Bradbury v. Network Enters., Inc., Case No. 4:12-CV-575 (CEJ)
| Decision Date | 13 February 2013 |
| Docket Number | Case No. 4:12-CV-575 (CEJ) |
| Parties | RICKY C.L. BRADBURY, Plaintiff, v. NETWORK ENTERPRISES, INC., et al., Defendants. |
| Court | U.S. District Court — Eastern District of Missouri |
This matter is before the Court on defendants' motion to dismiss Counts II, III, IV, and V of the complaint pursuant to Fed.R.Civ.P. 12(b)(6). Plaintiff opposes the motion, and the issues are fully briefed.
In 2010, plaintiff Ricky Bradbury was hired as Vice President of defendant Network Enterprises, Inc. (formerly, Network Piping).1 The employment agreement between Network and plaintiff contained a "Shadow Stock" provision, stating that plaintiff would receive 5% of Network's value in the event of the sale of the company. The contract was signed by plaintiff and defendant William Finnegan, the sole shareholder of Network. In 2011, Network sold substantially all of its assets for six million dollars. Plaintiff alleges that he did not receive 5% of this purchase price ($300,000), as required by the contract. Plaintiff asserts a claim of breach of contract against Network Enterprises (Count I), and claims of breach of contract (Count II), tortious interference (Count III), and unjust enrichment (Count IV) against Finnegan.Finally, plaintiff alleges that both defendants violated the Missouri Fraudulent Transfer Act (Count V).
The purpose of a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure is to test the legal sufficiency of the complaint. The factual allegations of a complaint are assumed true and construed in favor of the plaintiff, "even if it strikes a savvy judge that actual proof of those facts is improbable." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007), citing Swierkiewicz v. Sorema N.A., 534 U.S.506, 508 n.1 (2002); Neitzke v. Williams, 490 U.S. 319, 327 (1989) (); Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) (). The issue is not whether the plaintiff will ultimately prevail, but whether the plaintiff is entitled to present evidence in support of his claim. Id. A viable complaint must include "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp., 550 U.S. at 570; see also id. at 562-63 (). "Factual allegations must be enough to raise a right to relief above the speculative level." Id. at 555.
Before discussing the legal sufficiency of the complaint, the Court must determine which state's law should apply. A federal court sitting in diversity applies the choice-of-law approach of the forum state. E.g., Northwest Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1393 (8th Cir. 1997). Missouri, the forum state,recognizes and respects contractual choice-of-law provisions, Am. Inst. of Mktg. Sys., Inc.v. Brooks, 469 S.W.2d 932, 935 (Mo. Ct. App. 1971), such as the one in this case. That provision states: "This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Rhode Island..." Pl. Ex. A [Doc. #4-1]. This clause reaches plaintiff's claims sounding in contract and tort, because the tort claims are all "closely related to the interpretation of the contract." Nw. Airlines, 111 F.3d at 1392 ().
Although there is no mention of the choice-of-law clause or Rhode Island law in the complaint, plaintiff cites to Rhode Island cases in his brief without contesting their application. Apparently plaintiff has abandoned his position that "Missouri Law applies to and controls the events and causes of action set forth in this Petition." Compl. ¶ 4 [Doc. #4]. The Court finds that Rhode Island law applies in this case.
Defendants argue that Finnegan was not a party to the contract, and therefore cannot be sued for its breach. Plaintiff argues that Finnegan signed the contract in his individual capacity, not his representative capacity, and therefore may be personally liable for a breach. Plaintiff also suggests that the Court pierce the corporate veil that shields Finnegan from liability on Network's contracts.
Plaintiff's assertion that Finnegan is personally liable for the breach of the employment agreement is based on Finnegan's signature on the contract. According to the complaint, the contract "does not disclose any principal/agent relationshipbetween Defendants Network Piping and Finnegan and Defendant Finnegan did not indicate that he was executing the Employment Agreement as an officer or director of Defendant Network Piping." Compl. ¶ 18 [Doc. #4]. Finnegan's signature appears without qualification or a clause specifying that the contract is signed in a representative, not an individual, capacity. Plaintiff states that he relied upon Finnegan's personal liability when signing the contract.
