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Painter’s Mill Grille v. Brown, No. 12-1357

Decided: May 24, 2013

The Fourth Circuit affirmed the United States District Court for the Distrct of Maryland’s decision to dismiss the complaint under Federal Rule of Civil Procedure (FRCP) 12(b)(6) by Painter’s Mill Grille, LLC (“Painter’s Mill Grille”), the owner and operator of the restaurant, and its principals in an action against the restaurant’s landlord.

Painter’s Mill Grille operated a restaurant known as Cibo’s Bar & Grill.  The premises were leased from a company identified as 100 Painters Mill.  The lease began in 2002 and provided that Painter’s Mill Grille could not assign the leasehold without 100 Painters Mill’s consent.  According to the facts, Painter’s Mill Grille continually failed to make rent payments that resulted in 100 Painters Mill obtaining multiple judgments.  In October 2008, Painter’s Mill Grille entered into an agreement with another company who had agreed to purchase Painter’s Mill Grille’s interest in the restaurant; however the deal was never completed.  Painter’s Mill Grille and its principals subsequently filed a complaint against 100 Painters Mill’s parent company and three attorney-employees of the company for damages.  Their complaint alleged that the defendants’ actions, which they argued were racially motivated, interfered with the business and with the contract between Painter’s Mill Grille and its potential buyer.  The complaint alleged that throughout the course of the lease the restaurants clientele’s racial make-up changes and became predominantly African-American.  The plaintiffs asserted that as the racial make-up changed, the defendants became increasingly hostile towards the plaintiffs.  Moreover, the plaintiffs alleged that 100 Painters Mill, inter alia, “arbitrarily charged rent, common area maintenance fees, and attorneys’ fees and that it unreasonably refused to allow the restaurant to use the patio and to install proper signage to advertise the business.”  As a result of this “constant harassment,” Painter’s Mill Grille decided to sell its restaurant and entered into an agreement with another company to purchase the business.  Painter’s Mill Grille asserted that this conduct resulted in a breach of the contract with 100 Painters Mill.  Plaintiffs made multiple claims including seven counts alleging violations of 42 U.S.C. §§ 1981, 1982, 1985(3), and Maryland state claims for tortious interference with contracts and economic relationships.  The defendants filed a motion to dismiss for failure to state a claim under FRCP 12(b)(6).  The district court dismissed with prejudice all claims against 100 Painters Mill’s employees holding that they were acting within the scope of their legal relationship with the company and were not individually liable. The district court also dismissed Painter’s Mill Grille’s owner and principals as improper plaintiffs.  The court also dismissed without prejudice the plaintiffs’ claims of racial discrimination holding that it failed to plausibly allege enough facts to show that defendants were liable under the applicable statutes.  The district court dismissed the § 1985(3) conspiracy claim with prejudice by relying on the fact that “agents of a corporation who are acting in that capacity cannot conspire with each other or with their corporate principal.”  Finally, with regards to the state law claims, the district court dismissed the tortuous interference with contract claims with prejudice and dismissed, without prejudice, the claim of tortious interference with economic relationships on the ground that plaintiffs failed to allege specific wrongful acts committed by the defendants.  The plaintiffs filed an appeal.  The defendants moved to dismiss the appeal under the theory that it was an interlocutory appeal because the district court had dismissed several of plaintiffs’ claims without prejudice.  The plaintiffs argued that by electing to stand on the complaint rather than to amend it, an appeal is not considered interlocutory and become immediately appealable.

First, the Fourth Circuit held that the district court was correct in dismissing the owner and principals of Painter’s Mill Grille as plaintiffs and holding that only Painter’s Mill Grille itself could be a proper plaintiff.  The Fourth Circuit relied on the principals of corporate and agency law to highlight the fact that the owner and principals elected to incorporate their business as a limited liability company (“LLC”) and, in doing so, were exposed to no personal liability under the LLC’s contracts.  As a result, plaintiffs’ claims under §§ 1981 and 1982 had to be dismissed because the plaintiffs could not identify injuries that flowed directly from a motivated breach of their own personal contractual relationships with the defendant.  Rather, their claims flowed directly from the LLC’s contractual relationship with the defendant.  With regards to the principals’ conspiracy claim under § 1985(3), the court held that they were based on the alleged violations of the §§ 1981 and 1982 claims and, as such, had to fail as well.  Finally, also with respect the principals, the court held that, for similar reasons, the plaintiffs did not have valid claims under state law for tortious interference with their contract and economic relationships when they were not individual parties to the contract.

The court next turned to the LLC’s claims.  First, the court addressed Painter’s Mill Grille’s claim for interference with a contract based on racial animus under § 1981.  The Fourth Circuit held that Painter’s Mill Grille’s complaint only contained “conclusory and speculative allegations” and failed to set forth facts that would support a plausible claim.  Similarly, the court held that Painter’s Mill Grille’s § 1982 claim failed because they failed to present any facts as to “how Painter’s Mill Grille was driven out of business.”  Next, the Fourth Circuit took up Painter’s Mill Grille’s claim that the defendants interfered with the LLC’s contractual right to sell the restaurant and assign its leasehold.  Here, the court stated that the initial allegation that defendants withheld consent could possibly state a claim and that the complaint did, in fact, allege the defendants interfered with the LLC’s contract to sell the restaurant, with racial animus, by unreasonably withholding its consent.  However, the court found that Painter’s Mill Grille had “abandoned this basis for its § 1981 claim” by representing to the court, both in its brief and at oral arguments, that the landlord actually did give its consent for the lease assignment prior to the meeting in question.  The Fourth Circuit also held that the district court was correct in dismissing Painter’s Mill Grille’s claim of conspiracy to deprive it of equal protection under § 1985(3) under the intracorporate conspiracy doctrine.  The court’s analysis under the doctrine found that both exceptions to the doctrine that a corporation cannot conspire with its agents when its agents acted in furtherance of the corporation were inapplicable. In addition, the court held that the three state law claims for tortious interference with contract and economic relationships had to fail the same way their federal counterparts did.  Finally, the Fourth Circuit upheld the district court’s decision to deny the plaintiffs’ request for leave to amend their complaint because the plaintiffs elected to stand on their original complaint in order to appeal and could not challenge their own election.

Full Opinion

– John G. Tamasitis