DeNune v. Consolidated Capital of North America
| Decision Date | 23 September 2003 |
| Docket Number | No. 3:02CV7241.,3:02CV7241. |
| Citation | 288 F.Supp.2d 844 |
| Parties | Ralph DeNUNE III, As Receiver Of TPSS Acquisition Corporation, Plaintiff, v. CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of Ohio |
Mark A. Davis, Stephen B. Mosier, McHugh, DeNune & McCarthy, Sylvania, OH, for Ralph DeNune, III, As receiver of TPSS Acquisition Corporation, Plaintiff.
Graham D. Guthrie, Stephen C. Musilli, Purcell & Scott, Dublin, OH, Thomas R. Merry, Barren & Merry, Columbus, OH, Timothy J. Kincaid, Plain City, OH, Stephanie P. Union, Purcell & Scott, Dublin, OH, for Consolidated Capital of North America, Inc., Paul Bagley, Richard Bailey.
Daniel E. Izenson, Steven C. Caffaro, Keating, Muething & Klekamp, Cincinnati, OH, Jeffrey S. Creamer, Shumaker, Loop & Kendrick, Toledo, OH, for Carl Casaretto.
Plaintiff Ralph DeNune, as Receiver of the TPSS Acquisition Corporation, brings this suit against Consolidated Capital of North America, Inc., Paul Bagley, Richard Bailey, Carl Casareto, and individual and corporate John Doe defendants, asserting state and federal claims arising from the defendants' alleged looting of the assets of Toledo Pickling and Steel Sales, Inc. This court has jurisdiction under 28 U.S.C. §§ 1331 and 1332, as well as O.R.C. § 2307.382. Pending is a motion to dismiss filed by Consolidated, Bagley, and Bailey, and a motion to dismiss filed by Casareto. For the following reasons, the motions shall be granted in part and denied in part.
In January, 1999, TPSS Acquisition Corporation ("TPSS"), an Ohio corporation and a wholly owned subsidiary of Consolidated Capital of North America, Inc. ("Consolidated"), a Colorado corporation, purchased the assets and assumed the liabilities of Toledo Pickling and Steel Sales, Inc. ("Toledo Pickling"). One such liability was an unsecured debt of $3,166,362.88 that Toledo Pickling owed to U.S. Steel Group, a unit of USX Corporation ("USX"), pursuant to an agreement known as the Stocks Abroad Agreement.
In conjunction with the TPSS purchase of Toledo Pickling, Consolidated entered into an agreement with USX on January 29, 1999, under which USX agreed to cancel the Toledo Pickling debt in exchange for common stock in Consolidated with a market value of $1,000,000, a promissory note in the amount of $2,000,000, and a cash payment of $166,362.88. Consolidated subsequently defaulted on the promissory note; indeed, it never made any payments on the note.
On July 28, 1999, USX filed an action against TPSS in the Lucas County Court of Common Pleas, alleging that, in violation of the Stocks Abroad Agreement, TPSS had removed and/or sold USX steel in its possession on consignment. USX claimed breach of the Stocks Abroad Agreement, conversion, unjust enrichment, quantum meruit, and replevin. On November 2, 1999, the court entered a default judgment against TPSS as to all the claims in the amount of $1,138,520.38 plus interest, other costs, and attorneys' fees.
Meanwhile, on August 12, 1999, Campbell Investors, FINOVA Capital Corporation, and National Bank of Canada sued TPSS in the Lucas County Court of Common Pleas, alleging that TPSS had defaulted on a lease and on various secured debts. The plaintiffs also filed an emergency motion for appointment of a receiver to take possession and control of TPSS' property and prevent dissipation or waste of corporate property and assets.
On August 20, 1999, acting pursuant to O.R.C. § 2735.01, the court appointed Ralph DeNune III as Receiver "of TPSS" assets including without limitation, all inventory, goods, accounts receivable, intellectual property, all contract rights, equipment, fixtures and general intangibles, whether now owned or hereafter owned or acquired and all proceeds of the ... Receivership Property[.]" (Doc. 31, Exh. A, at 3-4). The court stated that the order "may be modified or amended, upon motion by any party-in-interest, and upon notice and hearing." (Doc. 31, Exh. A, at 8).
This order gave DeNune authority to prevent a dissipation of the collateral, to allow payment of the secured debts to Campbell, FINOVA and the Bank of Canada. The order gave him the responsibility of disposing of the collateral, with the approval of FINOVA and the Bank of Canada, and the responsibility of collecting the accounts receivable by TPSS. The claims of these secured creditors were satisfied.
