Seacor Marine, LLC et al v. C&G Boat Works, Inc. et al
ORDER GRANTING Plfs' 86 Motion for Leave to File Amended Complaint as set out. The Clerk is directed to docket the First Amended Complaint attached as an exhibit to Doc. 86 . The parties are further directed to meet, confer & file a supplemental Rule 26(f) report within 14 days of today's date as required by Judge Cassady's 127 Order. Signed by Judge Callie V. S. Granade on 3/3/2016. (tot)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SEACORE MARINE, LLC, et al.,
C & G BOAT WORKS, INC., et al.,
CIVIL ACTION NO. 14-0596-CG-C
This matter is before the Court on Plaintiffs’ motion for leave to file amended
complaint (Doc. 86), Defendants’ objections thereto (Docs. 89 & 91), and Plaintiffs’
reply (Doc. 92). For the reason explained below, the Court finds that Defendants
have not shown that substantial reason exists to deny leave to amend. Accordingly,
Plaintiffs’ motion will be granted.
Federal Rule of Civil Procedure 15(a) provides that leave to amend pleadings
“shall be freely given when justice so requires.” See FED. R. CIV. P. 15(a). “The
thrust of Rule 15(a) is to allow parties to have their claims heard on the merits, and
accordingly, district courts should liberally grant leave to amend when ‘the
underlying facts or circumstances relied upon by a plaintiff may be a proper subject
of relief.’” In re Engle Cases, 767 F.3d 1082, 1123 (11th Cir. 2014)(citing Foman v.
Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962)). The Eleventh
Circuit recognized that Rule 15(a) “severely restricts” a district court’s discretion to
deny leave to amend. Sibley v. Lando, 437 F.3d 1067, 1073 (11th Cir. 2005).
“Unless a substantial reason exists to deny leave to amend, the discretion of the
District Court is not broad enough to permit denial.” Fla. Evergreen Foliage v. E.I.
DuPont De Nemours and Co., 470 F.3d 1036, 1041 (11th Cir. 2006) (citation
omitted). Though the Court’s discretion to grant motions for leave to amend is
“liberal,” the standard is “…not an unqualified license to fix every new defect as the
court uncovers them.” In re Engle Cases, 767 F.3d at 1123. Leave to amend can be
properly denied under circumstances of “undue delay, bad faith or dilatory motive
on the part of the movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by virtue of allowance of
the amendment, [or] futility of amendment.” Equity Lifestyle Properties, Inc. v. Fla.
Mowing and Landscape Service, Inc., 556 F.3d 1232, 1241 (11th Cir. 2009) (citation
Defendants in this case oppose the proposed amendment because Plaintiff is
attempting to reassert claims similar to those that were previously dismissed by
this Court. Defendants argue that allowing the amendment would waste time and
be futile, because Defendants would respond with a second motion to dismiss, which
they contend should be granted. “When a district court denies the plaintiff leave to
amend a complaint due to futility, the court is making the legal conclusion that the
complaint, as amended, would necessarily fail.” St. Charles Foods, Inc. v. Am.’s
Favorite Chicken Co., 198 F.3d 815, 822-23 (11th Cir. 1999). The futility threshold
is akin to that for a motion to dismiss; thus, if the amended complaint could not
survive Rule 12(b)(6) scrutiny, then the amendment is futile and leave to amend is
properly denied. See, e.g., Burger King Corp. v. Weaver, 169 F.3d 1310, 1320 (11th
Cir. 1999) (denial of leave to amend justified by futility when “complaint as
amended is still subject to dismissal”); Florida Power & Light Co. v. Allis Chalmers
Corp., 85 F.3d 1514, 1520 (11th Cir. 1996) (amendment is futile if cause of action
asserted therein could not withstand motion to dismiss); Amick v. BM & KM, Inc.,
275 F. Supp.2d 1378, 1381 (N.D. Ga. 2003) (“In the Eleventh Circuit, a proposed
amendment is futile when the allegations of the proffered complaint would be
unable to withstand a motion to dismiss.”). It follows that the burden is upon the
defendants to demonstrate that the allegations of the proposed amended complaint
would be unable to withstand a motion to dismiss. When considering whether a
claim has been stated, “the pleadings are construed broadly,” and “the allegations in
the complaint are viewed in the light most favorable to the plaintiff.” Watts v. Fla.
