Akkad Holdings, LLC v. Trapollo, LLC

• Decision Date: 16 December 2021
• Docket Number: 1:20-cv-4476-MLB
• Parties: Akkad Holdings, LLC, Plaintiff, v. Trapollo, LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

Akkad Holdings, LLC, Plaintiff,
v.
Trapollo, LLC, et al., Defendants.

No. 1:20-cv-4476-MLB

United States District Court, N.D. Georgia, Atlanta Division

December 16, 2021

OPINION & ORDER

MICHAEL L. BROWN, UNITED STATES DISTRICT JUDGE

For the reasons set forth below, the Court grants Defendants Trapollo, LLC's and Michael Braham's motions to dismiss. (Dkts. 47; 48.)

I. Background

In May 2020, Plaintiff Akkad Holdings, LLC contacted Trapollo to purchase COVID-19 rapid tests and test kits. (Dkt. 42 ¶ 10.) Akkad inquired about the test quality and efficacy, pricing, governmental approvals, and general availability. (Id. ¶ 11.) Trapollo confirmed it could supply COVID-19 rapid tests and test kits to Akkad on the following terms:

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• Trapollo could supply Akkad with 150, 000 COVID-19 test kits, with each kit containing 25 COVID-19 rapid tests and identified affiliated and associated items

• Pre-EUA approval, the sale price would be $25 per test kit

• Post-EUA approval, the sale price would be $34 per test kit; and

• 150, 000 test kits containing 3, 750, 000 COVID-19 rapid tests were immediately available at the facilities of the manufacturer

(“COVID-19 Test Purchase Terms”).^[1] (Id. ¶ 12.) Trapollo and its Chief Executive Officer (Braham) repeatedly confirmed Trapollo could immediately supply the 3.75 million tests identified in the fourth bullet of the COVID-19 Test Purchase Terms. (Id. ¶ 14.) Akkad asked whether the manufacturer had Emergency Use Authorization (“EUA”) from the Food and Drug Administration (“FDA”). (Id. ¶ 15.) Trapollo and Braham said the manufacturer's application was pending. (Id. ¶ 16.) Based on these representations, Akkad signed a supply agreement on May 22, 2020 with Trapollo. (Id. ¶¶ 21-22.) The agreement included the COVID-19 Test Purchase Terms. (Id. ¶ 24.)

Shortly after, Trapollo and Braham asked Akkad to pay more than $1 million as a deposit, saying Trapollo would begin complying with its

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contractual obligations upon receipt of the money. (Id. ¶ 29.) Akkad did so. (Id. ¶ 30.) Akkad quickly learned the FDA had not granted the manufacturer EUA approval and instead had placed the tests on a “Do Not Distribute” list. (Id. ¶ 31.) When confronted, Trapollo (through Braham) initially denied that had happened. (Id. ¶ 32.) Eventually, however, they acknowledged the problem, provided some explanation for the difficulty, said the manufacturer was working with the FDA to obtain the authorization, and assured Akkad the problem would be fixed in a “matter of days.” (Id. ¶¶ 33-34.)

The promised “matter of days” turned into weeks. (Id. ¶ 35.) Akkad eventually asked Trapollo and Braham to return its deposit and cancel the supply agreement. (Id.) Trapollo and Braham refused. (Id. ¶ 36.) They continued to assure Akkad that the problems would be fixed. (Id.) Making the most of a bad situation, Akkad found a third party in Mexico that wanted to purchase COVID-19 rapid tests and entered into a purchase order with that company to supply 20 million tests. (Id. ¶ 37.) Akkad then looked to Trapollo to supply the tests. Specifically, on July 1, 2021, Akkad asked Trapollo to provide the 3.75 million tests identified in the fourth bullet of the COVID-19 Test Purchase Terms. (Id. ¶ 38.)

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Braham raised several problems with doing so. He first said Trapollo had to check with the manufacturer about the availability of the test kits. (Id. ¶ 40.) He also expressed concern about whether Trapollo could distribute tests on the FDA's “Do Not Distribute” list. (Id. ¶ 42.) He then claimed Trapollo had to secure executive approval from the manufacturer before releasing any tests but later said it actually had to get approval from an executive with the manufacturer's parent company in Shanghai, China. (Id. ¶¶ 43-44.) During all of this, he continued assuring Akkad the manufacturer had plenty of tests to satisfy Akkad's purchase order with the Mexican customer. (Id. ¶ 45.)

Akkad quickly discovered Trapollo had not been honest. Specifically, it learned Trapollo never inquired with the manufacturer about the EUA approval status, the manufacturer never expected the FDA to take its tests off the “Do Not Distribute” list, the manufacturer had no “parent company” in Shanghai, the manufacturer only had approximately 1.2 million COVID-19 rapid tests available for sale, and the manufacturer never agreed to Trapollo's price. (Id. ¶¶ 46-47.) All of this-of course-meant Trapollo could not supply the tests as required by the COVID-19 Test Purchase Terms, specifically as required by the

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fourth bullet which guaranteed immediate availability of 3.75 million tests.

