Martinez v. Petrenko, 1st Cir. (2015)

7/26/2019 Martinez v. Petrenko, 1st Cir. (2015)

http://slidepdf.com/reader/full/martinez-v-petrenko-1st-cir-2015 1/24

United States Court of Appeals

For the First Circuit

No. 14- 2112

GABRI EL F. MARTI NEZ,

Pl ai nt i f f , Appel l ant ,

v.

VI CTOR F. PETRENKO,

Def endant , Appel l ee.

APPEAL FROM THE UNI TED STATES DI STRI CT COURTFOR THE DI STRI CT OF NEW HAMPSHI RE

[ Hon. J oseph A. Di Cl er i co, J r . , U. S. Di str i ct J udge]

Bef ore

Howard, Chi ef J udge,Sel ya and Kayat t a, Ci r cui t J udges.

Benj ami n T. Ki ng, wi t h whom Dougl as, Leonard & Garvey, P. C.was on br i ef , f or appel l ant .

Mar t ha Van Oot , wi t h whom J ackson Lewi s, P. C. was on br i ef ,f or appel l ee.

J ul y 6, 2015



- 2 -

KAYATTA , Circuit Judge. To mai nt ai n a pr i vat e act i on

under t he Fai r Labor St andar ds Act ( "FLSA" or " t he Act " ) f or a

f ai l ur e t o pay f or overt i me at t he mandat ed r at e, an empl oyee must

pr ove a nexus t o i nt er st at e commer ce suf f i ci ent t o t r i gger cover age

under t he Act . The empl oyee can prove t hi s nexus by showi ng t hat

t he empl oyee engaged i n commerce f or t he empl oyer wi t hi n t he

meani ng of t he Act , or by showi ng that t he empl oyer has ot her

empl oyees who engaged i n commer ce wi t hi n t he meani ng of t he Act

and t hat t he empl oyer al so gener ated annual gr oss sal es of not

l ess t han $500, 000. I n f i l i ng t hi s l awsui t asser t i ng an FLSA cl ai m

f or unpai d over t i me, Gabr i el Mar t i nez al l eged t hat hi s empl oyer

engaged i n commerce wi t hi n t he meani ng of t he Act and generat ed

annual gr oss sal es of not l ess t han $500, 000. Whi l e t hi s

al l egat i on ser ved t o f end of f a mot i on t o di smi ss, Mar t i nez was

ul t i mat el y unabl e t o f er r et out any evi dence t o pr ove t hat hi s

empl oyer ' s sal es wer e hi gh enough t o t r i gger cover age under t he

Act .

Event ual l y conf r ont ed wi t h a mot i on f or summary j udgment

based on t he f act t hat hi s empl oyer ' s annual gr oss sal es wer e l ess

t han $500, 000, Mar t i nez poi nt ed t o evi dence t hat he hi msel f engaged

i n commer ce wi t hi n t he meani ng of t he Act . Fi ndi ng t hat t hi s

change i n t he way Mar t i nez proposed t o est abl i sh cover age came t oo

l at e, t he di st r i ct cour t gr ant ed summar y j udgment agai nst Mar t i nez



- 3 -

on hi s FLSA cl ai m. For ot her r easons, t he cour t al so gr ant ed

summary j udgment on Mart i nez' s st ate- l aw cl ai ms. We af f i r m.

I. Background

A. Statutory Background

An empl oyee enj oys t he pr otect i ons of t he FLSA' s

over t i me pay requi r ement s onl y when ei t her t he empl oyee

i ndi vi dual l y or t he empl oyer ' s ent er pr i se as a whol e i s " engaged

i n commerce or i n t he pr oduct i on of goods f or commerce. " 29 U. S. C.

§ 207( a) ( 1) . The bur den i s on t he empl oyee t o pr ove a suf f i ci ent

nexus t o i nt er st ate commer ce as an essent i al el ement of t he cl ai m.

See Chao v. Hot el Oasi s, I nc. , 493 F. 3d 26, 32- 33 & n. 6 ( 1st Ci r .

2007) ( hol di ng t hat cover age i s " an el ement of t he cl ai m, " and

t hat t he def endant s' st i pul at i on r el i eved t he pl ai nt i f f of her

bur den t o pr ove i t ) .

FLSA cover age t r i gger ed by the busi ness act i vi t i es of

t he empl oyer ( of t en cal l ed "ent er pr i se cover age" ) r equi r es a

showi ng t hat t he empl oyer :

( i ) has empl oyees engaged i n commerce or i nt he pr oduct i on of goods f or commer ce, or t hathas empl oyees handl i ng, sel l i ng, or ot her wi seworki ng on goods or mat er i al s t hat have beenmoved i n or produced f or commer ce by any

per son; and ( i i ) i s an ent er pr i se whose annualgr oss vol ume [ "AGV"] of sal es made or busi nessdone i s not l ess t han $500, 000 . . . .

29 U. S. C. § 203( s) ( 1) ( A) ; see al so 29 C. F. R. § 779. 259 ( def i ni ng

" [ w] hat i s i ncl uded i n annual gr oss vol ume") .



- 4 -

How one shows t hat coverage i s t r i ggered by t he

act i vi t i es of t he i ndi vi dual empl oyee ( so- cal l ed "i ndi vi dual

cover age") i s l ess cl ear . Nei t her t he st at ut e nor our ci r cui t

pr ecedent of f er s any r oad map. Ot her ci r cui t s have hel d t hat t he

empl oyee must "di r ect l y part i ci pate" i n t he movement of per sons or

t hi ngs i n i nt er st at e commer ce, but t hi s can be sat i sf i ed t hr ough

r egul ar use of an i nst r ument of i nt er st ate commer ce, such as by

usi ng a t el ephone t o cal l ot her st at es f or busi ness pur poses. See,

e. g. , Reagor v. Okmul gee Cnt y. Fami l y Res. Ct r . , 501 F. App' x 805,

809 ( 10t h Ci r . 2012) ( i nt er nal quot at i on mar ks and al t er at i ons

omi t t ed) . What i s cl ear , i n any event , i s t hat t he f act s capabl e

of est abl i shi ng i ndi vi dual cover age ar e di f f er ent f r om t hose

suppor t i ng a t heor y of ent er pr i se cover age. To est abl i sh

i ndi vi dual cover age, t he empl oyee must pr esent f act s showi ng hi s

own act i vi t i es. To est abl i sh ent er pr i se cover age, t he empl oyee

i nst ead must pr esent f act s showi ng t he act i vi t i es of ot her

empl oyees, and t he empl oyer ' s sal es.

