Noble Systems Corp. v. Alorica Central, LLC

• Decision Date: 08 October 2008
• Docket Number: No. 07-1813.,07-1813.
• Citation: 543 F.3d 978
• Parties: NOBLE SYSTEMS CORPORATION, a Georgia Corporation, Appellant, v. ALORICA CENTRAL, LLC, a Nevada limited liability company; Whitebox Advisors, LLC, a Minnesota limited liability company doing business as Pandora Select Partners, LP; Pandora Select Partners, LP, a British Virgin Islands limited partnership, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

543 F.3d 978

NOBLE SYSTEMS CORPORATION, a Georgia Corporation, Appellant, v. ALORICA CENTRAL, LLC, a Nevada limited liability company; Whitebox Advisors, LLC, a Minnesota limited liability company doing business as Pandora Select Partners, LP; Pandora Select Partners, LP, a British Virgin Islands limited partnership, Appellees.

No. 07-1813.

United States Court of Appeals, Eighth Circuit.

Submitted: January 18, 2008.

Filed: October 8, 2008.

Richard L. Robbins, argued, Atlanta GA (Jenifer E. Niedenthal, Atlanta GA, and Cynthia L. Hegarty and Edward P. Sheu, Minneapolis, MN, on the brief), for appellant.

Jeffrey David Hedlund, argued, Minneapolis, MN (Jesseca R.F. Grassley and Nathan A. Brennaman, on the brief), for appellees Whitebox Advisors, LLC and Pandora Select Partners, L.P.

Robert M. Waxman, argued, Beverly Hills, CA (Cynthia A. Cretan, on the brief), for appellee Alorica Central, LLC.

Before WOLLMAN, BRIGHT, and SMITH, Circuit Judges.

WOLLMAN, Circuit Judge.

Noble Systems Corporation sued Alorica Central, LLC, Pandora Select Partners, LP, and Whitebox Advisors, LLC (doing business as Pandora Select Partners, LP)¹ for tortious interference with a business relationship, fraud and intentional and negligent misrepresentation, conversion, unjust enrichment, and conspiracy to defraud Noble and convert its property. Noble also sued Alorica for replevin. Based on the magistrate judge's² report and recommendation, the district court³ granted Alorica's motion to dismiss and its motion for judicial notice in support of its motion to dismiss. The district court also granted Pandora's motion for judgment on the pleadings. Noble appeals from these decisions. We affirm.

We review de novo a district court's dismissal of a claim under Rule 12(b)(6) or Rule 12(c). MM & S Fin., Inc. v. Nat'l Ass'n of Sec. Dealers, Inc., 364 F.3d 908, 909 (8th Cir.2004); Faibisch v. Univ. of Minn., 304 F.3d 797, 799-800, 803 (8th Cir.2002). We accept as true the non-moving party's factual allegations and grant the non-moving party all reasonable inferences from the pleadings. MM & S Fin., 364 F.3d at 909; Faibisch, 304 F.3d at 803.

I.

In August 2004, Noble sold a customer-support call-center system, which included hardware and software, to ACI Telecentrics, Inc., a Minnesota corporation. The title to the hardware passed to ACI, and the software was subject to an ongoing licensing agreement. ACI granted Noble a security interest in the hardware, which Noble failed to perfect. In December 2004, ACI resolved to replace its former line of credit with a line of credit from Pandora, which was accomplished in March 2005. Pandora obtained a security interest in all of ACI's assets, including the hardware purchased from Noble. Pandora perfected its interest by filing with the Minnesota Secretary of State. Gary Kohler was a member of the board of directors for both ACI and Pandora until they entered the credit agreement, at which time he resigned from ACI. Kohler knew of Noble's unperfected security interest.

In early June 2005, Pandora informed ACI that it was "fatigued," but it did not indicate that it was withdrawing its line of credit. On June 15, 2005, however, Pandora informed ACI that it was pulling its line of credit, notwithstanding the fact that ACI was not then in default. ACI was unable to meet its obligations, including its debt to Pandora, without Pandora's line of credit. ACI contacted two parties, one of which was Alorica, about assuming ACI's financing. Upon learning of Alorica's interest, Pandora contacted it directly about purchasing ACI at a closed foreclosure sale. In July, ACI signed a consent and waiver that had been prepared by Pandora and Alorica in which ACI acknowledged that it was in default. The consent and waiver falsely represented that there were no other security interests in the collateral. Pandora thereupon initiated foreclosure proceedings. Alorica purchased the hardware and software from Pandora in a closed sale at a lower price than ACI had asked. Noble was not notified of the foreclosure proceedings, and Pandora did not disburse any proceeds of the sale to Noble. In August 2005, ACI notified its creditors, including Noble, of these events, whereupon Noble contacted Alorica to demand that it pay the software licensing fees it owed. Alorica paid licensing fees for ninety days, beginning from the date of foreclosure, and agreed to reassess the situation after that. After the ninety days, Alorica agreed to enter into a permanent licensing agreement with Noble by December 1, 2005. Alorica did not do so, however, and Noble eventually cut off Alorica's access to the software.

