FRESH HARVEST RIVER LLC v. FIRST COMMONWEALTH BANK, et al
Filing
84
MEMORANDUM OPINION AND ORDER granting 60 Motion to Dismiss filed by First Commonwealth Bank; granting in part and denying in part 62 Motion to Dismiss filed by Kerry as follows: Kerry's motion is GRANTED as to Counts VI and VIII; the motion to dismiss Count VII is GRANTED IN PART as to breach of paragraph 6 of the LOI and DENIED IN PART as to breach of paragraph 7 of the LOI. On or before July 8, 2011, Plaintiff shall file a Second Amended Complaint or notice of its intent to stand on the Amended Complaint. On or before July 29, Defendant(s) shall file a response to the Second Amended Complaint. In the alternative, if Plaintiff gives notice of its intent to stand on the Amended Complaint, Kerry shall file an Answer to the remainder of Count VII on or before July 29, 2011. Signed by Judge Terrence F. McVerry on 6/24/11. (mh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
CATAHAMA, LLC
as assignee of FRESH HARVEST RIVER LLC ,
Plaintiff,
v
FIRST COMMONWEALTH BANK, KERRY
INC. and THE KERRY GROUP pLC
Defendants.
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) 2:10-cv-1140
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MEMORANDUM OPINION AND ORDER OF COURT
Now pending before the Court are the MOTION TO DISMISS FIRST AMENDED
COMPLAINT (Document No. 60) filed by Defendant First Commonwealth Bank (the “Bank”);
and KERRY INC. AND THE KERRY GROUP PLC’S MOTION TO DISMISS THE FIRST
AMENDED COMPLAINT (Document No. 62) (collectively “Kerry”). Plaintiff Catahama, LLC
(“Catahama”) has filed responses in opposition to the motions and they have been thoroughly
briefed (Document Nos. 61, 63, 69, 73, 74, 75, 77). In addition, the Bank and Kerry have
submitted numerous exhibits in support of their respective motions. Plaintiff has filed a
Declaration which confirms this Court’s diversity jurisdiction.1 The motions are now ripe for
disposition.
Factual and Procedural History
This case arises out of a failed business venture. As set forth in the Amended Complaint,
in the summer of 2008, the Bank foreclosed on its security interest in a state-of-the-art food
1
Although the caption of the Amended Complaint refers to “The Kerry Group LLC,” the parties
appear to agree that this reference was inadvertent and the correct entity is “The Kerry Group
plc.”
1
manufacturing facility and equipment located in Dubois, Pennsylvania (the “Facility”) and
thereby obtained title. To preserve the value of its collateral, the Bank preferred to keep the
Facility occupied and operating. Jack Gray, Paul Grillo and Edward Abramson formed Fresh
Harvest River, LLC (“FHR”) for the purpose of acquiring the Facility. In March 2009, after
extensive negotiations, the Bank and FHR reached an agreement. The Bank financed the
transaction for FHR through a mortgage loan and two lines of credit so that FHR could make
capital improvements and obtain working capital. On April 1, 2009, the parties entered into a
series of agreements, including a temporary lease.
On June 22, 2009, the Bank delivered two commitment letters to FHR, confirming its
approval of a $7,500,000 Commercial Mortgage/Term Loan for the purchase of the premises, a
$3,000,000 Revolving Line of Credit and a $3,000,000 Non-Revolving Line of Credit. The
commitment letters required the loans to close on or before June 30, 2009.
The closing of the credit lines occurred on June 23, 2009. However, FHR learned that
certain systems had not been installed by the former owner and that the equipment had not been
properly maintained. Accordingly, the parties needed to adjust the terms of the deal. While
negotiations continued, FHR continued to possess and operate the Facility through amendments
to the lease. In August 2009, the parties executed a series of agreements, including an
Agreement of Sale for $26,000,000; a $7,500,000 Mortgage loan for the land and building
(including a $1,350,000 reduction in the purchase price); a mortgage on the real property; an
escrow agreement; and another amendment to the term lease (the “Second Amended Lease”)
which extended FHR’s tenancy until October 30, 2009 – the closing date for the transaction.
At the closing, FHR was required to make a $2,500,000 down payment. Abramson, who
was to supply the money, experienced complications with his already-poor health, and advised
2
Gray and Grillo that he was unwilling to contribute the $2,500,000. This problem coincided with
an unforeseen and historic economic downturn that devastated the real estate market, consumer
food demand and FHR’s business prospects. FHR advised the Bank of these developments, and
of its plan to locate additional investors. The parties agreed to adjourn the closing of the
Agreement of Sale without date.
Plaintiff alleges that, as evidenced by their conduct, the parties agreed to restructure the
terms of the transaction. For example, Plaintiff alleges that the Bank acquiesced to delays in
payments due under the credit lines and permitted FHR to remain in possession of the Facility.
FHR continued to borrow additional funds from the Bank to improve the Facility, purchase
additional equipment, and fund its operations. During late 2009 and early 2010, there were
several meetings between FHR, the Bank and potential investors, but none came to fruition. By
January 2010, FHR had borrowed $3,000,000 under the Non-Revolving Line of Credit and had
reached the maximum credit available under the Revolving Line of Credit. The Bank advised
FHR that it was unwilling to loan additional funds under the credit lines.
