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CDK Global, LLC v. Scott & Reynolds, LLC

United States District Court, W.D. Kentucky, Bowling Green Division

March 10, 2017



          Joseph H. McKinley, Jr., United States District Court Chief Judge

         This matter is before the Court on the motion for summary judgment by Defendants Scott & Reynolds, LLC (“S&R”), Yard Park, LLC (“Yard Park”), James D. Scott (“Scotty”), James A. Scott (“Tony”), and Robert Reynolds (“Robert”). (DN 83.) Fully briefed, this matter is ripe for decision. For the following reasons, the motion is GRANTED IN PART and DENIED IN PART.

         I. Background

         In 2009, Dan Reynolds (“Dan”) and Scotty organized S&R as a limited liability company, with Scotty maintaining a 51% interest in the company and Dan maintaining a 49% interest. (Articles of Organization [DN 85-1] at 6.) This LLC bought a Bobcat equipment dealership in Bowling Green, Kentucky, and continued to operate the dealership until March 18, 2014, when the dealership was sold to E.K.D. Bowling Green, LLC. (Asset Purchase Agreement [DN 57-11] at 2.) During the operation of the dealership by S&R, both Robert Reynolds, Dan's son, and Tony Scott, Scotty's son, were employed there. On December 31, 2012, Dan gifted his entire 49% interest in the LLC to Robert, and Scotty gifted 49% of his interest to Tony while retaining a 2% interest. (Written Consent In Lieu of Meeting of the Members [DN 85-5] at 1.) No further transfers of interests have occurred since then.[1]

         On November 9, 2012, S&R entered into a contract with ADP Dealer Services, Inc., the predecessor in interest to Plaintiff CDK Global, LLC. (DN 28-1.) On November 26, 2012, S&R also entered into a contract with Plaintiff IP Network Services, Inc. (DN 28-6.) Pursuant to these contracts, the Plaintiffs provided S&R with a dealer management system, a computer network, and telephone system for their business, as well as technical support for these services and all necessary equipment. (Id., DN 28-4.) This system was installed and operational for S&R by April of 2013. (Dep. Robert Reynolds [DN 55-2] at 31:6-11.)

         In addition to selling Bobcat equipment, S&R also sold lawn mowers and other lawn and garden products. In 2013, S&R began to brand the lawn and garden side of their business as “Yard Park, ” although both the lawn and garden business and Bobcat dealership were operated by S&R as one store. (Id. at 80:7-81:8.) Additionally, S&R opened a “satellite store” in 2013 that was also branded as “Yard Park” and sold the same lawn and garden products as the original location; however, this location lacked a service department. (Id. at 85:2-9.)

         Around the fall of 2013, Bobcat informed S&R that it would no longer be a Bobcat dealer and had until March 1, 2014, when “the plug was being pulled.” (Id. at 101:25-104:10.) This led S&R to sell the property where the dealership was located, the office furniture, rental fleet, shop tools, and supplies to E.D.K. Bowling Green, LLC, on March 18, 2014. (Id.; Asset Purchase Agreement [DN 57-11] at 2.) A representative of S&R notified the Plaintiffs on February 12, 2014, that the dealership would undergo a change of ownership and inquired about how to proceed with the contracts between S&R and the Plaintiffs. (Email Chain [DN 56-9] at 2.) The Plaintiffs notified S&R on February 14, 2014, that a buyout of the contracts would cost S&R $81, 856.19, with that amount later being amended on March 7, 2014, to $83, 504.95. (Id.; Email Chain [DN 56-10] at 1.) Letters were then sent on March 24, 2014, to S&R that demanded payment under both contracts and the equipment lease, stating that S&R was in default for losing the Bobcat franchise rights and failing to make scheduled payments, among other reasons. (Demand Letters [DN 28-3, 28-5, 28-8].)

         On March 7, 2014, Yard Park, LLC, filed articles of organization with the Kentucky Secretary of State, listing Scotty and Tony as members.[2] (Articles of Organization [DN 57-7] at 5.) Yard Park, LLC, operates a lawn and garden store at the same location as the former S&R satellite store, as the property is personally owned by Scotty. (Dep. Scotty [DN 55-1] at 40:11, 59:3.) Scotty and Tony continue to operate this store.

         On April 1, 2014, the Plaintiffs initiated this lawsuit, with their First Amended Complaint asserting claims of breach of contract, unjust enrichment, conversion, veil piercing/successor liability, aiding and abetting, interference with business relations, and fraudulent conveyance, while also seeking possession of any of Plaintiffs' equipment retained by the Defendants. (DN 28.) In their answer, the Defendants asserted a counterclaim for breach of contract. (DN 35.) On August 18, 2016, this Court granted the Defendants' motion for summary judgment as to the Plaintiffs' claim for veil piercing, the Plaintiffs' motion for summary judgment as to the Defendants' counterclaim for breach of contract, and the Plaintiffs' motion for summary judgment as to the Plaintiffs' claim for breach of contract. (DN 73.) Presently, the Defendants have moved the Court for summary judgment as to the Plaintiffs' claims for aiding and abetting

         (Count 18), interference with business relations (Count 19), and fraudulent conveyances (Count 20). (DN 83.)

         II. Standard of Review

         Before the Court may grant a motion for summary judgment, it must find that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and identifying that portion of the record that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

         Although the Court must review the evidence in the light most favorable to the non-moving party, the non-moving party must do more than merely show that there is some “metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Instead, the Federal Rules of Civil Procedure require the non-moving party to present specific facts showing that a genuine factual issue exists by “citing to particular parts of materials in the record” or by “showing that the materials cited do not establish the absence . . . of a genuine dispute[.]” Fed.R.Civ.P. 56(c)(1). “The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Anderson, 477 U.S. at 252.