B. Factual Background

As t hi s i s an appeal f r om a gr ant of summary j udgment ,

we r eci t e t he f act s i n t he l i ght most f avor abl e t o Mar t i nez, t he

non- movant , and we dr aw al l r easonabl e i nf er ences i n hi s f avor .

See Ramos- Sant i ago v. Uni t ed Parcel Ser v. , 524 F. 3d 120, 122 ( 1st

Ci r . 2008) .



- 5 -

Vi ct or Pet r enko i s an emer i t us pr of essor of engi neer i ng

at Dar t mout h Col l ege who f ounded I ce Code LLC, 1 a st ar t - up t hat

commer ci al i zed a de- i ci ng technol ogy Pet r enko had devel oped.

Pet r enko ser ved var i ousl y as a boar d member , boar d chai r , and chi ef

t echnol ogy of f i cer . Mar t i nez, one of Pet r enko' s f or mer gr aduat e

st udent s, began worki ng i n r esearch and devel opment f or I ce Code

i n 2005, and r ose t o t he t i t l e of seni or manager i n 2007. I n

Febr uar y 2010, Mar t i nez became chi ef oper at i ng of f i cer pur suant t o

a wr i t t en "execut i ve agr eement " t hat pr omi sed a $190, 000 sal ary,

t o be pai d i n mont hl y i nst al l ment s.

Because I ce Code was f aci ng si gni f i cant cash- f l ow

pr obl ems, Mart i nez was never pai d i n accor dance wi t h t hi s

agr eement . I nst ead, he i nt er mi t t ent l y r ecei ved par t i al payment of

t he sums owed. On November 3, 2010, t he f our - member board ( whi ch

i ncl uded Mar t i nez, Pet r enko, and I ce Code CEO Roman Zhi gal ov)

unani mousl y2 passed a "speci al r esol ut i on" l i st i ng t he l egal ,

f i nanci al , and oper at i onal chal l enges f aci ng t he company, and

put t i ng Zhi gal ov on war ni ng that , because he had f ai l ed to gener at e

any revenue f or t he l ast si x mont hs whi l e i ncur r i ng over $2 mi l l i on

i n debt , he f aced t er mi nat i on as CEO.

1 The par t i es i n t hei r f i l i ngs spel l I ce Code as bot h "I ceCode"and " I ce Code. " For consi st ency, we use t he l at t er . The companywas pr evi ousl y cal l ed I ce Engi neer i ng LLC.

2 Zhi gal ov recused hi msel f .



- 6 -

A f ew weeks l at er , i n mi d- t o l at e November 2010,

Mar t i nez appr oached the board and asked t o be pai d 10, 000

addi t i onal equi t y uni t s of I ce Code because he needed "addi t i onal

i ncent i ve" t o keep worki ng f or t he company. Pet r enko bal ked at

Mar t i nez' s r equest f or 10, 000 equi t y uni t s and, accor di ng t o

Mar t i nez, t ol d hi m t hat 10, 000 uni t s wer e wor t h mor e t han $2

mi l l i on. ( The number seems t o have been der i ved f r omt he per - uni t

pr i ce set f or an at t empt t o r ai se pr i vat e capi t al t hat had ended

i n August 2010. ) Never t hel ess, t he boar d appr oved t he t r ansf er of

uni t s t o Mar t i nez, and t he deal was f or mal i zed t hr ough an "equi t y

gr ant agr eement " si gned on J anuary 13, 2011, by Zhi gal ov on behal f

of t he company. I t pr ovi ded t hat t he uni t s woul d be r el eased on

a quar t er l y basi s over t wo year s, and t hat as par t i al consi der at i on

f or t he uni t s, Mar t i nez' s j ob dut i es under t he execut i ve agr eement

woul d be amended t o add a requi r ement t o work t o secure "at l east

one" i nvest ment or l i censi ng/ devel opment t r ansact i on "such t hat

t he [ company] i s abl e t o r et ur n t o, and cont i nue i t s f ul l busi ness

oper at i ons and acti vi t i es. "

At t he t i me, I ce Code di d i ndeed need more i nvest ment or

busi ness. Accor di ng t o Mar t i nez, by J anuar y 2011, al l of t he

empl oyees except f or Mar t i nez had been l et go, and t he company

owed money t o suppl i ers and cont r act ors. Over t he next f ew mont hs,

Mar t i nez, Pet r enko, and Zhi gal ov al l came t o be i nvol ved, t o

var yi ng degr ees, i n f or mul at i ng what appear t o be at l east t wo



- 7 -

compet i ng pl ans f or escapi ng I ce Code' s l i abi l i t i es whi l e st i l l

market i ng t he de- i ci ng t echnol ogy ( whi ch was owned by Dar t mout h

and l i censed t o I ce Code) . Mar t i nez' s pr ef er r ed appr oach ent ai l ed

t he cont i nuat i on of I ce Code as a vi abl e ent i t y. For pur poses of

summary j udgment , we t ake as t r ue Mart i nez' s cl ai m t hat he was

unawar e t hat an al t er nat i ve pl an ul t i mat el y pr ef er r ed by Pet r enko,

"Pl an B, " cal l ed f or t he f or mat i on of an ent i r el y new ent i t y t o

l i cense t he t echnol ogy f r om Dar t mout h, r ender i ng wor t hl ess any

equi t y i n I ce Code.

I n l at e Apr i l 2011, Pet r enko t ol d Mar t i nez and Zhi gal ov

t hat he woul d not suppor t or par t i ci pat e i n Mar t i nez' s pr ef er r ed

pl an f or escapi ng I ce Code' s debt s. About t wo weeks l ater , on May

13, 2011, Mar t i nez sent a l et t er t o Pet r enko and Zhi gal ov

i ndi cat i ng t hat he consi der ed t he f ai l ur e t o pay hi m pur suant t o

t he execut i ve agr eement a const r uct i ve t er mi nat i on. 3 He cal cul at ed

t hat at t he t i me, t he company owed hi m$172, 860. 99 i n unpai d wages.

