United States District Court, W.D. Kentucky
Decided June 6, 2013.
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For Derby Capital, LLC, Derby Capital JOB, LLC, Plaintiffs: J. Bruce Miller, Norma C. Miller, LEAD ATTORNEYS, J. Bruce Miller Law Group, Louisville, KY.
For Trinity HR Services, LLC, a Delaware Limited Liability Company, Judson Bayard Wagenseller, Tiffany Simmons, Brandon Simmons, Trinity HR, LLC, a Kentucky Limited Liability Company, Defendants: Judson B. Wagenseller, LEAD ATTORNEY, Louisville, KY.
For Leed HR, LLC, a Kentucky Limited Liability Company, Michael K. Schoering, Defendants: Joshua Taylor Rose, LEAD ATTORNEY, Hummel Coan Miller Sage & Rose LLC, Louisville, KY.
For General Employment Enterprises, Inc., Defendant: William Jay Hunter, Jr., LEAD ATTORNEY, Stoll Keenon Ogden PLLC - Louisville, Louisville, KY.
MEMORANDUM OPINION AND ORDER
Thomas B. Russell, Senior United States District Judge.
This matter is before the Court upon Defendants Judson Wagenseller, Tiffany Simmons, Brandon Simmons, Trinity HR Services, LLC, and Trinity HR, LLC's Motion to Dismiss (collectively " the Wagenseller Defendants" ), (Docket No. 31), and Defendants LEED HR, LLC, and Michael K. Schroering's Motion to Dismiss (collectively " the Schroering Defendants" ), (Docket No. 28). Plaintiffs Derby City Capital, LLC, and Derby Capital JOB, LLC, have filed a combined Response to both Motions, (Docket No. 32), and the Wagenseller and Schroering Defendants have filed their respective Replies, (Docket Nos. 36 & 37, respectively). This matter is now ripe for adjudication. For the reasons that follow, the Wagenseller Defendants' Motion, (Docket No. 31), will be GRANTED IN PART and DENIED IN PART, and the Schroering Defendants' Motion, (Docket No. 28), will be GRANTED.
Plaintiffs initially filed his action on December 21, 2012, ( see Docket No. 1), and thereafter filed a " First Amended and Verified Complaint" (Amended Complaint) on February 12, 2012, ( see Docket No. 26). The remaining Defendants named in Plaintiffs' Amended Complaint are Trinity HR Services, LLC (Trinity/Delaware); Trinity HR, LLC (Trinity/Kentucky); Brandon Simmons (Mr. Simmons); Tiffany Simmons (Mrs. Simmons); Judson Wagenseller (Wagenseller); LEED HR, LLC (LEED); and Michael Schroering (Schroering). In their Amended Complaint,
Plaintiffs allege nine counts against various combinations of these Defendants.
In Count I, Plaintiffs allege " breach of express contract or contract implied-in-fact" against all remaining Defendants. (Docket No. 26, at 46.) The contract alleged in Count I relates to an agreement between Plaintiffs and Trinity/Delaware " for the purchase of 70% interest in Trinity Delaware, whose only asset was 9,236,688 shares of GEE common stock." (Docket No. 26, at 46-47.) The parties refer to this agreement as " the Old Contract," as will the Court for purposes of this Opinion.
In Count II, Plaintiffs allege breach of contract against all remaining Defendants. (Docket No. 26, at 48.) The contract alleged in Count II relates to an agreement whereby Mr. Simmons, individually and in his capacity as a minority partner in Trinity/Delaware, and Schroering, individually and in his capacity as the organizer and manager of LEED, promised to purchase Plaintiffs' 70% interest in Trinity/Delaware for $750,000. The parties refer to this agreement as " the New Contract," as will the Court for purposes of this Opinion.
In Count III, Plaintiffs allege " Punitive Damages for Fraud [sic] Inducement To Contract" against all remaining Defendants. (Docket No. 26, at 49.) Here, Plaintiffs allege that these Defendants " never had any intention of paying, in accordance with their contractual commitments, for the Plaintiffs['] interests in Trinity/Delaware, which amounted to 70% of the sole asset of Trinity/Delaware, namely 9,326,688 shares of GEE common stock." (Docket No. 26, at 50.) Plaintiffs further allege that " none of the Defendants had the financial capacity to write the checks in the amount of $750,000 that was required to pay the Plaintiffs in accordance with the contract they entered into with the Plaintiffs." (Docket No. 26, at 50.)
