[IN THE SUPERIOR COURT
OF THE VIRGIN ISLANDS

FILED

July 21, 2021

TARA CHARIS IN THE SUPERIOR COURT OF THE VIRGIN ISLANDS
A A
CLERK OF THE COURT DIVISION OF ST. THOMAS AND ST, JOHN

KRERKEKER

XO BISTRO, LLC,
CASE NO. ST-18-CV-780

Plaintiff,
v. ACTION FOR BREACH OF
FIDUCIARY DUTY, ACTION TO
ANTHONY MERRILL & DETERMINE DISTRIBUTIONAL
WHITE STAR, LLC, INTEREST & ENFORCE PURCHASE
OF INTEREST, AND DERIVATIVE
Defendants. ACTION
ANTHONY MERRILL &

WHITE STAR, LLC,
Third-Party Plaintiffs,
v. Cite as 

CINDY K. GALLANT,

Third-Party Defendant.

Nee” mee” Smee Mine age Net nme” Net” Meme” eet! eet ne eee “imme? “nme!” “eet “me ing Tee Cee net Meet

CHRISTOPHER ALLEN KROBLIN, Esq. ANDREW L. CAPDEVILLE, Esq.
MARJORIE WHALEN, Esq. Law Offices of Andrew L. Capdeville P.C.
SHARI D’ANDRADE, Esq. 8000 Nisky Shopping Center, Suite 201
Royal Palms Professional Building, Suite 101 P.O. Box 6576

St. Thomas, V.I. 00802-6404 St. Thomas V.I. 00804-6576

5001 Chandler’s Wharf, Suite 10 Attorney for Defendants and Third-Party

Attorneys for Plaintiff and Third-Party Defendant Plaintiffs
CARTY, RENEE GUMBS, Judge

MEMORANDUM OPINION

ql. BEFORE THE COURT is Third-Party Defendant’s “Motion for Judgment on the
Pleadings & Incorporated Memorandum of Law” filed by Cindy Gallant (“Gallant”) on November
19, 2020. Defendants/Third-Party Plaintiffs Anthony Merrill & White Star, LLC (collectively

“White Star”) filed their “Opposition to Third-Party Defendant Gallant’s Motion for Judgment on
XO Bistro, LLC v, Anthony Merrill & White Star, LLC / Cite as 2021 VE Super 74U
Anthony Merrill & White Star, LEC v. Cindy K. Gallant

Case No, ST-18-CV-780

Memorandum Opinion

the Pleadings” on December 17, 2020. Gallant filed her “Reply in Support of Motion for Judgment
on the Pleadings” on January 11, 2021. For the following reasons, the motion will be denied.

I. FACTUAL BACKGROUND
{2. ‘Plaintiff XO Bistro, LLC (“Plaintiff or “KO Bistro”) is a limited liability company with
two members, Cindy Gallant and White Star, LLC. Anthony Merrill (“Merrill”) is the sole member
and manager of White Star, LLC. Gallant is the sole manager and holds a seventy percent (70%)
interest in XO Bistro, while White Star holds an interest of thirty percent (30%). On December 7,
2018, XO Bistro filed its Complaint alleging that Merrill wrote checks and withdrew funds from
XO Bistro’s operating account for personal use in violation of XO Bistro’s Operating Agreement.
Plaintiff further alleged that Merrill stole cash from XO Bistro’s restaurant and bar over the years.
{3. | Consequently, Gallant instituted the following measures: (1.) revoked Merrill’s right to
access XO Bistro’s operating account, (2.) informed the bank that Gallant revoked Merrill’s right of
access to the account and requested the bank remove Merrill as a signatory on all accounts held by
XO Bistro, (3.) notified Merrill, through counsel, that Merrill was removed as a signatory on XO
Bistro’s operating account and that any authority Merrill had to act on behalf of XO Bistro was
revoked, and (4.) directed Merrill not to enter XO Bistro’s premises at any time for any reason and
not to contact XO Bistro employees, vendors, or Gallant directly. XO Bistro’s Complaint sets forth
three counts: Judicial Expulsion, Breach of Fiduciary Obligations, and Conversion.
94. On January 31, 2019, White Star filed their “Answer and Third-Party Complaint,” with
seven counts, consisting of: Oppression, Breach of Fiduciary Duty, Breach of Contract, Conversion,
Debt, Fraud, and Judicial Determination. White Star alleges Gallant acted to forcibly remove White

Star from membership by making specious, hostile, and unsubstantiated claims against White Star,
XO Bistro, LLC y. Anthony Merrill & White Star, LLC / Cite as 2021 VE Super 74U
Anthony Merrill & White Star, LEC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

blocking White Star’s access to the operating account, and not allowing Merrill on the premises.
Merrill further contends that Gallant withheld his deferred salary.

45. In her motion for judgment on the pleadings, Gallant sets forth two arguments: first, White
Star’s fraud claim should be dismissed because it is insufficiently pleaded as a matter of law and
lacks the requisite element of justifiable reliance for fraudulent misrepresentation and second, White
Star’s conversion and fraud claims should be barred by the gist of the action doctrine. In their
response, White Star argues fraud was pleaded with sufficient particularity and the gist of the action
doctrine does not bar tort claims that are separate and distinct from breach of contract claims.

iI. LEGAL DISCUSSION
A. Standard for Analyzing a Motion for Judgment on the Pleadings.

