Sweeney v. Hoy Health LLC

• Decision Date: 03 March 2023
• Docket Number: Civil Action SA-22-CV-00323-XR
• Parties: JAMES M. SWEENEY, INDIVIDUALLY; AND THE JAMES M. SWEENEY TRUST, Plaintiffs, v. HOY HEALTH LLC, HOY HEALTH CORPORATION, CCH HFH HOLDINGS, LLC, Defendants.
• Court: U.S. District Court — Western District of Texas

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JAMES M. SWEENEY, INDIVIDUALLY; AND THE JAMES M. SWEENEY TRUST, Plaintiffs, v. HOY HEALTH LLC, HOY HEALTH CORPORATION, CCH HFH HOLDINGS, LLC, Defendants.

Civil Action No. SA-22-CV-00323-XR

United States District Court, W.D. Texas, San Antonio Division

March 3, 2023

ORDER

XAVIER RODRIGUEZ, UNITED STATES DISTRICT JUDGE

On this date, the Court considered Defendants' second motion to dismiss (ECF No. 29), Plaintiffs' response (ECF No. 31) and Defendants' reply (ECF No. 32). After careful consideration, the Court issues the following order.

BACKGROUND^[1]

Plaintiffs in this case are James M. Sweeney (“Sweeney”) and James M. Sweeney in his capacity as Trustee (“Trustee”) for the James M. Sweeney Trust (“Trust”). Defendants in the case are Hoy Health LLC and Hoy Health Corporation (collectively “Hoy”) and CCH HFH Holdings, LLC (“CCH”).

This case arises out of a transaction to sell HomeFront Healthcare (“HFH”) to Hoy. Sweeney served as HFH Executive Chairman and Founder, as well as a member of HFH's Board of Directors. ECF No. 16 at 3. Sweeney alleges he raised millions of dollars in financing for HFH, including the convertible debt of:

(1) $3 million from Bob Castellani through CCH HFH Holdings LLC (with another $2 million that Mr. Castellani committed by binding contract to HFH in the future),

(2) $2.5 million from Roy Block through RWBC Holdings, Inc.,

(3) $2.5 million from Sudhir Damle through Kivale Partners LLP, and

(4) $300,000 from Craig Kruemwiede (collectively, the "Investors" who provided the "Investor Cash").

Id. at 4. The Sweeney Trust also invested approximately $800,000 into HFH (“Sweeney Investment”). Id.

Hoy, HFH, Sweeney, the Investors, and other HFH common stockholders began to explore a potential business merger in the summer of 2021. Id. On August 18, 2021, they “entered a transaction through which The Sweeney Trust abandoned and provided to Hoy the Sweeney Investment, and Sweeney abandoned and provided to Hoy his HRH Company Control, his control over the Investor Cash, and his Board Seat.” Id. at 5.

Sweeney alleges in his first amended complaint that he entered into the above transaction in reliance on various express representations:

(a) made by Mario Anglada (acting in capacity of Chief Executive Officer of Hoy) and Rodrigo Rodriguez-Novas (acting in his capacity as Chief Financial Officer of Hoy),

(b) made to Mr. Sweeney (acting in his individual capacity and as trustee of The Sweeney Trust),

(c) between the period of June 2021 through August 2021 (e.g., on a telephonic meeting of the Board of Directors of HFH on June 22, 2021 during which Mr. Anglada participated),

(d) during telephone conferences and at office conferences at 5723 University Heights Blvd., Suite 12, San Antonio, Texas 78249, and

(e) comprised of statements:

[1] that if The Sweeney Trust would abandon and provide to Hoy The Sweeney Investment, and if Mr. Sweeney would abandon and provide to Hoy his HFH Company Control, his control over the Investor Cash, and his Board Seat, then Hoy would have Mr. Sweeney serve as its long-term Chief Strategy Officer at an annual salary of $300,000 and work as an integral part of the Hoy Management Team [and]

[2] if Mr. Sweeney and the Sweeney Trust continued fundraising efforts on behalf of HFH and Hoy after the transaction, and if Mr. Sweeney and the Sweeney Trust raised a set amount of financing, Mr. Sweeney and the Sweeney Trust would receive a specified ownership interest in Hoy itself. Specifically, Mr. Sweeney would be awarded [REDACTED]% ownership in Hoy if he successfully raised equity capital at a pre-money valuation of $[REDACTED] million in the 24 months following the transaction close).^[2]

Id. at 5-6. Plaintiff refers to the statements above as the misrepresentations. Id. at 6.

Sweeney alleges that one month after the close of the transaction, he was “unceremoniously terminated . . . without any notice.” Id. Sweeney alleges that his termination resulted in the following:

(a) Mr. Sweeney did not serve as Hoy's long-term Chief Strategy Officer,

(b) Mr. Sweeney received only $25,000 in payments from Hoy (before taxes),

(c) and Mr. Sweeney did not serve as a part (let alone an integral part) of the Hoy Management Team (and, in fact, Hoy never even identified Mr. Sweeney on Hoy's website either as its Chief Strategy Officer or in any other capacity).

