United States District Court, E.D. Missouri, Eastern Division
RONNOCO COFFEE, LLC, and MID-AMERICA ROASTERIE, LLC, Counterclaim Defendants,
WESTFELDT BROTHERS, INC., Counterclaim Plaintiff.
MEMORANDUM AND ORDER
C. HAMILTON UNITED STATES DISTRICT JUDGE
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.
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).
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,
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., ¶
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.
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,
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).
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., ¶
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, ¶
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).
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).
the asset purchase, operations continued at the location in
Iowa previously occupied by U.S. Roasterie. (Ronnoco's
Facts, ¶ 62). 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., ¶
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).
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).
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.
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.
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.
Successor Liability (Counts I-II)
Iowa law, 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.
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).
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.”).
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.
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.
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).
response, Westfeldt asserts that it was Ronnoco that
maintained ownership before and after the acquisition, rather
than Fischer. (Westfeldt's Opp., PP.
14-23). 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.
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 ...