He al so sought t he i mmedi at e vest i ng of hi s 10, 000 equi t y uni t s.

He recei ved nei t her , and thr ough a compl i cat ed ser i es of event s

t hat need not be r eci t ed f or pur poses of t hi s appeal , I ce Code

l ost t he l i cense t o t he de- i ci ng t echnol ogy and, as a pr act i cal

3 Pet r enko wr ot e t o r espond t hat t here had been noconst r uct i ve t er mi nat i on, but whet her or not t her e had been i s notr el evant t o t hi s appeal .



- 8 -

mat t er , ceased t o exi st . The t echnol ogy was l i censed t o a new

ent i t y wi t h whi ch Pet r enko was i nvol ved but Mart i nez was not .

I n August 2012, Mar t i nez brought sui t agai nst I ce Code

and Pet r enko i n di st r i ct cour t , al l egi ng vi ol at i ons of t he over t i me

pr ovi si ons of t he FLSA, vi ol at i ons of New Hampshi r e l abor l aws,

br each of cont r act , wr ongf ul di schar ge, and i nt ent i onal

mi sr epr esent at i on. I ce Code was di smi ssed wi t hout pr ej udi ce when

Mar t i nez f ai l ed t o f i l e a t i mel y r et ur n of ser vi ce. Pet r enko i s

now t he sol e def endant .

I n suppor t of t he FLSA cl ai m, paragr aph 57 of t he

compl ai nt al l eges t hat FLSA cover age was t r i gger ed by I ce Code' s

act i vi t i es, i . e. , "ent er pr i se cover age. " The ent i r et y of t hi s

al l egat i on i s as f ol l ows:

I ce Code was a cover ed empl oyer wi t hi n themeani ng of t he Fai r Labor St andards Act f or

t he per i od r unni ng f r omMarch 1, 2010, t hr oughMarch 1, 2011. I ce Code, LLC, engaged i ni nt er st ate commer ce. Fur t her more, I ce Code' sannual gr oss vol ume of sal es made or busi nessdone exceeded $500, 000. 00 f or t hi s t i me per i od. . . t ot al i ng appr oxi mat el y $719, 391. 46.

The compl ai nt al so al l eges t hat Pet r enko i ndi vi dual l y

qual i f i ed as Mar t i nez' s empl oyer under t he FLSA. See 29 U. S. C.

§ 203( d) . Pet r enko does not di sput e t hi s al l egat i on as i t bear s

on t he FLSA cl ai m i n t hi s appeal .

Pet r enko moved t o di smi ss t he FLSA cl ai m under Feder al

Rul e of Ci vi l Pr ocedur e 12( b) ( 6) , ar gui ng t hat Mar t i nez had f ai l ed



- 9 -

t o pl ead suf f i ci ent f act s t o pl ausi bl y suppor t t he el ement of FLSA

cover age. I n par t i cul ar , he not ed t hat Mar t i nez had al l eged t hat

I ce Code had r ecei ved " r evenues and i nvest ment s" t ot al i ng more

t han $500, 000, but argued that i nvest ment s do not count as "sal es

made or busi ness done" under t he FLSA. See 29 C. F. R. § 779. 259.

Pet r enko al so poi nt ed out i n hi s mot i on t hat Mar t i nez had "not

even at t empt ed t o al l ege t hat he was a ' covered empl oyee' or t hat

t her e was i ndi vi dual cover age under t he FLSA, " l et al one al l eged

f act s suf f i ci ent t o suppor t such a cl ai m.

Mar t i nez f i l ed an obj ect i on t o t he mot i on t o di smi ss,

st at i ng that t he cl ai m "shoul d be al l owed t o pr oceed because Mr .

Mart i nez has adequatel y pl ed ent er pr i se cover age. " For an obvi ous

r eason ( i t was cor r ect ) , Mar t i nez di d not di sput e Pet r enko' s

char act er i zat i on of hi s compl ai nt as at t empt i ng t o al l ege

ent er pr i se cover age onl y. For r easons t hat are l ess obvi ous,

i ndeed i nexpl i cabl e, he di d not at t he same t i me amend hi s

compl ai nt t o add a pl ausi bl e asser t i on of i ndi vi dual cover age.

See Fed. R. Ci v. P. 15( a) ( 1) ( B) ( al l owi ng a par t y t o amend t he

pl eadi ngs as a mat t er of cour se wi t hi n 21 days af t er servi ce of a

mot i on under Rul e 12( b) ) . Nor di d he t her eaf t er seek l eave t o

amend. See Fed. R. Ci v. P. 15( a) ( 2) ( pr ovi di ng t hat af t er t he

t i me t o amend by r i ght has expi r ed but bef or e t r i al begi ns, t he

cour t shoul d " f r eel y gi ve l eave [ t o amend t he pl eadi ngs] when

j ust i ce so r equi r es" ) .



- 10 -

The di st r i ct cour t deni ed Pet r enko' s mot i on t o di smi ss.

I n a March 2013 schedul i ng order , t he cour t appr oved a t wel ve-

mont h di scover y pl an set t i ng an Apr i l 1, 2013, deadl i ne f or

amendi ng t he pl eadi ngs and a summar y j udgment deadl i ne of Mar ch 3,

2014. The par t i es commenced di scover y. Pet r enko submi t t ed

i nt er r ogat or i es t o Mar t i nez, i ncl udi ng a quest i on aski ng Mar t i nez

t o "[ s] t at e each and ever y f act upon whi ch you rel y t o suppor t

your cl ai m t hat [ I ce Code] was a ' cover ed empl oyer ' under t he Fai r

Labor St andar ds Act . " Mar t i nez repl i ed t hat " I ce Code engaged i n

i nt er st at e commer ce, " but he of f er ed no f act s demonst r at i ng any

such engagement . I nst ead, t he onl y f act s Mar t i nez pr ovi ded i n

r esponse t o t hat i nqui r y wer e a l i st of I ce Code' s gr oss r ecei pt s

as r ef l ect ed i n bank st at ement s. Nor di d Mar t i nez ci t e any of hi s

own act i vi t i es as a basi s f or asser t i ng cover age.

