Poyner v. Henderson

STATE OF MAINE BUSINESS AND CONSUMER COURT
CUMBERLAND, ss. LOCATION: Portland
DOCKET NO. BCD-CIV-2022-00017

JOHN POYNOR and PURGATORY )
PLANT & EXTRACT CO., LLC, )
)
Plaintiffs, )
) ORDER GRANTING IN
v. ) PART AND DENYING IN
) PART DEFENDANT’S
RYAN HENDERSON, ) MOTION TO DISMISS
)
Defendant. )

INTRODUCTION

This case results from a falling out between joint owners of a cannabis business in Casco,

Maine. Plaintiffs John Poynor (“Poynor”) and Purgatory Plant & Extract Co., LLC (“Purgatory”)

have sued Defendant Ryan Henderson (“Henderson”) for numerous Counts: (I) Conversion, (II)

Negligence, (III) Breach of Fiduciary Duty, (IV) Bad Faith and Damages, (V) Direct Action, 31

M.R.S. § 1631, (VI) Expulsion by Judicial Order, 31 M.R.S. § 1582(5), and (VII) Violation of 31

M.R.S. § 1558. The matter presently before the Court is a Motion to Dismiss Plaintiffs’ Complaint

under M.R. Civ. P. 12(b)(6) for failure to state a claim. For the reasons discussed below, the Court

GRANTS in part and DENIES in part Henderson’s Motion. Count I is dismissed; the remaining

Counts survive.

STANDARD OF REVIEW

In reviewing a motion to dismiss under Rule 12(b)(6), the Court will “consider the facts in

the complaint as if they were admitted.” Bonney v. Stephens Mem. Hosp., 2011 ME 46, ¶ 16, 17

A.3d 123. The complaint is viewed “in the light most favorable to the plaintiff to determine

whether it sets forth elements of a cause of action or alleges facts that would entitle the plaintiff to

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relief pursuant to some legal theory.” Id. (quoting Saunders v. Tisher, 2006 ME 94, ¶ 8, 902 A.2d

830). Dismissal is warranted “when it appears beyond a doubt that the plaintiff is not entitled to

relief under any set of facts that he might prove in support of his claim.” Id.

FACTUAL ALLEGATIONS

Per the instant Complaint, Poynor and Henderson founded Purgatory as a Maine limited

liability corporation on September 13, 2017. They are both members and managers of the

company. They agreed to be bound by Purgatory’s LLC Agreement. The company’s business is

cannabis cultivation, sales, and service. Purgatory also does business under the name East & Eye

Cannabis Co. Poynor, a resident of Cedar Park, Texas is a 40% owner of Purgatory. Henderson, a

resident of Portland, Maine is a 60% owner.

On April 11, 2021 Henderson verbally stated to Poynor, “where I’m from, people like you

get smacked,” and sent an email telling Poynor not to return to Purgatory’s leased premises and

base of operations in Casco, Maine. On January 29, 2022 Henderson, who controls Purgatory’s

social media accounts, posted on the company’s Instagram account “Fuck Around and Find Out.”

Poynor requested Henderson remove the post and Henderson subsequently blocked Poynor from

accessing Purgatory’s Instagram account. Also on January 29, 2022 Henderson stated he planned

to “finish the job.”

On January 31, 2022 Henderson fired an employee who complained about not timely

receiving payment and about Henderson’s absence from work. On February 1, 2022 Henderson

texted Poynor, “[t]o be clear these plants will not have any care, lights will be turned off, equipment

will be sold and I am not waiting for permission.” On or about that same day, Henderson began

covering or moving security cameras at the Casco place of operations.

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Poynor has contributed at least $404,731.00 in capital and expense payments for the benefit

of Purgatory and two years ago requested Henderson initiate a plan of operations to return capital.

Henderson’s contribution to Purgatory is limited to his “services rendered.” Poynor has received

no salary from Purgatory and the only money he has gotten is a single $500 payment on August 1,

2020 for the return of capital. Henderson has been paying himself for his management services

since Purgatory’s founding.

Poynor, Henderson, and Purgatory are bound by a lease to real estate and a building in

Casco, Maine which requires Purgatory to pay $4,000 per month in rent. Purgatory made late rent

payments in the past and in January 2022, and failed to pay in February 2022, forcing Poynor to

pay $4,000 for that month’s rent. Poynor has also had to provide assurances to the landlord due to

Henderson’s strained relations.

Henderson has not provided an accounting of funds received from sales, an accounting of

expenses, or a list of employees and salaries since the founding of Purgatory. He has not provided

evidence of paying workers, such as in the form of 1099s or W-2s, nor has he provided Poynor

with requested Purgatory bank statements or client names. Poynor now fears for himself, his

employees, and the preservation of Purgatory’s assets.

On February 1, 2022 Poynor obtained a Temporary Protection Order from Henderson. On

February 15, 2022 Henderson sent an email to Purgatory’s landlord terminating the lease, citing

the “liquidation and closing” of Purgatory. As of the filing of the instant Motion, Henderson has

not been served the Temporary Protection Order and Poynor believes he is avoiding service.

