Weinreis Ethanol, LLC v. Kramer

• Decision Date: 29 December 2022
• Docket Number: Civil Action 21-cv-03120-CMA-NRN
• Parties: WEINREIS ETHANOL, LLC, a North Dakota limited liability company; LAPASEOTES LAND LLC, a Nebraska limited liability company; DINKLAGE FEED YARD, INC., a Nebraska corporation; and EAST COAST AG HOLDINGS LLC, a Delaware limited liability company, Plaintiffs, v. DAVID KRAMER; WILLIAM BORNHOFT; COLORADO AGRI PRODUCTS, LLC, a Colorado limited liability company; and JOHN AND JANE DOES NOS. 1-25, Defendants.
• Court: U.S. District Court — District of Colorado

WEINREIS ETHANOL, LLC, a North Dakota limited liability company; LAPASEOTES LAND LLC, a Nebraska limited liability company; DINKLAGE FEED YARD, INC., a Nebraska corporation; and EAST COAST AG HOLDINGS LLC, a Delaware limited liability company, Plaintiffs,
v.
DAVID KRAMER; WILLIAM BORNHOFT; COLORADO AGRI PRODUCTS, LLC, a Colorado limited liability company; and JOHN AND JANE DOES NOS. 1-25, Defendants.

Civil Action No. 21-cv-03120-CMA-NRN

United States District Court, D. Colorado

December 29, 2022

REPORT AND RECOMMENDATION ON DEFENDANTS KRAMER AND COLORADO AGRI PRODUCTS, LLC'S MOTION TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT (DKT. #66) AND DEFENDANT BORNHOFT'S MOTION TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT (DKT. #84)

N. Reid Neureiter, United States Magistrate Judge

This matter is before the Court upon Orders (Dkt. ##68, 85) entered by Judge Christine M. Arguello referring Defendants Kramer and Colorado Agri Products, LLC's (“CAP”) Motion to Dismiss Plaintiffs' First Amended Complaint (Dkt. #66) and Defendant Bornhoft's Motion to Dismiss Plaintiffs' First Amended Complaint. Dkt. #84.

Defendants Kramer and CAP filed their motion to dismiss on August 2, 2022. Dkt. #66. Plaintiff responded to this motion on September 9, 2022 (Dkt. #81), and

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Defendants Kramer and CAP replied in support of their motion on September 23, 2022. Dkt. #83.

Defendant Bornhoft filed his motion to dismiss on September 27, 2022. Dkt. #84. Plaintiffs responded to Defendant Bornhoft's motion to dismiss on October 18, 2022 (Dkt. #91), and Bornhoft filed his reply in support on November 1, 2022. Dkt. #97.

The Court heard oral argument on both motions on November 16, 2022. See Dkt. #111. The Court has taken judicial notice of the docket and considered the applicable Federal Rules of Civil Procedure and case law. Now, being fully informed and for the reasons discussed below, the Court RECOMMENDS that the subject motions be GRANTED IN PART AND DENIED IN PART.

BACKGROUND^[1]

This is a complex commercial dispute with an extensive cast of characters. Bridgeport Ethanol, LLC (“Bridgeport”), a non-party, produces ethanol and distills wet grains. Dkt. #59 at 2, ¶ 2. Through the purchasing and processing of corn, Bridgeport manufactures ethanol and sells its products to purchasers of ethanol and grains throughout Nebraska and across the county. Id. Plaintiffs are members of and investors in Bridgeport. Id. at 3, ¶ 5.^[2]

Since 2007, CAP has served as the sole management company and commodities marketer for Bridgeport. CAP provides “management and oversight to

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Bridgeport as well as two other ethanol production companies, Sterling Ethanol LLC and Yuma Ethanol, LLC,^[3] each having ethanol plants located here in Colorado.” Id. at 2, ¶ 3. The Management Agreement between Bridgeport and CAP is attached to the First Amended Complaint as Exhibit 2.

Defendants Kramer and Bornhoft are the co-founders and co-owners of CAP.