(6. —- Virgin Islands Rules of Civil Procedure, Rule 12(c), provides that a party may move for
judgment on the pleadings after the pleadings are closed but early enough not to delay trial. See also
Bruni v, Alger, 71 V.1. 71, 75 (Super. Ct. 2019). A motion for judgment on the pleadings “is
designed to dispose of cases where the material facts are not in dispute and a judgment on the merits
can be rendered by looking to the substance of the pleadings and any judicially noticed facts.” Jd.
“(T]he court is foreclosed from considering evidence from any source outside of the pleadings and
the exhibits attached to the pleadings in determining whether it was proper to grant a motion for
judgment on the pleadings.” Castillo v. St. Croix Basic Servs., inc., 67 V.1. 26, 30 (Super. Ct. 2016).
“By moving for judgment on the pleadings, the moving party says to the court that the claim itself
fails, not because the facts alleged in support are inadequate or deficient, but because the cause of
action is not viable.” Bruni, at 75 (citing Willie v. Amerada Hess Corp., 

 (Super. Ct.

2017).
XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v, Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

q7. In a Rule 12(c) motion, as in a Rule 12(b)(6) motion, the courts ask not whether the plaintiff
will ultimately prevail, but whether the plaintiff is entitled to offer evidence in support of the
claims. Pedro vy. Ranger Am. of the V.L, Inc., 70 V.L. 251, 264 (Super. Ct. 2019) (quoting Raymond
v. Assefa, No. ST-15-CV-185, 2017 V.1. LEXIS 153, at *3 (Super. Ct. Nov. 8, 2017)). The decision
whether a plaintiff is entitled to offer evidence in support of his claims is made with the moving
party, “conced[ing] the accuracy of the factual allegations in his adversary's pleadings while not
admitting other assertions in the opposing party's pleadings that constitute conclusions of law.”
Pedro, at 264. The court must then view the facts alleged in the pleadings and the inferences to be
drawn from these facts, in the light most favorable to the plaintiff. Jd. The Court now addresses
each of Gallant’s arguments put forth in her motion for judgment on the pleadings.

B. White Star has Not Sufficiently Pleaded Fraud Because the Allegations Lack
Particularity but are Granted Leave to Amend Their Third-Party Complaint.

i White Star's Claim for Fraud Lacks Particularity.
18. | White Star fails to meet the requirements of Virgin Islands Rule of Civil Procedure 9(b).
Rule 9(b) states that “{i]n alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” V.LR. Civ. P. 9(b). However, “[mlalice, intent,
knowledge, and other conditions of a person's mind may be alleged generally.” /d. Rule 9(f) further
proscribes, “‘an allegation of time or place should be pled where such facts are material to a claim.”
White Star generally alleges Gallant made fraudulent statements. Courts ask that plaintiffs plead
details such as time, place, content of the misrepresentations, and the impact of said
misrepresentations. James v. Mosler, No. SX-2005-CV-00356, 2021 V.1. LEXIS 25, at *8 (Super.

Ct. May 24, 2021) (quoting Antoine v. U.S. Bank Nat'l Ass'n, 

 (D.D.C.

2008)).
XO Bistro, LLC v, Anthony Merrill & White Star, LLC/ Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

19. In Count VI, Fraud, White Star alleges Gallant made fraudulent misrepresentations “as a
stratagem to limit, restrict, and remove [Merrill and White Star] without cause and without just
compensation.” Specifically, White Star also alleges “[Gallant] . . . made specious and
uncorroborated accusations of embezzlement and misappropriation on the part of [Merrill and
White Star],” and Gallant “made these accusations intentionally, without cause and without regard
to the harm such accusations would have on [Merrill and White Star].”

q!0. As an aside, the accusation of embezzlement is a serious matter. The Virgin Islands Code
defines embezzlement as “the fraudulent appropriation of property by a person to whom it has been
entrusted,” V.I. CODE ANN. tit. 14, § 1087. Although the bare allegation of embezzlement is not
sufficient to meet the “particularity” requirement of Rule 9(b), the accusation itself may harm White
Star’s reputation if false. If Gallant made “uncorroborated accusations of embezzlement and
misappropriation” about White Star to employees, agents, and third parties, White Star may have a
cause of action for slander. See generally Guardian Ins. Co. v. Estate of Knight-David, No. ST-08-
CV-189, 

, at *4 (Super. Ct. Apr. 7, 2017) (statements about plaintiff stealing
money from defendant made to others could support a claim for slander). Notwithstanding the
gravity of the accusation of embezzlement, White Star’s Third-Party Complaint still must meet the
level required of Rule 9(b).

ll. From the Third-Party Complaint, it is unknown as to when, where, or how Gallant made
these “specious and uncorroborated accusations.” The allegations are vague and do not specify the
time, place, or content of the fraudulent misrepresentations. In their opposition motion, White Star
further supports their allegation by stating, “{Gallant] knowingly entered into the XO Bistro
Operating Agreement with bad faith and with the intention to defraud [Merrill and White Star] of

their interest in and access to the subject business enterprise.” In the same paragraph, White Star

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XO Bistro, LLC v. Anthony Merrill & White Star, LLC/ Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

alleges Gallant fraudulently induced White Star’s reliance and trust, “along with investment capital
and business acumen,” before ousting White Star. In tandem with the altegations in the Complaint,
these statements suggest White Star believes Gallant made fraudulent misrepresentations ab initio
to induce White Star into joining Gallant in the business venture. If so, White Star has a viable
cause of action against Gallant for fraudulent misrepresentation. Pollara v. Chateau St. Croix, LLC,
58 VI. 455, 471 (2013) (providing the requirements to succeed on a claim of fraudulent
misrepresentation).' However, the present allegations in the Third-Party Complaint do not meet the
requirements of Virgin Islands Rule of Civil Procedure 9(b). But this Court will provide White Star
the opportunity to amend their Third-Party Complaint.

ii. White Star is Granted Leave to Amend Their Third-Party Complaint in Compliance
with Virgin Islands Rule of Civil Procedure 9(b).