Int'l Univ., 495 F.3d 1289, 1295 (11th Cir. 2007) (citations omitted).
Plaintiffs seek to amend their complaint to assert facts to support claims
dependent on piercing the corporate veil against some of the corporate defendants
in this action. This Court previously found that Plaintiffs had not alleged facts in
their original complaint that would support piercing the corporate veil. (Doc. 67). In
ruling on Defendants’ motion to dismiss (Doc. 34), this Court dismissed all claims
that were dependent on piercing the corporate veil (Doc. 67). Specifically, this
Court found that Plaintiffs had not alleged facts in their original complaint to
support their conclusion that the other corporate defendants had misused their
control over the contracting corporation. When instrumentality or alto ego is the
basis for piercing the corporate veil, three elements are essential:
1) The dominant party must have complete control and domination of
the subservient corporation's finances, policy and business practices so
that at the time of the attacked transaction the subservient
corporation had no separate mind, will, or existence of its own;
2) The control must have been misused by the dominant party.
Although fraud or the violation of a statutory or other positive legal
duty is misuse of control, when it is necessary to prevent injustice or
inequitable circumstances, misuse of control will be presumed;
3) The misuse of this control must proximately cause the harm or
unjust loss complained of.
Messick v. Moring, 514 So. 2d 892, 894-895 (Ala. 1987) (citation omitted). This
Court, noting that heightened pleading is not necessary to support piercing the
corporate veil claims, but that conclusory allegations must be supported by factual
allegations, reasoned that the claims should be dismissed for the following reasons:
[Plaintiffs] point out that it is possible to pierce the corporate veil of a
group of commonly controlled entities where “control is misused such
that veil piercing would be justified, resulting in harm to a third
party.” (Pls.’ Resp. 17, Doc. 42) While this legal theory is certainly
true, Plaintiffs have failed to allege facts to support their theory—
particularly as to the element of misuse.
Misuse of control means “fraud or the violation of a statutory or other
positive legal duty” although misuse will be presumed where “it is
necessary to prevent injustice or inequitable circumstances.” Messick,
514 So. 2d at 895. The Complaint alleges no fraud or violation of
statutory or legal duty, nor does it present facts amounting to injustice
or inequity. Regarding misuse, Plaintiffs argue that the Complaint
“plausibly pleaded misuse of corporate control” in that “the Defendants
have improperly received funds that rightfully belong to Plaintiffs and
that the Defendants have improperly used the assets of one another.”
But “improper” is not synonymous with the foregoing definition of
misuse. [FN 10 “Improper” receipt of funds or use of assets could
encompass many scenarios—some consistent with misuse, some not.
But allegations merely “consistent with liability” are not enough. Iqbal,
556 U.S. at 678.]
Plaintiffs cite specific portions of the Complaint to demonstrate that
they have pled the element of misuse. Upon closer examination, those
facts are clearly insufficient. The first citation—paragraphs 75-78—
refers only to Janson Graham’s alleged misuse of C&G and makes no
mention of the Related Entities. The next citation, paragraph 87,
asserts “the Related Entities are commonly controlled and misused by
Janson Graham and C&G.” That conclusory statement is followed by
allegations that C&G and the Related Entities: (1) have common
ownership and/or control; (2) have common officers and/or directors; (3)
have made cross-entity payments for employees, benefits and
insurance; (4) have common and cross-entity funding; (5) improperly
treat[ed] property and assets held by individual entities as common
property and assets. (Compl. ¶ 87.) The first two allegations are
clearly examples of control, not misuse. The next two allegations—
cross-entity payments and common or cross-entity funding—provide no
facts from which one could infer that the payments and funding were
somehow “unfair, fraudulent, or otherwise not legitimate.” Heisz v.
Galt Indus., Inc., 93 So.3d 918, 931 (Ala. 2012). As to the final
allegation, simply describing the common use of property and assets as
“improper” does not provide factual support for the legal element of
(Doc. 67, pp. 9-11) (footnote 11 omitted). This Court also found that allegations that
the entities converted and/or sold property that belonged to Plaintiffs, cannot be
used to support their piercing of the corporate veil claims as their “remedy is selfevident in Plaintiffs’ claims for conversion and unjust enrichment”, claims which
are not premised on piercing the corporate veil, but on individual liability for their
own actions. (Doc. 67, pp. 11, 14-15).
