United States District Court, E.D. Missouri, Eastern Division
MEMORANDUM AND ORDER GRANTING IN PART AND DENYING IN
PART DEFENDANTS' MOTIONS TO DISMISS
D. NOCE UNITED STATES MAGISTRATE JUDGE.
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.
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.
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).
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).
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).
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).
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
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 ¶
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).
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).
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).
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).
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).
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).
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).
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 ¶
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).
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
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).
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 ¶
MOTIONS TO DISMISS
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.
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).
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
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 ...