Denim North Am. Holdings LLC v. Swift Textiles LLC
| Decision Date | 28 January 2011 |
| Docket Number | CASE NO. 4:10-CV-45 (CDL) |
| Court | U.S. District Court — Middle District of Georgia |
| Parties | DENIM NORTH AMERICA HOLDINGS, LLC, Plaintiff, v. SWIFT TEXTILES, LLC, GALEY & LORD, LLC, and PATRIARCH PARTNERS, LLC, Defendants. |
This action arises from a dispute between Plaintiff, Denim North America Holdings, LLC ("Holdings"), and Defendants, Swift Textiles, LLC ("Swift"), Galey & Lord, LLC ("Galey"), and Patriarch Partners, LLC ("Patriarch"). These parties entered into a business venture to manufacture and sell denim textile products through a limited liability company, Denim North America, LLC ("DNA"). DNA was jointly owned and controlled by Holdings and Swift. Holdings alleges that Defendants fraudulently induced it into the venture and subsequently breached contracts and fiduciary duties relating to that business relationship.
Presently pending before the Court is Defendants' Motion to Dismiss (ECF No. 7). All Defendants contend that Holdings's Complaint fails to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Patriarch also maintains that the Complaintshould be dismissed for lack of personal jurisdiction over it pursuant to Federal Rule of Civil Procedure 12(b)(2). For the following reasons, the Court denies Patriarch's motion to dismiss for lack of personal jurisdiction and grants Defendants' motion to dismiss the following claims: (1) Holdings's breach of fiduciary duty claim against Patriarch and Galey; (2) Holdings's breach of contract claim against Swift and Galey; and (3) Holdings's claim arising under O.C.G.A. § 14-11-307. The following claims remain pending: (1) fraudulent inducement against Swift, Galey, and Patriarch; (2) breach of fiduciary duty against Swift; (3) rescission; and (4) punitive damages.
Holdings alleges the following. Prior to 2006, John Pezold and George Jeter owned DNA, which operated a denim manufacturing facility located at 1 Marubeni Drive in Columbus, Georgia (the "Marubeni Drive Facility"). DNA was profitable but operating at less than full capacity. In 2006, John Heldrich, a Galey executive, contacted DNA and proposed a joint venture among DNA, Swift, Galey, and Patriarch. Swift is owned by Galey (collectively, "Swift Galey"). Swift Galey is owned by Patriarch.1
After Heldrich's initial contact, Patriarch took over negotiations of the venture on behalf of all three Defendants. In June 2006, DNA representatives Tracy Sayers, Larry Galbraith, and Monte Galbraith accepted Defendants' invitation to travel to Patriarch's Offices in New York to meet and discuss a joint venture (the "New York Meeting"). Present at the New York Meeting on behalf of Patriarch were Lynn Tilton, Larry Himes, and Patriarch's counsel. Present on behalf of Swift Galey were John Heldrich, James Murray, and Al Blalock. Patriarch's Tilton, however, controlled the negotiations and every detail of the transaction was subject to Tilton's approval.
At the New York Meeting, Patriarch's Tilton and Himes made various representations about how DNA would financially benefit through a joint venture with Defendants. Patriarch represented that Swift Galey had a sales program with customer contacts in the international denim industry and a "world class" sales support department. Patriarch proposed that Swift Galey's sales, marketing, development, technical service, and customer service capabilities could be combined with DNA's Marubeni Drive Facility to significantly increase the volume of DNA's sales and corresponding profit margin. Patriarch represented that if DNA would exclusively manufacturepremium quality denim at its Marubeni Drive Facility, then Swift Galey would use its manufacturing facilities in China and Mexico to produce lower-grade denim.2 The premium denim and lower-grade denim could then be combined to offer a mixed product base that would be more attractive to customers. Patriarch represented that this arrangement would result in increased efficiency and higher margins for DNA.
In return for DNA's agreement to exclusively manufacture premium grade denim, Patriarch represented that Swift Galey would hire DNA's sales force and use its exclusive efforts to sell DNA's denim. Patriarch further represented that Swift Galey would produce enough customer orders to enable DNA to operate its Marubeni Drive Facility at full capacity, twenty-four hours a day, seven days a week. To meet this demand, Patriarch represented that DNA would need to: (1) hire and train additional employees to run the Marubeni Drive Facility at full capacity; and (2) purchase 110 faster and more efficient Picanol weaving machines from Swift Galey.
