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Ronnoco Coffee, LLC v. Westfeldt Brothers, Inc.

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

May 22, 2017

RONNOCO COFFEE, LLC, and MID-AMERICA ROASTERIE, LLC, Plaintiffs/Counterclaim Defendants,
v.
WESTFELDT BROTHERS, INC., Defendant/Counterclaim Plaintiff/ Third-Party Plaintiff,
v.
SCOTT MEADER and ERIC BOMBALL, Third-Party Defendants.

          MEMORANDUM AND ORDER

          JEAN C. HAMILTON UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the Motion to Dismiss Amended Counterclaims and Third-Party Complaint of Plaintiffs/Counterclaim Defendants Ronnoco Coffee, LLC and Mid-America Roasterie, LLC, and Third-Party Defendants Scott Meader and Eric Bomball. (ECF No. 49). The motion is fully briefed and ready for disposition.

         BACKGROUND [1]

         Westfeldt Brothers, Inc. (“Westfeldt”) is a corporation organized and existing under the laws of the State of Louisiana, with its principal place of business in New Orleans, Louisiana. (First Amended Counter-Claims and First Amended Third-Party Complaint (“Amended Counterclaim”), ¶ 1). Westfeldt is in the business of importing green coffee to supply to coffee roasters. (Id., ¶ 9).

         Sometime in 2010, U.S. Roasterie, Inc. (“U.S. Roasterie”) became a customer of Westfeldt. (Amended Counterclaim, ¶ 10). Throughout their course of dealing, Westfeldt and U.S. Roasterie entered into futures contracts for the purchase of green coffee. (Id., ¶ 11). Over time, U.S. Roasterie became delinquent in its payments due under the terms of the futures contracts. (Id., ¶ 12).

         In the late summer or fall of 2014, U.S. Roasterie and Counterclaim Defendant Ronnoco Coffee, LLC (“Ronnoco Coffee”) entered into negotiations for the sale of U.S. Roasterie's assets to Ronnoco Coffee. (Amended Counterclaim, ¶¶ 2, 13). In conducting due diligence during the negotiations, Ronnoco Coffee became aware of the substantial debt that Westfeldt had allowed U.S. Roasterie to incur. (Id., ¶ 14). Ronnoco Coffee ultimately did not complete the purchase of U.S. Roasterie's assets.[2]

         At some subsequent point U.S. Roasterie's lender, Great Western Bank, took control of the assets of U.S. Roasterie. (Amended Counterclaim, ¶ 17). All of U.S. Roasterie's assets then were formally acquired by Counterclaim Defendants Ronnoco Coffee and Mid-America Roasterie, LLC (“Mid-America”)[3], pursuant to a Sale Agreement dated February 9, 2015. (Id., ¶¶ 3, 26). That same day Westfeldt received two nearly identical letters, one from Ronnoco Coffee and one from Dixon Avenue Holdings, LLC[4], notifying it that the assets of U.S. Roasterie had been taken over by Great Western Bank and then sold to Mid-America, a subsidiary of Ronnoco Coffee, and that no invoices prior to the asset sale would be paid because Ronnoco Coffee did not assume any of U.S. Roasterie's liabilities. (Id., ¶ 28).[5]

         On or around the day after the asset sale closing, a telephone conference took place between Ronnoco Coffee, U.S. Roasterie's former CEO and CFO, and Westfeldt. (Amended Counterclaim, ¶ 30). According to Westfeldt, Ronnoco Coffee expressly agreed during the conference to assume certain futures contracts that were previously in place between Westfeldt and U.S. Roasterie. (Id., ¶ 32). Westfeldt maintains that although Ronnoco Coffee/Mid-America (collectively “Ronnoco”) initially took delivery of the coffee subject to the futures contracts, it later informed Westfeldt that it would not continue taking delivery in fulfillment of the remaining assumed futures contracts. (Id., ¶ 39). Westfeldt further alleges that as of September, 2016, the value of the outstanding futures contracts assumed by Ronnoco was $145, 776.88. (Id., ¶ 40).

         Westfeldt filed its initial Counterclaims and Third-Party Complaint against Ronnoco, Meader and Bomball (collectively “Movants”) on September 22, 2016. (ECF No. 9).[6] Movants filed a Motion to Dismiss on October 20, 2016, asserting all Westfeldt's counterclaims and third-party claims should be dismissed for failure to state a claim upon which relief can be granted. (ECF No. 18). In a Memorandum and Order entered February 16, 2017, the Court granted in part and denied in part Movants' motion. (ECF No. 43). The Court further granted Westfeldt leave to file a First Amended Counterclaims and Third Party Complaint. (Id.).

         Westfeldt filed its First Amended Counter-claims and First Amended Third-Party Complaint against Movants on March 6, 2017. (ECF No. 46). In its Amended Counterclaim, Westfeldt asserts the following claims against Ronnoco: Breach of Contract/Successor Liability (Count I); Open Account/Successor Liability (Count II); Breach of Contract/Single Business Entity/Alter Ego (Count III); Open Account/Single Business Entity (Count IV); Unfair Trade Practices (Count V); Conversion/Civil Conspiracy to Commit Conversion (Count VI); Unjust Enrichment (Count VII); and Breach of Futures Contracts (Count VIII). Westfeldt also asserts a claim for Conspiracy to Tortiously Interfere with Contractual Relations against Third-Party Defendants Scott Meader and Eric Bomball. (Count IX).

         As noted above, Movants filed the instant Motion to Dismiss Amended Counterclaims and Third-Party Complaint on April 3, 2017, asserting all Westfeldt's counterclaims and third-party claims must be dismissed for failure to state a claim upon which relief can be granted. (ECF No. 49).