Plaintiffs’ proposed amended complaint is 16 pages longer than the original
complaint and includes many more factual allegations regarding the transferring
and use of funds and property between the defendant corporate entities and Janson
Graham. (Doc. 86-1). Under a section labeled “Inter-Defendant Transactions and
Activities,” the amended complaint lists numerous payments or transfers of money
between the entities and points out differences in amounts paid by C&G for rent as
compared to the amounts paid by Graham Gulf for rent. (Doc. 86-1, pp. 23-33).
Plaintiffs allege that the “unjustified and unsupported fluctuation in the monthly
rent Davenport charged C&G was unfair, fraudulent or otherwise not legitimate.”
(Doc. 86-1, ¶ 84). Plaintiffs also allege that the management fees charged to C&G
“were far in excess of the market value for the services provided” and were unfair,
fraudulent or otherwise not legitimate.” (Doc. 86-1, ¶¶ 85, 86). Plaintiffs allege that
C&G constructed vessels for Graham Gulf at costs lower than reasonable market
rates and/or did not invoice or bill Graham Gulf for work performed by C&G on
Graham Gulf vessels. (Doc. 86-1, ¶ 87). Janson Graham and Graham Gulf are
alleged to have used funds belonging to C&G for their own benefit. (Doc. 86-1, ¶¶
88-90, 92). C&G allegedly used progress payments made by Plaintiffs to satisfy a
debt associated with a vessel C&G was constructing for another customer. (Doc. 861, ¶ 91). Janson Graham allegedly received significantly more in payroll in 2014,
after it became apparent that C&G could not complete the hulls in accordance with
the contracts with Plaintiffs. (Doc. 86-1, ¶ 93). From 2012-2014, Graham Holding
paid more than $300,000 to Janson Graham in non-payroll payments and made
non-rental payments to Davenport Properties of more than $2.4 million. (Doc. 86-1,
¶¶ 94-96). From 2012 to 2014, inconsistent with any ownership percentage
interests, Davenport Properties paid Janson Graham at least $130,000, paid SLG
Investments at least $2,579,000, and paid Silver King Golf Club, LLC $15,000. (Doc.
86-1, ¶¶ 97-99). The proposed amended complaint continues to detail additional
payments between the entities from 2013 to 2014, noting that several payments to
C&G of amounts that were then paid out to the other entities the same day they
were received. (Doc. 86-1, ¶¶ 100-104). Plaintiffs allege that all of these
transactions were unfair, fraudulent or otherwise not legitimate.
Many of the newly proposed allegations are similar to the allegations
contained in the original complaint in that they concern cross-entity payments and
common or cross-entity funding. The Court is wary of allowing Plaintiffs to reassert
claims that were dismissed based on a lack of factual support where the new factual
allegations are simply more numerous. The Court found previously that simply
describing the common use of property and assets as “improper” does not provide
factual support for the legal element of misuse. Allegations that are merely
“consistent with liability” are not enough. The question is whether the new
allegations regarding cross-entity payments and common or cross-entity funding
provide facts different from those previously offered and whether one could infer
from those facts that the payments and funding were somehow “unfair, fraudulent,
or otherwise not legitimate.” After taking a close look at the newly proposed
allegations, the Court finds that there are sufficient facts alleged from which a jury
could infer that control was misused by the defendant parties.
The original complaint stated generally that Janson Graham had received
funds and that there were cross-entity payments for employees, benefits and
insurance and common and cross-entity funding. (Doc. 1, ¶¶ 75-77, 87). The
proposed amended complaint provides many more detailed and specific facts
regarding alleged cross-entity payments and common or cross-entity funding.
Plaintiffs also allege factual bases why such payments and funding were improper.
