Novolex Holdings, LLC v. Wurzburger
| Decision Date | 17 August 2020 |
| Docket Number | CIVIL ACTION NO. 19-145-DLB-CJS |
| Parties | NOVOLEX HOLDINGS, LLC, et al. PLAINTIFFS v. JOHN WURZBURGER DEFENDANT |
| Court | U.S. District Court — Eastern District of Kentucky |
This matter is before the Court on Defendant John Wurzburger's Partial Motion to Dismiss (Doc. # 12). Specifically, pursuant to Federal Rule of Civil Procedure 12(b)(6) he asks that all claims asserted by Plaintiffs Waddington Group, Inc. and WNA, Inc. be dismissed, as well as seven of the claims asserted by Plaintiff Novolex Holdings, LLC. Id. at 1. The Motion having been fully briefed, (Docs. # 17 and # 18), it is now ripe for the Court's review. For the reasons set forth herein, the Motion to Dismiss is granted in part and denied in part.
This matter arises from the sale of Plaintiff The Waddington Group ("TWG") from Newell Brands, Inc. ("Newell") to Plaintiff Novolex Holdings, LLC ("Novolex") in June of 2018.1 (Doc. # 1 at 1). Defendant John Wurzburger was the CEO of TWG from 2015until its acquisition by Novolex; after TWG was acquired, "Wurzburger continued to oversee TWG's operation under Novolex's ownership until he was terminated in December of 2018." Id.
On May 2, 2018, Novolex signed a contract (the "Agreement") agreeing to purchase TWG from Newell for 2.275 billion dollars, a price based on TWG's projected "earnings before interest, taxes, depreciation, and amortization." Id. at ¶¶ 8-10. The deal closed on June 29, 2018. Id. at ¶ 11. In preparation for the sale (the "Transaction"), Novolex undertook due diligence of TWG. Id. at ¶¶ 17-19. Wurzburger had been identified by Newell as "the primary person who could answer questions for Novolex regarding TWG." Id. at ¶ 17. In fact, Wurzburger allegedly gave presentations to Novolex about TWG and answered questions about TWG; he was also listed in the Agreement "as a person with 'Knowledge' for [Newell]." Id. at ¶¶ 17-18.
Novolex now alleges that Wurzburger was not honest in providing information during the due diligence process. Specifically, Novolex accuses Wurzburger of failing to inform Novolex that TWG's third largest customer ("Material Customer"), starting in late 2017, began "express[ing] frustration with TWG about pricing and the quality of TWG's performance under its contracts." Id. at ¶ 22. Allegedly, these complaints were ongoing through the closing of the Transaction. Id. at ¶ 24. Novolex specifically alleges that prior to the signing of the Agreement in May 2018, the Material Customer had told TWG "that it was going to make . . . a 'hard switch' away from one of TWG's contracts to find alternative suppliers." Id. at ¶ 25. Then, between the signing of the Agreement and closing, the Material Customer "informed TWG that, for the first time in years, it would end a set of promotional contracts that generated large orders by the Material Customerfor TWG's products." Id. at ¶ 26. On June 22, 2018, the Material Customer told TWG "that it had selected competing offers and the promotions contracts were closed." Id. Novolex alleges that, despite Wurzburger knowing that the loss of the Material Customer's contracts was problematic for the Transaction, he did not inform Novolex of the issue until 10 days after the closing of the Transaction. Id. at ¶¶ 27-30, 32. In sum, Novolex accuses Wurzburger of failing to disclose that TWG's financial projections, which were provided to Novolex, were not attainable. Id. at ¶¶ 20-21.
It is further alleged that Wurzburger continued to provide incorrect information about "customer relations, operations, and finances" after the Transaction's closing. Id. at ¶¶ 33-34. Specifically, Novolex alleges that Wurzburger "withheld information . . . regarding the status of the TWG Recovery Plan2 and the chances for its success" and "responded to management with inconsistent or incorrect data," among other things. Id. at ¶¶ 35-36. It claims that Wurzburger also encouraged others at TWG to withhold information. Id. at ¶ 37. Allegedly, these actions "undermined Novolex's efforts to address TWG's numerous negative business issues and put Novolex at risk of having a culture in which withholding information, or providing false information, was actively encouraged." Id. at ¶ 38. As a result of his actions, Wurzburger was not able to adequately do his job and he was terminated on December 14, 2018. Id. at ¶¶ 41-42. Additionally, Wurzburger allegedly took Novolex's confidential information, shared it with his attorneys, and refused to return it, despite being obligated to do so. Id. at ¶¶ 46-48.