In Count IV, Plaintiffs bring a promissory estoppel claim against Schroering, LEED, and Wagenseller. (Docket No. 26, at 51.) In this count, Plaintiffs claim that all Defendants " made repeated oral promises and assurances . . . that Mr. Schroering either individually or through LEED would advance sufficient money to purchase the interests of the Plaintiff[s] in Trinity/Delaware." (Docket No. 26, at 52 (emphasis in original).) Plaintiffs allege they have suffered damages " [a]s a direct and proximate result of the Defendants Mr. Schroering's and Mr. Wagenseller's assurances and promises, and the Plaintiffs' reasonable reliance thereon, and the failure of the Defendants Mr. Schroering and Mr. Wagenseller to fulfill their promises and meet their obligations to the Plaintiffs." (Docket No. 26, at 52.)
In Count V, Plaintiffs bring an equitable estoppel claim against all remaining Defendants. (Docket No. 26, at 52.) Here, Plaintiffs allege that each of these Defendants: " exhibited conduct, including acts, language and silence that amounted to a representation and/or concealment of material facts of which it was aware and of which the Plaintiffs were not aware. Among those facts were [sic] that were effectively concealed was the total and complete involvement of one Anthony Huff [(Huff)] in the activities of Mr. Simmons and Mr. Schroering." (Docket No. 26, at 53.)
In Count VI, Plaintiffs allege " Common Law Fraud Under the Law of Kentucky" against all remaining Defendants. (Docket No. 26, at 54.) In this count, Plaintiffs claim that Wagenseller made various misrepresentations that he knew were false and would deceive Plaintiffs, which Plaintiffs
then relied upon to their detriment. They further claim that these misrepresentations were made willfully, wantonly, and with malicious disregard of their rights such that they are entitled to recover both compensatory and punitive damages.
In Count VII, Plaintiffs claim that all remaining Defendants engaged in a civil conspiracy against them. (Docket No. 26, at 56.) Here, they " assert that the elements of a civil conspiracy under Kentucky law . . . have occurred and were perpetrated by the deliberate and intentional acts and failure to act by [the remaining Defendants." (Docket No. 26, at 56-57.)
In Count VIII, Plaintiffs allege " Multiple Violations of Racketer [sic] Influeced [sic] and Corrupt Organization Act" against all remaining Defendants and against nondefendant " W. Anthony Huff a/k/a 'The Huff Enterprise,'" whom Plaintiffs collectively refer to as " the RICO Defendants." (Docket No. 26, at 57.) Plaintiffs allege that Huff " for decades has operated 'The Huff Enterprise' in the form of a subterranean conspiracy to defraud individuals and entities all over America." (Docket No. 26, at 57.) According to Plaintiffs, the RICO Defendants have " on repeated occasions . . . conspired to and did engage in mail and wire fraud in violation of 18 U.S.C. § 1341 or 1343." (Docket No. 26, at 58.) Plaintiffs further allege that the " RICO Defendants and Mr. Huff's very life itself (a/k/a 'The Huff Enterprises') as operated by the non-Defendant Mr. Huff were an 'enterprise' [and] [e]ach was created and existed as an entity engaging in or affecting interstate commerce." (Docket No. 26, at 58.) (The remaining allegations in Count VIII will be discussed more fully infra Part VIII.)
Finally, in Count IX, Plaintiffs allege " Multiple Violations of 17 CFR § 240.10b-5" against Schroering and Wagenseller. (Docket No. 26, at 61.) In essence, here Plaintiffs claim that Wagenseller and Schroering filed " fraudulent and deliberately incorrect" Schedule 13Ds with knowledge that those statements " were not truthful because [they] knew that Mr. Schroering and LEED did not own the shares of stock that they asserted in the filings, because Mr. Schroering had not paid for them." (Docket No. 26, at 62.)
The Federal Rules of Civil Procedure require that pleadings, including complaints, contain a " short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). A complaint may be attacked for failure " to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the court will presume that all the factual allegations in the complaint are true and will draw all reasonable inferences in favor of the nonmoving party. Total Benefits Planning Agency v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). " The court need not, however, accept unwarranted factual inferences." Id. (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)).
Even though a " complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). Instead, the plaintiff's " [f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in
fact)." Id. (citations omitted). That is, a complaint must contain enough facts " to state a claim to relief that is plausible on its face." Id. at 570. A claim becomes 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." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556). If, from the well-pleaded facts, the court cannot " infer more than the mere possibility of misconduct, the complaint has alleged--but has not 'show[n]'--'that the pleader is entitled to relief.'" Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)). " [O]nly a complaint that states a plausible claim for relief survives a motion to dismiss." Id.
