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SLEC, LLC v. Ashley Energy LLC

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

December 26, 2019

SLEC, LLC, et al., Plaintiffs,
v.
ASHLEY ENERGY, LLC, et al., Defendants.

          MEMORANDUM AND ORDER

          JOHN A. ROSS UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Defendants' Motion to Dismiss. (Doc. 39.) The motion is fully briefed and ready for disposition. (Docs. 40, 49, 54.) Also before the Court are a motion by Plaintiff law firm Davis & Garvin, LLC's ("D&G") Motion to Sever (Doc. 63), which Defendants oppose (Doc. 67), and a motion by Plaintiffs to take judicial notice (Doc. 61), which Defendants do not oppose. Finally, Plaintiffs move for leave to file a second amended complaint. (Doc. 82.) Defendants oppose. (Doc. 85.)

         Background [1]

         In July 2015, Plaintiff SLEC, LLC, acquired an option to purchase the Ashley Power Plant in St. Louis, Missouri, from Trigen-St. Louis Energy Corporation. SLEC and Plaintiff Michael Becker[2] hired Plaintiff law firm Davis & Garvin, LLC ("D&G") to represent SLEC throughout the "negotiation, acquisition and closing" of the purchase "and such matters related thereto." (Doc. 25-1 at ¶ 11.) SLEC signed a fee agreement with D&G that called for hourly compensation plus reimbursement for costs and expenses (the "Fee Agreement"). SLEC then formed Defendant Ashley Energy, LLC, ("Ashley") for the purpose of buying the power plant and assigned to it SLEC's purchase option. SLEC directed D&G to represent Ashley as the buyer.

         In May 2016, SLEC began communicating with Defendant Power Investments, LLC ("PI"), a Nevada corporation, about financing the purchase of the power plant in exchange for equity in its ownership. Pl's only member is Defendant Mason Miller, a lawyer living in Kentucky. PI obtained a term sheet from a private equity firm called Arena Investors, LP, and thereafter SLEC and Becker, represented by D&G, entered into a Membership Interest Purchase Agreement ("MIPA") with PI. (Doc. 44.) PI agreed to purchase SLEC's entire ownership interest in Ashley-including the right to purchase the power plant-in exchange for two payments totaling $1.7 million. (Id.) In addition, the MIPA provided for the release by PI of a separate, personal loan it had made to Becker. (Id.)

         On August 10, 2017, Ashley, whose sole member at this point was PI, closed on the acquisition of the power plant. As the sole person authorized to access Ashley's bank account, Becker transferred nearly $480, 000 to Miller and his Kentucky law firm Defendant Miller Wells, which represented PI in the purchase. Ashley borrowed approximately $8.5 million from Arena Investors to buy the plant.

         Following the sale of the power plant, the parties began arguing over money. In the weeks following the purchase, PI made two cash payments to Becker and delivered an unexecuted copy of the note for his personal loan, marked "paid in full," which together represented the full amount of the initial payment due under the MIPA. Since then, no other payments have been made.

         Plaintiffs argue that Defendants still owe the full amount of the second payment as well as legal fees for work D&G performed on behalf of Ashley Energy. Around the same time, Defendants came to believe that Plaintiffs had misrepresented the financial state of the power plant and that Becker had misused loan funds.

         On October 19, 2017, D&G partner Dan Davis emailed Miller, seeking to informally resolve their dispute. (Doc. 60-1.[3]) He stated that, if the parties could not find a resolution by 5:00 p.m. on October 26, 2019, he intended to file the attached draft petition. (Id.) The next day, Miller responded, thanking Davis for his willingness to informally resolve the matter, expressing his hope that they could do so, and closing with "Litigation is just going to get messy, and I'd prefer to spend my time making the steam plant a success." (Doc. 60-2.) Then, on October 25, 2017, the day before Davis's stated deadline for an informal resolution, PI sued SLEC and Becker in Kentucky state court, advancing claims of fraud and unjust enrichment (the "Kentucky Action"). (See Doc. 15 at 2.) Two days later, on October 27, 2017, Plaintiffs filed suit in Missouri state court, arguing that Defendants had breached the MIPA and Fee Agreement (the "First Missouri Suit"). (Doc. 15 at 1.)

