Dunne, Jr. v. Resource Converting, LLC et al
MEMORANDUM AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS MOTIONS TO DISMISS: IT IS HEREBY ORDERED that the motions of defendants to dismiss (ECF Nos. 122 , 124 , 127 , 129 , 135 ) are granted in part as follows: a. Count III is di smissed; b. Count IV is dismissed as to all defendants except Resource Converting, LLC, and NewWay Global Energy, LLC; and c. Counts V, VI, VII, and VIII are dismissed. In all other respects the motions to dismiss are denied. This case will proceed on the following claims: 1. Count I against all defendants; 2. Count II against Resource Converting, LLC; and 3. Count IV against defendants Resource Converting, LLC, and NewWay Global Energy, LLC. IT IS FURTHER ORDERED that the Case Management Order, issued December 6, 2016 (ECF No. 98 ) remains in effect. Signed by Magistrate Judge David D. Noce on 5/24/2017. (CLO)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
TOM DUNNE, JR.,
RESOURCE CONVERTING, LLC,
SEBRIGHT PRODUCTS, INC.,
NEWWAY GLOBAL ENERGY, LLC,
JERRY FLICKINGER, and
No. 4:16 CV 1351 DDN
MEMORANDUM AND ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’ MOTIONS TO DISMISS
This is the second round of motions to dismiss plaintiff’s claims. In late 2016,
defendants moved to dismiss plaintiff’s original complaint (ECF No. 1), and the parties
argued these motions at a February 2017 hearing. (ECF No. 106). The court dismissed
all claims in plaintiff’s original complaint for failings under Federal Rules of Civil
Procedure 9(b) and 12(b)(6). (ECF No. 107). However, the court gave plaintiff leave to
amend these claims, and plaintiff filed an amended complaint on March 15. (ECF No.
113). Defendants have again filed motions to dismiss on the same or similar grounds.
Defendants Sebright Products, Inc. and Gary Brinkmann move to dismiss Counts
I, III, IV, V, VII, and VIII, (ECF No. 122); defendants Tim Danley and Rick Kersey
move to dismiss Counts I, III, IV, V, VII, VIII (ECF No. 124); defendant NewWay
Global Energy, LLC, moves to dismiss Counts III, V, and VIII (ECF No. 127); defendant
David Wolf moves to dismiss Counts I, III, IV, V, VI, VII, and VIII (ECF No. 129);
defendants Jerry Flickinger, and JWR, Inc., move to dismiss Counts VI, VII, and VIII
(ECF No. 129); and defendant Resource Converting, LLC, moves to dismiss Counts I, II,
III, IV, V, and VII. (ECF No. 135). Plaintiff has opposed all motions. (ECF Nos.14044). The court grants defendants’ motions in part; in all other respects, they are denied.
Plaintiff Tom Dunne alleges the following facts in his amended judicial complaint.
(ECF No. 113). At all times relevant to the cause of action, Danley was vice-president of
business development at Resource, Kersey was the chief executive officer of Resource,
and both, along with Wolf and Flickinger, were corporate representatives of NewWay.
(Id. at ¶ 5, 11). Brinkmann was and is the director of multinational sales at Sebright. (Id.
at ¶ 7). Wolf was also the chief executive officer of JWR and Flickinger was also a
corporate representative of JWR. (Id. at ¶ 13).
In May 2015, Brinkmann contacted plaintiff to sell him certain license
agreements. (Id. at ¶ 18). He allegedly hoped to sell plaintiff one million dollars’ worth
of licensing rights. (Id. at ¶ 18). These agreements would give plaintiff “exclusive rights
within the 100-mile radius of St. Louis to sell a non-thermal, pulverizing, and drying
system technology (the ‘PAD System’), which, upon information and belief, was licensed
by Resource from the original inventors of the technology.” (Id. at ¶ 19). The PAD
System, when combined with other technologies designed and built by defendants
Sebright, JWR, and NewWay, would purportedly convert municipal solid waste to
renewable fuels. (Id. at ¶¶ 20-21).
Approximately a week after his initial contact, on May 27, 2015, Brinkmann sent
plaintiff a brochure entitled “Waste Conversion Systems with Proven Capabilities.” (Id.
at ¶ 27, Ex. A). The brochure depicted the logos of JWR, Sebright, NewWay, and
Resource, and described the Waste Conversion System as the combination of a vertical
shaft impactor made and sold by Sebright, the PAD System sold by Resource and
NewWay, and products provided by JWR to convert the waste to fuel. (Id. at ¶¶ 28-29,
Ex. A). The brochure stated that Sebright, Resource, and JWR “will provide a system
using proven and tested equipment” to create a homogenous dried fuel stock capable of
conversion into different energy forms. (Id. at ¶ 30, Ex. A). The defendants knew
plaintiff needed a product that would effectively and economically convert municipal
solid waste to biofuel, and the brochure specifically identified municipal solid waste as a
“Common Feedstock Used to Make Biofuels and Renewable Fuels.” (Id. at ¶ 31, Ex. A).
On June 22, 2015, Brinkmann sent an excel spreadsheet to plaintiff that
demonstrated the production levels and functionality of the PAD System, including profit
potentials. (Id. at ¶¶ 35-36). Plaintiff alleges that this spreadsheet “was formed with
input” from all other defendants. (Id. at ¶ 35).
On August 12, 2015, Flickinger sent an email to plaintiff with a “budgetary quote
for a single line processing system to take municipal solid waste and prepare it for
conversion to fuel.” (Id. at ¶ 37, Ex. B). This email was sent from Flickinger’s JWR
address on behalf of NewWay, Resource, and JWR, and plaintiff alleges it was
formulated with input from all defendants. (Id. at ¶ 37-38, Ex. B). This email stated that
the Waste Conversion System was “the most efficient system available anywhere to
achieve a desired output, to be accomplished by mating together existing, PROVEN
technologies into a comprehensive turnkey system,” and it could process 15 tons of
municipal solid waste an hour, with a discharge capacity of 6 tons per hour. (Id. at ¶¶ 3941).
