Robinson Mechanical Contractors, Inc. d/b/a Robinson Construction Company v. PTC Group Holdings Corp.
Filing
103
MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that PTC's motion to dismiss counts I, II, VI, and VII of plaintiff's second amended complaint (#81) is DENIED. So ordered this 1st day of June, 2017. Signed by District Judge Stephen N. Limbaugh, Jr on 6/1/2017. (Attachments: # 1 Appendix)(JMC)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
SOUTHEASTERN DIVISION
ROBINSON MECHANICAL
)
CONTRACTORS INC. d/b/a ROBINSON )
CONSTRUCTION COMPANY,
)
)
Plaintiff,
)
)
v.
)
)
PTC GROUP HOLDINGS CORP., and
)
PTC SEAMLESS TUBE CORP.,
)
)
Defendants.
)
Case No. 1:15-CV-77 SNLJ
MEMORANDUM AND ORDER
This case comes before the Court on defendant PTC Group Holdings Corp.’s
(“PTC”) motion to dismiss counts I, II, VI, and VII of plaintiff’s second amended
complaint (#81). Plaintiff Robinson Mechanical Contractors Inc. d/b/a Robinson
Construction Company (“plaintiff”) opposes the motion. Defendant PTC Seamless Tube
Corp. (“Seamless”), a dissolved and defunct corporation able to sue and be sued under
Delaware law, is not represented in this action and is currently in default. The issues are
briefed and ripe for disposition.
I.
Background
Plaintiff filed this lawsuit against defendant PTC on May 5, 2015. Plaintiff
performed extensive construction work at a PTC’s subsidiary’s steel tubing
manufacturing plant in Hopkinsville, Kentucky, pursuant to a contract between plaintiff
and a PTC subsidiary, Seamless. When the PTC subsidiary – Seamless – fell behind on
paying its invoices from plaintiff, PTC stepped in and made some payments pursuant to a
new letter agreement between PTC and plaintiff dated December 16, 2014, for invoices
due by the end of December 2014. PTC made the payments discussed in the letter
agreement but made no payments for future work done by plaintiff for Seamless. In fact,
after the payments made by PTC in accordance with the letter agreement, neither
Seamless nor PTC made any payments to plaintiff for plaintiff’s work after November
23, 2014.
Due to the claims presented and complexity of the matter, the Court will expand
on the details of plaintiff’s allegations. Plaintiff alleges that PTC created Seamless to
make and sell seamless piping to complement PTC’s existing business. PTC purchased
pipe manufacturing equipment and decided to transform an existing facility owned within
PTC’s corporate family, located in Hopkinsville, into a seamless pipe business. PTC
Alliance Acquisitions (“PTC Alliance”), another corporation within PTC’s corporate
family, entered into a Professional Services Agreement (“PSA”) with plaintiff to remove
the equipment currently at the facility.1 Seamless was incorporated on June 24, 2013,
approximately a month and a half after plaintiff entered into the contract with PTC
Alliance. After incorporation, PTC purchased all of Seamless’ shares of stock for $10.
PTC’s CFO was the sole initial director for Seamless and eventually was named the CFO
and vice president of Seamless. The CFO then nominated the CEO and president of PTC
to become the second director of Seamless, in addition to being named the CEO and
1
Plaintiff claims that the additional statements of work, which incorporated the PSA entered into by plaintiff and
PTC Alliance, stated that plaintiff was dealing with “PTC Seamless Tube Corp f/k/a PTC Alliance Pipe Acquisition
LLC.” Plaintiff did not know that these were two separate corporate entities.
2
president of Seamless. Plaintiff alleges that these two were Seamless’ only directors and
officers from Seamless’ incorporation until its bankruptcy. Additionally, Seamless and
PTC shared the same physical address and offices.
Seamless, plaintiff claims, was created by PTC to be the contracting party with
contractors and suppliers for construction and renovation of the Hopkinsville facility as a
means to shield PTC from liability for the project. In late November or early December
2013, PTC representatives met with plaintiff and asked plaintiff to perform the overall
work on the renovation of the Hopkinsville plant, including the installation of the
equipment on a time and material basis.2 As stated above, plaintiff entered into the PSA
with Seamless, not PTC. However, PTC representatives were frequently on-site
controlling and directing the construction and renovation work. Plaintiff invoiced
Seamless every two weeks for its work with payment due 30 days following invoice. By
the end of November 2014, Seamless owed plaintiff more than $7 million for plaintiff’s
work at the Hopkinsville plant.
