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South Park Ventures, LLC v. Jack

United States District Court, W.D. Pennsylvania

August 28, 2017

SOUTH PARK VENTURES, LLC, Plaintiff,
v.
JOHN JACK, NOBLE ZICKEFOOSE and TERRY CLARK, Defendants.

          Fischer Judge.

          ORDER

          ROBERT C. MITCHELL United States Magistrate Judge.

         I. Recommendation

         It is respectfully recommended that the Motion to Transfer Venue Pursuant to 28 U.S.C. § 1404 filed by the defendants (ECF No. 8) be granted and that this action be transferred to the United States District Court for the Southern District of Ohio, Eastern Division.

         II. Report

         Plaintiff, South Park Ventures, LLC (“SPV”), brings this action against Defendants, John Jack, Noble Zickefoose and Terry Clark, alleging that they breached their fiduciary duties to SPV as officers and directors of Water Energy Services, LLC (“WES”), and for misrepresentation and fraud. Plaintiff filed this action in the Court of Common Pleas of Washington County, Pennsylvania and Defendants removed it to this Court and filed an Answer to the Amended Complaint.

         Currently pending before the Court is Defendants' motion to transfer venue to the United States District Court for the Southern District of Ohio, Eastern Division, pursuant to 28 U.S.C. § 1404(a). For the reasons that follow, the motion should be granted.

         Facts

         SPV is a Pennsylvania limited liability company with its principal place of business located in Canonsburg, Pennsylvania. SPV is a member and 50% interest holder of WES, also a Pennsylvania limited liability company with its business offices located in Canonsburg, Pennsylvania. The other 50% member of WES is Tri-State Disposal, LLC (“Tri-State”) of which Jack, Zickefoose and Clark collectively own a 50% membership interest. (Am. Compl. ¶¶ 1, 6, 8.)[1]

         WES was formed on March 11, 2014 by the filing of a Certificate of Organization with the Commonwealth of Pennsylvania Department of State. WES was engaged in the business of disposing of waste water generated from the oil and gas industry in three Class II injection wells which it leased in Marietta, Ohio. (Am. Compl. ¶¶ 7, 19.)[2]

         On or about March 5, 2015, SPV and Tri-State entered into an Operating Agreement of Water Energy Services (“WES Operating Agreement”). In accordance with the provisions of the WES Operating Agreement, WES was managed by a Board of Managers. Dean Grose (“Grose”) was designated as the SPV selected manager of WES. Defendant Jack, the manager of Tri-State, was designated as the Tri-State selected manager of WES. Jack was also appointed as the Chief Executive Officer of WES. (Am. Compl. ¶¶ 11-13 & Ex. A.)

         The WES Operating Agreement provides that the Managers and officers of WES shall in the performance of their duties owe to WES and its Members “the fiduciary duties (including the duties of loyalty and care) of the type owed under law by directors and officers of a business corporation incorporated under the laws of the Commonwealth of Pennsylvania.” (Am. Compl. ¶ 57; WES Operating Agreement ¶ 14.1.) Under the choice of law provision, the WES Operating Agreement provided that “all questions arising hereunder or in connection herewith shall be governed by the laws of the State of Pennsylvania.” (WES Operating Agreement ¶ 27.)

         On or about March 10, 2015, WES executed a Secured Promissory Note in favor of SPV promising to repay SPV the sum of $2, 000, 000.00 for amounts loaned and advanced to WES (“SPV Note”). The SPV Note was executed on behalf of WES by Jack as its CEO and selected the laws of Pennsylvania to govern disputes related to the SPV Note. (Am. Compl. ¶ 21 & Ex. B.)

         In addition to the loan from SPV, on August 31, 2015 WES entered into a Multiple Draw Note with First Niagara Bank, NA in the principal amount of $4, 000, 000.00 (“First Niagara Note”) in order to finance the construction of the WES facility. Comtech Industries, Inc. (“Comtech”), which is a 50% owner of SPV, and Heinrich Production, LLC (“Heinrich”)[3] were required to execute a Limited Guaranty Agreement whereby Comtech and Heinrich each guaranteed $2, 000, 000.00 of the First Niagara Note. (Am. Compl. ¶¶ 24-25.)