412. Although White Star failed to meet the heightened pleading standard, the Court has the
discretion to grant leave to amend a pleading sua sponte. Under Rule 15(a) of the Virgin Istands
Rules of Civil Procedure, “courts should freely grant leave to amend a complaint, ‘when justice so
requires."” Adams v. N. W. Co. (Int'l), Inc., 63 V.1. 427, 452 (Super, Ct. 2015); V.LR. Civ. P.
13{a)(3). Grounds to deny leave to amend are undue delay, bad faith, dilatory motive, prejudice, and
futility. Hartzog v. United Corp., No. SX-04-CV-095, 

, at *3 (Super. Ct. Sep. 7,
2011); see also Shane v. Fauver, 

 (3d Cir. 2000). A court may grant leave to
amend a pleading sua sponte. Est. of Burnett v. Kazi Foods of the Virgin Islands, 69 V.1. 50, 58
(Super. Ct. 2016) (granting, saa sponte, leave to amend a complaint to comply with the

jurisdictional prerequisites of the ADA). See also, Turnbull v. Parris, No. SX-15-CV-343, 2016 V.L

'“To succeed on a claim of fraudulent misrepresentation one must prove that the maker of the contract “intends his
assertion to induce a party to manifest his assent and the maker (a) knows or believes that the assertion is not in accord
with the facts, or (b) does not have the confidence that he states or implies in the truth of the assertion, or (c) knows that
he does not have the basis that he states or implies for the assertion.” Restatement (Second) Contracts § 162 (1981).

6

“
XO Bistro, LLC v. Anthony Merrill & White Star, LLC/ Cite as 

Anthony Merrill & White Star, LLC v, Cindy K. Gailant

Case No. ST-18-CV-780

Memorandum Opinion

LEXIS 185, at *1 (Super. Ct. Nov. 3, 2016) (granting, sua sponte, plaintiff leave to amend their
complaint to address deficiency.).

{l3. There exists a long-standing, sound, judicial policy of resolving civil litigation on the merits
as opposed to disposition for technicalities. Morton v. Mapp, No. ST-16-MC-056, 2018 V.I LEXIS
148, at *3 (Super. Ct. Apr. 4, 2018). This Court believes granting White Star leave to amend their
Third-Party Complaint to come into compliance with Rule 9(b) is in the spirit with Rule 15(a}(3).
Notwithstanding the fact that leave has been granted, the Court continues to determine if a
definitive decision can be made.

iti, Fraudulent Misrepresentation as a Rule in the Virgin Islands.

4i4. The most recent cases in the Virgin Islands establish fraudulent misrepresentation as: “one
who makes a misrepresentation of fact, opinion, intention, or law that he or she either knew or had
reason to know was false, and that was made for the purpose of inducing another to act or refrain
from acting on it, is subject to liability to the other for pecuniary loss caused by the other's
justifiable reliance on the misrepresentation.” Merchants Commercial Bank v. Oceanside Village,
Inc., 64 V.L. 3, 21 (V.I. Super. Ct. Dec. 18, 2015). The Supreme Court of the Virgin Islands adopted
the definition of fraudulent misrepresentation from the Restatement (Second) of Contracts, Section
162, stating, “Restatements of the Law may apply to the Virgin Islands through 1 V.LC. § 4 subject
to the authority of this court . . . to shape the common law of the Territory.” Pollara v. Chateau St.
Croix, LLC, 58 V I. 455, 471 (V.I 2013). Later, the court in Isaac v. Crichlow, 63 V.L. 38, 61
(Super. Ct. 2015), faced with a similar issue but in tort law, adopted the definition of fraudulent

musrepresentation from the Restatement (Second) of Torts, Section 525.
XO Bistra, LLC v. Anthony Merrill & White Star, LLC/ Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

ql5. The court in Merchants Commercial Bank recognized that the Virgin Islands’ earlier
treatment of fraudulent misrepresentation predated the Banks analysis> mandated by the Supreme
Court of the Virgin Islands when facing a novel issue. Reviewing the Restatement’s definition
adopted by earlier courts, the Merchants Commercial Bank court observed the definition of
fraudulent misrepresentation by itself was circular and modified the definition.* Jd, at 21-22. This
definition was further supported and used in Arvidson v. Buchar, 71 V.1. 277, 357 (V1. Super. Ct.
Sept. 10, 2019), cert. denied, 72 V1. 50 (Super. Ct. 2019); (“[t]his Court agrees with its
methodology, reasoning, and conclusions and adopts the Merchants Commercial Bank court's
imprimatur of the . . . rule defining tortious fraudulent misrepresentation[.]”).

ql6. The Arvidson court further condensed the Merchants Commercial Bank rule to six elements:
“(I.) a misrepresentation; (2.) the defendant's knowledge or reason to know the misrepresentation
was false; (3.) the defendant's making the misrepresentation for the purpose of inducing another to
act or to refrain from acting; (4.) the plaintiff's justifiable reliance upon the misrepresentation; and
(5.) the pecuniary loss or injury (6.) caused by justifiably relying upon the misrepresentation.” Jd. at
358. These elements from Arvidson explicitly state what a plaintiff needs to succeed on a claim for
fraudulent misrepresentation. Hence, the Court will analyze White Star’s claims to determine if

White Star alleges the essential elements in their pleadings.

