Ceres Protein, LLC v. Mech
| Decision Date | 17 October 2016 |
| Docket Number | CIVIL ACTION NO. 3:14-CV-00491-TBR-LLK |
| Parties | CERES PROTEIN, LLC, et al., Plaintiffs, v. THOMPSON MECHANICAL & DESIGN, et al., Defendants. |
| Court | U.S. District Court — Western District of Kentucky |
In 2014, Ceres Protein, LLC and Roger Shannon filed this action against Barry and Robert Thompson, along with their Ohio partnership Thompson Mechanical & Design, alleging claims for defamation and for intentional interference with a prospective business relationship. More than a year later, Ceres Protein, LLC was administratively dissolved for failing to file an annual report, and, on the Thompsons' motion, Roger Shannon and Michael Tarullo, Jr., the members of Ceres Protein, LLC, were substituted in its stead. Now, pursuant to Federal Rule of Civil Procedure 12(b)(6), the Thompsons ask the Court to dismiss this action in its entirety. Roger Shannon and Michael Tarullo, Jr. not only oppose that motion, but also seek leave to substitute the recently-reinstated Ceres Protein, LLC back into the fold. For reasons explained in detail below, Roger Shannon and Michael Tarullo, Jr.'s Motion to Amend, [R. 78], is GRANTED, and the Thompsons' Motion to Dismiss, [R. 74], is GRANTED IN PART and DENIED IN PART.
In 2013, Roger Shannon and Michael Tarullo, Jr. formed Ceres Protein, LLC to pursue business opportunities relating to repurposing "whole stillage," or distillery waste,generated by distilleries in Kentucky and Tennessee. [R. 63 at 5, ¶ 14 (First Amended Complaint); see also R. 78-2 at 4, ¶ 13 (Proposed Second Amended Complaint).] Ceres Protein, LLC helps distilleries reduce the expense of removing spent distillers' grains, known as "slop," which result from the distilling process. [R. 63 at 1-2, ¶ 1; see also R. 78-2 at 1, ¶ 1.] Through a "comprehensive process that separates and de-waters usable solid grains," Ceres Protein, LLC transforms distiller's slop into a product called "wet cake," which is then sold to farmers for livestock feed. [R. 63 at 2, ¶ 1; see also R. 78-2 at 1-2, ¶ 1.]
In early 2013, Ceres Protein, LLC cultivated two business relationships necessary to offer slop processing services to distilleries. First, Ceres Protein approached Vincent Corporation, a manufacturer of screw presses, about providing it with the equipment needed to de-water distillers' slop and create wet cake. [R. 63 at 5, ¶¶ 15-16; see also R. 78-2 at 4-5, ¶ 14-15.] Second, Ceres Protein, LLC contracted with Land o' Lakes Purina Feed LLC to distribute the wet cake generated from its slop processing for use as livestock feed. [R. 63 at 5, ¶¶ 15, 17; see also R. 78-2 at 4-5, ¶¶ 14, 16.]
Sometime around mid-2013, Michael Tarullo, Sr. (Michael Tarullo, Jr.'s father) and Barry Thompson approached Roger Shannon and Michael Tarullo, Jr. about a possible business arrangement. [R. 63 at 5, ¶ 18; see also R. 78-2 at 5, ¶ 17.] The pair proposed developing a "stage two" process whereby "wet cake could be dried to create dried distillers' grains," a product with a "lower moisture content, a longer shelf-life, and better transportability." [R. 63 at 5-6, ¶ 18; see also R. 78-2 at 5, ¶ 17.] Barry Thompson holds U.S. Patent No. 8,561,315, which protects a grain-drying system that "utilizes solar energy to pass heated air through a convention crop silo or bin" for thepurpose of drying grain. [R. 63 at 6, ¶ 19; see also R. 78-2 at 5, ¶ 18.] Though no one had used that patented method to process stillage before, Barry Thompson claimed that it could be adapted for Ceres Protein, LLC's uses. [R. 63 at 6, ¶ 20; see also R. 78-2 at 5-6, ¶ 19.] Michael Tarullo, Sr. and Barry Thompson offered to license that intellectual property to Ceres Protein, LLC and to contribute the capital needed during the start-up phase of the venture in exchange for a membership interest in Ceres Protein, LLC. [R. 63 at 6, ¶ 21; see also R. 78-2 at 6, ¶ 20.]
Between July and October 2013, the parties attempted to negotiate such an arrangement. [R. 63 at 6, ¶ 22; see also R. 78-2 at 5, ¶ 21.] However, no agreement resulted, in part because the patented technology had not been demonstrated to work for processing wet distillery waste. [R. 63 at 6, ¶¶ 22-23; see also R. 78-2 at 5, ¶¶ 21-22.] Ceres Protein, LLC moved on and continued pursing business opportunities related to wet cake processing. [R. 63 at 9, ¶ 30; see also R. 78-2 at 8, ¶ 29.] It never "marketed or disclosed any aspect of Barry Thompson's proprietary technology" to any potential distillery customer. [R. 63 at 9, ¶¶ 30-31; see also R. 78-2 at 8-9, ¶¶ 29-30.]
Following the breakdown in negotiations, Barry and Robert Thompson, his son, supposedly "fabricated an invoice" to Ceres Protein, LLC in February 2014, demanding $175,000 for "work and materials" related to the development of the "stage two" drying process. [R. 63 at 9, ¶ 32; see also R. 78-2 at 9, ¶ 31.] Ceres Protein, LLC claimed, however, that it never asked the Thompsons to do anything of the sort. [R. 63 at 10, ¶ 35; see also R. 78-2 at 10, ¶ 34.] It refused to pay the invoice. [R. 63 at 10, ¶ 36; see also R. 78-2 at 10, ¶ 35.]
