Demurrers to investors’ claims sustained

Where plaintiff investors in a failed maternity clothing company sued the company and its two founders, the individual defendants’ demurrers to plaintiffs’ claims are sustained. Plaintiffs are granted leave to amend their complaint.

Background

Evans and Wilson were co-founders of Bella Gravida, LLC, a maternity clothing company. In 2015, plaintiffs bought “membership units” in Bella Gravida for $30,000. Plaintiffs allege the individual defendants’ management failures led to Bella Gravida’s “financial ruin.”

Before the court are the individual defendant’s demurrers to plaintiffs’ claims for fraud, statutory conspiracy, common law conspiracy, violation of the Virginia Limited Liability Company Act, breach of fiduciary duties, conversion, unjust enrichment and breach of contract.

Discussion

Plaintiffs allege active fraud, constructive fraud and fraud in the inducement. All fail as a matter of law.

“The Complaint alleges general, conclusory, and non-specific allegations of fraud where ‘individual Defendants’ gave projections and documents to Plaintiffs in order to induce Plaintiffs to invest in Bella Gravida.” But “important factual details are missing.”

The complaint does not distinguish between the individual defendants and does not “attribute specific misleading statements to either Wilson or Evans.” Specific dates and locations are not mentioned. The demurrers are sustained with leave to amend.

Plaintiffs lack standing to bring a direct suit for statutory business conspiracy. Instead, they must bring a derivative action on behalf of Bella Gravida under Code § 13.1-1028(B).

The individual defendants also argue that the intracorporate immunity doctrine bars the business conspiracy claim. The doctrine “holds that ‘a conspiracy between a corporation and agents of that corporation who are acting in the scope of their employment is a legal impossibility.”

Plaintiffs alleged that the individual defendants were acting on Bella Gravida’s behalf when the alleged misrepresentations were made. “Therefore, they cannot legally have conspired with each other under the intracorporate immunity doctrine.”

Plaintiffs offer the “personal stake exception to this doctrine.” There is no controlling Virginia authority recognizing this exception and “the Court declines to create one here.” The demurrers are granted with leave to amend.

Plaintiffs’ conspiracy claims against the individual defendants are barred by lack of standing, intracorporate immunity and the failure to plea specific facts. The claim for violation of Virginia’s LLC Act must be brough as a derivation action. The demurrers are granted with leave to amend.

In Remora Invs., LLC v. Orr, 277 Va. 316 (2009), the court “held that ‘a claim for breach of fiduciary duty cannot be brought directly by one member of an L.L.C. against another member or manager.’ … Here, Plaintiffs are attempting to do just that. … Plaintiffs’ claims fail as a matter of law.”

The conversion claim fails. Plaintiffs allege that the individual defendants converted the funds plaintiffs provided and used them for their personal benefit. However, the funds did not belong to the individual defendants. The contract was between plaintiffs and Bella Gravida, LLC. Any claim for conversion must be brought as a derivative action.

The unjust enrichment claim fails because plaintiffs have not pleaded all the elements of this claim. Further, plaintiffs do not have a breach of contract claim against the individuals because, as noted, plaintiffs’ contract was with the LLC, not Evans and Wilson.

Defendants’ demurrers are sustained with leave to amend.

Johnson, et al. v. Bella Gravida, et al., Case No. CL-2019-17643, July 20, 2020; Fairfax County Cir. Ct. (Mann). Monique Miles, Thomas B. Hyland, Paris R. Sorrell for the parties. VLW 020-8-077, 12 pp.