Plaintiff alleges that between May 26 and August 31, all defendants but Wolf
orally assured plaintiff numerous times that the OAD System functioned as represented in
the written materials. (Id. at ¶ 58). Between August 12 and August 21, 2015, plaintiff
alleges that “Brinkmann, Sebright, Flickinger, JWR, Kersey, Danley, NewWay, and
Resource further represented that these capacities and capabilities would be achieved
without using thermal systems to dry the feedstock materials.” (Id. at ¶ 42). Plaintiff
alleges that the use of thermal drying systems would be too costly and inefficient to
market. (Id. at ¶ 42).
On August 18, 2015, Brinkmann forwarded an email to plaintiff from Danley,
which stated that the PAD System would generate “millions of dollars” over the 20-year
period of the license agreements.
(Id. at ¶ 44).
The next day, plaintiff met with
Brinkmann and Flickinger to discuss the cost of a PAD System, which plaintiff would be
required to purchase as part of the license agreements. (Id. at ¶ 45). This discussion was
confirmed in a post-meeting email later that day, which listed the cost of a PAD System
with a 7 ton/hour capacity at $3.2 million, and a System with a 14 ton/hour capacity at $5
million. (Id. at ¶ 47). The email gave plaintiff a deadline of August 21, 2015, to execute
five license agreements, requiring payments of $200,000 per license agreement. (Id. at ¶¶
48-51). The email emphasized that if plaintiff did not sign by August 21, 2015, he risked
losing the opportunity to enter into any agreements. (Id. at ¶ 51).
Brinkmann also orally informed plaintiff in the weeks leading up to August 21 that
there were other individuals in the area ready and willing to enter into the agreements if
plaintiff did not do so. (Id. at ¶ 52). Brinkmann sent an additional email on August 19
describing the profit percentages of the PAD Systems and stressing the urgency of
meeting the August 21 deadline. (Id. at ¶ 53). Danley sent an email on August 19 as
well, detailing the payment structure and timeline for the license agreements and
emphasizing the necessity of signing the agreements by August 21. (Id. at ¶ 54). Danley
sent this email on Resource letterhead and copied Kersey and Brinkmann. Plaintiff
alleges that there were representations between May 26 and August 31 that other
individuals were ready and willing to enter into the license agreements if plaintiff did not,
and there were many other individuals nation- and world-wide entering into similar
license agreements. (Id. at ¶ 59).
Defendants did not fully reveal to plaintiff the exact nature of the relationships and
agreements between themselves, including details about sales proceeds or commissions.
(Id. at ¶ 22). The individual defendants appeared to act at times on their own behalf but
at other times on behalf of one or more of the corporate defendants. (Id. at ¶ 22).
Although the license agreements were to be made with Resource, plaintiff alleges that
each of the defendants was positioned to benefit in some way from their execution, either
as members of Resource or its member LLCs, as companies owning the other
components of the waste conversion technology to be used in conjunction with the PAD
System, or as members of those other companies. (Id. at ¶ 23). Defendants allegedly
knew that plaintiff had experience in the waste and landfill industry and intended to
exploit his contacts. (Id. at ¶¶ 25-26).
On August 21, 2015, plaintiff executed all five license agreements. (Id. at ¶ 55,
Danley executed the license agreements on behalf of Resource and its
successors, assigns, and affiliates. (Id. at ¶ 56). On August 31, plaintiff made a $400,000
payment to Resource for the first two license agreements. By the terms of the license
agreements, he was to pay an additional $600,000 by November 2015. Between August
21 and November 31, Resource, Sebright, JWR, NewWay, Brinkmann, and Flickinger
continued to advertise the PAD Systems to plaintiff with repeated assurances of the
“proven” abilities of the PAD Systems and touting the substantial value of the license
agreements. (Id. at ¶ 63).
Between August 10 and October 22, plaintiff accompanied Brinkmann and
Flickinger, who were acting on behalf of Sebright and JWR, respectively, as well as
Resource and NewWay, on “sales calls” to plaintiff’s contacts in the St. Louis area. (Id.
at ¶ 63, Ex. D). At these sales calls, Brinkmann and Flickinger advertised the Waste
Conversion System on behalf of NewWay, Resource, Sebright, and JWR, continuing to
represent that the PAD System would process municipal solid waste at the capacities
previously represented to plaintiff. (Id. at ¶ 64). At the request of “all” defendants,
plaintiff scheduled, facilitated, and attended these sales calls and similarly advertised the
PAD system. (Id. at ¶ 65).
From early August 2015, plaintiff had insisted upon seeing a functioning,
operational PAD System in order to verify defendants’ representations to him. (Id. at ¶
66). On several occasions, all defendants but Wolf assured plaintiff they would show
him a PAD System demonstration. (Id. at ¶ 66). At Brinkmann’s encouragement,
plaintiff attended an energy conference in September 2015 in Des Moines, Iowa. (Id. at ¶
In a September 14 email, Brinkmann assured plaintiff he would see a fully-
functioning PAD System while attending the energy conference in Iowa. (Id. at ¶¶ 6869). However, when Brinkmann, Flickinger, Kersey, and Wolf took plaintiff into a barn
for that purpose on September 22, they only showed plaintiff a partially-assembled piece
of nonfunctioning equipment. (Id. at ¶ 70).
Plaintiff alleges that this demo equipment was never a fully-functioning PAD
System even when fully assembled, but rather a demonstration system not intended for
production purposes and incapable of producing at the capacity represented to plaintiff.
