285 F.3d 150 (1st Cir. 2002), 01-1636, Pure Distributors Inc v. Baker

Docket Nº:01-1636
Citation:285 F.3d 150
Case Date:April 09, 2002
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

Page 150

285 F.3d 150 (1st Cir. 2002)


Plaintiffs, Appellants,


CHRISTOPHER P. BAKER, Defendant, Appellee.

No. 01-1636

United States Court of Appeals, First Circuit

April 9, 2002

Amended May 10, 2002


[Hon. Richard G. Stearns, U.S. District Judge]

Page 151

Elizabeth A. Bailey, with whom James E. Higgins and Sheehan Phinney Bass + Green were on brief, for appellants.

Barry S. Pollack, with whom Timothy C. Blank and Dechert Price & Rhoads were on brief, for appellee.

Before Boudin, Chief Judge, Torruella, Circuit Judge, and Cyr, Senior Circuit Judge.

TORRUELLA, Circuit Judge.

Appellants in this diversity action seek review of the district court's dismissal of their claim as time-barred. The district court, in concluding that the appellants' cause of action accrued more than three years prior to the initiation of the present Page 152

action, relied on certain inferences drawn from pleadings filed by the appellants in an earlier lawsuit. Although we believe that the pleadings in the other action might give rise to a potent inference that the claim is untimely, there is at least a reasonable basis for drawing a contrary inference. Because the summary judgment standard requires that all reasonable inferences be resolved in favor of the non-moving party, we conclude that the district court's ruling on the statute of limitations was in error. Because we also conclude that the district court's disposition cannot be sustained on alternate grounds, we reverse.


Dr. Barry Sears ("Sears") is a biochemist and the inventor of the popular "Zone" diet. In 1989, based on his research concerning the relation between dietary intake and the production of certain hormones, Sears developed a nutrition bar he dubbed the BioSyn Bar.

In 1992, Sears founded Surfactant Technologies, Inc. ("STI") to facilitate the development and distribution of various products, including meal-replacement bars and specialty meals, associated with his diet advice. After the formation of STI, Sears developed an improved version of his BioSyn Bar, which he called the Eicotec Bar. At first, STI marketed its Eicotec Bar in national publications directed toward elite athletes, such as swimmers and triathletes. Searching for a wider audience, Sears explored options for marketing a modified version of the Eicotec Bar.

While attempting to locate a distributor capable of marketing his products to a broad consumer base, Sears met with appellants Matthew Freese and Pure Distributors, Inc. (collectively "Pure"). Using a multi-level marketing model, Pure had been marketing a variety of products since 1992 through an independent network of distributors. On October 20, 1993, STI and Pure entered into an agreement under which Pure would acquire the exclusive marketing rights to all consumer products developed by STI. In return, Pure agreed to pay Sears a 5% royalty on all STI products sold pursuant to the agreement. Pure also agreed to pay Sears $100,000 in exchange for the exclusive marketing rights.

The marketing agreement provided for one exception to Pure's general exclusive marketing rights. Under that provision, Sears retained the right to develop and sell certain products through specialty medical centers, known as Eicotec Medical Centers. Though the medical centers had not been created, the parties envisioned that the they would be associated with medical care facilities, and would only offer products for the medical treatment of patients requiring sophisticated dietary programs and consultation. As such, the Eicotec Medical Centers were not intended to compete with Pure's marketing efforts or target its general retail and wholesale customer base.

In April 1994, Pure began selling a consumer version of of Sears's Eicotec Bar named the BioZone Bar. However, the relationship between Sears and Pure appears to have been marked from the beginning by tension and disagreement. Although Pure's sales of STI products were substantial -- spurred on by the popularity of Sears's diet book,The Zone, published in June of 1995 -- Sears complained that Pure had yet to pay him any royalties on the sales. Sears also felt that Pure was frustrating his ability to raise the capital necessary to develop the Eicotec Medical Centers. Pure had apparently taken the position that Sears's plan to market an enhanced version of Eicotec Bar through the proposed Page 153

medical centers would violate the parties' agreement because the enhanced bars were essentially the same as, and would therefore compete with, the bars developed for Pure.

In March of 1996, Sears first met with appellee Christopher Baker ("Baker"). At the time, Baker, who was the president of a small investment firm, was scouting possibilities for a new business venture. During their first meeting Sears explained that he was interested in establishing the Eicotec Medical Centers for the purpose of using his diet products and advice for medical purposes.

After their initial powwow, Baker and Sears met on several occasions over the spring and summer of 1996. It is unclear from the record whether Baker understood in the spring of 1996 the contours of Sears's exclusive contractual arrangement with Pure. Nonetheless, over the course of several months Baker and Sears endeavored to create viable business plans and funding options for the creation of the Eicotec Medical Centers.

As Sears and Baker continued to seek funding sources for the medical centers, the need to clarify the exact nature of Sears's contractual obligations to Pure became paramount. On June 4, 1996, Sears, Baker, and Pure met to discuss Sears's right to pursue the proposal for marketing the enhanced Eicotec Bar and other products through Eicotec Medical Centers. The precise give-and-take of the meeting is not disclosed by the record, but it appears that Pure's steadfast position was that any sale of the Eicotec Bar by Sears would violate the marketing agreement. As a result, the parties did not reach agreement on how, if at all, the plans of Baker and Sears could move forward.

Directly on the heels of the June 4 meeting, STI brought suit against Pure in the United States District Court for the District of Massachusetts ("the Surfactant action"). In its first claim for relief, STI sought a declaratory judgment rendering the marketing agreement inoperative. In the alternative, STI sought a declaration that it had a right to develop the Eicotec Medical Centers and distribute its current products including the Eicotec Bar. STI also alleged, among other things, that Pure unlawfully failed to pay royalties to STI and Sears, notwithstanding the fact that over $30 million worth of products covered by the parties' agreement had already been sold. In response, Pure asserted an eight-count counterclaim on July 3, 1996, accusing Sears and STI of breaching the marketing agreement and engaging in other wrongful conduct.

On August 6, 1996, following Pure's assertion of the counterclaim, Sears sent Pure a letter explicitly repudiating the marketing agreement. Less than a week later, Eicotech Corporation ("Eicotech") was formally organized under the laws of Delaware. Sears was named as the president of the corporation, and Baker was chief executive officer and chairman of the board. Upon formation, Eicotech began to directly market the Eicotech Bars and other products. 1

In December of 1996, Pure amended its pleadings to assert claims against Eicotech, naming it as a defendant-in-counterclaim in the Surfactant action. The gravamen of these claims was that Eicotech had wrongfully induced Sears to abandon the distribution agreement by urging him to use Eicotech as a vehicle to develop products that compete directly with products marketed by Pure. In June of 1999, the district court dismissed the claims against Eicotech on the grounds that Eicotech was Page 154

not formed as a corporate entity until after the allegedly tortious conduct took place. 2

Two months after the dismissal of their claims against Eicotech, Pure filed the present suit. In substance, the only difference in the new suit is that Pure is now pursuing a claim of intentional interference with contractual relations against Eicotech's CEO, Baker, rather than against Eicotech itself. The suit, originally filed in the state courts of New Hampshire, was removed to federal court and summarily transferred to the District of Massachusetts because it involved virtually the same claims alleged against Eicotech in the Surfactant action.

Following the transfer, Baker moved for dismissal or, in the alternative, summary judgment. Baker's motion was premised on three arguments: 1) that the dismissal of the Surfactant action barred the present claim under principles of res judicata; 2) that Pure and Freese could not establish the improper motive required for a claim of intentional interference with contractual relations; and 3) that the claim is barred by the three-year statute of limitations. The...

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