Subsequently, the Thompsons engaged in a pattern of conduct designed, in Ceres Protein, LLC's estimation, to extort payment on that invoice. In March 2014, for example, the Thompsons wrote to the senior executives of Distillery A,1 a potential client with which Ceres Protein, LLC had been negotiating, accusing Ceres Protein, LLC of patent infringement. [R. 63 at 11-12, ¶¶ 41-43; see also R. 78-2 at 11-12, ¶¶ 40-42.] One month later, Robert Thompson informed Distillery A's executives that Ceres Protein, LLC was pursuing a business relationship with Distillery B. [R. 63 at 12, ¶ 44; see also R. 78-2 at 12, ¶ 43.] While Distillery A and Ceres Protein, LLC signed a nonbinding letter of intent in April 2014, Ceres Protein, LLC alleges that the Thompsons' conduct delayed the execution of that document, "causing economic harm to Ceres [Protein, LLC]." [R. 63 at 11-12, ¶¶ 42, 45; see also R. 78-2 at 11-12, ¶¶ 41, 44.] Distillery A's Chief Operating Officer told Roger Shannon and Michael Tarullo, Jr. that it would not finalize the arrangement unless Ceres Protein agreed to indemnify Distillery A, or until the Thompsons' dispute had been resolved. [R. 63 at 12, ¶ 45; see also R. 78-2 at 12, ¶ 44.]
Moreover, between March 31 and April 17, the Thompsons contacted Steel Technologies LLC, for which Roger Shannon is the Chief Financial Officer and Treasurer, on four occasions. [R. 63 at 13, ¶ 47; see also R. 78-2 at 13, ¶ 46.] In a letter to Michael Carroll, the Chief Executive Officer of Steel Technologies, LLC, Barry Thompson accused Roger Shannon of having "committed 'serious ethical breaches, possible patent infringement, and fraudulent activity.'" [R. 63 at 13, ¶ 47; see also R. 78-2 at 13, ¶ 46.] A few weeks later, Barry Thompson faxed a letter to the Board ofDirectors of Steel Technologies, LLC, and to the CEOs and Boards of Directors of Mitsui & Co. (U.S.A.) Inc. and Nucor Corporation, joint-venture partners in the entity which owns Steel Technologies, LLC, [R. 63 at 14, ¶ 50; see also R. 78-2 at 13, ¶ 49], claiming that Roger Shannon had been "'evasive' and 'deceptive' in [his] dealings with the Thompsons" and would "likely be the target of unspecified 'criminal charges,'" [R. 63 at 14, ¶ 51; see also R. 78-2 at 14, ¶ 50]. Those communications caused Michael Carroll "to question [Roger] Shannon's commitment" to Steel Technologies, LLC. [R. 63 at 13, ¶ 49; see also R. 78-2 at 13, ¶ 48.]
On April 21, 2014, Ceres Protein, LLC and Roger Shannon filed this action in Jefferson Circuit Court against Barry and Robert Thompson, along with their Ohio partnership Thompson Mechanical & Design, bringing claims for defamation and for intentional interference with a prospective business relationship. [R. 1-1 at 12, 23-26, ¶¶ 4-8, 53-73 (Complaint).] The Thompsons timely removed that action to this Court. [R. 1 at 1-3, ¶¶ 1-9 (Notice of Removal).] More than a year later, Ceres Protein, LLC was administratively dissolved for failing to file an annual report. [See R. 57-1 at 2-3 (Kentucky Secretary of State Records).] Upon the Thompsons' motion, [see R. 54 at 1 ()], the Court ordered Ceres Protein, LLC and Roger Shannon to amend their complaint to substitute Michael Tarullo, Jr. in Cere Protein, LLC's stead, [see R. 59 at 1-3 (Memorandum Opinion and Order)]. Now, the Thompsons seek to dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(6). [R. 74 at 1 (Motion to Dismiss).] Because the Kentucky Secretary of State recently reinstated Ceres Protein, [R. 78-1 at 2 (Certificate of Existence)], Roger Shannonand Michael Tarullo, Jr. ask for leave to file an amended complaint to add Ceres Protein back into the fold, [R. 78 at 1-3 (Motion to Amend)].
Under Federal Rule of Civil Procedure 15(a)(2), the Court should freely allow a party to amend its pleading when justice so requires. Leave to amend is liberally granted, except where there is "undue delay in filing, lack of notice to the opposing party, bad faith by the moving party, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party, or futility of the amendment." Brumbalough v. Camelot Care Ctrs., Inc., 427 F.3d 996, 1001 (6th Cir. 2005) (citing Coe v. Bell, 161 F.3d 320, 341-42 (6th Cir. 1998)); see also Foman v. Davis, 371 U.S. 178, 182 (1962). A proposed amendment is futile "where it would not withstand a motion to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim." Kreipke v. Wayne State Univ., 807 F.3d 768, 782 (6th Cir. 2015) (citing Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 420 (6th Cir. 2000)), reh'g en banc denied, No. 15-1139 (6th Cir. Feb. 19, 2016), petition for cert. docketed, No. 15-1419 . Ultimately, the decision to grant or deny leave "is committed to [this Court's] sound...
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