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CIT Group/ Equipment Financing, Inc. v. Krones

September 16, 2009

THE CIT GROUP/ EQUIPMENT FINANCING, INC., PLAINTIFF,
v.
KRONES, INC., A WISCONSIN CORPORATION; KRONES AKKTIENGESELLSCHAFF, A GERMAN CORPORATION; HEINZ SOMMER; VOLKER KRONSEDER; AND GREGORY PODLUCKY, DEFENDANTS.



The opinion of the court was delivered by: Ambrose, Chief District Judge

OPINION and ORDER OF COURT

SYNOPSIS

This lawsuit is one of several which stem from the demise of a beverage manufacturer. Plaintiff, who arranged financing for the beverage manufacturer's construction of a bottling plant, contends that the beverage manufacturer and its equipment supplier conspired to defraud it of millions of dollars. In general terms, the alleged fraud took the form of over-financing the equipment and remitting a large portion of the excess funds to the beverage manufacturer. The Plaintiff contends that, but for the beverage manufacturer being forced into bankruptcy, the fraud would have continued in other forms.

Plaintiff has asserted civil conspiracy, civil RICO, fraud, negligent misrepresentation, fraudulent misrepresentation and failure to disclose, unjust enrichment and unlawful acts claims against the equipment supplier, its owners and executives, and the chief executive officer of the beverage manufacturer. The equipment supplier and its executives and owners have filed a Motion to Dismiss all claims. For the reasons set forth below, the Motion is denied in its entirety. I will, however, hold in abeyance my ruling on the Motion insofar as it relates to the issue of personal jurisdiction over Volker Kronseder and permit limited jurisdictional discovery on this issue.

OPINION

I. Factual Background*fn1

Le-Nature's, Inc. ("Le-Nature's") manufactured non-carbonated beverages such as water and iced-teas. It was head-quartered in Latrobe, Pennsylvania and run by Defendant Gregory Podlucky ("Podlucky"). Between 1998 and 2004 it allegedly experienced explosive growth. That growth, which at the time was supported by audited financial statements, purportedly required the opening of a new four-line bottling plant in Phoenix, Arizona ("the Phoenix facility"). LeNature's retained the services of Defendants Krones, Inc and its parent company Krones Aktiengesellschaff ("Krones A.G.") (referred to collectively as "Krones") to provide and install the four lines of bottling equipment. Krones' and Le-Nature's' working relationship was governed by a Project Management Agreement ("the PMA"). Le-Nature's and Krones signed the PMA in August of 2004.

In the Fall of 2004, Le-Nature's approached Plaintiff CIT Group / Equipment Financing Inc. ("CIT") and Marshall Investments Corp. ("Marshall") and suggested that CIT and Marshall collaborate to arrange financing for the four bottling lines at the Phoenix facility. Audited financial statements indicated that Le-Nature's had already deposited approximately $90 million with vendors related to the delivery of the equipment and both Le-Nature's and Krones representatives stated on several occasions that approximately $80 million of that amount was held by Krones as deposits on the Phoenix facility equipment. Consequently, CIT and Marshall agreed to arrange financing for three of the bottling lines.

The financing consisted of approximately $145 million and was structured as a lease ("the Leased Equipment"). In essence, CIT purchased*fn2 the Leased Equipment from Krones for $145 million. It then leased the equipment to LeNature's for use at the Phoenix facility ("the Lease") and endeavored to sell interests in the Lease to various "Participants." CIT was to serve as the administrative agent responsible for administration of the Lease under the terms of a participation agreement with the Participants.

In accordance with the financing, Le-Nature's assigned to CIT certain rights and interests in the PMA. Krones was aware of, consented to, and performed under, the PMA assignment ("the PMA Assignment"). Accordingly, Krones accepted payments from CIT, participated in meetings with CIT, directed invoices to CIT and transferred title of the Leased Equipment to CIT. In turn, CIT paid Krones directly for the Leased Equipment.

Prior to executing the PMA Assignment, CIT received what was represented to it to be a copy of the PMA executed between Le-Nature's and Krones. The PMA identified the Leased Equipment being sold and reflected the total contract price for manufacture and installation of all four bottling lines as approximately $180 million. By extrapolation, the three lines of Leased Equipment being purchased by CIT had a purchase price of approximately $145 million.

CIT contends that Le-Nature's and Krones, together with their employees and agents - including Defendants Podlucky of Le-Nature's, Heinz Sommer of Krones, Inc., and Volker Kronseder of Krones, Inc. and Krones A.G. - conspired to substantially over-finance the Leased Equipment. Specifically, CIT alleges that the PMA it was shown was fraudulent and did not reflect the true purchase price of the Leased Equipment. According to CIT, the actual PMA executed by Le-Nature's and Krones and kept secret from CIT and the Participants, had a stated purchase price of $90 million.

Additionally, CIT contends that the Defendants made repeated verbal and written representations that the inflated price was accurate. CIT alleges that it received a call in March of 2005 from an individual who stated that CIT may have received false information regarding the purchase price of the Leased Equipment. The caller indicated that the true cost of all the bottling equipment was approximately $90 million rather than $180 million. The caller then faxed to CIT in support of his allegations a two page spreadsheet ("the Tip Spreadsheet"). For each piece of equipment, the Tip Spreadsheet identified the configured list price, discounts and selling price to Le-Nature's. A comparison of the information on the Tip Spreadsheet with the information given to CIT by Le-Nature's and Krones indicated that CIT was being asked to pay a significantly higher amount than Krones asked Le-Nature's to pay.