In February 2010, FHR identified Catahama as a potential investor. Plaintiff alleges that
Catahama was willing to provide working capital and to fund customer orders, conditioned on
obtaining: (1) a first lien collateral security position in ingredients, inventory, work in progress
and receivables created from the financing of those customer orders; and (2) FHR’s assignment
of accounts receivable to Catahama, through a direction on FHR’s invoices that the customer
remit payment directly to Catahama. Plaintiff alleges that in February 2010, “the Bank agreed to
permit FHR to borrow the additional funds from Catahama under the conditions required by
Catahama.” Amended Complaint Paragraph 36. Plaintiff does not provide any further details
regarding this alleged agreement between the Bank and FHR and it was apparently not
3
memorialized in writing. There are no averments regarding direct discussions between the Bank
and Catahama or the negotiation of a lien subordination agreement between those entities.
Subsequently, FHR borrowed $2,162,375.15 from Catahama.
In March 2010, Kerry contacted FHR to explore a co-packing arrangement. FHR and
Kerry entered into a Mutual Confidential Information Agreement (“MCIA”) on March 5, 2010.
Kerry personnel then visited the Facility and obtained information about FHR’s business. Kerry
was impressed and pledged orders for 8,000,000 cases of product per year. Kerry also developed
an interest in purchasing the Facility. On April 8, 2010, FHR and Kerry entered into a Letter of
Intent (“LOI”) by which Kerry would acquire the Facility from FHR for $22,000,000, “subject to
due diligence and other conditions.” Amended Complaint Paragraph 44.
In late April 2010, FHR asked the Bank to state the amount it would accept to sell the
Facility and Equipment and pay off the Lines of Credit. The Bank responded that a payment of
$18,600,000 would be necessary and that it would modify the agreements accordingly.
However, the Bank was unwilling to release Abramson from his personal guarantee. In a letter
dated April 27, 2010, FHR notified the Bank that it had identified a new equity source
(presumably Kerry) and was able to close the transaction.
Plaintiff alleges that to avoid the Bank’s problems with Abramson, a bank executive
(Hepler) and the Bank’s attorney (McGrath) approached Grillo and Gray with a plan to terminate
the Agreement of Sale and to consummate the transaction through a new entity. On May 6,
2010, the Bank sent FHR “formal notice” that it had elected to terminate the Agreement of Sale
(the “May 6 Termination Letter”). Plaintiff alleges that the May 6 Termination Letter was in
connection with the Bank’s plan to restructure the transaction. The May 6 Termination Letter
also stated that the Bank was terminating the lease, even though the lease had expired on October
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30, 2009 and FHR had remained in possession of the Facility thereafter without a lease or
payment of rent. Plaintiff further alleges that the Bank continued to negotiate modifications to
the financial terms of an agreement with FHR, did not seek possession of the Facility, and did
not seek to exercise its rights as a secured creditor. Negotiations between the Bank and FHR
continued through early July 2010.
Plaintiff alleges that in mid-May 2010, after entering into the LOI with FHR, Kerry
entered into separate, direct negotiations with the Bank to purchase the Facility. Plaintiff alleges
that during these negotiations, Kerry misused confidential and proprietary information it had
obtained from FHR. Plaintiff further alleges that the Bank decided to use the purported defaults
set forth in the May 6 Termination Letter to extricate itself from its contractual obligations to
FHR. On May 18, 2010, the Bank sent another letter to FHR to accelerate its Revolving Line of
Credit, based upon FHR’s failure to cure the alleged defaults set forth in the May 6 Termination
Letter.
On July 2, 2010, the Bank entered into an agreement to sell the Facility to Kerry for
$20,000,000.2 On July 6, 2010, the Bank advised FHR of this agreement and demanded that
FHR quit the premises as of July 26, 2010. On July 29, 2010, the Bank sent letters to FHR
customers, seeking to divert payment from Catahama to the Bank.
On July 20, 2010, FHR filed a lawsuit (the “Federal Case”) against the Bank in the
United States District Court for the Southern District of New York (Case No. 10-civ-5483) to
seek a declaration of rights and specific enforcement of the Agreement of Sale.3 On July 26,
2010, the Bank filed three separate actions against FHR in the Court of Common Pleas of
Clearfield County, Pennsylvania based upon the “confession of judgment” provisions in the
2
Ultimately, Kerry terminated the agreement pursuant to a letter dated September 7, 2010.
Catahama filed a related case against the Bank, Case No. 10-civ-8316, which has also been
transferred to this Court.
3
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Second Amended Lease and credit lines (the “Confession of Judgment Cases”). FHR filed an
emergency petition seeking to stay these cases. On September 3, 2010, the Honorable Paul E.
Cherry entered an Opinion and Order which denied FHR’s petition. FHR filed an appeal, which
is currently pending in the Pennsylvania Superior Court.
