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Charleston Laboratories, Inc. v. Ameling

United States District Court, E.D. Kentucky, Northern Division

March 22, 2018

CHARLESTON LABORATORIES, INC. PLAINTIFF
v.
JOHN F. AMELING, et al. DEFENDANT

          MEMORANDUM OPINION & ORDER

          David L. Bunning, United States District Judge

         I. INTRODUCTION

         This matter is before the Court upon Plaintiff Charleston Laboratories, Inc. (“Charleston”) and Defendants SIDIS Corp., LLC, and Prime DP, LLC (“SIDIS Defendants”) Motions for Judgment on the Pleadings. (Docs. # 55 and 62). The SIDIS Defendants seek entry of judgment on the pleadings in their favor as to all claims asserted against them in Charleston's First Amended Complaint (Doc. # 48) and in Defendant Ameling's Crossclaim (Doc. # 49), on the grounds that they fail to state a claim upon which relief can be granted. (Doc. # 55). Charleston seeks entry of judgment on the pleadings in favor of all claims asserted against the SIDIS Defendants in its First Amended Complaint (Doc. # 48) and all claims asserted against Charleston in the SIDIS Defendants' Counterclaims (Doc. # 50). (Doc. # 62-1 at 1). The Motions are fully briefed (Docs. # 55, 57, 60, 61, 62, 67, 71, and 72), and ripe for the Court's review. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 and 28 U.S.C. § 2201. For the reasons that follow, Charleston's Motion for Judgment on the Pleadings (Doc. # 62) is granted in part and denied in part. The SIDIS Defendant's Motion for Judgment on the Pleadings (Doc. # 55) is granted in part and denied in part. Lastly, Ameling's Crossclaim (Doc. # 49) is dismissed.

         II. FACTUAL AND PROCEDURAL BACKGROUND

         This action concerns three agreements: the Stockholders Agreement, the Heads of Agreement, and the Settlement Agreement. The parties to those agreements had a troublesome relationship. Charleston and the SIDIS Defendants are competitors. Ameling is a former employee and stockholder of Charleston who entered into two agreements with the SIDIS Defendants.

         To begin, Charleston is a privately-owned pharmaceutical company whose stock is the subject of this action. (Doc. 48 at 3). In 2007, Ameling began providing consulting services to Charleston. Id. at 4. The following year, Ameling became an employee and stockholder of Charleston. Id. On May 30, 2008, Ameling entered into the Stockholders Agreement with other founding shareholders of Charleston. Id. The SIDIS Defendants are not parties to the Charleston Stockholders Agreement and are not given any rights under that Agreement. Id. The purpose of the Stockholders Agreement was to restrict the transfer of shares of capital stock of Charleston, except with respect to certain enumerated transfers. Id. at 5.

         Article 1 of the Stockholders Agreement pertaining to restrictions on the transfer of stock provides that the founding stockholders, including Ameling, “shall not dispose of any shares of Common Stock now hereafter owned by them, whether by sale, exchange, assignment, transfer, gift, devise, bequest, mortgage, pledge, encumbrance, or otherwise, except in accordance with the terms and conditions of this Agreement.” Id. Article 1 of the Stockholders Agreement further details circumstances in which a founding shareholder may transfer shares of his common stock. Id. For example, a founding shareholder may “sell, assign or transfer any shares held by such founding shareholder … with prior written notice to Charleston.” Id. Additionally, a founding shareholder may “sell, assign or transfer any shares … by obtaining prior written consent of each of the founding shareholders.” Id.

         Article 2 of the Stockholders Agreement entitles Charleston and the other founding shareholders the right to receive written notice of any proposed sale, assignment, or transfer of shares by a founding shareholder. Id. at 6. Article 2 further provides that in the event that a terminating founding shareholder “sells, pledges, encumbers, hypothecates or otherwise transfers any interest, or purports to sell, pledge, encumber, hypothecate or otherwise transfer any interest in, any of his or her Shares, except as permitted by an in full compliance with the terms of this Agreement, ” Charleston has a right to repurchase the stock. (Doc. 62 at 5). Lastly, Article 5 provides that in the event of a violation of those provisions, the other parties to the Stockholders Agreement, including Charleston, are entitled to specific performance of the Agreement in any court of competent jurisdiction. Id.