Due to financial issues, PTC, on behalf of Seamless, sought to alter the payment
terms of the PSA, including extending the due date for invoices from 30 days to 90 days.
At the same time, PTC representatives indicated that they were happy with plaintiff’s
work and wished plaintiff to work on “Phase II” of the project. Plaintiff, owed over $7
million by Seamless under the current PSA, was hesitant about extending the invoice due
date. PTC, in an effort to ease plaintiff’s concerns, submitted a copy of its financial
statement from September 2014 and a document entitled “Summary Borrowing Base
2
This portion of the construction work is referred to as “Phase I” by the parties.
3
Certificate” which indicated an amount of approximately $23.5 million available under
PTC’s credit facilities with that amount represented to plaintiff as available to pay
plaintiff for its continuing work on the Hopkinsville plant. After receiving this
information, on December 16, 2014, plaintiff entered into a letter agreement with PTC
which stated, inter alia, that (1) PTC would pay plaintiff for invoices through PTC’s
central cash management system, (2) plaintiff would extend the invoice due date from 30
to 90 days, (3) and plaintiff would complete Phase II of the project.
PTC made the payments for past-due invoices according to the terms of the letter
agreement. Following PTC’s payment, plaintiff continued to work on the project with
project activities and staffing levels directed by on-site PTC representatives. Plaintiff’s
first invoice after the letter agreement covered work between November 23, 2014 and
December 6, 2014, with the invoice given to PTC and Seamless on December 12, 2014.
Because of the 90 day due date, payment for this invoice was not due until March 12,
2015.
On March 11, one day before Seamless’ payment was due pursuant to the letter
agreement, nearly three months after the defendants were given plaintiff’s invoice,
Seamless sent a letter to plaintiff advising plaintiff that Seamless had a dispute regarding
plaintiff’s invoice and that it would not make the payment. The letter did not refer to any
particular invoice and did not explain what Seamless disputed within the invoice.
Further, this was the first time that defendants advised plaintiff that defendants disputed
plaintiff’s invoices or would not pay plaintiff’s invoices. Plaintiff ceased work on March
12. Plaintiff alleges that the parties met in-person several weeks after the payment
4
dispute and defendants again declined to identify any particular invoices or items within
invoices that defendants disputed.
Since then, neither Seamless nor PTC has paid plaintiff for its work done after
November 23, 2014. Insolvent or approaching insolvency, Seamless applied for
bankruptcy on April 26, 2015 and was dissolved, pursuant to Delaware law, on January
29, 2016 (#68-3).3 Ultimately, plaintiff claims that it is owed $14.8 million for labor and
materials that it and its subcontractors furnished for the construction project. Despite the
fact that plaintiff had a contract with the PTC subsidiary – Seamless – plaintiff filed its
first amended complaint solely against PTC on the basis of the 2014 letter agreement
between PTC and plaintiff. Plaintiff brought six claims against PTC – (1) breach of
contract, (2) breach of duty of good faith and fair dealing, (3) fraudulent
misrepresentation, (4) negligent misrepresentation, (5) promissory estoppel, and (6)
quantum meruit.
PTC moved to dismiss plaintiff’s first amended complaint for failure to state a
claim. The Court partially granted PTC’s motion on March 31, 2016 – dismissing three
of plaintiff’s claims including breach of contract, breach of duty of good faith and fair
dealing, and quantum meruit (#27). The parties then engaged in discovery. The case
management order set a deadline for amendment of pleadings and joinder of additional
parties of September 30, 2016 (#33). Due to ongoing depositions, plaintiff requested and
received an extension of time for that deadline to October 31, 2016 (#38). Plaintiff filed
3
In bankruptcy, Seamless listed secured obligations of “approximately $178 million and unsecured obligations of
approximately $118 million for a total amount of nearly $300 million of debt, in addition to other obligations it
owed to its various vendors and contractors such as Robinson.” Pl. Second Am. Compl. ¶ 54.