It is a well established principle of agency law that C. C. Plumb Mixes, Inc. v. Stone, 272 A.2d 152, 154 (R.I. 1971). The manner in which the agent signed the contract is important, but not dispositive, in determining the agent's liability on a contract. See R.I. Res. Recovery Corp. v. Van Liew Trust Co., 2011 R.I. Super. LEXIS 70, at *17-19 (R.I. 2011). Not only did Finnegan not specify that he signed in a representative capacity, but there is no explanation of Finnegan's identity or role as an agent anywhere in the agreement. Plaintiff has alleged sufficient ambiguity as to whether Finnegan was a party to the contract for the theory of personal liability to survive the 12(b)(6) standard of plausibility. "Determining whether an agent has bound himself personally is a question of fact," and should be left for summary judgment. Pacheco v. Mass. Cas. Ins. Co., 610 A.2d 111, 113 (R.I. 1992).
Next, plaintiff argues that the Court should hold Finnegan personally liable for Network's contracts by piercing the corporate veil. Piercing the corporate veil is adrastic measure by which the corporate form is disregarded, and constituents of the corporation are no longer shielded by limited liability. "[R]espect for the legitimacy of the corporate form and its protective shield of limited liability usually dissuades courts from using their remedial swords" to pierce the corporate veil unless there is "extreme provocation to do so." Doe v. Gelineau, 732 A.2d 43, 44 (R.I. 1986). Courts are especially hesitant to pierce the veil in suits based in contract rather than tort, since the party suing on a contract is more likely to have considered, ex ante, the undercapitalization and shoddy corporate structure of the other party. See Miller v. Dixon Indus. Corp., 513 A.2d 597, 604 (R.I. 1986) ().
Rhode Island courts are most likely to pierce the veil when the corporation is a mere "alter ego" of the corporate constituent, and when the corporation is used as a tool to accomplish fraud. E.g., U.S. v. Kayser-Roth Corp., Inc., 103 F.Supp.2d 74, 84 (D.R.I. 2000); Stanley Weiss Assocs., LLC v. Energy Mgmt Inc., No. Civ.A. 02-1794, 2004 WL 877540, at *6 (Sup. Ct. R.I. Apr. 7, 2004). A corporation will be viewed as an "alter ego" when there is "a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist." Id. (quoting Transamerica Cash Reserve, Inc. v. Dixie Power & Water, Inc., 789 P.2d 24, 26 (Utah 1990)). Undercapitalization and disregard for corporate formalities, such as conducting shareholder and director meetings or the segregation of corporate and private assets, are frequent hallmarks of the alter ego corporation. Kayser-Roth, 103 F.Supp.2d at 84. Additional equitable grounds that support veil piercing include the use of the corporate form to "defeat public convenience, justify wrong, protect fraud or defendcrime." Id. (quoting R & B Elec. Co v. Amco Const. Co., 471 A.2d 1351, 1354 (R.I. 1984)).
Defendants argue that plaintiff recites the elements of veil piercing, couching legal conclusions as factual allegations. Certainly, "bare-boned allegations of undercapitalization and common control and/or management, standing alone, do not rise to the level of plausibility required to survive a 12(b)(6) motion." Wrist Worldwide Trading GMBH v. MV Auto Banner, No. 10-2326 (ES)(CLW), 2011 WL 5414307, at *5 (D.N.J. Nov. 4, 2011). See also Essex Ins. Co. v. Raymond Miles, No. 10-3598, 2010 WL 5069871, at * 3 (E.D. Pa. Dec. 3, 2010) ().
Plaintiff has alleged that Finnegan is the sole shareholder of Network, and as such, controls the corporation. Defendants are correct in pointing out that plaintiff has not alluded to the complete disregard of corporate formalities that so often encourages courts to pierce the veil. Plaintiff does not allege that Finnegan used corporate funds for his personal expenses, or that Network was undercapitalized. However, plaintiff does allege that Finnegan sold the assets of Network and pocketed the proceeds, leaving plainti...
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