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Catahama, LLC As Assignee of Fresh Harvest River LLC v. Kerry Inc. and the Kerry Group Plc

October 26, 2011

CATAHAMA, LLC AS ASSIGNEE OF FRESH HARVEST RIVER LLC , PLAINTIFF,
v.
KERRY INC. AND THE KERRY GROUP PLC
DEFENDANTS.



The opinion of the court was delivered by: McVerry, J.

MEMORANDUM OPINION AND ORDER OF COURT

Now pending before the Court is KERRY INC. AND THE KERRY GROUP PLC‟S MOTION TO DISMISS PLAINTIFF‟S SECOND AMENDED COMPLAINT (Document No. 92) (collectively "Kerry"), with brief in support. Plaintiff Catahama, LLC ("Catahama") filed a brief in opposition to the motion with numerous exhibits. Kerry filed a reply brief and the motion is ripe for disposition.

Factual and Procedural History

As described more fully in the Court‟s Memorandum Opinion and Order of June 24, 2011 (the "June 24 Opinion"), this case arises out of a failed business venture. Plaintiff Catahama is pursuing this case as an assignee of Fresh Harvest River, LLC ("FHR"). The original complaint and first amended complaint asserted multiple claims against Kerry and First Commonwealth Bank (the "Bank"). In the June 24 Opinion, the Court dismissed all claims against the Bank; dismissed all claims against Kerry except for an alleged breach of ¶ 7 of the Letter of Intent ("LOI"); and gave Plaintiff leave to file a second amended complaint. Plaintiff has done so, and has also filed Notice of its intent to stand on the first amended complaint as to the Bank (Document No. 88). Kerry now seeks dismissal of the Second Amended Complaint.

Briefly summarized, 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. In March-April 2009, after extensive negotiations, the Bank and FHR entered into a series of agreements, including a mortgage, lines of credit and a temporary lease. FHR continued to possess and operate the Facility while further negotiations ensued. In October 2009, FHR was unable to make a required $2,500,000 down payment because Abramson, the FHR partner who was to supply the money, backed out. 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 new investors. The Bank and FHR agreed to adjourn the closing indefinitely.

FHR remained in possession of the premises. By January 2010, FHR had reached its credit limit and the Bank advised FHR that it was unwilling to loan additional funds under the lines of credit. 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, under certain conditions.*fn1 Plaintiff alleges that in February 2010, aware that without funding FHR would discontinue operations and the value of the Bank‟s collateral would be reduced, the Bank agreed to Catahama‟s conditions. 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, in anticipation of a customer/supplier relationship. Kerry personnel then visited the Facility and obtained confidential and proprietary information about FHR‟s business, methods and equipment, including the production areas, the research lab and FHR personnel. 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.

In late April 2010, FHR asked the Bank how much it would cost to buy the Facility and pay off the amounts borrowed under the lines of credit. The Bank responded with a price of $18,600,000, although it was unwilling to release Abramson from his personal guarantee. On April 27, 2010, FHR informed the Bank that it was able to close the transaction.

Plaintiff alleges that sometime after entering into the LOI with FHR but prior to mid-May 2010, Kerry disclosed the existence of the LOI to the Bank. Plaintiff further alleges that 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 pursuant to the MCIA.

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"). 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. On July 6, 2010, the Bank advised FHR of this agreement and demanded that FHR quit the premises as of July 26, 2010. The Bank also sent letters to FHR customers, to demand that they pay directly to the Bank all amounts due to FHR. FHR‟s business failed and litigation began.

On September 7, 2010, Kerry terminated its agreement to buy the Facility from the Bank. On September 12, 2010, FHR filed for bankruptcy protection under Chapter 11. On November 10, 2010, the Bank executed its Writ of Possession and ejected FHR from the Facility.

As noted above, only Counts Six through Eight of the Second Amended Complaint remain at issue. In Count Six, Plaintiff alleges that Kerry breached the MCIA by exploiting the information it obtained to negotiate a purchase of the Facility from the Bank. In Count Seven, Plaintiff alleges that Kerry breached the LOI and/or an implied covenant of fair dealing by informing the Bank of the existence of the LOI, in violation of ¶ 6. SAC ¶ 145. In addition, Plaintiff alleges that in late May 2010, Kerry unilaterally terminated the LOI in breach of ¶ 7.*fn2

In Count Eight, Plaintiff alleges that Kerry tortiously interfered with FHR‟s prospective contract with the Bank.

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. ...


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