5
a motion to file a second amended complaint on October 31, seeking to add Seamless as a
defendant, to add a new count to pierce the corporate veil between Seamless and PTC,
and to reassert counts previously dismissed based upon new allegations in light of facts
discovered since the filing of the first amended complaint (#40). The Court granted the
plaintiff’s motion on January 27, 2017 (#65).
Now, plaintiff seeks to pierce Seamless’ corporate veil because plaintiff alleges
that PTC and its wholly-owned subsidiary, Seamless, acted as a single economic entity
and are alter egos – subject to liability for plaintiff’s claims. Seamless failed to answer
plaintiff’s second amended complaint and is currently in default in this action (#97). In
the instant motion, PTC again seeks to dismiss plaintiff’s breach of contract, breach of
duty of good faith and fair dealing, and quantum meruit claims, in addition to plaintiff’s
new claim to pierce the corporate veil between Seamless and PTC (#81).
II.
Legal Standard
The purpose of a Rule 12(b)(6) motion to dismiss for failure to state a claim is to
test the sufficiency of a complaint so as to eliminate those actions “which are fatally
flawed in their legal premises and deigned to fail, thereby sparing litigants the burden of
unnecessary pretrial and trial activity.” Young v. City of St. Charles, 244 F.3d 623, 627
(8th Cir. 2001) (citing Neitzke v. Williams, 490 U.S. 319, 326-27 (1989)). “To survive a
motion to dismiss, a claim must be facially plausible, meaning that the ‘factual content. . .
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.’” Cole v. Homier Dist. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The Court must “accept the
6
allegations contained in the complaint as true and draw all reasonable inferences in favor
of the nonmoving party.” Id. (quoting Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir.
2005)).
III.
Analysis
A. Breach of Contract
The breach of contract count is based on the letter agreement dated December 16,
2014 between plaintiff Robinson Construction and defendant PTC.4 This Court, by order
of March 31, 2016, dismissed that count for failure to state a cause of action. Now, with
leave of Court, plaintiff has refiled the count, which is essentially the same as the
original, but with the addition of allegations pertaining to the oral negotiations between
the parties that led to the agreement. These new allegations, of course, are parol
evidence, which is disallowed unless the Court determines that the contract is ambiguous.
In that event, parol evidence is permitted to determine the intent of the parties. Dunn
Indus. Grp. V. City of Sugar Creek, 112 S.W.3d 421, 428-29 (Mo. banc 2003); Royal
Banks of Missouri v. Fridkin, 819 S.W.2d 359, 361-62 (Mo. banc 1991).5
Whether the contract is ambiguous so as to permit parol evidence was not an issue
addressed by the parties in the briefing on the first motion to dismiss, and for that reason,
this Court is compelled to revisit the dismissal. For context, this Court's reasons for the
dismissal in the March 31, 2016 memorandum and order are restated as follows:
4
A copy of the letter agreement is attached as an appendix.
The parties generally agree that the letter agreement is in the nature of a guarantee, and the dispute is over the
extent of the guarantee. Although defendants, citing Capitol Grp., Inc. v. Collier, S.W. 3d 644, 648 (Mo. App.
2012), maintain that guaranties are “strictly construed according to the terms of the guaranty agreement and may not
be extended by implication beyond the strict letter of the obligation,” this rule is applied only after that obligation is
determined in the first place, using the rules of construction applicable to all contracts. See Royal Banks, 819 S.W.
2d at 361-62.
5
7
Plaintiff is clear, in its complaint and in its response to defendant’s motion,
that its claims against defendant arise from the letter agreement that is
independent of and “does not incorporate the terms . . . of the [PSA] with
Seamless.” Plaintiff argues that defendant agreed to pay for the future
debts of Seamless, its wholly owned and controlled subsidiary, to Robinson
through its own cash management system. Plaintiff relies primarily on the
following statements in the letter agreement:
As we agreed, you released payment of $1,749,974.00 on Friday 1212-14, receipt of which is hereby acknowledged and we will accept
payment of the balance of $6,190,472.42 on January 2, 2015 by wire
transfer in return for the concessions below. As a part of this
agreement we would also be willing to extend your payment terms
for all invoices sent after December 1, 2014 to 90 days.
...
Payments made on behalf of PTC Group Holdings Corp. and its
subsidiaries, including PTC Seamless Tube Corp, are paid by PTC
Group Holdings through its central cash management system.
