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Ronnoco Coffee, LLC v. Westfeldt Brothers, Inc.

United States Court of Appeals, Eighth Circuit

September 19, 2019

Ronnoco Coffee, LLC, et al. Plaintiffs-Appellees
v.
Westfeldt Brothers, Inc. Defendant-Appellant

          Submitted: April 16, 2019

          Appeal from United States District Court for the Eastern District of Missouri - St. Louis

          Before LOKEN, WOLLMAN, and STRAS, Circuit Judges.

          LOKEN, CIRCUIT JUDGE.

         The principal issue in this case is whether a corporation that acquires substantially all the assets of an unrelated competitor at a secured creditor's private foreclosure sale, in an agreement that declines to assume the competitor's liabilities, is nonetheless liable as the competitor's successor for unpaid pre-acquisition inventory purchases from a third party. Finding no prior case imposing successor liability in these circumstances, and prevailing law to the contrary, we affirm the district court's grant of summary judgment.[1]

         I. Background Facts and Procedural History.

         In 2013, Scott Meader, CEO of Ronnoco Coffee, LLC, a Missouri-based coffee roasting company, traveled to Iowa to discuss a potential acquisition of U.S. Roasterie, Inc. ("USR"), an established roasting company based in Des Moines. USR's President, Howard Fischer ("Fischer"), expressed interest. Ronnoco's due diligence during 2014 negotiations revealed that USR was substantially in debt to various creditors, including its principal coffee supplier, Westfeldt Brothers, Inc. ("Westfeldt"), a Louisiana corporation based in New Orleans.

         Westfeldt began selling coffee to USR in 2010. By August 2012, USR owed Westfeldt over $3 million on open account coffee sales. Though aware of USR's financial difficulties, Westfeldt continued to sell coffee on unsecured credit. In April 2013, Westfeldt advised USR it would ship only upon payment of an amount greater than the value of the new shipment. Westfeldt applied subsequent USR payments to old unpaid invoices, reducing USR's debt to approximately $2.9 million by August 2013. However, USR refused to secure its outstanding debt, and Westfeldt never obtained a purchase money security interest in coffee shipped to USR.

         In October 2014, Great Western Bank declined to extend over $5 million in maturing secured loans to USR. Great Western foreclosed its security interests when USR did not comply with the Bank's demand for repayment in full. Great Western's security interests included green coffee sold to USR by unpaid vendor Westfeldt.

         Based on its due diligence, Ronnoco was unwilling to purchase assets directly from USR. Aware of USR's default on Great Western loans, Ronnoco discussed the purchase of USR assets at a Great Western private foreclosure sale and formed Mid-America Roasterie, LLC for this purpose. On February 9, 2015, Great Western sold its USR collateral at a private sale to Mid-America, consistent with the terms of the loans and the Iowa Uniform Commercial Code. Mid-America paid Great Western $2,098,670.80 for the former USR assets (plus $35,000 for vehicles). It is undisputed this was a commercially reasonable transaction. See Iowa Code Ann. § 554.9610.2. After the foreclosure sale, approximately $3,150,000 of USR's secured debt to Great Western and $2,690,000 of its unsecured debt to Westfeldt remained unpaid.

         The February 2015 Sale Agreement expressly provided that Ronnoco and Mid-America (collectively "Ronnoco") did not assume USR liabilities or obligations. After purchasing the former USR assets, Ronnoco continued coffee roasting operations at USR's Iowa location, retained most USR employees, employed USR's former President Fischer for some ten months, and employed its former CFO, Chris Hodgson, for approximately six months. The USR corporate entity was not dissolved immediately after Great Western's foreclosure sale.

         Ronnoco commenced this action seeking a declaration that Ronnoco is not liable to Westfeldt for USR's debt and did not assume USR's obligation to perform alleged future coffee supply contracts. Westfeldt filed counterclaims against Ronnoco, asserting claims of successor liability, breach of the future contracts, unfair trade practices, conversion, and unjust enrichment. Westfeldt also asserted third party claims against two Ronnoco corporate officers, Meader and Eric Bomball, for tortious interference with contract and conspiracy to commit tortious interference. The parties disputed whether these claims should be determined under Iowa or Louisiana law. The district court applied Iowa law to Westfeldt's successor liability and unjust enrichment claims, and Louisiana law to the unfair trade practices, conversion, and tortious interference claims.

         The district court initially dismissed the "futures contracts" and tortious interference claims for failure to state a claim. It then entered a final summary judgment dismissing Westfeldt's counterclaims for successor liability, unfair trade practices, conversion, and unjust enrichment, primarily on the ground that Westfeldt failed to submit evidence that the foreclosure and asset sale were anything but bona fide business transactions. Westfeldt appeals these decisions. Reviewing the grant of summary judgment, the Rule 12(b)(6) dismissals, and the district court's choice of law determinations de novo, we affirm. See Campbell v. Davol, Inc., 620 F.3d 887, 891 (8th Cir. 2010) (summary judgment); Casazza v. Kiser, 313 F.3d 414, 418 (8th Cir. 2002) (12(b)(6) dismissal); St. Paul Fire and Marine Ins. Co. v. Bldg. Constr. Enters., Inc., 526 F.3d 1166, 1168 (8th Cir. 2008) (choice of law).

         II. Ronnoco's Successor Liability.

         A. ...


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