Wells Fargo Bank, N.A. v. Worldwide Shrimp Co.
| Decision Date | 04 September 2019 |
| Docket Number | No. 17 CV 4723,17 CV 4723 |
| Parties | WELLS FARGO BANK, N.A., Plaintiff/Counter-Defendant, v. WORLDWIDE SHRIMP COMPANY and WILLIAM J. APPELBAUM, Defendants/Counter-Claimants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Plaintiff/counter-defendant Wells Fargo Bank, N.A.'s complaint alleges that defendants/counter-claimants Worldwide Shrimp Company and William J. Appelbaum breached a loan agreement. Defendants have counterclaimed, alleging that Wells Fargo breached that agreement (and that Wells Fargo tortiously interfered with their contractual relationships and business expectancies). Wells Fargo says it has documents that, taken in combination with the terms of the agreement and generally accepted accounting principles, prove that it did not breach the agreement, and that defendants' tortious interference claims fail as a matter of law. It also says that defendants have not done enough to remedy the problems that led to the dismissal of their original breach-of-contract counterclaim. Wells Fargo moves to dismiss those counts from the amended counterclaim.
A complaint must contain a short and plain statement that plausibly suggests a right to relief. Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009); Fed. R. Civ. P. 8(a)(2). In ruling on a motion to dismiss, a court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor, but the court need not accept legal conclusions or conclusory allegations. Ashcroft, 556 U.S. at 680-82. A complaint must "contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 562 (2007). See also Firestone Fin. Corp. v. Meyer, 796 F.3d 822, 827 (7th Cir. 2015) ().
Much of the factual background relevant to the parties' dispute has been recounted in other orders. See, e.g., [164].1 What is pertinent to Wells Fargo's present motion are the allegations in defendants' amended counterclaim. See [181]; Fed. R. Civ. P. 12(b), (d). According to the amended counterclaim, Wells Fargo extended a line of credit to Worldwide and Appelbaum worth $15 million, [181] at 37, ¶ 7,2 and, in return, Worldwide promised to maintain, in accordance with "generally accepted accounting principles," (1) a "tangible net worth" of not less than $2.0 million, [1-1] at 10, § 4.9(a); [1-1] at 19, § 2; [1-1] at 22, § 43, (2) "minimum net income after taxes not less than $1.00 as of each fiscal quarter end," [1-1] at 10, § 4.9(b); [1-1] at 19, § 34, and (3) certain books and records. See, e.g., [1-1] at 9, § 4.2.
Worldwide also promised to provide Wells Fargo with annual and monthly financial statements. [1-1] § 4.3(a), (b), (f). Each annual financial statement was to be accompanied by a certificate verifying that the statements were accurate, and that Worldwide was "in compliance with all financial covenants ... and that there exists no Event of Default nor any condition ... which with the ... passage of time ... would constitute an event of default." [1-1] § 4.3(f).
The loan documents list eight "events of default," [1-1] at 12-13, § 6.1, including "[a]ny default in the performance of or compliance with any obligation, agreement or other provision" contained in any of the loan documents. Id. § 6.1(c). Upon the occurrence of an event of default, the loan documents grant Wells Fargo the right to certain remedies, including the right to make "all indebtedness of Borrower ... immediately due and payable," and the right to opt out of "extend[ing] any further credit under any of the Loan Documents." [1-1] at 13, § 6.2(b).
In late 2016, Appelbaum came to believe that the price of shrimp was about to drop. [181] at 38-39, ¶ 12. He called his banker at Well Fargo (Keith Cable) for advice, and was told it would be best to prospectively recognize a decline in the value of Worldwide's inventory. [181] at 39, ¶¶ 13, 14. In the year-end financial and accounting reports that Appelbaum and Worldwide provided to Wells Fargo, defendants "formally wrote down the value of [their] inventory." [181] at 40, ¶ 18. Appelbaum's prediction ultimately proved untrue, and the value of Worldwide's inventory never dropped below the level required by their loan documents. [181] at 45-46, ¶ 40.