Under these provisions, the only payment defendant agreed to make was for
the outstanding balance owed by Seamless to plaintiff for work billed in
October and November by January 2, 2015. Although the foregoing
provisions also state the method of payment for the outstanding balance
that defendant agreed to pay, it does not constitute a promise by defendant
to guarantee or make future payments owed by Seamless.
The letter agreement, standing alone, is a contractual agreement for
defendant to pay the balance Seamless owed for work billed in October
and November 2014 by January 2, 2015. The parties agree that occurred.
Plaintiff’s breach of contract claim alleging defendant was required to make
future payments owed by Seamless is not supported by the plain language
of the letter agreement. In the letter agreement defendant agreed to pay
$7,940,446.42 owed by Seamless to plaintiff as of December 30, 2014. The
amount due was to be paid in two payments. Defendant agreed to make the
payments to plaintiff from its central cash management system. Plaintiff
agreed to extend payment terms for all invoices sent after December 1,
2014 from 30 days to 90 days. But nowhere in the letter agreement does
defendant commit to pay, or guarantee payment of, those invoices for
Seamless. Plaintiff’s breach of contract claim, therefore, fails to state a
claim and defendant’s motion to dismiss this claim will be granted.
8
Naturally, defendants agree with the foregoing analysis. On the other hand,
plaintiff parses the letter differently in order to prove that the intention of the parties was
in fact that PTC guarantee future payments owed to plaintiff by Seamless, or at least to
prove that the letter is ambiguous. In particular, plaintiff points to the provision that, “As
a part of this agreement we would also be willing to extend your payment terms for all
invoices sent after December 1, 2014 to 90 days.” (emphasis added). Use of the word,
“your,” then, apparently refers to an extension in favor of PTC, rather than Seamless,
because the only signatories to the letter agreement are Robinson and PTC, not Seamless.
To the contrary, PTC argues that the words, “your payment terms,” is necessarily a
reference to Seamless alone, because the only contract to which the payment terms could
be addressed was that between Robinson and Seamless. But the next paragraph clarifies
that, “We need you to understand that this extension of credit to PTC does require the
commitment of a significant portion of our available line of credit for your use and that
failure to pay on the part of PTC would be disastrous to Robinson Construction.”
(emphasis added). If indeed the extension of credit is to the benefit of PTC, then it is
implicit that PTC will make the future payments on the project. The reason is that
Robinson would have no need to extend credit expressly to PTC if PTC were not
obligated to pay. All that said, though, the fact remains that there is no express promise
by defendant to guarantee future payments, hence an ambiguity arises.
Plaintiff also focuses on the provision that, “Payments made on behalf of PTC
Group Holdings Corp. and its subsidiaries, including PTC Seamless Tube Corp., are paid
by PTC Group Holdings through its central cash management system.” Because
9
“Payments” is couched in the plural, and because only one payment was still outstanding
when the letter agreement was signed (the $6,190,472.42 due January 2, 2015), plaintiff
contends that “Payments” must refer not only to the one outstanding payment, but to all
future payments when due as well. Although as this Court observed in the previous
order, this provision merely states the method of payment for the outstanding balance that
defendant agreed to pay, there is an ambiguity as to which payments are to be made.
Ultimately, as to the obligation to make future payments on the project, the
intention of the parties is unclear. Given the ambiguities presented, parol evidence is
admissible to resolve those ambiguities. In its second amended petition on the claim for
breach of contract, Robinson alleges in some detail the oral negotiations leading to the
letter agreement. Suffice it to say that these new allegations do make clear that the
intention of the parties was that PTC was to make the future payments, though it must be
pointed out as well that PTC would proffer its own parol evidence showing that the
intention of the parties was just the opposite. In any event, the breach of contract claim –
with the addition of parol evidence – does state a cause of action, and as a result, the
motion to dismiss that claim is denied.
B. Veil-Piercing Claim
“It is a general principle of corporate law deeply ‘ingrained in our economic and
legal systems’ that a parent corporation . . . is not liable for the acts of its subsidiaries.”
U.S. v. Bestfoods, 118 S.Ct. 1876, 1884 (1998) (internal citation omitted). “Limited
liability is the rule, not the exception.” Anderson v. Abbott, 321 U.S. 349, 362 (1944).