Additionally, the Rules require a plaintiff alleging fraud to " state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). " The Sixth Circuit interprets Rule 9(b) as requiring plaintiffs to 'allege the time, place, and content of the alleged misrepresentation on which he or she relies; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.'" Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 563 (6th Cir. 2003) (quoting Coffey v. Foamex L.P., 2 F.3d 157, 161-62 (6th Cir. 1993)). In other words, the " complaint must '(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Frank v. Dana Corp., 547 F.3d 564, 570 (6th Cir. 2008) (quoting Gupta v. Terra Nitrogen Corp., 10 F.Supp.2d 879, 883 (N.D. Ohio 1998)). Rule 9(b)'s heightened pleading standard is " designed to prevent 'fishing expeditions,' to protect defendants' reputations from allegations of fraud, and to narrow potentially wide-ranging discovery to relevant matters." Chesbrough v. VPA, P.C., 655 F.3d 461, 466-67 (6th Cir. 2011) (citing United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 503 & n.11 (6th Cir. 2007), and United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008)).
The Court will address sequentially each of Plaintiffs' nine counts and the remaining Defendants' respective Motions to Dismiss those claims against them.
I. Count I - Breach of the Old Contract
Count I alleges " breach of express contract or contract implied-in-fact" against all remaining Defendants relative to the Old Contract, which refers to an agreement between Plaintiffs and Trinity/Delaware " for the purchase of 70% interest in Trinity/Delaware, whose only asset was 9,236,688 shares of GEE common stock." (Docket No. 26, at 46-47.) In support of this claim, Plaintiffs cite to Appendices 1 through 15 to their Amended Complaint, which collectively amount to some 70 pages of exhibits. ( See Docket No. 26-1 to -15.) The agreement constituting what the parties refer to as the Old Contract appears to be embodied by Appendix 10 to Plaintiffs' Amended Complaint, which appears in the record at Docket No. 26-10.
The Wagenseller Defendants move to dismiss this count against them on three grounds: (1) because only Trinity/Delaware was party to the Old Contract, only Trinity/Delaware could have breached that contract; (2) Plaintiffs have not alleged how that contract was breached; and (3) there is no viable cause of action for Plaintiffs' claim against Wagenseller as the " aider and abettor" of the alleged breach. (Docket No. 31, at 7.) In regard to Defendants' first challenge, Plaintiffs insist that although Trinity/Delaware and Trinity/Kentucky are LLCs, " neither has a 'mind of its own.'" (Docket No. 32, at 9.) To this end, Plaintiffs posit that:
LLCs are merely legal vehicles through which decisions of human beings are implemented. There are only five human beings who could have participated in a decision to cause the two LLCs to breach the contract. Certainly two of the five (namely Mr. Moody and Mr. Henderson of the Plaintiffs) didn't breach the contract. That leaves three human beings left to breach the contract (namely Mr. and Mrs. Simmons and Mr. Wagenseller)[.]
(Docket No. 32, at 9.) (Plaintiffs, however, cite no authority for this proposition.)
This Court recently reaffirmed the tenet that " [a] contract is only binding upon the parties to a contract." Sudamax Industria e Comercio de Cigarros, Ltda v. Buttes & Ashes, Inc., 516 F.Supp.2d 841, 845 (W.D. Ky. 2007). As the Court further noted in Sudamax, " Kentucky law insulates agents from liability for acts done within the scope of [their] agency on behalf of a disclosed principal." Id. (quoting Summit Petroleum Corp. of Ind. v. Ingersoll-Rand Fin. Corp., 909 F.2d 862, 868 (6th Cir.1990)). Similarly, and pertinent to the matter at hand, Ky. Rev. Stat. § 275.150(1) provides, in relevant part:
[N]o member, manager, employee, or agent of a limited liability company, including a professional limited liability
company, shall be personally liable by reason of being a member, manager, employee, or agent of the limited liability company, under a judgment, decree, or order of a court, agency, or tribunal of any type, or in any other manner, in this or any other state, or on any other basis, for a debt, obligation, or liability of the limited liability company, whether arising in contract, tort, or otherwise.
In essence, Plaintiffs seek to hold Trinity/Kentucky; Mr. Simmons, in his capacity as manager and agent of Trinity/Kentucky and of Trinity/Delaware; Mrs. Simmons, in her capacity as manager of Trinity/Kentucky; Wagenseller, in his capacity as legal counsel for Trinity/Delaware; and Schroering, in his capacity as manager of LEED, each liable for breach of an express or implied contract that these Defendants were not party to; indeed, only Trinity/Delaware was a party to the contract alleged to have been breached in Count I. Given that Trinity/Delaware was the only Defendant party to the contract alleged to have been breached in Count I, that contract was not binding on any Defendant other than Trinity/Delaware--that is, Trinity/Delaware was the only Defendant that could have breached that contract. See Sudamax, 516 F.Supp.2d at 845. Furthermore, Mr. Simmons is neither subjected to liability by his role as Trinity/Delaware's agent in negotiating the contract alleged in Count I, see Sudamax, 516 F.Supp.2d at 846; Summit Petroleum, 909 F.2d at 868, nor by his role as Trinity/Delaware's manager, see Ky. Rev. Stat. § 275.150(1). Thus, the Court finds no plausible claim for relief for the claims alleged in Count I against any Defendant other than Trinity/Delaware.
