. Gastronomico Gracias a Dios

Background

Live Brands Holdings, LLC, successor to Domaine Select Wine and Spirits, LLC, sued Gastronomico Gracias a Dios, Sociedad Responsabilidad Limitada de Capital Variable (GAD), and GAD’s four shareholders. Live Brands alleged breach of a July 2018 Memorandum of Understanding (MOU) and sought monetary damages and specific performance, meaning a court order requiring a party to carry out promised contractual actions.

The MOU concerned the parties’ planned spirits business. It provided for DSWS to invest a total of $750,000 into GAD Spirits, LLC, including $285,000 for construction and facility expansion, $115,000 for working capital, and $350,000 to redeem existing investors’ interests if specified conditions were met. It also addressed distribution rights, GAD’s assets and land-use rights, the shareholders’ contribution of their GAD shares, and the appointment of directors.

The MOU stated that the parties intended to be bound by its provisions until the earlier of September 30, 2018, or the execution of definitive and related agreements. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the MOU was preliminary and had expired without definitive agreements.

Breach-of-contract claim

The court rejected the argument that expiration of the MOU automatically prevented Live Brands from suing for an earlier breach. A contract claim generally arises when the alleged breach occurs, so the relevant question was whether the parties were bound when the alleged breach took place.

The court held that the MOU’s text unambiguously showed that it was binding for at least some period. But the court found ambiguity about the timing of the MOU’s obligations. Some language could suggest that obligations such as the shareholders’ contribution of their shares and the appointment of directors had to be completed before September 30, 2018. Other provisions and exhibits appeared to contemplate construction activities and investments continuing after that date, including investments apparently scheduled for January 2019 and January 2020. The MOU also contemplated that definitive agreements might not be completed by September 30, 2018.

Because the contract could reasonably be read in more than one way, the court concluded that the breach-of-contract claim could not be resolved on a motion to dismiss. The court denied the defendants’ motion to dismiss Count I.

Specific-performance claims

The court explained that specific performance is a remedy for breach of contract, not a separate cause of action. It therefore dismissed Counts II and III, which pleaded only requests for specific performance. The court did not decide whether specific performance would be available if Live Brands ultimately prevailed on its breach-of-contract claim.

The opinion states that the dismissal of Counts II and III was without prejudice and that Live Brands could seek specific performance as a remedy for a contract breach. The court also granted Live Brands leave to file a Second Amended Complaint if it could plead a viable breach-of-contract claim against the individual defendants seeking specific performance or another form of relief.

Disposition

The court’s conclusion states that the defendants’ motion to dismiss was granted in part and denied in part. The motion to dismiss Count I was denied; Counts II and III were dismissed without prejudice; and Live Brands was granted leave to amend within thirty days if it chose to do so. The court directed the clerk to terminate the four individual defendants from the action. Judge John P. Cronan did not resolve the ultimate merits of the alleged breach.