Barlean's Organic Oils, LLC v. Am. Cultivation & Extraction Servs.
| Docket Number | 1:22-CV-00555 |
| Decision Date | 26 May 2023 |
| Parties | BARLEAN'S ORGANIC OILS, LLC, Plaintiff, v. AMERICAN CULTIVATION & EXTRACTION SERVICES, LLC, et al., Defendants. |
| Court | U.S. District Court — Middle District of North Carolina |
On July 15, 2022, Plaintiff Barlean's Organic Oils, LLC ("Barlean's") brought this action against American Cultivation & Extraction Services, LLC ("ACES") and several of its former partners, Ed Sartin, Charles Arthur Dick, and Cabell Poindexter (collectively "Defendants"), seeking to recover damages for Defendants' alleged failure to honor a debt owed it. (Doc. 1.) In response to Barlean's complaint Defendants filed an answer, along with a counterclaim alleging that Barlean's negligently misrepresented certain facts to induce them into executing the promissory note and guaranty made on the basis of Barlean's claims. (Doc. 7.) Barlean's filed a reply to the counterclaim (Doc. 10), and soon thereafter, the present motion for judgment on the pleadings, arguing that Defendants' counterclaim for negligent misrepresentation fails as a matter of law. (Docs. 12, 13.)
Defendants filed a response in opposition (Doc. 20), and Barlean's replied (Doc. 21) . For the reasons set forth below Barlean's motion for judgment on the pleadings will be denied.
The court accepts as true the facts alleged in Defendants' counterclaim, which allege the following:
Barlean's is a Washington state limited liability company that manufactures and sells omega fatty acids, cannabidiol ("CBD"), and other dietary supplements. ACES, a now defunct North Carolina limited liability company , was in the business of hemp extraction and CBD oil manufacturing (Doc. 1 ¶ 12) . In early 2019, ACES contacted Barlean's about establishing a business relationship whereby ACES would supply Barlean's with CBD oil. It also sent Barlean's a sample of its CBD "crude oil" - sometimes referred to as "full spectrum CBD oil" or "raw crude" (id. ¶ 7, 35) - so that Barlean's could determine whether ACES's product was suitable to its needs (id. ¶ 7) . After Barlean's received the sample, Peter Nguyen, Barlean's Head of Research and Development, contacted John Barbee, ACES's then-Vice President of Sales and Marketing, to inquire further about ACES's hemp crop and extraction process. (Id. ¶ 8.)
Soon thereafter, Barlean's President and Chief Operating Officer, John Puckett, traveled to North Carolina to meet with various ACES's officials, including Charles Dick and then-CEO Ken Kunberger. (Id. ¶ 9.) At that meeting, Puckett explained that Barlean's wanted to partner with ACES and had a "war chest of money" to do so. (Id.) Specifically, Puckett stated that Barlean's wanted ACES to supply it with "large quantities of CBD crude oil each month," which Barlean's would in turn use as an ingredient in its various commercial products. (Id. ¶ 12 .) Before that could happen, however, Puckett indicated that ACES "would need to relocate" to a larger manufacturing facility that could be certified in compliance with good manufacturing practice ("GMP") regulations promulgated by the U.S. Food and Drug Administration. (Id. ¶ 8, 11.) Having anticipated this request, ACES's officials took Puckett to visit what they thought was a suitable facility, then available for lease, in Eden, North Carolina. (Id. ¶¶ 1011.) Puckett, after visiting the Eden Facility, confirmed that it would be a "good location" both to "obtain the certifications that would be needed[,]" and to "handle Barlean's CBD purchases now and in the future." (Id. ¶ 11.) Puckett also explained that Barlean's would assist ACES in obtaining any certifications it needed to get the facility up and running. (Id.)
Puckett concluded the meeting by telling ACES's "principals that he was going to recommend that Barlean's invest in ACES's operation to make this happen." (Id.) Puckett explained that Barlean's ultimate vision for its partnership with ACES was comprehensive: the end goal, Puckett "repeatedly" said, was for ACES to be Barlean's "primary supplier" of CBD crude oil, which meant that ACES would supply Barlean's with "approximately ninety percent (90%) of the CBD crude oil it was currently purchasing to service Barlean's existing customers, as well one hundred [percent] (100%) of CBD crude oil which would be needed to service new customer sales." (Id. ¶ 15.) Puckett also indicated that while ACES was likely a year away from becoming a "certified supplier for Barlean's" (meaning that ACES's facilities complied with GMP, among other requirements), that timetable could be drastically reduced with "the right funding and manpower." (Id. ¶ 13.) In Puckett's view, if all went as planned, Barlean's would "begin purchasing CBD crude oil from ACES during the first quarter of 2020." (Id.)
Following Puckett's visit and based on his assurances, ACES leased the Eden Facility. (Id. ¶ 16.) Around the same time, the parties began negotiating a deal in which Barlean's would fund the Eden Facility's upgrade, via a loan to ACES, which ACES would subsequently pay back through credit discounts on future purchase orders from Barlean's. (Id. ¶¶ 17, 21.) Specifically, the parties contemplated that Barlean's would loan ACES $500,000 to use for "the sole purpose of upfitting" the Eden Facility "to meet Barlean's production demands"; ACES, in turn, would repay the loan by providing Barlean's with a %5 discount (assuming a price of $1,800 per liter of crude CBD oil) on each purchase for as long as the loan remained outstanding. (Id. ¶¶ 17, 21.) At this point, the only detail the parties had not agreed on was quantity; that is, how much CBD oil per month ACES would provide to Barlean's. Throughout the negotiations, however, Puckett "repeatedly represented" that Barlean's needed between 270 and 400 kilograms of crude CBD oil each month in the place of its current supplier. (Id. ¶¶ 23, 24.) Puckett also explained that if Barlean's procured new business from "any of the companies it was targeting," then ACES "would be the supplier of CBD crude oil for that business." (Id. ¶ 23.) During this time, the parties also agreed that, to speed up the process and ensure that the Eden facility conformed to Barlean's standards, Puckett would personally oversee the Eden Facility's upfit and design. (Id. ¶ 18.) To that end, Puckett visited the Eden Facility several times in the fall of 2019. (Id. ¶¶ 19, 20.) At no point during these visits did Puckett (or anyone else at Barlean's) ever suggest that Barlean's might instead need a blended CBD oil. (Id. ¶ 37.)
By December 2019, the parties had still not yet worked out the details of a supply agreement specifying how much CBD crude oil Barlean's would purchase from ACES per month. Nevertheless, they mutually agreed that, in the interest of time, they should move forward with a standalone promissory note and guarantee so that ACES had the funding to upfit the Eden Facility as soon as possible. (Id. ¶¶ 28-29.) Accordingly, on December 12, 2019, ACES executed a promissory note in exchange for a $500,000 loan from Barlean's. (Id. ¶ 30; see Doc. 1-6.)[1]In relevant part, the promissory note reads:
FOR VALUE RECEIVED, American Cultivation & Extraction Services, LLC, a North Carolina limited liability company (the "Maker") promises to pay to the order of Barlean's Organic Oils, LLC, a Washington State limited liability company (the "Holder") the principal sum of Five Hundred Thousand and 00/100 Dollars ($500,000.00) in accordance with the terms set forth in this promissory note (the "Note").
(Doc. 1-6 at 1 () .) As the terms make clear, a firm supply agreement was not incorporated into the promissory note; rather, the agreement plainly leaves open the possibility that no supply agreement would be reached at all by setting out three possible repayment plans: (1) per the terms of an executed supply agreement; (2...
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