Over the course of the next several weeks, CIT sought to ascertain the true purchase price Le-Nature's had negotiated with Krones. As more fully detailed below, various representatives from CIT had conversations with Heinz Sommer, Podlucky, Kronseder and Rainulf Diepold (Chief Financial Officer for Krones A.G.). Based upon these conversations, representations and supporting documentation, CIT believed that the $180 million figure was accurate and that the Tip Spreadsheet figures pertained to a facility which was proposed to be built in Las Vegas, but which had never been built. Consequently, CIT paid $39 million in progress payments, mostly to Krones and continued to market the sale of interests in the Lease to Participants.

Again, believing the Defendants' representations regarding the true cost of the Leased Equipment, CIT attended the closing of the Phoenix Facility transaction on April 15, 2005 and executed all necessary paperwork. Between April of 2005 and August of 2005, CIT paid Krones the remaining $100 million via wire transfers. Payments were made following certifications from Le-Nature's that it had received the Leased Equipment from Krones.

A portion of some of these payments were designated as "Excess Funds" pursuant to an "Excess Funds Agreement" executed between Podlucky and Sommer. Essentially, Podlucky had informed CIT that Le-Nature's had placed with Krones deposits on all of the bottling lines and wanted CIT to make the initial payments on the bottling lines to Le-Nature's as a refund of those amounts, rather than to Krones. When CIT refused, the Defendants created the Excess Funds Agreement, whereby a portion of each wire transfer would be remitted by Krones to Le-Nature's. CIT contends that the total amount paid by CIT to Krones, then paid by Krones to Le-Nature's purportedly as a return of deposits, approximated $60 million. CIT urges that Le-Nature's never actually placed any deposits with Krones and that all Defendants understood that the refund of the alleged deposits was an integral part of the scheme of overcharging.

Once all the Leased Equipment was in place and CIT had completed all the wire transfers to Krones, Le-Nature's obligations to begin lease payments commenced. This occurred in August of 2005.

Nevertheless, the fraud continued through 2006. According to CIT, in 2006 representatives from Krones were working with Le-Nature's to dismantle one of the three bottling lines in the Phoenix Facility which had been financed by CIT. Despite knowing that CIT had valid UCC filings with respect to the equipment, Krones answered inquires about the dismantling by explaining that the equipment was being transported to a new facility that Le-Nature's had constructed in the southeastern United States. CIT believes that the Defendants' fraudulent conspiracy would have continued unabated except that a group of LeNature's unsecured creditors forced the company into an involuntary bankruptcy on November 1, 2006.

Having lost millions of dollars, CIT seeks recompense from the Defendants. As stated above, it asserts claims of civil conspiracy, civil RICO, fraud, negligent misrepresentation, fraudulent misrepresentation and failure to disclose, unjust enrichment and unlawful acts. The Krones Defendants have filed a Motion to Dismiss (See Docket No. [39]) seeking the dismissal of all claims. Specifically, the Krone Defendants contend that all of CIT's claims, which sound in fraud, must be dismissed for failure to comply with Federal Rule of Civil Procedure 9(b). In the alternative, they allege that CIT's RICO, civil conspiracy and unjust enrichment claims are fatally flawed. Finally, the Krones Defendants urge that Volker Kronseder is not subject to personal jurisdiction.

After careful review, and for the reasons set forth below, the Motion is denied. I do, however, agree that Volker Kronseder is not subject to personal jurisdiction based upon the evidence of record, in Arizona. However, I will permit CIT to engage in a limited period of discovery related to the issue of in personam jurisdiction against Kronseder.

II. Standard of Review

The Krones Defendants filed their motion to dismiss pursuant to Fed.R.Civ.P. 9(b), 12(b)(1) and 12(b)(6). When deciding whether to grant or deny a 12(b)(6) motion the Supreme Court has held:

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).

Bell Atlantic Co. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964-65,167 L.Ed.2d 929 (2007). (internal citations, footnotes and quotation marks omitted). See also, Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (a plaintiff's factual allegations must be enough to raise a right to relief above the speculative level).

Most recently, in Ashcroft v. Iqbal, ___ U.S.___, 129 S.Ct. 1937 (2009), the Supreme Court held, ". . . a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949 (citations and internal quotation marks omitted).

In Iqbal, the Court specifically highlighted the two principles which formed the basis of the Twomblydecision: First, for the purposes of a motion to dismiss, courts must accept as true all factual allegations set forth in the complaint, but courts are not bound to accept as true any legal conclusions couched as factual allegations. Id. at 1949-1950. See also, Fowler v. UPMC Shadyside, ___ F.3d ___, No. 07-4285, 2009 WL 2501662 (3d. Cir. Aug. 18, 2009). Second, a complaint will only survive a motion to dismiss if it states a plausible claim for relief, which requires a court to engage in a context-specific task, drawing on the court's judicial experience and common sense. Id. at 1950. Where well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but has not shown -- the complainant is entitled to relief. Id., citing, F.R.Civ.P. 8(a)(2).

III. Analysis

A. Compliance With Rule 9(b)*fn3

The Krones Parties challenge the sufficiency of CIT's pleadings with respect to the requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b) requires particularity when pleading fraud. See Marangos v. Swett Civ. No. 8-4146, 2009 WL 1803264 at ...


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