United States District Court, D. Oregon, Medford Division
YETI ENTERPRISES INCORPORATED, an Oregon corporation; ALEXANDER J. HEAGLE, and individual; and FREQ WATER, INC., an Oregon corporation, Plaintiff,
ORION TANG, an individual; OREGON GLOBAL DISTRIBUTION, INC., an Oregon corporation; RENY TOWNSEND, an individual; RICHARD ROWE, an individual; WETA, INC., an Oregon corporation; IN AND OUT GARDENS LLC, an Oregon limited liability company; HEADQUARTERS, LLC, an Oregon limited liability company; and NPK, LLC, an Oregon limited liability company, Defendants, NICHOLAS JACKSON, an individual; and JESSICA LILGA, an individual, Counter-Defendants.
FINDINGS OF FACT & CONCLUSIONS OF LAW
CLARKE, Magistrate Judge.
25 and 26, 2017, the Court held a bench trial and took this
case under advisement. The following are my findings of fact
and conclusions of law. Fed.R.Civ.P. 52(a)(1).
LLC ("NPK"), has sued Nicholas Jackson
("Jackson") and Jessica Lilga ("Lilga")
for events taking place largely between October 2012 and
December 2013, when NPK alleges Jackson and Lilga conspired
with Jim Heagle ("Heagle") to eliminate NPK from
the distribution market for frequency-water products.
manufactures, distributes, and markets gardening supplies and
materials. In 2009, NPK entered into a contract with Yeti
Enterprises, Inc. ("Yeti), which was memorialized into a
written distribution agreement on September 28, 2010, and
again on November 11, 2010. The agreement provided that NPK
would market, bottle, and distribute Yeti's product known
as frequency water. See Pl.'s Ex. 2. Heagle is
the president and majority owner of Yeti. Subsequent to this
agreement, NPK created three plant washes: Mighty Wash, Power
Wash, and PM Wash, all of which contained and were marketed
as containing frequency water. The products were sold to
wholesale distributors. This partnership rapidly increased
revenue for both NPK and Yeti.
owns 22.5 percent of NPK. In October 2012, Jackson was
incarcerated for fourteen months. Prior to his incarceration,
Jackson was also employed by NPK as vice president of sales;
Jackson believed he was chronically underpaid for this
positionâhe was paid $12, 250.72 in 2011 and $28, 733.98 in
2012. Pl.'s Exs. 76, 77. As soon as his incarceration
began, NPK ceased paying Jackson wages, though he did retain
his ownership interest in the company. As part of a deal
apparently worked out between Jackson, Lilga, and NPK's
President, Richard Rowe ("Rowe"), Lilga, at the
time Jackson's girlfriend, would take over many if not
all of Jackson's responsibilities at the company and be
paid in his stead. At the outset, the setup proved difficult;
Lilga complained of "being treated like an incompetent
child, " being overwhelmed, and being asked to do more
than Jackson was ever asked to do. Pl.'s Ex. 115, at
Although agreeing with Lilga that she was being treated
improperly, Jackson told her to "[j]ust listen to
them" and not to take anything personally. Pl.'s Ex.
115, at 12:26.
Lilga's relationship with NPK continued to rapidly
deteriorate; she described her treatment to Jackson as
"[a]bsolutely awful, " and stated Rowe told her
that because she is not Jackson she would not like working at
NPK, the job would be tough, and she would have to do what he
says. PL Ex. 117, at 20:5. She felt her treatment was
improper and described being "sick to [her]
stomach" at work every day. PL Ex. 117, at 20:26. She
further stated Rowe threatened to fire her three times in the
first two weeks. By November 2012, Lilga no longer worked for
NPK; she was employed by the company for three weeks.
relationship with NPK appears to have been fraught prior to
his incarceration. Part of his disillusionment with NPK arose
because he felt NPK was attempting to improperly cut his pay.
In addition to this, Jackson felt Rowe and the rest of
NPK's management were excluding him from critical
management-level decision-making; as he described it,
"[N]obody talks to [me] that should be talking to [me]
about business and what's going on out there besides my
lady, you know, which you guys are keeping her in the
dark." Pl.'s Ex. 118, at 3:2-5.
also felt NPK "stabbed" him in the back; indeed, he
felt that if any of the other members had been in the legal
predicament he was in, "they would have put a lot more
energy towards" ensuring adequate legal representation.