Defendants contend that Judge Cherry’s Opinion and Order is dispositive of this case. In
summary, Judge Cherry concluded that the Confession of Judgment Cases should not be
dismissed or stayed pursuant to the lis pendens doctrine due to the prior filing of the Federal
Case. Judge Cherry then determined that FHR had failed to state a prima facie meritorious
defense. In reaching this determination, Judge Cherry analyzed the effect of the contracts
entered into by the Bank and FHR, including the Agreement of Sale and leases. The Court
concluded that the Agreement of Sale had not been modified in writing; that the October 30,
2009 Closing had not occurred; that FHR never made the $2,500,000 payment required under the
Agreement; and therefore, that § 20 of the Agreement of Sale (Default by Buyer) remained in
full force and effect. The Court further noted that any purported oral modification of the
Agreement of Sale (for example, to postpone the closing date and/or the alleged May 2010 plan
to restructure the deal) would be unenforceable due to the Statute of Frauds, 33 P.S. § 1; 13
Pa.C.S.A. § 2201. Judge Cherry held that the Bank properly and effectively terminated the
Agreement by written notice pursuant to the May 6 Termination Letter. The Court also found
that FHR was bound by the terms of the Second Amended Lease; that the Bank properly treated
FHR as a holdover tenant; and that FHR was subject to the “confession of judgment” provisions
in the lease. Judge Cherry further ruled that a subsequent payment on behalf of FHR in an effort
to cure its default did not estop the Bank from moving forward with eviction.
6
On September 12, 2010, FHR filed for bankruptcy protection under Chapter 11. On
November 5, 2010, the United States Bankruptcy Court for the Southern District of New York
entered an Order which dismissed the bankruptcy case on the ground that there was no likelihood
of a successful reorganization by FHR. The Bankruptcy Court rejected FHR’s attempt to enforce
its rights under the Agreement of Sale and noted: “there is already a binding determination on
the status of the Debtor’s occupancy on the property.” On November 10, 2010, the Bank
executed its Writ of Possession and ejected FHR from the Facility.
On August 30, 2010, the Federal Case was transferred to this Court. In December 2010,
Defendants filed motions to dismiss the Complaint. On January 14, 2011, Catahama filed an
Amended Complaint, as assignee of FHR. Defendants subsequently filed the pending motions to
dismiss the Amended Complaint in its entirety.
Standard of Review
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) is a challenge
to the legal sufficiency of the Complaint filed by Plaintiff. The United States Supreme Court has
held that “[a] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’
requires more than labels and conclusions, and a formulaic recitation of the elements of a cause
of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing
Papasan v. Allain, 478 U.S. 265, 286 (1986)) (alterations in original).
The Court must accept as true all well-pleaded facts and allegations, and must draw all
reasonable inferences therefrom in favor of the plaintiff. However, as the Supreme Court made
clear in Twombly, the “factual allegations must be enough to raise a right to relief above the
speculative level.” Id. The Supreme Court has subsequently broadened the scope of this
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requirement, stating that “only a complaint that states a plausible claim for relief survives a
motion to dismiss.” Ashcroft v. Iqbal, -- U.S. --, 129 S. Ct. 1937, 1950 (2009).
However, nothing in Twombly or Iqbal has changed the other pleading standards for a
motion to dismiss pursuant to Rule 12(b)(6). That is, the Supreme Court did not impose a new,
heightened pleading requirement, but reaffirmed that Federal Rule of Civil Procedure 8 requires
only a short, plain statement of the claim showing that the pleader is entitled to relief, not
“detailed factual allegations.” See Phillips v. Co. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008)
(citing Twombly, 550 U.S. at 552-53). Additionally, the Supreme Court did not abolish the Rule
12(b)(6) requirement that “the facts alleged must be taken as true and a complaint may not be
dismissed merely because it appears unlikely that the plaintiff can prove those facts or will
ultimately prevail on the merits.” Id. (citing Twombly, 550 U.S. at 553). As described in Fowler
v. UPMC Shadyside, 578 F.3d 203, 206 (3d Cir. 2009), the Court must first distinguish between
factual allegations and legal conclusions in the complaint and then determine whether the wellpleaded factual allegations and favorable inferences drawn therefrom show an entitlement to
relief.
Legal Analysis
This case arises from a unique and complex factual and procedural background. FHR,
the central actor in the underlying saga, is no longer a party. FHR’s extensive efforts throughout
2009 and early 2010 to purchase the Facility from the Bank failed for a variety of reasons,
including FHR’s inability to pay the $2,500,000 down payment. FHR identified Catahama (now
the Plaintiff) as a “white knight” investor in February 2010. FHR identified Kerry as a potential
customer in early 2010 and the relationship then expanded. On December 16, 2010 FHR
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assigned its legal claims against the Bank and Kerry to Catahama. There are no averments in the
Amended Complaint as to any direct interactions between Catahama and either the Bank or
Kerry.
As of April 2010, FHR had allegedly negotiated two separate deals: it would (at long
last) buy the Facility from the Bank and then immediately sell the Facility to Kerry. Apparently,
Kerry discovered that FHR did not own the Facility and then attempted to “cut out the middle
man” by negotiating directly with the Bank.
The Court must resolve several preliminary issues before addressing the merits of the
parties’ competing positions on the various claims set forth in the Amended Complaint.
1. Consideration of Documents Outside the Pleadings
As an initial matter, the Court must determine whether it may consider the numerous
exhibits submitted by Defendants. The Amended Complaint references the Agreement for the
Sale of Real Estate, the Lease, Amendment to Lease and Second Amendment to Lease
documents, the May 6 Termination Letter, and the July 29, 2010 letters sent by the Bank to
FHR’s customers. Similarly, the Amended Complaint references the MCIA and LOI between
FHR and Kerry and Kerry’s Notice of Termination of the LOI dated May 27, 2010. The
authenticity of these documents has not been disputed. Therefore, the documents will be
considered in ruling on the motion to dismiss. See Pension Benefit Guar. Corp. v. White Consol.