Af t er f our t een mont hs of l i t i gat i on and wel l af t er t he

deadl i ne f or amendi ng the pl eadi ngs had passed, Pet r enko i n Oct ober

2013 moved f or summar y j udgment on the FLSA cl ai m, ar gui ng t hat

Mar t i nez had not est abl i shed f act s suf f i ci ent t o meet hi s bur den

of pr ovi ng t hat I ce Code had at l east $500, 000 i n non- i nvest ment

sal es or busi ness t o est abl i sh ent er pr i se cover age.

Mar t i nez t r i ed t o par r y t he mot i on on t hr ee l evel s.

Fi r st , he ar gued that pr oof of FLSA cover age was not a requi r ed

el ement of hi s cause of act i on. Unsur pr i si ngl y, t he di st r i ct cour t

r ej ect ed t hi s ar gument . See Chao, 493 F. 3d at 33 ( descr i bi ng



- 11 -

cover age as an el ement of t he cl ai m) . Second, Mar t i nez r ei t er at ed

hi s ar gument t hat I ce Code engaged i n commer ce and had r evenues i n

excess of $500, 000. The di st r i ct cour t r ej ect ed t hi s ar gument

because a $295, 600 i nvest ment by Zhi gal ov di d not qual i f y as " sal es

made or busi ness done" as r equi r ed by t he pl ai n l anguage of t he

st at ut e, 29 U. S. C. § 203( s) ( 1) ( A) ( i i ) , and t he r emai ni ng r evenue

sour ces, even i f t hey count ed t oward AGV, di d not t otal $500, 000.

Fi nal l y, Mar t i nez submi t t ed an af f i davi t cl ai mi ng t hat he hi msel f

engaged i n i nt er st at e t r avel and phone cal l s suf f i ci ent t o

est abl i sh i ndi vi dual cover age under t he Act . The di st r i ct cour t

r ej ect ed t hat l ast argument because i t was "a new and unadver t i sed

t heor y of i ndi vi dual cover age" not r ai sed i n t he compl ai nt or i n

r esponse t o t he ear l i er mot i on t o di smi ss.

Af t er t he di st r i ct cour t gr ant ed Pet r enko' s mot i on f or

summary j udgment on t he FLSA cl ai m, Mar t i nez v. Pet r enko, No. 12-

cv- 331- J D, 2014 WL 109073, at *5 ( D. N. H. J an. 13, 2014) , Mart i nez

moved f or r econsi der at i on, argui ng t hat t he l anguage i n paragr aph

57 of hi s compl ai nt ( quot ed above) was br oad enough t o encompass

bot h i ndi vi dual and ent er pr i se cover age. The di st r i ct cour t

di sagr eed, i nt er pr et i ng par agr aph 57 as pl eadi ng onl y ent er pr i se

coverage, and deni ed t he mot i on.

I n a separ at e or der , t he di st r i ct cour t al so gr ant ed

summary j udgment f or Pet r enko on Mar t i nez' s var i ous s t ate- l aw



- 12 -

cl ai ms. 4 Wi t h r egar d t o t he t hr ee of t hose cl ai ms r ai sed on t hi s

appeal , Mar t i nez sought t o pr evai l agai nst Pet r enko per sonal l y f or

l i abi l i t i es al l egedl y i ncur r ed by I ce Code ( whi ch was no l onger a

def endant ) . Mart i nez t her ef ore had t o demonst r ate t hat New

Hampshi r e' s ver si on of t he doct r i ne of pi er ci ng t he cor por at e vei l

al l owed hi m, a company execut i ve and di r ect or , t o st at e a cl ai m

agai nst anot her di r ect or . The di st r i ct cour t hel d t hat Mar t i nez

had not demonst r at ed a t r i abl e i ssue of f act as t o t he

appl i cabi l i t y of t he vei l - pi er ci ng doctr i ne t o Mar t i nez' s cl ai ms.

II. Standard of Review

We revi ew a di st r i ct cour t ' s gr ant of summary j udgment

de novo. Li t z v. Sai nt Consul t i ng Gr p. , I nc. , 772 F. 3d 1, 3 ( 1st

Ci r . 2014) . The movi ng par t y i s ent i t l ed t o summary j udgment i f

i t "shows t hat t her e i s no genui ne di sput e as t o any mat er i al f act

and [ i t ] i s ent i t l ed t o j udgment as a mat t er of l aw. " Fed. R.

Ci v. P. 56( a) .

4 Pet r enko had i ni t i al l y ar gued t hat because Mar t i nez' s cl ai munder t he f eder al FLSA f ai l ed, t he cour t l acked subj ect - mat t er j ur i sdi ct i on over t he st at e- l aw cl ai ms under 28 U. S. C. § 1331. The di st r i ct cour t hel d t hat t here exi st ed compl et e di ver si t ybet ween the part i es ( at l east once I ce Code was di smi ssed as adef endant ) , so the cour t had j ur i sdi ct i on under 28 U. S. C. § 1332.Mar t i nez, 2014 WL 109073, at *5- 6.



- 13 -

III. Analysis

A. FLSA Claim

"The f undament al pur pose of our pl eadi ngs r ul es i s t o

pr ot ect a def endant ' s i nal i enabl e r i ght t o know i n advance t he

nat ur e of t he cause of act i on bei ng asser t ed agai nst hi m. " Rui z

Ri ver a v. Pf i zer Phar m. , LLC, 521 F. 3d 76, 84 ( 1st Ci r . 2008)

( i nt er nal quot at i on mar ks omi t t ed) . The compl ai nt must pr ovi de

t hi s not i ce not wi t h mer e "concl usi ons, " but r at her wi t h "f act ual

cont ent t hat al l ows t he cour t t o dr aw t he r easonabl e i nf er ence

t hat t he def endant i s l i abl e f or t he mi sconduct al l eged. " Ashcrof t

v. I qbal , 556 U. S. 662, 678 ( 2009) .

