J.M. Smith Corporation v. Ciolino Pharmacy Wholesale Distributors, LLC et al

Filing 27

ORDER granting in part and denying in part 16 Motion to Dismiss for Failure to State a Claim. Signed by Judge Jay C. Zainey on 5/18/15. (jrc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
J. M. SMITH CORPORATION
d/b/a SMITH DRUG COMPANY

CIVIL ACTION

VERSUS

NO: 14-2580

CIOLINO PHARMACY WHOLESALE
DISTRIBUTORS, LLC, ET AL.

SECTION: "A" (5)

ORDER AND REASONS
Before the Court is a Motion to Dismiss for Failure to State
a Claim upon which Relief May be Granted (Rec. Doc. 16) filed by
defendants Ciolino Pharmacy Wholesale Distributors, LLC, Ciolino
Pharmacy, Inc., C's Discount Pharmacy, Inc., Fast Access Specialty
Therapeutics, LLC, JJK Wholesale Distributors, LLC, Steven F.
Ciolino, and Gregory M. Johns.

Plaintiff JM Smith Corporation

d/b/a Smith Drug Company opposes the motion.

The motion, set for

submission on January 28, 2015, is before the Court on the briefs
without oral argument.1
I. BACKGROUND
Plaintiff

J.M.

Smith

Corporation

("Smith")

filed

this

Complaint on November 12, 2014 seeking to recover amounts awarded
in a judgment obtained in a prior related action.
action,

J.M.

Smith

Corp.

v.

1

Ciolino

Pharmacy

That prior
Wholesale

The Court declines the request for oral argument as it
finds it would be unnecessary to decide the issues before it.
1

Distributors, LLC, et al., No. 10-1483 c/w no. 10-1786, commenced
in 2010 as an open account claim by Smith against Ciolino Pharmacy
Wholesale Distributors, LLC (referred to, along with its other
related business entities, collectively as "Ciolino") based on
transactions in November and December of 2009.

In response to the

initiation of that action, Ciolino filed breach of contract and
other counterclaims against Smith. That matter was tried to a jury
over a four day period beginning on November 11, 2013.

The jury

returned a verdict on November 15, 2013 awarding Smith $654,336.51
against CPWD on its open account claim and denying all of Ciolino's
counterclaims.

The Court subsequently entered a judgment on

December 5, 2013.

After additional briefing, on August 22, 2014,

the Court ordered that Smith be awarded $260,000.00 in attorneys'
fees and $71,600.00 in costs related to the prosecution of its open
account claim.
In the present lawsuit, involving the same parties with the
one new addition of Gregory M. Johns as a defendant, Smith seeks to
recover the entirety of the amount owed from the previous related
litigation.

Smith alleges that, beginning in November 2009,

Ciolino Pharmacy Wholesale Distributors, LLC ("CPWD"), via Steven
F. Ciolino, started to divert its funds to other entities and
individuals, including into the personal accounts of Steven F.
Ciolino

and

consideration,"

other
thus

named
causing

defendants,
or

2

for

resulting

no
in

"meaningful

the

increased

insolvency of CPWD. (Rec. Doc. 1, Comp. at §§ 20, 23-26).

Smith

also claims that CPWD "transferred [the] pharmaceuticals [obtained
in November and December of 2009] "to JJK Wholesale Distributors,
LLC and possibly the Ciolino [e]ntities."

Id. at §21.

Smith

contends that these actions were undertaken by CPWD "to shield
itself from judgment and to prevent Plaintiff from recovering
amounts owed since November 2009." Id. at §26. Furthermore, Smith
argues that Steven F. Ciolino (who allegedly has at least an
ownership interest in all defendant entities) and Gregory M. Johns
(who allegedly has a fifty percent ownership interest in JJK
Wholesale Distributors, LLC) have operated these entities as their
alter-egos.

Id. at §§ 28-34.

Based on these allegations, Smith

seeks to annul any transactions increasing CPWD's insolvency via a
revocatory action, pierce the corporate veil to hold Steven F.
Ciolino and Gregory M. Johns personally liable on the amounts
awarded, recover damages via a theory of unjust enrichment, and
have the subject transactions declared as absolute or relative
simulations.