Industries, Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). In addition, the Court will take judicial
notice of: (1) the Opinion and Order issued by Judge Paul E. Cherry of the Court of Common
Pleas of Clearfield County, Pennsylvania on September 3, 2010; and (2) the Order Dismissing
the Case issued by Chief United States Bankruptcy Judge Arthur J. Gonzalez of the United States
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Bankruptcy Court for the Southern District of New York on November 5, 2010. See McTernan
v. City of York, 577 F.3d 521, 526 (3d Cir. 2009).
2. The “Contested Claims”
Counts I, II and V of the Amended Complaint (the “Contested Claims”) assert claims
based on the Agreement of Sale between the Bank and FHR. The Agreement of Sale § 23(h)(i)
provides that FHR may not assign its rights under the Agreement without the Bank’s prior
written consent and no such written consent has been pled. Plaintiff has represented to the Court
that, after reviewing the Bank’s motion to dismiss, it intends to voluntarily dismiss the Contested
Claims without prejudice pending resolution of the appeal from Judge Cherry’s Order.
The Bank objects to such voluntary dismissal and asks the Court to dismiss the Contested
Claims with prejudice and to impose sanctions on Catahama. The Bank argues that the
Contested Claims were re-asserted in the Amended Complaint for an improper purpose (namely,
to prevent the Bank from selling the Facility) and that it has been clear that the Contested Claims
are precluded by Judge Cherry’s Opinion since the filing of the Bank’s motion to dismiss the
original Complaint. Plaintiff denies that it has presented the Contested Claims for any improper
purpose.
The Court concludes that sanctions are not warranted, as Plaintiff has articulated a good
faith rationale for asserting the Contested Claims. On the other hand, as the case currently
stands, the Contested Claims are ripe for disposition by the Court. As Catahama acknowledges,
the Contested Claims “depend upon FHR’s contract rights which FHR did not assign to
Catahama.” Therefore, Catahama lacks standing to assert the Contested Claims in this Court
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even if the state court appeal is successful.4 Accordingly, the Court concludes that Counts I, II
and V of the Amended Complaint will be DISMISSED WITH PREJUDICE.
3. Tortious Interference Claim Against the Bank
Count III of the Amended Complaint asserts a claim for tortious interference with
existing and prospective contractual relations based on the letters sent by the Bank to FHR
customers on July 29, 2010. The gravamen of Plaintiff’s theory is that the Bank knew and
consented to the assignment by FHR to Catahama of first lien priority on payments from FHR
customers, in order to induce Catahama to provide financing to keep FHR in operation, and thus,
the Bank was without privilege or justification to contact FHR’s customers to divert those
accounts receivable payments to itself and away from Catahama. Plaintiff alleges that the
Bank’s letters caused FHR’s customers to stop paying the outstanding amounts due and/or to
refuse to continue to do business with FHR, which caused FHR to cease its operations.
To plead a prima facie case for tortious interference with contract under Pennsylvania
law, Plaintiff must allege: (1) the existence of a contractual (or prospective contractual) relation
between the complainant and a third party; (2) purposeful action on the part of the defendant,
specifically intended to harm the existing relation, or to prevent a prospective relation from
occurring; (3) the absence of privilege or justification on the part of the defendant; and (4) the
occasioning of actual legal damage as a result of the defendant's conduct. Remick v. Manfredy,
238 F.3d 248, 263 (3d Cir. 2001) (citing Pelagatti v. Cohen, 536 A.2d 1337, 1343 (Pa. Super.
1987)). Under Pennsylvania law, it is Plaintiff’s burden, as part of the prima facie case, to show
that Defendant acted without justification. Triffin v. Janssen, 626 A.2d 571, 574 n.3 (Pa. Super.
1993) (citations omitted).
4
The Court also concludes that Judge Cherry’s Opinion and Order is entitled to preclusive effect.
11
The Court concludes that the Amended Complaint fails to allege a valid tortious
interference claim. There are not sufficient facts to support a plausible claim that the Bank acted
“without privilege or justification.” Paragraph 103 (which avers that the Bank acted without
privilege or justification) merely states a legal conclusion.
The Bank and FHR entered into a Security Agreement by which the Bank obtained a first
lien position security interest in the business assets of FHR, as defined in that agreement, which
included payments due from FHR customers. Exhibit I contains UCC Financing Statements
which reflect that the Bank perfected its security interest by filing with the Secretary of State of
New Hampshire. Pursuant to the Security Agreement § 4, upon the occurrence of an event of
default, the Bank had the right to “notify the obligor on any of the Collateral, whether Accounts
or otherwise, to make payment thereon directly to Secured Party . . . .” See also 13 Pa. C.S.A. §
9607(a) (setting forth collection and enforcement rights of a secured party). In paragraph 35 of
the Amended Complaint, Plaintiff acknowledges that the Bank held such a security interest.
