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Ronnoco Coffee, LLC v. Westfeldt Brothers, Inc.

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

February 15, 2018

WESTFELDT BROTHERS, INC., Counterclaim Plaintiff.



         This matter is before the Court on Counterclaim Defendants Ronnoco Coffee, LLC (“Ronnoco Coffee”) and Mid-America Roasterie, LLC's (“Mid-America”) (collectively “Ronnoco”) Motion for Summary Judgment, filed December 1, 2017. (ECF No. 96). The motion is fully briefed and ready for disposition.


         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” or “USR”) became a customer of Westfeldt. (Westfeldt's Statement of Contested Material Facts (“Westfeldt's Facts”), ¶ 1). Over time, U.S. Roasterie became delinquent in the amounts owed to Westfeldt for the provision of coffee, due to financial difficulties it was experiencing. (Id., ¶ 3). Westfeldt continued to sell coffee to U.S. Roasterie on unsecured credit, however, and as of August 21, 2012, U.S. Roasterie owed $3, 087, 576.47 to Westfeldt on its account. (Ronnoco's Statement of Uncontroverted Material Facts (“Ronnoco's Facts”), ¶¶ 7, 8).[1]

         In April of 2013, Westfeldt informed U.S. Roasterie that it would ship additional coffee to U.S. Roasterie only upon payment prior to the release of an amount greater than the value of the new shipment. (See Ronnoco's Exh. 4, ECF No. 98-1, P. 41). All such payments were applied to old invoices by Westfeldt, resulting in a reduction over time of the amounts owing to Westfeldt by U.S. Roasterie, but a continuation of the ongoing extension of credit by Westfeldt to U.S. Roasterie. (Ronnoco's Facts, ¶ 10). As a result, as of August, 2013, U.S. Roasterie's debt had been reduced to approximately $2, 962, 000, of which over $1, 900, 000 was over 90 days past due. (Id., ¶ 12).[2]

         Sometime in 2013, Ronnoco Coffee, through its then-CEO Scott Meader (“Meader”) and then-President Dan Moloney, traveled to Iowa to meet with U.S. Roasterie President Howard Fischer (“Fischer”), to discuss a potential acquisition of U.S. Roasterie. (Westfeldt's Facts, ¶ 9). No deal was reached at that time, but negotiations resumed in approximately February, 2014. (Id., ¶¶ 9, 10). In conducting due diligence during the negotiations, Ronnoco Coffee became aware of the substantial debt that U.S. Roasterie had accrued in favor of its coffee supplier, Westfeldt. (Id., ¶ 11). Ronnoco Coffee ultimately did not complete the purchase of U.S. Roasterie's assets.

         Great Western Bank (“Great Western”), a South Dakota banking corporation, also extended credit to U.S. Roasterie. (Ronnoco's Facts, ¶ 19). Great Western made three loans to U.S. Roasterie totaling over $5 million (the “Loans”), and secured the Loans with a security interest in U.S. Roasterie's machinery, equipment, and other property. (Id., ¶¶ 19, 20).[3] Great Western filed financing statements with the Iowa Secretary of State perfecting a first-priority security interest in its collateral for the Loans, which included the green coffee that had been delivered to U.S. Roasterie by its vendors. (Id., ¶¶ 21-22).

         On or about October 15, 2014, one of Great Western's loans to U.S. Roasterie matured, and Great Western did not renew or extend the loan. (Ronnoco's Facts, ¶ 28). Instead, and consistent with the terms of the loan, Great Western demanded that U.S. Roasterie pay the loan in full. (Id., ¶ 29). Furthermore, in accordance with the cross-default provisions contained in the other two loans, Great Western made demand upon U.S. Roasterie to cure the event of default, and upon failure of U.S. Roasterie to do so, Great Western accelerated to maturity those loans. (Id., ¶ 30). U.S. Roasterie did not satisfy its obligation to pay the balance of the outstanding Loans, resulting in Great Western foreclosing the security interests which secured the Loans. (Id., ¶ 31).[4]

         In connection with Great Western's exercise of its remedies on the Loans, Great Western and Ronnoco Coffee continued negotiations for the sale of U.S. Roasterie's assets pursuant to a UCC private sale. (Ronnoco's Facts, ¶ 35).[5] Mid-America, a new company, eventually purchased the equipment, inventory, accounts receivable, and certain assets which were collateral for the Great Western Loans, for a purchase price of $2, 098, 670.80 (plus $35, 000.00 for vehicles). (Id., ¶¶ 36, 37). It is undisputed that Great Western's goal at all times was to maximize the amount it received for the sale of the collateral, and that it accepted Mid-America's best and final offer in an effort to fulfill that goal. (Id., ¶¶ 38-42). The negotiated terms of the sale are set forth in the Sale Agreement effective February 9, 2015 (“Sale Agreement”), and approximately $3, 150, 000.00 of U.S. Roasterie's secured debt to Great Western remained unpaid after the asset sale. (Id., ¶¶ 43, 48).