(Id. at ¶ 71). Plaintiff alleges that Kersey, Danley, Resource, and NewWay knew this fact
and the remaining defendants should have known of this fact, but all defendants “either
failed to disclose this fact or actively concealed this fact from plaintiff.” (Id. at ¶ 71).
Plaintiff continued to request the demonstration of an operational, successful PAD
System. (Id. at ¶ 72). Despite verbal assurances from “defendants,” they failed to
provide plaintiff with evidence of the System’s functionality, and plaintiff became
suspicious about the PAD System’s existence and operation. (Id. at ¶ 72-73). Plaintiff
demanded a meeting in November 2015 to discuss the PAD System’s functionality. (Id.
at ¶ 74). On November 18, Flickinger, “on behalf of all named defendants,” forwarded
an email to plaintiff answering a series of questions plaintiff had posed about the PAD
System and its profit potential. (Id. at ¶ 75). The email assured plaintiff that Resource
had licensed the PAD System to more than twenty licensees around the world. (Id. at ¶
76). The email also informed plaintiff he would need to remit the remaining $600,000
payment to either Resource or NewWay. (Id. at ¶ 77). Plaintiff alleges that all named
defendants provided input in some capacity to this email. (Id. at ¶ 75).
Between August 21 and November 2, Brinkmann and Flickinger, “on behalf of all
named defendants” used a third-party’s research on waste-to-fuel development at a Polish
biofuel plant in an effort to legitimize the PAD System. (Id. at ¶ 79). Defendants used
this third-party’s reports and updates to mislead and distract plaintiff, as well as convince
him that there was a market for the PAD System and the defendants’ broader Waste
Conversion System. (Id. at ¶ 80). Plaintiff alleges this was false and misleading given
the alleged functional limitations and inefficiencies of the PAD System. (Id. at ¶ 80).
On November 30, all defendants traveled to St. Louis, Missouri, to meet with
plaintiff as he had requested. (Id. at ¶ 81). Plaintiff alleges that as of November 30,
defendants had yet to provide any evidence, proof, or demonstration of the PAD
System’s ability to function at the capacities defendants had represented. (Id. at ¶ 82).
At the meeting, plaintiff offered to pay the remaining $600,000 into escrow, pending
defendants’ live demonstration of an operational PAD System functioning as represented.
(Id. at ¶ 83). However, defendants declined this offer and refused to provide evidence
that the PAD System worked as had been represented. (Id. at ¶ 84).
Plaintiff alleges that defendants’ activities “induce[d] plaintiff to expend his
professional time, expenses, his professional industry contacts, and other resources in
furtherance of this transaction.” (Id. at ¶ 85). On December 1, “defendants” demanded
full payment of the remaining $600,000 be sent to Resource instead of NewWay. (Id. at
¶ 86). Plaintiff alleges that defendants’ continued misrepresentations delayed plaintiff’s
discovery of the truth and prevented him from recovering the $400,000 he was induced to
pay in August 2015. (Id. at ¶ 87).
Brinkmann made efforts to reconcile with plaintiff on behalf of Sebright, by
attempting to put together a different version of a Waste Conversion System not
involving the PAD System. (Id. at ¶ 89). Plaintiff alleges that Brinkmann “expressed
regret about the deficiencies and the tactics surrounding the license agreements [and] the
PAD System and offered another business opportunity as a means of recouping plaintiff’s
losses.” (Id. at ¶ 89).
Brinkmann and plaintiff continued to make sales calls through
January 2016 with this goal in mind, and in June 2016, Brinkmann ultimately admitted to
plaintiff in a phone call that the PAD Systems never existed in the form and function
represented by defendants or could never have performed as promised by defendants.
(Id. at ¶ 91). Brinkmann informed plaintiff in this phone call that he had just witnessed
Kersey and Danley trying to sell the PAD Systems at an energy conference in Las Vegas,
Nevada under the new name “The Dryclone,” “once again representing the system as
patented, trademarked, and ‘proven’ in the same manner they had previously, falsely
represented to plaintiff.”
(Id. at ¶ 92).
Plaintiff alleges that all the acts of every
defendant were undertaken in furtherance of fraud, misrepresentation, and conspiracy.
(Id. at ¶ 88).
MOTIONS TO DISMISS
Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss part
or all of a case for its failure to state a claim upon which relief can be granted. Fed. R.
Civ. Pro. 12(b)(6). A complaint “must include enough facts to state a claim to relief that
is plausible on its face,” providing more than just labels and conclusions. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007). Such a complaint will “allow the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged,” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009), and will state a claim for relief that rises above mere
speculation. Twombly, 550 U.S. at 555.
In reviewing the pleadings under this standard, the court accepts all of the
plaintiff’s factual allegations as true and draws all inferences in the plaintiff’s favor, but
the court is not required to accept the legal conclusions the plaintiff draws from the facts
alleged. Retro Television Network, Inc. v. Luken Commc’ns, LLC, 696 F.3d 766, 768-69
(8th Cir. 2012).