Pl.'s Ex. 117, at 18:21-24. He also testified that Rowe
promised to take care of his family while he was incarcerated
but that Rowe failed to follow through on this promise, at
least to the extent Jackson expected. Finally, Jackson
strongly believed Rowe was taking the company in the wrong
direction by introducing products that were not "safe
for the environment" and were outside of the markets he
felt NPK stood to succeed in. Pl.'s Ex. 116, at 10:9.
Consequently, at the outset of his incarceration, Jackson
began talking with Lilga about the possibility of leaving NPK
and working for Yeti, stating, "If all of a sudden, you
know, me and you work for Yeti Enterprises . . ., so be
it." Pl.'s Ex. 116, at 11:13-15. Jackson further
said that he was "going to make sure that we have a game
plan set up and that's with Jim [Heagle]." Pl.'s
Ex. 117, at 6:10-11.
addition to discussing these plans with Lilga, Jackson also
routinely conversed with Heagle while incarcerated; the two
discussed their common disdain for NPK and its other members,
Jackson's intent to leave and work for Yeti or in a
business partnership with Heagle, as well as Heagle's
intent to end Yeti's distribution agreement with NPK.
Heagle believed he had been "soaked  for all of [his]
resources, " Pl.'s Ex. 119, at 3:4, and that NPK had
breached their distribution agreement on multiple occasions
by double billing and failing to pay Yeti in a timely matter,
among other things. Jackson was well aware of Heagle's
intent to end his distribution agreement with NPK; as Jackson
stated to Lilga in October 2012, "Jim's gonna pull
the line from them almost regardless, and it's pretty
much regardless." Ex. 117, at 7:22-23. Jackson also knew
that NPK was unaware of his conversations with Heagle and
concurrent knowledge of Heagle's intentions, saying,
"[T]hey don't know that I'm conversing with you
like this." Pl.'s Ex. 122, at 14:8-9.
this time, Jackson decided he wanted to sell his "part
of the company, " opining that he would "rather
just be positive with [his] life instead of promote more of
their negativity or even their selfishness. . . ."
Pl.'s Ex. 119, at 2:14-17. Heagle stated that he would
wait to end his distribution agreement and to notify NPK of
his intent to do so until Jackson was "taken care of,
" at which point, he stated, "I'm gonna jump
ship" by "throw[ing] enough shit at them that
they're not gonna want to go forward." Pl.'s Ex.
119, at 3:7-8; Ex. 119, at 4: 21-22. In addition to waiting
for Jackson's exit, Heagle also wanted to ensure NPK
signed a new five-year nondisclosure agreement with Yeti
prior to ending their business relationship so that, as he
told Jackson, he could guard against any attempt on NPK's
part to "copy [his] product. . . ." Pl.'s Ex.
128, at 10:19. In January 2013, NPK did in fact renew the
parties' non-disclosure agreement.
2012, NPK was in the process of spinning off into three
separate corporations, Griffin Holdings, Inc., Intelligent
Technologies, Inc., and Oregon Global Distribution, Inc.
Jackson was offered a 22.5 percent interest in each of the
three companies; however, for the above-mentioned reasons,
because he disagreed with the decision to split, and because
NPK wanted Jackson to sign a two-year non-compete agreement,
Jackson refused to sign the shareholder agreement for any of
the new entities. Then, in December 2012, Jackson notified
Rowe, via a letter from his attorney, that Jackson wanted a
"full accounting" of the new entities and NPK's
tax returns from 2010 onward. Pl.'s Ex. 28. After receipt
of Jackson's attorney's letter, Rowe reached out to
Jackson to inquire about Jackson's request. On December
21, 2012, Jackson described his conversation with Rowe to
Lilga. According to Jackson, Rowe did not understand why
Jackson wanted out of the company, to which Jackson said he
replied, "[B]ecause I don't believe [you] have my
best interests at heart." Pl.'s Ex. 126, at 3:19-20.
He further stated he felt Rowe and others had minimally
communicated with him since his incarceration and had gone
forward without his consent on various decisions regarding
the direction of NPK. Rowe implored Jackson to reconsider and
then offered to buy Jackson out for ten or twenty thousand
dollars. Jackson felt the offer was far too low and said he
believed it was necessary to have an internal audit of NPK
performed to determine the value of his shares. Jackson said
Rowe replied, "You don't have to do that... we can
figure this out just me and you, Nick." Pl.'s Ex.