Kramer serves as the General Manager of CAP and, pursuant to the Bridgeport Operating Agreement (attached as Exhibit 1 to Dkt. #59), also serves as the Managing Manager of Bridgeport. Id. at 2-3, ¶ 4. Kramer and Bornhoft are two of the four Class A Managers of Bridgeport's Board of Managers. According to Plaintiffs, Kramer and

Bornhoft exercise significant control over Bridgeport, including directing decisions about daily operations. Id.

Plaintiffs raise a litany of complaints against Defendants, but the crux of this suit is that Kramer and Bornhoft, individually and through CAP, improperly diverted Bridgeport's profits that otherwise would have been distributed to Plaintiffs. Plaintiffs allege that Kramer, in collaboration with Bornhoft, took Bridgeport funds for his “own use and/or used such funds to pay for or reimburse dues, fees, marketing and advertising, and sponsorship expenses for his personal race car teams or those in which he has interests, including American Ethanol Racing Team, Sterling Racing Team, Kramer Racing American Ethanol NHRA ProStock Team, and Deric Kramer Pro Stock Racing Team.”^[4] Id. at 3, ¶ 5. Further, Defendants allegedly paid “inflated, over-market prices to various enzyme and product suppliers, from whom Bridgeport purchased enzymes and

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other products to produce ethanol.” Id. at 4, ¶ 6. In exchange for Bridgeport paying the inflated prices to the suppliers, the suppliers agreed to sponsor Kramer's personal racing teams. Id.

As part of their concealment of this scheme from Plaintiffs, Defendants terminated Bridgeport's General Manager, Ted Free, after Kramer learned that Mr. Free was questioning the sponsorship arrangements and intended to report his findings to the Bridgeport Board. Id., ¶ 7. Then, Defendants hired a new General Manager, Trevor Morgan, without seeking or obtaining the Bridgeport Board's approval. Id. at 5, ¶ 9. Prior to his employment at Bridgeport, Mr. Morgan worked for two of Bridgeport's suppliers who were both sponsors of Kramer's racing teams. Id.

Plaintiffs further allege that Kramer:

• personally purchased machinery and equipment for his personal use and then required Bridgeport to purchase the equipment from him, even though Bridgeport did not need such equipment

• required Bridgeport to reimburse him for his racing teams' memberships and sponsorships;

• did not seek consent from Bridgeport for the racing teams' memberships and sponsorship expenses in the first instance;

• required Bridgeport to pay for wrappings, vehicle graphics, and other promotional expenses relating to his personal racing teams or those in which he had an interest;

• purchased new equipment for Bridgeport, but then would require Bridgeport trade the new equipment with the Sterling Ethanol, LLC and Yuma Ethanol, LLC plants (which CAP also manages but are separate from Bridgeport), without payment or value to Bridgeport, or in exchange for used or refurbished parts; and

• refused to explain or discuss Bridgeport's financials with Plaintiffs.

See id. at 23-26, ¶¶ 54-58.

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Based on the foregoing allegations, Plaintiffs assert six claims for relief: breach of Operating Agreement (against Kramer and Bornhoft); intentional interference with existing and prospective business and contractual relations (against CAP and Doe Defendants); breach of fiduciary duties (against Kramer and Bornhoft), aiding and abetting breach of fiduciary duties (against Bornhoft, CAP, and Doe Defendants), civil theft (against Kramer and Bornhoft), and a claim for access to books and records (against all Defendants).

Kramer, CAP, and Bornhoft move for dismissal of all claims against them except for the claim for an accounting.^[5]

First, they argue that the damages claims fail because the financial harms alleged were suffered by the corporation, not Plaintiffs, and therefore must be brought as a derivative action. Defendants further argue that Plaintiffs' third and fourth claims- which allege breach of fiduciary duties and aiding and abetting such breach-fail because all duties not expressly set forth in the Bridgeport Operating Agreement have been disclaimed, so no other duties and specifically, no fiduciary duties, are owed. Finally, Defendants argue that the civil theft claim fails because Plaintiffs do not have a proprietary interest in undeclared distributions, and because Plaintiffs have failed to plead that Mr. Kramer or Mr. Bornhoft took property by theft, robbery, or burglary.

The Court addresses each of these arguments in turn.

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LEGAL STANDARD

Rule 12(b)(6) provides that a defendant may move to dismiss a claim for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations and quotation marks omitted).

“A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff.” Hall, 935 F.2d at 1198. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp....