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Russell Barnett Ford of Tullahoma, Inc. v. H&S Bakery, Inc.

United States District Court, E.D. Tennessee, Winchester

August 2, 2019

H&S BAKERY, INC. d/b/a H&S BAKERY and JONBER ASSOCIATES, INC., Defendants/Counter-Plaintiff.

          Steger, Magistrate Judge.



         This dispute arises out of a commercial-vehicle sale gone awry. Unbeknownst to the seller and buyer, a third party hacked into the seller's email account and sent fraudulent wiring instructions to the buyer. The buyer then wired the purchase money to the hacker's account, instead of the seller's account. The Plaintiff seller, Russell Barnett Ford of Tullahoma, Inc. (“Plaintiff”), has sued the two parties it characterizes as the buyer, seeking to recover the purchase money. (Doc. 1 [Compl.].) Defendants, H&S Bakery, Inc. d/b/a H&S Bakery (“H&S Bakery”) and Jonber Associates, Inc. (“Jonber”; collectively with H&S Bakery, “Defendants”), have moved for partial dismissal of the Complaint. (Doc. 22.) H&S Bakery moves to dismiss all of the claims against it on the grounds that it was not a party to the sale. Jonber concedes it was the buyer and moves to dismiss only the tort claims against it. Plaintiff has responded in opposition to the motion (Doc. 28), and Defendants have replied. (Doc. 29.) For the reasons set out below, the Court will GRANT the motion for partial dismissal.

         I. BACKGROUND[1]

         Plaintiff operates a vehicle dealership in Tullahoma, Tennessee. (Doc. 1 [Compl.] ¶ 7.) H&S Bakery operates a bakery and delivery service in Baltimore, Maryland. (Id. ¶ 9.) In 2016, Plaintiff contracted with H&S Bakery for the construction and sale of seven bread trucks. (Id. ¶ 12.) H&S Bakery received the trucks in February 2017 and paid Plaintiff by check. (Id.)

         In December 2017, Bob Trewyn, an employee of Plaintiff, prepared a Customer Proposal (the “Proposal”) to H&S Bakery for the construction and sale of forty-eight additional bread trucks for $55, 433.70 per vehicle, or a total of $2, 660, 817.60. (Id. ¶¶ 8, 14-15; Doc. 1-1 [Proposal] at 9.) The bottom of each substantive page of the Proposal contains the following disclaimer: “Prices and content availability as shown are subject to change and should be treated as estimates only. Actual base vehicle, package and option pricing may vary from this estimate because of special local pricing, availability or pricing adjustments not reflected in the dealer's computer system.” (Doc. 1-1 [Proposal] at 4-8.)

         The Proposal states that it was prepared for Chuck Paterakis of H&S Bakery. (Id. at 1.) Paterakis, who is Vice President of Logistics for H&S Bakery, signed the Proposal on January 10, 2018. (Doc. 1 [Compl.] ¶¶ 10, 15; Doc. 1-1 [Proposal] at 9-10.) Paterakis asked, however, that the sale be made to H&S Distribution LLC (“H&S Distribution”), not H&S Bakery. (Doc. 1 [Compl.] ¶ 16.) The name and address of H&S Distribution are handwritten on the Proposal. (Id.; Doc. 1-1 [Proposal] at 9.)

         Plaintiff and H&S Distribution later agreed to split the transaction into two deliveries of twenty-four vehicles each in April and May of 2018 (the “April Purchase” and “May Purchase, ” respectively). (Doc. 1 [Compl.] ¶ 17; Doc. 1-4 [April 2, 2018 Letter].) This was confirmed in a letter from Trewyn addressed to Paterakis for H&S Distribution. (Doc. 1-4 [April 2, 2018 Letter].) The per-vehicle price was $55, 733.70, three hundred dollars more per vehicle than had been stated in the Proposal. (Compare Doc. 1-4 [April 2, 2018 Letter] with Doc. 1-1 [Proposal] at 7.) Each of the two purchases was to be for $1, 337, 608.80. (Doc. 1 [Compl.] ¶ 17.)

         Trewyn met with Paterakis in Baltimore on April 4, 2018. (Id. ¶ 21.) On that day, they executed purchase documents for each of the forty-eight trucks, consisting of a Bill of Sale, an Automobile Sales Order, a National Vehicle Service Contract Application, two Certificates of Origin, and an Odometer Disclosure Statement for each vehicle. (Id. ¶¶ 18, 21 & n.2.)