Although limited liability is the general rule, there is an equally important principle of
10
corporate law that applies to the parent-subsidiary relationship “that the corporate veil
may be pierced and the shareholder held liable for the corporation’s conduct when, inter
alia, the corporate form would otherwise be misused to accomplish certain wrongful
purposes, most notably fraud, on the shareholder’s behalf.” Bestfoods, 118 S.Ct. at 62.
The parties dispute which state’s law applies to its veil-piercing claim – plaintiff
claims that Missouri state law applies while PTC contends that Delaware state law
applies. But in that determination, even Missouri courts would hold that Delaware law
applies. Missouri Courts apply the “internal affairs” doctrine when requested to pierce
the corporate veil “because such requests necessarily involve ‘an analysis of how the
controlling shareholders administered and governed the corporation.’” R & K Lombard
Pharmacy Corp. v. Med. Shoppe Int'l, Inc., 4:07-CV-288 CEJ, 2008 WL 648509, at *3
(E.D. Mo. Mar. 5, 2008) (quoting In re Bridge Info. Sys., Inc., 325 B.R. 824, 830-31
(E.D. Mo. Bankr. 2005)). “The internal affairs doctrine provides that the law of the state
of incorporation should be applied to disputes regarding the internal organization of a
corporation.” Id. (citing Yates v. Bridge Trading Co., 844 S.W.2d 56, 61 (Mo. App.
1992)). See also American Recreation Products, Inc. v. Novus Products Co., LLC, 4:06CV-258 DJS, 2006 WL 3247246, at *2 (E.D. Mo. Nov. 8, 2006). Accordingly, because
both defendants are Delaware corporations, Delaware’s state law applies to plaintiff’s
veil-piercing claim.
To state a veil-piercing claim under Delaware law, a plaintiff must “plead facts
supporting an inference that the corporation, through its alter-ego, has created a sham
11
entity designed to defraud investors or creditors.”6 Doberstein v. G-P Indus., Inc., CV
9995-VCP, 2015 WL 6606484, at *4 (Del. Ch. Oct. 30, 2015) (quoting Crosse v. BCBSD,
Inc., 836 A.2d 492, 497 (Del. 2003)). Delaware courts consider five factors when
deciding whether to disregard the corporate entity, including: “(1) whether the company
was adequately capitalized for the undertaking; (2) whether the company was solvent; (3)
whether corporate formalities were observed; (4) whether the dominant shareholder
siphoned company funds; and (5) whether, in general, the company simply functioned as
a facade for the dominant shareholder.” Id. (internal quotation omitted).7 No single
factor is dispositive, and generally there must be some combination of them, and there
must be “an overall element of injustice or unfairness” present. Id. The injustice, or
unfairness, must “be found in the defendants’ use of the corporate form.” Mobil Oil
Corp. v. Linear Films, Inc., 718 F.Supp. 260, 269 (D. Del. 1989). See also Doberstein,
2015 WL 6606484, at *4 (“[the] wrongful acts must be tied to the manipulation of the
corporate form in order to make veil-piercing justifiable on the grounds of equity.”)
The above factors apply all the more in the context of a wholly-owned subsidiary
and its parent corporation. When “assessing whether to disregard the corporate form,
Delaware courts consider whether there has been a showing that the parent/subsidiary
6
Under Delaware law, the terms “piercing the corporate veil” and stating a claim under an “alter ego theory” are
used interchangeably. Vepco Park, Inc. v. Custom Air Services, Inc., CV 14C-09-018 RBY, 2016 WL 1613654, at
*2-3 (Del. Super. Ct. Feb. 25, 2016) (internal citation omitted).
7
Both parties cite the seven-factor test laid out in United States v. Pisani, 646 F.2d 83 (3d Cir. 1981), or other
federal cases that cite Pisani, as the multi-factor test by which a court may determine the sufficiency of a veilpiercing claim under Delaware law. Although the federal test held in Pisani may be compatible with Delaware veilpiercing law, this court is of the opinion that the factors used by Delaware state courts are more appropriate in this
action because plaintiff presents no federal cause of action. See Fid. Nat’l Info. Services, Inc. v. Plano Encryption
Techs., LLC, CV 15-777-LPS-CJB, 2016 WL 1650763, at f.n. 6 (D. Del. Apr. 25, 2016)
12
relationship would work an element of fraud, injustice, or inequity.” Fid. Nat’l Info.