         Ameling was once both a founding shareholder and employee of Charleston. Id. at 16. Ameling allegedly purported to transfer an interest in his shares of common stock to the SIDIS Defendants in connection with issues that arose between Charleston and another one of Charleston's founding shareholders, Dr. Ray Takigiku (“Takigiku”). Id. at 11. During the dispute between Charleston and Takigiku, Charleston learned that Ameling and the SIDIS Defendants had allegedly entered into an agreement titled the “Heads of Agreement” on November 13, 2008. Id. Allegedly, the SIDIS Defendants believed that the Heads of Agreement effectuated a transfer of Ameling's shares in Charleston to the SIDIS Defendants. Id. However, Ameling allegedly denied transferring any interest in his Charleston shares to the SIDIS Defendants. Id. at 12.

         Nevertheless, Ameling and the SIDIS Defendants entered into a Settlement Agreement on August 23, 2010. Id. The Settlement Agreement expressly terminated the earlier Heads of Agreement between Ameling and the SIDIS Defendants. Id. The Settlement Agreement further explained that the SIDIS Defendants do not have any rights, including an ownership interest, in or to, Ameling's shares. Id. However, pursuant to the Settlement Agreement, Ameling agreed to pay certain amounts of money-not to exceed $5 million-to the SIDIS Defendants if and when Ameling received any consideration in connection with his ownership of Charleston's shares. Id.

         Ameling failed to give Charleston written notice prior to entering into either the Heads of Agreement or the Settlement Agreement, as required by the Stockholders Agreement. Id. at 13. Ameling also failed to obtain prior written consent of Charleston and each of the other founding stockholders. Id. Therefore, neither Charleston nor the other founding shareholders had any opportunity to approve or reject the Settlement Agreement or exercise their right to purchase Ameling's shares. Id.

         Upon discovery of Ameling's purported transfer of an interest in Charleston shares to the SIDIS Defendants, Charleston asserted its rights pursuant to the Stockholders Agreement by filing this action and seeking relief against both Ameling and the SIDIS Defendants. Id. at 16. However, Charleston and Ameling have since resolved their dispute. Id. at 17. On April 19, 2017, Charleston and Ameling entered into a Resolution, resolving all disputes between them. Id.

         Charleston's Amended Complaint (Doc. # 48) alleges two counts. First, Count One seeks a declaratory judgment, wherein Charleston seeks a declaration that the Heads of Agreement and the Settlement Agreement “are and always have been null and void and unenforceable to the extent that either purports to transfer any interest in the shares of common stock of Charleston to the SIDIS Defendants, or pledge or otherwise encumber the proceeds of any disposition of the shares, including the Ameling shares.” Id. at 20. Charleston also seeks a declaration that the SIDIS Defendants never “had any right, title, or interest in or to such shares or the proceeds of any disposition of the shares, including Ameling shares.” Id.

         Count Two seeks specific performance of the Stockholders Agreement. Id. at 20. The Stockholders Agreement provides that in the event of a violation of the provisions, the parties to the Stockholders Agreement, including without limitation, Charleston, are entitled to specific performance of the Stockholders Agreement. Id. at 21. Charleston asserts that Ameling's signing of the Heads of Agreement and the Settlement Agreement constituted a violation of the Stockholders Agreement. Id. Thus, Charleston argues that it is entitled to an order restraining the SIDIS Defendants from claiming or obtaining any right, title, or interest in or to any shares of common stock of Charleston, including any right to any proceeds of any disposition of the Ameling shares. Id.