As we sai d i n Manni ng v. Bost on Medi cal Cent er

Cor por at i on, a compl ai nt must al l ege f act s " suf f i ci ent t o show an

ent i t l ement t o r el i ef . " 725 F. 3d 34, 43 ( 1st Ci r . 2013) . One of

t he "basi c el ement s" necessar y t o showi ng an ent i t l ement t o r el i ef

under t he FLSA i s t hat "t he wor k i nvol ved i nt er st at e act i vi t y. "

I d. The compl ai nt must t her ef or e al l ege f act s suf f i ci ent t o

est abl i sh t hat ei t her t he pl ai nt i f f ' s wor k or anot her empl oyee' s

work i nvol ved i nt er st ate commer ce wi t hi n the meani ng of t he Act .

I d.

On appeal , Mar t i nez abandons hi s at t empt t o pr ove

ent er pr i se cover age. He ar gues, i nst ead, t hat hi s compl ai nt ' s

concl usor y al l egat i on t hat " I ce Code was a cover ed empl oyer " under

t he FLSA was suf f i ci ent t o gi ve not i ce t hat he mi ght t r y t o pr ove



- 14 -

i ndi vi dual cover age. Thi s ar gument i s t wi ce f l awed. Fi r st , as we

expl ai ned i n Manni ng, when we r ead a compl ai nt , "concl usor y

al l egat i ons t hat mer el y par r ot t he r el evant l egal st andar d ar e

di sr egar ded. " I d. at 43. Second, t he onl y nonconcl usor y

al l egat i ons per t i nent t o est abl i shi ng FLSA cover age r ef er t o I ce

Code' s annual sal es, and t hus poi nt onl y t o ent er pr i se, not

i ndi vi dual , cover age. As such, t he compl ai nt gave even l ess not i ce

t han a "mer el y" concl usor y compl ai nt woul d have gi ven t hat

Mar t i nez' s i ndi vi dual act i vi t i es woul d pr ovi de t he gr ounds upon

whi ch cover age depended, because i t poi nt ed speci f i cal l y and

excl usi vel y i n t he ot her di r ect i on. See Rui z Ri ver a, 521 F. 3d at

85 ( " I t s i mpl y wi l l not do f or a pl ai nt i f f t o f ai l t o pl ead wi t h

adequat e speci f i ci t y f acts t o suppor t a . . . cl ai m, al l - t he- whi l e

hopi ng t o pl ay t hat car d i f her i ni t i al hand i s a dud. ") ; see al so

Cal vi v. Knox Cnt y. , 470 F. 3d 422, 431 ( 1st Ci r . 2006) ( st at i ng

t hat a pl ai nt i f f i s " not ent i t l ed t o r ai se new and unadver t i sed

t heor i es of l i abi l i t y f or t he f i r st t i me i n opposi t i on t o a mot i on

f or summar y j udgment " ) .

Mar t i nez di d not f i l e a mot i on t o amend hi s compl ai nt ,

so he can har dl y compl ai n about bei ng hel d t o hi s or i gi nal

compl ai nt . I t never t hel ess r ei nf or ces our concl usi on t o not e t hat ,

had he f i l ed such a mot i on when he f i r st announced hi s r el i ance on

i ndi vi dual cover age af t er t he deadl i ne f or amendi ng t he pl eadi ngs

had passed, i t i s unl i kel y t hat we woul d have f ound t he deni al of



- 15 -

t hat bel at ed mot i on t o be an abuse of di scr et i on. See Fed. R.

Ci v. P. 15( a) ( 2) , 16( b) ( 4) ; see Tor r es- Ri os v. LPS Labs. , I nc. ,

152 F. 3d 11, 16 ( 1st Ci r . 1998) ( r evi ewi ng deni al of mot i on t o

amend t he pl eadi ngs f or abuse of di scret i on) . I n Tor r es- Ri os, f or

exampl e, t he compl ai nt al l eged a pr oduct l i abi l i t y cl ai m t hr ough

f act s est abl i shi ng t hat t he pr oduct was def ect i ve because i t s

warni ngs were i nadequat e. I d. at 12- 15. I n opposi ng summary

j udgment , t he pl ai nt i f f s t hen t r i ed t o r el y on f act s sai d t o show

t hat t he pr oduct was def ect i vel y desi gned, ar gui ng t hat a desi gn

def ect t heor y was i mpl i ci t i n t hei r compl ai nt . I d. at 15- 16.

Af f i r mi ng t he di str i ct cour t ' s ref usal t o al l ow t he pl ai nt i f f s to

r el y on the new t heor y, we obser ved t hat such a change af t er

di scover y was compl et ed "unquest i onabl y woul d pr ej udi ce def endant ,

whose f ocus unt i l t hat t i me had been on the adequacy of t he warni ng

l abel s and not on t he cost s and benef i t s of t he pr oduct i t sel f . "

I d. at 16.

But , says Mart i nez, hi s change di d not pr esent a change

i n a "t heor y of l i abi l i t y, " because he consi st ent l y ar gued t hat

Pet r enko was l i abl e f or unpai d over t i me under t he FLSA- - al l t hat

changed was Mar t i nez' s t heor y of why he shoul d enj oy t he FLSA' s

pr ot ect i ons i n t he f i r st pl ace. However , t he nexus t o commer ce i s

an el ement of t he cl ai m, wi t hout whi ch t her e i s no ent i t l ement t o

r ecover y, and Mar t i nez sought t o change ent i r el y t he t heor y

est abl i shi ng a nexus. A bel at ed change of t he f act s Mar t i nez woul d



- 16 -

use t o est abl i sh t hat nexus i mpl i cat es pr eci sel y t he t ype of unf ai r

mi sdi r ect i on at i ssue i n cases such as Tor r es- Ri os.

The def aul t r ul e i s t hat , bef or e t r i al , t he cour t shoul d

" f r eel y gi ve l eave" t o amend t he pl eadi ngs " when j ust i ce so

r equi r es. " Fed. R. Ci v. P. 15( a) ( 2) . Once a cour t set s a deadl i ne

f or seeki ng such l eave, t hough, t he compl ai nt may be modi f i ed "onl y

f or good cause. " Fed. R. Ci v. P. 16( b) ( 4) . "Good cause" does not

t ypi cal l y i ncl ude a change of hear t on a l i t i gat i on st r at egy. See

Tr ans- Spec Tr uck Serv. , I nc. v. Cat er pi l l ar I nc. , 524 F. 3d 315,

327 ( 1st Ci r . 2008) ( af f i r mi ng a magi st r at e' s r ef usal t o amend t he

pl eadi ngs el even mont hs af t er a schedul i ng order deadl i ne had

passed because "[ t ] he expl anat i on f or t he del ay seems t o be si mpl y

t hat [ t he pl ai nt i f f ] t hought t hat i t woul d pr evai l . . . wi t hout

any need t o f ur t her amend. I n t hat , i t s cal cul at i ons wer e wr ong.