Services, Inc. v. Plano Encryption Techs., LLC, CV 15-777-LPS-CJB, 2016 WL
1650763, at *4 (D. Del. Apr. 25, 2016) (citing Mason v. Network of Wilmington, Inc., No.
CIV.A. 19434-NC, 2005 WL 1653954, at *3 (Del. Ch. July 1, 2005)). The factors are
examined to determine whether “two entities appear to be legally distinct entities.” Id. If
the entities “effectively operated as one company” then “they must be treated as a single
entity to avoid fraud or a miscarriage of justice.” eCommerce Inds., Inc. v. MWA
Intelligence, Inc., CV 7471-VCP, 2013 WL 5621678, at *28 (Del. Ch. Sept. 30, 2013).
In its second amended complaint, plaintiff alleges that four of the five factors
support its veil-piercing claim.8 PTC disputes this claim, countering that the defendants’
conduct was “typical of a majority shareholder or parent corporation.” Again, at this
stage of the proceedings, this Court must take plaintiff’s factual allegations as true.
1. Undercapitalization
“[T]he inquiry into corporate capitalization is most relevant for the inference it
provides into whether the corporation was established to defraud its creditors or other
improper purpose such as avoiding the risks known to be attendant to a type of business.”
In re Opus East, LLC, 528 B.R. 30, 59 (Bankr. D. Del. 2015) (internal citation omitted).
Plaintiff claims that PTC rendered Seamless undercapitalized at its inception and failed to
sufficiently capitalize Seamless throughout its existence. As evidence, plaintiff alleges
that: (1) PTC owned all of the capital stock of PTC Seamless and purchased that stock for
only $10; (2) Seamless had no funds, income, capital, or assets, outside of PTC’s funds,
8
It appears that plaintiff does not allege that PTC siphoned any of Seamless’ company funds because plaintiff
alleges that Seamless had no funds of its own for PTC to siphon.
13
income, capital, or assets, which PTC could choose to withhold at any time; and (3) PTC
burdened Seamless with $195 million in debt and pledged any assets Seamless may
acquire to PTC’s lenders. PTC disagrees and claims that PTC’s board of directors made
loans of $63.7 million to Seamless, and therefore Seamless was adequately capitalized
when formed. Further, PTC opposes plaintiff’s argument that Seamless’ $195 million in
debt evidences undercapitalization on the grounds that Seamless was merely “an obligor”
of the debt, as compared to the sole obligor of the debt, and that Seamless could have
sought indemnification from other co-obligors.
Under Delaware law, a parent corporation does not have a mandatory ongoing
duty to provide sufficient capitalization for a subsidiary. In re Opus East, 528 B.R. at 65.
However, even if Seamless was initially loaned $63.7 million by its parent corporation,
PTC, Seamless was still saddled with $195 million in debt at inception, even if it was
only an obligor of that debt. Further, within a year and a half of incorporation, Seamless
fell behind in its payments due plaintiff and within two years, filed for bankruptcy. The
Court finds plaintiff’s allegations regarding Seamless’ capitalization, taken as true,
permits a reasonable inference that support the veil-piercing factor that PTC
undercapitalized Seamless.
2. Insolvency
“[M]ere insolvency is not enough to allow piercing the corporate veil. If creditors
could enter judgments against shareholders every time that a corporation becomes unable
to pay its debts as they become due, the limited liability characteristic of the corporate
form would be meaningless.” Mason, 2005 WL 1653954, at *3. Instead, “insolvency is
14
one factor to be considered in assessing whether the corporation engaged in conduct that
unjustly shields its assets from its creditors. If so, and especially if particular
shareholders benefited from and controlled that conduct, then justice would require the
piercing of the corporate veil in order to hold the benefiting shareholders responsible.”
Id.