         On April 6, 2018, Trewyn received an email from Eric Hiemstra, Corporate Finance Manager for H&S Bakery, asking that the purchase documents be changed to show the purchaser as Jonber, rather than H&S Distribution. (Id. ¶¶ 11, 22.) Hiemsta explained to Trewyn that Jonber “is the leasing company who will be leasing the trucks to Independent Operators or [if] we do not go [with the] independent operator model[, ] they will then be leased to H&S Distribution, LLC. or. [sic] That is why we have the distinction.” (Id. ¶ 22; Doc. 1-7 [April 6, 2018 Email from Hiemstra to Trewyn].) In compliance with this request, Plaintiff prepared new purchase documents identifying Jonber as the purchaser, shipped the documents to H&S Bakery, and received them back executed by Paterakis on behalf of Jonber. (Doc. 1 [Compl.] ¶¶ 24-26; Doc. 1-2 [April Purchase Documents]; Doc. 1-3 [May Purchase Documents].)

         The parties originally expected payment to be by check (see Doc. 1 [Compl.] ¶¶ 17-18), as it had been for the 2017 sale to H&S Bakery (see Id. ¶ 12). The day before the meeting in Baltimore, however, Paterakis called Trewyn and told him a check would not be ready in time for the meeting. (Id. ¶ 18.) Instead, Paterakis asked to make the payment by wire transfer after the purchase documents were signed. (Id.) Paterakis sent an email to Trewyn the same day, with an H&S Bakery signature line, asking Trewyn to “resend the wiring so we can send the money Friday.” (Id. ¶ 19; Doc. 1-1 [Apr. 3, 2018 Email from Paterakis to Trewyn].) Trewyn emailed wire instructions for Plaintiff's bank, Southern Community Bank (“Southern Community”), to someone at H&S Bakery on an unspecified date. (Doc. 1 [Compl.] ¶ 20; Doc. 1-6 [Wire Instruction Form without cover email].)

         Hiemstra forwarded Trewyn's wiring instructions to The Columbia Bank (“Columbia”) in Hagerstown, Maryland. (Doc. 1 [Compl.] ¶ 27.) When Columbia tried to wire the $1, 337, 608.80 for the April Purchase to Plaintiff's account at Southern Community, Columbia received an error message that the beneficiary information was not sufficient. (Id. ¶ 32.) Hiemstra emailed Trewyn about the error and forwarded Columbia's email as well, asking Trewyn to pencil in the changes on the form so he could resubmit it. (Id. ¶¶ 32-33; Doc. 1-10 [Apr. 9-11 Email Chain].)

         Meanwhile, without Trewyn's or Plaintiff's knowledge, a hacker was intercepting some of Trewyn's emails. (Doc. 1 [Compl.] ¶ 28.) When Hiemstra emailed Trewyn about the need to correct the wire instructions, the hacker stopped the email from entering Trewyn's inbox and then sent false responses to Hiemstra, purporting to be from Trewyn. (Id. ¶¶ 33-34.) The hacker sent wiring instructions for the account of “National Equipment & Trucking” at SunTrust Bank in Atlanta, Georgia, with different account and routing numbers from the first set of instructions. (Id. ¶¶ 33-36; Doc. 1-11 [Hacker Wire Instructions].) The fraudulent instructions were on a page with fabricated letterhead for “Russell Barnett Automotive Family D.B.A.: Russell B. National Equipment & Trucking.” (Doc. 1-11 [Hacker Wire Instructions].)

         Hiemstra did not call Trewyn to verify the information. (Doc. 1 [Compl.] ¶ 38.) Hiemstra sent the hacker's wire instructions to Columbia, and Columbia initiated a transfer of $1, 337, 608.80 to the hacker's account on April 9, 2018. (Id. ¶¶ 37, 39.) Hiemstra emailed Trewyn to provide a status update on the wire transfer on April 10; Trewyn did not receive this email. (Id. ¶ 40.)

         On April 11, 2019, having not received any of Hiemstra's emails about the problem with the wire instructions, Trewyn called Hiemstra to ask when Plaintiff would receive payment. (Id. ¶ 41.) Hiemstra told Trewyn the wire transfer had already been completed. (Id.) Hiemstra also told Trewyn about the emails that had purportedly gone to and from Trewyn over the previous two days. (Id.) This led to the discovery of the hacker's interference in Trewyn's email account. (See id.)