At the end of the New York Meeting, and in reliance on Defendants' representations, the parties reached an agreement about the future operation of DNA. Pezold and Jeter formed Holdings as part of an agreement with Defendants for Holdings and Swift tojointly own and manage DNA. In September 2006, Swift, Galey, Holdings, and DNA entered into a subscription agreement ("Subscription Agreement") under which Swift took a 50% ownership interest in and became a member of DNA and Holdings remained a 50% owner and member of DNA. See generally, Defs.' Mem. in Supp. of Mot. to Dismiss [hereinafter Defs.' Mot. to Dismiss] Ex. 1, Subscription Agreement, ECF No. 7-2 [hereinafter Subscription Agreement]. In consideration for its ownership interest, Swift made a capital contribution to DNA. Id. §§ 1.01-1.02; Defs.' Mot. to Dismiss Ex. 2, Operating Agreement Ex. A, Schedule of Capital Contributions 46, ECF No. 7-3 [hereinafter Schedule of Capital Contributions]. Holdings also made a capital contribution to purchase the Picanol weaving machines from Swift Galey. Schedule of Capital Contributions. Subsequently, Holdings, Swift, and DNA entered into an operating agreement ("Operating Agreement") to govern the management of DNA. See generally, Defs.' Mot. to Dismiss Ex. 2, Operating Agreement, ECF No. 7-3 [hereinafter Operating Agreement]. The Operating Agreement provides that DNA shall be run by a board of eight managers, four appointed by Swift and four appointed by Holdings. Id. § 2.02. Finally, Swift, Galey, and DNA entered into a manufacturing and supply agreement ("Manufacturing Agreement") under which DNA agreed to exclusively manufacture premium grade denim and Swift agreed to exclusively sell DNA's denim. Defs.' Mot. to Dismiss Ex. 3, Manufacturing & Supply Agreement, ECF No. 7-4 [hereinafter Manufacturing Agreement].3
In accordance with the agreements, DNA removed and sold its existing weaving machines, purchased and installed the Picanol weaving machines, hired and trained additional employees, and converted its Marubeni Drive Facility to full capacity; thus enabling it to exclusively produce premium quality denim at the higher volumes contemplated by the parties. Swift Galey, however, never produced the volume of customer orders that Patriarch represented it would. Instead, twelve months into the joint operation of DNA, and after DNA had operated the Marubeni Drive Facility at full capacity, twenty-four hours a day, seven days a week, for five months, Swift Galey terminated its sales force and abandoned its obligations to DNA. Holdings was forced to rehire DNA's sales staff, terminate the additional employees DNA hired to operate the Marubeni Drive Facility at full capacity, and finance the operation of DNA on its own. Holdings also discovered that Patriarch had concealed ten million yards of warehoused denim inventory which Swift Galey sold for its own benefit after the joint operation of DNA had begun.
DNA and Holdings filed the present action alleging: (1) fraudulent inducement against Swift, Galey, and Patriarch; (2) breach of fiduciary duty against Swift, Galey, and Patriarch; (3) breach of contract against Swift and Galey; (4) rescission; (5) breach of duties owed by members of a Georgia limited liability company ("LLC") pursuant to O.C.G.A. § 14-11-307 against Swift; and (6) punitive damages. The Court previously dismissed DNA as a Plaintiff in this action. See Denim North America Holdings, LLC v. Swift Textiles, LLC, No. 4:10-CV-45 (CDL), 2011 WL 97238, at *3-*4 (M.D. Ga. Jan. 12, 2011). All three Defendants now seek dismissal of Holdings's Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Patriarch also contends that it should be dismissed for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2).
Patriarch maintains that the Court lacks personal jurisdiction over it and that it should be dismissed from this action pursuant to Rule 12(b)(2). Because "[a] court without personal jurisdiction is powerless to take further action, " the Court will decide this jurisdictional issue first. Posner v. Essex Ins. Co., Ltd., 178 F.3d 1209, 1214 n.6 (11th Cir. 1999) (per curiam) ().
"A plaintiff seeking the exercise of personal jurisdiction over a nonresident defendant bears the initial burden of alleging in the complaint sufficient facts to make out a prima facie case of jurisdiction." Diamond Crystal Brands, Inc. v. Food Movers Int'l, Inc., 593 F.3d 1249, 1257 (11th Cir. 2010) (internal quotation marks omitted). "Where, as here, the defendant challenges jurisdiction by submitting affidavit evidence in support of its position, the burden traditionally shifts back to the plaintiff to produce evidence supporting jurisdiction." Id. (internal quotation marks omitted). "Where the plaintiff's complaint and supporting evidence conflict with the defendant's affidavits, the court must construe all reasonable inferences in favor of the plaintiff." Id. (internal quotation marks omitted).
"A federal court sitting in diversity undertakes a two-step inquiry in...
To continue reading
Request your trial