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Roumann Consulting Inc. v. Symbiont Construction, Inc.

United States District Court, E.D. Wisconsin

August 1, 2019

SYMBIONT CONSTRUCTION, INC., et al., Defendants.



         The plaintiffs, Roumann Consulting Inc. and Ronald Rousse, previously filed a civil action in this court against an entity called T.V. John & Son, Inc. (“TVJ”), alleging breach of contract and related claims. See E.D. Wis. No. 17-C-1407. That action is pending before me. After I denied the plaintiffs' motion to file a second amended complaint in the that case, the plaintiffs commenced this action against Symbiont Construction, Inc. (which is alleged to be the new name of T.V. John & Son, Inc.), two of its corporate affiliates (which are alleged to be alter egos of Symbiont Construction, Inc.), and four of the company's owners and managers. For the most part, in this action, the plaintiffs allege the same claims against the Symbiont defendants as they allege against TVJ in the first-filed action. Although the plaintiffs also allege several new claims, nearly all of them arise out of the same facts as the claims alleged in the first-filed action.

         The defendants have moved, under Federal Rule of Civil Procedure 12(b)(6), to dismiss this action on the ground of “claim splitting.” This ground, which is related to claim preclusion (also known as res judicata) but is distinct from that doctrine, allows a federal court, in the exercise of its discretion, to dismiss a suit that is duplicative of another pending federal suit. In a nutshell, the doctrine of claim splitting applies when the first suit would preclude the second suit but for the fact that no final judgment has been entered in the first suit. See Katz v. Gerardi, 655 F.3d 1212, 1217-19 (10th Cir. 2011). The defendants also contend that, to the extent certain claims in the second suit are new, they should be dismissed on the merits. I consider these matters below.

         I. BACKGROUND

         According to the allegations of the complaint in this action, which I accept as true for purposes of this motion, Roumann Consulting is a Canadian company that provides bidding and management services for construction projects. Ronald Rousse, a citizen of Canada, is Roumann's sole owner. Defendant Symbiont Construction, Inc., is a construction general contracting firm that was formerly known as T.V. John & Son, Inc. Compl. ¶ 8.[1] The plaintiffs allege that defendants Symbiont Holding Company, Inc., and Symbiont Science, Engineering, and Construction, Inc., although incorporated as distinct legal entities from Symbiont Construction, are in fact alter egos of Symbiont Construction and each other and therefore should have their separate corporate identities disregarded. See Id. ¶ 88. The plaintiffs also allege that the four individual defendants-Thomas Bachman, Sonya Simon, Edward Manning, and Timothy Nelson-are “co-owners” and officers of the Symbiont entities. Id. ¶¶ 10-13, 31.

         The facts that led the plaintiffs to file both this suit and No. 17-C-1407 are as follows. In late 2011, before TVJ became an affiliate of Symbiont, TVJ hired Rousse as an employee and entered into a formal employment agreement with him. At that time, Rousse had relationships with various “light commercial” construction customers, including The Kroger Company and Menard, Inc. By hiring Rousse, TVJ gained access to these customers and was able to expand its business in the light commercial construction market. The employment agreement provided that Rousse would receive a 30% commission on the gross profit of all new business that he brought to TVJ. The parties performed under this agreement for several years, and Rousse helped TVJ secure substantial business with customers such as Menards and Kroger.

         In March 2015, TVJ was purchased by defendant Symbiont Holding Company, Inc. Under the terms of the purchase agreement, TVJ's assets and liabilities were assumed by Symbiont Holding, including TVJ's obligations and liabilities under the employment agreement with Rousse. Compl. ¶ 30. That same month, the parties decided to convert Rousse from an employee to an independent contractor. Rousse formed Roumann Consulting, and on March 25, 2015, TVJ and Roumann entered into an independent contractor agreement.

         Under the independent contractor agreement, Rousse[2] was to pursue work for specific clients-Menards, Kroger, The Fresh Market, and L.A. Fitness-and assist with the management of construction projects for these clients. In exchange, TVJ agreed to pay Rousse an hourly rate and a commission of 30% of the net profits realized on each project. Like with the employment agreement, the parties performed under the independent contractor agreement for some time, and Rousse continued to obtain substantial business for TVJ from Menards, Kroger, and other light-construction customers.

