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Dunne v. Resource Converting, LLC

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

May 24, 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 is the second round of motions to dismiss plaintiff's claims. In late 2016, defendants moved to dismiss plaintiff's original complaint (ECF No. 1), and the parties argued these motions at a February 2017 hearing. (ECF No. 106). The court dismissed all claims in plaintiff's original complaint for failings under Federal Rules of Civil Procedure 9(b) and 12(b)(6). (ECF No. 107). However, the court gave plaintiff leave to amend these claims, and plaintiff filed an amended complaint on March 15. (ECF No. 113). Defendants have again filed motions to dismiss on the same or similar grounds.

         Defendants Sebright Products, Inc. and Gary Brinkmann move to dismiss Counts I, III, IV, V, VII, and VIII, (ECF No. 122); defendants Tim Danley and Rick Kersey move to dismiss Counts I, III, IV, V, VII, VIII (ECF No. 124); defendant NewWay Global Energy, LLC, moves to dismiss Counts III, V, and VIII (ECF No. 127); defendant David Wolf moves to dismiss Counts I, III, IV, V, VI, VII, and VIII (ECF No. 129); defendants Jerry Flickinger, and JWR, Inc., move to dismiss Counts VI, VII, and VIII (ECF No. 129); and defendant Resource Converting, LLC, moves to dismiss Counts I, II, III, IV, V, and VII. (ECF No. 135). Plaintiff has opposed all motions. (ECF Nos.140-44). The court grants defendants' motions in part; in all other respects, they are denied.

         I. BACKGROUND

         Plaintiff Tom Dunne alleges the following facts in his amended judicial complaint. (ECF No. 113). At all times relevant to the cause of action, Danley was vice-president of business development at Resource, Kersey was the chief executive officer of Resource, and both, along with Wolf and Flickinger, were corporate representatives of NewWay. (Id. at ¶ 5, 11). Brinkmann was and is the director of multinational sales at Sebright. (Id. at ¶ 7). Wolf was also the chief executive officer of JWR and Flickinger was also a corporate representative of JWR. (Id. at ¶ 13).

         In May 2015, Brinkmann contacted plaintiff to sell him certain license agreements. (Id. at ¶ 18). He allegedly hoped to sell plaintiff one million dollars' worth of licensing rights. (Id. at ¶ 18). These agreements would give plaintiff “exclusive rights within the 100-mile radius of St. Louis to sell a non-thermal, pulverizing, and drying system technology (the ‘PAD System'), which, upon information and belief, was licensed by Resource from the original inventors of the technology.” (Id. at ¶ 19). The PAD System, when combined with other technologies designed and built by defendants Sebright, JWR, and NewWay, would purportedly convert municipal solid waste to renewable fuels. (Id. at ¶¶ 20-21).

         Approximately a week after his initial contact, on May 27, 2015, Brinkmann sent plaintiff a brochure entitled “Waste Conversion Systems with Proven Capabilities.” (Id. at ¶ 27, Ex. A). The brochure depicted the logos of JWR, Sebright, NewWay, and Resource, and described the Waste Conversion System as the combination of a vertical shaft impactor made and sold by Sebright, the PAD System sold by Resource and NewWay, and products provided by JWR to convert the waste to fuel. (Id. at ¶¶ 28-29, Ex. A). The brochure stated that Sebright, Resource, and JWR “will provide a system using proven and tested equipment” to create a homogenous dried fuel stock capable of conversion into different energy forms. (Id. at ¶ 30, Ex. A). The defendants knew plaintiff needed a product that would effectively and economically convert municipal solid waste to biofuel, and the brochure specifically identified municipal solid waste as a “Common Feedstock Used to Make Biofuels and Renewable Fuels.” (Id. at ¶ 31, Ex. A).

         On June 22, 2015, Brinkmann sent an excel spreadsheet to plaintiff that demonstrated the production levels and functionality of the PAD System, including profit potentials. (Id. at ¶¶ 35-36). Plaintiff alleges that this spreadsheet “was formed with input” from all other defendants. (Id. at ¶ 35).

         On August 12, 2015, Flickinger sent an email to plaintiff with a “budgetary quote for a single line processing system to take municipal solid waste and prepare it for conversion to fuel.” (Id. at ¶ 37, Ex. B). This email was sent from Flickinger's JWR address on behalf of NewWay, Resource, and JWR, and plaintiff alleges it was formulated with input from all defendants. (Id. at ¶ 37-38, Ex. B). This email stated that the Waste Conversion System was “the most efficient system available anywhere to achieve a desired output, to be accomplished by mating together existing, PROVEN technologies into a comprehensive turnkey system, ” and it could process 15 tons of municipal solid waste an hour, with a discharge capacity of 6 tons per hour. (Id. at ¶¶ 39-41).

         Plaintiff alleges that between May 26 and August 31, all defendants but Wolf orally assured plaintiff numerous times that the OAD System functioned as represented in the written materials. (Id. at ¶ 58). Between August 12 and August 21, 2015, plaintiff alleges that “Brinkmann, Sebright, Flickinger, JWR, Kersey, Danley, NewWay, and Resource further represented that these capacities and capabilities would be achieved without using thermal systems to dry the feedstock materials.” (Id. at ¶ 42). Plaintiff alleges that the use of thermal drying systems would be too costly and inefficient to market. (Id. at ¶ 42).