         III. Discussion

         A. Successor Liability

         As a preliminary matter, the Court must address whether the Plaintiffs' claim for successor liability remains viable, as this will determine the scope of the Plaintiffs' claim for aiding and abetting. While the Defendants do not address this claim in their motion for summary judgment, the Plaintiffs state in their response that summary judgment should not be granted on this claim, as the Defendants have failed to raise the issue, and even if they had, summary judgment would not be appropriate. (DN 84, at 14-17.) The Defendants argue in their reply that the Court's prior opinion granting summary judgment on the veil piercing claim foreclosed the successor liability claim as well. (DN 90, at 2-3.)

         Count 17 of the Plaintiffs' First Amended Complaint is entitled “Veil Piercing/Successor Liability - Against All Defendants.” (DN 28, at 17.) After stating the grounds upon which the claim is asserted, the Complaint states that the Plaintiffs “should be permitted to pierce the veil of [S&R] and Yard Park and collect the amounts owed by [S&R] and/or Yard Park directly from” any of the Defendants. (Id. ¶ 133.) Immediately following this, though, the Complaint states that, “in the alternative, [S&R] and Yard Park share such continuity of ownership, management, personnel, physical location, and business operations, among other factors, such that Yard Park is the successor to [S&R] obligations” to the Plaintiffs. (Id. ¶ 134.) The Defendants moved this Court for summary judgment “with regard to the piercing of the corporate veil, ” (DN 54-1, at 1) and this Court granted the motion. (DN 73, at 5-13.)

         Neither veil piercing or successor liability are causes of actions; instead, they are “merely a means by which a complainant can reach a second corporation or individual upon a cause of action that otherwise would have existed only against the first corporation.” Weingartner Lumber & Supply Co., Inc. v. Kadant Composites, LLC, 2010 WL 996473, at *4 (E.D. Ky. Mar. 16, 2010) (internal citations and quotations omitted). Under Kentucky law, veil piercing is a separate theory of liability from successor liability. See Id. at *4-8 (analyzing each theory of liability separately); Excel Energy, Inc. v. Cyprus Amax Coal Sales Corp., 2008 WL 4127147, at *1 (W.D. Ky. Sep. 4, 2008) (recognizing that plaintiff was not attempting to recover under a veil-piercing theory but rather a successor liability theory). However, this Court's August 18, 2016 Memorandum Opinion and Order necessarily foreclosed the Plaintiffs' success under a theory of successor liability when it granted summary judgment as to the veil piercing claim, as the claims were intertwined so as to require both to be decided.

         First, it is important to understand what theory of liability would apply to each Defendant, something the Plaintiffs have not made entirely clear. (See Pl.'s Resp. to Def. Mot. for Summ. J. [DN 56] at 32) (“[I]t is clear that there are sufficient facts to pierce the limited liability veils and treat Defendants as one entity . . .”) (emphasis added). S&R has an obligation to the Plaintiffs. To hold Yard Park liable for this obligation, Yard Park would have to be a successor entity to S&R; piercing S&R's veil would not impose an obligation on Yard Park, as Yard Park is not a member of S&R. Conversely, to hold the members of S&R (Scotty, Tony, and Robert) liable for this obligation, the Court would have to pierce S&R's veil, as Scotty, Tony, and Robert are not successor entities to S&R.

         However, Count 17 of the Complaint seeks to “pierce the veil of [S&R] and Yard Park” so as to hold the members of each (Scotty, Tony, and Robert for S&R; Scotty and Tony for Yard Park) all liable. (Pl.'s First Amend. Compl. [DN 28] ¶ 133) (emphasis added). The Defendants moved for summary judgment as to the veil piercing claim, in which the Plaintiffs sought to pierce the veils of both S&R and Yard Park. In order to decide whether Yard Park's veil should be pierced, it was necessary to decide whether Yard Park is a successor entity to S&R, since Yard Park would have no obligation to the Plaintiffs that would make veil piercing necessary unless it were a successor entity to S&R. Thus, it was necessary to decide the issue of Yard Park's successor liability in order for the Court to fully resolve the veil piercing claim against S&R and Yard Park. Therefore, the August 18, 2016 Memorandum Opinion and Order fully disposed of Count 17 by granting summary judgment in favor of the Defendants.

         B. Interference With Business Relations

         Count 19 of the Complaint alleges that each Defendant “intentionally interfered with the valuable and established contractual relationships” between the Plaintiffs and S&R. In order to recover for tortious interference with a contract, a plaintiff must prove (1) the existence of a contract; (2) knowledge of the contract; (3) intent to cause a breach of that contract; (4) breach of the contract caused by the defendant's actions; (5) damages; and (6) that the defendant had no privilege or justification to excuse its conduct. Snow Pallet, Inc. v. Monticello Banking Co., 367 S.W.3d 1, 5-6 (Ky. 2012) (citations omitted). However, “[t]he failure to perform a contractual obligation typically does not give rise to a cause of action in tort . . . [it is only] if a plaintiff can establish the existence of an independent legal duty, [that] he may maintain an action in tort even though the acts complained of also constitute a breach of contract.” Francis v. Armstrong Coal Reserves, Inc., 2012 WL 777271, at *4 (W.D. Ky. Mar. 7, 2012) (quoting Mims v. Western-Southern Agency, Inc., 226 S.W.3d 833, 836 (Ky. Ct. App. 2007).

         First, the claim against S&R fails the independent legal duty rule. The contracts with which S&R allegedly interfered were the contracts between S&R and the Plaintiffs. S&R owed the Plaintiffs a duty to not breach the contract, and nothing more. The Court has already granted the Plaintiffs' motion for summary judgment as it pertains to S&R's breach, ...

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