126, at 7:21-23. According to Jackson, Rowe did not want an
audit because "he's been doing a lot of wrong
stuff." Pl.'s Ex. 126, at 8:15-16.
much of the next year, Jackson continued to negotiate his
exit from NPK and continued to plan a future business
relationship with Heagle. Meanwhile, in January 2013, with
Jackson and Heagle continuing their communications about
arranging a future business relationship, Jackson sent Heagle
a draft copy of a proposed advertisement from NPK that
depicted a series of products beyond those that Yeti was
apparently aware of; as Jackson told Heagle,
"They've been lying to you. I mean, sitting there
telling you they weren't going to do other products. They
already did. . . . They've got their whole nutrient line.
. . ." Pl.'s Ex. 130, at 10:2-7. Jackson apparently
received the advertisement from Rowe, and he never notified
NPK that he forwarded it on to Heagle.
the same month, Jackson and Heagle agreed that Heagle should
move forward and terminate Yeti's distribution agreement
with NPK, even though Jackson had not yet divested himself of
his interest in NPK. Consequently, on January 28, 2013, Yeti,
through its attorney, sent NPK a letter notifying NPK that it
was in breach of the parties' distribution agreement,
citing as "[t]he last straw" the above-referenced
advertisement Jackson had passed along to Heagle. Pl.'s
Ex. 5, at l.
Yeti claimed this advertisement showed NPK was
"blatantly" using Yeti's creation in an
"attempt to market other products. . . ." Pl.'s
Ex. 5, at 1. Yeti's attorney attached a copy of the
advertisement to the letter. NPK was given ten days to, in
effect, end its relationship with Yeti and to turn over all
of Yeti's property, including any money owed to Yeti.
of abruptly ending their business relationship, however, Yeti
and NPK worked out an agreement whereby Yeti would continue
to supply its frequency water to NPK through January 2014. In
exchange, NPK would turn over to Yeti certain
frequency-water-related trademarks that NPK registered in its
name. Heagle, however, still made clear to Jackson that, once
the new contract expired in the beginning of 2014 and all
trademarks were "handed over, " he did not intend
to continue distributing his product to NPK; Heagle stated to
Jackson that he intended to walk off at that point "and
just leave them alone and do our own business. . . ."
Pl.'s Ex. 137, at 18:16; Pl.'s Ex. 137, at 13:17-18.
Yeti-NPK distribution agreement did not pan out. In April
2013, Yeti notified NPK that it was raising the prices it
would charge NPK for its products, to which NPK objected and
sent a letter asking for reassurance of performance; Yeti
never responded. Shortly thereafter, NPK filed suit in
Jackson County Circuit Court claiming Yeti tortuously
interfered with NPK's relationship by wrongfully
communicating and seeking business with NPK's customers.
Subsequently, on June 17, 2013, Yeti filed a complaint in
Multnomah County Circuit Court arguing NPK misappropriated
Yeti's trademarks and had engaged in unlawful competition
and false advertising. The next day, Yeti notified NPK that it
was terminating the parties' distribution agreement.
stated, while the Yeti-NPK relationship deteriorated, Jackson
and Heagle continued to develop their own business plans, and
Jackson continued his attempt to divest from NPK. In January
2013, NPK presented Jackson with a membership-redemption
agreement, offering to purchase his 22.5 percent ownership
for $50, 000. Jackson, however, believed this was an
insufficient sum of money and that his shares were worth much
more; thus, he did not sign the offer and continued to press
for an internal audit.
February 8, 2013, having failed to receive an overt
acceptance or rejection of its offer, NPK notified Jackson
that it was revoking the redemption offer because it believed
Jackson had breached his fiduciary duties to the company and
improperly disseminated proprietary information. Indeed, NPK
evidently tied Jackson to Heagle when NPK received the
January 28, 2013, letter from Yeti's attorney containing
a draft copy of NPK's proposed advertisement. Rowe
testified that Jackson was the only person the proposed
advertisement was sent to. In addition, NPK believed Jackson
disseminated false, misleading, and damaging statements
regarding NPK's products. On April 9, 2013, NPK notified
Jackson, through his attorney, that it had "decided to
pursue a judicial expulsion action against [him]."