Id. at §§ 35-60.

Ciolino filed the present motion seeking to dismiss Smith's
Complaint in its entirety. First, Ciolino argues that the doctrine
of res judicata applies here to bar all of Smith's claims. Second,
Ciolino argues that prescription or peremption bars all of Smith's
claims other than unjust enrichment.

Third, Ciolino argues that

Smith has failed to fulfill the pleading requirements of F.R.C.P.

3

8 under the standard as set out in Bell Atlantic Corp. v. Twombly,
550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009).
II. ANALYSIS
In the context of a motion to dismiss the Court must accept
all factual allegations in the complaint as true and draw all
reasonable inferences in the plaintiff’s favor.

Lormand v. US

Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009) (citing Tellabs,
Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007); Scheuer
v. Rhodes, 416 U.S. 232, 236 (1974); Lovick v. Ritemoney, Ltd., 378
F.3d 433, 437 (5th Cir. 2004)).

However, the foregoing tenet is

inapplicable to legal conclusions.

Ashcroft v. Iqbal, 129 S. Ct.

1937, 1949 (2009). Thread-bare recitals of the elements of a cause
of action, supported by mere conclusory statements, do not suffice.
Id. (citing Bell Atlantic Corp. v. Twombly, 550, U.S. 544, 555
(2007)).
The central issue in a Rule 12(b)(6) motion to dismiss is
whether,

in

the

light

most

favorable

to

the

plaintiff,

the

complaint states a valid claim for relief. Gentilello v. Rege, 627
F.3d 540, 544 (5th Cir. 2010) (quoting Doe v. MySpace, Inc., 528
F.3d 413, 418 (5th Cir. 2008)).

To avoid dismissal, a plaintiff

must plead sufficient facts to “state a claim for relief that is
plausible on its face.”

Id. (quoting Iqbal, 129 S. Ct. at 1949).

“A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that
4

the defendant is liable for the misconduct alleged.”

Id.

The

Court does not accept as true “conclusory allegations, unwarranted
factual inferences, or legal conclusions.” Id. (quoting Plotkin v.
IP Axess, Inc., 407 F.3d 690, 696 (5th Cir. 2005)).

Legal

conclusions must be supported by factual allegations. Id. (quoting
Iqbal, 129 S. Ct. at 1950).
a. Procedural Argument
In

opposing

the

present

motion,

Smith

responds

to

the

substantive grounds raised by Ciolino but first argues that the
Court should deny the motion "as it improperly relies upon matters
outside the pleadings to support its substantive legal arguments."
(Rec. Doc. 19, Opposition at 7).
Based on its rulings, infra, the Court finds no need to
address this argument.
b. Res Judicata and Prescription
Ciolino argues that this matter should be dismissed on grounds
of res judicata.
All

Ciolino summarizes this argument as follows:

of

the

claims

[Steven]

Ciolino

theories

of

allegations

urged

personally

recovery
from

against

on

the

CPWD

and

are

variant

repeated

factual

Prior

Matter,

and

accordingly now subject to dismissal as res
judicata. Similarly, all claims made against
C's 1, C's 2, JJK, and FAST are based on
5

allegations available during the Prior Matter
due

to

the

extensive

discovery

that

was

undertaken and therefore should be dismissed
under the theory of res judicata or claim
preclusion because they should have and could
have been brought in the Prior Matter.

All

claims against Greg Johns should likewise be
dismissed for the same reasons, as he was
deposed in 2011 and was also a witness in the
trial in the Prior Matter.
(Rec. Doc. 16-2, at 2-3).

Ciolino contends that the res

judicata bar applies to all claims that were or could have been
brought in the prior action, and, according to Ciolino, as Smith
alleges no claim arising out of facts occurring after the trial in
November 2013, the Complaint should be dismissed in its entirety,
or at least as to claims arising out of actions prior to the
judgment

in

the

original

matter.

