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Tarvisium Holdings, LLC v. Dukat, LLC

United States District Court, W.D. Missouri, Western Division

July 3, 2019

TARVISIUM HOLDINGS, LLC, and 45N12E, LLC, Plaintiffs,
v.
DUKAT, LLC, 36LOWER, INC., ELLIOTT KATTAN, and BEN SCHWARTZ, Defendants.

          ORDER GRANTING IN PART MOTION TO DISMISS

          GREG KAYS, JUDGE

         This lawsuit arises from Plaintiffs' purchase of an e-Commerce business, Essential Hardware, from Defendant Dukat, LLC (“Dukat”). Now before the Court is Defendants' Joint Motion to Dismiss Plaintiffs' Complaint and/or for a More Definite Statement (Doc. 7). For the following reasons, the motion is GRANTED IN PART and DENIED IN PART.

         Standard of Review

         A claim may be dismissed if it fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In ruling on a motion to dismiss, the Court “must accept as true all of the complaint's factual allegations and view them in the light most favorable to the Plaintiff [ ].” Stodghill v. Wellston School Dist., 512 F.3d 472, 476 (8th Cir. 2008). To avoid dismissal, a complaint must include “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows 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). The plaintiff need not demonstrate the claim is probable, only that it is more than just possible. Id.

         In reviewing the complaint, the court construes it liberally and draws all reasonable inferences from the facts in the plaintiff's favor. Monson v. Drug Enforcement Admin., 589 F.3d 952, 961 (8th Cir. 2009). The court generally ignores materials outside the pleadings but may consider materials that are part of the public record or materials that are necessarily embraced by the pleadings. Miller v. Toxicology Lab. Inc., 688 F.3d 928, 931 (8th Cir. 2012).

         Background

         The Complaint alleges Plaintiff Tarvisium Holdings, LLC (“Tarvisium”) purchased Essential Hardware, a reportedly very profitable e-Commerce business, from Dukat for $5 million: $1 million cash at closing and a $4 million promissory note. The purchase was consummated via a variety of integrated agreements, including an asset purchase agreement, a software services agreement, a security agreement, a non-compete agreement, and a promissory note. The promissory note was backed by a security agreement in Dukat's favor covering critical assets of the business which would revert to Dukat in the event Tarvisium did not make the required payments. Tarvisium also contracted with Dukat and Defendant 36Lower, Inc. (“36Lower”) to operate and run the business after the closing to ensure its continued profitability. The sale closed on September 21, 2018.

         Plaintiffs allege that Dukat and 36Lower breached their agreement to continue running the business, causing Essential Hardware to sustain extensive losses. Plaintiffs also allege that Dukat's founder, Defendant Elliott Kattan (“Kattan”), along with key employee Defendant Ben Schwartz (“Schwartz”) (collectively “the Individual Defendants”), misrepresented Essential Hardware's financial health during the purchase negotiations by inflating the business's historical sales and profitability. Plaintiffs claim that before closing, Kattan and Schwartz shut down Essential Hardware's operations to inflict a fatal wound on the business. They contend Defendants were either indifferent to the business's continued success, or Defendants intentionally caused the business to fail in order to recover it through the security agreement.

         The Complaint contains six counts: a request for a declaratory judgment that Dukat and 36Lower materially breached the various agreements such that Tarvisium may elect to excuse its own performance under the agreements (Count One); breach of contract (Count Two); breach of the covenant of good faith and fair dealing (Count Three); fraudulent inducement/misrepresentation (Count Four); a negligent inducement/misrepresentation claim (Count Five); and a tortious interference with a business expectancy (Count Six) brought against Kattan only.

         Discussion

         A. Counts One and Two state a claim against Dukat and 36Lower.

         Defendants argue Counts One and Two, which are based on alleged breach of contract, should be dismissed against the individual Defendants because these counts fail to state any claims against them as individuals as opposed to corporate officials. Defendants also argue Counts One and Two should be dismissed against all Defendants because the contracts fail for lack of consideration, an essential element of a contract.[1] Joint Mot. at ¶ 8.[2]

         The Court agrees that Counts One and Two fail to state claims against the Individual Defendants. In fact, Plaintiffs do not contest this point. Accordingly, Counts One and Two are dismissed without prejudice against Kattan and Schwartz.

         Defendants' assertion that the integrated agreements fail for lack of consideration is meritless. For example, the Complaint alleges the parties entered into a series of agreements to purchase Essential Hardware for “$5 million, comprised of $1 million in cash at closing and a $4 million Promissory Note with monthly payments extending through July ...


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