In re Quality Botanical Ingredients, Inc.
| Decision Date | 16 June 2000 |
| Docket Number | Adversary No.-99-5532,Bankruptcy No. 99-5800 |
| Citation | 249 BR 619 |
| Parties | In re QUALITY BOTANICAL INGREDIENTS, INC., Debtor. Quality Botanical Ingredients, Inc., Plaintiff, v. Triarco Industries, Inc. and Rodger Rohde, Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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Karen L. Gilman, Adam Derman, Wolff & Samson, Roseland, NJ, for defendants.
David L. Bruck, Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, LLP, Iselin, NJ, for plaintiff.
The plaintiff, which is the debtor-in-possession in this chapter 11 case, filed a complaint for damages and rescission of a settlement agreement entered as a consent order in a state court action. The complaint alleges defamation, breach of contract and tortious interference with prospective economic advantage, arising out of statements made by one of the defendants, who is the principal of the other defendant, at the meeting to form the committee of unsecured creditors. The defendants filed a motion for summary judgment, which plaintiff opposes. Plaintiff filed a motion to amend the complaint to add another party as plaintiff and to assert a preference avoidance action under 11 U.S.C. § 547, which defendants oppose. This is the court's decision on the defendants' motion for summary judgment and plaintiff's motion to amend the complaint. The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 151 and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (C), (F) and (O). This shall constitute the court's findings of fact and conclusions of law.
Rodger Rohde ("Rohde") is president and principal of Triarco, Inc. ("Triarco," or collectively "defendants"). Triarco is a supplier of bulk ingredients in the nutrition industry, and claims that the formulations of many of its products are proprietary, confidential and not generally known or available to the public. Triarco alleged that a predecessor of the debtor, Quality Botanical Ingredients, Inc. ("QBI" or "plaintiff"), known as Island Herbs, Inc. conspired with an employee of Triarco to gain access to Triarco's trade secret information to unfairly compete with Triarco. These activities were the subject of a state court action filed by Triarco in 1993 in the Superior Court of New Jersey ("the state court action"). ¶ 9 of the amended complaint filed in that action states that defendants' "certificates of analysis and other documentation necessary in the industry for the sale of products . . . were purloined by Triarco's employee . . . and delivered to QBI." ¶ 11 of that amended complaint, which deals with allegations concerning certain patents belonging to Triarco, states that its employee "has surreptitiously gained possession of" the patent materials "for his benefit and/or the benefit of QBI." Among other causes of action, the amended complaint alleged breach of contract, tortious interference with contract, unjust enrichment, fraud and conversion.
The state court action was settled with the entry of a consent order on January 15, 1998 (the "Consent Order"). The Consent Order provided that QBI was to pay to Triarco the sum of $1,200,000, under the terms of a promissory note dated December 11, 1997 ("promissory note"), a copy of which was attached to the Consent Order, which called for 60 consecutive monthly installments, beginning on November 1, 1997 and ending October 1, 2002. The Consent Order also provided security in the form of two personal guarantees, an assignment of QBI stock to be held in escrow by QBI in the event of a default under the terms of a pledge and security agreement and a second mortgage ("the mortgage") on real property rented to QBI as its place of business, but owned by an affiliate of QBI, MRA Associates, LLC ("MRA"). The parties further agreed in ¶ 3 of the Consent Order
that no disparaging statements shall be made by any of the parties and that the terms and conditions of this settlement shall remain confidential, including information relating to QBI provided pursuant to the Promissory Note, Mortgage, Pledge and Security Agreement, and Guaranty Agreement, except as may be necessary to (a) enforce the terms and conditions of this settlement; (b) to comply with reasonable requests of third parties regarding the parties respective businesses and/or (c) as may be required by law.
In exchange, Triarco agreed to dismiss the state court action with prejudice and without costs.