Id.

at

2,

13-14

("Movers

respectfully contend that all claims in the new Complaint should be
dismissed pursuant to Rule 12(b)(6) because they are barred by the
doctrine of res judicata.").
Ciolino also argues that the revocatory action, alter-ego
theory, and simulation claims are all subject to a one year
prescriptive period or a three year peremptive period.

Ciolino

claims that as these actions are based on events encompassed by

6

these time periods and of which Smith should have known, the claims
are now barred.

Id. at 2, 15-17.

Courts in this circuit are hesitant to dispose of cases at the
dismissal stage on grounds of res judicata.

Test Masters Educ.

Servs., Inc. v. Singh, 428 F.3d 559, 570 n.2 (5th Cir. 2005) ("We
do observe that generally a res judicata contention cannot be
brought

in

a

motion

to

dismiss;

it

must

affirmative defense.") (citations omitted).

be

pleaded

as

an

Similarly, as to both

res judicata and prescription, courts will not dismiss a complaint
at this stage unless the necessity of doing so is apparent on the
face of the pleadings.

Jones v. Alcoa, Inc., 339 F.3d 359, 366

(5th Cir. 2003) (A statute of limitations may support dismissal
under Rule 12(b)(6) where it is evident from the plaintiff's
pleadings that the action is barred and the pleadings fail to raise
some basis for tolling or the like.") (citations omitted); Murry v.
Gen.

Srvcs.

("Dismissal

Admin.,
under

553

Rule

F.

Appx.

12(b)(6)

on

362,
res

364

(5th

judicata

Cir.

2014)

grounds

is

appropriate when the elements of res judicata are apparent on the
face of the pleadings.") (citations omitted).
The Court finds that it is not readily apparent on the face of
the pleadings that Smith's claims should be dismissed on grounds of
res judicata.

The allegations extend to a broad range of time

(e.g., "CPWD also transferred funds into Steven F. Ciolino's
personal bank account between 2009 and present . . . .") and

7

include transactions other than those related to the sales on open
account (e.g., "CPWD also transferred other funds and/or property
to the other Ciolino Entities, Steven F. Ciolino personally, and to
other unknown entities and/or individuals in an effort to prevent
Plaintiff from executing a judgment against him.").
at §§ 23-24).

(Rec. Doc. 1,

Smith also alleges that it did not learn of some of

Ciolino's actions until the judgment debtor examination that took
place

on

November

5,

2014.

Id.

at

§27.

Based

on

these

allegations, the Court will not dismiss this litigation on the
basis of res judicata or prescription at this early juncture.2
Although not central to its ruling today, the Court also notes
Smith's broader argument that even those parts of the claims
relating to actions occurring as early as 2009 would not be barred
by the doctrine of res judicata.
The following four elements must be met for res judicata to
apply: (1) The parties in the instant action must be the same as or
in privity with the parties in the prior action in question; (2)
the court that rendered the judgment must have been a court of
competent jurisdiction; (3) the prior action must have terminated
with a final judgment on the merits; and, (4) the same claim or
cause of action must be involved in both suits.

2

Gulf Island-IV,

It appears that Ciolino might have valid concerns with Smith's
allegations. However, the parties, and the Court, will be in a better
position to address these arguments after further development of the
case.

8

Inc. v. Blue Streak-Gulf Is Ops, 24 F.3d 743, 746 (5th Cir. 1994)
(citing United States v. Shanabaum, 10 F.3d 305, 310 (5th Cir.
1994)).
This fourth element is analyzed under the "transactional
test," which considers whether the two actions are "based on the
same 'nucleus of operative facts.'"

In re Ark-La-Tex Timber Co.,

Inc. 482 F.3d 319, 330 (5th Cir. 2007) (citing Eubanks v. F.D.I.C.,
977 F.2d 166, 171 (5th Cir. 1992)).

