Murex, LLC v. GRC Fuels, Inc.
| Decision Date | 10 August 2016 |
| Docket Number | CIVIL ACTION NO. 3:15-CV-3789-B |
| Parties | MUREX, LLC, Plaintiff, v. GRC FUELS, INC., ET AL., Defendants. |
| Court | U.S. District Court — Northern District of Texas |
Before the Court is the Defendants GRC Fuels, Inc. ("GRC") and Gregory Schnabel ("Schnabel")'s Motion to Dismiss pursuant to FED. R. CIV. P. 12(b)(6) (doc. 34). For the reasons that follow, the Court concludes that the Defendants' Motion should be, and hereby is, GRANTED in part and DENIED in part.
This dispute arises out of a series of contracts in which the plaintiff, Murex LLC ("Murex"), purchased renewable fuel credits -- associated with batches of renewable fuel by Renewable Identification Numbers ("RINs") -- from the defendant GRC. Plaintiff's First Amended Complaint ("Am. Compl.") ¶ 1 (doc. 19). Murex asserts an array of fraud and assorted non-contractual causesof action arising out of its purchase of these renewable fuel credits from GRC which were later deemed invalid by the Environmental Protection Agency (EPA).
In the Energy Policy Act of 2005, Congress required that a certain percentage of the fuel that petroleum refiners and importers introduced into the domestic gasoline market be renewable fuel. See id. ¶ 29. In passing the Energy Policy Act, Congress established a regulatory scheme that permitted producers of renewable fuel to generate renewable fuel credits, RINs. Id. In doing so, Congress set up a secondary market in which petroleum producers that do not themselves produce renewable fuel can purchase RINs from other producers and use the RINs to comply with the renewable volume obligations. Id. In 2010, Congress sought to better regulate the secondary RIN market and implemented the Moderated Transaction System ("EMTS"), through which fuel producers must electronically submit reports to the Environmental Protection Agency ("EPA") about their fuel and RIN generation. Id. ¶ 30. Under the EMTS, RINs are electronically generated by producers, pursuant to EPA regulations, and traded on the open market through EMTS. Id. When RINs are created, the producers assign the RINs "D Codes," which reflect the percentage reduction of greenhouse gas emissions for the underlying fuel. Id. ¶ 36. Purchasers of renewable fuel and RINs on the secondary market are able to commission "Certificates of Analysis" from the producer, prepared by independent laboratories. Id. ¶ 35.
The underlying renewable fuel and RINs at issue in this case originated from New Energy Fuels LLC ("NEF") and Chieftain Biofuels, LLC ("Chieftain"). Id. ¶¶ 62, 86. Dean Daniels, Richard Smith and Brenda Daniels (the "Felon Defendants") were officers and employees of both entities andare defendants in this case.2 Id. ¶¶ 12, 40. The Felon Defendants told the EPA that NEF and Chieftain were generating biofuel, and the EPA granted them the ability to generate RINs within EMTS and transfer those RINs to others. Id. ¶ 40. In reality, NEF was generating low quality "bunker fuel" and Chieftain was simply filtering oil and grease. Id. ¶¶ 41-42.
In a July 2011 conversation, Schnabel, the president of GRC, informed Murex that GRC's business model was to (i) take possession of the RIN producers' biodiesel, including NEF biodiesel; (ii) separate the RINs from the biodiesel, and re-sell them into the secondary market; and then (iii) distribute the biodiesel to GRC's customers along the east coast. Id. ¶ 54. In 2011 and 2012, Schnabel later verbally repeated those representations, and confirmed them in writing, throughout GRC's business relationship with Murex. Id. ¶¶ 55-56. From August 2011 through December 2011, Murex purchased NEF-generated RINs from GRC. Id. ¶ 62.
In or about October 2011, before Murex began purchasing Chieftain-generated RINs, Schnabel informed Murex that GRC was taking possession of Chieftain's biodiesel and re-selling it to GRC's customers along the east coast. Id. ¶ 55. In December 2011, Murex stopped buying NEF-generated RINs from GRC because GRC and NEF were unwilling to provide Murex with further documentation. Id. ¶ 74. In response, Schnabel recommended Murex replace NEF with Chieftain as its primary RIN producer, although Schnabel did not inform Murex that Chieftain was owned and operated by the same individuals that owned and operated NEF. Id. ¶¶ 79-80. GRC sold Murex Chieftain-generated RINs from October 2011 through March 2012. Id. ¶ 86.