Finally, a court sitting in diversity will apply the choice-of-law rules of its forum
state. Eagle Tech. v. Expander Americas, Inc., 783 F.3d 1131, 1137 (8th Cir. 2015). In
this case, the court has determined that the substantive law of Missouri provides the
substantive rules of decision. 1
In Count I of his complaint, plaintiff alleges fraudulent misrepresentation and
concealment against all defendants. (ECF No. 1, ¶¶ 93-113). Specifically, he alleges that
Brinkmann, Sebright, Flickinger, Wolf, JWR, Kersey, Danley, Resource, and NewWay
each “made false material representations regarding the efficiency, capability,
functionality, capacity, profitability and ‘proven’ characteristics of the PAD Systems
(including the Demo PAD System) and the Waste Conversion System, as well as the
value of the license agreements.” (Id. at ¶¶ 94-102). He alleges each defendant had
At oral argument on February 3, 2017, the parties agreed that if Missouri law did not
apply, they would raise this in a motion to reconsider. (ECF No. 106).
direct knowledge, at all times prior to, during, and after the execution of the license
agreements, that the PAD Systems did not function as represented to plaintiff, were not
“proven” in the sense represented to plaintiff, and had never in any form produced the
levels promised to plaintiff. (Id. at ¶¶ 103-05). Plaintiff further alleges that Brinkmann,
Sebright, Flickinger, Kersey, Danley, Resource, and NewWay knew and concealed that at
least one prior PAD System sold by Resource “had been proven incapable of producing
the outputs represented by defendants, had failed (by a large margin) to meet the
specifications promised by defendants, and failed to meet those promised production
levels even with the addition of an expensive thermal drying system . . . the very same
thermal drying system defendants promised was not needed in order to make the PAD
System successfully perform as promised.” (Id. at ¶ 106).
Under Federal Rule of Civil Procedure 9(b), a fraud allegation demands a higher
degree of notice than that required for other claims, and a party must state “the time,
place and contents of false representations, as well as the identity of the person making
the misrepresentation and what was obtained or given up thereby.” BJC Health Sys. v.
Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007). In other words, the complaint
must state the “who, what, where, when, and how” of the alleged fraud. Id.
Sebright and Brinkmann argue that plaintiff does not allege that statements within
the license agreements were false and that puffery in the sales process – for example, that
there were others willing to enter the agreements if plaintiff did not – is not actionable.
(ECF No. 123).
They also argue that plaintiff cannot rely on allegations of
representations made by others in stating a claim against them, and that plaintiff is too
vague and ambiguous as to the time, place, and content of any of their alleged
representations, for example, when he states that Brinkmann and Sebright provided
“input” in the brochure and spreadsheet. Finally, they argue plaintiff relies on allegations
of misrepresentations made after the license agreements were entered.
Danley and Kersey also move to dismiss Count I for failing to allege that either of
them made any representations to plaintiff. (ECF No. 125). Wolf similarly argues that
the amended complaint alleges no specific conduct attributable to him sufficient to state a
fraud allegation. (ECF No. 130). The only conduct specifically attributed to Wolf in the
amended complaint is his attending a September 22, 2015 meeting and a November 30,
2015 meeting between plaintiff and other defendants. Plaintiff does not allege that Wolf
met, spoke with, emailed, or otherwise contacted or interacted with plaintiff at all prior to
plaintiff’s execution of the license agreements and payment to Resource. Wolf argues
that the actions of the other defendants cannot be imputed to him.
Finally, Resource argues that plaintiff’s amended complaint fails to allege any
specific action was taken by Resource, but rather that the statements of other defendants
were made “on behalf of” Resource, and the allegations purporting to describe
Resource’s representations are practically identical to those attributed to the other
corporate defendants NewWay, Sebright, and JWR. (ECF No. 134).
The court concludes that plaintiff has stated a claim for fraud against all defendants.
Many of plaintiff’s allegations individually do not support a claim for fraud, as they are
too vague or involve statements nowhere alleged to be false. However, plaintiff has
sufficiently alleged the following specific actions that meet the heightened pleading
requirements of Rule 9(b). Plaintiff alleges that Brinkmann sent a brochure on behalf of
Sebright 2 that falsely advertised the PAD Systems as proven and tested. (Id. at ¶¶ 7, 2731, Ex. 1).
The brochure refers to three individuals who are contacts for further
information on the conversion technologies described: Flickinger for JWR, Brinkmann
Plaintiff alleges this was also sent on behalf of NewWay and Resource, but only
provides facts to support the allegation that Brinkmann was an agent of Sebright.
Plaintiff alleges Brinkmann was a corporate officer of Sebright. He has not alleged any
facts supporting the three elements of agency under Missouri law as to either NewWay or
Resource. See Affordable Communities of Missouri v. Fed. Nat. Mortg. Ass'n, 714 F.3d
1069 (8th Cir. 2013) (holding that a complaint failing to allege facts supporting the legal
conclusion that an agency relationship existed will not survive a motion to dismiss); State
ex rel. McDonald’s Corp. v. Midkiff, 226 S.W.3d 119, 123 (Mo. 2007) (Holding that in
order to demonstrate an agency relationship under Missouri law a party must prove that
(1) the agent has the power “to alter legal relationships between the principal and a third
party,” (2) the agent is “a fiduciary of the principal,” and (3) the principal has “the right
to control the conduct of the agent with respect to matters entrusted to the agent”);
Billings Mut. Ins. Co. v. Cameron Mut. Ins. Co., 229 S.W.3d 138, 147 (Mo. Ct. App.
2007) (holding officers of a corporation are its agents).
for Sebright, and Kersey for Resource. (Id. at Ex. 1). Plaintiff alleges that Brinkmann
then sent a spreadsheet to plaintiff describing false production levels and profit potentials
of the PAD System. (Id. at ¶¶ 35-36). Plaintiff alleges that Flickinger, on behalf of JWR
and NewWay, 3 sent a budgetary quote to plaintiff falsely representing that the Waste
Conversion System was the most efficient system available anywhere and combined
“proven” technologies into one system. (Id. at ¶¶ 11, 13, 37-41, Ex. 2). This quote states
it is from NewWay, and it is signed by NewWay. (Id. at Ex. 2). It was sent to
Brinkmann from Danley on behalf of Resource and NewWay. (Id.). In late August,
Brinkmann and Flickinger, on behalf of Sebright, JWR, and NewWay, met with plaintiff
before he executed the license agreements, and they falsely represented that the PAD
System would function at specific capacities. (Id. at ¶¶ 45-49). Brinkmann also sent an
additional email falsely describing the profit percentages of the PAD Systems. (Id. at ¶
53). Danley executed the License Agreements on behalf of Resource and accepted a
$400,000 payment in exchange for two license agreements with plaintiff, with knowledge
of the misrepresentations. (Id. at ¶¶ 54-55).