> “In addressing issues of Virgin Islands common law, this Court-and courts addressing issues of Virgin Islands
common law that this Court has yet to address—must engage in a three-factor analysis: first examining which common
law rule Virgin Islands courts have applied in the past; next identifying the rule adopted by a majority of courts of other
jurisdictions; and then finally—but most importantly—determining which common law rule is soundest for the Virgin
Islands.” Better Bidg. Maint. of the Virgin Islands, Inc. v. Lee, 60 V.1. 740, 757 (2014) (citing Banks v. int'l Rental &
Leasing Corp., 55 V.1, 967 (2011)).

4“One who makes a misrepresentation of fact, opinion, intention, or law that he or she either knew or had reason to
know was false, and that was made for the purpose of inducing another to act or refrain from acting on it, is subject to
liability to the other for pecuniary loss caused by the other's justifiable reliance on the misrepresentation.” Merchants
Commercial Bank v. Oceanside Village, Inc., 64 V1. 3, 21-22 (V.1. Super. Ct. Dec. 18, 2015)

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XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v, Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

iv. White Star’s Fraud Claim Implies Fraudulent Inducement to Enter Into
Business With Gallant to White Star’s Detriment.

417. Although not specified in the Third-Party Complaint, White Star, in their responsive motion,
raised the issue of fraud by inducement. According to the pleadings, White Star first became
involved in XO Bistro through a transfer of ownership in 2005. In 2008, Gallant drew a weekly
salary from the business, whereas White Star deferred its weekly salary. In 2012, Gallant and White
Star entered into an amended Operating Agreement. It is not clear as to when White Star invested
hundreds of thousands of dollars into the business or the nature of the relationship of the parties
between 2005 and 2012. However, White Star further contends its business acumen, investment
capital, and diligent efforts allowed XO Bistro to succeed and prosper. Provided the aforementioned
facts are true, one can surmise White Star relied on Gallant’s representations to him as it
demonstrates there was a serious, developed, long-standing business relationship between White
Star and Gallant.

qi8. As a rule, under fraudulent inducement, White Star must show Gailant’s misrepresentations
were made for the purpose of inducing another to act, or refrain from acting, on such
misrepresentations, thereby subjecting Gallant to liability to White Star for pecuniary loss caused by
White Star’s justifiable reliance on her misrepresentations. See Merchants Com. Bank at 21-22.
Although White Star has not set forth a specific statement made by Gallant to conclusively
demonstrate White Star justifiably relied on said statement(s), resulting in Merrill contributing
money, time, and business acumen to XO Bistro, the Court believes justifiable reliance is certainly
implied throughout the pleadings because White Star eventually went into business with Gallant for

an extended period of time.
XO Bistro, LLC v, Anthony Merrill & White Star, LLC / Cite as 

Authony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

(19. From these alleged misrepresentations, White Star invested money, time, and business
knowledge into the company and even opted out of collecting a weekly salary. These facts indicate
White Star justifiably relied on Gallant’s statements and/or her conduct in concluding that Gallant
was an honest business member. Hence, White Star’s claim of Gallant fraudulently inducing White
Star into signing the amended Operating Agreement with the intention of eventually ousting White
Star from the business. For these reasons, the Court finds White Star’s allegation of fraudulent
inducement survives the motion. We now analyze fraudulent misrepresentation regarding Gallant’s

alleged statements to third parties.

v. White Star Has a Cause of Action for Fraudulent Misrepresentation Regarding
Gallant's Statements to Third Parties Because White Star was Harmed as a Result of
Gallant's Alleged Misrepresentations.
420. White Star’s claim for fraudulent misrepresentation also succeeds here because White Star
demonstrated the harm it suffered stemming from Gallant’s alleged misrepresentations. Although
the Virgin Islands Supreme Court has not addressed the issue of fraudulent misrepresentation
involving a third party, the Supreme Court of the United States and other jurisdictions have
addressed this cause of action.
"21. The Supreme Court of the United States holds fraudulent misrepresentation can cause legal
injury to those who may not have necessarily relied on said misrepresentations. Bridge v. Phoenix
Bond & Indem. Co., 

 (2008). Justice Thomas cites to the Restatement (Second) of
Torts, stating, “[o]ne who intentionally causes injury to another is subject to liability to the other for
that injury, if his conduct is generally culpable and not justifiable under the circumstances.” /d., §
870. The Restatement articulates a cause of action in favor of an injured party where the defendant

“defrauds another for the purpose of causing pecuniary harm to a third person. /d., § 435A,

Comment A. In Bridge, petitioner and respondents participated in Chicago’s local tax sale where

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XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC y. Cindy K. Gallant

Case No. ST-18-CV-7380

Memorandum Opinion

the county sells tax liens on delinquent taxpayers’ properties. /d. at 642. If two people bid the same
amount, the county allocates the parcels on a rotational basis. {d. To promote equality and faimess,
the county adopted a rule where only one person or entity could bid on one property at a time. /d. at
643. When the petitioner colluded with others to bid on his behalf, respondents brought a
Racketeering Influenced and Corrupt Organizations (RICO) claim predicated on mail fraud. /d. at
642. The Supreme Court rejected petitioner’s argument that reliance by the plaintiff was a necessary
element and held, “there is no general common-law principle holding that a fraudulent
misrepresentation can cause legal injury only to those who rely on it. /d. at 656.
Banks Analysis with Respect to Third Parties.