Between August 2011 and March 2012, all of approximately 52 RIN purchases were initially agreed to in a telephone conversation between Murex and Schnabel. Id. ¶¶ 62, 83. The substance of the conversations was later confirmed within twenty-four hours through RIN confirmations accompanied with terms and conditions, the underlying written contracts at issue (the "Purchase Agreements"). Id. ¶¶ 63, 84.
Several years later, in July 2015, the EPA issued a notice of violation stating that, from July 7, 2010 through February 29, 2012, all of the RINs generated by NEF and Chieftain -- approximately 15 million RINs in total -- have been determined to be invalid. Id. ¶ 46. As set forth in the Department of Justice press release attached to the complaint, the Felon Defendants' "complicated . . . scheme" defrauded both the EPA and the Internal Revenue Service ("IRS") with their certifications and other representations that the fuel they were producing was biodiesel. Id., Exhibit E to the Am. Compl. at 1. The Felon Defendants each pled guilty to the charge that they falsely represented to the EPA and IRS that they were producing biodiesel. See id., Exhibits A-C to the Am. Compl.
On November 6, 2015, Murex filed suit in the District Court of Dallas County, Texas 191st Judicial District (doc. 1-5). The defendants GRC and Schnabel removed the case to this court. (doc. 1). On January 15, 2016, after seeking leave of court, Murex filed its amended complaint (doc. 19). In its amended complaint, Murex asserts twelve causes of action against the Defendants, including ten claims against Defendants GRC and/or Schnabel (the "GRC Defendants"). On February 11, 2016, the GRC Defendants filed the instant Motion to Dismiss all claims asserted against them (doc. 34). Murex filed a timely response (doc. 44), to which the GRC Defendants served a timely reply (doc. 51). The Motion is now ripe for review.
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). If a plaintiff's complaint fails to state such a claim, Rule 12(b)(6) allows a defendant to file a motion to dismiss. FED. R. CIV. P. 12(b)(6). In considering a Rule 12(b)(6) motion to dismiss, "[t]he court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks omitted) ). The Court will "not look beyond the face of the pleadings to determine whether relief should be granted based on the alleged facts." Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). Rather, the Court's review is limited to the allegations in the complaint and to those documents attached to a defendant's Motion to Dismiss to the extent that those documents are referred to in the complaint and are central to the plaintiff's claims. Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004).
To survive a motion to dismiss, a plaintiff "must plead facts sufficient to show that her claim has substantive plausibility," Johnson v. City of Shelby, 574 U.S. ___, 135 S. Ct. 346, 347 (2014). That is, she must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). This standard "is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 560). "Threadbare recitals of the elements of a causeof action, supported by mere conclusory statements, do not suffice." Id. When well-pleaded facts fail to meet this standard, "the complaint has alleged -- but it has not shown -- that the pleader is entitled to relief." Id. at 679 (internal quotation marks and alterations omitted).
The GRC Defendants first contend that Murex's claims are foreclosed by the unambiguous terms of the Purchase Agreements. GRC Defendants' Motion to Dismiss Pursuant to Federal Rule 12(b)(6) and Memorandum in Support ("Motion") at 10-13 (doc. 34) (citing Exhibit J to Am. Complaint ("Exhibit J") (doc.14)). Specifically, the GRC Defendants aver that § 14.1 () and § 7.3 () "unequivocally foreclose[]" any claim Murex may have against the GRC Defendants.3 Motion at 10 (citing Exhibit J). In response, Murex contends that sections 7.3 and 14.1 do not explicitly and unequivocally waive fraud claims or disclaim reliance onany representations. Murex's Response to the GRC Defendants' Motion to Dismiss and Memorandum in Support ("Response") at 8 (doc. 44).
Under Texas contract law,4 to determine if a contract precludes a...
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