II. Motion for Judicial Notice

Noble appeals the district court's decision to grant Alorica's motion to take judicial notice of the financing statement that Pandora filed with the Minnesota Secretary of State. When ruling on a motion to dismiss under Rules 12(b)(6) or 12(c), a district court generally may not consider materials outside the pleadings. Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir.1999). It may, however, consider some public records, materials that do not contradict the complaint, or materials that are "necessarily embraced by the pleadings." Id. (internal quotation omitted); see Tellabs, Inc. v. Makor Issues & Rights, Ltd., ___ U.S. ___, 127 S.Ct. 2499, 2509, 168 L.Ed.2d 179 (2007). Although Noble's complaint artfully avoids noting that Pandora, unlike Noble, perfected its security interest in ACI's hardware, this lawsuit and the events underlying it hinge on that fact. Moreover, Pandora's financing statement is on file with the state of Minnesota and thus is a public record that can be considered even if not mentioned expressly in the pleadings. Accordingly, the district court did not err in considering the financing statement.

III. Noble's Claims

A. Tortious Interference with a Contractual Relationship

Minnesota law requires that five elements be established in a claim of tortious interference with a contractual relationship: "(1) the existence of a contract; (2) the alleged wrongdoer's knowledge of the contract; (3) intentional procurement of its breach; (4) without justification; and (5) damages." Kallok v. Medtronic, Inc., 573 N.W.2d 356, 362 (Minn.1998) (internal quotation omitted).

1. Pandora

Noble contends that Pandora tortiously interfered with the ongoing Noble-ACI agreement by foreclosing on its loan to ACI despite its knowledge that Noble would not be fully repaid for the hardware it had sold to ACI and would not continue to be paid maintenance fees as provided for under the contract. Even assuming that Noble's allegations could satisfy the other elements of a claim of tortious interference, they cannot show that Pandora acted without justification.

Ordinarily, the existence of a justification is a question of fact that the defendant must prove. Kallok, 573 N.W.2d at 362. If an affirmative defense such as a privilege is apparent on the face of the complaint, however, that privilege can provide the basis for dismissal under Rule 12(b)(6). Bradford v. Huckabee, 394 F.3d 1012, 1015 (8th Cir.2005); Hafley v. Lohman, 90 F.3d 264, 266 (8th Cir.1996). Although our cases require the defense to be apparent on the face of the complaint, this means simply that the district court is limited to the materials properly before it on a motion to dismiss, which may include public records and materials embraced by the complaint. See Porous Media Corp., 186 F.3d at 1079; Owen v. Kronheim, 304 F.2d 957, 958 (D.C.Cir.1962) (per curiam) (considering a defense despite the plaintiff's artful avoidance of mentioning the facts giving rise to the defense because the court was aware of the facts via judicial notice and it justifiably inferred that the defense applied); see also Bradford, 394 F.3d at 1015(considering exhibits attached to the complaint as part of the complaint). Pandora's higher-priority security interest is a matter of public record and is embraced by the complaint, and it raises the affirmative defense that Pandora's conduct was justified.

Generally, a defendant's actions are justified if it pursues its legal rights via legal means. Langeland v. Farmers State Bank of Trimont, 319 N.W.2d 26, 32-33 (Minn.1982). "The general rule with which we are concerned is that one has a right to be secure in his contracts and to pursue his business or employment free from the interference of others except where such others act in pursuance of a superior or equal right." Bennett v. Storz Broad. Co., 270 Minn. 525, 134 N.W.2d 892, 897 (Minn.1965); see Furlev Sales and Assocs., Inc. v. N. Am. Auto. Warehouse, Inc., 325 N.W.2d 20, 25-26 (Minn.1982) (reversing a jury verdict and holding that a corporate officer and principal shareholder was justified in interfering with a contract when he acted in the best interests of his corporation); Harman v. Heartland Food Co., 614 N.W.2d 236, 241 (Minn. Ct.App.2000) (holding that a tortious interference claim "does not lie where the alleged interferer has a legitimate interest, economic or otherwise, in the contract or expectancy sought to be protected and employs no improper means" (internal quotation omitted)); Ludowese v. Redmann, 479 N.W.2d 59, 63 (Minn.Ct.App.1991) (affirming dismissal because the defendant's interference was justified as a matter of law because he lawfully exercised his statutory right of first refusal); see also Prosser and Keeton on Torts 983-86 (W. Page Keeton et al. eds., 5th ed.1984). Noble cannot dispute that Pandora was the highest-priority creditor. Because a senior secured creditor may foreclose and take the collateral, it seems clear that Pandora was pursuing its legal right by legal means, thus justifying its actions.

Noble argues that Pandora foreclosed on its loan in bad faith, thus negating Pandora's justification. Bad faith can constitute evidence that the defendant's conduct was not justified. Nordling v. N. States Power Co., 478...