With the exception of two emails from Brinkmann – one where he sent a
spreadsheet, and another where he described the profit percentages of the PAD Systems
(Id. at ¶¶ 35-36, 53) – plaintiff alleges that each of these actions were taken by
individuals in their capacities as corporate officers. Under Missouri law, officers of a
corporation are its agents. See Billings Mut. Ins. Co. v. Cameron Mut. Ins. Co., 229
S.W.3d 138, 147 (Mo. Ct. App. 2007). However, while it is generally true that holding a
corporate office does not subject a party to personal liability for a corporation’s misdeeds,
a corporate officer may be held liable if that officer had actual or constructive knowledge
of and participated in or approved of these wrongful acts. Grothe v. Helterbrand, 946
S.W.2d 301, 304 (Mo. Ct. App. 1997); see also Constance v. B.B.C. Dev. Co., 25 S.W.3d
Plaintiff alleges that this was also sent on behalf of Resource, but only provides facts to
support the allegation that Flickinger was an agent of JWR and NewWay. Plaintiff
alleges Flickinger was a corporate officer of JWR and NewWay, but has not alleged facts
otherwise supporting the elements of an agency relationship under Missouri law. See
Midkiff, 226 S.W.3d at 123; Billings, 229 S.W.3d at 147.
571, 587 (Mo. Ct. App. 2000) (applying this rule in the context of a fraud claim).
Plaintiff has alleged that Kersey and Danley were corporate officers of Resource and
NewWay, and Wolf and Flickinger were corporate officers of NewWay and JWR. (ECF
No. 113, ¶¶ 3-13,). Plaintiff has pled sufficient facts to support a claim that each of the
plaintiffs had knowledge of and participated in or approved of the wrongful acts.
Accordingly, defendants’ motions to dismiss this count are all denied.
In Count II, plaintiff alleges fraudulent inducement against Resource and seeks
rescission of the license agreements between them. (Id. at ¶¶ 114-124). Similar to Count
I, plaintiff alleges that Resource, by itself or through its agents, made false material
representations regarding the functionality of the PAD System, had direct knowledge
prior to and during the time plaintiff executed the license agreements that the PAD
Systems did not function as promised; knew that the specifications promised were critical
to the success of the Waste Conversion System and vital to the value of the license
agreements; and intended their material representations to induce plaintiff to enter into
and pay for the license agreements, perform hours of professional services, share industry
contacts, and incur numerous expenses. Plaintiff alleges that he had no knowledge these
representations were false and relied on them in entering into and paying for the License
Resource moves to dismiss this count because the specific paragraphs cited within
it contain only a single allegation of a fraudulent statement or representation made by
Resource to plaintiff. However, plaintiff incorporated all of the preceding facts of the
complaint by reference. (Id. at ¶ 114). On a motion to dismiss, a court will look to the
entirety of the complaint. Whitney v. Guys, Inc., 700 F.3d 1118, 1128 (8th Cir.2012).
For the reasons discussed with respect to Count I, the motion to dismiss this count
is denied. Plaintiff has sufficiently alleged specific actions taken on Resource’s behalf to
state a claim for fraudulent inducement and rescission. (Id. at 29-31, 33, 45-49, Ex. 1).
In Count III, plaintiff claims negligent misrepresentation against all defendants.
He alleges that defendants individually or through their agents made representations to
plaintiff about the PAD System but failed to exercise reasonable care by determining
whether the PAD Systems actually functioned at the capacities represented to plaintiff.
(ECF No. 113, ¶¶ 125-131).
The court dismissed this count in plaintiff’s original
complaint as barred by the economic loss doctrine, because it arose out of contract and
essentially alleged that plaintiff failed to receive the benefit of his contractual bargain.
In his amended complaint, plaintiff has attempted to avoid dismissal by alleging
that (1) he only entered into a contract with Resource, (2) the contracts are void or
voidable, and (3) Resource and its agents owed fiduciary duties to plaintiff. (ECF No.
112, ¶¶ 127-130). None of these allegations save plaintiff’s claim. The economic loss
doctrine may apply to bar claims even when the parties to the suit are not parties to the
contract, if the economic losses sought in recovery are contractual in nature and do not
involve personal injury or property damage.
Captiva Lake Investments, LLC v.
Ameristructure, Inc., 436 S.W.3d 619, 626 (Mo. Ct. App. 2014).
Plaintiff argues that damages proximately caused by an intentional, false
representation are an exception to the economic loss doctrine. Murphy v. Northwest Mut.
Ins. Co., 2005 WL 1421789, at *2 (Mo. Ct. App. June 13, 2015). But this does not save
plaintiff’s claim of negligent misrepresentation. Such a claim, unlike plaintiff’s Counts I
and II for intentional fraud, does not fall within the fraud exception to the economic loss
doctrine. See id. This court sees no reason to broaden the exception to the economic loss
doctrine to allow this contract dispute to be remedied as a negligence claim.
As to plaintiff’s argument that he suffered losses beyond the $400,000 contract
price, in the form of expenses, time, and energy spent on marketing the Waste System,
these are in the nature of consequential contractual damages. Had plaintiff enjoyed the
benefit of his bargain he would not claim these losses. The case on which plaintiff relies,
Laidlaw Waste Systems, Inc. v. Mallinckrodt, Inc., 925 F.Supp. 624 (E.D. Mo. 1996),
does not support plaintiff’s argument. It holds that in the context of a commercial
To recover in negligence there must be a showing of harm above and
beyond disappointed expectations. A buyer’s desire to enjoy the benefit of
his bargain is not an interest that tort law traditionally protects. . . . The
economic loss doctrine bars recovery on a tort theory in the commercial
context wherein harm is to a consumer’s commercial expectations.