Nonet hel ess, [ t he pl ai nt i f f ] must be bound by t he consequences of

i t s l i t i gat i on st r at egy. ") . Her e, we not e al so t hat al l of t he

f act s upon whi ch Mart i nez bel atedl y sought t o demonst r ate

i ndi vi dual cover age wer e known t o hi m bef or e he f i l ed hi s

compl ai nt .

Our deci si on i n Bacou Dal l oz USA, I nc. v. Cont i nent al

Pol ymer s, I nc. , 344 F. 3d 22 ( 1st Ci r . 2003) , i s not t o t he

cont r ar y. I n t hat case, we st at ed t hat a di st r i ct cour t shoul d

consi der t he f ul l r ecor d, i ncl udi ng af f i davi t s and

i nt er r ogator i es, when consi der i ng a mot i on f or summary j udgment .



- 17 -

I d. at 26. Not hi ng i n t hat case, t hough, suggest s t hat a di st r i ct

cour t need l ook f or f act s i n suppor t of a t heor y that was not even

pl eaded. Such a r ul e woul d ef f ect i vel y r equi r e al l l i t i gant s t o

engage i n di scover y based not on what was pl eaded but al so on what

mi ght have been pl eaded. We r ej ect such a r equi r ement .

B. State-Law Claims

Mar t i nez al so appeal s t he di st r i ct cour t ' s gr ant of

summary j udgment t o Pet r enko on hi s st at e- l aw cl ai ms f or unpai d

wages under New Hampshi r e Revi sed St at ut es Annot at ed §§ 275: 43 and

44, br each of cont r act , and wr ongf ul di schar ge. 5 New Hampshi r e

l aw gover ns t hese cl ai ms i n t hi s act i on gr ounded on di ver si t y

j ur i sdi ct i on. See Hansen v. Sent r y I ns. Co. , 756 F. 3d 53, 57 ( 1st

Ci r . 2014) .

Mart i nez br ought t hese cl ai ms agai nst Pet r enko

per sonal l y under t he doct r i ne of pi er ci ng t he cor por at e vei l , whi ch

al l ows a per son wi t h a cl ai m agai nst a cor por at i on t o recover f r om

a pr i nci pal of t hat cor por at i on when t he pr i nci pal abuses t he

corporate f orm. 6 See, e. g. , Ter r en v. But l er , 134 N. H. 635, 638-

5 The di st r i ct cour t al so gr ant ed Pet r enko summary j udgmenton Mar t i nez' s i nt ent i onal mi sr epr esent at i on cl ai m, hol di ng t hatMart i nez had not r ai sed an i ssue of f act as t o whet her he hadr el i ed on any mi sr epr esent at i on made by Pet r enko. Mart i nez di dnot appeal t he gr ant of summary j udgment on hi s i nt ent i onalmi sr epr esent at i on cl ai m.

6 Pet r enko concedes t hat vei l - pi er ci ng can appl y t o l i mi t edl i abi l i t y compani es ( LLCs) under New Hampshi r e l aw. See Mbahabav. Mor gan, 163 N. H. 561, 568 ( 2012) ( appl yi ng t he vei l - pi er ci ng



- 18 -

40 ( 1991) ( af f i r mi ng t he l ower cour t ' s deci si on t o al l ow vei l -

pi er ci ng upon a f i ndi ng t hat cor por at e pr i nci pal s "di ver t [ ed]

cor por at e asset s t o thei r benef i t when subst ant i al not i ce of cl ai ms

[ agai nst t he cor por at i on] wer e out st andi ng") . I n gr ant i ng

Pet r enko' s mot i on f or summar y j udgment , t he di st r i ct cour t

r ej ect ed Mar t i nez' s vei l - pi er ci ng theor y on t wo gr ounds, hol di ng

f i r st t hat vei l - pi er ci ng i s not avai l abl e t o al l ow one company

i nsi der t o recover agai nst anot her ; and second, t hat even i f vei l -

pi er ci ng wer e pot ent i al l y avai l abl e, Mar t i nez had not shown an

i ssue of f act as t o whet her Pet r enko had used t he LLC f or m t o

per pet r at e a f r aud on hi m.

Def endi ng t he j udgment , Pet r enko presses t he argument

t hat vei l - pi er ci ng i s cat egor i cal l y unavai l abl e t o cor por at e

i nsi der s under New Hampshi r e l aw. Whi l e many st at es have adopt ed

or come cl ose t o adopt i ng such a r ul e, see 2 F. Hodge O' Neal &

Rober t B. Thompson, O' Neal and Thompson' s Cl ose Corpor at i ons and

LLCs: Law and Pr act i ce § 8: 18 ( r ev. 3d ed. 2014) ( " [ C] our t s r ar el y

per mi t a cor por at i on t o be di sr egar ded f or t he benef i t of i t s own

shar ehol der s. " ) , nei t her part y poi nt s us t o any New Hampshi r e case

l aw on poi nt .

doct r i ne t o a cl ai m agai nst t he pr i nci pal of an LLC) . Becausemost of t he r el evant vei l - pi er ci ng case l aw i nvol ves cor por at i ons,i n t hi s opi ni on we use t he t er m "cor por at e" br oadl y to i ncl udeLLCs.



- 19 -

We see no need t o deci de i n t hi s case whet her New

Hampshi r e l aw per se bar s an i nsi der l i ke Mar t i nez f r om

successf ul l y pi er ci ng t he cor por at e vei l t o hol d anot her i nsi der

l i abl e f or t he cor por at i on' s debt s. Rat her , t he r ecor d her e al l ows

us t o af f i r m on t he di str i ct cour t ' s al t er nat i ve gr ound t hat

Mar t i nez has not made out a case f or vei l - pi er ci ng even i f he i s

not cat egor i cal l y bar r ed f r om doi ng so.

