GE Mobile v Red Desert Reclamation 13-cv-357-PB 3/11/1A
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
GE Mobile Water, Inc.
v. Case No. 13-cv-357-PB Opinion No. 2014 DNH 054 Red Desert Reclamation, LLC, et a l .
MEMORANDUM AND ORDER
In February 2012, GE Mobile Water, Inc. entered into a
contract with Red Desert Reclamation, LLC to lease water
treatment equipment for use at its Wyoming facility. After Red
Desert failed to make payments required under the contract, GE
Mobile sued it and two affiliated entities. Clean Runner, LLC
and Cate Street Capital, Inc. In an earlier order, I denied Red
Desert's motion to dismiss for lack of personal jurisdiction.
GE Mobile Water, Inc. v. Red Desert Reclamation, LLC, 2 014 DNH
049, 14. I now consider Clean Runner and Cate Street's motion
to dismiss for failure to state a claim. I. BACKGROUND1
In 2012, Red Desert operated a facility in Rawlins, Wyoming
for recycling water used in the hydraulic fracturing of natural
gas reserves. Red Desert used water treatment technology at its
Wyoming facility that was developed by Clean Runner. Red Desert
and Clean Runner are managed by Cate Street Capital, Inc., a
Delaware corporation with an office in Portsmouth, New
Hampshire. Cate Street planned to use the Wyoming facility as a
platform to showcase Clean Runner's technology, with the goal of
operating similar hydraulic fracturing water treatment
facilities throughout the country. Doc. Nos. 18-2, 18-4, 18-5,
18-6.
Beginning in September 2011, Steven Fischer, a GE Mobile
employee, began working with Hudson J. Cleveland on a proposed
contract under which GE Mobile would lease water processing and
treatment equipment for use at the Red Desert facility. At the
time, Cleveland was a Managing Director of Cate Street, Chief
Operating Officer of Red Desert, and President of Clean Runner.
Barry Glichenhaus and Samuel Olson of Cate Street were also
1 Unless otherwise specified, the facts are taken from the complaint. Doc. No. 1.
2 involved in negotiating the contract. During negotiations, Cate
Street's representative told Fischer that Cate Street was paying
for the project and was the ultimate decision maker. Cleveland
also represented "that Cate Street, being funded with $40
million for the Project, would be able 'to make good' on the
invoices issued by [GE Mobile] for the Project."
Negotiations culminated in a Proposal from GE Mobile and a
$3,264 million Purchase Order from Red Desert (collectively the
"Contract"). Cleveland signed the Purchase Order on behalf of
Red Desert on February 28, 2012. Under his signature, Cleveland
wrote, "President, Clean Runner." Cleveland similarly signed
the Proposal, writing "For: Red Desert Reclamation" by "Judson
Cleveland, President, Clean Runner." Doc. No. 1-1. A
representative of GE Mobile accepted the Purchase Order by
signing it and the Proposal the next day.
The Contract includes an integration clause, a no oral
modification clause, and a choice of law clause. The
integration clause states: "The parties intend this Agreement,
with any attached Exhibits and Addenda, as a final expression of
their agreement and a complete and exclusive statement of its
terms." It provides that "no representations . . . have been
3 made" other than those "expressly set forth," and notes that the
parties' course of previous dealings, usage, or trade shall be
inadmissible in any judicial proceeding. The no oral
modification clause provides that any modifications to the
Contract must be reduced to writing and signed by the parties.
The choice of law clause specifies that the Contract is governed
by Virginia law. Doc. No. 1-1.
Pursuant to the Contract, GE Mobile delivered equipment to
Red Desert's Wyoming facility in April 2012. GE Mobile
subsequently sent several invoices to Red Desert at Cate
Street's Portsmouth, New Hampshire address, the address
specified in the Purchase Order. In August 2012, Cleveland
emailed Fischer a proposal to address Red Desert's failure to
make payments required under the Contract. Cleveland asked
Fischer in the email: "[i]f I can get CSC to cut you a check
for $100K on Monday to be applied to RO Invoices will that help
you?" Doc. No. 1-4. Cleveland's email identifies him as
"Judson J Cleveland/President/CEO/Clean Runner, Inc., One Cate
Street, Portsmouth, NH 03801-7108." Approximately one week
later, GE Mobile received a check from Red Desert for $20,000.
The check was drawn on an account that listed the account holder
4 as "Red Desert Reclamation, LLC/ 1 Cate Street, Suite 100,
Portsmouth, NH 03801." Doc. No. 18-10.