         The hacker's account at SunTrust has been frozen. (Id. ¶ 42.) Thirteen of the vehicles from the April Purchase were delivered to H&S Bakery, but H&S Bakery agreed to allow Plaintiff to repossess the vehicles. (Id. ¶ 43.) Plaintiff stopped delivery of the remaining eleven vehicles. (Id. ¶ 44.) The twenty-four vehicles are the subject of a Temporary Restraining Order (Doc. 41), a motion for preliminary injunction (Doc. 39), and a motion to vacate the Temporary Restraining Order (Doc. 43).[2]

         Plaintiff asserts causes of action for breach of contract and negligence against H&S Bakery and Jonber. (Doc. 1 [Compl.].) H&S Bakery moves to dismiss the contract claims against it, and both Defendants move to dismiss the tort claims against them. (Doc. 22.)


         A party may move to dismiss a claim for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In ruling on such a motion, a court must accept all of the factual allegations in the complaint as true and construe the complaint in the light most favorable to the plaintiff. Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir. 2009) (quoting Hill v. Blue Cross & Blue Shield of Mich., 49 F.3d 710, 716 (6th Cir. 2005)). The court is not, however, bound to accept as true bare assertions of legal conclusions. Papasan v. Allain, 478 U.S. 265, 286 (1986).

         In deciding a motion to dismiss under Rule 12(b)(6), a court must determine whether the complaint contains “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). Although a complaint need only contain a “short and plain statement of the claim showing that the pleader is entitled to relief, ” Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009) (quoting Fed.R.Civ.P. 8(a)(2)), this statement must nevertheless contain “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged, ” id. at 678. Plausibility as explained by the Court “is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678.

         If a party presents matters outside the pleadings in connection with a motion to dismiss, the court must either exclude those matters from consideration or treat the motion as one for summary judgment. Fed.R.Civ.P. 12(d). Documents attached to pleadings are considered part of the pleadings for all purposes, however, Fed.R.Civ.P. 10(c), and a court's consideration of documents referred to in a complaint and integral to the claims does not convert a motion to dismiss into a motion for summary judgment. Commercial Money Ctr., Inc. v. Ill. Union Ins. Co., 508 F.3d 327, 335-36 (6th Cir. 2007). Where a written instrument attached to a pleading contradicts allegations in the pleading, a court must credit the instrument, rather than the allegations. Creelgroup, Inc. v. NGS Am., Inc., 518 Fed.Appx. 343, 347 (6th Cir. 2013) (quoting Williams v. CitiMortgage, Inc., 498 Fed.Appx. 532, 536 (6th Cir. 2012)).


         The Court first addresses H&S Bakery's motion for dismissal of the contract claims against it. H&S Bakery argues that dismissal of Plaintiff's contract claim against it is appropriate because H&S Bakery did not enter into a contract with Plaintiff. (See Doc. 22 at 1.) The Court agrees with H&S Bakery on this point, and also finds that Plaintiff's request to pierce the corporate veil should be denied. The Court next turns to Plaintiff's tort claims. Defendants make four arguments for dismissal of Plaintiff's tort claims. First, they argue Tennessee's enactment of the Uniform Commercial Code (the “UCC”) displaces Plaintiff's common-law negligence claim. Second, they argue the economic-loss doctrine bars the claims. Third, they argue Tennessee does not impose a duty on a party to take any action to protect someone else unless the party's own wrongful conduct created the risk of harm. Fourth, H&S Bakery argues there are no plausible allegations in the Complaint that H&S Bakery, as a non-party to the contracts, had a duty to Plaintiff regarding payment for the April Purchases or caused any damages to Plaintiff regarding the April Purchases. The first argument disposes of Plaintiff's tort claim against Jonber, and the fourth argument disposes of Plaintiff's tort claim against H&S Bakery. The Court therefore need not address the other arguments.

         Before proceeding, the Court notes the parties do not dispute the choice of law in this case, and have both applied Tennessee law. (See Doc. 23; Doc. 28.) Under the Court's analysis, it was correct to do so.[3]

         A. Contract Claims Against H&S Bakery

         H&S Bakery argues the Complaint lacks any plausible allegations that H&S Bakery entered into a contract with Plaintiff for the April Purchase. (Doc. 23.) It argues that the Bills of Sale demonstrate that the contracts were between Plaintiff and Jonber, and the Proposal, which did involve H&S Bakery, was merely an offer to negotiate. (Id.) Therefore, H&S Bakery argues, Plaintiff has not stated a contract claim against it on which relief may be granted. (Id.)

         1. The Contracts Were ...

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