Leonard et al v. Bed, Bath & Beyond, Inc.
Filing
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ORDER granting 81 Motion to Dismiss for Lack of Jurisdiction. Bed, Bath & Beyond's claims against CyCan are DISMISSED without prejudice to refile a complaint sufficiently alleging CyCan's successor liability. Signed by Senior Judge James C. Fox on 1/8/2016. (Grady, B.)
IN THE UNITED STATES DISTRlCT COURT
FOR THE EASTERN DISTRICT OF NOR1B CAROLINA
WESTERN DIVISION
No. 5:15-CV-00284-F
WILLIAM LEONARD and KAREN
LEONARD,
Plaintiffs,
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v.
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ORDER
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BED, BATH & BEYOND, INC.,
Defendant/Third-Party Plaintiff,
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v.
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NAPA HOl\1E & GARDEN, INC., et al.
Third-Party Defendants
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This matter is before the court on Third-Party Defendant CyCan Industries, Inc.'s ("CyCan")
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Motion to Disrriiss [DE-81]. For the reasons stated below, the instant motion is ALLOWED.
I.
FACTUAL AND PROCEDURAL IDSTORY
Plaintiffs William and Karen Leonard (''the Leonards") filed a complaint in the underlying
personal injury action against Bed, Bath & Beyond, Inc. ("BBB") on April 11, 2014, in the United
States District Court for the District of New Jersey. 1 Compl. [DE-l]. The Leonards' Complaint asserts
claims of Negligence, Strict Products Liability, Breach of Express Warranties, Breach of Implied
Warranties of Merchantability, Negligent Infliction of Emotional Distress, and Loss of Consortium.
Each of the Leonards' causes of action arise out of injuries sustained by Mr. Leonard when he was
burned while attempting to use FireGel Citronella Eco-Gel Fuel ("FireGel") purchased from BBB.
Seeid
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The action was later transferred to this district. See Order of May 22, 2015 [DE-47].
On January 12, 2015, BBB filed its Third-Party Complaint [DE-24] against Napa Home &
Garden, Inc., Fuel Barons, Inc., Ashland, Inc., CyCan Industries, Inc., Losorea Packaging, Inc., and
Essential Ingredients, Inc. In the event it is held liable to the Leonards, BBB seeks compensation from
CyCan for claims sounding in Negligence, Breach of hnplied Warranty, Product Liability,
Indemnification, and Contribution. CyCan's Motion to Dismiss [DE-81] has been fully briefed and is
now ripe for disposition.
BBB's claims against CyCan arise from CyCan's relationship with another companyLosorea Packaging, Inc. ("Losorea'} Accordingly, a brief discussion of the relationship between the
two companies and of the FireGe1 supply chain is warranted. Although the specific details regarding
the manufacture and distribution of the product are disputed, the court will attempt to roughly describe
each company's role in the process and the companies' relationships to one another. It appears
unconteste~
that Bed, Bath & Beyond was a retail seller of FireGel, which it purchased from a
distributor, Napa Home & Garden, Inc. See Third-Party Compl. [DE-24], 87; CyCan Mot. Dismiss
Mem. [DE-83] at 3. Napa appears to have distributed FireGel on behalf of Fuel Barons, Inc. Losorea
bottled and packaged the FireGel pursuant to a contract with Fuel Barons. See CyCan Mot. Dismiss
Mem. [DE-83] at 7.
Losorea Packaging, Inc., is a Georgia corporation with its principal place of business in
Georgia. Losorea is owned by Fraggie Enterprises, LLC, a Georgia limited liability company, whose
sole member is Leigh Fragnoli, a Georgia resident. See CyCan Mot. Dismiss Mem. [DE-83] at 6-7.
CyCan Industries, Inc., was formed in December of 2012 as a Georgia corporation with its
principal place of business in Georgia. See id at 3. CyCan has two shareholders-RMD Packaging,
LLC, a Georgia limited liability company whose sole member is, Ryan Dailey, and Lugeo, LLC, a
Georgia limited liability company whose sole member is Sarah Fragnoli. See id at 3-4. In March of
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2013, CyCan purchased all or substantially all ofLosorea's assets and business. See id at 4-5. Prior to
this sale, Ryan Dailey served as President ofLosorea and Sarah Fragnoli served as Vice President. See
BBB Resp. [DE-94] at 2. Following the sale, Leigh Fragnoli was hired as a consultant by CyCan. See
id
IT.
