A legal battle is brewing in the District of Columbia, where Harrison Suarez, a former Marine, is suing Compass Coffee LLC and its founders, Michael and Robert Haft. The lawsuit alleges a pattern of deceit, financial manipulation, and ultimately, Suarez’s forced exit from the coffee company he co-founded. Judge Sparkle L. Sooknanan has issued a memorandum opinion, allowing most of Suarez’s claims to move forward.
The case paints a picture of a business partnership gone sour. Suarez and Michael Haft, also a former Marine, shared a passion for coffee. They built Compass Coffee into a successful D.C. business with multiple cafes and a thriving consumer-packaged goods business. However, Suarez claims that behind the scenes, the Hafts, particularly Michael and his father Robert, were working to diminish his ownership stake and push him out of the company.
The lawsuit alleges several violations, including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), as well as state law claims of fraud, breach of contract, breach of the duty of good faith and fair dealing, and breach of fiduciary duty.
The court’s recent ruling addresses the defendants’ motions to dismiss and for partial summary judgment. The judge found that most of Suarez’s claims are valid enough to proceed to the next stage of the legal process.
The Allegations: A Detailed Look
The court’s opinion details the allegations, which are drawn from Suarez’s complaint. The story begins with the friendship of Suarez and Michael Haft, forged in the Marine Corps. Their shared love of coffee led them to explore the possibility of turning their passion into a business. With a loan from Michael’s father, Robert Haft, they immersed themselves in the world of coffee, eventually forming a company and publishing an e-book.
The success of the e-book spurred them to launch a brick-and-mortar business, Compass Coffee. The company quickly expanded, opening numerous cafes and developing a profitable consumer-packaged goods business. Throughout this period, Robert Haft played a significant role, providing financial support and mentoring the two young entrepreneurs. Suarez, who came from a middle-class background, trusted the Hafts, believing they had his best interests at heart. He even worked without taking a salary, aiming to maximize the company’s resources.
However, Suarez alleges that he was not treated as an equal partner, despite representations to the contrary. When the company was first formed, Suarez and Michael Haft each contributed $100,000 and, according to the initial operating agreement, each owned 25% of the business. The remaining 50% was owned by Colby Bartlett LLC, which Suarez believed was wholly owned by Robert Haft. In reality, Robert Haft owned only a small percentage of Colby Bartlett LLC, while the majority of the ownership was held by Michael and his siblings. This meant that Michael’s ownership share in Compass was significantly larger than Suarez’s from the very beginning.
Over time, the Hafts are alleged to have engaged in further deceptions to exacerbate the disparity in ownership interests. Suarez alleges that he continued to believe he was an equal partner, pouring time, energy, and money into the company. He personally guaranteed leases and debts, including millions in rent, and assigned his 50% interest in the Compass brand to Compass Coffee LLC for no consideration, relying on the Hafts’ misrepresentations.
Suarez’s suspicions were only raised after he inadvertently discovered the true ownership of Octa LLC, an entity that also held shares in Compass. When confronted, Michael admitted that he had concealed the ownership at his father’s direction. It wasn’t until after his termination from the company that Suarez fully understood the alleged deception that had been perpetuated against him.
In 2020, the COVID-19 pandemic hit Compass Coffee hard. The company received millions in relief funds from the Small Business Administration (SBA). Suarez alleges that Michael and Robert Haft misused these funds for improper purposes, diverting them into unrelated investments. This also led to Suarez being sued by landlords for unpaid rent on leases he had personally guaranteed.
By the spring of 2021, the relationship between Suarez and Michael Haft had deteriorated. Suarez was concerned about his role, stake, and compensation within the company. He voiced these concerns, but the relationship was beyond repair. Michael ultimately informed Suarez that they could no longer continue working together. Shortly thereafter, Suarez was locked out of the office and removed from the company’s systems.
After his termination, the operating agreement entitled Suarez to have his ownership shares repurchased at fair market value. However, Suarez alleges that the valuation process was manipulated to undervalue his shares, depriving him of the value he had created in the company.
The Court’s Decision: Key Takeaways
The court’s decision addresses the defendants’ motions to dismiss specific claims and for partial summary judgment. Here’s a breakdown:
RICO Claim (Count I): The defendants argued that Suarez hadn’t shown a pattern of racketeering activity, lacked standing to sue over the misuse of COVID-19 relief funds, and that the statute of limitations had run out. The court rejected all of these arguments, allowing the RICO claim to proceed. The court found that Suarez had plausibly alleged a pattern of wire fraud, that he had standing to sue based on the injuries he suffered, and that the statute of limitations hadn’t necessarily run out yet.
Fraud Claim (Count II): The defendants argued that Suarez’s fraud claim lacked sufficient detail and was time-barred. The court found that Suarez had pleaded the claim with the required specificity, and the statute of limitations hadn’t conclusively run out.
Breach of Contract (Count III): The defendants sought to dismiss the breach of contract claim against Robert Haft, arguing he wasn’t a party to the contract. The court agreed, dismissing the claim against Robert Haft.
Breach of Implied Duty of Good Faith and Fair Dealing (Count IV): The defendants argued this claim was duplicative of the breach of contract claim. The court disagreed, allowing the claim to proceed, as it could potentially address gaps in the express contract terms.
Breach of Fiduciary Duty (Count V): The defendants raised several arguments against this claim, but the court rejected them, allowing the claim to move forward.
Motion for Partial Summary Judgment: The defendants sought summary judgment on the breach of contract claim. The court denied this motion, finding it premature because discovery had not yet been completed.
Motion to Stay Discovery: The court denied this motion as moot since the motions to dismiss and for partial summary judgment had been decided.
What’s Next
The court’s ruling means that the case will proceed, with the opportunity for discovery to gather more evidence. The parties will now enter the discovery phase, where they can gather more evidence to support their claims. The defendants may have the opportunity to move for summary judgement again after the discovery phase. This case highlights a complex dispute, and the final outcome will depend on the evidence presented and the legal arguments made.