Here, plaintiff asserts that Seamless is the alter ego of PTC in part because
Seamless was insolvent and unable to pay its debts as they became due. The basis of
plaintiff’s lawsuit is that Seamless fell behind on its payments due plaintiff, spurring PTC
to pay plaintiff on Seamless’ behalf. Seamless never had its own income and wholly
relied upon its parent, PTC, to pay its ongoing debts and obligations – including the
payment of its own employees. Further, it is uncontested that Seamless filed for
bankruptcy approximately a month after Seamless disputed plaintiff’s invoice and was
subsequently dissolved under Delaware law. Plaintiff’s allegations – that Seamless’ sole
shareholder, its parent corporation PTC, controlled Seamless’ conduct and benefitted by
that conduct and brought about Seamless’ insolvency – are sufficient to permit the
reasonable inference that Seamless was insolvent, at least for a time, when dealing with
plaintiff.
3. Corporate Formalities
“Observation of appropriate formalities by those controlling a corporation is
typically regarded as an important consideration because it demonstrates that those in
control of a corporation treated the corporation as a distinct entity” and therefore “had a
reasonable expectation that the conventional attributes of corporateness, including limited
15
liability, would be accorded to it.” Irwin & Leighton, Inc. v. W.M. Anderson Co., 532
A.2d 983, 989 (Del. Ch. 1987) (internal citation omitted). “When those formalities are
not respected, the legal fiction of corporateness becomes less ‘real’ in the everyday
experience of those involved in the firm's operations and any expectation that others
would treat it as a distinct, liability-limiting entity becomes less reasonable.” Id.
Plaintiff claims that the formal legal requirements of Seamless were not observed,
in that Seamless’ board of directors met only one time in its existence – on March 11,
2015, the same day that Seamless disputed plaintiff’s invoice. Additionally, plaintiff
alleges that Seamless and PTC shared offices, officers, and directors. The Court finds
that plaintiff has sufficiently alleged facts that allow this Court to reasonably infer that
PTC failed to maintain certain corporate formalities, supporting this veil-piercing factor.
4. Corporate Facade
“When a parent corporation exercises significant control over a subsidiary's
operations and finances, an inference may arise that Defendants created a façade.” In re
Autobacs Strauss, Inc., 473 B.R. 525, 558 (Bankr. D. Del. 2012). Plaintiff alleges that
Seamless was a mere corporate facade of PTC because PTC controlled and directed every
aspect of Seamless’ business – including strategies, finances, and operations. In support,
plaintiff alleges that PTC and Seamless shared directors and officers, including the same
CEO and CFO. Further, plaintiff alleges that PTC incorporated Seamless as a means to
protect PTC from liability for the Hopkinsville project, and Seamless acted solely for
PTC’s benefit. Finally, plaintiff alleges Seamless never had its own capital, income,
funds, or financial responsibility to meet Seamless’ obligations to those who were
16
contracted with it, and instead, was wholly reliant on PTC. In essence, plaintiff alleges
that anyone who dealt with Seamless was actually dealing with PTC. The Court finds
that plaintiff has sufficiently alleged facts that support the veil-piercing factor that
Seamless was merely a corporate facade of PTC.
5. Element of Fraud, Injustice, or Inequity
Viewing the allegations in the light most favorable to plaintiff, plaintiff has
adequately pled four factors that support its veil-piercing claim. In addition to the
factors, when “assessing whether to disregard the corporate form, Delaware courts
consider whether there has been a showing that the parent/subsidiary relationship would
work an element of fraud, injustice, or inequity.” Fid. Nat’l Info. Services, Inc., 2016
WL 1650763, at *4. With respect to the element of fraud, injustice, or inequity, plaintiff
alleges that PTC created, directed, and controlled Seamless in an attempt to shield PTC
from liability as to its Hopkinsville project and more specifically prevented Seamless
from honoring its contract with plaintiff. Moreover, plaintiff alleges that plaintiff was
induced to enter into the letter agreement with PTC, although owed more than $7 million
by Seamless at the time, because PTC provided its own financial statement and other
documents indicating there were sufficient funds to pay plaintiff for its future work.
Taking plaintiff’s allegations as true, then it has sufficiently alleged that PTC,
through the use of the corporate form, may have perpetrated an element of fraud,
injustice, or inequity when PTC incorporated and maintained Seamless, “an insolvent
entity, and [created Seamless] as [PTC’s] alter ego contracting entity and assuring
[plaintiff] that it would make payments on behalf of Seamless without any intention to do
17
so, and directing [plaintiff] to continue working and spending millions of dollars after it
determined not to pay [plaintiff].” (#91, pg. 17). Dismissal at this stage of the
proceedings is inappropriate as to plaintiff’s veil-piercing claim.