         At the time of the asset sale, U.S. Roasterie owed Westfeldt approximately $2, 690, 000.00 in unsecured credit. (Ronnoco's Facts, ¶ 50). The Sale Agreement expressly stated, however, that Mid-America was not assuming any of the liabilities of U.S. Roasterie in connection with the sale. (Id., ¶ 51).

         Following the asset purchase, operations continued at the location in Iowa previously occupied by U.S. Roasterie. (Ronnoco's Facts, ¶ 62).[6] Mid-America employed Fischer for approximately 10 months after the sale, and Christopher Hodgson (“Hodgson”), former CFO of U.S. Roasterie, for approximately 6 months. (Id., ¶ 63).[7]

         Westfeldt filed its First Amended Counter-claims and First Amended Third-Party Complaint against Ronnoco, Meader and Bomball on March 6, 2017. (ECF No. 46). In its Amended Counterclaim, Westfeldt asserted 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 asserted a claim for Conspiracy to Tortiously Interfere with Contractual Relations against Third-Party Defendants Meader and Bomball (Count IX).[8]

         As noted above, Ronnoco filed the instant Motion for Summary Judgment on December 1, 2017, asserting there is no genuine dispute as to any material fact, and it is entitled to judgment as a matter of law on all of Westfeldt's remaining claims. (ECF No. 96).


         The Court may grant a motion for summary judgment if, “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The substantive law determines which facts are critical and which are irrelevant. Only disputes over facts that might affect the outcome will properly preclude summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary judgment is not proper if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.

         A moving party always bears the burden of informing the Court of the basis of its motion. Celotex, 477 U.S. at 323. Once the moving party discharges this burden, the nonmoving party must set forth specific facts demonstrating that there is a dispute as to a genuine issue of material fact, not the “mere existence of some alleged factual dispute.” Fed.R.Civ.P. 56(e); Anderson, 477 U.S. at 247. The nonmoving party may not rest upon mere allegations or denials of its pleadings. Anderson, 477 U.S. at 256.

         In passing on a motion for summary judgment, the Court must view the facts in the light most favorable to the nonmoving party, and all justifiable inferences are to be drawn in its favor. Anderson, 477 U.S. at 255. The Court's function is not to weigh the evidence, but to determine whether there is a genuine issue for trial. Id. at 249.


         I. Successor Liability (Counts I-II)

         Under Iowa law[9], 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). Westfeldt contends that the third and fourth exceptions apply in this case. (Westfeldt's Memorandum in Opposition to the Motion for Summary Judgment of Ronnoco and Mid-America (“Westfeldt's Opp.”), PP. 11-29). The Court will address the exceptions in turn.

         A. Mere Continuation

         The Iowa Supreme Court discussed the mere continuation exception in Pancratz v. Monsanto Co., 547 N.W.2d 198 (Iowa 1996). The Court first noted that “[t]he mere continuation exception, as traditionally applied, focuses on continuation of the corporate entity.” Id. at 201 (emphasis in original) (citing Grand Lab., Inc. v. Midcon Lab., 32 F.3d 1277, 1283 (8th Cir. 1994) (applying Iowa law)).

The exception has no application without proof of continuity of management and ownership between the predecessor and successor corporations. Thus, the key element of a continuation is a common identity of the officers, directors and stockholders in the selling and purchasing corporations.

Id. (internal quotations and citations omitted).

         The Pancratz Court continued to recognize that some courts had expanded the basis for mere continuation successor liability (at least in products liability cases), focusing on the continuity of the seller's business operation, rather than the continuity of its management and ownership. Id. The Court stated, “‘[t]hus, using a kind of ‘totality of the circumstances' approach, courts look at factors such as whether the successor corporation used the same employees, business location, assets, and trade name and produced the same products as the predecessor to determine if there was a continuity of the predecessor's enterprise.'” Id. (quoting Grand Lab., 32 F.3d at 1283 (citations omitted)). Looking at its own cases, however, the Court found no departure from the traditional formulation of the rule. See Id. (citations omitted) (“In determining whether a successor corporation is liable under the mere continuation exception, this court has consistently looked for a continuity of management and ownership. We have never applied the mere continuation exception where the buying and selling corporations had different owners.”).