Thus, the bar of res judicata

is not limited only to those claims which were previously brought,
but also those claims that "could have been advanced in support of
the cause of action on the occasion of its former adjudication."
Nilsen v. City of Moss Point, MS., 701 F.2d 556, 560 (5th Cir.
1983) (emphasis in original).
In New Orleans Jazz and Heritage Foundation, Inc. v. Kirksey,
the Louisiana Fourth Circuit Court of Appeals reviewed a case in
which petitioners obtained a judgment against defendant corporation
on June 5, 2009 due to defendant's failure to satisfy debts.
So.3d 714, 716 (La. App. 4 Cir. 2012).

104

Petitioners then filed

another action in 2011 against the defendant corporation's sole
shareholder to enforce the judgment (after appeal) upon discovering
"[d]isparities between [defendant corporation's] revenue in 2008
and its apparent financial state in 2009" that suggested that the
defendant corporation "was avoiding its obligation as a Judgment
Debtor

to

the

[petitioner]

by

9

hiding

behind

[the

sole

shareholder]." Id. The shareholder then filed an exception of res
judicata, which the district court granted, arguing that this issue
had already been litigated in the earlier lawsuit when the district
court found that he was not personally liable for the debts of the
corporation. Id. at 718.
The Louisiana appellate court applied both claim preclusion
and collateral estoppel in its analysis.3

New Orleans Jazz and

Heritage Foundation, Inc., 104 So.3d at 718-19.

As to issue

preclusion, it found that the alter-ego theory was not actually
previously litigated nor necessary to the court's holding in the
prior matter.

Id. at 719.

As to claim preclusion, the court held

that "[this] matter . . . pertains to [defendant corporation's]
default on and failure to pay court-ordered judgment, which did not
arise out of the initial suit pertaining to the misappropriations
of the [petitioner's] funds . . ., [and thus] [t]he issues and
queries in the second suit differ from that of the first suit."
Id. at 718-19.4

3

Louisiana law regarding res judicata, like federal law,
includes both concepts. See La. R.S. § 13:4231; Stroscher v.
Stroscher, 845 So. 2d 518, 525 (La. App. 1 Cir. 2003).
4

Although neither relying on it in its present opinion nor
finding whether it would be relevant here, the Court also recognizes
that there is a line of precedent stating that the doctrine of res
judicata will not bar a claim seeking to enforce a judgment based on
piercing the corporate veil in certain scenarios, such as where the
plaintiff was not aware of facts suggesting the necessity of bringing
such a claim at the time of filing his original lawsuit. See, e.g.,
JNS Aviation, Inc. v. Nick Corp., 418 B.R. 898, 910 (N.D. Tx. 2009);
Romag Fasteners, Inc. v. Bauer, no. 11-3181, 2011 WL 5513380, at *7
(S.D. N.Y. 2011).

10

There is no question that at least several of the allegations
in the present action are temporally related to the original
action.

Smith's Complaint very plainly claims that many of the

alleged actions began in November 2009.

However, the core focus

must remain on the nucleus of operative facts.

Those facts in the

original lawsuit pertained to the performances and liabilities of
the parties under the original contract.

Here, there is an

argument that the operative facts, as the Court appreciates it at
this early juncture, is what actions Defendants were taking after
Smith's rights arose against them.

In such a situation, it would

appear that the differing issues and queries could lead to a
conclusion that the two actions do not stem from the same common
nucleus of operative facts.
c.

Defective Pleadings
Ciolino contends that the only specific facts in the Complaint

are drawn from the prior action, and that Smith "has failed to
plead any particular facts in support of its new theories of
recovery, but has rather pled conclusory allegations that amount to
mere recitals of causes of action and their essential elements . .
. ."

(Rec. Doc. 16-2, at 19).

Thus, Ciolino argues, the claims

fail to meet the Twombly / Iqbal standard of pleading.

Ciolino

also argues that "[i]n a case based on a contract, fraud is an
essential element of an alter-ego finding."

(Rec. Doc. 16-2, at

17). As such, pursuant to F.R.C.P. 9(b), Ciolino states that Smith

11

must plead fraud with particularity and that Smith has failed to do
so here.
Smith responds that it has sufficiently pleaded its causes of
actions to satisfy the Twombly / Iqbal standard.

