Bracken Data, Inc. v. Guel
| Decision Date | 01 September 2022 |
| Docket Number | 22-cv-273 |
| Parties | BRACKEN DATA, INC. and SALZMAN GROUP, LTD., Plaintiffs, v. THOMAS GUEL and ELLIE PHARMACEUTICALS, LLC, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
This case is about unpaid bills. In 2020, Thomas Guel founded Ellie Pharmaceuticals with the hope of entering the cannabinoid drug therapies market. To get off the ground Ellie Pharmaceuticals entered into a contract with Bracken Group to develop an initial business plan, investor pitch deck, and website. Separately, Ellie Pharmaceuticals retained Salzman Group to develop a cannabinoid drug therapy.
The high hopes soon returned to earth. Ellie didn't pay all of its bills, despite promising prompt payment. Bracken sent seven invoices totaling $179,464.62, but Ellie paid only $54,729.62. The story wasn't much better for Salzman. That company sent three invoices totaling $60,000, but Ellie paid only $36,000. All told, Ellie owed the two companies almost $150,000.
Things went from bad to worse. Ellie went out of business, and Bracken and Salzman filed suit to collect the debts. The amended complaint includes 10 counts against Ellie and Thomas Guel. Defendants, in turn, moved to dismiss.
For the reasons stated below, the motion is granted in part and denied in part.
At the motion to dismiss stage, the Court must accept as true the well-pleaded allegations of the complaint. See Lett v City of Chicago, 946 F.3d 398, 399 (7th Cir. 2020). The Court “offer[s] no opinion on the ultimate merits because further development of the record may cast the facts in a light different from the complaint.” Savory v Cannon, 947 F.3d 409, 412 (7th Cir. 2020).
In April 2020, Thomas Guel started Ellie Pharmaceuticals, a limited liability company based in Illinois. See Am Cplt., at ¶¶ 5, 11 (Dckt. No. 5). Ellie developed cannabinoid drug therapies. Id. at ¶¶ 11-12. Specifically, “Ellie Pharmaceuticals' primary objective was to leverage the synthetic cannabinoid delta-8-tetrahydrocannabinol (A8-THC or d8) to develop drug therapies that could be used in clinical settings such as hospitals in, for example, post-operative circumstances.” Id. at ¶ 12.
As a new company, Ellie reached out for help on the business side and the scientific side of things. Thomas Guel formed a relationship with Dr. Andrew Salzman, who is the principal of Salzman Group and an expert in d8. Id. at ¶ 13. Guel asked Dr. Salzman for a quote for developing d8 into a drug therapeutic. Id. at ¶ 14. Dr. Salzman submitted his quote in September 2020. Id. at ¶ 15.
At that point, Guel approached Bracken Group - a pharmaceutical consultancy company with expertise in advising on drug development - to evaluate Dr. Salzman's quote. Id. at ¶ 17. Bracken later expanded its services from that initial evaluation, and agreed to help get Ellie off the ground. Id. at ¶ 18.
On October 8, 2020, Ellie and Bracken entered into a contract. Bracken agreed to develop an initial business plan, prepare a pitch deck, and create Ellie's website. Id. at ¶¶ 19-21.
Bracken completed the business plan and investor pitch deck, delivering them to Guel on November 30, 2020. Id. at ¶ 20.
While the business plan was in the works, Ellie laid the groundwork for the medical part of the company by entering into a contract with Dr. Salzman's company, Salzman Group. Id. at ¶ 34. On November 19, 2020, Salzman Group and Ellie signed a Statement of Work. Id. That same day, Herring Creek Pharmaceuticals (defined to include Salzman Group, its affiliate) and Ellie Pharmaceuticals entered into a Master Services Agreement that required Ellie to compensate Salzman Group for its research and development. Id.
Dr. Salzman quickly got to work. He began to develop drug therapies by converting cannabidiol (CBD) into the synthetic compound delta-9-tetrahydrocannabinol (A9-THC or d9). Id. at ¶ 35. Dr. Salzman kept Ellie in the loop about his progress. He provided updates to Ellie on a regular basis, sharing his progress by sending deliverables about once a week from December 31, 2020 to February 4, 2021. Id. at ¶ 36.
The bills soon followed the work. And that's where Ellie ran into trouble. It paid some of the invoices, at least in part. But tens of thousands of dollars went unpaid. Ellie was better at assembling a team than paying them.