For their second challenge, the Wagenseller Defendants argue that Plaintiffs have not alleged how the Old Contract was breached. (Docket No. 31, at 7.) Plaintiffs respond that they " have fully described the initial stages of the contract breach and the nature of its breach" in paragraphs 39 through 50 of their Amended Complaint. (Docket No. 32, at 9.) That breach, they maintain, " was enabled by Mr. Wagenseller's civil conspiracy with Mr. Schroering and his shell company, LEED." (Docket No. 32, at 10.) In this vein, Plaintiffs allege that " Wagenseller began an insidious and devious effort to undercut the Plaintiffs' position" and that Wagenseller " initiat[ed] the events resulting in the breach of the first contract between the Plaintiffs and Trinity/Delaware." (Docket No. 32, at 10.) The remainder of Plaintiffs' Response in this regard talks of how Wagenseller " was serving his 'ultimate' master and
client, Mr. Huff," how Huff " reverted to his inner 'dark side' to 'find money,'" and how Huff's " modus operandi required that Mr. Wagenseller . . . initiate actions to purloin the Plaintiffs of their interest in Trinity/Delaware." (Docket No. 32, at 10.)
In spite of the fact that both Plaintiffs' Response and paragraphs 39 through 50 of their Amended Complaint devote considerable time to attacking Wagenseller as " insidious," " truth-hiding," and " diabolical," and describing the " white-collar criminal activity" of nondefendant Huff, it appears to the Court that Plaintiffs have pleaded a plausible claim for relief for breach of either an express or implied-in-fact contract. Taking the relevant factual allegations in their Amended Complaint as true, and drawing all reasonable inferences in their favor, Plaintiffs have pleaded a claim against Trinity/Delaware for breach of the agreement to purchase Plaintiffs' 70% interest in Trinity/Delaware, which the Court finds sufficient to survive a Rule 12(b)(6) motion to dismiss.
For these reasons, in regard to Count I, the Court will GRANT the Wagenseller Defendants' Motion to Dismiss relative to Defendants Wagenseller, Mr. Simmons, Mrs. Simmons, and Trinity/Kentucky, and will also GRANT the Schroering Defendants' Motion to Dismiss relative to both Defendants Schroering and LEED; however, the Court will DENY the Wagenseller Defendants' Motion to Dismiss relative to Defendant Trinity/Delaware.
II. Count II - Breach of the New Contract
Count II alleges breach of contract against all remaining Defendants relative to the New Contract whereby Trinity/Delaware promised to purchase Plaintiffs' 70% interest in Trinity/Delaware for $750,000. (Docket No. 26, at 48.) The New Contract appears to the Court to be embodied by Appendix 17 to Plaintiffs' Amended Complaint, which appears in the record at Docket No. 26-17. That agreement was entered into on September 12, 2012, between Plaintiff Derby JOB, LLC, and Trinity/Delaware. (Docket No. 26-17, at 2-3.) That same day, Trinity/Delaware also entered into a " Pledge Agreement" with Plaintiff Derby Capital, LLC, which referenced and incorporated the New Contract. (Docket No. 26-18.) Under the Pledge Agreement, Trinity/Delaware pledged its right to receive $721,000 from LEED pursuant to a separate stock purchase agreement that had been entered into between LEED and Trinity/Delaware on August 21, 2012. The Pledge Agreement, which was acknowledged and agreed to by LEED, provided that " LEED . . . shall not make any payments on the [August 21 stock purchase agreement with Trinity/Delaware] other than as contemplated by the [New Contract] and this Pledge Agreement." (Docket No. 26-18, at 2.) In essence, Count II argues that the remaining Defendants " breached these written contracts by failing to purchase the Plaintiffs' interests as committed by their written promises and assurances." (Docket No. 26, at 49.)
A. Plaintiffs Have Stated a Plausible Breach-of-Contract Claim in Count II Against Trinity/Delaware But Have Failed to State a Viable Claim Against Mr. Simmons, Mrs. Simmons, Wagenseller, and Trinity/Kentucky.