On June 19, 2001, DeNune filed a motion for authority to file a complaint in federal court against Consolidated and other defendants for the purpose of recovering TPSS funds which DeNune alleged were fraudulently transferred to Consolidated. In an order of July 25, 2001, the trial court granted DeNune's motion for authority to file this suit, in which DeNune alleges that Consolidated wrongfully deprived TPSS's creditors of their property. Consolidated did not appeal that order.
DeNune filed a motion for authority to execute an assignment agreement under which USX would assign to DeNune its claims against Consolidated. DeNune asserted that the purpose of this assignment was to allow him, as Receiver, to include in the federal suit claims for conversion, federal securities law violations, unjust enrichment, fraud, negligent misrepresentation, and failure to pay under the terms of a promissory note. On September 1, 2001, DeNune entered into an assignment agreement with United States Steel, L.L.C., the successor by merger to USX, for the assignment of claims relating to agreements entered into between USX and Consolidated Capital and USX and TPSS. The agreement assigns claims from United States Steel to DeNune for the benefit of unsecured creditors.
On February 21, 2002, the trial court issued an opinion and judgment entry granting DeNune's motion, finding that O.R.C. § 2735.04 permits marshaling of claims against the estate as well as marshaling of assets. Because the assignment would permit DeNune to obtain other assets of the estate, the court concluded that it would benefit all of the claimants against the estate and that therefore a modification of the emergency order appointing the receiver was appropriate.
DeNune has standing to bring claims on behalf of TPSS and its creditors who have unpaid claims. On June 26, 2002, the state trial court upheld the validity of the assignment of USX's claims to DeNune for prosecution in this case. That order was appealed to the state appeals court. On March 21, 2003, the Court of Appeals affirmed the state trial court's decision conferring DeNune's standing to sue Consolidated and related parties. Campbell Investors v. TPSS Acquisition Corp., 152 Ohio App.3d 218, 787 N.E.2d 78 (2003).
On May 10, 2002, DeNune filed a complaint against the defendants in this case. On September 30, 2002, DeNune filed an amended complaint against Consolidated, Paul Bagley, Richard Bailey, Carl Casareto, and corporate and individual John Does.1 Bagley is a citizen of New Jersey who served as the chairman of Consolidated's Board of Directors and the chief executive officer. Bailey is a citizen of Rhode Island who, after March 10, 1998, served as Consolidated's chief operating officer and one of its director. Casareto is a citizen of California who served as Consolidated's chief financial officer after working as a Consolidated financial consultant.
DeNune alleges that immediately after Consolidated, acting through TPSS, obtained Toledo Pickling, the defendants wire-transferred the TPSS assets to themselves, entities they controlled, or persons to whom they were related. In five months, these transactions allegedly totaled $2,273.000. DeNune also alleges that defendants transferred from TPSS to themselves or for their own benefit 3,760 tons of consigned steel product, or the cash proceeds from that steel, valued at more than $1,000,000. This steel was owned by USX pursuant to the Stocks Abroad Agreement. This was the subject of the prior state court lawsuit brought by USX against TPSS in 1999. The steel had not been paid for by TPSS or the defendants, DeNune alleges. These transfers allegedly were made while TPSS was insolvent, or they rendered TPSS insolvent.
DeNune alleges that the transfers of money and steel were made with the intent to defraud TPSS and its creditors.
USX has assigned to DeNune all claims of USX against the defendants arising under or relating to the USX Note, the securities issued by Consolidated to USX, and the Stocks Abroad Agreement.
DeNune asserts the following claims in his amended complaint: 1) fraudulent transfers under O.R.C. § 1336.04(A)(1) and § 1336.04(A)(2); 2) fraudulent transfers under O.R.C. § 1336.05(A); 3) conversion; 4) unjust enrichment; 5) fraud; 6) violation of the Colorado Security Act, § 1151-501(1); 7) negligent misrepresentation; 8) inducing breach of asset purchase agreement to third party beneficiaries; 9) civil conspiracy; 10) violation of federal and state racketeering statutes, 18 U.S.C. § 1962 and O.R.C. §§ 2923.32 and 2923.34; 11) alter ego liability; and 12) breach of fiduciary duty.
Defendants Consolidated, Bagley, and Bailey have filed a motion to dismiss. Defendant Casareto has filed a separate motion to dismiss. This court held its decision on those motions in abeyance pending the appeal in the state Court of Appeals, and now grants the motions in part and denies them in part.
No complaint shall be dismissed unless the plaintiff has failed to allege facts in support of plaintiff's claim that, construed in plaintiff's favor, would entitle the plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). When deciding a motion brought pursuant to Fed.R.Civ.P. 12(b)(6), the inquiry is essentially limited to the content of the complaint, although matters of public record, orders, items appearing in the record,...
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