Furthermore,

Smith disputes the claim that fraud is an essential element of a
claim in this context. In the alternative, Smith asks for leave to
amend its Complaint.
Smith's arguments come perilously close to presenting little
more than a repeating of the elements of the various causes of
action.

Nonetheless, the Court recognizes the low threshold set

forth in F.R.C.P. 8(a).

In addition, contrary to Ciolino's

contentions, the Court finds in this context that the phrase "upon
information

and

belief"

does

not

somehow

statements from being factual allegations.

preclude

Smith's

Finally, the Court

briefly notes that, even in an action to pierce the corporate veil
based on contract, fraud is not an essential element.5

Hollowell

v. Orleans Regional Hosp. LLC, 217 F.3d 379, 386 (5th Cir. 2000)
("Even if the defendants are correct that a WARN action is most
akin to a contract action, they are mistaken that Louisiana law
requires a finding of fraud in order to pierce the corporate veil
in a contract action.").

Instead, although a plaintiff pursuing

such an action will ultimately bear a "heavy burden of proof on

5

As the Court finds the fraud contention not central to this
decision, it does not today decide on the appropriate characterization
of this action (e.g., based on contract, tort, etc.).

12

such a claim," the courts will still take into account a "totality
of the circumstances test."

Id. (citations omitted).

In short, while the Complaint is sparse on facts, the Court
finds that dismissal is not warranted at this point.

Whether or

not Smith can produce sufficient facts to support these claims will
be the province of a motion for summary judgment later in the
proceedings or of eventual disposition on the merits.6
d.

Unjust Enrichment
Ciolino argues that the claim for unjust enrichment should

also be dismissed as a matter of law as it is a subsidiary remedy,
and the law has already provided a remedy in the form of an action
on open account.

Smith has not responded to this argument.

Unjust enrichment provides that one shall be compensated where
another has been enriched without cause at his expense.
art. 2298.

La. C.C.

The Civil Code article states that "[t]he remedy

declared here is subsidiary and shall not be available if the law
provides another remedy for the impoverishment or declares a
contrary rule."
In addition to the claim for unjust enrichment, Plaintiffs
have also brought claims for violations of "Louisiana Corporation

6

The Court will entertain a motion filed by Ciolino asking for
interrogatories in excess of the normal amount under F.R.C.P. 33 as
they might have to seek through discovery additional details that
would have otherwise been included in the Complaint. See Scarborough
v. Ammari of Louisiana, Ltd., no. 13-6196, 2014 WL 1154379 at *2, n.1
(E.D. La. March 21, 2014).

13

and Limited Liability Company Law," a revocatory action, and a
simulation action.

The relief requested through the Civil Code

articles providing the revocatory and simulation actions is to have
any diverted funds or property returned to CPWD so that Smith might
execute its judgment.

(Rec. Doc. 1, at 7-8, 11).

Similarly, an

unjust enrichment claim provides for the equitable remedy that
"[t]he amount of compensation due is measured by the extent to
which one has been enriched or the other has been impoverished,
whichever is less."
As

the

Court

La. C.C. art. 2298.
finds

the

remedies

sought

essentially

duplicative, the subsidiary nature of the unjust enrichment action
requires its dismissal in this case.
III. CONCLUSION
The Court finds that Ciolino's motion should be granted
insofar as Smith's claim for unjust enrichment is dismissed.
However, the Court denies the motion as to Smith's remaining
claims.
Accordingly;
IT IS ORDERED that the Motion to Dismiss for Failure to State
a Claim upon which Relief May be Granted (Rec. Doc. 16) filed by
defendants Ciolino Pharmacy Wholesale Distributors, LLC, Ciolino
Pharmacy, Inc., C's Discount Pharmacy, Inc., Fast Access Specialty
Therapeutics, LLC, JJK Wholesale Distributors, LLC, Steven F.
Ciolino, and Gregory M. Johns is GRANTED in part and DENIED in
14

part.

It is GRANTED insofar as the claim for unjust enrichment is

DISMISSED.

It is DENIED in all other respects.

May 18, 2015

JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE

15