C-Ville Fabricating, Inc. v. Tarter
| Decision Date | 26 March 2019 |
| Docket Number | CIVIL ACTION NO. 5:18-cv-379-KKC |
| Parties | C-VILLE FABRICATING, INC. dba Tarter Industries, et al., Plaintiffs, v. JOSHUA DONALD TARTER, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Kentucky |
This matter is before the Court on motions to dismiss filed by Defendants Joshua Tarter [DE 11] and Thomas Gregory [DE 12]. Each Defendant attacks the Plaintiffs' Complaint on Fed R. Civ. P. 12(b)(1) and 12(b)(6) grounds. For the reasons set forth below, the Defendants' motions [DE 11; DE 12] are GRANTED in part and DENIED in part. The matter may proceed to discovery.
BACKGROUND
This commercial action was originally brought by Plaintiffs Anna Lou Tarter Smith, LuAnn Coffey, and Douglas Tarter, in their individual capacities and in their derivative capacities on behalf of four of the Tarter family's business entities: Tarter Industries, Tarter Management, Tarter Gate, and Tarter Tube. Smith v. Tarter, 305 F. Supp. 3d 733, 736 (E.D. Ky. 2018). The Court will refer to these entities as the "Tarter Companies."
In their original complaint, the Plaintiffs alleged that Defendants Joshua Tarter, Thomas Gregory, and QMC Industry Company, Ltd., violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), the Defend Trade Secrets Act ("DTSA"), the Kentucky Uniform Trade Secrets Act ("KUTSA"), and the Kentucky common law through the operation of a pass-through scheme involving source components and parts. Id. As will be discussed infra, Judge Danny Reeves of the Eastern District of Kentucky dismissed the complaint in its entirety. Id. at 744. He did so, however, without prejudice. Id.
The Tarter Companies maintain headquarters in Casey County, Kentucky. [DE 1, at 30.] Plaintiffs assert that each entity plays a distinct role in what is the largest animal management and farm gate manufacturing operation in North America. [DE 1, at 30.] For example, Tarter Industries is responsible for the manufacture and purchase of component parts, the hiring of new employees, and the research and development of new products. [DE 1, at 31.] Tarter Tube, on the other hand, specializes in the creation of tubing that assists in the manufacture of gates and other equipment. [DE 1, at 31.] It also sells hardware to the other Tarter Companies. Tarter Gate, presumably after buying components and parts from Tarter Industries and Tarter Tube, manufactures gates and other animal control equipment. These final products are then sold to two main distributors. [DE 1, at 31.] The final Tarter entity, Tarter Management, controls the compensation of the officers and executive employees of the Tarter Companies. [DE 1, at 31.]
The Tarter Companies have always been family owned and operated, with the shares of each entity passing down generationally. [DE 1, at 8.] At one point in time, the aggregate shares of the Tarter Companies were held by two brothers, David and Donald Tarter, along with their wives, Anna Lou Tarter Smith and Joy Tarter. [DE 1, at 8.] The Court will refer to these individuals as the "Third Generation" of the Tarter family. David and Anna Lou had two children, Douglas and LuAnn, and were eventually divorced. [DE 1, at 8.] Donald and Joy remain married and have three children, Keith, Joshua, and Nell. The Court will refer to the descendants of David and Donald—Douglas, LuAnn, Keith, Joshua, and Nell—as the "Fourth Generation" of the Tarter family.
Within the last ten years, three of the four members of the Third Generation (David, Donald, and Joy) transferred their interests in the Tarter Companies to members of the FourthGeneration. [DE 1, at 8.] As with many family-held entities, this transition was far from seamless. And, it has created a tangled web of ownership and responsibility that the Court must sift through in order to address the pending motions.
Tarter Industries was incorporated under Kentucky law on May 18, 1993. [DE 1, at 3.] Members of the Third Generation divided the initial shares of the corporation. [DE 1, at 8.] David and Anna Lou each held 25% interests, while Donald Tarter and his wife, Joy Tarter, each retained 25% interests. [DE 1, at 9.] At the first annual shareholders meeting, David, Donald, Anna Lou, and Joy elected themselves to serve as Directors. [DE 1, at 9.] That very same day, the Third Generation family members, in their Director capacities, appointed themselves to various company positions. David became the President, Donald became the Vice President, Joy became the Treasurer, and Anna Lou became the Secretary of the corporation. [DE 1, at 10.] It appears that annual shareholders and Board of Directors meetings were held from 1993 to 1997. [DE 1, at 10.] However, no such meetings convened between 1997 and 2012. [DE 1, at 10.]