Plaintiff has attempted to plead around the Bank’s security interest. In paragraph 34,
Plaintiff alleges that as a condition for providing working capital to FHR, Catahama demanded a
first lien position on accounts receivable and demanded that FHR instruct its customers to remit
payment directly to Catahama. In paragraph 35, Plaintiff alleges that in February 2010, FHR
informed Hepler, a senior officer of the Bank, that Catahama had agreed to provide funding to
FHR subject to the Bank’s consent to FHR’s proposed lending arrangement with Catahama (i.e.,
that the assignment of receivables would be free and clear of the Bank’s security interest.) In
paragraph 36, Plaintiff alleges that “the Bank agreed to permit FHR [to] borrow the additional
funds from Catahama under the conditions required by Catahama.” Similarly, Paragraph 102
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alleges that the “Bank also knew of, and consented to, FHR’s assignment of accounts receivable
to Catahama to induce Catahama to provide financing to FHR . . . .”
The Court concludes that these averments are not sufficient to demonstrate a lack of
privilege or justification for the Bank to act on its security interest. The Amended Complaint
lacks details as to the February 2010 “consent” FHR allegedly obtained from the Bank. For
example, the Amended Complaint fails to plead whether the Bank’s alleged consent was oral or
written, whether it was supported by valid consideration, whether it was still in effect in late July
2010 (when the Bank sent the letters to FHR’s customers), and whether FHR had complied with
the terms of the alleged consent agreement.
More importantly, even assuming, arguendo, that the Bank consented to FHR’s
assignment of FHR’s rights to Catahama, there are no facts pled to support a plausible claim that
the Bank surrendered the Bank’s security rights. FHR’s assignment of its (FHR’s) customer
payments to Catahama could not destroy the Bank’s security interest, as FHR could only convey
its own rights to those customer payments, which were subordinate to the Bank’s security
interest. The Amended Complaint does not aver any direct negotiations between the Bank and
Catahama, nor the existence of any lien subordination agreement between the Bank and
Catahama by which the Bank assigned its (the Bank’s) rights to Catahama. The Amended
Complaint does not aver that the Bank relinquished its first lien position, nor that Catahama
perfected a superior position.
In summary, the Court concludes that Plaintiff has not pled sufficient facts to make it
plausible that the Bank acted without privilege or justification in exercising its rights as a secured
lender, and therefore, has not stated a prima facie case of tortious interference with contractual
relations. Accordingly, Count III will be DISMISSED.
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4. Promissory Estoppel Claim vs. the Bank
In Count IV of the Amended Complaint, Plaintiff alleges that after entering into the
Agreement of Sale and related documents in the summer of 2009, the Bank and FHR agreed to
restructure their relationship in light of changed economic circumstances. Plaintiff avers that the
parties agreed to adjourn the closing date sine die (i.e., indefinitely) and “to negotiate in good
faith to restructure the terms of the interrelated transactions. . . .” Paragraph 108. Plaintiff
further avers that over the next nine months FHR was permitted to remain in possession of the
Facility and to make further borrowings from the Bank and other sources and to expend
resources to develop its business. Paragraph 110 alleges that the Bank and FHR, in fact,
“engaged in ongoing discussions and negotiations for the acquisition of the Premises . . . .”
In Luther v. Kia Motors America, Inc., 676 F.Supp.2d 408 (W.D. Pa. 2009), the Court
provided a concise summary of the legal principles which govern promissory estoppel claims:
To establish a promissory estoppel claim under Pennsylvania law, the plaintiff
must show that
1) the promisor made a promise that he should have reasonably expected to
induce action or forbearance on the part of the promisee;
2) the promisee actually took action or refrained from taking action in reliance on
the promise; and
3) injustice can be avoided only by enforcing the promise.
Promissory estoppel is “an equitable remedy to be implemented only when there
is no contract; it is not designed to protect parties who do not adequately
memorialize their contracts in writing.”
The elements of promissory estoppel are “(1) misleading words, conduct or
silence by the party against whom the estoppel is asserted; (2) unambiguous proof
of reasonable reliance on the misrepresentation by the party seeking to assert the
estoppel; and (3) no duty of inquiry on the party seeking to assert estoppel.”
These elements must be established by “clear and convincing evidence.”
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To succeed on a promissory estoppel claim, the plaintiff must further establish
that the action he took “amounted to a substantial change of position.” A claim for
estoppel cannot survive when the plaintiff's actions were based on “his own will
and judgment” rather than the defendant's representations.
Id. at 421-422 (citations omitted). The parties appear to agree that Pennsylvania law applies.
In essence, Plaintiff contends that the Bank promised continually to renegotiate based on
the original Agreement of Sale and finally agreed on a restructured transaction price in April
2010. The Bank contends that a promise “to negotiate in good faith” is not sufficiently definite
to support a promissory estoppel claim and that FHR could not reasonably rely on such a
promise.
The Court agrees with the Bank. The facts, as pled in the Amended Complaint, do not
support a valid promissory estoppel claim. The Bank’s alleged promise to negotiate in good
faith is not sufficiently concrete to be enforceable or to induce reasonable reliance on the part of
a sophisticated party such as FHR. See B&P Holdings I, LLC v. Grand Sasso, Inc., 114 Fed.
