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Dunne v. Resource Converting, LLC

United States District Court, E.D. Missouri, Eastern Division

February 13, 2017

TOM DUNNE, JR., Plaintiff,
v.
RESOURCE CONVERTING, LLC, TIM DANLEY, RICK KERSEY, SEBRIGHT PRODUCTS, INC., GARY BRINKMANN, NEWWAY GLOBAL ENERGY, LLC, DAVID WOLF, JERRY FLICKINGER, and JWR, INC., Defendants.

          MEMORANDUM AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS

          DAVID D. NOCE UNITED STATES MAGISTRATE JUDGE

         This action is before the court on the motions of defendants Sebright Products, Inc. and Gary Brinkmann to dismiss Counts III, IV, V, and VII for failure to state a claim under Fed.R.Civ.P. 12(b)(6) (ECF No. 35); defendant NewWay Global Energy, LLC, to dismiss Counts I, II, IV, V, VI and VIII for failure to state a claim (ECF No. 48); defendants David Wolf, Jerry Flickinger, and JWR, Inc., to dismiss Counts I, II, III, IV, V, and VI for failure to state a claim, or, in the alternative, for a more definite statement as to Counts I, II, III, V, and VI under Rule 12(e) (ECF No. 51); and defendants Resource Converting, LLC; Tim Danley; and Rick Kersey to dismiss Counts I and II under Rule 9(b) and Counts IV, V, VI, and VIII under Rule 12(b)(6) (ECF No. 57). Plaintiff has opposed all motions. (ECF Nos. 59, 67-69, 77). After hearing oral arguments from the parties on February 3, 2017, the court grants defendants' motions in part and otherwise denies them.

         I. BACKGROUND

         Plaintiff Tom Dunne alleges the following facts in his judicial complaint. (ECF No. 1). In May 2015, defendant Gary Brinkmann contacted Dunne to sell him certain license agreements. (Id. at ¶ 16). These agreements would authorize and obligate plaintiff to acquire for resale “PAD systems” developed by defendants Resource Converting, LLC; Sebright Products, Inc.; and JWR, Inc., and sold by defendant NewWay Global Energy, LLC. (Id. at ¶¶ 16-17). The PAD systems are devices that would purportedly convert municipal solid waste into renewable fuels. (Id. at ¶ 16). The systems were advertised to plaintiff as “using proven and tested technology to create a homogenous dried fuel stock that can be converted into different forms of energy.” (Id. at ¶ 19). Defendant Jerry Flickinger gave plaintiff a “budgetary quote for a single line processing system to take municipal solid waste and prepare it for conversion to fuel, ” stating a single system was “capable of processing 250 tons per day.” (Id. at ¶ 20). Brinkmann and Flickinger allegedly assured plaintiff repeatedly of the PAD systems' proven function and the substantial value of the license agreements. (Id. at ¶ 21).

         Plaintiff alleges that defendants Brinkmann, Flickinger, Danley, and Kersey solicited payment from him for the PAD systems and license agreements, and that they employed high-pressure sales pitches. (Id. at ¶ 22). As a result of defendants' assurances and representations, plaintiff entered into license agreements with Resource Converting in August 2015 and made an initial payment of $400, 000 with an additional payment of $600, 000 to be made in November 2015. (Id. at ¶¶ 22-24). Between May and October 2015, plaintiff and defendants met with many individuals in Missouri to solicit the sale and purchase of the PAD Systems. (ECF No. 77, Ex. A, ¶ 6). Between August and November 2015, plaintiff insisted on seeing a demonstration of an operational PAD system. (ECF No. 1, ¶ 25). Brinkmann, Kersey, and Flickinger showed plaintiff a partially assembled piece of non-functioning equipment in a building located in Iowa, stating that it had previously been in operation but was being prepared for relocation. (Id. at ¶ 26). Defendants were never able to show plaintiff a working PAD system. (Id. at ¶¶ 27-30). On December 1, 2015, defendants demanded full payment of the remaining $600, 000 due from plaintiff. (Id. at ¶ 29). In June 2016, defendant Brinkmann stated to plaintiff that the PAD Systems never existed as represented and never functioned as promised. (Id. at ¶ 30).

         On June 20, 2016, counsel for plaintiff submitted a demand letter to Brinkmann, Resource Converting, Sebright, JWR, NewWay, Kersey, and Danley, demanding return of the $400, 000 paid by plaintiff and threatening legal action if the sum was not repaid by June 30, 2016. (ECF No. 77, Ex. E). Resource Converting filed a breach of contract claim against Dunne on June 30, 2016 in Iowa state court. (Id. at Ex. F). On August 19, 2016, Dunne removed that case to the United States District Court for the Southern District of Iowa and also commenced the instant action in this district court. Defendants filed motions to transfer the case to Iowa and to dismiss the case. By a prior order, this court denied defendants' motions to transfer this suit to Iowa. It now considers defendants' motions to dismiss.