STANDARD OF REVIEW
Rule 8(a)(2) of the Federal Rules of Civil Procedure provides that a complaint must
contain a "short and plain statement of the claim showing that the pleader is entitled to relief."
Accordingly, on a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a court
must determine the legal sufficiency of the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009); Bell At!. Corp. v; Twombly, 550 U.S. 544, 570 (2007). In so doing, the court assumes the
truth of all facts alleged in the complaint and the existence of any fact that can be proved,
consistent with the complaint's allegations. See Erickson v. Pardus, 551 U.S. 89, 94 (2007).
However, the "'[f]actual allegations must be enough to raise a right to relief above the
speculative level' and have 'enough facts to state a claim to relief that is plausible on its face."'
Wahi v. Charleston Area Med Ctr., Inc., 562 F.3d 599, 615 n.26 (4th Cir. 2009) (quoting
Twombly, 550 U.S. at 555). Moreover, although the court draws all reasonable factual inferences
in a plaintiffs favor, the court is not obligated to accept a complaint's legal conclusions drawn
from the facts. Iqbal, 556 U.S. at 678. Nor must the court accept as true "unwarranted inferences,
unreasonable conclusions, or arguments." Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir.
2008) (quoting E. Shore Mkts., Inc. v. JD. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir.
2000)). "In deciding whether a complaint will survive a motion to dismiss, a court evaluates the
complaint in its entirety, as well as documents attached or incorporated into the complaint." E.l
duPont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir. 2011).
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Under Federal Rule of Civil Procedure 12(b)(2), the party asserting personal jurisdiction
has the burden to prove the existence of a ground for jurisdiction by a preponderance of the
evidence. New Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290, 294 (4th Cir.
2005). "Where a challenge to personal jurisdiction is addressed only on the basis of motion
papers, supporting legal memoranda, and the relevant allegations of a complaint, 'the burden on
the plaintiff is simply to make a prima facie showing of a sufficient jurisdictional basis to survive
the jurisdictional challenge." Pan-Am. Prods. & Holdings, LLC v. R. T. G. Furniture Corp., 825 F.
Supp. 2d 664, 676 (M.D.N.C. 2011) (quoting Combs v. Bakker, 886 F.2d 673, 676 (4th Cir.
1989)). In that instance, the court "must construe all relevant pleading allegations in the light
most favorable to the plaintiff, assume credibility, and draw the most favorable inferences for the
existence of jurisdiction." Combs, 886 F.2d at 676. "[W]here the defendant provides evidence
that denies the facts essential for jurisdiction, the plaintiff must present sufficient evidence to
create a factual dispute on each jurisdictional element which has been denied by the defendant
and on which the defendant presented evidence." Pan-Am., 825 F. Supp. 2d at 676 (citing
Pinpoint IT Servs., L.L.C. v. Atlas IT Export Corp., 812 F. Supp. 2d 710, 716-17 (E.D. Va.
2011); Indus. Carbon Corp. v. Equity Auto & Equip. Leasing Corp., 737 F. Supp. 925, 926
(W.D. Va. 1990)). At this stage, if the court determines that a plaintiff has established a prima
facie showing of personal jurisdiction, the court "will proceed as if it has personal jurisdiction
over [the] matter, although factual determinations to the contrary may be made at trial."
Pinpoint, 812 F. Supp. 2d at 717 (citing 2 James W. Moore et al., Moore's Federal Practic;e
~
12.31 (3d ed. 2011)).
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Ill.
DISCUSSION
The parties agree that CyCan's corporate existence began several months after Mr. Leonard's
injuries occurred, and that soon after its formation, CyCan acquired all or substantially all of the assets
and business of Losorea, Inc. BBB' s claims against CyCan, therefore, are grounded in Losorea' s
conduct and are predicated on a theory of successor liability.