On September 4, 2012, representatives of GE Mobile and Cate
Street met at Cate Street's offices to discuss the status of
outstanding payments on the Contract. In attendance were Cate
Street's president/CEO, its compliance director, and GE Mobile's
North American sales director. GE Mobile warned Red Desert that
its failure to make additional required payments risked a
shutdown of operations. Cate Street's president acknowledged
that Red Desert could not currently pay its invoices, but he
assured GE Mobile that Cate Street was finishing work on a $1
million contract and would be able to pay once the contract was
satisfied. He further explained that Cate Street would have to
recapitalize Red Desert and that it planned on doing so by going
"to its investors to obtain more money to pay off Red Desert's
debts, including the amount owed to G E ." Doc. Nos. 18, 18-9.
Discussions between GE Mobile and Cate Street continued in
the ensuing weeks over telephone and email. GE Mobile agreed to
adjust the balance due under the Contract, giving Red Desert a
credit of $172,050 to account for technologies that were not
utilized at the facility. On September 20, 2012, Cate Street
5 confirmed by phone its "continued interest in keeping the
Project operational." Doc. No. 18. The next day, Cate Street's
president emailed GE Mobile, stating "I w a n t [] to reiterate our
position and confirm Red Desert Reclamation, LLC's commitment to
its vendors." Doc. No. 1-5. He acknowledged that Cate Street
would have to make a serious decision regarding whether to close
the facility, but "[w]hether we close the facility or keep it
open Red Desert will pay its bills to G E ." On October 1, 2012,
GE Mobile emailed Cate Street's president, saying "[a]s I
understand, it is your intent to shut down the facility and move
forward with resolving all outstanding commitments." Doc. No.
1-5.
GE Mobile received no further payments, and the parties
agreed to shut down the project. After giving notice, GE Mobile
removed its equipment and technicians in early October 2012.
The removal coincided with the closing of operations for the
winter, so GE Mobile's actions did not compromise production at
the site. Up to that point, GE Mobile had provided everything
contractually required of it and was owed $996,000.
On October 16, 2012, GE Mobile emailed Cate Street's
president to again request his assistance in expediting
6 payments. The email outlined the September conversations
between the two companies and noted that Red Desert planned to
close its books by October 15 and pay GE Mobile by November 15.
It proposed a payment schedule and expressed "concern[] about
the continued delay in payment, and diminution of clear
communication between us." On October 26, 2012, Cleveland
stated in a telephone call with a GE Mobile official that he was
"confident" that Cate Street would come through for GE Mobile
and explained that Cate Street was raising equity to pay its
outstanding invoices. Doc. No. 18-8.
On February 27, 2013, GE Mobile received a letter from
Clean Runner on Red Desert letterhead. The letter stated that
Red Desert's recycling site was closed and that both Clean
Runner and Red Desert were beginning the process of winding down
their operations. Doc. No. 18-11. The letter offered Clean
Runner and Red Desert's creditors a global settlement of
$300,000 on an acknowledged debt of $1,147 million. A proposed
settlement agreement attached to the letter identified both
companies as the "debtor" to the project.
7 II. STANDARD OF REVIEW
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff
must make factual allegations sufficient to "state a claim to
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 facially plausible when it
pleads "factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged. The plausibility standard is not akin to a
'probability requirement,' but it asks for more than a sheer
possibility that a defendant has acted unlawfully." Id.
(citations omitted).
In deciding a motion to dismiss, I employ a two-step
approach. See Ocasio-Hernandez v. Fortuho-Burset, 640 F.3d 1,
12 (1st Cir. 2011). First, I screen the complaint for
statements that "merely offer legal conclusions couched as fact
or threadbare recitals of the elements of a cause of action."
I d . (citations, internal quotation marks, and alterations
omitted). A claim consisting of little more than "allegations
that merely parrot the elements of the cause of action" may be
dismissed. Id. Second, I credit as true all non-conclusory factual allegations and the reasonable inferences drawn from
those allegations, and then determine if the claim is plausible.
Id. The plausibility requirement "simply calls for enough fact
to raise a reasonable expectation that discovery will reveal
evidence" of illegal conduct. Twombly, 550 U.S. at 556. The
"make-or-break standard" is that those allegations and
inferences, taken as true, "must state a plausible, not a merely
conceivable, case for relief." Sepulveda-Villarini v. Dep't of
Ed u c ., 628 F.3d 25, 29 (1st Cir. 2010); see Twombly, 550 U.S. at
555 ("Factual allegations must be enough to raise a right to
relief above the speculative level . . . .") .