925 F.Supp. at 635-36. In Laidlaw, parties had agreed to the deposit of non-hazardous
waste on certain property in exchange for money. But the breaching party deposited
hazardous waste, causing damage to the property. Damage to property falls squarely
within the already-recognized exceptions to the economic loss doctrine under Missouri
law. The separate losses plaintiff claims are not property damage or personal injury, but
loss of expenses, time, and energy.
Finally, plaintiff’s bare allegation that he was in a fiduciary relationship with
defendants is insufficient to avoid the application of the economic loss doctrine, as he has
alleged no facts from which the court can infer a fiduciary relationship existed. See, e.g.,
Simply Thick, LLC v. Thermo Pac, LLC 2014 WL 3543403 at *6 (E.D. Mo. July 17,
2014) (“Plaintiff’s allegation that Heinz had superior knowledge related to the
manufacture of food products is insufficient to establish the creation of a fiduciary
obligation.”); Arnold v. Erkmann, 934 S.W.2d 621, 629-30 (Mo. App. E.D. 1996)
(plaintiff who alleged she was inexperienced in buying securities while defendant was
experienced did not allege a fiduciary relationship where she did not allege that the
defendant was acting for or undertook to act for the plaintiff’s primary benefit).
Accordingly, plaintiff’s claim of negligent misrepresentation still fails as a matter
of law. Plaintiff is seeking to recover in tort economic losses that are contractual in
nature. Damages for economic loss based on a contract may not be recovered in a
negligence claim. Dannix Painting, LLC v. Sherwin-Williams Co., 732 F.3d 902, 906
(8th Cir. 2013). This claim is dismissed under Fed. R. Civ. P. 12(b)(6) for failure to state
In Count IV, claiming unjust enrichment, plaintiff asserts that in addition to the
$400,000 payment benefitting Resource and NewWay, he conferred benefits upon all
defendants by giving them access to his professional industry contacts during the sales
calls, as well as his professional time, efforts, and expenses to market and sell the PAD
and Waste Conversion Systems. (ECF No. 113, ¶¶ 133-35). Plaintiff further alleges that
he was instructed that he could remit the $600,000 payment to either Resource or
NewWay and that all defendants stood to benefit from plaintiff entering the license
agreements. (Id. at ¶¶ 136-39).
Plaintiff’s unjust enrichment claim is grounded in fraud. Rule 9(b) applies to
claims that require proof of fraud as a prerequisite to establishing liability. Streambend,
781 F.3d at 1010 (“Claims ‘grounded in fraud’ must meet this heightened pleading
requirement.” (citations omitted)). A claim for unjust enrichment has three elements: (1)
a benefit conferred by a plaintiff on a defendant; (2) the defendant's appreciation of the
fact of the benefit; and (3) the acceptance and retention of the benefit by the defendant
under circumstances in which it would be unjust to allow the defendant to retain the
benefit. Executive Bd. of Mo. Baptist Convention v. Windermere Baptist Conference Ctr.,
280 S.W.3d 678, 697 (Mo. App. 2009); Hertz Corp. v. RAKS Hospitality, Inc., 196
S.W.3d 536, 543 (Mo. App. 2006).
Plaintiff has brought the unjust enrichment claim against all defendants, but he has
failed to identify any specific benefit conferred on any defendant but Resource and
NewWay. While he does include additional allegations of benefits in the amended
complaint – in the form of “access to [his] professional industry contacts” and “use of his
professional time and efforts to market and sell the PAD System and Waste Conversion
System” – under Missouri law, “recover for unjust enrichment is unavailable if the
benefits to the defendants were created incidentally by the plaintiffs in pursuit of their
own financial advantage.” JB Contracting, Inc. v. Bierman, 147 S.W.3d 814, 820 (Mo.
Ct. App. 2004) (citations omitted). Plaintiff alleges he was involved in the marketing
efforts as part of a commercial, profit-seeking cooperation with defendants. Plaintiff was
pursuing his own financial advantage in giving defendants access to his industry contacts
and giving up his time and efforts to market the Waste System. While plaintiff states that
Sebright and Brinkmann sold one Vertical Shaft Impactor at some point before
November 2015, he does not allege that this was a benefit made at his expense or that he
was involved in this sale in any way.
Accordingly, this claim is dismissed as to all defendants, except Resource and
In Count V, plaintiff claims civil conspiracy against all defendants. (ECF No. 113
at ¶¶ 144-57). Plaintiff alleges that all defendants conspired to fraudulently misrepresent
the systems in order to obtain payment from plaintiff, pursuant to the license agreements,
and to entice plaintiff to advertise the systems on their behalf, through sales calls. (Id. at
¶ 145). He alleges that all defendants had a meeting of the minds in the formation,
design, establishment, and development of the Waste Conversion System, which
depended on the PAD System functioning as represented to plaintiff. (Id. at ¶ 146).
Plaintiff alleges that defendants worked in concert with one another through joint
advertisements, like the brochure and budgetary estimate, and reaffirmation of the others’
false representations, consistently misleading plaintiff into believing the PAD System
would function as promised. (Id. at ¶¶150-51). Plaintiff alleges that the corporate
defendants were not the principals or agents of each other but acted collectively as
“partner companies.” (Id. at ¶¶ 61, 149). He alleges that the defendants consistently
reaffirmed each other’s representations regarding the PAD System’s efficiency,
capability, functionality, capacity, profitability, and “proven” nature, as well as the value
of the Waste Conversion System. (Id. at ¶ 152).
