SYT Sols. v. Burger
| Decision Date | 12 January 2021 |
| Docket Number | No. 20-794 (JRT/KMM),20-794 (JRT/KMM) |
| Court | U.S. District Court — District of Minnesota |
| Parties | SYT SOLUTIONS, LLC, BRIAN LINDEMANN, and KRIS LINDEMANN Plaintiffs, v. CRIS BURGER, LISA BURGER, DAVID MCGOWAN, THE ADVANTAGE COMPANIES, INC., and ADVANTAGE TAPE RECEIVABLES, INC. Defendants. |
Dwight G. Rabuse, James D. Kremer, and Jorgen M. Lervick, DEWITT LLP, 2100 AT&T Tower, 901 Marquette Avenue, Minneapolis, MN 55402, for plaintiffs.
Daniel M. Gallatin, GALLATIN LAW, PLLC, 5665 147th Street North, P.O. Box 167, Hugo, MN 55038, for defendants Cris Burger and The ADvantage Companies, Inc.
Jeffrey A. Olson, JEFFREY A. OLSON, PLLC, 7831 Glenroy Road, Suite 185, Edina, MN 55439, for defendant Lisa Burger.
Michael J. Tomsche, TOMSCHE, SONNESYN & TOMSCHE, P.A., 8401 Golden Valley Road, Suite 250, Minneapolis, MN 55427, for defendant David McGowan.
Brandon M. Schwartz and Michael D. Schwartz, SCHWARTZ LAW FIRM, 600 Inwood Avenue North, Suite 130, Oakdale, MN 55128, for defendant Advantage Tape Receivables, Inc. Plaintiffs SYT Solutions, LLC, Brian Lindemann, and Kris Lindemann (collectively "Plaintiffs") have brought this action related to their purchase of Defendant Advantage Tape Receivables, f/k/a Advantage Tape Advertising. Defendants Cris Burger and Lisa Burger are former owner-shareholders of Advantage; Defendant The ADvantage Companies is a new company incorporated by Cris Burger in 2019; and Defendant David McGowan is a former Advantage salesperson, former independent contractor with SYT, and currently affiliated with ADvantage.
Plaintiffs' Complaint contains fifteen counts, including contractual breach, unjust enrichment, quantum meruit, negligent misrepresentation, fraud, deceptive trade practices, Lanham Act violations, and RICO violations, and seeks declaratory judgment. Defendants have filed four separate Motions to Dismiss, pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1). The Court finds that Plaintiffs have not met their pleading burden with respect to their RICO claims and some of their common law and contract claims. However, because Plaintiffs have plausibly alleged violations of the Lanham Act and other trademark infringement claims, and have met their burden with respect to other breach of contract and common law claims, the Court will grant in part and deny in part each of the pending Motions.
Advantage Tap Receivables, f/k/a Advantage Tape Advertising ("ATA"), is a Nebraska corporation in the business of selling advertising that appears on the back of receipt tape in grocery stores and other businesses. (Compl. ¶ 8, Mar. 24, 2020, Docket No. 1.) ATA has two types of customers: those who advertise on store receipt tapes and the stores whose receipt tapes feature the advertisements. (Id. at 1.) Defendants Cris Burger and Lisa Burger ("the Burgers"), were the owner-shareholders of ATA. (Id. ¶ 9.) David McGowan was ATA's Senior Executive Marketing Director and a key ATA salesperson. (Id. at 2; id. ¶ 141.)
In 2017, Cris Burger approached Plaintiff Brian Lindemann about Lindemann purchasing ATA. (Id. ¶ 12.) Cris Burger expressed that he was interested in selling the business due to his fraught relationship with his ex-spouse and co-owner Lisa Burger. (Id.) He represented to Brian and his spouse Kris Lindemann ("the Lindemanns") that Lisa had obtained a restraining order impairing Cris's ability to effectively manage the company, but that ATA was an otherwise successful business with a solid customer base. (Id. ¶¶ 12, 14.)
Prior to and during the negotiation process, the Lindemanns conducted a due diligence investigation of ATA, which included review of ATA's income statements, balance sheets, bank statements, tax returns, revenue history and gross revenue reports,and a limited review of advertising sales. (Id. ¶¶ 26-28.) Plaintiffs allege that the Burgers made false statements during these discussions and concealed material information that led Plaintiffs to erroneously believe that ATA was "a legally operating, financially sound, and stable business which, if purchased by the Lindemanns, would provide the Lindemanns with a positive financial return." (Id. ¶ 15.) The Lindemanns state that they reasonably believed that the Burgers provided them with all material information relevant to their interests in purchasing ATA's assets and that all information provided by the Burgers was accurate. (Id. ¶ 29.)