The Consent Order contains no admission of guilt by QBI. QBI claims that its motive for settling the case was to end almost five years of contentious, expensive litigation and to put an end to the difficulty of remaining in business in the face of the continuing derogatory and purportedly false allegations being made by Triarco. Therefore, QBI insisted on the inclusion of ¶ 3 and would not have agreed to the settlement without it.
On July 12, 1999, QBI filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. As of the petition date, QBI apparently had paid $420,000 to Triarco under the promissory note, because Triarco filed a proof of claim for $780,000, plus costs and interest.
On August 3, 1999, an attorney for the United States' Trustee convened a meeting of the largest creditors of the debtor to form an official committee of unsecured creditors (the "committee formation meeting"). Rohde, as principal of Triarco, was present at the committee formation meeting. When Rohde was asked by the U.S. Trustee's attorney to state the basis of Triarco's claim against QBI, he replied that the basis was "theft" and "stealing". As a result, John Schortz ("Schortz"), the president of the debtor, who was also present, complained to the U.S. Trustee's attorney that Rohde's remarks evinced a malicious attitude toward the debtor and, she apparently agreed that Rohde should not have a seat on the committee. QBI further alleges that Schortz has had subsequent conversations with suppliers and other creditors who were present at the committee formation meeting (¶ 14, Certification of Joseph R. Schortz, President of the debtor, in opposition to defendants' motion for summary judgment).
On November 3, 1999, plaintiff filed the within complaint. The defendants filed a motion for summary judgment on February 8, 2000. Plaintiff filed opposition and on February 24, 2000, a motion to amend the complaint, to join MRA as co-plaintiff, and to set forth a claim for recovery of preferential payments.
Defendants argue in support of their motion for summary judgment that the statements made by Rohde were made in the course of a judicial proceeding and thus are absolutely privileged, and furthermore, they are true. Thus there is no action for defamation as a matter of law. Defendants also argue that Rohde's statements are protected by the "fair report privilege" because they represented a summary of the complaint in the state court action.1
With respect to the cause of action asserted for breach of the Consent Order, defendants assert that QBI itself breached the Consent Order first by failing to pay and therefore, under New Jersey law, cannot demand enforcement of the agreement against defendants. Further, the statements were made in response to a request by a third party, the U.S. Trustee's attorney, which was expressly permitted under the terms of the Consent Order. The defendants argue that there are no material facts in dispute, and the complaint is ripe for summary judgment.
Defendants have presented no arguments, oral or written, in opposition to the count of plaintiff's complaint alleging tortious interference with contractual relations and prospective economic advantage.
With respect to the plaintiff's motion to amend the complaint, defendants argue that the motion to add a non-debtor as a party plaintiff and to add a preference claim should be denied because they would not survive a motion to dismiss. The defendants contend that the court has no jurisdiction over any claim by MRA against the defendants because any such claim is a noncore, unrelated proceeding. The defendants also argue that the claims asserted by MRA are identical to those asserted by the debtor, and will fail for the same reasons set forth in defendants' motion for summary judgment. In response to the proposed preference claim the defendants argue that there is no cause of action because the payments were made in the ordinary course of the debtor's business. Thus, plaintiff's motion to amend the complaint should be denied.
The plaintiff contends that the statements made by Rohde at the committee formation meeting were defamatory and were made with the intent to injure the plaintiff, and that injury occurred. The plaintiff argues that Rohde's statements were not privileged because the committee formation meeting was not a judicial proceeding. Alternatively, the plaintiff argues that the remarks constitute a breach of the terms of ¶ 3 of the Consent Order, entitling plaintiff to rescission of the Consent Order, termination of the settlement agreements, disgorgement of monies previously paid, and compensatory and punitive damages. The plaintiff argues that there are material issues of fact with respect to these issues, and the case is therefore not ripe for summary judgment.
The Amended Complaint seeks to add MRA as a party plaintiff. No change has been proposed to the original five counts of the complaint, except to add MRA in addition to QBI in each of the demands for relief. QBI proposes to add three counts to the complaint. The sixth count alleges that by virtue of Rohde's breach...
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