Gryphon Investments III, LLC v. Wehrle et al

Filing 63

MEMORANDUM AND ORDER: Defendant John Wehrles motion to dismiss the claim for breach of contract 21 (Count I) is GRANTED. Defendants motion to dismiss the claim for fraudulent transfers 21 26 and 30 (Count III) is DENIED. Defendants motion to dismiss the claims for conversion and for replevin 21 26 and 30 for fraudulent transfers (Count III) is GRANTED. Defendant John Wehrles motion to strike Paragraph 35 of the complaint 21 is GRANTED. Signed by District Judge Rodney W. Sippel on 7/27/15. (CAR)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
GRYPHON INVESTMENTS III, LLC.
By and through its Receiver,
Claire M. Schenk,

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Plaintiff,
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v.
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JOHN S. WEHRLE,
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GRYPHON INVESTMENTS II, LLC, and )
CIRQIT.COM, INC.,
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Defendants,
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Case No. 4:15 CV 464 RWS

MEMORANDUM AND ORDER
In its complaint, Plaintiff Gryphon Investments III, LLC (Gryphon III)
alleges that Defendant John S. Wehrle founded and served as managing partner of
Gryphon III and Defendant Gryphon Investments II, LLC (Gryphon II) as well as
Gryphon Holdings II and II “B.” The Gryphon entities are private equity and
venture capital funds.
Defendant Cirqit.com, Inc. (Cirqit) is a corporation organized in the state of
Deleware. Wehrle, as Chairman of the Board of Directors of Cirqit., controls and
manages Cirqit.
On March 1, 2008, Wehrle formed Gryphon III as a limited liability
company. Its Operating Agreement designates Wehrle, among others, as a

manager with complete authority and exclusive control and management of the
day-to-day affairs of Gryphon III. In its complaint, Gryphon III alleges that
Wehrle induced investors to contribute in excess of $3.4 million to Gryphon III.
These capital contributions were intended to fund the working capital and other
expenditures of Gryphon III. However, unbeknownst to the investors, the wire
transfer instructions provided by Wehrle to the investors listed the bank account of
Gryphon II not Gryphon III. The result was that Gryphon III never received these
investor funds. Instead, they were diverted by Wehrle’s actions to himself,
Gryphon II, and Cirqit. Attorney Claire Schenk was appointed receiver of Plaintiff
Gryphon III and several other entities which Wehrle managed or controlled, or in
which he was otherwise associated. Schenk filed this lawsuit as the receiver for
Gryphon III in an attempt to recover funds taken by Wehrle.
Gryphon III complaint asserts claims for breach of contract (Count I) and
breach of fiduciary duty (Count II) against Wehrle. The complaint also asserts
claims for fraudulent transfers (Count III); unjust enrichment (Count IV); money
had and received (Count V); conversion (Count VI); replevin (Count VII); and for
an accounting (Count VIII) against Wehrle, Gryphon II, and Cirqit.

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Wehrle has moved to dismiss the breach of contract claim (Count I).1 All
three Defendants have moved to dismiss the claims for fraudulent transfers (Count
III), conversion (Count VI), and replevin (Count VII).
When ruling on a motion to dismiss, I must accept as true all factual
allegations in the complaint and view them in light most favorable to the Plaintiff.
Fed. R. Civ. P. 12(b)(6); Erickson v. Pardus, 551 U.S. 89, 94 (2007). The purpose
of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is to test the
legal sufficiency of the complaint. An action fails to state a claim upon which
relief can be granted if it does not plead “enough facts to state a claim to relief that
is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007). To survive a motion to dismiss, a plaintiff’s factual allegations “must be
enough to raise a right to relief above the speculative level. Id. at 555.
Gryphon III’s breach of contract claim is based on Gryphon III’s Operating
Agreement. Gryphon III alleges that Wehrle’s actions of diverting funds from
Gryphon III breached the Operating Agreement. However, Wehrle is not a party to
the Operating Agreement. He signed that document in his capacity as the trustee
of the John S. Wehrle Revocable Living Trust. Gryphon III asserts in its
opposition to the motion to dismiss that its breach of contract claim is based on
Wehrle’s duties as a manager. The complaint fails to provide any facts to support
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Wehrle has also moved to strike Paragraph 35 of the complaint which notes Wehrle’s federal indictment for tax
evasion and filing false tax returns. Plaintiff does not oppose this motion. As a result, I will grant the motion to
strike.
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a breach of contract claims based on Wehrle’s breach of his duties as a manager of
Gryphon III. This claim is more properly addressed in Count II of the complaint,
breach of fiduciary duty. As a result, I will grant the motion to dismiss Count I.
Defendants also moved to dismiss the fraudulent transfers claim in Count
III. I find that, under the liberal federal pleading standards, Gryphon III has alleged
enough sufficient facts to assert a claim for fraudulent transfers at this initial stage
of the case.
Defendants have moved to dismiss the claims for conversion (Count VI) and
replevin (VII). As a general matter, neither a conversion action nor a replevin
action may be asserted to recover money. See L&W Engineering Co., Inc. v.
Hogan, 858 S.W.2d 847 (Mo. Ct. App. 1993)(conversion) and A.R. By & Through
C.R. v. Topper, 834 S.W.2d 238 (Mo. Ct. App. 1992)(replevin). Although there
are some limited exceptions to this rule, none of them apply to the claims in this
case. The contributions Gryphon III seeks to recover were for the general
purposes of working capital and other expenditures of Gryphon III. As a result, I
will grant the motion to dismiss Gryphon III’s claims based on conversion and
replevin.
Accordingly,
IT IS HEREBY ORDERED that Defendant John Wehrle’s motion to
dismiss the claim for breach of contract [21] (Count I) is GRANTED.

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IT IS FURTHER ORDERED that Defendants’ motion to dismiss the
claim for fraudulent transfers [#s 21, 26, and 30] (Count III) is DENIED.
IT IS FURTHER ORDERED that Defendants’ motion to dismiss the
claims for conversion and for replevin [#s 21, 26, and 30] for fraudulent transfers
(Count III) is GRANTED.
IT IS FURTHER ORDERED that Defendant John Wehrle’s motion to
strike Paragraph 35 of the complaint [21] is GRANTED.

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RODNEY W. SIPPEL
UNITED STATES DISTRICT JUDGE
Dated this 27th day of July, 2015.

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