Appx. 461, 466 (3d Cir. 2004) (non-precential) (“An agreement to negotiate in good faith does
not guarantee the ultimate execution of a final contract. There is nothing to indicate that, had the
parties negotiated in good faith, a final agreement necessarily would have been reached.”) On
the face of the Amended Complaint, essential terms (such as timing, price and Abramson’s
personal liability for the unpaid $2,500,000) remained unresolved for many months. Thus, in
continuing to invest in the business FHR assumed the risk that acceptable terms would not be
reached. Moreover, the Amended Complaint avers that the Bank did, in fact, engage in
extensive and lengthy negotiations with FHR in an effort to reach acceptable terms. The
discussion in GMH Associates, Inc. v. Prudential Realty Group, 752 A.2d 889, 904-05 (Pa.
Super. 2000), is analogous and instructive:
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It is clear, in our view, that the negotiations for the sale of the Property did not go
as expected by the parties due, in part, to GMH's request for a $3 million
reduction in the LOI purchase price and its inability to secure the Allegheny
transaction in a timely fashion. We will not conclude that Prudential's “promise”
to keep the Property off the market was enforceable in the face of the apparent
difficulties the parties encountered in closing the transaction. Since Prudential
kept the Property off the market for three months during which time the proposed
transaction was not consummated, we do not find the doctrine of promissory
estoppel available to bind it to continue to keep the Property off the market
seemingly indefinitely.
See also Josephs v. Pizza Hut of America, Inc., 733 F. Supp. 222 (W.D. Pa. 1989) (statement that
corporate approval of lease was a “mere formality” was not sufficient to support promissory
estoppel claim). Plaintiff’s attempt to distinguish these cases based on their procedural status is
unavailing because the Amended Complaint fails to allege a sufficiently definite promise by the
Bank on which FHR could have reasonably relied. The case on which Plaintiff relies, Bennett v.
Itochu Intl., Inc., 682 F.Supp.2d 469, 484 (E.D. Pa. 2010) (promissory estoppel claim survived
motion to dismiss), is readily distinguishable because the defendant had promised it would
purchase shares of stock on a specific date for a sum certain.
In this case, the Bank permitted FHR to remain in possession of the Facility for over nine
months while the parties engaged in extended negotiations. As in GMH Associates, the Bank
was not required to allow FHR to remain in possession of the Facility indefinitely and a
promissory estoppel claim cannot be based on the Bank’s alleged breach of a promise to
negotiate in good faith. Count IV of the Amended Complaint will be DISMISSED.
5. Breach of MCIA Contract Claim Against Kerry
Kerry and FHR executed a MCIA in March 2010 to govern their customer/supplier
relationship.5 In Count VI, Plaintiff alleges that Kerry used the MCIA as a pretext to obtain
5
The MCIA and LOI provide that they be construed in accordance with Wisconsin law.
16
extensive information and, as a result, became aware of the strategic value of FHR’s business.
Plaintiff alleges that instead of using the information solely for its customer/supplier relationship,
Kerry exploited the information to the detriment of FHR to make a separate arrangement with
the Bank.
Kerry moves for the dismissal of Count VI for several reasons. Kerry contends that
Catahama lacks standing to assert this claim due to the “no assignment” clause in the MCIA.
Kerry also contends that the Amended Complaint fails to identify any alleged breach of the
MCIA, and points out that it never promised not to negotiate with the Bank. Finally, Kerry
argues that because it never consummated a transaction with the Bank, FHR was not damaged.
Plaintiff contends that it has stated a valid claim. As an initial matter, Plaintiff explains
that the “no assignment” clause in the MCIA is irrelevant because FHR did not assign its rights
under the contract, but instead assigned its legal claims. Plaintiff further contends that the
Amended Complaint sufficiently alleges misuse by Kerry of FHR’s confidential information.
Specifically, Plaintiff contends that the information that FHR provided pursuant to the MCIA
allowed Kerry to learn of the true potential of the business and that Kerry misused the
information to make plans to purchase the Facility from the Bank. Finally, Plaintiff contends
that FHR suffered damages through: (1) the disruption of its customer/supplier relationship with
Kerry; (2) the frustration of its deal to sell the Facility to the Bank; and (3) FHR’s loss of
business while the sale between Kerry and the Bank was still pending.
The Court concludes that the Amended Complaint does not sufficiently allege a breach of
the MCIA by Kerry, as the allegations of breach are threadbare legal conclusions. In particular,
there are no averments as to what confidential information was obtained by Kerry pursuant to the
MCIA, how such information was misused or disclosed by Kerry, when, or to whom. The only
17
specific piece of information referenced in Count VI -- that Kerry “learned that it could make a
separate deal with the Bank at a lower price” (Paragraph 128) -- is not connected to a breach of
the MCIA. Indeed, the Amended Complaint does not allege that FHR provided Kerry with this
information pursuant to the MCIA. Moreover, the MCIA did not preclude Kerry from obtaining
information about FHR that was in the “public domain” or otherwise generally available (see
MCIA § 1(c)), nor from entering into separate negotiations with the Bank. Plaintiff’s theory that
disclosure of the strategic value of FHR’s business led Kerry to initiate separate negotiations
with the Bank is inherently implausible, in that Kerry would not have acquired the “strategic
value” of FHR’s business by purchasing only the assets from the Bank. In summary, the Court
concludes that Count VI of the Amended Complaint fails to set forth a plausible claim for breach
of the MCIA, and therefore, it will be DISMISSED.
