Veroblue Farms USA, Inc. v. Wulf

• Decision Date: 05 June 2020
• Docket Number: Civil Action No. 3:19-CV-00764-X
• Citation: 465 F.Supp.3d 633
• Parties: VEROBLUE FARMS USA, INC., Plaintiff, v. Leslie A. WULF, Bruce A. Hall, James Rea, John E. Rae, Keith Driver, Canaccord Genuity LLC, Christine Gagne, and Sean Maniaci, Defendants.
• Court: U.S. District Court — Northern District of Texas

465 F.Supp.3d 633

VEROBLUE FARMS USA, INC., Plaintiff,

v.Leslie A. WULF, Bruce A. Hall, James Rea, John E. Rae, Keith Driver, Canaccord Genuity LLC, Christine Gagne, and Sean Maniaci, Defendants.

Civil Action No. 3:19-CV-00764-X

United States District Court, N.D. Texas, Dallas Division.

Signed June 5, 2020

Matthew E. Laughlin, Holly M. Logan, Katelyn T. McCollough, Davis Brown Koehn Shors & Roberts PC, Des Moines, IA, Adam Casey Decker, Pro Hac Vice, Caroline Pritikin, Pro Hac Vice, Eileen Boyle Perich, Pro Hac Vice, Patrick Morales-Doyle, Pro Hac Vice, Robert H. Lang, Pro Hac Vice, Renato Mariotti, Thompson Coburn LLP, Chicago, IL, Jasmine Selia Wynton, Nicole Leigh Williams, Thompson Coburn LLP, William L. Banowsky, Thompson & Knight, Dallas, TX, Nicholas Shea Davis, Thompson & Knight LLP, Fort Worth, TX, for Plaintiff.

Peter C. D'Apice, Stutzman Bromberg Esserman & Plifka, Dallas, TX, Anthony Fiotto, Pro Hac Vice, Goodwin Procter LLP, Boston, MA, Eric Lawson, Pro Hac Vice, Goodwin Procter LLP, New York, NY, for Defendants.

MEMORANDUM OPINION AND ORDER

BRANTLEY STARR, UNITED STATES DISTRICT JUDGE

This case is a doozy. Several individuals founded VeroBlue Farms USA, Inc. (VeroBlue) to revolutionize the farm-raised fish industry. It did not go well.

VeroBlue went bankrupt and sued its founders, former officer Keith Driver, a New York investment-banking firm, a co-founder's daughter, and a Canadian lawyer who represents a sister company. VeroBlue's general theories are mismanagement and misrepresentations by its founders, and conspiracy and aiding and abetting by the other defendants. Its founders, along with several VeroBlue directors, then sued the investor who is now (after a bankruptcy discharge) VeroBlue's only shareholder. Their third-party complaint brings claims of tortious interference and breach of the founders' termination agreements.

There are 10 pending motions at this dismissal phase. Defendants Leslie Wulf, Bruce Hall, James Rea, and John (Ted) Rea (collectively, "the Founders") and Driver filed motions to dismiss [Doc. Nos. 184 & 180]. But VeroBlue moved to strike portions of these motions to dismiss, and the Court GRANTS the motion to strike [Doc. No. 215]. The Founders' arguments on deficient fraud pleading could have been raised in the Founders' first motion to dismiss; therefore, Rule 12(g) bars them as untimely. As far as the motion to strike pertains to Driver, his detailed factual affidavit is inappropriate at the dismissal stage, and Rule 12(g) also bars his new single-sentence incorporation by reference of the Founders' motion to dismiss.

Of what remains of the Founders' motion to dismiss [Doc. No. 184], the Court GRANTS IT IN PART . The Court holds that VeroBlue has standing to contest the waste of its corporate assets (and not to contest misrepresentations to nonparties). But VeroBlue's fraud pleading is deficient, and the Court GRANTS LEAVE to VeroBlue to correct these deficiencies (within 28 days of this Order) as to the new fraud claims against the Founders.¹

The Court GRANTS IN PART Driver's other dismissal arguments [Doc. No. 180]. VeroBlue failed to plead its fraud allegations against Driver with the required specificity and must cure these defects in its repleading. As to Driver's argument that a release bars the claims, the Court will defer on such a ruling until VeroBlue has at least repleaded its fraud allegations.

As to the Rule 12(b)(3) motion to dismiss [Doc. No. 211] from New York investment-banking firm Canaccord Genuity LLC (Canaccord), there is a mandatory forum-selection clause at play. The Court declines to dismiss the claims against Canaccord but TRANSFERS them to the United States District Court for the Southern District of New York.

As to Canadian attorney Sean Maniaci, the Court GRANTS his motion to dismiss the claims against him for lack of personal jurisdiction [Doc. No. 206] because his contacts with Texas neither confer general jurisdiction nor give rise to the claims against him.