22. As stated, the Virgin Islands Supreme Court has not established the rule of law governing
fraudulent misrepresentations to third parties. Therefore, this Court must undertake the three-part
analysis set forth in Banks to determine the soundest rule of law for the Virgin Islands. The first step
in conducting a Bunks analysis is to determine whether any Virgin Islands courts have previously
adopted a particular rule. This Court notes the absence of any specific law within the jurisdiction
regarding third-party reliance in fraud cases. The second factor under Banks is analyzing
approaches taken by other jurisdictions. Considering the second factor, only nineteen (19)
jurisdictions have ruled on this issue of fraudulent misrepresentation to a third party that results in
harm to the plaintiff. Of the nineteen (19), seven (7) states including Illinois, Kansas, Maryland,
Massachusetts, New York, North Carolina, and Rhode Island recognize third-party reliance in cases
where defendant has made a statement to a third party, who relies on that statement to the detriment
of the plaintiff. Eleven (11) states, Alabama, Arizona, California, Delaware, Florida, Georgia,
Louisiana, Nebraska, New Jersey, Ohio, Vermont, and Washington, D.C., have ruled that third-

party reliance does not satisfy the element of reliance in fraudulent misrepresentation. In a similar

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XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

vein of Gailant’s interpretation, all fifty states and Washington, D.C. have ruled where a plaintiff is
induced to act from the fraudulent misrepresentation justifiably relied upon by third parties.
However, White Star’s claim is distinguishable because White Star did not justifiably rely on
Gallant’s alleged misrepresentations made to third parties nor was White Star induced to act from
the alleged misrepresentations Gallant made to third parties. Here, White Star claims he was harmed
as a direct result of third parties’ justifiable reliance upon Gallant’s fraudulent misrepresentations.

23. The eleven states that do not recognize fraudulent misrepresentation in cases where a third
party relies on misrepresentations made by the defendant either hold direct reliance by the plaintiff
is necessary for a claim of fraudulent misrepresentation or hold direct reliance by the plaintiff is not
necessary for a claim of fraudulent misrepresentation but only under limited circumstances. For
example, courts in Arizona and New Jersey limit Bridge’s holding of not requiring justifiable
reliance by the plaintiff to suffer a legal injury to RICO claims. See Martinelli v. Petland, Inc., 

 (D, Ariz. 2011); Tonkinson v. Byrd, 

 at *14 (D.N.J.
Apr. 24, 2018). States such as Alabama, Delaware, Florida, Georgia, Louisiana, Nebraska, and
Vermont preserve the requirement of the plaintiff directly hearing the misrepresentation from the
third party or the plaintiff having to justifiably rely on the misrepresentation. See Ex parte Daimler
Chrysler Corp., 

 (Ala. 2006); Jordan v. Mirra, Civil Action No. 14-1485-
GAM, 

, at *31 (D. Del. Sep. 14, 2017); Platinum Props. inv'r
Network, Inc. v, Sells, 

, at *7 (S.D. Fla. Aug. 21, 2019); UWork.com,
Inc. v. Paragon Techs., Inc., 

 (2013); Barrie v. V.P. Exterminators, 

 (La. 1993); Knights of Columbus Council 3152 v. KFS Bd, Inc., 

, 926
(2010); Glassford v. Dufresne & Assocs., P.C., 

, J 22. Historically, New York found an

action for fraud for damages resulting from the reliance of a third party, but has since created more

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XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memeorandum Opinion

specific, pointed causes of actions for different types of fraudulent conduct. See Mid Atlantic
Framing, LLC v. Varish Constr., Inc., 

 (N.D.N.Y. 2015) (finding the facts
of a case from the late nineteenth century decided as common-law-fraud would now be considered
tortious interference). The eleven states and the District of Columbia stay true to the Restatement
(Second) of Torts definition of fraudulent misrepresentation and requires the plaintiff themselves to
justifiably rely on the misrepresentation to their detriment. § 525. This is a narrow interpretation of
the Restatement that excludes intentionally harmful conduct such as the alleged conduct in this case.
24. Conversely, the seven states that recognize fraudulent misrepresentation in cases where a
third party relies on misrepresentations made by the defendant which harms the plaintiff analyze the
foreseeability of the plaintiff's harm and determine if the defendant’s conduct was the proximate
cause of such harm. Illinois examines the relationship between the plaintiff and the defendant and
extends a cause of action to the plaintiff who may lack privity with the defendant if the defendant
knew the misrepresentation would be relied upon by a third party to the plaintiff's detriment. Sassak
v. City of Park Ridge, 

 (N.D. Ill. 2006). Similarly, Kansas provides a
cause of action for fraudulent misrepresentation if the plaintiff relied on the misrepresentation
“indirectly.” Hernandez v. Pistotnik, 

, 513-14 (2020). Courts grappling with
class action lawsuits or complex litigation expanded a plaintiff's standing to sue for fraud where the
defendant fraudulently conceals information to a third party which harms the plaintiff. See e.g., In
re Neurontin Mktg., 

 (D. Mass. 2009) (pharmaceutical drug context);
State v. Purdue Pharma L.P., No. PC-2018-4555, 2019 R.L. Super. LEXIS 95, at *42 (Super. Ct.
Aug. 16, 2019) (pharmaceutical drug context);Univ. Sys. of N.H. v. United States Gypsum Co., 

 (D.N.H. 1991) (asbestos litigation context). These states recognize a plaintiff may

suffer damages even when the plaintiff does not directly rely on the representations from the

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XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

defendant to a third party. Courts from these states broadened the definition of fraud to adapt to the
modern reality of fraudulent behavior. Bardes v. Mass. Mut. Life Ins. Co., 

(M.D.N.C. 2013) (citing Ragsdale v. Kennedy, 

, 

 (1974)
“fraud has no all-embracing definition and is better left undefined lest crafty men find a way of
committing fraud which avoids the definition."). By analyzing the foreseeability of the harm and
whether the defendant was the proximate cause of plaintiff's harm instead of creating multiple
definitions of fraudulent conduct with different factors or elements, this interpretation of fraudulent
misrepresentation holds tortfeasors liable for their conduct in a sweeping rule that is applicable to
fraudulent behavior. No other state or territory has ruled on this particular issue.

