Tillery Environmental LLC v. A&D Holdings, Inc.

Decision Date09 February 2018
Docket Number17 CVS 6525
CourtSuperior Court of North Carolina
PartiesTILLERY ENVIRONMENTAL LLC, Plaintiff/Counterclaim Defendant, v. A&D HOLDINGS, INC., in its capacity as successor-by-merger to JBC ACQUISITION INC., Defendant/Counterclaim Plaintiff/Third-Party Plaintiff, and ROSS ENVIRONMENTAL SERVICES, INC., Defendant, v. CHRIS WEIDENHAMMER; PAUL TAVEIRA; JOHN RUGGIERO; PAUL BUTSAVAGE; ERIC D. MCMANUS; J. SCOTT PEARCE; MICHAEL STONEMAN; GERALD WALKER; WILLIAM EVANS; TIMOTHY PARKER; THOMAS MORTON; JOSEPH KEITH BURCH; CHRISTOPHER RABLEY; J.W. HALL, JR.; CAROL LOCK; MERI-BETH HALL; MICHAEL R. GRIFFIN; JONATHAN E. HALL; KURT E. KESKINEN; DANIEL L. MARTIN; and JEFF STURGEON, Third-Party Defendants.

McGuireWoods, LLP, by Jodie H. Lawson, Anita M. Foss, Carlo L. Rodes, and Abbey M. Krysak, for Plaintiff Tillery Environmental, LLC and Third-Party Defendants Chris Weidenhammer, Paul Taveira, John Ruggiero, Eric D. McManus J. Scott Pearce, Michael Stoneman, Timothy Parker, Thomas Morton, Joseph Keith Burch, Christopher Rabley, J.W. Hall Jr., Carol Lock, Meri-Beth Hall, Jonathan E. Hall, and Jeff Sturgeon.

Nexsen Pruet, PLLC, by Patrick D. Sarsfield, II and Kathleen Burchette, and Wickens, Herzer, Panza, Cook & Batista Co., by Richard D. Panza, Matthew W. Nakon, and Rachelle Kuznicki Zidar, for Defendants A&D Holdings, Inc. and Ross Environmental Services, Inc.

Essex Richards, by Jonathan E. Buchan and Natalie D. Potter, for Third-Party Defendants Paul Butsavage, William Evans, Michal R. Griffin, Kurt E. Keskinen, Daniel Martin, and Gerald Walker.

ORDER AND OPINION ON PLAINTIFF'S AND THIRD-PARTY DEFENDANTS' MOTIONS TO DISMISS

LOUIS A. BLEDSOE, III SPECIAL SUPERIOR COURT JUDGE.

1. THIS MATTER is before the Court on (i) Plaintiff Tillery Environmental LLC ("Tillery") and Third-Party Defendants Chris Weidenhammer, Paul Taveira, and John Ruggiero's (collectively, the "Tillery Movants") Motion to Dismiss Second Amended Counterclaim and Third-Party Complaint (the "Tillery Motion"), (ii) Third-Party Defendants Eric D. McManus, J. Scott Pearce, Michael Stoneman, Timothy Parker, Thomas Morton, Joseph Keith Burch, Christopher Rabley, J.W. Hall, Jr., Carol Lock, Meri-Beth Hall, Jonathan E. Hall, and Jeff Sturgeon's (collectively, the "McManus Movants") Motion to Dismiss Second Amended Counterclaim and Third-Party Complaint (the "McManus Motion"), and (iii) Third-Party Defendants Paul Butsavage, William Evans, Michal R. Griffin, Kurt E. Keskinen, Daniel Martin and Gerald Walker's (collectively, the "Butsavage Movants, " and collectively, with all other third-party defendants, the "Third-Party Defendants") Motion to Dismiss Second Amended Counterclaim and Third-Party Complaint (the "Butsavage Motion, " and collectively, with the other two motions to dismiss, the "Motions to Dismiss") in the above-captioned case.

2. After considering the Motions to Dismiss, the arguments of counsel for the parties at the October 24, 2017 hearing on the Motions to Dismiss, and the briefs by the parties in support of and in opposition to the Motions to Dismiss, the Court hereby GRANTS in part and DENIES in part the Motions to Dismiss.[1]

I. BACKGROUND

3. The Court does not make findings of fact when ruling on motions to dismiss under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. See, e.g., Concrete Serv. Corp. v. Inv'rs Grp., Inc., 79 N.C.App. 678, 681, 340 S.E.2d 755, 758 (1986). Rather, the Court recites the relevant allegations in the pleading asserting the challenged claims-here, Defendant A&D Holdings, Inc.'s ("A&D") Second Amended Counterclaim and Third-Party Complaint (the "SACC").

A. The Parties and Agreements

4. This case centers around a Stock Purchase Agreement (the "SPA") and an escrow agreement (the "Escrow Agreement"), both of which facilitated a merger by stock purchase by which JBC Acquisition, Inc. ("JBC")-a subsidiary of Ross Environmental Services, Inc. ("Ross")-purchased the shares of A&D (the "Sale") and was then merged into A&D (the "Merger") (for purposes of this Opinion, the Court refers to Defendant/Counterclaim Plaintiff/Third-Party Plaintiff A&D in its capacity as successor by merger to JBC as "Buyer" and the pre-Sale A&D entity as "Seller"). (Second Am. Countercl. & Third-Party Compl. ¶¶ 1, 24 [hereinafter "SACC"], ECF No. 35.) The SPA was executed and the Sale was completed on May 8, 2015, (SACC ¶ 24), and the Merger was effectuated on July 21, 2015, (SACC ¶ 1).

