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Kattawar v. Logistics and Distribution Services, Inc.

United States District Court, W.D. Tennessee, Western Division

February 6, 2015

MICHAEL KATTAWAR; and MICHAEL KATTAWAR, SR., Plaintiffs,
v.
LOGISTICS AND DISTRIBUTION SERVICES, INC; and ROSS KLINE, Defendants.

ORDER GRANTING IN PART, DENYING IN PART DEFENDANTS' MOTION TO DISMISS

S. THOMAS ANDERSON, District Judge.

Before the Court is Defendants Logistics and Distribution Services, Inc. and Ross Kline's Motion to Dismiss (ECF No. 10) filed on October 3, 2014. Plaintiffs Michael Kattawar and Michael Kattawar, Sr. have filed a response in opposition, and Defendants have filed a reply. For the reasons set forth below, Defendants' Motion to Dismiss is GRANTED IN PART, DENIED IN PART.

BACKGROUND

On September 11, 2014, Plaintiffs filed a Complaint alleging breach of contract, unjust enrichment, and negligent misrepresentation against Defendants. For purposes of the Motion to Dismiss, the Court accepts the following well-pleaded factual allegations of the Complaint as true. Up until August 2013, Plaintiff Michael Kattawar was the president of Eagle Worldwide Transportation, Inc. ("Eagle"), a Memphis, Tennessee-based logistics company, and Plaintiff Michael Kattawar, Sr. was a member of the company. (Compl. ¶¶ 5, 6.) Defendant Logistics and Distribution Services, Inc. ("Logistics") is a logistics and trucking company based in Reno, Nevada. ( Id. ¶ 7.) Defendant Ross Kline is the president of Logistics and a resident of Reno, Nevada. ( Id. ¶ 8.)

In 2013, Logistics purchased virtually all of Eagle's assets pursuant to an asset purchase agreement dated June 27, 2013, and amended July 24, 2013 ("the purchase agreement"). ( Id. ¶ 5.)[1] Logistics purchased Eagle for the purpose of taking over Eagle's asset-based, for-hire motor carrier truckload, flatbed, special haul, and refrigerated transportation services throughout the United States. ( Id. ¶ 7.) As part of the purchase agreement, Logistics entered into separate consulting agreements with both Plaintiffs on August 19, 2013 ("the consulting agreements"). ( Id. ¶¶ 5, 6.)[2] Defendant Ross Kline was the primary point of contact between Plaintiffs and Logistics in connection with the negotiation of the purchase agreement and the consulting agreements. ( Id. ¶ 8.) Kline insisted on the use of the consulting agreements as a means to facilitate Logistics' purchase of Eagle over a period of time as well as to provide tax benefits to Logistics. ( Id. ¶ 6.)

The Complaint alleges that as an integral part of the overall transaction memorialized in the purchase agreement, Logistics entered into consulting agreements with each Plaintiff. ( Id. ¶ 9.) In consideration for his consulting services, Logistics agreed to pay Plaintiff Michael Kattawar $21, 280.00 per month for 45 months from May 1, 2014, through January 1, 2018, for total compensation of $957, 600.00. ( Id. ) Likewise, Logistics agreed to pay Michael Kattawar, Sr. $6, 720.00 per month for consulting services for 45 months from May 1, 2014, through January 1, 2018, for total compensation of $302, 400.00. ( Id. ¶ 10.) The consulting agreements provided for $1.26 million in total payments to Plaintiffs. ( Id. ¶ 11.) Eagle and Logistics bargained for these payments under the consulting agreements in conjunction with the purchase agreement, and Plaintiff's compensation for consulting services represented a substantial portion of what Logistics believed was Eagle's fair value ($1.75 million to $2 million). ( Id. )[3] That is, Eagle would not have entered into the purchase agreement without the consulting agreements. ( Id. ) Plaintiffs reasonably relied upon the representations of Defendants regarding their financial capacity and condition to honor the consulting agreements. ( Id. )

From August 2013 through the present, Logistics has controlled Eagle's assets and business operations, and Eagle has honored and continues to honor the purchase agreement. ( Id. ¶ 12.) For their part Plaintiffs provided the services agreed upon in the consulting agreements. ( Id. ) For example, Plaintiffs have sought to bring customers to Eagle, though Logistics has utilized Eagle to service the logistics needs of Nestle, its primary client. ( Id. ) In April 2014, Kline, acting on behalf of Logistics, notified Michael Kattawar that Logistics would not be able to meet its payment obligations to Plaintiffs. ( Id. ¶ 13.) Even though Plaintiffs expressed to Kline their interest in renegotiating the consulting agreements, Defendants took no steps whatsoever to do so. ( Id. ) At Plaintiffs' request, Michael Kattwar and Kline met in August 2014 to discuss the potential renegotiation of the consulting agreements. ( Id. ¶ 14.) Kline reiterated that Logistics had no money to fulfill the obligations to Plaintiffs under the consulting agreements and would not have the funds for the foreseeable future. ( Id. ) Kattawar responded that Plaintiffs expected to be paid. ( Id. )