         The plaintiffs allege that, by later in 2015, Symbiont's co-owners and managers (i.e., Bachman, Simon, Manning, and Nelson) started to believe that Rousse was overcompensated. In the spring of 2017, they “unsuccessfully attempted to persuade Mr. Rousse and Roumann Consulting to lower Roumann Consulting's commission rates.” Compl. ¶ 49. Ms. Simon-Symbiont's general counsel-began to “undermine or harass” Rousse and told him that he was “unnecessary” and that Symbiont “could function properly without him.” Id. ¶ 50. Further, as the spring progressed, Symbiont and TVJ communicated directly with Rousse's customers in an effort to cut him out of the business. Id. ¶ 51. On two occasions, TVJ's president (Nelson) and Rousse had disputes over certain clients and projects, and Nelson purported to terminate Rousse over these matters. Id. ¶ 52. However, Rousse continued to work for TVJ.

         In August 2017, Bachman, Manning, Nelson, and Simon had a meeting in which they decided they wanted to terminate the independent contractor agreement with Rousse/Roumann. Compl. ¶ 54. That agreement provided that either party could terminate it “for any reason” on 30 days' written notice. Agreement § 4.1, ECF No. 1-1. However, the agreement drew a distinction between termination for “Willful Misconduct” and termination “for any reason other than ‘Willful Misconduct.'” Id. § 4.2(b)-(d). Under the relevant provisions, if TVJ terminated the agreement for any reason other than willful misconduct, it was required to continue making commission payments to Rousse on projects related to his clients (i.e., Kroger, Menards, etc.) that TVJ accepted either while the agreement was in force or during the two-year period following the agreement's termination. Id. § 4.2(b). If, however, TVJ terminated the agreement for willful misconduct, then Rousse was not entitled to post-termination commission payments.

         The independent contractor agreement did not contain a noncompete provision or other provisions that limited Rousse's ability to work for or consult with another construction firm following his termination, whether for willful misconduct or otherwise. Nor did it prevent Rousse from soliciting the customers, such as Menards and Kroger, that he had brought to TVJ or from hiring TVJ's employees. However, Symbiont's four officers and co-owners wanted to prevent Rousse from taking his former customers to a competing construction firm after he was terminated. They also wanted to prevent Rousse from hiring away TVJ's employees.

         On August 21, 2017, TVJ sent a letter to Rousse notifying him that TVJ was terminating the agreement, effective September 20, 2017. See Compl. Ex. 2, ECF No. 1-2. The letter was printed on TVJ letterhead but was signed by both Timothy Nelson, as the president of TVJ, and Edward Manning, Jr., as the CEO of “Symbiont®”. Id. The letter did not state that TVJ was terminating the agreement for willful misconduct. Moreover, the letter stated that TVJ intended to make commission payments to Rousse for projects accepted during the two-year period following the agreement's termination. The letter stated that this two-year period would end on September 20, 2019.

         In the letter, TVJ told Rousse that, given his right to receive commissions on projects accepted by TVJ during the two-year period following his termination from Menards, Kroger, L.A. Fitness, and The Fresh Market, the parties had a “mutual interest” in having TVJ continue to book profitable business with these customers. Id. TVJ stated that, therefore, it expected Rousse not to disparage TVJ or Symbiont, interfere with its contracts with these customers, or solicit TVJ's employees. TVJ told Rousse that if he disparaged TVJ, interfered with its customer contracts, or solicited its employees, TVJ would cease making commission payments and consider taking legal action.

         At the same time that TVJ sent the termination letter to Rousse, it sent notices of the termination to Kroger, Menards, and Rousse's other clients. TVJ informed these clients that its parting with Roumann was “amicable” and that TVJ would continue working on the clients' projects. Compl. ¶ 71.

         After Rousse received the termination notice, he initially acquiesced in TVJ's request that he not interfere with TVJ's relationship with Kroger, Menards, and the other clients. Compl. ¶ 77. Moreover, on September 22, 2017, TVJ made a post-termination payment to Rousse in the amount of $56, 038.44. However, the plaintiffs allege that, after September 22, 2017, Symbiont's managers asked Rousse to accept a single lump-sum payment in lieu of ongoing commission payments so that the parties would not have to “continue the business ‘marriage' for the next two years (or more)” as contemplated by the independent contractor agreement. Id. ¶ 78. Rousse declined this request. At that point, Symbiont's managers decided that, during his time at TVJ, Rousse had engaged in “willful misconduct” in certain respects and that therefore they could terminate the agreement without making additional commission payments. Id. ¶ 79.

