Caboodles Cosmetics, Ltd. Partnership v. Caboodles

• Decision Date: 03 February 2006
• Docket Number: No. 05-2179 D/P.,05-2179 D/P.
• Citation: 412 F.Supp.2d 872
• Parties: CABOODLES COSMETICS, LIMITED PARTNERSHIP, a Nevada limited partnership, and HHS, Limited Partnership, a Nevada limited partnership, Plaintiffs, v. CABOODLES, LLC, a Delaware limited liability company, and Glimpso, LLC, Defendants.
• Court: U.S. District Court — Western District of Tennessee

Page 872

412 F.Supp.2d 872

CABOODLES COSMETICS, LIMITED PARTNERSHIP, a Nevada limited partnership, and HHS, Limited Partnership, a Nevada limited partnership, Plaintiffs, v. CABOODLES, LLC, a Delaware limited liability company, and Glimpso, LLC, Defendants.

No. 05-2179 D/P.

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

February 3, 2006.

Douglas A. Black, Robert L. Crawford, Wyatt Tarrant & Combs, Memphis, TN, for Plaintiffs.

Michael C. Patton, Antonio L. Matthews, Baker Donelson Bearman Caldwell & Berkowitz, Memphis, TN, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART COUNTER-DEFENDANT'S MOTION TO DISMISS COUNTERCLAIMS

DONALD, District Judge.

Before the Court is the motion (dkt. # 15) of Peter Henning ("Henning" or "Counter-Defendant") to dismiss the complaint of Caboodles, LLC of Tennessee ("Caboodles Tennessee" "Buyer" or "Counter-Plaintiff') pursuant to Fed. R.Civ.P. 12(b)(1) and 12(b)(6). Caboodles, LLC alleges that Henning in his personal capacity 1) breached the warranty set forth in the Asset Purchase Agreement between Caboodles, LLC and Caboodles Cosmetics, LP of Nevada ("Caboodles Nevada" or "Seller"); 2) fraudulently induced the Buyer to enter into the Asset Purchase Agreement ("purchasing agreement") with Seller; 3) fraudulently misrepresented false financial information to Buyer; 4) negligently misrepresented the financial condition of Seller inducing Buyer to enter into the purchasing agreement; 5) conspired with Andrew Mann ("Mann"), Seller's Chief Financial Officer, and Seller to conceal the alleged misconduct; and 6) aided and abetted Seller in its concealment. Henning moves to dismiss the allegations for lack of personal jurisdiction and asserts that he is not subject to Tennessee's long-arm statute. In addition, he asserts that Buyer fails to state claims upon which relief may be granted as to Buyer's allegations of fraudulent inducement, fraudulent misrepresentation, negligent misrepresentation, conspiracy, aiding and abetting, and punitive damages. This Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1332 and 28 U.S.C. § 1367. For the following reasons, the Court grants in part and denies in part Henning's motion to dismiss.

II. FACTUAL AND PROCEDURAL BACKGROUND

Caboodles Nevada is a successor of Plano Molding Company ("Plano"). Plano originally manufactured plastic boxes utilizing injection mold technology for outdoor products, tackle boxes, and storage systems. Def.'s Answer and Countercl. ¶ 11. At some point, Plano began to manufacture plastic boxes that could be utilized as cosmetic cases under the trade name "Caboodles." Id. Caboodles Nevada was subsequently formed to manufacture, design, market, distribute and sell the cosmetic cases. Id. Plano then assigned the trademark "Caboodles" and other intellectual property to HHS, LP ("HHS"). Id. Caboodles Nevada and HHS are both limited partnerships organized and existing under the laws of Nevada with a principal place of business located in Plano, Illinois. Def.'s Answer and Countercl. ¶ 10. Henning, President of Plano, owns the controlling interest in Plano, Caboodles Nevada, and HHS. Id. In November 2003, he served as manager for both Caboodles Nevada and HHS. Def.'s Answer and Countercl. ¶¶ 10-11. Henning is a resident of Illinois. Def.'s Answer and Countercl. ¶ 10.

After failing to successfully manufacture, design, market, distribute, and sell the cosmetic cases, Caboodles Nevada negotiated with Pittco Capital Partners, LP ("Pittco") for the sale of its assets. Def's Answer and Countercl. ¶¶ 11-12. As a result of the negotiations, Pittco formed Caboodles Tennessee and served as its equity investor. Def's Answer and Counterclaim ¶ 12.

On November 21, 2003, Plaintiffs Caboodles Nevada and HHS (collectively "Plaintiffs") entered into a purchasing agreement that included, inter alia, a license agreement with Defendants Caboodles Tennessee and Glimpso, LLC ("Glimpso") (collectively "Defendants"). Compl. ¶ 2. At this time, Plaintiffs transferred assets that included "all items of inventory" to Defendants. Id. In consideration for this transfer, Caboodles Tennessee executed and delivered a promissory note and escrow agreement to Plaintiffs for $1,477,682.00 due and payable on November 21, 2004. Compl. ¶ 3. The agreement provided that Plaintiffs were to transfer inventory to Caboodles Tennessee. Id. In exchange for the promissory note, Caboodles Tennessee agreed to sell the inventory. Id. The parties dispute whether Buyer was obligated to deposit the sale proceeds in escrow as security for its payment. Id. Caboodles Tennessee sold inventory and acquired sale proceeds totaling $1,256,850.12. Id. Caboodles Tennessee did not deposit any of the proceeds from the sale of inventory into the escrow account. Id.

