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McClarin Plastics, Inc. v. Blackford Capital, Inc.

United States District Court, M.D. Pennsylvania

February 16, 2017

MCCLARIN PLASTICS, INC., et al., Plaintiffs
v.
BLACKFORD CAPITAL, INC., et al., Defendants

          MEMORANDUM

          Yvette Kane, District Judge

         Before the Court is Defendants Blackford Capital, Inc., and Martin W. Stein's motion to dismiss Plaintiffs McClarin Plastics, Inc., and Todd Kennedy's complaint pursuant to Federal Rules of Civil Procedure 12(b)(2) and (6). (Doc. No. 3.) For the reasons provided herein, the Court will grant Defendants' motions to dismiss.

         I. BACKGROUND

         This breach of contract action was initiated by Plaintiffs McClarin Plastics, Inc., and Todd Kennedy on or about October 26, 2016 through the filing of a praecipe to issue writ of summons in the Court of Common Pleas of York County. (Doc. No. 1.) Thereafter, on November 18, 2016, Plaintiffs filed a two-count complaint asserting claims of breach of contract (Count I) and unjust enrichment (Count II) against Defendants Blackford Capital, Inc., and Martin W. Stein. (Id.) On December 20, 2016, this action was removed to the United States District Court for the Middle District of Pennsylvania pursuant to 28 U.S.C. § 1332 (a)(1). (Doc. No. 1.)

         The allegations forming the basis of Plaintiffs' complaint are as follows. Plaintiff Todd R. Kennedy, a Pennsylvania resident (“Kennedy”), is President, Chief Executive Officer, and majority owner of McClarin Plastics Inc., a Pennsylvania business corporation with an office in Hanover, Pennsylvania. (“Old McClarin”). (Doc. No. 1-2 at ¶¶ 1, 3.) Defendant Marin T. Stein, a Michigan resident (“Stein”), is the “Founder and Managing Director” of Defendant Blackford Capital, Inc. (“Blackford”), a private equity investment firm with an office in Grand Rapids, Michigan. (Id. at ¶¶ 4-7.) Stein is the manager, and Blackford is the “sole member/manager, ” of Composite Consolidation Company, LLC (“CCC”), a Delaware limited liability company. CCC is the sole owner of Southeast Composites, LLC, Amtech, LLC, and Pacific Composites, LLC (collectively the “CCC Entities”). Composite Consolidation Company-II, LLC (“CCC-II”), a Delaware limited liability company, is a wholly-owned subsidiary of CCC. (Id. at ¶ 8.)

         According to the complaint, Blackford and Stein were involved in negotiations on behalf of CCC in executing a Unit Purchase and Merger Agreement on June 19, 2014 (“Merger Agreement”), to combine the business of Old McClarin with the business of the CCC Entities. (Id. at ¶ 12.) The parties to the Merger Agreement consisted of Old McClarin, Plaintiff McClarin Plastics, LLC (“New McClarin”), CCC, CCC-II, the CCC Entities, Kennedy and Michael Clifford. (Id.) The Merger Agreement memorialized a series of transactions to take place on the closing date of January 15, 2015. (Id. at ¶¶ 13-19.) The preliminary transactions to be made on the closing date in anticipation of the merger included the following: (1) Old McClarin would transfer all of its assets and liabilities to New McClarin in exchange for ownership of 99, 990 units; (2) an entity affiliated with shareholder Michael Clifford (“Clifford”) and Kennedy (“TKMC”), would purchase 10 units in New McClarin for the sum of $10.00; and (3) CCC would contribute its ownership interest in the CCC Entities to CCC-II. (Id.) Immediately following these transactions, CCC-II would purchase 49, 000 units in New McClarin from Old McClarin, constituting 49% of the units in New McClarin, for a purchase price of $8, 800, 00.00. (Id.) This transaction would result in both Old McClarin and TKMC collectively holding 25% of the units in New McClarin. (Id.) Next, CCC-II would merge the CCC Entities with and into New McClarin, and CCC-II's ownership interest in the CCC Entities would be converted into 104, 000 units in New McClarin. (Id.) This, in effect, would result in CCC obtaining a 75% ownership interest in New McClarin through the unit purchase by CCC-II from Old McClarin and the merger of the CCC Entities with and into New McClarin. (Id.) Finally, Old McClarin and TKMC would contribute their 25% ownership interest in New McClarin to CCC-II in exchange for a 25% ownership interest in CCC-II. (Id.)