On December 31, 2012, David, Donald, and Joy transferred their shares of Tarter Industries. [De 1, at 11.] David transferred his shares to him and Anna Lou's two children, Douglas and LuAnn. Likewise, Donald and Joy passed along their interests in Tarter Industries to their three children, Keith, Joshua, and Nell. [DE 1, at 11.] In the aftermath of these transfers, Anna Lou, Douglas, and LuAnn held a collective 50% interest in Tarter Industries, while Keith, Joshua, and Nell together owned the other 50%. [DE 1, at 11.]
Amazingly enough, this new slate of shareholders did not elect a new Board of Directors. Nor did they formally appoint Officers. Instead, it appears that they simply assumed the Board seats and divvied up company responsibility in an informal manner. [DE 1, at 11.] From 2013 to 2017, Tarter Industries' annual filings with the Kentucky Secretary of State listed Joshua asPresident, Keith as Vice President, Nell as Treasurer, and Anna Lou as the Secretary. [DE 13-3.] These annual filings, however, did not state who the Directors of the corporation were.
Tarter Management shares a similar story. Incorporated pursuant to Kentucky law, the original shares of Tarter Management were issued to David's wife at the time, Anna Lou, and Donald's wife, Joy. [DE 1, at 12.] Each retained a 50% stake. At the first shareholders meeting, Anna Lou and Joy unanimously voted themselves to serve as the Directors. They then appointed themselves to the positions of President (Anna Lou) and Secretary-Treasurer (Joy). [DE 1, at 12.] The record reveals that annual shareholders and Board meetings were held until 1997. From 1997 to 2012, however, no such meetings took place. [DE 1, at 13.] On July 28, 1998, Anna Lou divided her shares with David such that each held 25% interests in Tarter Management. [DE 1, at 13.]
On December 31, 2012, David split his interest in the corporation between him and Anna Lou's two children, Douglas and LuAnn. [DE 1, at 13.] Similarly, Joy divided her interest in Tarter Management between her and Donald's three children, Keith, Joshua, and Nell. [DE 1, at 13.] From that point on, Anna Lou, Douglas, and LuAnn together owned 50% of Tarter Management and Keith, Joshua, and Nell collectively owned the other 50%. [DE 1, at 14.] Like Tarter Industries, the newly minted shareholders of Tarter Management failed to vote on a new Board of Directors and to formally appoint Officers. Again, it appears that these positions, and their accompanying responsibilities, were implicitly assumed.
Because of the nature of the 2012 ownership transitions, the corporate structures of Tarter Industries and Tarter Management are severely muddled. While David, Donald, and Joy transferred their ownership interests to members of the Fourth Generation, they never formally resigned from their posts as Directors and Officers. Moreover, while it appears that Fourth Generation shareholders have taken on a significant portion of the day-to-day operations of the corporations and list themselves as Officers in the corporations' annual filings, they never votedthemselves in as Directors or appointed themselves to Officer positions. Thus, there is a tension between who Directors and Officers are according to the bylaws and who actually runs the day-to-day affairs of the corporations.
The other two Tarter businesses, Tarter Gate and Tarter Tube, are limited liability companies created pursuant to the Kentucky Limited Liability Act. [DE 1, at 14-15.] On December 31, 2012 the Third-Generation member/managers of both LLCs approved resolutions that transferred their ownership interests. [DE 1, at 15.] From that point on Anna Lou, Douglas, and LuAnn collectively owned 50% of Tarter Gate and Tarter Tube while Keith, Joshua, and Nell owned the other 50% of the two LLCs. [DE 1, at 15.] It is alleged that in 2014, the member/managers of Tarter Gate formally elected Josh as President, LuAnn as Vice President, and Anna Lou as the Secretary/Treasurer. [DE 1, at 15.] That said, nothing in the record suggests that a similar vote was held for Tarter Tube.
Lastly, both parties have indicated that because of the divisions within the Tarter family, the shareholders executed an interim management agreement in October of 2017 that placed the day-to-day management of the Tarter Companies in the hands of Douglas's wife, J.J., and Keith. [DE 1, at 19.] Though the Plaintiffs and the Defendants both reference the agreement, the Court has certain doubts as to its validity. After all, it was only signed by one party, Joshua Tarter. 5:17-cv-334 [DE 33-4.]
Defendant Joshua Tarter—a Fourth Generation family member—is a shareholder of the Tarter corporations (Tarter Industries and Tarter Management) and a member/manager of the Tarter LLCs (Tarter Gate and Tarter Tube). [DE 1, at 34.] Plaintiffs contend that at all relevant times, Joshua held himself out as a high-ranking executive of the Tarter Companies conglomerate. And in accordance with this assumed authority, Plaintiffs suggest that Joshuaoversaw the entire operation of the Tarter Companies. He negotiated and executed vendor and sales agreements, transacted business with valued customers,...
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