         On August 18, 2015, Brinkmann forwarded an email to plaintiff from Danley, which stated that the PAD System would generate “millions of dollars” over the 20-year period of the license agreements. (Id. at ¶ 44). The next day, plaintiff met with Brinkmann and Flickinger to discuss the cost of a PAD System, which plaintiff would be required to purchase as part of the license agreements. (Id. at ¶ 45). This discussion was confirmed in a post-meeting email later that day, which listed the cost of a PAD System with a 7 ton/hour capacity at $3.2 million, and a System with a 14 ton/hour capacity at $5 million. (Id. at ¶ 47). The email gave plaintiff a deadline of August 21, 2015, to execute five license agreements, requiring payments of $200, 000 per license agreement. (Id. at ¶¶ 48-51). The email emphasized that if plaintiff did not sign by August 21, 2015, he risked losing the opportunity to enter into any agreements. (Id. at ¶ 51).

         Brinkmann also orally informed plaintiff in the weeks leading up to August 21 that there were other individuals in the area ready and willing to enter into the agreements if plaintiff did not do so. (Id. at ¶ 52). Brinkmann sent an additional email on August 19 describing the profit percentages of the PAD Systems and stressing the urgency of meeting the August 21 deadline. (Id. at ¶ 53). Danley sent an email on August 19 as well, detailing the payment structure and timeline for the license agreements and emphasizing the necessity of signing the agreements by August 21. (Id. at ¶ 54). Danley sent this email on Resource letterhead and copied Kersey and Brinkmann. Plaintiff alleges that there were representations between May 26 and August 31 that other individuals were ready and willing to enter into the license agreements if plaintiff did not, and there were many other individuals nation- and world-wide entering into similar license agreements. (Id. at ¶ 59).

         Defendants did not fully reveal to plaintiff the exact nature of the relationships and agreements between themselves, including details about sales proceeds or commissions. (Id. at ¶ 22). The individual defendants appeared to act at times on their own behalf but at other times on behalf of one or more of the corporate defendants. (Id. at ¶ 22). Although the license agreements were to be made with Resource, plaintiff alleges that each of the defendants was positioned to benefit in some way from their execution, either as members of Resource or its member LLCs, as companies owning the other components of the waste conversion technology to be used in conjunction with the PAD System, or as members of those other companies. (Id. at ¶ 23). Defendants allegedly knew that plaintiff had experience in the waste and landfill industry and intended to exploit his contacts. (Id. at ¶¶ 25-26).

         On August 21, 2015, plaintiff executed all five license agreements. (Id. at ¶ 55, Ex. C). Danley executed the license agreements on behalf of Resource and its successors, assigns, and affiliates. (Id. at ¶ 56). On August 31, plaintiff made a $400, 000 payment to Resource for the first two license agreements. By the terms of the license agreements, he was to pay an additional $600, 000 by November 2015. Between August 21 and November 31, Resource, Sebright, JWR, NewWay, Brinkmann, and Flickinger continued to advertise the PAD Systems to plaintiff with repeated assurances of the “proven” abilities of the PAD Systems and touting the substantial value of the license agreements. (Id. at ¶ 63).

         Between August 10 and October 22, plaintiff accompanied Brinkmann and Flickinger, who were acting on behalf of Sebright and JWR, respectively, as well as Resource and NewWay, on “sales calls” to plaintiff's contacts in the St. Louis area. (Id. at ¶ 63, Ex. D). At these sales calls, Brinkmann and Flickinger advertised the Waste Conversion System on behalf of NewWay, Resource, Sebright, and JWR, continuing to represent that the PAD System would process municipal solid waste at the capacities previously represented to plaintiff. (Id. at ¶ 64). At the request of “all” defendants, plaintiff scheduled, facilitated, and attended these sales calls and similarly advertised the PAD system. (Id. at ¶ 65).

         From early August 2015, plaintiff had insisted upon seeing a functioning, operational PAD System in order to verify defendants' representations to him. (Id. at ¶ 66). On several occasions, all defendants but Wolf assured plaintiff they would show him a PAD System demonstration. (Id. at ¶ 66). At Brinkmann's encouragement, plaintiff attended an energy conference in September 2015 in Des Moines, Iowa. (Id. at ¶ 68). In a September 14 email, Brinkmann assured plaintiff he would see a fully-functioning PAD System while attending the energy conference in Iowa. (Id. at ¶¶ 68-69). However, when Brinkmann, Flickinger, Kersey, and Wolf took plaintiff into a barn for that purpose on September 22, they only showed plaintiff a partially-assembled piece of nonfunctioning equipment. (Id. at ¶ 70).

         Plaintiff alleges that this demo equipment was never a fully-functioning PAD System even when fully assembled, but rather a demonstration system not intended for production purposes and incapable of producing at the capacity represented to plaintiff. (Id. at ¶ 71). Plaintiff alleges that Kersey, Danley, Resource, and NewWay knew this fact and the remaining defendants should have known of this fact, but all defendants “either failed to disclose this fact or actively concealed this fact from plaintiff.” (Id. at ¶ 71).