         Defendants removed the First Missouri Suit to this Court on November 22, 2017. (Doc. 1 in SLEC, No. 4:17-cv-02751-JAR [hereinafter SLEC II). On December 5, 2017, the Fayette Circuit Court of Kentucky entered a default judgment in the Kentucky Action. (SLEC I, Doc. 1.) Roughly one month later, Defendants moved to dismiss the First Missouri Suit on the grounds that Plaintiffs failed to state a claim and that four of the five counts were barred by res judicata based on the default judgment in Kentucky state court. (SLEC I, Docs. 19, 20.) On May 14, 2018, Plaintiffs filed a motion in the First Missouri Suit to voluntarily dismiss Count I of their complaint and, that same day, this Court granted Defendants' motion and dismissed the remaining claims without prejudice. (SLEC I, Docs. 32, 33.) In the interim, Plaintiffs had filed a motion to set aside the default judgment in the Kentucky Action. (See SLEC I, Doc. 29 at 1-2.)

         On June 22, 2018, the Fayette Circuit Court granted Plaintiffs' motion to set aside the default and reinstated the Kentucky Action. (See Doc. 15 at 2.) Becker subsequently removed the suit to the Eastern District of Kentucky on July 24, 2018, and moved to dismiss for lack of personal jurisdiction. (See Doc. 15 at 2.)

         On July 30, 2018, Plaintiffs filed suit a second time in Missouri state court, alleging breach of contract and fraudulent conveyance and seeking to pierce the corporate veil and to force the imposition of a constructive trust. (Doc. 8.) Defendants removed to federal court on August 20, 2018, and the case is now before this Court. (Doc. 1.)

         In the interim, the District Court of the Eastern District of Kentucky dismissed the Kentucky Action for lack of personal jurisdiction. See Power Investments, LLC v. SLEC, LLC, No. 18-6098 (6th Cir. June 20, 2019). PI appealed. Id. On June 20, 2019, the Sixth Circuit Court of Appeals issued an opinion reversing the district court's dismissal, finding that Becker's contacts with Miller and Miller Wells were sufficient to subject him to suit in Kentucky. Id. The case was remanded to the Eastern District of Kentucky and is currently stayed pending the outcome of this motion to dismiss. (See Doc. 60-4.)

         Initially, Defendants argued that all of Plaintiffs' claims are barred by the express language of the Fee Agreement or MIPA, or else fail on their merits as a matter of law. (Id.) In their supplemental briefing, Defendants add that, since the Kentucky Action has been reinstated, this Court need not reach the merits and can instead dismiss this case under the first-filed doctrine or the compulsory-counterclaim rule. (Doc. 59.)

         Legal Standard

         To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the 'grounds' of his 'entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (alteration in original) (citations omitted). "When ruling on a motion to dismiss [under Rule 12(b)(6)], the district court must accept the allegations contained in the complaint as true and all reasonable inferences from the complaint must be drawn in favor of the nonmoving party." Young v. City of St. Charles, 244 F.3d 623, 627 (8th Cir. 2001).

         Discussion

         The First-Filed Doctrine

         Defendants argue that this Court should dismiss Plaintiffs' suit before reaching the merits because the Kentucky Action established federal jurisdiction in the Eastern District of Kentucky before Plaintiffs filed suit in this district. (Doc. 59 at 3-8.) "To conserve judicial resources and avoid conflicting rulings, the first-filed rule gives priority, for purposes of choosing among possible venues when parallel litigation has been instituted in separate courts, to the party who first establishes jurisdiction." Nw. Airlines, Inc. v. Am. Airlines, Inc., 989 F.2d 1002, 1006 (8th Cir. 1993) (citing U.S. Fire Ins. Co. v. Goodyear Tire & Rubber Co., 920 F.2d 487, 488 (8th Cir. 1990)). Plaintiffs do not dispute that this case substantially overlaps with the Kentucky Action. (See Doc. 60.)