Def's Ex. 220. On April 12, 2013, NPK filed the expulsion
action in Jackson County Circuit Court. The case is currently
abated pending resolution of this case.
time, NPK's distribution agreement with Yeti had been
terminated and NPK had relaunched its product line without
Yeti's frequency water. Around the same time, Jackson
began working in earnest with Dennis Hunter, owner of Left
Coast Garden Wholesale ("Left Coast"), a former
distributor of NPK's products, to launch a competitive
product line using Yeti's frequency water. To aid in this
endeavor, Jackson promised to supply Hunter with a list of 1,
300 Sunlight Distributors, Inc. ("Sunlight"),
stores. At the time, Sunlight was a major purchaser of
NPK's products. Jackson later instructed Lilga to provide
Hunter with a copy of "that list of all those
stores." Pl.'s Ex. 144, at 9:25-26. It is not
perfectly clear where this list originated. On October 14,
2012, early in Jackson's incarceration, he appeared to
direct Lilga to download NPK's customer database,
And if you can-if you can find a way to download that
database information, and I don't know, you know, you
might have to be squirrelly about it or whatever, download it
on a hard drive, but find a way to download all that so that
we have it as well, and do it periodically.
Pl.'s Ex. 116, at 13:5-10. Jackson goes on to say that it
is important to have all that information "because
we've worked for that." Pl.'s Ex. 116, at
13:13-14. Lilga replies, "That's a good idea."
Pl.'s Ex. 116, at 13:11. Lilga never confirms she took
this database; however, Rowe testified at trial that NPK
discovered Lilga had taken NPK's database of customers
and every interaction with those customers, as well as trade
secrets and sales processes. Rowe also testified, and the
physical evidence confirms, that Left Coast had NPK's
customer lists and sent out damaging e- mails to NPK's
customers stating that it had "decided to discontinue
distributing products from NPK industries" because
NPK's new plant-wash line, which no longer contained
frequency water, was susceptible to molding and that Left
now "provide the original frequency altered formulations
and will be marketing under the trade names Mega Wash, White
Wash, and Freq Wash. . . ." Pl.'s Ex. 24, at 4.
Accordingly, it would seem that the list of 1, 300 stores
Jackson referred to was taken from NPK's database of
testified at trial that Left Coast's damaging e-mails, as
well as the introduction of Left Coast's new product
line, halved NPK's sales, which had already been halved
earlier in the year due to the loss of Yeti's
frequency-water products. As Rowe put it, the goodwill that
NPK had generated over the years marketing its plant washes
transferred to Left Coast's new products.
Jackson's release from prison in December 2013, he
continued to work for Left Coast. See, e.g.,
Pl.'s Ex. 17, 18. He remains a member of NPK, and on July
29, 2013, he filed suit against NPK, Rowe, and NPK's
additional members in Jackson County Circuit Court seeking an
assessment and payment of the value of his membership
interest in the company. That case is also abated pending
resolution of this matter.
brings two claims against Jackson for fraudulent
misrepresentation, as well as claims for violations of the
Lanham Act, common law trade libel, conversion, and breach of
the parties' nondisclosure agreement. NPK contends
Jackson is liable for these claims on an individual basis and
in concert with others and therefore is also liable for these
tortious acts on the basis of civil conspiracy and aiding and
abetting. The Court addresses each of these claims.
Fraudulent misrepresentation - failure to disclose
establish a claim for fraud in Oregon, a party must prove (1)
a material misrepresentation that was (2) false, (3) made
with knowledge of its falsity or with ignorance of its truth,
(4) with the intention that it be acted upon by the party
claiming fraud, and (4) that the acting party in fact
justifiably relied on the material misrepresentation, (5)
suffering an injury as a result. Handy v. Beck, 282
Or. 653, 659 (1978). The party bringing a claim for fraud
must prove its case by clear and convincing evidence, not
merely a preponderance of the evidence, since "[t]he
stigma of fraud is not lightly laid upon a defendant."
Fahrenwald v. Hemphill, 239 Or. 421, 425-26 (1965).
fraud may be committed by a concealment of material facts as
well as by affirmative and positive misrepresentations."