6. Breach of LOI Claim Against Kerry
In Count VII of the Amended Complaint, Plaintiff contends that Kerry committed a
breach of contract or breached an implied covenant of good faith and fair dealing in connection
with the LOI. In essence, Plaintiff contends that Kerry’s use of confidential information in its
negotiations with the Bank constituted a breach of the confidentiality provisions in Paragraph 6
of the LOI. Plaintiff further contends that Kerry was not entitled to unilaterally terminate the
LOI pursuant to Paragraph 7 because the parties were still engaged in negotiations designed to
lead to a definitive agreement. Alternatively, Plaintiff contends that Kerry failed to act in good
faith to consummate the transaction.
Kerry contends that this cause of action fails as a matter of law because it properly
terminated the LOI. Kerry further contends that the good faith “exclusivity” provision in
18
Paragraph 5 of the LOI is one-sided, and is binding only upon FHR. More generally, Kerry
contends that the Amended Complaint fails to allege sufficient facts to state a valid claim.
The Court is not persuaded by Kerry’s citation to Paragraph 5 of the LOI. Plaintiff has
made clear that it is not alleging a breach of the “exclusivity” provision, and therefore, Paragraph
5 is irrelevant.
Kerry’s position regarding the termination provision in Paragraph 7 is similarly
unavailing. By its terms, Kerry did not have a unilateral right to terminate the LOI after thirty
(30) days. Rather, termination was conditional – “provided the parties are not then engaged in
negotiations designed to lead to such a definitive agreement.” Plaintiff has alleged that the
parties were, in fact, engaged in such negotiations. See Paragraph 136. The Court is aware that
Kerry’s duty to enter into a final agreement was conditioned upon due diligence, negotiation of a
final agreement and a manufacturing agreement, employee retention, regulatory permits and
other conditions as set forth in the LOI. Nevertheless, at this stage of the case, the Court must
assume the truth of Plaintiff’s allegations that the parties were continuing to negotiate a
definitive agreement, and thus, the “wrongful termination” theory cannot be dismissed at this
stage of the case.
By contrast, the Court agrees with Kerry that the Amended Complaint does not state a
valid claim for breach of the confidentiality provision in Paragraph 6 of the LOI.6 Plaintiff’s
theory is contrary to the actual text of the agreement, which does not contain an expansive duty
of confidentiality and does not prevent Kerry from contacting other parties. Paragraph 6 of the
LOI states, in relevant part: “This Letter of Intent (including the fact of its existence) and the
parties’ intention to consummate the contemplated transaction shall remain confidential and may
6
To the extent that Plaintiff alleges a misuse of information obtained pursuant to the MCIA, this
claim is duplicative of Count VI.
19
not be disclosed to any person….” The Amended Complaint does not aver that Kerry disclosed
the existence of the LOI or that Kerry and FHR intended to consummate a transaction. Instead,
Plaintiff appears to be advancing the opposite theory -- that Kerry entered into separate, secret
negotiations to purchase the Facility directly from the Bank. In sum, the Amended Complaint
fails to allege a plausible breach of the confidentiality provision of the LOI.
Accordingly, the motion to dismiss Count VII will be GRANTED IN PART as to
breach of Paragraph 6 of the LOI and DENIED IN PART as to breach of Paragraph 7 of the
LOI.
7. Tortious Interference Claim Against Kerry
In Count VIII, Plaintiff alleges that Kerry tortiously interfered with the Bank’s agreement
to sell the Facility to FHR. Although the allegations in this count of the Amended Complaint are
rather sparse, Plaintiff’s theory is that Kerry used information that it obtained through the MCIA
and LOI with FHR as a pretext to formulate a deal to acquire the Facility from the Bank. See
Paragraph 141.
Kerry contends that this claim is barred by the statute of frauds and collateral estoppel, as
it has already been determined that the purported contract between the Bank and FHR is
unenforceable. Kerry also contends that the allegations are too conclusory. In particular,
Defendant argues that Plaintiff has failed to allege that Kerry acted for the specific purpose of
causing harm to FHR and has failed to identify the contract that would have been formed but for
the alleged interference. Kerry argues that the original Agreement of Sale between the Bank and
FHR expired by its terms on October 30, 2009.
20
Plaintiff contends that it has properly identified a contract and/or prospective contract.
The Court agrees. Plaintiff has alleged tortious interference by Kerry prior to May 2010, when
the original Agreement of Sale was in effect. In addition, the Amended Complaint Paragraph 53
avers that the Bank and FHR continued to negotiate through early July 2010 to modify the terms
of their deal. As Plaintiff points out, Kerry’s position that the Agreement of Sale expired in
October 2009 is contrary to the position of the Bank that it terminated that agreement by letter
dated May 6, 2010. More importantly, Judge Cherry determined that the Agreement of Sale was
terminated on May 6, 2010. Opinion at 11. In sum, this element of the claim is well pled.
Plaintiff also contends that it has adequately pled an intent to harm – namely that Kerry
intended to interrupt the negotiations between FHR and the Bank by “cutting out the middle
man” by negotiating with the Bank directly. In response to Kerry’s contention that there were no
damages because its deal with the Bank was never consummated, Plaintiff points out that it
alleged that Kerry’s conduct interrupted its transaction with the Bank from being consummated,
which in turn caused its business to be destroyed. The Court agrees that the allegations of the
Amended Complaint sufficiently set forth these elements.