For instance Janson Graham owns only 2% of Davenport Properties and its
operating agreement requires any distributions to members to be made according to
their respective ownership interests. (Doc. 86-1, ¶ 97). Yet Davenport Properties
paid Janson Graham at least $130,000 directly. (Doc. 86-1, ¶ 97). The timing and
the size of some of the alleged payments to Janson Graham and the related entities
could also imply that they were improper. Janson Graham allegedly received
$234,218 in payroll in 2014, which is more than $95,000 more than he received each
of the prior two years. (Doc. 86-1, ¶ 93). Plaintiffs allege that this increase was
after it became apparent that C&G could not complete the hulls in accordance with
the contracts with Plaintiffs. (Doc. 86-1, ¶ 93). C&G allegedly paid Graham Holding
far in excess of the market value, more than $4.1 million, for unreasonable and
baseless management fees or management services. (Doc. 86-1, ¶¶ 85-86). C&G
was charged unsupported fluctuating rates for rent by Graham Gulf that ranged
from $77,000 to $40,000 per month. (Doc. 86-1, ¶¶83-84). Additionally, payments
from C&G were made to a deer farm owned by family members, to pay for the
mortgage on a condominium owned by Janson Graham’s mother, to gardeners for
Janson Graham’s mother and to Silver King Golf Club employees. (Doc. 86-1, ¶¶ 89,
90, 92). The allegations imply that Janson Graham controls and operates all of the
corporate entities for his own benefit and at times charged C&G commercially
unreasonable amounts for services without documentation or justification. As a
result, C&G’s funds were allegedly depleted and C&G was unable to fulfill its
contractual obligations and is now without assets sufficient to meet its obligations.
The Court finds that the proposed amended complaint sufficiently alleges
misuse of control that proximately caused the harm or unjust loss complained of. At
this stage, the Court will not delve further into the parties’ factual disputes; as such
issues are reserved for the summary judgment stage. Flowers v. Patrick, 869 F.
Supp. 2d 1331, 1333 (M.D. Ala. 2012). Accordingly, the Court finds that Defendants
have not shown that the amended complaint could not survive Rule 12(b)(6)
Defendants also assert that allowing the amendment at this time would be
prejudicial to all parties in interest. Defendants essentially contend that the
amendment is prejudicial because the claims are due to be dismissed, which the
Court addressed above, and because of the timing of the amendment. Generally,
the passage of time alone is insufficient to deny a leave to amend, however “undue
delay may clearly support such a denial.” Hester v. Int'l Union of Operating Eng'rs,
941 F.2d 1574, 1578–79 (11th Cir. 1991) (citations omitted); see also Floyd v. E.
Airlines, Inc., 872 F.2d 1462, 1490 (11th Cir. 1989) (“The mere passage of time,
without anything more, is an insufficient reason to deny leave to amend.”), rev'd on
other grounds, 499 U.S. 530, 111 S.Ct. 1489, 113 L.Ed.2d 569 (1991). Indeed,
“undue delay” is often heavily dependent on the prejudice that might result if the
motion were granted. See, e.g., In re Engle Cases, 767 F.3d 1082, 1118-19 (11th Cir.
2014)(“It is true that in evaluating the tardiness of a motion to amend, courts
typically focus on the prejudice that would result if the motion were granted.”); see
also Bryant, 252 F.3d at 1165 (“Because there is no evidence that allowing an
amendment at this stage would prejudice the defendants, the district court should
have allowed the plaintiffs to amend their complaint.”). Here, Plaintiffs’ motion to
amend was timely filed within the deadline set by the Supplemental Rule 16(b)
Scheduling Order in this case. (Doc. 85). The Court finds that Defendants have not
shown that any delay in moving to amend was “undue” or that allowing an
amendment at this stage would prejudice the Defendants.
For the reason explained above, the Court finds that Defendants have not
shown that substantial reason exists to deny leave to amend. Accordingly,
Plaintiffs’ motion for leave to file amended complaint (Doc. 86), is GRANTED.
The Clerk is directed to docket the First Amended Complaint attached as an
exhibit to Doc. 86. The Parties are further directed to meet, confer and file a
supplemental Rule 26(f) report within 14 days of today’s date as required by Judge
Cassady’s Order dated November 10, 2015 (Doc. 127).
DONE and ORDERED this 3rd of March, 2016.
/s/ Callie V.S. Granade
UNITED STATES DISTRICT JUDGE
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