DISCUSSION

Henderson moves to dismiss Plaintiffs’ Complaint for failure to state a claim and makes

numerous arguments as to why such dismissal is warranted: (1) the Complaint does not state a

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viable cause of action for conversion; (2) the LLC Agreement exculpates Henderson from any

claims for damages under the alleged facts; (3) the Economic Loss Doctrine bars Poynor’s tort

claims; (4) Maine law does not recognize a standalone action for “bad faith;” (5) Poynor’s demand

for Attorney fees lacks a basis; (6) Poynor lacks standing to seek judicial expulsion of Henderson

from Purgatory; and (7) Poynor cannot press a claim § 1558 against another individual LLC

member, only against the LLC itself.

1) Count I: Conversion

Proving the tort of conversion requires a showing that (1) the plaintiff has a property

interest in the property; (2) the plaintiff had the right to possession at the time of the alleged

conversion; and (3) the party with the right to possession made a demand for its return that was

denied by the holder. Withers v. Hackett, 1998 ME 164, ¶ 7, 714 A.2d 798. A demand for the

property’s return is not necessary “where circumstances show that a demand would be useless.”

Id. ¶ 7. The tort of conversion is limited to personal property and cannot be pressed for the

dispossession of an interest in real property. Morton v. Burr, BCD-RE-2013-03 at *19 (Bus. &

Consumer Ct. Jan. 16, 2014, Nivison, J.) (citing 1 DAN D. DOBBS ET AL., THE LAW OF TORTS § 63

at 174 (2d ed. 2011). Further, there is no conversion of property by one who has a right to the

property. Leighton v. Fleet Bank, 634 A.2d 453, 457 (Me. 1993).

Poynor argues that Henderson is liable for conversion because he retains a portion of the

rented premises in his sole control and prohibits Poynor from entering or using it; uses Purgatory’s

company debit card for personal expenses; and based on information Henderson has reported and

shared with Poynor, Purgatory is generating four to five times less revenue that a similarly situated

enterprise with similar electricity demands. Poynor alleges Henderson has withheld Purgatory’s

transaction ledger and client list, thereby limiting the specificity with which Poynor can state what

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amount of assets Henderson has converted. It is unclear to what extent Poynor demanded the

“return” of property, but seen in the light most favorable to him, he believed it to be useless.

Regardless, as joint members and managers of the LLC, both Poynor and Henderson have property

interests in Purgatory’s assets, and both have the right to possession. Restricting Poynor’s access

to the Casco leasehold cannot be subject to a conversion claim because it relates to real, not

personal, property. Poynor’s remaining two bases for conversion do not generate a viable claim.

Improper use of company funds or the illicit acts or omissions Poynor believes are the cause of

Purgatory’s declining revenue may violate the LLC Agreement or sound in contract or some other

business tort claim, but not conversion. The Count I claim for conversion is dismissed for failure

to state a claim.

2) Counts II & III: Negligence and Breach of Fiduciary Duty

Henderson argues that Poynor’s claims for negligence and breach of fiduciary duty are

barred by the exculpation clause of Purgatory’s LLC Agreement. Henderson points out: “It is the

policy of [the LLC Act] and this State to give maximum effect to the principles of freedom of

contract and to the enforceability of limited liability company agreements.” 31 M.R.S. § 1507(1).

Here, Article XI of the LLC Agreement reads as follows:

The doing of any act or the failure to do any act by Members or Manager(s), the
effect of which may cause or result in loss or damage to the Company or its
property, shall not subject the Members or Manager(s) to any personal liability to
the Company, unless the Member or Manager's acts or omissions constituted gross
negligence, intentional misconduct, or a knowing violation of the law. The
Company shall indemnify the Members and Manager(s), and shall make advances
for expenses incurred in defense of claims of liability to the maximum extent
permitted under the [LLC] Act. The right to indemnification under this Agreement
shall be fully vested with respect to any matter. No amendment to this Agreement
shall have any retroactive effect except to enhance such right for the benefit of the
indemnified party. (emphasis added)

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However, Henderson’s argument fails for two reasons. First, Article XI only bars liability to the

Company. It does not by its terms prevent the imposition of liability between members.

Furthermore, an LLC Agreement can only waive fiduciary duties (and resulting claims for

violation thereof) if it does so expressly, which is not the case here. See Gleichman v. Scarcelli,

No. BCD-CV-17-11, at *27 (Me. Bus. & Consumer Ct., March 7, 2019). Second, whether couched

as negligence or breach of fiduciary duty, when viewed in the light most favorable to Poynor, the

facts can be interpreted to rise to the level of gross negligence, intentional misconduct, or a

knowing violation of law. Thus, at this stage of the proceeding, Counts II and III state claims

sufficient to with withstand the Motion to Dismiss. The Motion is denied as to Counts II and III.