After closing on November 21, Caboodles Tennessee discovered numerous discrepancies in Seller's financial records and received claims for unpaid accounts. Def's Answer and Countercl. ¶ 14. Caboodles Tennessee received inquiries for accounts payable that were not posted to Seller's accounts payable ledger. Id. Monthly booking commissions owed to sales agents for sales made prior to the closing were delayed and not booked until after the closing date. Id. Caboodles Tennessee received claims for returns from customers who intended to return the goods prior to the closing. Id. These claims were not booked in the general ledger or the financial system nor were they disclosed to Buyer before November 21. Def.'s Answer and Countercl. ¶ 15. In addition, an account payable to PBB, a warehouse facility that stored Caboodles Nevada inventory, accumulated storage charges dating back to 2002. Id. In sum, Caboodles Tennessee alleges that it has had to expend in total $1,275,247.31 for open payables prior to closing, commissions payable for sales prior to closing, chargebacks related to inventory buybacks, disposal fees for obsolete inventory, product settlements, and inventory returns which were not on the schedules as assumed liabilities. Def.'s Answer and Countercl. ¶¶ 15-16. It has also been unable to collect $1,214,935.34 on accounts receivable. Def's Answer and Countercl. ¶ 19.

Pursuant to the purchasing agreement, Plaintiffs agreed to indemnify Buyer for "any inaccuracy or misrepresentation in or breach of any representation or warranty made by Seller." Def.'s Answer and Countercl. ¶ 17. Plaintiffs and Buyer met in Memphis, Tennessee on October 11, 2004, to discuss Buyer's claim for indemnity. Id. Buyer submitted a written claim on March 9, 2005. Id. On March 18, 2005, Plaintiffs rejected the claim. Id. Caboodles Tennessee alleges that it has incurred damages in the amount of $3,707,295.53 and is entitled to a set off of $1,370,933.39. Def.'s Answer and Countercl. ¶ 18. Further, Caboodles Tennessee alleges that it is entitled to recover $2,336,295.53 from Caboodles Nevada as its indemnity claim. Id.

As a result of the inaccurate financial information, Caboodles Tennessee alleges total damages of at least $12,311,706.87 including its initial purchase of Caboodles Nevada and its additional capital needs. Def's Answer and Countercl. ¶ 20.

On March 8, 2005 Plaintiffs filed the original complaint alleging a claim for relief under the Lanham Act 15 U.S.C. §§ 1051 et. seq. On March 30, 2005 Buyer filed its answer and counterclaim against Plaintiffs, Mann, and Henning. Henning filed the instant motion to dismiss on May 31, 2005. Buyer filed its response on July 18, 2005. For the foregoing reasons, the Court denies in part and grants in part Counter-Defendant's motion to dismiss.

II. 12(b)(2) STANDARD

Federal Rule of Civil Procedure 12(b)(2) permits dismissal of a claim for lack of jurisdiction over the person. In considering a motion to dismiss, "the court must construe the complaint in a light most favorable to the plaintiff, and accept all of [the] factual allegations as true." Bird v. Parsons, 289 F.3d 865, 871 (6th Cir.2002). Absent an evidentiary hearing on the issue of personal jurisdiction, the plaintiff "need only make a prima facie showing of jurisdiction." Id. (quoting Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir.2002)). A prima facie showing of jurisdiction may be established based upon the plaintiff's pleadings and affidavits. Bridgeport Music, Inc. v. Agarita Music, Inc., 182 F.Supp.2d 653, 657 (M.D.Tenn.2002).

III. ANALYSIS

Henning argues that he acted in his capacity as an officer for Seller and that insufficient contacts exist within the forum state to allow the Court to exercise personal jurisdiction over him. When analyzing whether a court has personal jurisdiction over a defendant, it is "well-settled" that the court applies the jurisdictional law of the forum state. Poyner v. Erma Werke GmbH, 618 F.2d 1186, 1187 (6th Cir.1980). Accordingly, the Court looks to Tennessee state law to determine if the Court has personal jurisdiction Henning. The Tennessee long arm statute reads:

(a) Persons who are nonresidents of Tennessee . . . and cannot be personally served with process within the state are subject to the jurisdiction of the courts of this state as to any action or claim for relief arising from: . . . (1) The transaction of any business within the state; (2) Any tortious act or omission within this state; . . . (4) Entering into any contract of insurance, indemnity, or guaranty covering any person, property, or risk located within this state at the time of contracting.

Tenn.Code Ann. § 20-2-214(a)(1)(2)(4) (2005). Although this statute reaches broadly, it must be applied in a manner that comports with the Due Process Clause of the Fourteenth Amendment. Id.; Reynolds v. Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1115 (6th Cir.1994), cert. denied, 513 U.S. 962, 115 S.Ct. 423, 130 L.Ed.2d 338 (1994); Procter & Gamble Cellulose Co. v. Viskoza-Loznica, 33 F.Supp.2d 644, 660 (W.D.Tenn.1998).

Before a defendant can be subjected to in personam jurisdiction,...