         II. MOTIONS TO DISMISS

         After plaintiff filed his complaint, defendants Sebright and Brinkmann moved to dismiss Counts III, IV, V, and VII for failure to state a claim under Fed.R.Civ.P. 12(b)(6). (ECF No. 35). Defendant NewWay also moved to dismiss Counts I, II, IV, V, VI and VIII for failure to state a claim. (ECF No. 48). Defendants Wolf, Flickinger, and JWR moved to dismiss Counts I, II, III, IV, V, and VI for failure to state a claim, or, in the alternative, for a more definite statement as to Counts I, II, III, V, and VI. (ECF No. 51). Defendants Resource Converting, Danley, and Kersey moved to dismiss Counts I and II under Rule 9(b) and Counts IV, V, VI, and VIII under Rule 12(b)(6) (ECF No. 57). Plaintiff has opposed all motions (ECF Nos. 59, 60, 67-69, 77), but voluntarily dismissed Count IV. (ECF No. 63).

         A. Legal Standard

         Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss part or all of a case for its failure to state a claim upon which relief can be granted. Fed. R. Civ. Pro. 12(b)(6). A complaint “must include enough facts to state a claim to relief that is plausible on its face, ” providing more than just labels and conclusions. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Such a complaint will “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged, ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and will state a claim for relief that rises above mere speculation. Twombly, 550 U.S. at 555.

         In reviewing the pleadings under this standard, the court accepts all of the plaintiff's factual allegations as true and draws all inferences in the plaintiff's favor, but the court is not required to accept the legal conclusions the plaintiff draws from the facts alleged. Retro Television Network, Inc. v. Luken Commc'ns, LLC, 696 F.3d 766, 768-69 (8th Cir. 2012).

         Finally, a court sitting in diversity will apply the choice-of-law rules of its forum state. Eagle Tech. v. Expander Americas, Inc., 783 F.3d 1131, 1137 (8th Cir. 2015). In this case, the court has determined that the substantive law of Missouri provides the substantive rules of decision.[1]

         B. Counts I and II

         In Count I of his complaint, plaintiff alleges fraudulent misrepresentation and concealment against all defendants. (ECF No. 1, ¶¶ 31-37). In Count II, he alleges fraudulent inducement and seeks rescission of the license agreements against all defendants. (Id. at ¶¶ 38-45). In both counts, plaintiff alleges that defendants either personally or through their agents “made false material representations regarding existence and/or function of the PAD Systems.” (Id. at ¶¶ 32, 39). He alleges that all of the defendants had direct knowledge of the PAD Systems' non-functional nature and intended plaintiff to rely on the representations and sign the license agreements. (Id. at ¶¶ 32-33, 39-41).

         Under Federal Rule of Civil Procedure 9(b), a fraud allegation demands a higher degree of notice than that required for other claims, and a party must state “the time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.” BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007). In other words, the complaint must state the “who, what, where, when, and how” of the alleged fraud. Id.

         NewWay argues that these counts fail to plead fraud with particularity against it, because plaintiff did not identify NewWay or its agents with any specificity in alleging fraudulent conduct. (ECF No. 48). NewWay further argues that plaintiff alleged no facts showing when and where he purportedly heard any particular statements and so has not adequately pleaded the elements of reliance and causation. Id. Defendants David Wolf, Jerry Flickinger, and JWR, Inc. similarly argue that these counts engage in “group pleading” and do not meet the Rule 9(b) specificity requirement and so must be dismissed. (ECF No. 51). In the alternative, these defendants request a more definite statement. Id. Resource Converting, Tim Danley, and Rick Kersey make the same Rule 9(b) specificity argument. (ECF No. 57).

         The Court has carefully reviewed plaintiff's complaint and concludes that it does not adequately state the “who” or the “when”:

16. On or about May 20, 2015, Brinkmann, individually and/or on behalf of Sebright, JWR, NewWay and Resource, solicited Plaintiff with the objective of selling Plaintiff certain products described herein, and ultimately with the purpose of selling Plaintiff certain license agreements (“License Agreements”), to service an area with a radius of one hundred miles (100) from St. Louis, authorizing and obligating Plaintiff to acquire for resale certain Resource PAD systems which purportedly converted municipal solid waste to biomass and ultimately to renewable fuels (“PAD Systems”).
17. According to Brinkmann, NewWay is a company solely created to be the holding company that sells the PAD Systems which were developed by JWR, Sebright, and Resource. Brinkmann has identified the entities as “partner companies.” 18. In furtherance of advertising said PAD Systems and License Agreements, Brinkmann, purportedly on behalf of Resource and as an employee of Sebright, forwarded a brochure, attached hereto as Exhibit A, entitled “Waste Conversion Systems ...

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