         STANDARD FOR MOTION TO DISMISS

         In ruling on a motion to dismiss, the Court must view the allegations in the complaint in the light most favorable to plaintiff. Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir. 2008). The Court, “must accept the allegations contained in the complaint as true and draw all reasonable inferences in favor of the nonmoving party.” Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir. 2005) (citation omitted). The complaint's factual allegations must be sufficient “to raise a right to relief above the speculative level, ” however, and the motion to dismiss must be granted if the complaint does not contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007) (abrogating the “no set of facts” standard for Fed.R.Civ.P. 12(b)(6) found in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Furthermore, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 555 (pleading offering only “labels and conclusions” or “a formulaic recitation of the elements of a cause of action” will not do)).

         DISCUSSION

         I. Successor Liability (Counts I-II)

         Under Iowa law[7], the basic principle of corporate successor liability is that “a corporation that purchases the assets of another corporation assumes no liability for the transferring corporation's debts and liabilities. Exceptions arise only in four circumstances: (1) the buyer agrees to be held liable; (2) the two corporations consolidate or merge; (3) the buyer is a ‘mere continuation' of the seller; or (4) the transaction amounts to fraud.” Lumley v. Advanced Data-Comm, Inc., 2009 WL 2514084, at *1 (Iowa App. Aug. 19, 2009) (citations omitted). In its response brief, Westfeldt contends that the third and fourth exceptions apply in this case. (Westfeldt's Memorandum in Opposition to Movants' Second Motion to Dismiss (“Westfeldt's Opp.”), PP. 2-8).

         With respect to exception four, “Iowa courts have not elaborated on the elements of such a claim.” Grand Laboratories, Inc. v. Midcon Labs of Iowa, 32 F.3d 1277, 1281 (8th Cir. 1994). “Authorities suggest, however, that ‘the fraud exception to the nonliability of successors is merely an application of the law of fraudulent conveyances.'” Id. (citations omitted). After concluding that the Iowa law of fraudulent conveyances applied to the claim before it, the Eighth Circuit in Grand Laboratories continued as follows:

A fraudulent conveyance is…a transaction by means of which the owner of real or personal property has sought to place the land or goods beyond the reach of his creditors, or which operates to the prejudice of their legal or equitable rights. To recover on a fraudulent conveyance claim, a plaintiff-creditor must first show that the transferor actually owned the property that it allegedly fraudulently transferred. Moreover, the plaintiff-creditor must show that it was prejudiced by a transfer of assets. Prejudice requires the creditor to show that [it] would have received something which has become lost to [it] by reason of the conveyance.

Id. at 1281-82 (internal quotations and citations omitted).

         In its earlier Order, the Court found the following allegations sufficient to set forth a claim for successor liability on the basis that the transaction at issue amounted to fraud:

16. Upon information and belief, Ronnoco and U.S. Roasterie formulated a mutually beneficial plan so that Ronnoco could acquire all of U.S. Roasterie's assets free and clear of the substantial debt owed to Westfeldt, and U.S. Roasterie's management and employees could all maintain their employment at the new contemplated successor company.
17. Pursuant to this plan, the parties caused or allowed U.S. Roasterie's lender, Great Western Bank, to “take control” of the assets of U.S. Roasterie so that U.S. Roasterie's assets would be sold to Ronnoco by the bank at a lesser cost rather than being sold directly by U.S. Roasterie….
29. After the asset sale was finalized, Howard Fischer, the former CEO of U.S. Roasterie, and Scott Meader, Ronnoco's CEO, gave a joint statement to VendingMarketWatch in which Mr. Fischer stated that the sale of U.S. Roasterie to Ronnoco was part of his “exit strategy, ” and noted that “people at U.S. Roasterie will continue in their current roles” and “all blends, packaging and outstanding customer service remain the same.”… 43. ….[B]ecause the sale of the assets of U.S. Roasterie was a transaction entered into to escape liability, Ronnoco/Mid-America is liable to Westfeldt for the debts of U.S. Roasterie via successor liability….

(See ECF No. 43, P. 8, quoting Initial Counterclaim, ¶¶ 16-17, 29, 43).[8] The Court recognized that Westfeldt had a long way to go to prove that the sales transaction was fraudulent, especially in light of the fact that Ronnoco purchased U.S. Roasterie's assets not from the company itself, but from U.S. Roasterie's secured lender, Great Western Bank, who had foreclosed on the property. (See Id., P. 8 n. 10, citing Grand Laboratories, 32 F.3d at 1282 (holding plaintiff's claim for successor liability on the basis of a fraudulent transfer of assets failed, as plaintiff presented no evidence that the seller had no other creditors, that plaintiff was entitled to priority over other creditors to any extent, or that the assets the seller transferred were unencumbered)). The Court nevertheless declined to dismiss Westfeldt's successor liability claims, finding consideration of the issue to be more appropriate on summary judgment, when the Court had a full record before it. (Id.).

         In their Motion to Dismiss, Movants acknowledge the Court previously declined to dismiss Counts I and II of Westfeldt's Counterclaim. (Movants' Memorandum in Support of Motion to Dismiss, P. 15). Movants maintain, however, that new allegations and evidence provided by Westfeldt “contradict the core of its fraud theory and warrant reconsideration of the issue.” (Id.).

         Upon consideration, the Court finds that while Westfeldt's new allegations and evidence potentially render its successor liability claims even less plausible, they do not “contradict the core of its fraud theory, ” such that dismissal is appropriate at this stage. Rather, the Court remains unwilling to jettison the claims at the heart of Westfeldt's Amended Counterclaim ...


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