Based on this alleged breach, Akkad again requested the return of its deposit and termination of the supply agreement. (Id. ¶ 49.) Trapollo again refused. (Id. ¶ 50.) Akkad demanded that Trapollo comply with its obligations under the supply agreement, at least in part, by supplying the 1.2 million tests the manufacturer had available on the terms specified in the supply agreement. (Id. ¶ 54.) Trapollo-perhaps not surprisingly given its track record-refused. (Id. ¶ 55.) On October 12, 2020, Akkad sent a letter to Trapollo stating, “Under the circumstances, it is the intent of Akkad Holdings to formally rescind the [supply a]greement, and we hereby formally advise Trapollo of that election.” (Id. ¶ 68.)

Akkad sued Trapollo asserting eleven claims: breach of contract (Count I), money had and received (Count II), unjust enrichment (Count III), fraud in the inducement (Count IV), conversion (Count V), conspiracy (Count VI), negligent misrepresentation (Count VII), mutual mistake/rescission (Count VIII), unilateral mistake/rescission (Count IX), punitive damages (Count X), and attorneys' fees (Count XI). (Id.

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¶¶ 69-112.) Akkad also sued Braham, asserting five causes of action: fraud in the inducement (Count IV), conspiracy (Count VI), negligent misrepresentation (Count VII), punitive damages (Count X), and attorneys' fees (Count XI). (Id. ¶¶ 81-86, 93-99, 108-12.) Trapollo seeks dismissal of all the claims against it except Counts I and XI. (Dkt. 47.) Braham seeks dismissal of all five claims asserted against him. (Dkt. 48.)

II. Legal Standard

A court may dismiss a pleading for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “At the motion to dismiss stage, all well-pleaded facts are accepted as true, and the reasonable inferences therefrom are construed in the light most favorable to the plaintiff.” Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1273 n.1 (11th Cir. 1999) (citing Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367, 1370 (11th Cir. 1998)). Even so, a complaint offering mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action” is insufficient. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

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“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Id. (quoting Twombly, 550 U.S. at 570). Put another way, a plaintiff must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). This so-called “plausibility standard” is not a probability requirement. Id. Even if a plaintiff will probably not recover, a complaint may still survive a motion to dismiss for failure to state a claim, and a court reviewing such a motion should bear in mind that it is testing the sufficiency of the complaint, not the merits of the case. Twombly, 550 U.S. at 556.

III. Discussion^[2]

A. Rescission

Trapollo and Braham argue Akkad waived its right to rescind the agreement. (Dkts. 47-1 at 18-21; 48-1 at 15-19.) Akkad disagrees, arguing it timely invoked its right to rescind. (Dkts. 52 at 13-17; 53 at

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13-17.) A party must promptly notify the other party of its intent to rescind “as soon as the facts supporting the claim for rescission are discovered.” Weinstock v. Novare Grp., Inc., 710 S.E.2d 150, 154 (Ga.Ct.App. 2011); Pearson v. George, 77 S.E.2d 1, 6 (Ga. 1953) (“If a party to a contract seeks to avoid it on the ground of fraud or mistake, he must, upon discovery of the facts, at once announce his purpose and adhere to it; otherwise he cannot avoid or rescind such contract.”). “[T]he intent to rescind must be unequivocal.” Bivin-Hunter v. Wyndham Vacation Resorts, Inc., 2010 WL 11601332, at *5 n.16 (N.D.Ga. Sept. 1, 2010) (an aggrieved party must adhere to its intent to rescind). If a party “takes any action inconsistent with repudiation of the transaction, [it] cannot rescind the contract.”^[3] Am. Gen. Life Ins. Co. v. Schoenthal Fam., LLC, 248 F.R.D. 298, 309 (N.D.Ga. 2008) (emphasis added), aff'd, 555 F.3d

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1331 (11th Cir. 2009). “Once a claim for rescission is waived, it cannot be revived.” Holloman v. D.R. Horton, Inc., 524 S.E.2d 790, 795 (Ga.Ct.App. 1999). “While normally the question of waiver is a matter for the jury, where, as here, the facts and circumstances essential to the waiver issue are clearly established, waiver becomes a question of law.” Partner Servs., Inc. v. Avanade, Inc., 2013 WL 12180442, at *4 (N.D.Ga. Aug. 26, 2013).

The facts as alleged by Akkad establish that it took actions inconsistent with rescinding the contract after learning of its right to do so. Akkad alleges that, relying on the false COVID-19 Test Purchase Terms represented by Trapollo and Braham, Akkad agreed to purchase tests and test kits from Trapollo. (Dkt. 42 ¶ 21.) Akkad and Trapollo entered into a supply agreement, which included the COVID-19 Test Purchase Terms. (Id. ¶¶ 22, 24.) As already explained, one of those terms provided that 3.75 million tests were immediately available at the facilities of the...