Bracken issued Ellie seven invoices totaling $179,464.62 for its work in October, November, and December 2020. Id. at ¶ 22. Ellie only paid one invoice. Id. at ¶ 23. On November 19, 2020, an Ellie representative wrote and signed a check made out to Bracken for $54,729.62 from an account belonging to Beaker Process Development, LLC, another company organized by Guel. Id.
The remaining balance of $124,735 went unpaid. Bracken requested payment several times, without much luck. Id. at ¶ 26. In the meantime, interest began to accrue. Under the contract, “[i]f any invoice is not paid within 30 days of invoice date, then [Bracken Group] will be entitled to charge interest on all amounts outstanding beyond 30 days at a rate of 2% above the current Bank base-lending rate.” Id. at ¶ 25.
Again and again, Ellie promised to pay its bills, but payment never arrived. In late January 2021, Ellie promised to pay by February 3, 2021. Id. at ¶ 28. But that deadline came and went without payment. Ellie then promised to pay by February 12, 2021, but it missed that deadline, too. Id. at ¶ 29. Ellie kicked the can down the road, promising to pay by February 22, 2021. Id. Once again, Ellie missed the payment. In the end, Ellie never paid, leaving Bracken with a trail of broken promises and an outstanding bill. Id. at ¶ 30.
Salzman Group had a similar experience. Salzman issued three invoices to Ellie totaling $60,000 for work performed in November 2020, December 2020, and January 2021. Id. at ¶ 37. Guel paid $24,000 to Salzman, but left $36,000 outstanding. Id. at ¶ 38.
In January 2021, Dr. Salzman reached out to Guel over WhatsApp about the outstanding bills. Id. at ¶¶ 39-40. Guel responded that he was trying to wire the money. Id. at ¶ 42. On January 28, 2021, Herring Creek Pharmaceuticals (again, an affiliate of Salzman Group) received a $12,000 wire from Ellie. Id.
Salzman Group asked Ellie to send the remaining $24,000, but Ellie never paid up. Id. at ¶ 43. Instead, on February 17, 2021, Guel sent Dr. Salzman an email attempting to secure a mutual release of claims. Id. at ¶ 44. When Dr. Salzman rejected the proposed release, Guel responded that the remaining bill would go unpaid. And then Ellie went under.
In January 2022, Bracken Data and Salzman Group sued Ellie and Thomas Guel. See Cplt. (Dckt. No. 1). They later amended the complaint, bringing ten claims. See Am. Cplt. (Dckt. No. 5).
Counts I and II are breach of contract claims by Bracken and Salzman against Ellie Pharmaceuticals. Counts III-VIII are unjust enrichment, quantum meruit, and promissory estoppel claims in the alternative by Bracken and Salzman against Ellie. Count IX is a common law fraud claim against both Ellie and Thomas Guel. And Count X is a piercing the corporate veil claim against Guel.
Defendants, in turn, moved to dismiss on a few different grounds. They argue that the Court lacks subject matter jurisdiction over the claims by Salzman Group, given the small amount in controversy. They argue that Plaintiffs lack the capacity to sue. And they contend that two of the counts fail to state a claim. See Defs.' Mtn. to Dismiss (Dckt. No. 12).
Defendants moved to dismiss for lack of subject matter jurisdiction, and for failure to state a claim. Different standards apply to each type of motion.
Federal courts are courts of limited jurisdiction. See Harrington v. Berryhill, 906 F.3d 561, 566 (7th Cir. 2018). “They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.” Id. (quoting Kokkonen v Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)).
District courts have “original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000,” and is between parties with diverse citizenship. See 28 U.S.C. § 1332(a). The relevant time when evaluating jurisdiction is the day when a party invokes federal jurisdiction. The key moment is the moment of arrival in the federal courthouse.
The burden rests on the party who brought the case to federal court, either by filing the case in the first place (as the plaintiff) or by removal (as the defendant). See Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 541 (7th Cir. 2006); see also Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 447 (7th Cir. 2005) (“Whichever side chooses federal court must establish jurisdiction; it is not enough to file a pleading and leave it to the court or the adverse party to negate jurisdiction.”). When a defendant challenges a plaintiff's allegation of the amount in controversy, the plaintiff must support its assertion with competent proof. See McMillian v. Sheraton Chicago Hotel & Towers, 567 F.3d 839, 844 (7th Cir. 2009). The plaintiff must prove the “jurisdictional facts by a preponderance of the evidence.” Id. (quoting Meridian Sec., 441 F.3d at 543).
Dismissal is warranted only if it is a “legal certainty” that the amount in controversy is actually less than $75,000. See St. Paul Mercury Indemnity Co. v. Red Cab Co. 303 U.S. 283, 288-89 (1938) ( ...
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