The opinion of the court was delivered by: Terrence F. McVerry United States District Judge
MEMORANDUM OPINION AND ORDER OF COURT as assignee of FRESH HARVEST RIVER LLC ,
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.*fn1 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 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 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 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 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.*fn2 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.*fn3 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 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.
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.
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 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 well-pleaded factual allegations and favorable inferences drawn therefrom show an entitlement to relief.
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 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 ...