Generally, "where one company sells or otherwise transfers all its assets to another
company, the latter is not liable for the debts and liabilities of the transferor." City of Richmond
v. Madison Mgmt. Grp., Inc., 918 F.2d 438, 450 (4th Cir. 1990) (quoting 15 W. Fletcher,
Cyclopedia of the Law of Private Corporations, § 7122, at 188 (rev. perm. ed. 1983)). North
Carolina, however, recognizes four exceptions to the rule against successor liability:
(1) where there is an express or implied agreement by the purchasing corporation
to assume the debt or liability; (2) where the transfer amounts to a de facto merger
of the two corporations; (3) where the transfer of assets was done for the purpose
of defrauding the corporation's creditors; or (4) where the purchasing corporation
is a "mere continuation" of the selling corporation in that the purchasing
corporation has some of the same shareholders, directors, and officers.
G.P. Publ'ns, Inc. v. Quebecor Printing-St. Paul, Inc., 481 S.E.2d 674, 679 (N.C. Ct. App. 1997)
(citing Budd Tire Corp. v. Pierce Tire Co., 370 S.E.2d 267, 269 (N.C. Ct. App. 1988)). Thus, in
order to bring a claim against a corporation based on the conduct of its predecessor, a plaintiff
must allege at least one basis for successor liability. See Becker v. Graber Builders, Inc., 561
S.E.2d 905, 909 (N.C. Ct. App. 2002) (dismissing a complaint for failure to state a claim where
the plaintiff"allege[d] no facts supporting one of the four well-settled exceptions to [the] general
rule against successor liability").
Here, BBB's third-party complaint lacks sufficient factual allegations to support
successor liability. BBB makes the following factual allegations: (1) "CyCan's management is
identical to Losorea's"; (2) "CyCan engages in the same line ofbusiness as Losorea, that is, the
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manufacturing of aerosols and other chemicals"; and (3) "CyCan uses Losorea's facility,
equipment, employees, name brand (Quality Aerosols) and customers." Third-Party Compl. [DE24] ~~ 94-96? These factual allegations, standing alone, appear to describe a run-of-the-mill
sale of a business's assets-not the type of unusual transaction that would give rise to successor
liability under one of the four exceptions. In order to state a claim for relief under a successor
liability theory, BBB must allege facts supporting one of these exceptions. It has not done so
here. Accordingly, BBB's claims against CyCan are DISMISSED. Because the court believes it
may be possible for BBB to amend its complaint sufficiently to allege successor liability, the
dismissal will be without prejudice.
In addition to its arguments that BBB has failed to state a claim, CyCan also objects to
the court's exercise of personal jurisdiction. Because the court has found that dismissal is
appropriate under Rule 12(b)(6), it need not address CyCan's. Rule 12(b)(2) arguments.
Nonetheless, the court· notes that it may exercise personal jurisdiction over a successor
corporation to the extent that such jurisdiction exists over its predecessor corporation. See
Madison Mgmt. Grp., 918 F.2d at 454-55 ("The great weight of persuasive authority permits
imputation of a predecessor's actions upon its successor whenever forum law would hold the
successor liable for its predecessor's actions." (quoting Simmers v. American Cyanamid Corp.,
576 A.2d 376, 385 (Pa. Super. Ct. 1990))).
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Additionally, BBB reaches the following legal conclusions: (1) "CyCan is the successor in interest to Losorea,"
and (2) "Losorea's sale to CyCan was entered into to escape liability associated with FuelGellitigation including the
present suit." Third-Party Compl. [DE-24] ~~ 93, 97. When considering a motion to dismiss under Rule 12(b)(6), the
court need not accept BBB' s legal conclusions as true.
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N.
CONCLUSION
For the foregoing reasons, CyCan Industries, Inc.'s Motion to Dismiss [DE-81] is
ALLOWED. BBB's claims against CyCan are DISMISSED without prejudice to refile a complaint
sufficiently alleging CyCan's successor liability.
SO ORDERED.
This the _f_ day of January, 2016.
Senior United States District Judge
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