A claim for civil conspiracy must establish that: “(1) two or more persons; (2) with
an unlawful objective; (3) after a meeting of the minds; (4) committed at least one act in
furtherance of the conspiracy; and, (5) the plaintiff was thereby damaged.” Creative
Walking, Inc. v. Am. States Ins. Co., 25 S.W.3d 682, 688 (Mo. Ct. App. 2000) (citations
omitted). “Two entities that are not legally distinct cannot conspire with one another.”
8000 Maryland, LLC v. Huntleigh Fin. Servs. Inc., 292 S.W.3d 439, 452 (Mo. Ct. App.
2009) (citations omitted). A corporation cannot conspire with its own employees. Id.
Plaintiff’s amended complaint fails to allege the first element. Plaintiff continues
to allege that the individual defendants are at once agents of the corporate defendants and
also conspired with the corporate defendants. 4
An agent cannot conspire with his
principal. See Creative Walking, 25 S.W.3d at 688. Plaintiff’s conclusory allegation that
“defendants Sebright, JWR, Resource, and NewWay, at all times, had agents and
representatives, but were not the principals or agents of another” does not remedy this
problem. (Id. at ¶ 149). It is conclusory and, even if it were to be regarded, it does not
overcome the multiple allegations elsewhere throughout the complaint that the
individuals and corporations named in this case are not legally distinct. Given plaintiff’s
allegations that the other defendants acted on behalf of and as representatives of the
corporations, it would be legally impossible for them to have conspired with the
corporations to further the corporations’ interests.
Plaintiff also states that Creative Walking, 25 S.W.3d at 684-685, cannot be
properly relied on because it is distinguishable from the facts of this case. However,
plaintiff’s attempts to distinguish this case are unavailing. In Creative Walking, the
plaintiff alleged a civil conspiracy among an insurance company’s claims manager, other
agents and employees of the insurance companies, and a public accounting firm that
participated in the claims adjustment process and allegedly acted as the insurance
company’s agent. The court held that because the claims manager and public accounting
firm were both alleged to have acted as agents of the insurance company, “it would be
legally impossible for them to conspire with [the insurance company] to further [its]
Plaintiff has alleged that Danley and Kersey were corporate representatives of NewWay
and Resource (ECF No. 113, ¶¶ 5-6), and Wolf and Flickinger were corporate
representatives of JWR and NewWay. (Id. at ¶¶ 11-13). Plaintiff has alleged that
Brinkmann was a corporate representative of Sebright and NewWay, and has also alleged
that Flickinger was an agent of Sebright. (Id. at ¶¶ 1, 8, 21, 27, 43, 45, 46, 58, 59, 61-65,
68-70, 79, 89).
interests.” Creative Walking, 25 S.W.3d at 688. The same impossibility is present here.
Plaintiff’s allegations that the individual defendants acted as agents of the corporate
defendants make it impossible for them to have conspired with the other Defendants.
Plaintiff was given an opportunity to remedy this legal impossibility, but plaintiff
again brought this claim against all defendants.
This claim is therefore dismissed.
In Count VI, plaintiff seeks to pierce the corporate veil as to Wolf, Flickinger, and
JWR. He alleges that Flickinger was an employee and representative of JWR at all times
relevant to plaintiff’s complaint, while Wolf was the chief executive officer of JWR at all
times relevant to the complaint. (ECF No. 113, ¶¶ 158-69). Plaintiff stated in response
to defendants’ motions to dismiss that he voluntarily dismisses this claim as to JWR and
maintains it only against Flickinger and Wolf. (ECF No. 140).
Piercing the corporate veil “is the exception rather than the rule” in Missouri, Love
v. Ben Hicks Chevrolet, Inc., 655 S.W.2d 574, 576 (Mo. Ct. App. 1983), and Missouri
law only permits piercing of the corporate veil under “narrow circumstances.” Hibbs v.
Berger, 430 S.W.3d 296, 306 (Mo. Ct. App. 2014). In Missouri, to pierce the corporate
veil a plaintiff must allege facts demonstrating “complete domination, not only of
finances, but of policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own.” Doe 1631 v. Quest Diagnostics, Inc., 395 S.W.3d 8, 18 (Mo. banc
2013). The plaintiff must also allege facts demonstrating that such control was used by
the defendant to commit the fraud or wrong and this control and breach of duty
proximately caused the injury or unjust loss complained of. Id.
Corporations, LLCs, and other limited-liability entities exist to protect investors
from personal liability upon compliance with specific statutory provisions.” Jackson v.
O’Dell, 851 S.W.2d 535, 537 (Mo. Ct. App. 1993); see also Hibbs, 430 S.W.3d at 306
(“Ordinarily, business entities . . . are regarded as wholly and separate legal entities . . .
[whose members] are not liable for the debts of their corporation or LLC.”).
Disregarding the protections of corporations and other limited-liability entities following
a simplistic recitation of the elements of piercing the corporate veil would completely
defeat the purpose of such entities, and contravenes the public policy of shielding
investors, members, and shareholders from personal liability for their involvement in
business ventures. Thus, under Missouri law, the legal separation of a corporation and its
members is “ignored with caution and only when the circumstances clearly justify it.”
Doe 1631, 395 S.W.3d at 18 (citations omitted).
Plaintiff alleges only that Wolf and Flickinger “had complete control over the
policy and business practices so that JWR, with respect to this particular transaction, had
no separate mind.”
(ECF No. 113 at ¶¶ 161, 165).
Plaintiff has not alleged that
defendants Wolf and Flickinger had complete domination of JWR’s finances, and his
allegations as to their domination of JWR’s policy and business practice are conclusory
and indicate, at best, partial, not complete domination.
This Count is dismissed.