¥25. Finally, pursuant to the third Banks factor, this Court considers the public policy rationale
surrounding permitting or denying such a rule. This Court agrees with the minority approach of the
seven states and holds that sound public policy would require those making misrepresentations to
third parties, who then rely on those statements to the detriment of the plaintiff, can be held liable
under fraudulent misrepresentation. As with other torts, a defendant should be held liable to those
who may be foreseeably injured by their actions, particularly in those situations where it was
intended to affect the plaintiff, and not only those a defendant speaks with. To hold otherwise would
result in a legal lacuna and enable a tortfeasor to escape liability for their purposeful or reckless
misrepresentations by simply using a third party as a conduit for their fraud. Particularly in the
Virgin Islands, a relatively small community, where fraudulent misrepresentations against an
individual may have the potential to tarnish their reputation and impede their efforts to earn a
livelihood. The best approach for the Virgin Islands is to hold those who make misrepresentations

to third parties to the detriment of the plaintiff liable.

14
XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

26. In the context of fraudulent concealment, the same logic follows. The court in Jn re
Neurontin Mkig., Sales Pracs. & Prod. Liab. Litig., 

 (D. Mass. 2009), allowed
plaintiffs injured by fraudulent concealment to sue the pharmaceutical manufacturers even where
the plaintiffs did not directly rely on the fraudulent concealment. There, pharmaceutical drug
consumers were injured by the manufacturer’s fraudulent misrepresentations or omissions to the
medical professionals prescribing the drugs. /d. at 110. Although the plaintiffs did not directly rely
on misrepresentations made by the defendant, the court determined that plaintiffs and their
decedents relied on the word of their physicians and held the manufacturers liable for fraudulent
concealment. /d. at 113.

(27. [Hinois courts also recognized third-party reliance in negligent misrepresentation. For
example, in Sassak, the plaintiffs allege that misrepresentations by one municipality’s police office
to another resulted in the negligent hiring of a police officer. In Sassak, the court stated that ‘an
actionable misrepresentation claim does not require that the misrepresentation be made directly to
the plaintiff,” but ultimately decided that there was not a valid third-party reliance claim here. /c/. at
818; see also Rosenstein vy. Standard & Poor's Corp., 

 (1993) (stating that the
"tort of negligent misrepresentation extends to third parties who lack privity with the defendant
where the ‘defendant knew the information would be used and relied upon’ and ‘the potential
liability was restricted to a comparatively smail group.'")

q28. Gallant argues fraudulent misrepresentation requires White Star to rely on the third-party
misrepresentations. This notion contradicts a myriad of cases where courts have permitted “a

plaintiff directly injured by fraudulent misrepresentations to recover even where it was the third

15
XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v, Cindy K. Gatiant

Case No. ST-18-CV-780

Memorandum Opinion

party, not the plaintiff, who relied on the frauduient misrepresentations.”* “Schemes of fraud may
be... cunningly devised . . . but they must not escape condemnation.” Mid Atlantic Framing, LLC
v, Varish Const, Inc., 

 (2015). Adopting Gailant’s arguments would
otherwise allow a tortfeasor to proclaim a fraudulent misrepresentation to a third party, causing
injury to a plaintiff, while the tortfeasor escapes liability.

929. Here, White Star asserts Gallant made “specious and uncorroborated accusations of
embezzlement and misappropriation” to third parties which resulted in White Star’s removal from
XO Bistro, loss of deferred salary, and loss of distributional interest. While there is a well-settled
body of law that supports Gallant’s proposition, this Court cannot ignore White Star’s interpretation
because fraud is mamfested in sometimes very sophisticated, duplicitous ways resulting in easy
circumvention of liability. The Court finds that tortfeasors must be held accountable for the injuries
said tortfeasors cause; and in this matter sub judice, elects White Star’s interpretation as the
appropriate standard when faced with fraudulent misrepresentation with respect to third parties. In
sum, White Star has a cause of action for fraudulent misrepresentation against Gallant because of

common-law precedent and § 525 of the Restatement (Second) of Torts which finds legal injury

5 See Rice v. Manley, 

 (1876) (permitting plaintiffs who had arranged to buy a large quantity of cheese to
recover against a defendant who induced the vendor to sell him the cheese by falsely representing to the vendor that
plaintiffs no longer wished to purchase it), Gregory v. Brooks, 

 (1868) (allowing plaintiff wharf owner to
recover against a defendant who, in order to deprive plaintiff of business, misrepresented himself to be a superintendent
of wharves and ordered a vessel unloading at plaintiff's wharf to leave); Johnson v. Greer, 

 (Sth Cir.
1973) (listing factors such as: “the intention to commit a wrongful act, the degree of his moral wrong in so acting, and
the seriousness of the harm intended” which should be considered when holding a defendant liable.); Weaver v. Mobile
Diagnostech, Inc, 

 (W.D. P.A. 2007) (recognizing the significance of the parties' fiduciary
relationship saying, “it is clearly not logically impossible to be harmed by misrepresentations to a third party by whom
plaintiff might otherwise be protected, the plaintiff's reliance should not be made a talisman."); Prestige Builder &
Management LEC v. Safeco Ins. Co. af America, 