         According to Plaintiffs, a day or so before closing on the transactions contemplated by the Merger Agreement, Stein, acting on behalf of Blackford, approached Kennedy about deferring $500, 000.00 of the $8, 800, 00.00 negotiated acquisition price due to Blackford's purported lack of sufficient cash to fund the purchase of 49, 000 units in New McClarin. (Id. at ¶ 20.) Plaintiffs aver that, “[i]n the spirit of cooperation with his new partners, and based on numerous assurances from Stein, ” Kennedy agreed on behalf of Old McClarin to defer a portion of the unit purchase price. (Id. at ¶ 21.) In an E-mail to Kennedy on January 13, 2015, Stein confirmed the agreement to deduct $500, 00.00 from the purchase price and further noted that “[w]e will find some way to make this back up to you (real estate monitoring fees, transaction bonus, incentive bonus, etc.).” (Doc. No. 1-2 at 84.)

         On January 14, 2015, Old McClarin, Kennedy, Clifford, CCC, and CCC-II entered into Letter Agreement[1] amending the Merger Agreement to reflect the adjusted purchase price. The Letter Agreement, prepared on Blackford letterhead, provided the following:

         Gentlemen:

The lenders providing financing for the Transaction have deemed certain raw materials, inventory and accounts receivable of Old McClarin as “ineligible collateral” for the purpose of calculating the applicable borrowing base. As a result of the exclusion of such ineligible collateral from the borrowing base, less cash is available to fund the Unit Purchase Price. Thus, Old McClarin has agreed to accommodate the request . . . to reduce the Unit Purchase by $500, 000[.00.] Further, the parties have agreed to reduce the purchase price to $8, 300.000, in exchange for the financial accommodations referred to herein.[ ]
In exchange for the foregoing purchase price adjustment, it is the intent of [New McClarin] and the CCC Entities to provide the owners of Old McClarin, during the five-year period following the Closing, with financial benefits, in a form agreed upon by the parties, in an amount commensurate with the amount of such purchase price reduction.

(Doc. No. 1-2 at 86.)

         Shortly after closing, Plaintiffs discovered that “Blackford itself took $525, 554.00 in fees in connection with the transaction.” (Id. ¶ 26.) Moreover, Plaintiffs allege that, upon information and belief, Defendants sought a purchase price adjustment of $500, 000.00 in order to satisfy a pre-existing obligation to pay the owner of another entity Defendants acquired by the date of closing in order to avoid a five million dollar penalty. According to Plaintiffs, “[i]t is believed and therefore averred that Blackford and Stein engage in a pattern, practice and habit of using proceeds in one transaction to meet obligations in unrelated transactions without disclosing the same to its investors.” (Id. at ¶ 32.) Plaintiffs argue that they have attempted to reach an agreement on the terms of repayment with respect to the deferred purchase price for over a year. (Id. at ¶ 33.) As of May 18, 2016, Stein has offered in response to provide the capital necessary to fund the New McClarin capital contribution required of its members due to the financial challenges New McClarin has faced since closing in lieu of repaying the $500, 000.00. (Id. at ¶ 37.) According to Plaintiffs, Defendants have failed to provide Plaintiffs with the promised financial benefit commensurate with the $500, 000.00 deferred purchase price.

         Plaintiffs' complaint is comprised of two counts. Count I advances a breach of contract claim against Defendants resulting from Defendants' failure to remit to Plaintiffs the unit purchase price shortfall of $500, 000.00. Count II sets forth an alternative claim of unjust enrichment against Defendants, premised on Defendants' retention of a commission in the amount of $500, 000.00. Defendants have moved for dismissal of the complaint pursuant to Rules ...


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