In Count VII, plaintiff seeks to pierce the corporate veil as to Kersey, Danley,
Brinkmann, Flickinger, and Resource. (ECF No. 113, ¶¶ 170-97). However, plaintiff
stated in response to defendants’ motions to dismiss that he voluntarily dismisses this
claim as to Flickinger and Resource. (ECF Nos. 140, 143). 5
In applying the same standard discussed with respect to Count VI, this Count also
fails to state a claim for piercing the corporate veil. Plaintiff alleges only that Danley was
the Vice-President of Business Development at Resource, Kersey was the CEO of
Resource, and Brinkmann made multiple representations and promises specific to
Resource. (ECF No. 113, ¶¶ 171-73). Plaintiff alleges that Resource is made up of three
corporate members: Medford Holdings, LLC; Prime Time Holdings, LLC; and Maverick
Plaintiff also stated he voluntarily dismissed this claim as to Wolf, but this claim was
never brought against Wolf. (ECF No. 113, ¶¶ 170-97; ECF No. 140).
Solutions, LLC. (Id. at ¶ 175). Plaintiff alleges that Danley is the sole owner of Medford
Holdings, Kersey is the sole owner of Prime Time Holdings. (Id. at ¶¶ 176-79). Plaintiff
alleges that based on these facts alone, Medford, Prime Time, and Resource are “strictly
shell corporations whose actions are always specifically attributable to Kersey and
Danley, individually.” (Id. at ¶ 180). Finally, plaintiff alleges that Danley, Kersey, and
Brinkmann “had complete control over the policy and business practices so that
Resource, with respect to this particular transaction, had no separate mind.” (ECF Nos.
¶¶ 181, 185, 189).
Again, plaintiff has not alleged the defendants Kersey, Danley, and Brinkmann
had complete domination of Resource’s finances, and his allegations as to their
domination of Resource’s policy and business practices are conclusory. The fact that
Kersey and Danley are sole owners of two of the three member LLCs is also insufficient
to demonstrate complete domination.
Under Missouri law, “mere identity of
shareholders, directors, or officers between two corporations is insufficient to find an
identity of interests between the two entities to pierce the corporate veil.” Blanks v.
Fluor Corp., 450 S.W.3d 308, 376 (Mo. Ct. App. 2014) (citations omitted). Even in
terms of parent-subsidiary corporations, legal separation should be “ignored with caution
and only when the circumstances clearly justify it.”
Doe 1631, 395 S.W.3d at 18
(citations omitted). Plaintiff has not alleged facts that, if true, demonstrate the complete
domination justifying piercing the corporate veil.
Accordingly, this Count is dismissed.
In his last count, plaintiff seeks to pierce the corporate veil as to Danley, Kersey,
Brinkmann, Wolf, Flickinger, and NewWay. (ECF No. 113, ¶¶ 198-231). However,
plaintiff stated in response to defendants’ motions to dismiss that he voluntarily dismisses
this claim against NewWay. (ECF No. 142).
In applying the same standards discussed with respect to Counts VI and VII, this
Count also fails to state a claim for piercing the corporate veil. Plaintiff alleges only that
NewWay was represented to him as a “holding company” formed to sell the Waste
Conversion System, with corporate members of Medford, Prime Time, and Wolf Creek
Holdings, LLC. (ECF No. 113, ¶¶ 199-200). Plaintiff alleges that Danley is the sole
owner of Medford Holdings, Kersey is the sole owner of Prime Time Holdings, and Wolf
is the sole owner of Wolf Creek. (Id. at ¶¶ 201-05). He alleges that Brinkmann and
Flickinger made multiple representations and promises specific to NewWay and that
Kersey, Danley, and Wolf are the “LLC Managers” of NewWay. (Id. at ¶ 207-09).
Plaintiff alleges that based on these facts alone, Medford, Prime Time, Wolf Creek, and
NewWay are “strictly shell corporations whose actions are always specifically
attributable to Kersey and Danley, individually.” (Id. at ¶ 180). Finally, plaintiff alleges
that Danley, Kersey, Wolf, Brinkmann, and Flickinger “had complete control over the
policy and business practices so that Resource, with respect to this particular transaction,
had no separate mind.” (Id. at ¶¶ 211, 215, 219, 223, 227).
Plaintiff has not alleged that defendants Kersey, Danley, Wolf, Brinkmann, or
Flickinger had complete domination of NewWay’s finances, and his allegations as to
their domination of NewWay’s policy and business practices are conclusory. The fact
that Kersey, Danley, and Wolf are sole owners of NewWay’s three member LLCs is
insufficient to demonstrate complete domination.
As discussed, “mere identity of
shareholders, directors, or officers between two corporations is insufficient to find an
identity of interests between the two entities to pierce the corporate veil,” Blanks, 450
S.W.3d at 376, and even in terms of parent-subsidiary corporations, legal separation
should be “ignored with caution and only when the circumstances clearly justify it.” Doe
1631, 395 S.W.3d at 18 (citations omitted). Plaintiff has not alleged facts that, if true,
demonstrate complete domination justifying piercing the corporate veil as to these
Accordingly, this Count is dismissed.
For the above reasons,
IT IS HEREBY ORDERED that the motions of defendants to dismiss (ECF Nos.
122, 124, 127, 129, 135) are granted in part as follows:
Count III is dismissed;
Count IV is dismissed as to all defendants except Resource Converting,
LLC, and NewWay Global Energy, LLC; and
Counts V, VI, VII, and VIII are dismissed.
In all other respects the motions to dismiss are denied.
This case will proceed on the following claims:
Count I against all defendants;
Count II against Resource Converting, LLC; and
Count IV against defendants Resource Converting, LLC, and NewWay
Global Energy, LLC.
IT IS FURTHER ORDERED that the Case Management Order, issued
December 6, 2016 (ECF No. 98) remains in effect.
/S/ David D. Noce
UNITED STATES MAGISTRATE JUDGE
Signed on May 24, 2017.
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