Henderson nevertheless asserts that the economic loss doctrine bars any recovery for

actions in tort which seek damages for purely economic losses. See Oceanside at Pine Point

Condominium Owners Assn. v. Peachtree Doors, 659 A.2d 267, 270 (discussing economic loss

doctrine as it pertains to claims of injury caused by defective products). Although there may be

some mission creep for applying the economic loss doctrine beyond its origins in defective product

litigation, see, e.g. Gannett v. Pettegrow, 2005 U.S. Dist. LEXIS 1357, at *19 (D. Me. Jan. 28,

2005), Henderson can point to no authority applying the doctrine to cases involving claims for

breach of fiduciary duty. Moreover, at this early stage of the litigation, viewed in the light most

favorable to Poynor, the harm may involve other than purely economic loss. Accordingly, the

Motion to Dismiss on the grounds of the economic loss doctrine is denied. 1

3) Count IV: Bad Faith and Damages

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Henderson’s Motion is also denied to the extent it seeks to dismiss various forms of damages, which may or may
not be available in connection with the various surviving claims. It is too early in the litigation for the Court to have
a sound basis to make a determination about damages.

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In Count IV, Poynor alleges Henderson is liable for “bad faith and damages.” This refers,

in part, to the non-dispensable duty not to violate the implied contractual covenant of good faith

and fair dealing. § 1522(2). An LLC Agreement cannot “[e]liminate or limit a member’s liability

to the limited liability company and members for money damages for a bad faith violation of the

implied contractual covenant of good faith and fair dealing.” § 1552(1)(F). Henderson argues

Poynor’s claim cannot stand on its own because the Law Court states in Chartier v. Farm Family

Life Ins. Co. that breach of this covenant is not an independent action. 2015 ME 29, ¶ 7, 113 A.3d

234. However, viewed in the light most favorable to Poynor, Poynor is not pursing an independent

action, but rather a claim for breach of the LLC Agreement in violation of the implied covenant. §

1559(1). Section 1559(2) permits a member to be held personally liable for his or her failure to

discharge duties where the member acted dishonestly or contrary to the best interests of the

company or its members. These allegations are sufficient to state a claim, and the Motion to

Dismiss Count IV is denied.

4) Counts V: Direct Action

Section 1631 of the LLC Act provides that a member of an LLC “may maintain a direct

action against another member. . . to enforce the member’s rights and otherwise protect the

member’s interests, including rights and interests under the [LLC Agreement] or this chapter or

arising independently of the membership relationship.” The direct action must relate to an injury

which is “not solely the result of an injury suffered. . . by the limited liability company.” § 1631(2).

Poynor argues that his having been forced to cover Purgatory’s expenses which Henderson refused

to pay despite giving himself a salary are outside the scope of the LLC Agreement and constitute

a threatened injury to Poynor because not paying would have negatively affected his credit. He

also cites Henderson’s allegedly willful mismanagement of Purgatory, and creation of debts

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against the company’s interest as bases for direct action. Henderson responds primarily with the

argument that under the LLC Agreement members are not obligated to make additional

contributions. Poynor’s claim, however, viewed in the light most favorable to him, is not limited

to the issue of additional contributions. The Motion to Dismiss is denied as to Count V.

5) Count VI: Judicial Expulsion

Poynor seeks judicial expulsion of Henderson from Purgatory. Henderson counters that an

application for expulsion can only be brought by Purgatory. 31 M.R.S. § 1582(5). However, a

member is entitled to bring a derivative action to enforce a right of a limited liability company. 31

M.R.S. § 1632. Here, the Complaint is brought in the name of both Poynor and Purgatory, and

although the Complaint contains no allegation that Poynor first made a demand on the company

to expel Henderson, seen in the light most favorable to Poynor such a demand would have been

futile. § 1632(2). Accordingly, the Motion to Dismiss is denied as to Count VI.

6) Count VII: Right to Information

Pursuant to 31 M.R.S. § 1558, in Count VII Poynor seeks access to company information

being withheld by Henderson. Henderson contends the claim must be rejected, on the grounds that

a claim under Section 1558 can only be brought against the company, not a member. However,

Henderson cannot point to any language in Section 1558 so restricting the action. Accordingly, the

Motion to Dismiss is denied as to Count VII.

CONCLUSION

Based on the foregoing, the entry will be: Defendant Ryan Henderson's Motion to Dismiss

is GRANTED as to Count I (conversion) and that claim is dismissed. Henderson’s Motion to

Dismiss is DENIED as to Counts II (negligence), III (breach of fiduciary duty), IV (bad faith and

damages), V (direct action), VI (judicial expulsion), and VII (right to information).

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SO ORDERED.

The Clerk is instructed to enter this Order on the Docket, incorporating it by reference

pursuant to M.R. Civ. P. 79(a).

Date: 06/30/2022
Michael A. Duddy, Judge
Business & Consumer Court

Entered on the docket: 06/30/2022

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