         In Lumley, the Iowa Court of Appeals considered the mere continuation exception in detail. In that case, the plaintiff signed a change of control agreement with her employer, Advanced Data-Comm, Inc. (“ADCI”), that provided certain benefits and assurances, including severance payments, to the plaintiff in the event of a change of ownership in the company. Lumley, 2009 WL 2514084, at *1. When WS Live, L.L.C. signed a purchase agreement to purchase the assets of ADCI, it began operating under the fictitious name Advanced Data-Comm (“ADC”), but refused to honor the terms of plaintiff's change of control agreement. Id. Plaintiff sued, claiming the mere continuation exception operated to impose liability on WS Live for ADCI's debts and liabilities, including the change of control agreement. Id. at *2.

         Citing to Pancratz, the Iowa Court of Appeals held that it was required to “follow the traditional approach to the mere continuation exception.” Id. at *2. In other words, to determine whether the successor corporation was liable, it would look for a continuity of management and ownership, i.e., “a common identity of the officers, directors and stockholders in the selling and purchasing of corporations.” Id. (internal quotations and citation omitted). The Court found that although the founder, president and CEO of ADCI became the general manager and vice president of ADC, his role and duties changed, and “he did not continue to own or control the successor corporation.” Id. at *3-4. Thus, “[b]ecause the undisputed facts demonstrate that WS Live and ADCI operated under different ownership and substantially different management, [the court found] the mere continuation exception does not apply.” Id. at *4.[10]

         Upon consideration, the Court finds it need not consider continuity of management here, because Westfeldt fails to establish a genuine issue of material fact with respect to continuity of ownership. In its opening brief, Ronnoco asserts Westfeldt cannot prove the required elements, because Mid-America had no ownership of U.S. Roasterie at any time, and Fischer, the President and owner of U.S. Roasterie, “became a mere employee of Mid-America for less than a year, during which time he acquired no direct or indirect ownership interest in Mid-America, and he otherwise never had any ownership of Mid-America in form or substance.” (Memorandum in Support of Motion for Summary Judgment, P. 9, citing Declaration of Eric Bomball, ECF No. 98-1, PP. 13-18, ¶¶ 7, 29-33, 35-36, 38-39).

         In response, Westfeldt asserts that it was Ronnoco that maintained ownership before and after the acquisition, rather than Fischer. (Westfeldt's Opp., PP. 14-23).[11] To support this assertion, Westfeldt first points to testimony regarding Ronnoco's alleged pre-asset transfer control from Hodgson, U.S. Roasterie's former Chief Financial Officer, as follows:

9. During this period [leading up to the acquisition], due to the substantial leverage that Ronnoco/Mid-America exercised over USR in light of the pending acquisition, Ronnoco/Mid-America effectively controlled USR, and USR's management had to essentially do whatever Ronnoco/Mid-America directed them to do because Ronnoco/Mid-America was about to become our new boss, so to speak. During the period leading up to the sale of the company, Ronnoco/Mid-America came in and began controlling USR by instructing myself and Howard Fisher (sic) on what to do.[12]
10. One concrete example of this substantial amount of dominance and control that Ronnoco/Mid-America exercised over USR during the period leading up to the acquisition was an occasion on which Ronnoco/Mid-America directed USR to cancel a check for $85, 371.23 that had been mailed to Westfeldt in exchange for Westfeldt's shipment of a large quantity of green coffee to USR.
11. The specifics of this event, along with relevant background information, is as follows: during the period leading up to the signing of the formal sale papers, Westfeldt would only release shipments of green coffee to USR (which USR needed to stay afloat until the acquisition) after USR mailed a check to Westfeldt and provided Westfeldt with a tracking number so it could physically track the check. Ronnoco/Mid-America was also supplying green coffee to USR on occasion during this time period. On one occasion, after USR had already mailed a check for $85, 371.23 to Westfeldt, provided Westfeldt with the tracking number for the check, and received confirmation that Westfeldt had shipped the coffee because it believed that the $85, 371.23 was in the mail, Eric Bomball, Ronnoco's CFO, called me and, after learning that USR would not be able to also pay Ronnoco/Mid-America some money owed to it for the provision [of] green coffee, directed me to order a stop payment on the $85, 371.23 check that had been mailed to Westfeldt. Although I did not believe that it was the right thing to do, I had no choice other than to follow the directive of my future employer, and I reluctantly complied and requested a stop payment on the check. The stop payment went through ...

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