In the months following Cris Burger's initial outreach, the Lindemanns made several offers to purchase ATA. (Id. ¶ 16.) The Lindemanns formed Plaintiff SYT Solutions, LLC ("SYT") to act as the purchaser of ATA, and secured financing. (Id. ¶¶ 30, 31.) In October 2017, the Burgers, ATA, and SYT executed an Asset Purchase Agreement ("Agreement"). (Compl., Ex. B ("Agreement"), Mar. 24, 2020, Docket No. 1-2.) The Agreement covered the sale of all ATA's tangible personal property, interests in customer contracts, assignable licenses, physical property, as well as all Intellectual Property and associated goodwill. (Id. at § 1.) In exchange, Purchasers would pay $1,570,885.00 for the assets in two parts—$1,010,000.00 at closing and the remaining $560,885.00 via a Promissory Note, (Compl. ¶ 47), for which Brian Lindemann provided a Personal Guaranty, (Agreement § 2.1(c).)
The Agreement names ATA as "Seller," Cris and Lisa Burger as "Shareholders," and SYT, care of Brian Lindemann, as the "Purchaser." (Id. at 15-16.) The Agreement includes a series of representations and warranties made by the Seller related to the organization and good standing of ATA, legal status, financial information, customer accounts, and ownership by Shareholders. (Id. § 7.) Section 7.12 of the Agreement states:
Seller has not withheld any material facts relating to the Assets from the Purchasers. No representation or warranty in this Agreement contains any untrue statement of a material fact or omits or will omit to state any material fact required herein or therein or necessary to make the statements herein or therein not misleading.
(Id.§ 7.12.) The Agreement also includes indemnification clauses that bind both the Seller (ATA) and the Purchaser (SYT), (id. § 8), and requires Shareholders Cris Burger and Lisa Burger to sign Non-Compete Agreements, (id. § 9.1.)
The Non-Compete Agreements ("NCA") obligate Cris Burger and Lisa Burger to not compete against SYT for a period of four years. (Compl. ¶¶ 48-52; Compl., Ex. C ( ), Mar. 24, 2020, Docket No. 1-3; Compl., Ex. D ( ), Mar. 24, 2020, Docket No. 1-4.) Both contracts also include a clause which provides that the NCAs terminate automatically if SYT defaults on the Promissory Note. (C. Burger NCA § 2; L. Burger NCA § 2.) The Promissory Note defines an "event of default" to include "failure to make the payment of principal and/or interest when due." (L. Burger Aff. ¶ 11, Ex. 9 ("Promissory Note") ¶ 2, May 7, 2020, Docket No. 28-10.) According to the terms of the Promissory Note, payments were due on the 25th day of each month after the closing dateuntil November 25, 2021. (Promissory Note ¶ 1.) In addition to the NCA, Cris Burger executed an Independent Contractor Agreement under which he would continue to procure advertising contracts for SYT. (Compl. ¶ 62, Ex. E ( ) § 1, March 24, 2020, Docket No. 1-5.)
After the closing on the sale of ATA's assets, Plaintiffs allege that they discovered multiple misrepresentations that Defendants Cris Burger, Lisa Burger, and ATA made, including the Burgers' failure to disclose relevant financial documents and communications reflecting ATA's lost profits, low value, and limited opportunities for customer growth in key areas. (Compl. ¶¶ 80-110.) Plaintiffs further allege that Cris Burger, Lisa Burger, and ATA made deliberate misrepresentations regarding cost increases for thermal paper and the level of competition in the industry. (Id. ¶¶ 111-140.)
Plaintiffs claim that after closing they also uncovered evidence of fraudulent and deceptive sales practices by McGowan, through which McGowan and the Burgers had inflated ATA's sales numbers and alienated customers. (Id. ¶¶ 161-163.) Plaintiffs allege that McGowan fraudulently induced customers to enter into long-term advertising contracts or caused customers with short-term contracts to believe that they were responsible for long-term contracts and added unauthorized charges to customers' bills. (Id. ¶¶ 141-159, 236.) According to Plaintiffs, the Burgers knew of and potentially encouraged these practices, but concealed information about McGowan's behavior andcustomer complaints, to Plaintiffs' detriment. (Id. ¶¶ 162-165.) After SYT implemented policy changes due to customers complaints, McGowan resigned, and Plaintiffs allege that advertising sales have significantly dropped. (Id. ¶ 166.)
Plaintiffs further allege that, from 2018 on, Cris Burger shared proprietary SYT information and coordinated with McGowan to compete against SYT. (Id. ¶¶ 168-174.)1 In or about July 2019, Cris Burger incorporated Defendant ADvantage Companies, Inc., a Minnesota corporation. (Compl. ¶ 56.) Plaintiffs allege that McGowan is now acting as a sales representative for ADvantage, and that he and Cris Burger have been falsely presenting ADvantage as a continuation of ATA in order to defraud SYT customers and impermissibly compete against SYT. (Id. ¶¶ 175-180.) Plaintiffs further allege that through this scheme, Cris Burger, McGowan, and ADvantage have misappropriated the trademarks that SYT purchased from ATA. (Id. ¶¶ 175-180, 269.)
On August 1, 2018, ATA sent notice that SYT was in default under the terms of the Promissory Note and reiterated the ten-day deadline to cure the default. (L. Burger Aff.¶ 12, Ex. 10, May 7, 2020, Docket No. 28-11.)2 Plaintiffs do not dispute that they are in default on the Promissory Note.
Plaintiffs filed a Complaint...
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