In the months that followed, defendants allege that they consistently provided Wells Fargo with detailed financial information, including information about their inventory, accounts receivable, and sales. [181] at 42-43, ¶¶ 27-28. To the degree that Wells Fargo requested additional information that it did not already have, defendants say they provided it. Id. at 44, ¶¶ 30-37. Wells Fargo found at least some of this additional information sufficient. Id. ¶ 37. Defendants allege that they have "never been in default of any of the covenants contained in the loan documents." [181] at 46, ¶ 41.
In December, 2018, when granting in part, denying in part Wells Fargo's motion to dismiss the initial counterclaim, I noted that "[d]ocuments evidencing the write-down (such as 2016 year-end financial reports, see [162] at 4, n.5) were not attached to the complaint, see [1-1], the answer, [150-1], or any of the briefs," and remarked that, even if they had been, neither party had briefed "whether 'generally accepted accounting principles' require recognizing the method of write-down that Worldwide employed." [164] at 10-11. I also noted that Wells Fargo had not shown that accounting principles could be applied as a matter of law. Id. at 11. Defendants filed an amended answer and amended counterclaim, [181]; [182], and Wells Fargo's motion to dismiss that amended counterclaim followed. [188].
Wells Fargo's motion seeks a determination that Worldwide's write-down resulted in an event of default under the loan documents. If that were true, Wells Fargo posits that Worldwide's counterclaim for breach of contract would fail because the actions Wells Fargo took would have been authorized. In support of its motion, Wells Fargo has submitted documents that it asserts constitute Worldwide's 2016 year-end financial statements, [189-1]; [189-5], and which Wells Fargo argues demonstrate that an event of default occurred—provided that one use "generally accepted accounting principles" to determine their significance. See [189] at 7-15.
A court must convert a motion to dismiss to one for summary judgment if it considers documents outside of the pleadings (and, before doing so, must give the parties a reasonable opportunity to present all pertinent material). Fed. R. Civ. P. 12(d). See also Fed. R. Civ. P. 7(a)(2) (); 13(a), (b) (both compulsory and permissive counterclaims must be contained in a pleading). Many of the arguments made here (and much of the evidence submitted in support of those arguments) are better suited for disposition under Federal Rule of Civil Procedure 56, but I decline to convert the motion to one for summary judgment. The parties have not conducted discovery on the import of the documents and have not complied with Local Rule 56.1. Conversion of the motion would add to costs imposed on the parties without adding efficiency.
There is an exception to Rule 12(d) that allows for consideration of a document not contained in the pleadings where the pleading references that document, that document is "central" to the claim advanced, and the party seeking to dismiss the pleading attaches that document to their Rule 12(b) motion. Wright v. Associated Ins. Companies Inc., 29 F.3d 1244, 1248 (7th Cir. 1994); Brownmark Films, LLC v. Comedy Partners, 682 F.3d 687, 690 (7th Cir. 2012). Wells Fargo argues that the financial statements it has attached to its motion are "referenced time and time again throughout" both Wells Fargo's complaint and defendants' counterclaim, and are central to both, too. [189] at 9 n.3.5 The counterclaim alleges that Worldwide "formally wrote down the value of its inventory effective December 31, 2016 by prospectively recognizing the write down in the year-end accounting reports and financial reports it provided to WF to on January 3, 2017." [181] at 40, ¶ 18. Defendants' opposition to Wells Fargo's motion mentions these documents, too. [192] at 4-5 ().
The incorporation-by-reference doctrine is meant to keep plaintiffs from "evad[ing] dismissal under Rule 12(b)(6) simply by failing to attach to [their] complaint a document that prove[s] that [their] claim had no merit." Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002). Despite courts' "relatively liberal" approach to the exception, Hecker v. Deere & Co., 556 F.3d 575, 582 (7th Cir. 2009), it remains a "narrow" one. 188 LLC v. Trinity Indus., Inc., 300 F.3d 730, 735 (7th Cir. 2002). It is aimed "at cases interpreting ... a contract," Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998), and is broad enough to include documents incorporated into the contract by reference. 188 LLC, 300 F.3d at 735 (). The documents must be "concededly authentic" and must not require "discovery to authenticate or disambiguate." Tierney, 304 F.3d at 738-39; Levenstein, 164 F.3d at 347 ().
Defendants object to the financial statements because they say th...
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