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NEWS

July 31, 2017
Curtis Wins First Circuit Affirmance of Dismissal of Fraudulent Inducement and Breach of Contract Claims against Gordon Brothers

 

On July 13, 2017, the United States Court of Appeals for the First Circuit affirmed a grant of summary judgment in Gordon Brothers’ favor in K’s Merchandise Mart, Inc. (“Old K’s”), et al.  v. Gordon Brothers Group, LLC (“GBG”), et al., Case Nos. 12-2311 & 16-1929, dismissing plaintiff’s claims for fraudulent inducement, breach of contract, and breach of the implied covenant of good faith and fair dealing.  Old K’s sought tens of millions of dollars in allegedly lost profits.

Old K’s, formerly a family-owned small chain retailer in the Midwest, had alleged that:  (i) GBG fraudulently induced Old K’s to sell its assets to a newly-formed LLC on the promise that the LLC would continue to operate as a going concern, when instead GBG intended to liquidate the retailer; (ii) GBG improperly ran and managed the LLC (in which Old K’s maintained a minority interest) in breach of both the contract and implied covenants under the LLC agreement; and (iii) GBG did not distribute an adequate amount of profits from the LLC to Old K’s.  After extensive discovery, depositions and expert witness reports, Curtis filed on GBG’s behalf motions for Summary Judgment which were granted by the United States District Court for the District of Massachusetts, and Old K’s appealed.

In a case it described as “rich with issues,” the First Circuit agreed with all of Curtis’s arguments, including that alleged statements made to Old K’s regarding GBG’s expertise and experience were mere “puffery” inactionable as fraud, and statements regarding a lack of intent to liquidate could not be reasonably relied upon in the circumstances.  The Court found that the remaining alleged false statements, even if proven, did not amount to the type of egregious conduct that would arise to a “scheme to defraud” actionable under applicable state law.  The Court also agreed with Curtis that the claim that, in deciding to liquidate, GBG breached the implied covenant of good faith and fair dealing was unsustainable as a matter of law, because the contract gave the sole discretion to GBG to decide to liquidate.  In addition, the Court affirmed the barring of certain breach of contract claims as a discovery sanction for late disclosure.

The Curtis Team representing GBG consisted of Steven J. Reisman, Theresa A. Foudy, Turner P. Smith, and Edward F. Combs.

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