We begi n by observi ng t hat Mart i nez poi nt s t o no case

f r om New Hampshi r e or el sewher e al l owi ng t he pi er ci ng of t he

cor por at e vei l f or a t ype of wr ongdoi ng anal ogous t o t hat al l eged

her e. 7 Under New Hampshi r e l aw, cor por at e owner s ar e not

" [ o] r di nar i l y" l i abl e f or cor por at e debt s. Mbahaba v. Mor gan, 163

N. H. 561, 568 ( 2012) . The common l aw vei l - pi er ci ng except i on t o

t hat r ul e onl y ar i ses when "a shar ehol der suppr esses t he f act of

i ncor por at i on, mi sl eads hi s credi t or s as t o t he cor por at e asset s,

or ot her wi se uses t he cor por at e ent i t y to pr omot e i nj ust i ce or

f r aud. " Dr udi ng v. Al l en, 122 N. H. 823, 827 ( 1982) ; see al so

Ter r en, 134 N. H. at 639- 40.

7 He rel i es on Cheney v. Moor e, 193 Ga. App. 312, 312 (1989) ,i n whi ch vei l - pi er ci ng was used t o al l ow a 50% shar ehol der t or ecover her st ar t - up capi t al when her f or mer busi ness par t ner shuther out of t he busi ness and she l ef t t he company a mont h af t er i t si ncor porat i on; and Sout her n Cal i f or ni a Feder al Savi ngs & LoanAssoci at i on v. Uni t ed St at es, 422 F. 3d 1319, 1331- 32 ( Fed. Ci r .2005) , wher e t he cour t r ej ect ed a bi d by i ndi vi dual shar ehol der st o sue the gover nment f or br each of a cont r act wi t h t hecor por at i on.



- 20 -

Mart i nez obvi ousl y knew t hat I ce Code was a corporat i on,

and t hat i t was I ce Code t hat empl oyed hi m. He t her ef ore t r ai ns

hi s ar gument on hi s cl ai m t hat Pet r enko i nduced hi m t o cont i nue

wor ki ng f or I ce Code by mi sr epr esent i ng t he val ue of i t s asset s.

The al l eged mi sr epresent at i on i s Pet r enko' s st at ement ( accor di ng

t o Mar t i nez) t hat t he 10, 000 uni t s t hat I ce Code gr ant ed t o

Mar t i nez were wor t h " [ s] omethi ng around $2 mi l l i on" even t hough he

knew t hat I ce Code was goi ng t o f ai l . The sequence of event s,

t hough, was t hat dur i ng a board meet i ng, Mar t i nez demanded 10, 000

equi t y uni t s as a condi t i on of cont i nui ng t o wor k f or I ce Code,

and Pet r enko bal ked, st at i ng t hat Mar t i nez' s " r equest seemed ver y

hi gh because t he val ue of t hose equi t y uni t s was ver y hi gh, " i . e. ,

" [ s] omet hi ng ar ound $2 mi l l i on. " 8 The boar d, wi t h Pet r enko i n

agr eement , nevert hel ess acceded t o Mar t i nez' s demand. 9 As t hus

descr i bed by Mar t i nez, hi s of f er t o cont i nue wor ki ng f or 10, 000

8 I n hi s deposi t i on t est i mony, Mar t i nez char act er i zed t heval ue as based on t he per - uni t pr i ce of a recent pr i vat e pl acementmemorandum t he boar d had aut hor i zed, and sai d t hat t he boar dmembers shared a general agr eement about t he uni t s' val ue.

9 Al t hough Mar t i nez ar gues t hat Pet r enko "aut hor i zed" t heconveyance, t he f act s do not seemt o suppor t t hi s char act er i zat i on. The r ecor d shows t he conveyance was di scussed by t he board i nNovember 2010 and J anuar y 2011, and f ormal i zed t hrough a J anuar y2011 agr eement s i gned by Zhi gal ov. Whet her Pet r enko aut hor i zedt he conveyance i s not r el evant t o t hi s appeal , however , becauseeven i f he di d, t hi s aut hor i zat i on does not const i t ut e an abuse oft he cor por at e f or m f or whi ch vei l - pi er ci ng i s avai l abl e.



- 21 -

uni t s came bef or e Pet r enko made any asser t i on of t he uni t s' val ue,

and coul d not have been i nduced by any such asser t i on.

Mor e gener al l y, t her e i s no evi dence t hat Mar t i nez was

unaware of I ce Code' s pr ecar i ous ci r cumst ances when he sought

addi t i onal equi t y. At t he t i me of t he al l eged f r aud, Mar t i nez

knew t he company f aced si gni f i cant hur dl es- - i ndeed, t he

underpayment of hi s sal ary i s why he appr oached t he boar d i n

November 2010 seeki ng addi t i onal equi t y as an al t er nat i ve f or m of

compensat i on. Moreover , he di d so onl y weeks af t er he had vot ed

t o appr ove t he speci al boar d r esol ut i on descr i bi ng t he company' s

di r e f i nanci al st r ai t s. As any i nvest or knows, t he val ue of a

company' s equi t y may r i se or f al l , or i t may di sappear compl et el y

i f t he company f ai l s. When Mart i nez agr eed t o keep worki ng at I ce

Code f or company equi t y, he was assumi ng a r i sk t hat t he company

coul d f ai l , and he assumed t hat r i sk knowi ng t he company' s f i nances

wer e i n poor shape. The equi t y gr ant agr eement i t sel f conf i r med

( i n rat her desper ate- soundi ng t er ms) t hat t he company was, at best ,

hobbl i ng al ong. I n shor t , t he LLC vei l had not hi ng t o do wi t h

i mpedi ng Mar t i nez f r omknowi ng t hat whi ch he says he di d not know.

Nor , f i nal l y, does Mar t i nez cl ai m t hat Pet r enko act ual l y

mi sr epr esent ed any f act s concerni ng I ce Code' s asset s, or r emoved

any asset s f r om t he company.