Novolex alleges that Wurzburger had incentives to hide information to ensure the Transaction closed and that he remained employed at TWG. Id. at ¶¶ 13-16. Specifically, after the closing he "received nearly one million dollars in the form of a cash payment, a management bonus, and an equity payment." Id. at ¶ 16. Additionally, if he stayed employed at TWG until the end of 2018 and met other requirements, he was to receive a multi-million-dollar payout under a Special Incentive Plan ("SIP"). Id. at ¶¶ 14-15.
As a result of Wurzburger's actions, Novolex alleges that it "closed the Transaction at an unjustified price, resulting in a loss of approximately $267 million (i.e. the difference between what Novolex paid for TWG and TWG's actual value based on the facts concealed from Novolex prior to the Closing)." Id. at 3. It further claims that additional damages "continue to mount." Id. Accordingly, Novolex, along with TWG and WNA, bring the instant suit3 alleging that "Wurzburger's deceitful actions violated contractual and common law duties that he owed Novolex and significantly damaged Novolex as a consequence." Id. Specifically, Plaintiffs bring claims of negligent misrepresentation (Count I), fraudulent misrepresentation (Count II) and interference with a contract (Count III) for his pre-closing actions. Id. at ¶¶ 49-69. They also bring claims of breach of contract (Count IV),4 declaratory judgment (Count V), conversion (Count VI), breach of fiduciary duty (Count VII), negligent misrepresentation (Count VIII), and fraudulent misrepresentation (Count IX) for Wurzburger's post-closing actions. Id. at ¶¶ 70-115. Novolex asks that, inter alia, Wurzburger return the compensation he received after theclosing and under the SIP and that Novolex be paid compensatory, consequential, and punitive damages. Id. at 20.
In response to the Complaint, Wurzburger moved to dismiss all of the claims brought by TWG and WNA, as well as the negligent and fraudulent-misrepresentation claims, the interference-with-a-contract claim, the conversion claim, and the breach-of-fiduciary-duty claim. (Doc. # 12). That Partial Motion to Dismiss is ripe, (Docs. # 17 and # 18), and is now before the Court.
Upon a Rule 12(b)(6) motion to dismiss, a court may dismiss a complaint that "fail[s] to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6). In order "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim for relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible when "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Twombly, 550 U.S. at 556). A complaint does not have to show that liability is probable, "but asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 557).
When evaluating a complaint, a court must accept all facts pled in the complaint as true. Id. It need not, however, "accept as true a legal conclusion couched as a factual allegation." Id. (quoting Twombly, 550 U.S. at 555). Merely stating the elements of aclaim is insufficient; while "legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Id. at 678-79.
When considering a motion to dismiss pursuant to Rule 12(b)(6), a court "may consider the [c]omplaint, and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to the defendant's motion to dismiss so long as they are referred to in the [c]omplaint and are central to the claims contained therein." Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008) (citing Amini v. Oberlin Coll., 259 F.3d 493, 502 (6th Cir. 2001)). Considering documents beyond these converts a motion to dismiss into a motion for summary judgment. Spencer v. Grand River Nav. Co., Inc., 644 F. App'x 559, 561-62 (6th Cir. 2016) (citing Bassett, 528 F.3d at 430). Additionally, however, "supplemental documents attached to a 12(b)(6) . . . motion" may "convert the motion into one for summary judgment where the documents ... 'rebut, challenge, or contradict anything in the plaintiff['s] complaint.'" Arnold v. Liberty Mut. Ins. Co., 392 F. Supp. 3d 747, 764 (E.D. Ky. 2019) (quoting Song v. City of Elyria, 985 F.2d 840, 842 (6th Cir. 1993)).
Here, attached to the Motion to Dismiss is the complaint in a related case filed in Delaware state court. (Doc. # 12-1 at 2-66). Attached to that complaint are a number of exhibits, id. at 68-211, including the Agreement (labeled as the Equity Purchase Agreement) between Novolex and Newell which governed the purchase of TWG by Novolex, id. at 69-171. Also attached to the Motion is the Return of Property Agreement, (Doc. # 12-2), which "provides for 'the return of Novolex property in Wurzburger's possession and the deletion of Novolex's property from data sources in Wurzburger's possession and control.'" (Doc. # 12 at 4) (quoting (Doc. # 12-2 at 2)). The Delawarecomplaint, many of its exhibits, and the Return of Property Agreement are not discussed in...
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