Rather than attempt a renegotiation of the consulting agreements, Logistics communicated to Plaintiffs through counsel that Plaintiffs were in breach of the consulting agreements based on (a) "material neglect" of their duties to provide consulting services and (b) various breaches of the purchase agreement that were never previously discussed with Plaintiffs. ( Id. ¶ 15.) By copy of this correspondence, Logistics informed Plaintiffs that it was terminating the consulting agreements.[4] ( Id. ) Plaintiffs deny that they have breached the consulting agreements and allege that Logistics wrongfully terminated the consulting agreements. ( Id. ¶ 16.) According to the Complaint, Logistics terminated the consulting agreements because Logistics did not have the financial resources to honor the agreements. ( Id. ) Kline misrepresented Logistics financial condition to Plaintiffs and its ability to honor the consulting agreements at the time the parties entered into the agreements. ( Id. )

Based on these fact pleadings, Plaintiffs allege claims for breach of the consulting agreements and unjust enrichment against Logistics and negligent misrepresentation against Logistics and Kline. In their Motion to Dismiss, Defendants argue that Plaintiffs have failed to state any claim for relief. First, Defendants contend that Plaintiffs have not stated a claim for negligent misrepresentation against either Defendant because the Complaint fails to satisfy Rule 9's pleading requirements that any claim sounding in fraud be alleged with particularity. With respect to the negligent misrepresentation claim against Defendant Ross Kline, Defendants argue that at all times relevant, Kline was acting in his official capacity as president of Logistics, not in his individual capacity. With respect to the negligent misrepresentation claim against Defendant Logistics, the parties' agreements specified that Plaintiffs were not relying on any representations made by Logistics, which were not otherwise memorialized in their contracts. As a result, the Court should dismiss the negligent misrepresentation claims against both Defendants.

Second, Defendants contend that Plaintiffs have failed to state a claim for breach of contract. The Complaint does not allege any breach of the purchase agreement despite certain fact allegations about the relationship of the purchase agreement to the consulting agreements. The two agreements were completely separate and independent of each other. The Complaint also fails to allege how Logistics breached the consulting agreements. Logistics had the contractual right to terminate the consulting agreements for cause and exercised that right for Plaintiffs' failure to perform. Plaintiffs were not entitled to any further payments once Defendants properly terminated the contracts. Third, Defendants contend that Plaintiffs have failed to state a claim for unjust enrichment because there was an express, written contract. Defendants further argue that Plaintiffs have failed to allege that consideration was lacking, an essential element of the unjust enrichment claim. Therefore, the Court should dismiss the Complaint in its entirety.

Plaintiffs have responded in opposition to the Motion to Dismiss. Plaintiffs answer that they have plausibly alleged a breach of contract based on Defendants' wrongful termination of the consulting agreements. According to the pleadings, Defendants terminated the consulting agreements for Plaintiffs' material breach of the agreements even though Plaintiffs performed all duties under the consulting agreements. As for the unjust enrichment claim, Plaintiffs contend that they have pleaded the claim in the alternative to the breach of contract claim. As such, the Court should reject Defendants' argument that the claim will not lie because the parties had an express, written contract. And the Complaint alleges that consideration was lacking, Defendants' argument to contrary notwithstanding. Eagle had a reasonable value of between $1.75 million and $2 million. The purchase agreement provided for a purchase price of only $300, 000, with an additional $1.26 million owed to Plaintiffs under the consulting agreements. Thus, Logistics will be unjustly enriched by its wrongful termination of the consulting agreements. As for the negligent misrepresentation claim, Plaintiffs argue that the Complaint states a claim against Logistics and against Kline in his individual capacity. Plaintiffs allege that Defendants misrepresented the financial stability of Logistics and nevertheless negotiated to structure the transaction for Logistics to make payments to Plaintiffs over a period of time. The contracts' integration clauses should not bar the negligent misrepresentation claim. Nothing in the agreements addressed Logistics' financial ability to meets its obligations under the contracts. Plaintiffs further argue that Kline is liable for his own tortious conduct, even if he committed the tortious acts while negotiating as the agent of Logistics. Therefore, the Court should deny the Motion to Dismiss.

Defendants have filed a reply brief in support of their Motion to Dismiss. Defendants emphasize that the purchase agreement and consulting agreements are separate contracts. The Court should reject then Plaintiffs' theory that payments due under the consulting agreements were consideration for Logistics' purchase of Eagle. The purchase agreement clearly provided that the "aggregate consideration" for Eagle and its assets was $300, 000. Plaintiffs' breach of contract claim essentially seeks to increase the consideration Defendants gave for Eagle and its assets by counting the sums due under the consulting agreements as part of the purchase price. Defendants argue the plain terms of the contracts refute Plaintiffs' claim and that the parol evidence rule applies to block Plaintiffs from introducing any other evidence concerning the parties' intent. Thus, Plaintiffs have failed to state a claim for breach of contract or unjust enrichment.

And even if Plaintiffs have alleged a claim for breach of the consulting agreements, Plaintiffs have not stated a claim for damages. Defendants reiterate the point from their opening brief that Plaintiffs were only due payments under the consulting agreements for consulting services they actually provided. As such, Plaintiffs could only possibly recover damages for services they already performed. Concerning the negligent misrepresentation claims, Defendants also repeat their arguments that Plaintiffs have not stated such a claim with particularity and that the negligent ...


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