         In response, the SIDIS Defendants asserted a Counterclaim against Charleston and present a somewhat differing factual scenario than that alleged by Charleston. To begin, the SIDIS Defendants note that Ameling also worked with the SIDIS Defendants. (Doc. # 50 at 19). While working for the SIDIS Defendants, Ameling spent a significant amount of time working on Charleston-related matters while utilizing the SIDIS Defendants' resources. Id. While working for the SIDIS Defendants, Ameling led them to believe that Charleston would compensate them for their work. Id. However, Charleston failed to pay them for any of the services that they provided Charleston or Ameling. Id. In an attempt to settle disputes between themselves and Ameling, the SIDIS Defendants and Ameling entered into a Settlement Agreement. Id.

         The SIDIS Defendants allege that on or about July 18, 2014, Ameling transferred the majority of his shares to the John F. Ameling Trust without first disclosing the transfer to the SIDIS Defendants or making any payments to the SIDIS Defendants in connection with that transfer. Id. at 21. The SIDIS Defendants argue that Charleston and Ameling are engaged in a scheme to deprive them of payments to which they are entitled to under the Settlement Agreement. Id. To support their assertion, the SIDIS Defendants point to an agreement between Charleston and Ameling, whereby Charleston purchased all of Ameling's shares in exchange for $5.40 per share. Id. at 23. Ameling then sent the SIDIS Defendants a check for $0.68 to satisfy Ameling's obligations under the Settlement Agreement. Id. However, the SIDIS Defendants refused to accept the check, claiming that the check did not fulfill Ameling's obligations. Id. at 24. Aside from this offer, the SIDIS Defendants allege that Ameling has never made or offered to make a payment pursuant to the Settlement Agreement or to honor any other obligations under that Agreement. Id. Thus, the SIDIS Defendants argue that by entering into the Stock Repurchase Agreement, Charleston and Ameling engaged in a series of transactions designed to allow Ameling to evade his obligations under the Settlement Agreement and to defraud the SIDIS Defendants. Id. at 25.

         The SIDIS Defendants' Counterclaim against Charleston alleges four separate counts: (1) Count One: Tortious Interference with Contract; (2) Count Two: Fraudulent Transfer; (3) Count Three: Civil Conspiracy; and (4) Count Four: Punitive Damages. Charleston has moved for judgment on the pleadings with respect to all four counts, which will be addressed below.

         III. ANALYSIS

         A. Standard of Review

         “A motion for judgment on the pleadings pursuant to Rule 12(c) is subject to the same standard of review as a motion to dismiss under Rule 12(b)(6).” Warrior Sports, Inc. v. Nat'l Collegiate Alethic Ass'n, 623 F.3d 281, 284 (6th Cir. 2010). Thus, “all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment.” Tucker v. Middleburg-Legacy Place, 539 F.3d 545, 549 (6th Cir. 2008). “A motion for judgment on the pleadings is appropriately granted when no material issue of fact exists and the party making the motion is entitled to judgment as a matter of law.” Id.

         For the reasons stated herein, Charleston's Motion for Judgment on the Pleadings (Doc. # 62) is granted in part and denied in part. The SIDIS Defendant's Motion for Judgment on the Pleadings (Doc. # 55) is granted in part and denied in part. Lastly, Ameling's Crossclaim (Doc. # 49) is dismissed.

         B. Applicable Law

         Before considering the issues raised in the Motions for Judgment on the Pleadings and Ameling's Crossclaim, the Court must determine which state's law governs. As a federal court sitting in diversity, this Court must apply “the choice of law rules of the forum state.” Hayes v. Equitable Energy Res. Co., 266 F.3d 560, 566 (6th Cir. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 796 (1941)). Therefore, Kentucky choice-of-law rules govern.

         The underlying dispute in this case involves the interpretation of various contracts. In Kentucky, the law governing a contract dispute is that of the state with “the most significant relationship to the transaction and the parties.” Pedicini v. Life Ins. Co. of Ala., 682 F.3d 522, 526 (6th Cir. 2012) (quoting State Farm Mut. Auto. Ins. Co. v. Marley, 151 S.W.3d 22, 42 (Ky. 2004)). The parties have agreed that the Stockholders Agreement “shall be deemed to be made under and governed by and construed in accordance with the laws of the state of Delaware.” (Doc. # 1-1 at 10). Additionally, the parties have also ...


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