         In Rousse's view, TVJ failed to make a required post-termination payment at the end of September or early October of 2017. On October 13, 2017, he and Roumann commenced the action for breach of contract against TVJ that is pending as No. 17-C-1407. On January 17, 2018, the plaintiffs filed an amended complaint in that action alleging that TVJ breached the employment contract and breached the independent contractor agreement by failing to make required payments. (The amended complaint includes a count for breach of the duty of good faith and fair dealing, but this count simply repeats the allegations of the breach-of-contract counts.) The amended complaint also alleges that, following Rousse's termination, TVJ mishandled certain projects for his former clients, including Kroger. See Compl. in 17-C-1407 ¶ 40.j. The amended complaint alleges that because of TVJ's incompetence, it earned fewer profits on these projects than it would have if Rousse had still been involved. The amended complaint alleges that because Rousse was entitled to 30% of all the profits that TVJ earned on the projects for his former clients, TVJ's incompetence caused an “erosion” of his commissions, making it liable for the difference. See id.

         When TVJ answered the first amended complaint in No. 17-C-1407, it also filed a counterclaim seeking a declaration that the plaintiffs were entitled to no further payments under the independent contractor agreement. The counterclaim alleged two grounds for such a declaration. First, it alleged that Rousse had engaged in willful misconduct and that therefore the independent contractor agreement should be deemed to have been terminated for willful misconduct, which would entitle the plaintiffs to no post-termination payments. Second, the counterclaim alleged that Rousse had materially breached the independent contractor agreement by failing to return TVJ's property and confidential information at the time of his termination.[3]

         On March 20, 2018, the plaintiffs filed a motion for leave to file a second amended complaint in No. 17-C-1407. The proposed second amended complaint named Symbiont Science, Engineering, and Construction, Inc., as a party. However, that complaint did not allege distinct claims against this Symbiont entity. Instead, it alleged that Symbiont was TVJ's alter ego and that therefore the two companies should be treated as a single corporate entity. See Prop. Second Am. Compl. in 17-C-1407 ¶ 23. Thus, according to that complaint, Symbiont was liable to the plaintiff to the same extent TVJ was. The proposed second amended complaint also alleged a new cause of action against both TVJ and Symbiont-intentional interference with prospective business relations. This cause of action alleged that TVJ and Symbiont engaged in wrongful conduct that “disrupted” Rousse's “relationships” with the clients that he previously brought to TVJ, i.e., Kroger, Menards, and the Fresh Market. Id. ¶ 84. The alleged wrongful conduct consisted of advising these customers that Rousse had been terminated and “disparag[ing]” Rousse and Roumann Consulting in unspecified ways. Id. ¶ 83.

         In an order dated May 7, 2018, I denied the plaintiffs' motion for leave to file the second amended complaint. See ECF No. 30 in No. 17-C-1407. I noted that the motion was filed after the deadline for joining parties and amending pleadings, and that therefore the plaintiffs had to establish good cause for modifying the scheduling order before they could be granted leave to amend. I found that the plaintiffs had not shown good cause, and therefore I denied the motion for leave to amend.

         On October 2, 2018, the plaintiffs filed their complaint in the present action, which is based largely on the same factual matter as the complaint in 17-C-1407, namely, Rousse's termination, TVJ's failure to pay amounts due under the employment and independent contractor agreements, and TVJ's alleged incompetence in handling projects for Rousse's former clients following his termination.

         The first three causes of action alleged in the complaint in this case are identical to the first three causes of action in No. 17-C-1407: Count I is for breach of the employment agreement, [4] Count II is for breach of the independent contractor agreement, and Count III is for breach of the duty of good faith and fair dealing. Moreover, the plaintiffs allege a separate cause of action (Count VIII) for breach of the duty of good faith and fair dealing that expands on the claim of commission erosion alleged in the amended complaint in No. 17-C-1407. In addition, two causes of action alleged in this case could be characterized as affirmative defenses to TVJ's counterclaims in the No. 17-C-1407. In one such cause of action (Count IX), the plaintiffs allege that the defendants are estopped from asserting willful misconduct as a basis for refusing to make payments under the independent contractor agreement. In another (Count X), the plaintiffs allege that the defendants have waived their right to assert willful misconduct as a basis for refusing to make such payments.[5]

         The fifth cause of action in this case is the claim for intentional interference with prospective business relations that the plaintiffs had alleged in their proposed second amended complaint in No. 17-C-1407. That is, the plaintiffs allege that by informing Rousse's customers that he had been terminated and by disparaging him in unspecified ways, the defendants ...

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