Nevertheless, Plaintiff has failed to plead any facts to establish an absence of privilege or
justification except for a bare legal conclusion in Paragraph 140. As discussed above, the MCIA
and LOI did not expressly prevent Kerry from obtaining other available information or from
contacting the Bank – particularly when Kerry learned that the Bank was the rightful owner of
the Facility. Thus, the Amended Complaint has not set forth a prima facie case for tortious
interference with contract.
Accordingly, the motion to dismiss Count VIII will be GRANTED.
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Leave to Amend
Plaintiff has requested leave to file a Second Amended Complaint as to Counts III, IV,
VI, VII, and VIII. If a complaint is subject to Rule 12(b)(6) dismissal, a district court must
permit a curative amendment unless such an amendment would be inequitable or futile. Alston v.
Parker, 363 F.3d 229, 235 (3d Cir. 2004); Accord Grayson v. Mayview State Hosp., 293 F.3d
103 (3d Cir. 2002). The district court may dismiss the action if the plaintiff does not file an
amended complaint within that time, or if the plaintiff files a notice of his intent to stand on the
complaint as filed.
The Court will permit Plaintiff to file a Second Amended Complaint as to Counts III, IV,
VI, VII, and VIII, albeit with a cautionary note. Defendants have articulated numerous alleged
shortcomings with the Amended Complaint and this Memorandum Opinion has outlined the
Court’s concerns. If Plaintiff chooses to file a Second Amended Complaint, it will be important
to assure that it contains sufficient factual allegations to render the claim(s) “plausible” in
compliance with the pleading standard set forth in Twombly and Phillips.
Conclusion
For the reasons set forth above, the MOTION TO DISMISS FIRST AMENDED
COMPLAINT (Document No. 60) filed by Defendant First Commonwealth Bank will be
GRANTED in its entirety and the Bank will be dismissed as a party, subject to Plaintiff’s
opportunity to amend its complaint. KERRY INC. AND THE KERRY GROUP PLC’S
MOTION TO DISMISS THE FIRST AMENDED COMPLAINT (Document No. 62) will be
GRANTED IN PART AND DENIED IN PART. Counts VI and VIII will be dismissed in
22
their entireties and the motion to dismiss Count VII will be GRANTED IN PART as to breach
of Paragraph 6 of the LOI and DENIED IN PART as to breach of Paragraph 7 of the LOI.
Plaintiff will be granted an opportunity to file a Second Amended Complaint on or before
July 8, 2011. Defendant(s) shall plead thereto on or before July 29, 2011.
If Plaintiff provides notice of its intent to stand on the Amended Complaint as filed, First
Commonwealth Bank will be dismissed as a party and the caption will be revised accordingly,
and Kerry will be required to file an Answer to the portion of Count VII of the Amended
Complaint described above on or before July 29, 2011.
An appropriate Order follows.
McVerry, J.
23
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
CATAHAMA, LLC
as assignee of FRESH HARVEST RIVER LLC ,
Plaintiff,
)
)
)
) 2:10-cv-1140
v
)
)
FIRST COMMONWEALTH BANK, KERRY
)
INC. and THE KERRY GROUP pLC
)
Defendants.
)
)
ORDER OF COURT
AND NOW, this 24th day of June 2011, in accordance with the foregoing
Memorandum Opinion, it is hereby ORDERED, ADJUDGED and DECREED that the
MOTION TO DISMISS FIRST AMENDED COMPLAINT (Document No. 60) filed by
Defendant First Commonwealth Bank is GRANTED in its entirety. KERRY INC. AND THE
KERRY GROUP PLC’S MOTION TO DISMISS THE FIRST AMENDED COMPLAINT
(Document No. 62) is GRANTED IN PART AND DENIED IN PART as follows: the motion
to dismiss Counts VI and VIII is GRANTED; the motion to dismiss Count VII is GRANTED
IN PART as to breach of Paragraph 6 of the LOI and DENIED IN PART as to breach of
Paragraph 7 of the LOI.
On or before July 8, 2011, Plaintiff shall file a Second Amended Complaint or a notice of
its intent to stand on the Amended Complaint.
On or before July 29, 2011, Defendant(s) shall file a response to the Second Amended
Complaint.
24
In the alternative, if Plaintiff intends to stand on the Amended Complaint as filed, the
Bank will be dismissed as a party, the caption will be modified accordingly, and Kerry shall file
an Answer to the remainder of Count VII of the Amended Complaint on or before July 29, 2011.
BY THE COURT:
s/Terrence F. McVerry
United States District Judge
CC:
Peter H. Schnore, Esquire
Email: pschnore@bccz.com
Kevin K. Douglass, Esquire
Email: kdouglass@bccz.com
Lita Beth Wright, Esquire
Email: lbwright@samlegal.com
Steven G. Storch, Esquire
Email: storch@samlegal.com
Jason Levin. Esquire
Email: jlevin@samlegal.com
Harry H. Rimm, Esquire
Email: hrimm@reedsmith.com
Jarrod Shaw, Esquire
Email: jshaw@reedsmith.com
John Henry Doyle , III, Esquire
Email: jdoyle@reedsmith.com
Emily M. Emerson, Esquire
Email: eemerson@mayerbrown.com
Mark A. Willard, Esquire
Email: mwillard@eckertseamans.com
Michael Rowe Feagley, Esquire
Email: mfeagley@mayerbrown.com
25
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