         Ordinarily, a simple analysis of the dates each suit was filed is sufficient to determine which court should proceed. However, the rule "yields to the interests of justice, and will not be applied where a court finds 'compelling circumstances' supporting its abrogation." Id. (quoting Goodyear, 920 F.2d at 488. Courts look for "red flags" that counsel against honoring the first-filed doctrine. Id. For instance, when the first-filed suit was initiated after notice that the other party was planning to sue, courts are suspicious of a potential race to the courthouse that often indicates disfavored forum-shopping. Anheuser-Busch, Inc. v. Supreme Int'l Corp., 167 F.3d 417, 419 (8th Cir. 1999). This suspicion increases when the other party communicates a specific and imminent date on which it intends to file suit. See Nw. Airlines, 989 F.2d at 1007. In addition, courts are leery of first-filed suits for declaratory judgment, which "may be more indicative of a preemptive strike than a suit for damages or equitable relief." Id.

         Plaintiffs argue both red flags are present here: Davis stated his intention to file suit if the parties could not informally resolve their issues and provided a specific deadline for doing so. (Doc. 60-1.) Miller expressed his desire to avoid litigation and agreed to work towards an informal resolution. (Doc. 60-2.) Miller then filed suit in Kentucky the day before Davis's stated deadline without notifying the Plaintiffs. (Docs. 59-1, 60 at 5.) Plaintiffs filed suit in Missouri the next day.

         The Court finds this timeline of events extremely concerning and suspicious. Not only were Defendants on notice that Plaintiffs intended to file suit, they knew the exact date and had a copy of the petition. Additionally, Miller stated an affirmative intention to avoid litigation and then filed suit without notifying Plaintiffs that his position had changed. Finally, Defendants seek a declaratory judgment in the Kentucky Action, further increasing the Court's suspicion of a preemptive strike. In short, the Court believes there are compelling circumstances not to apply the first-filed doctrine.

         Defendants reply that this suit was initiated nine months after they filed the Kentucky Action, undermining any claim of a race to the courthouse. (Doc. 66 at 1.) They note Plaintiffs' assertion that this suit is a continuation of the First Missouri Suit, but argue that Plaintiffs' voluntary dismissal of the First Missouri Suit precludes such treatment. (Id. at 1-2.) Citing Quickturn Design Sys., Inc. v. Meta Sys., No. C-96-0881 MHP, 1996 WL 671230 (N.D. Cal. Oct. 31, 1996), and Sandstrom v. ChemLawn Corp., 904 F.2d 83 (1st Cir. 1990), Defendants argue that a case voluntarily dismissed "cannot be the basis of the application of an exception to the first-filed rule." (Id. at 2.)

         The Court finds both cited cases distinguishable. Quickturn involved a patent dispute between Quickturn Design Systems and Mentor Graphics, among others. 1996 WL 671230, at * 1. First, Mentor filed suit in the Northern District of California. Id. Then, Quickturn brought suit in the International Trade Commission. Id. Mentor voluntarily dismissed the California suit and almost immediately refiled in the District of Oregon. Id. Mentor sought to avoid the first-filed doctrine by claiming the Oregon suit was merely a continuation of the California suit. Id. In effect, Mentor was arguing that the Oregon suit was filed before Quickturn's ITC complaint.

         Unlike Mentor, Plaintiffs in this case are not attempting to reach back past the Kentucky Action and argue that the First Missouri Suit was the first filed. Instead, they are asserting that the Court should consider the date of the First Missouri Suit as evidence supporting their argument that the first-filed doctrine should not be applied.