         In early 2016, First Niagara indicated that the provisions of its Note were in default and requested WES to produce a plan to cure the default. Plaintiff alleges that, rather than develop a plan to cure the defaults, the Defendants solicited Trive Capital, LLC (“Trive”) to purchase the First Niagara Note in order to gain control of WES to the exclusion of SPV. (Am. Compl. ¶¶ 34-37 & Ex. C.)

         In response to Jack's request, Trive made an offer to First Niagara to purchase the First Niagara Note. In order to protect their respective investments in WES and prevent an adverse Trive from owning their corporate guarantees, Comtech and Heinrich formed Funds Protection Investment, LLC (“FPI”) to purchase the First Niagara Note from First Niagara Bank. (Am. Compl. ¶¶ 38-39.)

         On February 25, 2016, Westfall Builders, Ltd. (“Westfall”) filed a mechanic's lien in Washington County, Ohio in the amount of $1, 763, 563.71. Trive formed TCFII Westfall, LLC (“TCFII”) which purchased the mechanic's lien from Westfall. (Am. Compl. ¶¶ 40-42.)

         On June 6, 2016, TCFII filed an action in the Court of Common Pleas of Washington County, Ohio at docket number 16 FR 161 to foreclose on its lien on the WES assets. FPI, a secured creditor by virtue of the assignment from First Niagara Bank, intervened in the foreclosure action, and filed a motion for the appointment of a receiver over the WES assets (the “Receiver Action”). (Am. Compl. ¶¶ 43-44.)

         On July 29, 2016, the Court appointed Kenneth B. Leachman as the Receiver for WES. The Receiver was charged with selling WES as a going concern. As part of the receivership process, the Receiver obtained approval from the Court to conduct an auction of the WES assets. The auction was concluded on December 6, 2016. FPI was the successful bidder with a bid of $7, 146, 194.00. The Receiver issued his report regarding the sale of the WES assets and on January 11, 2017 a closing was held whereby the Receiver executed a Bill of Sale to DeepRock Disposal Solutions, LLC (“DeepRock”) as the assignee of FPI. (Am. Compl. ¶¶ 46-54 & Ex. D.)

         Prior Proceedings

         As noted above, there is a Receiver Action pending in the Court of Common Pleas of Washington County, Ohio. In June 2016, FPI agreed to the appointment of a receiver in Columbus, Ohio to be responsible for selling the assets and operations of WES and who oversaw the auction of WES's assets to FPI, because SPV and FPI both consented to that court as the proper forum to bring those WES-related claims and because the court in the Receiver Action is permitting discovery as to whether any collusion occurred prior to the auction.

         In addition, DeepRock sued Jack, Zickefoose and Clark (Defendants herein) in the Court of Common Pleas of Washington County, Ohio, for claims that DeepRock allegedly acquired from WES as part of the sale of assets, including four counts of breach of fiduciary duty and breach of WES-related agreements. (ECF No. 8 Ex. B.)

         On June 3, 2016, Jack and Tri-State filed a complaint against SPV and Grose in the Court of Common Pleas of Washington County, Ohio. SPV and Grose removed the action to the District Court for the Southern District of Ohio (the “Ohio Federal Action”). Jack and Tri-State allege claims for breach of the WES Operating Agreement, breach of fiduciary duties and responsibilities arising out of WES and the WES Operating Agreement and defamation. The court granted in part and denied in part SPV and Grose's motion to dismiss on March 13, 2017, and on March 27, 2017, Jack and Tri-State filed an amended complaint. (ECF No. 8 Ex. C.)

         Procedural History

         Plaintiff filed this action on June 9, 2016 in the Court of Common Pleas of Washington County, Pennsylvania against Jack and WES, and on March 3, 2017, Plaintiff filed an Amended Complaint, naming as Defendants Jack, Zickefoose and Clark. (ECF No. 1-3.) Count I alleges that Defendants breached their fiduciary ...


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