 (E.D. N.Y. 2012} (holding that "[whhile the
plaintiff alleging fraud must normally show that it reasonably relied upon a misrepresentation made by the defendant to
its detriment, the doctrine of third-party reliance permits the plaintiff to show that a third-party relied upon a
misrepresentation by the defendant, which resulted in injury to the plaintiff."); Bardes v. Mass. Mut. Life Ins. Co., 

 (M.D.N.C. 2011) (holding that a company providing false W-2’s to the government agency thus
requiring the employee to owe money is sufficient to bring a claim for fraud.),

16
XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

where a plaintiff is injured from the fraudulent misrepresentations made by defendant where a third
party, not the plaintiff, justifiably relied on the fraudulent misrepresentations.
C. White Star’s Claim for Fraud is Not Barred Under the Gist of The Action
Doctrine Because the Fraud Claim Arises from Independent Actions Outside
the Amended Operating Agreement.
430. Gallant further puts forth that White Star’s fraud claim is barred under the gist of the action
doctrine because the alleged action arises within the four corners of the amended Operating
Agreement. The Court disagrees. Although the Supreme Court of the Virgin Islands has not
determined whether the gist of the action doctrine is part of the Virgin Islands common law,
Franken y. Sisneros, No. ST-15-CV-88, 

, at *9 (Super. Ct. Apr. 18, 2016),
conducted the three-pronged analysis per the Supreme Court’s direction in Banks and determined
the gist of the action doctrine “serves to promote judicial efficiency by limiting extraneous tort
claims that are properly adjudicated as breach of contract claims.” /d. at *11. However, ‘an
unbridled adoption of the gist of the action doctrine may not be the soundest choice for the Virgin
Islands.” Jd. The gist of the action doctrine prohibits tort recovery for contractual breaches. V J
Port Auth. v. Callwood, No. ST-11-CV-305, 

. This doctrine
conceptualizes the innate difference between breach of contract claims and tort claims. fd. It
“applies to claims: (1.) arising solely from a contract between the parties; (2.) where the duties
allegedly breached were created and grounded in the contract itself; (3.) where liability stems from
a contract; or (4.) where the tort claim essentially duplicates a breach of contract claim or the
success of which is wholly dependent on the terms of the contract.” Pollara v. Chateau St. Croix,
LLC, No. SX-06-CV-423, 2016 V.L LEXIS 49, at *22 (Super. Ct. May 3, 2016).
31. “As a practical matter, the doctrine precludes plaintiffs from recasting ordinary breach of

contract claims into tort claims.” Vf. Port Auth., at *3. Identifying whether an asserted duty arises

17
XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v. Cindy K, Gallant

Case No. ST-18-CV-786

Memorandum Opinion

out of a contractual relationship or out of a duty generally imposed by society often remains a fact-
intensive inquiry. See Jefferson v. Bay Isles Assocs., L.L.L.P., 59 V.1. 31, 52 (Super. Ct. 2011}
(refusing to apply the gist of the action doctrine on a motion to dismiss because discovery was
likely to develop the record in an attempt to determine the origin of the asserted duty).

432. Gallant argues White Star’s request for their deferred salary, business loan, distributional
interest, and right to claim, possess, and enjoy their interest in XO Bistro mirrors their breach of
contract claim. In her motion, Gallant compares Galt Cap., LLP y. Seykota, No. CIV. 2002-134,

 (D.V.I. July 18, 2007), vacated in part, No. CIV. 2002-134, 

(D.V.I Aug. 10, 2007) to this present matter. In Galt Capital, LLP, the plaintiff alleges the
defendant intentionally misrepresented their compensation for their work in the business. Jd. at *3.
The court determined that the plaintiff's claim arose from a provision in their agreement distributing
profits equally amongst partners. /d. at *4. The present case, however, is distinguishable. White Star
not only alleges Gallant “deprived them of their membership interest . . . rights and deferred salary,”
but Gallant fraudulently induced White Star into business with her with the intention of ousting
White Star in the future. Although Gallant argues White Star’s breach of contract claim is
“indistinguishably entwined” with the fraudulent inducement claim, this is incorrect.

433. White Star posits their claim for fraud does not necessarily bar an allegation of fraud and
conversion that stems from the same complaint. If a plaintiff can emphasize a separate or an
independent event which gives rise to the tort, then the gist of the action doctrine shall not bar such
an allegation. Pollara, at *10-11. So tong as the harm is “separate and distinct” from the contract
and the allegation can stand on its own, then the gist of the action doctrine does not prohibit the

claim from being litigated. /d@. at *16.

18
XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

134. Applying the Pollara factors, there is nothing in the XO Bistro amended Operating
Agreement which refers to White Star’s cause of action. White Star’s claim for fraud is not
dependent on the contract. Instead, the claim for fraud is dependent on Gallant’s alleged
misrepresentations: misrepresentations to induce White Star into signing the amended Operating
Agreement acting in reliance of Gallant’s misrepresentations; and misrepresentations to employees,
agents, and other third parties. This forms a separate cause of action, one that stands distinct from
White Star’s breach of contract claim. Therefore, this Court holds that White Star’s claim for fraud
is not barred under the gist of the action doctrine.

D. White Star’s Claim for Conversion is Partially Barred Under the Gist of the
Action Doctrine.

i. Part of White Star's Conversion Claim is Barred by the Gist of the Action
Doctrine Because it is Intertwined with the Breach of Contract Claim.