5. Prior to the Sale, Seller was owned and/or operated by Plaintiff/Counterclaim Defendant Tillery and Third-Party Defendants. Tillery owned more than eighty percent of Seller's stock before the Sale and served as the shareholder representative for all pre-Sale shareholders of Seller during the SPA's negotiation and the closing of the Sale. (SACC ¶ 2.) Third-Party Defendants were all officers or shareholders of Seller. (SACC ¶¶ 3-23.) Several of the Third-Party Defendants play a more prominent role in Buyer's allegations-in particular, Chris Weidenhammer ("Weidenhammer"), a member and manager of Tillery, an officer of Seller, and the only Third-Party Defendant who did not own shares of Seller; Paul Taveira ("Taveira"), an officer, manager, and shareholder of Seller; and John Ruggiero ("Ruggiero"), also an officer, manager, and shareholder of Seller. (SACC ¶¶ 3-5.) The Court sets forth in the succeeding paragraphs Buyer's allegations in support of its claims against these individuals and the remaining Third-Party Defendants as well as its counterclaims against Tillery.[2]

6. The SPA between Buyer and Seller was executed on May 8, 2015 by Buyer, Seller, Tillery, Taveira, Ruggiero, and the remaining Third-Party Defendants. (SACC Ex. 1, at Joinder Signature Pages [hereinafter "SPA"], ECF Nos. 35.1, 35.2.) The SPA stated that the shareholders of Seller would indemnify Buyer if certain representations and warranties in the SPA were breached. (SPA § 7.2(b).) To pay any such claims, the Escrow Agreement required Buyer to set aside approximately $2.8 million in a separate escrow account. (SACC Ex. 2, at 1-2 [hereinafter "Escrow Agreement"], ECF Nos. 35.3, 35.4.) Any demand for payment against this amount was required to be received by the designated escrow agent by November 8, 2016. (Escrow Agreement 3; see SACC Ex. 27, at 2, ECF No. 35.31.) The representations and warranties applicable to this dispute continued until November 8, 2016 as well. (SPA § 7.1(a).) If Buyer provided proper notice under the terms of the SPA, the representations and warranties would survive and continue until any claim was resolved. (SPA § 7.1(c).) Buyer alleges that it provided timely and proper notice and timely filed its Counterclaim and Third-Party Complaint concerning several issues that came to light after the Sale that Buyer believes significantly affected A&D's value.

B. Safety Rating Allegations

7. A&D and its wholly-owned subsidiaries (collectively, the "A&D Companies") are involved in the businesses of, among other things, transporting and managing hazardous and non-hazardous waste, remediating contaminated water and soils, and responding to environmental emergencies. (SACC ¶ 26); see also Tillery Envtl. LLC v. A&D Holdings, Inc., 2017 NCBC LEXIS 68, at *2 (N.C. Super. Ct. Aug. 4, 2017). In these industries, a company's safety record is important. Customers and prospective customers require certain safety measurements be met as a prerequisite for doing business or maintaining business relationships. (SACC ¶ 28.) One such safety measurement is a company's Experience Modification Rate ("EMR"). (SACC ¶ 27.) Another is a company's Total Recordable Incident Rate ("TRIR"). (SACC ¶ 30.)

8. A company's EMR is a numerical rating calculated and assigned by the National Council on Compensation Insurance ("NCCI"). (SACC ¶ 27.) NCCI calculates a company's EMR by taking the company's "workers' compensation loss experience and comparing it to the average loss experience of other businesses in the same industry classification." (SACC ¶ 27.) NCCI uses loss experiences over a three-year period to calculate the EMR. (SACC ¶ 27.) As an example, A&D's 2015 EMR was calculated from loss experiences in 2011, 2012, and 2013. (SACC ¶ 27.)

9. The average loss for businesses in a particular industry is represented by an EMR of 1.0. (SACC ¶ 27.) If a business has an EMR over 1.0, for example, 1.06, the business has an above-average number of workers' compensation losses. (SACC ¶ 27.) A number below 1.0, for example, 0.96, would indicate a business has a below-average number of workers' compensation losses, and thus, a better-than-average safety record. (SACC ¶ 27.)

10. A company's TRIR, on the other hand, "accounts for how many Occupational Safety and Health Act ('OSHA') recordable incidents a company experiences per number of hours worked." (SACC ¶ 29.) The more OSHA incidents a business experiences, the higher the business's TRIR. (SACC ¶ 29.)

11. Buyer's allegations regarding safety ratings focus mainly on two central points. First, Buyer claims Seller concealed or misrepresented information about Seller's EMR for specific years. Second, Buyer alleges Seller concealed actual workplace injuries that have contributed to further safety issues that Buyer must now confront. Buyer asserts that the concealment of this information denied Buyer its opportunity to accurately evaluate what a fair purchase price for A&D would be or whether Buyer wished to purchase the company at all. According to Plaintiff, Seller's intentional failure to disclose this information caused Buyer to pay an "artificially inflated purchase price for" A&D. (SACC ¶ 87.)

1. EMR Allegations

12. Leading up to the Sale, Buyer submitted due diligence requests to Seller. (SACC ¶¶ 34-35.) Among these requests...

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