The Plaintiff in Martinez v. Reynders, 2013 NCBC 35, had all of her claims dismissed last week in an Opinion from the Business Court. The case illustrates why you might want to think twice about incorporating a business in Brazil, and how hard it is to make a fraud claim over a broken promise.
The Plaintiff is a Brazilian citizen. She incorporated a pharmaceutical research and development company in Brazil in 2000. The Brazilian company was sold to a Delaware corporation several years later. Plaintiff became the sole manager of the purchased company.
Her claims arose from personal liability she claims she incurred as a result of her reliance on misrepresentations she claimed were made to her. She personally guaranteed a lease in Brazil based on alleged representations that the Defendants would raise sufficient capital over a 90-day period to relieve her of her guaranty obligation. She also became exposed to further liability because she was a "quota holder" of the Brazilian company. (In Brazil, a quota holder is like a stockholder, but a quota holder can have personal liability for the corporation’s debts).
She claimed that she had become a quota holder at the Defendants’ request, allegedly upon repesentations that her status as a quota holder would be temporary and that the Defendants would replace her as a quota holder. They didn’t, and the Plaintiff said that the Brazilian government was holding her personally liable for unpaid corporate taxes. Plaintiff said she was also on the hook under Brazilian law for the wrongful termination of the Brazilian company’s employees due to the manner in which they had been terminated.
To the extent that the Plaintiff’s liability rested on her being conned into becoming a quota holder, she premised her claims on a fraud theory. Judge Jolly was buying none of that. He held:
the allegation that [one of the Defendants] asked Plaintiff to become a quota holder for three months, until a new quota holder was found, on its face is not a misrepresentation of a past or existing fact. Defendants’ assurance that it would replace Plaintiff as a quota holder within three months is, at most, a statement of future intent or promissory representation which cannot typically serve as the basis of a fraud claim. Leftwich v. Gaines, 134 N.C. App. 502, 508 (1999). A promissory representation may only serve as the basis of a fraud claim where the promissory representation is made with a present intent not to carry it out and may therefore be said to be a statement of existing fact. Id. In order for a promissory representation to be the basis of an action for fraud, facts must be alleged from which it may reasonably be inferred that the defendant did not intend to carry out such representation when it was made. Whitley v. O’Neal, 5 N.C. App. 136, 139 (1969). The court finds no facts alleged in the Complaint from which it might reasonably be inferred that Defendants did not intend to remove Plaintiff as a quota holder at the time they represented they intended to do so.
Op. Par. 29.
The claim that the guaranty was fraudulently induced failed for the same reason. Judge Jolly said that:
Similar to the representations discussed above, there are no facts alleged from which it may reasonably be inferred that Defendants did not intend to relieve Plaintiff of her personal guaranty at the time they represented they would do so.
Op. Par. 37.
The photo above is by my daughter Juliet, who happens to be in Brazil right now. Unfortunately, she left before I could warn her not to become a quota holder in a Brazilian company. But she’s pretty savvy. . . .