435. Unlike the fraud claim, part of White Star’s claim for conversion is entwined with their
breach of contract claim and therefore barred under the gist of the action. Under Virgin Islands law,
“conversion is an intentional exercise of dominion or control over a chattel which so seriously
interferes with the right of another to control it that the actor may justly be required to pay the other
the full value of the chattel.” Addie v. Kjaer, 51 V.1. 463, 473 (D.V.I. Feb. 23, 2009). Gallant argues
White Star’s request for their deferred salary, business loan, distributional interest, and right to
claim, possess, and enjoy their interest in XO Bistro mirrors their breach of contract claim. Contrary
to this assertion, the conversion claim and breach of contract claim are not identical, but there are
two paragraphs in White Star’s conversion claim that overlap with their breach of contract claim.

136. In paragraphs fifty-six and fifty-seven, White Star alleges Gallant “failed or refused to
tender” White Star’s distributional interest and deferred salary. These two paragraphs are governed

by XO Bistro’s amended Operating Agreement in the section titled “allocations and distributions.”

19
XO Bisiro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

However, the remaining paragraphs of White Star’s conversion claim remain independent from the
Agreement. This Court elects to keep both Gallant’s and White Star’s conversion claims but bars
the allegations in White Star’s conversion claim which references distributional interest, business
loan, and deferred salary. Although the gist of the action doctrine bars both paragraphs fifty-six and
fifty-seven in White Star’s Third-Party Complaint, this Court provides White Star an opportunity to

amend their claim.

ii, White Star is Granted Leave to Amend Count IV in Their Third-Party

Complaint so that Their Allegation for Conversion is Not Barred by the Gist

of the Action Doctrine.
437. With respect to Count IV, Conversion, White Star is granted leave to amend their Third-
Party Complaint to correctly plead their claim. As mentioned supra, Virgin Islands courts are free
to grant leave to amend a complaint, sua sponte, as long as there exists no undue delay, bad faith,
dilatory motive, prejudice, or futility. Hartzog, at *3; see also 

; Burnett at 58. This
Court insists that both Gallant and White Star’s conversion claims persist on equal footing but
recognizes that a portion of White Star’s conversion claim is interlaced with their breach of contract
claim.
738. It is within the Court’s authority to grant leave for White Star to amend their conversion
claim as there exists no undue delay, bad faith, dilatory motive, prejudice, or futility. Therefore,
White Star may amend their Third-Party Complaint for both the fraudulent misrepresentation made
to third parties claim and the conversion claim to hold to the requirements of both Virgin Islands
Rule of Civil Procedure {5(a)(3) and to survive the gist of the action doctrine, respectfully.

(ii. CONCLUSION

439. Although this Court finds that White Star’s fraud claim has not been adequately pleaded, a

judgment on the pleadings is not warranted. The Court grants White Star leave to amend their

20
XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 2021 V1 Super 74U
Anthony Merrill & White Star, LLC v. Cindy K. Gallant

Case No. ST-18-CV-780

Memorandum Opinion

Third-Party Complaint in compliance with Virgin Islands Rule of Civil Procedure Rule 9(b).
Additionally, paragraphs of the conversion claim embedded within their breach of contract claim
may be amended or deleted. For the foregoing reasons, the Court will deny Gallant’s motion for

judgment on the pleadings and deny dismissal of Count IV, Conversion, and Count VI, Fraud. An

Order of even date follows.

Dated: July ab 2021

of the Virgin Islands

ATTEST:
Tamara Charles
Cler! he Court

Dodna D. Donovan’
Cotirt Clerk Supervisor 1 / OO

21
IN THE SUPERIOR COURT
OF THE VIRGIN ISLANDS

FILED

July 21, 2021
$ST-2018-CV-007T8&0
TAMARA CHARLES

CLERK OF THE COURT

IN THE SUPERIOR COURT OF THE VIRGIN ISLANDS
DIVISION OF ST. THOMAS AND ST. JOHN

RRERERE

XO BISTRO, LLC, )
Plaintiff,
Vv.

ANTHONY MERRILL &
WHITE STAR, LLC,

Defendants.

ANTHONY MERRILL &
WHITE STAR, LLC,

Third-Party Plaintiffs,
v.
CINDY K. GALLANT,

Third-Party Defendant.

CASE NO. ST-18-CV-780

ACTION FOR BREACH OF
FIDUCIARY DUTY, ACTION TO
DETERMINE DISTRIBUTIONAL
INTEREST & ENFORCE PURCHASE
OF INTEREST, AND DERIVATIVE
ACTION

Cite as 

The Court having issued a Memorandum Opinion on this date, it is hereby

ORDERED that Third-Party Defendant’s Motion for Judgment on the Pleadings is

DENIED; and it is further

ORDERED that Third-Party Plaintiffs Anthony Merrill and White Star, LLC, are
GRANTED LEAVE TO AMEND their Third-Party Complaint to comply with Virgin Islands

Rule of Civil Procedure 9(b) within twenty (20) days of the date of entry of this Order; and it is

further
XO Bistro, LLC v. Anthony Merrill & White Star, LLC / Cite as 

Anthony Merrill & White Star, LLC v, Cindy K. Gallant

Case No. ST-18-CV-780

Order

ORDERED that Third-Party Plaintiffs Anthony Merrill and White Star, LLC, are
GRANTED LEAVE TO AMEND paragraphs fifty-six and fifty-seven of their Third-Party
Complaint within twenty (20) days of the date of entry of this Order; and it is further

ORDERED that a copy of this Order and the accompanying Opinion shall be directed to

Christopher Allen Kroblin, Esquire and Andrey

Dated: July J. 2021

ATTEST: e Superior Coug

Tamaya Charles of th Virgin Islands
Clerk e Court
/ A500

apdeville, Esquire.

Dogtt yina a 2
Court Clerk Supervisor “{