         Sandstrom is even less like this case. In fact, it does not even apply the first-filed doctrine. Defendants apparently cite it for the narrow proposition that "a voluntary dismissal under Fed.R.Civ.P. 41(a) wipes the slate clean, making any future lawsuit based on the same claim an entirely new lawsuit unrelated to the earlier (dismissed) action." Sandstrom, 904 F.2d at 86. Even then, the First Circuit's statement related to the defendants' acquiescence to jurisdiction in the first suit, not the timing of the cases. Considering the issue, the court wrote:

Even if we assume, contrary to the record, that there was some intimation in the course of Sandstrom /that ChemLawn would not contest personal jurisdiction in Maine, any such commitment would be irrelevant to the situation in Sandstrom II. Absent explicit conditions to the contrary-and there were none here-a voluntary dismissal under Fed.R.Civ.P. 41(a) wipes the slate clean, making any future lawsuit based on the same claim an entirely new lawsuit unrelated to the earlier (dismissed) action. See Hill v. W. Bruns & Co., 498 F.2d 565, 567 n. 2 (2d Cir. 1974); flower v. Ribicoff, 304 F.2d 427, 428 (6th Cir.1962); Bryan v. Smith, 174 F.2d 212, 214 (7th Cir.l949);see also 9 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2367 at 186 (1971). Agreements do not automatically survive from one suit to the next.

Id. As such, Sandstrom is of little help in solving the particular problem presented in this case, namely whether Plaintiffs' voluntary dismissal requires the application of the first-filed doctrine.

         Plaintiffs also note that courts often find compelling circumstances to avoid the first-filed doctrine when the second-filed suit is in a far more convenient forum. This "balance of convenience" exception applies "where an analysis under 28 U.S.C. § 1404(a) dictates transfer." Barry-Wehmiller Companies, Inc. v. Marschke, No. 4:09CV760 TIA, 2009 WL 3698009, at *2 (E.D. Mo. Nov. 2, 2009) (citing Terra Int'l, Inc. v. Mississippi Chem. Corp., 922 F.Supp. 1334, 1348-49 (N.D. Iowa 1996), aff'd, 119 F.3d 688 (8th Cir. 1997)). Section 1404(a) reads: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought... ."

         Plaintiffs argue that Missouri is the appropriate venue for numerous reasons: Both suits relate to the sale of a power plant situated in Missouri and owned by a Missouri LLC whose sole member was another Missouri LLC; Plaintiffs are two Missouri LLCs, and a Missouri citizen; the promissory note and deed involved in the transfer both state that they are to be interpreted under Missouri law; the trustee of the deed was a Missouri LLC headquartered in St. Louis; the MIPA is governed by Missouri law; and Miller is the registered agent for both the trustee and Ashley, listing two separate St. Louis addresses. (Doc. 60 at 8) In addition, Plaintiffs note that the wire transfers at issue in this case were initiated at Missouri banks and that nearly every potential witness other than Miller resides in Missouri. (Id.)

         The Court first notes its concern regarding Plaintiffs' proposed path forward. If the Court denies Defendants' motion to dismiss, this case and the Kentucky Action will proceed as parallel suits with the potential for inconsistent or even contradictory outcomes. Avoiding that risk is the very purpose of the first-filed doctrine. Nw. Airlines, Inc., 989 F.2d at 1006.

         That said, the Court is somewhat unsympathetic because it believes that the risk is the result of Defendants' gamesmanship in filing the Kentucky Action while on notice of, and only two days before, Plaintiffs' stated intent to bring suit in Missouri. The Court is not persuaded by Defendants' arguments regarding the voluntary dismissal of the First Missouri Suit or the intervening months before this suit was filed. Put simply, those facts have no bearing on the propriety of Defendants' conduct, and the Court will not punish Plaintiffs for relying on Miller's reassurances. Further, the Court understands that Kentucky Action is currently stayed pending ...


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