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Sennex v. Prather

March 17, 2008

SENNEX, INC., PLAINTIFF,
v.
JOHN PRATHER, GUMBY'S, LLC, KENO GENO'S, GENO'S AND FIRST CLASS REALTY, LLC, DEFENDANTS.



The opinion of the court was delivered by: Robert C. Mitchell United States Magistrate Judge

MEMORANDUM OPINION

Plaintiff, Sennex, Inc. ("Sennex"), filed this action against Defendants, John Prather, Gumby's, LLC ("Gumby's"), Keno Geno's, Geno's and First Class Realty, LLC ("First Class Realty"), in the Court of Common Pleas of Allegheny County, Pennsylvania, alleging that Defendants tortiously interfered with a contract between Sennex and Liquid Grounds, LLC ("Liquid Grounds") and engaged in a civil conspiracy. Defendants removed the action to this Court on the basis of diversity of citizenship.

Presently before this Court for disposition is a motion to dismiss or transfer for improper venue and lack of personal jurisdiction, brought by the Defendants. For the reasons that follow, the Court concludes that Plaintiff has failed to establish that personal jurisdiction may be asserted over Defendants, and Defendants have demonstrated that venue in this district is improper. Therefore, Defendants' motion will be granted and this action will be transferred to the United States District Court for the Northern District of West Virginia pursuant to 28 U.S.C. § 1406(a).

Facts

From May 2002 through December 2004, Sennex loaned over $264,000 to a company called Liquid Grounds to open and operate coffee shops. Sennex also entered into a written and exclusive agreement with Liquid Grounds to provide business advice, assist in the expansion of business and assist Liquid Grounds with opening other shops in other states. As consideration for Sennex's business services, Liquid Grounds was to account to Sennex its gross sales every month and pay to Sennex a percent of those gross sales every month. Sennex also had a legally valid secured interest in Liquid Grounds's assets pursuant to promissory notes on the loans. (Compl. ¶ 10.)

In January and June 2004, Liquid Grounds opened two stores in Wheeling, West Virginia. The premises were owned by First Class Realty and/or leased by Gumby's, who leased and/or subleased the premises at both locations to Liquid Grounds. (Compl. ¶ 13.) As a direct result of Sennex's services, Liquid Grounds grossed over $433,000 in sales during its last year of business, January-December 2004, and experienced consistently increasing sales each month without one month lower than the previous month from April 2004 through December 2004. (Compl. ¶ 14.)

Defendants owned video gaming machines that generated hundreds of thousands of dollars worth of profits each year. In late 2003, John Prather approached the owners of Liquid Grounds and solicited them about placing video gaming machines in their coffee shops. (Compl. ¶¶ 15-16.) Plaintiff alleges that Prather knew of Liquid Grounds' exclusive business consulting and management agreement with Sennex in Pennsylvania and he knew that the contract gave Sennex the right to a percentage of Liquid Grounds's coffee beverage sales. (Compl. ¶¶ 17-18.)

Plaintiff alleges that Prather developed a scheme to install his video gaming machines at the two coffee shops in Wheeling: he waived Liquid Grounds' rent obligation to induce Liquid Grounds to install and oversee operation of his video gaming machines, and he required its employees to work extended hours servicing the video gaming machines, serving coffee and selling alcoholic beverages to gaming patrons so that Defendants could profit from the machines without incurring any of the normal expense or overhead that a legal and valid video gaming operation would incur. He also induced Liquid Grounds to provide free coffee beverages to gaming customers by promising to reimburse Liquid Grounds 35% of the normal cost of each beverage given to a gaming patron and he instructed Liquid Grounds to maintain a handwritten log, rather than a register record, so that it could claim periodic reimbursement directly from him. This scheme deprived Sennex of revenue to which it had a right under its contract with Liquid Grounds. (Compl. ¶¶ 19-21.)

In October 2004, the stores were inspected by West Virginia lottery authorities and the West Virginia Alcohol Beverage Control Administration, who concluded that Liquid Grounds and Gumby's were in violation of liquor and gaming laws, respectively. Plaintiff alleges that Prather developed a scheme whereby he could assume control of the premises, assets and employees of Liquid Grounds so that he could ensure the continued service of alcohol to gaming patrons under Gumby's liquor license and the continued operation of video gaming machines under his own gaming license. He induced Liquid Grounds to file for bankruptcy protection, which, in turn, would help Liquid Grounds avoid its contractual obligations to Sennex. (Compl. ¶¶ 22-23.)

Plaintiff also alleges that Prather told Liquid Grounds that it was receiving bad business advice from Sennex and that he persuaded Liquid Grounds to discontinue its obligation to Sennex to "ring up" coffee sales to non-gaming patrons on the cash registers. Liquid Grounds rang up tens of thousands of dollars worth of "No Sale" receipts in order to give change for coffee beverages: in December 2004 in one store alone, of 3,480 register transactions, 1,049 "No Sales" were rung up. Plaintiff also alleges that, on February 4, 2005, Prather caused to be filed a legally insufficient UCC-1 listing assets of which only the principles of Liquid Grounds were aware. Thus, he was attempting to secure rights to the assets of the debtor, Liquid Grounds, without Sennex's knowledge. (Compl. ¶¶ 24-25.)

On February 8, 2005, Liquid Grounds filed a bankruptcy petition. As a direct result, the Liquid Grounds business, employees and customers became Defendants' business employees, and customers of Liquid Grounds stores were taken over by Defendants permitting Prather's video gaming business to continue uninterrupted. Plaintiff alleges that it was deprived of the benefits of its bargain with Liquid Grounds and that it has also continued to pay the debt service on the money borrowed to fund Liquid Grounds. (Compl. ¶¶ 26-27.) Finally, Plaintiff alleges that inventory that was held at the two stores was sold by the debtors to Defendants the week of the filing of the bankruptcy petition and without Sennex's consent or the payment of any proceeds of the sale to Sennex, who had a right to this inventory and payment therefrom. (Compl. ¶ 29.)

Procedural History

Plaintiff initiated this action by filing a complaint in the Court of Common Pleas of Allegheny County, Pennsylvania on or around January 25, 2008. Count I alleges that Defendants tortiously interfered with Sennex's contract with Liquid Grounds. Count II alleges that this conduct constituted a civil conspiracy.

Defendants removed the action to this Court on February 15, 2008, and on February 21, 2008, they filed an Amended Notice of Removal. The ...


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