Three of the third-party defendants have responded to the Founders' third-party complaint: Alder Aqua, Ltd. (Alder), Bjorn Thelander, and Norman McCowan. All three sought to strike and dismiss the third-party complaint [Doc. Nos. 223 & 228]. The Court is obligated to address the three jurisdictional arguments before addressing the motions to strike. First, the Court agrees with Alder's jurisdictional argument that the Court lacks jurisdiction over the Founders' alter ego and contract claims because the Founders never presented these claims to the bankruptcy court (as Alder did with the tortious interference claims). Second, the Court disagrees with Alder's jurisdictional argument that service of process via a solicitor for a British Virgin Islands company was defective under the Hague Convention.² Finally on jurisdiction, the Court concludes that it lacks personal jurisdiction over Thelander [Doc. No. 227].

Lastly, the Court GRANTS the motions to strike the third-party complaint [Doc. Nos. 223 & 228]. The third-party complaint's tortious interference claims do not seek to make the third-party defendants liable for VeroBlue's claims against the Founders. As new and independent claims, Rule 14 prohibits the Founders from injecting them into this lawsuit. As a result of these rulings, the third-party complaint is only operative against the third-party defendants who have not yet responded.

I. Factual Background

The detailed facts of this case are more suited for a book than the pages of the Federal Supplement. The Court will address the high points of the alleged facts that are relevant to the many motions this ruling decides.

Leslie Wulf, Bruce Hall, James Rea, and John (Ted) Rea (the Founders), along with Keith Driver, in 2014 founded VeroBlue, which is a sustainable fish-farm business. The Founders didn't invest their own money in VeroBlue. In July 2016, Alder's predecessor and FishDish LLC invested $34 million in VeroBlue through a preferred stock purchase. Dr. Otto Happel is the principal and primary decisionmaker for Alder. Alder appointed Jens Haarkoetter and Bjorn Thelander as its representatives to the VeroBlue board. Haarkoetter resigned his position as a director in October 2017, and Thelander served as a director until early 2018. Eva Ebstein (Dr. Happel's daughter) was appointed a director in June 2017, and Anders Wester was appointed a director upon Haarkoetter's resignation.

When Alder invested in VeroBlue, Amstar Funds (Amstar) also extended VeroBlue a line of credit. Dr. Happel (who controls Alder) also owns and controls Amstar. In exchange, VeroBlue issued warrants to Alder for Amstar debt that could be exercised to obtain additional shares through a separate agreement. By July 2017, VeroBlue had drawn down the Amstar loan, and Amstar extended VeroBlue an additional $13 million loan facility—with Alder receiving more warrants for VeroBlue stock. The Founders allege that Alder stopped VeroBlue from drawing on the second $13 million loan facility, but Alder exercised warrants on both loan facilities. That move enabled Alder to obtain a 54% interest in VeroBlue.

The Founders claim that as of July 2017, Alder so controlled VeroBlue that VeroBlue became the alter ego of Alder. By early 2018, VeroBlue terminated the last of the Founders, who had allegedly misappropriated or squandered over $90 million in debt and equity. VeroBlue filed for bankruptcy that year. By March 2018, VeroBlue investigated and allegedly began discovering the Founders' bad actions.

Specifically, VeroBlue alleges the Founders engaged in over 14 misappropriation schemes over three years. The first bucket of alleged misdeeds was several separate misappropriation events. First, VeroBlue alleges that the Founders transferred 1.25 million shares of stock to another company they owned and controlled for a total of $1.25—when the stock was sold to others around that time for $.90 per share (the BAJJER Stock Sale). Second, VeroBlue claims the Founders used VeroBlue to repay an alleged debt to American Growth Funding, LLC of $375,000 that benefited them personally and not VeroBlue. Third, VeroBlue alleges that the Founders spent $107,490.51 for compensation and benefits to a VeroBlue employee to oversee the rebuilding of Wulf's lake house in Texas. Fourth, VeroBlue claims Wulf authorized VeroBlue to issue 1.5 million shares of stock for no money to a friend's company, which procured additional investors in VeroBlue. Fifth, the Founders set their compensation at $400,000 annually each (except Driver, whose was $325,000), even though one person salaried at $250,000 annually replaced all five Founders. Fifth, Wulf had VeroBlue pay compensation and benefits of $52,264.28 to his daughter (Gagne) who had no authorization to work in the United States. Sixth, the Founders incorporated a company (Opposing Flows Aquaculture, Inc.) and had VeroBlue buy tanks from that company, which sold them to VeroBlue at a profit after acquiring them from third parties. Seventh, the Founders didn't invest their own money in VeroBlue, but they had VeroBlue Canada issue its stock to entities the Founders owned at $0.000001 per share while charging others $0.90 per share.

VeroBlue also alleges that the Founders engaged in other corporate waste, such as purchasing a building for $400,000 in 2016 that could only be sold for $135,000 in 2018, and buying six tractor-trailers to deliver fish despite all customers being local. Finally, VeroBlue alleges a variety of other miscellaneous allegations, such as the Founders improperly reimbursing themselves $496,000 worth of expenses.

The next bucket of alleged wrongdoing is misrepresentations. VeroBlue alleges that the Founders misrepresented key performance metrics, as well as the abilities of VeroBlue and themselves. Regarding performance metrics, VeroBlue alleges that the Founders represented to directors false metrics for Feed/Fish Conversion Ratio (how much feed it takes to make a fish gain a pound),...