Mar t i nez' s r esponse i s t o poi nt t o Pet r enko' s f ai l ur e t o

di scl ose t o Mar t i nez t he exi st ence of so- cal l ed Pl an B. Mar t i nez



- 22 -

knew t hat I ce Code di d not own i t s core t echnol ogy, t hat i t owed

"[ s] ever al hundr ed t housand" dol l ar s t o t he act ual owner

( Dar t mout h) , and t hat i t woul d l ose i t s l i cense i f i t di d not

t i mel y pay Dar t mout h what i t owed. 10 However , Mar t i nez says he di d

not know t hat ( agai n, accor di ng t o Mart i nez) Pet r enko had gi ven up

on I ce Code, and was worki ng on Pl an B t o f orm a new ent i t y t o

expl oi t Dar t mout h' s t echnol ogy i n t he event I ce Code' s l i cense t o

t he t echnol ogy expi r ed.

An i ni t i al hur dl e i n t he way of t hi s ar gument i s, agai n,

t he chr onol ogy. Mar t i nez poi nt s t o t wo Febr uary 2011 e- mai l s i n

whi ch Pet r enko descr i bed pr obl ems wi t h Pl an B and i ndi cat ed he was

st i l l t r yi ng t o pur sue "Pl an A, " ( whi ch Pet r enko says was a pl an

t o at t r act new i nvest ment t o I ce Code) ; and an Apr i l 2011 memo

t hat st at es t hat "[ t ] he ef f or t t o r eor gani ze [ I ce Code] began i n

ear nest " i n J anuar y 2011, but suggest s t hat Pet r enko and ot her s

di d not " deci de[ ] t o shi f t t o a pl an- b" unt i l mi d- Apr i l . Not hi ng

i n t hese document s woul d seemt o suppor t Mar t i nez' s asser t i on t hat

Pet r enko had deci ded t o pur sue Pl an B i n November 2010 when

Mart i nez s i gned the equi t y agr eement .

10 Dar t mout h i mposed a May 1, 2011, deadl i ne f or payment oft he debt . I t i s uncl ear exact l y when i t i mposed t hi s deadl i ne,but Mar t i nez admi t s t hat by March 2011, he and Pet r enko had al r eadynegot i at ed "sever al ext ensi ons. "



- 23 -

Even i f a j ur y coul d somehow i nt erpr et t hese document s

t o suppor t Mar t i nez' s cl ai m t hat Pet r enko had deci ded t o pur sue

Pl an B i n November 2010, 11 we woul d see no r eason t o equat e one

cor por at e i nsi der ' s f ai l ur e t o di scl ose t o anot her i nsi der hi s own

pl ans t o gi ve up on a cor por at i on wi t h t he mi suse of t he cor por at e

vei l , at l east wher e t he pl ans i nvol ve no use of t he cor por at e

f or m t o conceal t he pl ans and no r emoval of cor por at e asset s

wi t hout r easonabl e consi der at i on. Per haps such an i nsi der , i n

appr opr i ate ci r cumst ances, may owe a dut y of di scl osur e di r ect l y

t o anot her i nsi der . Whet her t hat i s so we need not deci de.

Mar t i nez has not appeal ed t he di smi ssal of hi s i nt ent i onal

mi sr epr esent at i on cl ai m and ot her wi se pr esses no cl ai m agai nst

Pet r enko di r ect l y, r est i ng i nst ead on hi s at t empt t o hol d Pet r enko

vi car i ousl y l i abl e f or t he obl i gat i ons of I ce Code.

Ul t i mat el y, Mar t i nez' s argument t hat t he vei l shoul d be

pi er ced t o cor r ect an i nj ust i ce f ai l s t o addr ess t he di st i ncti on

bet ween use of t he cor por at e f or m t o pr ot ect t he owner f r om

l i abi l i t y f or an i nj ust i ce per pet r at ed by t he cor por at i on, and an

owner ' s use of t he cor por at e f or m t o pr omot e or per pet r at e t he

i nj ust i ce. New Hampshi r e l aw al l ows vei l - pi er ci ng i n t he case of

t he l at t er . See Ter r en, 134 N. H. at 639. To al l ow vei l - pi er ci ng

11 I n gr ant i ng summary j udgment t o Pet r enko on Mar t i nez' si nt ent i onal mi sr epr esent at i on cl ai m, t he di st r i ct cour t hel d t heycoul d not .



- 24 -

i n t he case of t he f or mer , however , woul d essent i al l y el i mi nat e

t he or di nar y r ul e t hat t he owner i s not l egal l y r esponsi bl e f or

t he l i abi l i t i es of t he cor por at i on. New Hampshi r e case l aw r ej ect s

t he not i on of such a f l i msy vei l . See Dr udi ng, 122 N. H. at 827-

28 ( r ever si ng a l ower cour t ' s pi er ci ng of t he vei l , even t hough a

cl osel y hel d cor por at i on had f ai l ed t o obser ve cer t ai n

f or mal i t i es, "[ i ] n vi ew of t he dear t h of evi dence t hat [ t he

cor por at i on' s pr esi dent ] used the cor por at i on t o pr omot e i nj ust i ce

or f r aud") ; Vi l l age Pr ess, I nc. v. St ephen Edwar d Co. , 120 N. H.

469, 471- 72 ( 1980) ( not i ng t hat vei l - pi er ci ng i s not al l owed si mpl y

because a cor por at i on i s a "one- man oper at i on" i f t her e i s no

evi dence of a f r audul ent conveyance, of suppr essi ng t he f act of

i ncor por at i on, or of mi sl eadi ng t he pl ai nt i f f about cor por at e

asset s) ; Pet er R. Pr evi t e, I nc. v. McAl l i ster Fl or i st , I nc. , 113

N. H. 579, 582- 83 ( 1973) ( hol di ng t hat cr edi t or of i nsol vent f ami l y

busi ness coul d not r ecover f r om def endant s per sonal l y because

t her e was no evi dence def endant s had "suppr essed t he f act of t hei r

i ncor por at i on or mi sl ed t he pl ai nt i f f as t o t he cor por at e

assets"). 12

IV. Conclusion

For t he f or egoi ng r easons, we af f i r m.

12 Mart i nez does not al l ege t hat I ce Code was an al t er ego ofPet r enko, nor t hat Pet r enko f r audul ent l y t r ansf er r ed I ce Codeasset s t o hi msel f , hi s r el at i ves, or an ent i t y he cont r ol l ed.

Documents

Martinez v. Petrenko, 1st Cir. (2015)