Id. at 6-7. Sweeney alleges his reputation has suffered severely, making it “impossible for [him] to raise the set funds specified in the transaction and to, in turn, become a partial owner of Hoy. This impact is unrelated to Sweeney's continued employment with Hoy. In other words, but for the Termination's reputational impact, Mr. Sweeney could have and would have succeeded in raising additional funds for HFH and Hoy and become a partial owner of Hoy even if he did not continue to work for HFH and Hoy.” Id. at 7.

Sweeney alleges that “Hoy clearly used the Misrepresentations to induce The Sweeney Trust and Mr. Sweeney to abandon and provide to Hoy the Sweeney Investment, HFH Company Control, control over the Investor Cash, and Mr. Sweeney's Board Seat, when all the time, Hoy knew that it never intended to have Mr. Sweeney serve as its long-term Chief Strategy Officer at an annual salary of $300,000 or work as an integral part of the Hoy Management Team.” Id. at 8. He further alleges that Hoy also knew that “the reputational harm to Mr. Sweeney would make it impossible for him to raise money and, in turn, become a part owner of Hoy.” Id.

Plaintiff Sweeney alleges the following causes of action: fraudulent misrepresentation against Hoy Defendants, declaratory judgment against Hoy Defendants (that the transaction at issue is void for lack of consideration or, in the alternative, failure of consideration), and conspiracy against all Defendants, and, pleading in the alternative, negligent misrepresentation and unjust enrichment against the Hoy Defendants. See id. at 9-17.

Plaintiffs filed suit against Defendants in the 255th Judicial District of Bexar County on February 14, 2022. ECF No. 1-1. Defendants removed this case on April 1, 2022. ECF No. 1. Defendants filed a motion to dismiss on May 8, 2022. ECF No. 10. On May 27, 2023, Plaintiffs filed their first amended complaint against Defendants. ECF No. 16. After failing to comply with Local Rule CV-7, limiting motions to 20 pages, Defendants Hoy LLC, Hoy Corp., CCH, and Castellani filed their restated second motion to dismiss on August 10, 2022. ECF No. 29. Defendants move to dismiss all claims asserted by Plaintiffs Sweeney and Trust pursuant to Rules 8, 9(b), and 12(b)(6) and, pursuant to Rule 12(e), Defendant Castellani moves to dismiss the claim against him for lack of personal jurisdiction.

Plaintiffs filed their response on August 23, 2022. ECF No. 31. Therein, Plaintiffs consented to Defendant Castellani's dismissal from the case without prejudice. Id. at 19. The Court therefore proceeds with its analysis only as it relates to the pending claims remaining against Defendants Hoy LLC, Hoy Corp., and CCH.

Defendants' motion to dismiss includes eleven attached exhibits (the various transaction contracts and documents). In general, a court addressing a motion under Rule 12(b)(6) “must limit itself to the contents of the pleadings, including attachments thereto.” Brand Coupon Network, L.L.C. v. Catalina Mktg. Corp., 748 F.3d 631, 635 (5th Cir. 2014) (citation omitted). But when a pleading references documents that are central to a claim, the Court may consider such documents if attached to the motion to dismiss. Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010); Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). “A document is central to a claim when it is ‘necessary to establish an element' of the claim.” Pylant v. Cuba, No. 3:14-CV-0745-P, 2015 WL 12753669, at *2 (N.D. Tex. Mar. 6, 2015) (quoting Kaye v. Lone Star Fund V (U.S.), L.P., 453 B.R. 645, 662 (N.D. Tex. 2011)). However, “if the operative pleading references a document that ‘is merely evidence of an element' of a claim, the courts do not incorporate it into the pleading.” Id. (same).

Because Plaintiffs' first amended complaint references the transaction, the Court finds it proper to consider the attached exhibits without converting the pending motion to dismiss into a motion for summary judgment. Plaintiffs do not dispute the Court's consideration of the attached exhibits. See ECF No. 31.

DISCUSSION

I. Legal Standard

Federal Rule of Civil Procedure 12(b)(6) allows a party to move for the dismissal of a complaint for “failure to state a claim upon which relief can be granted.” 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.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. A claim for relief must contain: (1) “a short and plain statement of the grounds for the court's jurisdiction”; (2) “a short and plain statement of the claim showing that the pleader is entitled to the relief”; and (3) “a demand for the relief sought.” FED. R. CIV. P. 8(A). A PLAINTIFF “MUST PROVIDE ENOUGH FACTUAL ALLEGATIONS TO DRAW THE REASONABLE INFERENCE THAT THE ELEMENTS EXIST.” Innova Hosp. San Antonio, L.P. v. Blue Cross & Blue Shield of Ga., Inc., 995 F.Supp.2d 587, 602 (N.D. Tex. Feb. 3, 2014) (citing Patrick v. Wal-Mart, Inc.-Store No. 155, 681 F.3d 614, 617 (5th Cir. 2012)); see also ...