         Plaintiff continued to request the demonstration of an operational, successful PAD System. (Id. at ¶ 72). Despite verbal assurances from “defendants, ” they failed to provide plaintiff with evidence of the System's functionality, and plaintiff became suspicious about the PAD System's existence and operation. (Id. at ¶ 72-73). Plaintiff demanded a meeting in November 2015 to discuss the PAD System's functionality. (Id. at ¶ 74). On November 18, Flickinger, “on behalf of all named defendants, ” forwarded an email to plaintiff answering a series of questions plaintiff had posed about the PAD System and its profit potential. (Id. at ¶ 75). The email assured plaintiff that Resource had licensed the PAD System to more than twenty licensees around the world. (Id. at ¶ 76). The email also informed plaintiff he would need to remit the remaining $600, 000 payment to either Resource or NewWay. (Id. at ¶ 77). Plaintiff alleges that all named defendants provided input in some capacity to this email. (Id. at ¶ 75).

         Between August 21 and November 2, Brinkmann and Flickinger, “on behalf of all named defendants” used a third-party's research on waste-to-fuel development at a Polish biofuel plant in an effort to legitimize the PAD System. (Id. at ¶ 79). Defendants used this third-party's reports and updates to mislead and distract plaintiff, as well as convince him that there was a market for the PAD System and the defendants' broader Waste Conversion System. (Id. at ¶ 80). Plaintiff alleges this was false and misleading given the alleged functional limitations and inefficiencies of the PAD System. (Id. at ¶ 80).

         On November 30, all defendants traveled to St. Louis, Missouri, to meet with plaintiff as he had requested. (Id. at ¶ 81). Plaintiff alleges that as of November 30, defendants had yet to provide any evidence, proof, or demonstration of the PAD System's ability to function at the capacities defendants had represented. (Id. at ¶ 82). At the meeting, plaintiff offered to pay the remaining $600, 000 into escrow, pending defendants' live demonstration of an operational PAD System functioning as represented. (Id. at ¶ 83). However, defendants declined this offer and refused to provide evidence that the PAD System worked as had been represented. (Id. at ¶ 84).

         Plaintiff alleges that defendants' activities “induce[d] plaintiff to expend his professional time, expenses, his professional industry contacts, and other resources in furtherance of this transaction.” (Id. at ¶ 85). On December 1, “defendants” demanded full payment of the remaining $600, 000 be sent to Resource instead of NewWay. (Id. at ¶ 86). Plaintiff alleges that defendants' continued misrepresentations delayed plaintiff's discovery of the truth and prevented him from recovering the $400, 000 he was induced to pay in August 2015. (Id. at ¶ 87).

         Brinkmann made efforts to reconcile with plaintiff on behalf of Sebright, by attempting to put together a different version of a Waste Conversion System not involving the PAD System. (Id. at ¶ 89). Plaintiff alleges that Brinkmann “expressed regret about the deficiencies and the tactics surrounding the license agreements [and] the PAD System and offered another business opportunity as a means of recouping plaintiff's losses.” (Id. at ¶ 89). Brinkmann and plaintiff continued to make sales calls through January 2016 with this goal in mind, and in June 2016, Brinkmann ultimately admitted to plaintiff in a phone call that the PAD Systems never existed in the form and function represented by defendants or could never have performed as promised by defendants. (Id. at ¶ 91). Brinkmann informed plaintiff in this phone call that he had just witnessed Kersey and Danley trying to sell the PAD Systems at an energy conference in Las Vegas, Nevada under the new name “The Dryclone, ” “once again representing the system as patented, trademarked, and ‘proven' in the same manner they had previously, falsely represented to plaintiff.” (Id. at ¶ 92). Plaintiff alleges that all the acts of every defendant were undertaken in furtherance of fraud, misrepresentation, and conspiracy. (Id. at ¶ 88).

         II. MOTIONS TO DISMISS

         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. Count I

         In Count I of his complaint, plaintiff alleges fraudulent misrepresentation and concealment against all defendants. (ECF No. 1, ¶¶ 93-113). Specifically, he alleges that Brinkmann, Sebright, Flickinger, Wolf, JWR, Kersey, Danley, Resource, and NewWay each “made false material representations regarding the efficiency, capability, functionality, capacity, profitability and ‘proven' characteristics of the PAD Systems (including the Demo PAD System) and the Waste Conversion System, as well as the value of the license agreements.” (Id. at ¶¶ 94-102). He alleges each defendant had direct knowledge, at all times prior to, during, and after the execution of the license agreements, that the PAD Systems did not function as represented to plaintiff, were not “proven” in the sense represented to plaintiff, and had never in any form produced the levels promised to plaintiff. (Id. at ¶¶ 103-05). Plaintiff further alleges that Brinkmann, Sebright, Flickinger, Kersey, Danley, Resource, and NewWay knew and concealed that at least one prior PAD System sold by Resource “had been proven incapable of producing the outputs represented by defendants, had failed (by a large margin) to meet the ...


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