Musgrave v. Lucas, 193 Or. 401, 410 (1951) (internal
citation omitted). Indeed, typically, "mere silence is
not fraud, " but "[w]here the law imposes a duty on
one party to disclose all material facts known to him and not
known to the other, silence or concealment in violation of
this duty with intent to deceive will amount to fraud.
contends Jackson "had a special relationship with [NPK]
which included the duty to disclose to [NPK] all information
which could damage its business, " including his
assistance in bringing competitive products to the market and
assistance in cutting NPK out of the plant-wash distribution
market. Pretrial Order, at 8. Because these detrimental
activities were not disclosed, NPK contends Jackson breached
this "special relationship.
Jackson had no duty to disclose information that could damage
NPK's business. A manager of a limited liability company
("LLC") carries with him specific duties that are
owed to the LLC. See ORS § 63.l55(9)(a).
Specifically, those duties include the obligation "to
refrain from dealing with the limited liability company in a
manner adverse to the limited liability company and to
refrain from representing a person with an interest adverse
to the limited liability company, in the conduct . . . of the
limited liability company's business." ORS §
63.l55(2)(b). Mere members of an LLC, however, who are not
also managers of the company, "owe no duty to the LLC or
the other members." Synectic Ventures I LLC v. EVI
Corp., 353 Or. 62, 78 (2012) (citing ORS §
63.l55(9)(a)). Hence, unlike managers, these passive members
are not agents of the LLC and owe no duty of loyalty to put
the company's interests first. Id.
NPK readily acknowledges that, once Jackson's
incarceration began, he was no longer paid for his role as
vice president of sales. Indeed, the facts demonstrably show
that, at this point, Jackson's only affiliation with NPK
was his 22.5 percent membership interest; Lilga took on his
former responsibilities and received his pay. Accordingly,
without any management-level position at NPK, Jackson was
simply a passive member of the company. Thus, as Oregon law
makes clear, he owed "no duties to the limited liability
company or the other members solely by reason of being a
member" of NPK and therefore no duty to put the
company's interests first and to disclose his own
business interests, which were adverse to NPK's. ORS
§ 63.l55(9)(a). Beyond Jackson's relationship with
NPK as a member, NPK fails to point to any other relationship
that imposed upon Jackson a duty to disclose his private
business dealings, and the Court finds none. Accordingly, NPK
has failed to prove that Jackson's failure to disclose
his negotiations with Heagle, Hunter, Lilga, or any others
renders him liable for fraud.
Fraudulent misrepresentation - active concealment of
NPK contends Jackson "conspired to deprive NPK, LLC of
the market for Frequency Water products" by setting up
"an exclusive business relationship with Sunlight and
and others in the marketplace to distribute" Yeti's
frequency-water products and "to cause said entities to
stop distributing" NPK's products. Pl.'s Trial
Mem., at 6-7. NPK opines that "[t]hese activities were
actively concealed from" NPK. Pl.'s Trial Mem., at
7. Finally, at trial, Rowe testified that Jackson concealed
his intent to withdraw from NPK and concealed his
communications with Heagle, Lilga, and Hunter. NPK charges
Jackson had a duty to disclose these activities "as he
is a member of that LLC." Pretrial Order, at 6.
articulated in the prior section, when there is not duty to
disclose, fraud requires an active misrepresentation of a
material fact. "[E]ven in the absence of a duty to
speak, " however, "actions by a defendant to
actively conceal the truth can constitute fraud."
Wieber v. FedEx Ground Package Sys., Inc., 231
Or.App. 469, 485 (2009) (internal citation omitted).
there is nothing in the evidence showing Jackson actively
concealed facts from NPK or from any manager at the company.
First, the prison phone records NPK has submitted show that
Jackson repeatedly attempted to leave NPK and made his
intentions to do so quite clear. Second, while he did not
disclose to NPK his ongoing negotiations with Heagle, Lilga,
and Hunter, and his intent to create a competitive product
line to the detriment of NPK, he had no duty to disclose
these activities to NPK. A failure to disclose private
business negotiations is distinct from active concealment; as
the Oregon Court of Appeals explained, "[A]n active
concealment such as the filling in of [a] ditch ... is to be
distinguished from a simple nondisclosure." Paul v.
Kelley,42 Or.App. 61, 65 (1979) (internal citation
omitted). Citing Prosser, the court further explained that
active concealment is defined as "[a]ny words or acts
which create a false impression covering up the truth, ... ...