The Wagenseller Defendants argue that Count II must be dismissed as to Mr.
Simmons, Mrs. Simmons, Wagenseller, and Trinity/Kentucky because only Trinity/Delaware was a party to the New Contract. (Docket No. 31, at 8.) Plaintiffs' Response largely ignores this challenge. ( See Docket No. 32, at 12-14.) In fact, much of Plaintiffs' Response does not even sound in contract and, instead, talks of " theft" and " conspiracy" and accuses Wagenseller of acting at nondefendant Huff's behest to " orchestrate the banditry of Plaintiffs' asset by enabling Mr. Schroering's thievery of the Plaintiffs' asset." (Docket No. 32, at 13.) Plaintiffs' largely irrelevant argument in this regard does little to alter the facts that Count II is a breach-of-contract claim and that the only Defendant party to the New Contract was Trinity/Delaware. For the same reasons discussed supra Part I relative to the Old Contract, the Court finds that the New Contract was binding only on Trinity/Delaware and, thus, no Defendant except Trinity/Delaware could have breached the agreement to purchase Plaintiffs' 70% interest in Trinity/Delaware for $750,000. As such, in regard to Count II, the Court will GRANT the Wagenseller Defendants' Motion to Dismiss relative to Defendants Wagenseller, Mr. Simmons, Mrs. Simmons, and Trinity/Kentucky, and DENY their Motion relative to Defendant Trinity/Delaware.
B. Plaintiffs Have Failed to State a Plausible Breach-of-Contract Claim in Count II Against the Schroering Defendants.
The Schroering Defendants, for their part, point out that " Plaintiffs have not alleged that LEED or Schroering entered into any contract with them other than potentially: (1) the Pledge Agreement, and (2) Schroering allegedly promising to make good on LEED's obligation to pay Trinity[/Delaware] $721,000 [pursuant to the August 21, 2012, stock purchase agreement between LEED and Trinity/Delaware]." (Docket No. 28, at 3.) The Schroering Defendants primarily contend that Count II must be dismissed on the basis that " Plaintiffs have not alleged that LEED breached the Pledge Agreement, because LEED has not breached it."  (Docket No. 28, at 3.) They reason that under the Pledge Agreement, LEED simply agreed not to pay Trinity/Delaware the $721,000 except as contemplated by the Pledge Agreement and the New Contract. " [B]ecause it is undisputed that LEED has not made any payments to Trinity[/Delaware]," LEED insists it has not breached the terms of the Pledge Agreement. (Docket No. 28, at 3.) Plaintiffs fail to respond to the Schroering Defendants' principal contention that " Plaintiffs have not alleged that LEED breached the Pledge Agreement, because LEED has not breached it." ( See Docket No. 32, at 12-14.) Instead, Plaintiffs again raise a number of points irrelevant to their breach-of-contract claim (such as accusing Schroering of " thievery" ) before summarily concluding that " Mr. Schroering ha[s] breached
the 'New Contract' by failing to pay the sums owed under it." (Docket No. 32, at 14.) Upon reviewing their Amended Complaint, the Court finds that Count II must be dismissed relative to the Schroering Defendants for several reasons.
First, as discussed above, to the extent the " New Contract" refers to the September 12, 2012, agreement in which Trinity/Delaware agreed to pay Plaintiffs' $750,000 for Plaintiff's interest in Trinity/Delaware, that agreement is not binding on, or enforceable against, either LEED or Schroering, because neither LEED nor Schroering was a party to that agreement. ( See Docket No. 26-17.) Thus, because neither was not a party to the New Contract, neither could have breached the New Contract. See, e.g., Sudamax, 516 F.Supp.2d at 845.
Second, the Court agrees with the Schroering Defendants' contention that Plaintiffs have not alleged that LEED breached the Pledge Agreement. " Under Kentucky law, a cause of action for breach of contract must state 'the contract, the breach and the facts which show the loss or damage by reason of the breach.'" Shane v. Bunzl Distribution USA, Inc., 200 F.Appx. 397, 402 (6th Cir. 2006) (quoting Fannin v. Commercial Credit Corp., 249 S.W.2d 826, 827 (Ky. 1952)). In the context of a Rule 12(b)(6) motion to dismiss, a complaint fails to state a claim for which relief can be granted if it fails to state the contractual basis for the plaintiff's breach-of-contract claim. Id. The closest Plaintiffs come to identifying a breach in this regard is to state:
. . . Mr. Schroering, individually and in his capacity as the organizer and manager of LEED entered into written contracts, promises, and assurances to Plaintiffs [to] purchase the 70% interest of the ...