C. Breach of Duty of Good Faith and Fair Dealing
In the first round of the motions to dismiss, this Court dismissed the count for
breach of duty of good faith and fair dealing because there was no underlying contract to
which the duty would attach. At that point, it was this Court’s opinion that the letter
agreement did not constitute a valid contract binding PTC to make future payments on
behalf of Seamless. Now, having determined that the breach of contract count does state
a cause of action, the merits of the good faith and fair dealing claim must be addressed.
“Missouri law implies a covenant of good faith and fair dealing in every contract.” Kmak
v. Am. Century Cos., Inc., 754 F.3d 513, 516 (8th Cir. 2014) (quoting Farmers’ Elec. Coop., Inc. v. Mo. Dep’t of Corrs., 977 S.W.2d 266, 271 (Mo. banc 1998)). To establish a
breach of the covenant, the plaintiff must prove that the defendant exercised a judgment
conferred by the express terms of the agreement in such a manner as to evade the spirit of
the transaction or so as to deny the plaintiff the expected benefit of the contract. Id. To
sufficiently plead such a breach, the plaintiff must plead that the defendant “exercised its
discretion in a manner contrary to good faith and fair dealing.” Id. at 516-17.
Here, the allegations supporting the breach of duty of good faith and fair dealing
are more than ample. Indeed, the same allegations supporting the piercing the corporate
veil claim are alone sufficient to support the good faith and fair dealing claim, and this
Court need not review those allegations again. Additionally, in its response in opposition
18
to the motion to dismiss, plaintiff accurately summarizes the allegations set out in the
second amended complaint as follows:
…emails demonstrate that PTC Group and PTC Seamless concocted a plan
not to pay Robinson’s December 12 invoices when they became due, and
intentionally concealed their plans not to pay Robinson so they could keep
Robinson working for as long as possible and then “ambush” Robinson
when the time for payment arrived. Id. ¶¶ 41, 69. On February 6, PTC
Group’s CEO indicated that he wanted to “start a war with Robinson to
delay the invoices.” Id. ¶ 41. Consistent with this plan and after waiting
over another month, on March 11, PTC Group and Seamless presented
Robinson with their trumped-up dispute over the December 12 invoices, in
which they did not explain any specific dispute about any invoice or any
particular amount that was in dispute. Id. ¶¶ 44, 49. In this fashion, PTC
Group piggybacked onto a provision purporting to allow Seamless to
withhold payment based upon a legitimate dispute when no real dispute
existed and the payment for the invoices due on March 12 had been
approved.
Again, these allegations more than ample to support the claim.
D. Claim for Quantum Meruit
This claim, too, was dismissed in the first round of dismissal motions. The ground
for dismissal was that the goods and services allegedly provided as the basis for the claim
were provided not to PTC, but to Seamless, which was not then a party. “A quantum
meruit claim is based upon a legally implied promise that a party will pay reasonable
compensation for valuable services or materials provided at the request or with the
acquiescence of that party.” Belton Wrecking & Salvage Co. v. Rohlfing, 81 S.W.3d
703,711 (Mo. App. 2002). “The principal function of this type of implied contract is the
prevention of unjust enrichment, and a claim for quantum meruit does not require the
existence of an express agreement between the parties.” Id. This Court agrees with
plaintiff that the quantum meruit claim must be read in the context of the veil-piercing
19
claim. Having determined that the plaintiff has adequately alleged that Seamless was the
alter ego of PTC, it follows that plaintiff’s goods and services were, in effect, provided to
PTC as well. Accordingly, the claim for quantum meruit will not be dismissed.
IV.
Conclusion
Plaintiff sufficiently alleges facts that preclude dismissal of any of its claims
against PTC at this time.
Accordingly,
IT IS HEREBY ORDERED that PTC’s motion to dismiss counts I, II, VI, and
VII of plaintiff’s second amended complaint (#81) is DENIED.
So ordered this 1st day of June, 2017.
STEPHEN N. LIMBAUGH, JR.
UNITED STATES DISTRICT JUDGE
20
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?