Generally, under Rule 12(b)(6) I may properly consider
"only facts and documents that are part of or incorporated into
the complaint; if matters outside the pleadings are considered,"
then I must convert it to a motion for summary judgment. Rivera
v. Centro Medico de Turabo, Inc., 575 F.3d, 10, 15 (1st Cir.
2009) (citing Fed. R. Civ. P. 12(d)). The First Circuit
recognizes an exception to this rule allowing consideration of
"documents the authenticity of which are not disputed by the
parties; [] official public records; [] documents central to
plaintiff's claim; [and] documents sufficiently referred to in
9 the complaint" in a motion to dismiss for failure to state a
claim. I d . (citing Alt. Energy, Inc. v. St. Paul Fire & Marine
Ins. C o ., 267 F.3d 30, 33 (1st Cir. 2001)).
III. ANALYSIS
GE Mobile claims that Red Desert and Clean Runner are
liable for breach of contract and breach of the implied
contractual duty of good faith and fair dealing (Counts I-IV).
It argues that all three defendants are liable on an unjust
enrichment theory (Count V ) . It also contends that Cate Street
is liable for negligent misrepresentation and promissory
estoppel (Counts VI and V I I ) . Finally, it argues that it is
entitled to pierce the corporate veil and hold Cate Street
liable for Red Desert's alleged failure to fulfill its
obligations under the Contract (Count V I I I ) . Red Desert does
not challenge the viability of GE Mobile's claims against it.
Thus, I begin by considering GE Mobile's contract claims against
Clean Runner.
A. Contract Claims
GE Mobile claims that Clean Runner can be held liable for
breach of contract and breach of the implied contractual duty of
10 good faith and fair dealing because Cleveland signed the
Contract in his capacity as President of Clean Runner.
New Hampshire and Virginia both follow section 328 of the
Restatement (Second) of Agency, which provides that "[a]n agent,
by making a contract only on behalf of a competent disclosed or
partially disclosed principal whom he has power so to bind, does
not thereby become liable for its nonperformance." See Mbahaba
v. Morgan, 163 N.H. 561, 566 (N.H. 2012); accord Terry Phillips
Sales, Inc. v. SunTrust Bank, No. 3:13-CV-468, 2014 WL 670838,
at *7 (E.D. Va. Feb. 20, 2014); Berman v. Grossman, No. l:09-cv-
211, 2009 WL 4110258, at *6 (E.D. V a . Nov. 24, 2009) (citing
Restatement (Second) of Agency § 320 (1958) ) Relying on this
basic legal principal. Clean Runner argues that it cannot be
held liable on a breach of contract claim because the contract
documents clearly provide that Cleveland, Clean Runner's
president, signed the Contract as an agent for Red Desert.
GE Mobile presents two responsive arguments, neither of
~ The cite both New Hampshire and Virginia law and they have not made a serious attempt to analyze the choice of law issues that the case presents. Nor has either party claimed that its argument on any issue depends upon how choice of law questions are resolved. Accordingly, I analyze the motion under New Hampshire law without conducting a choice of law analysis.
11 which is persuasive. First, it acknowledges that Cleveland
signed the Contract on behalf of Red Desert, a disclosed
principal, but it argues that this case qualifies under an
exception to the general rule of non-liability because Clean
Runner stood to benefit from the Contract even though it signed
only as an agent. Although I recognize that an agent can be
held liable on a contract with its principal if the agent
manifests an intention to also be bound by the contract, see
McCarthy v. Azure, 22 F.3d 351, 361-62 (1st Cir. 1994) (citing
Restatement (Second) of Agency § 328 (1958)), the mere fact that
the agent might somehow benefit from the contract is not
sufficient, standing alone, to establish such an intention. In
this case, the Contract plainly was intended to bind only GE
Mobile and Red Desert. No other relevant facts are pleaded to
support the contract claims against Clean Runner. GE Mobile's
assertion that Clean Runner stood to benefit from the Contract
thus is not sufficient to support a contract claim against it.
GE Mobile also argues that Clean Runner must have bound
itself to the Contract because it later joined with Red Desert
in a proposed settlement agreement that listed both Red Desert
and Clean Runner as the "debtor." The short answer to this
12 argument is that GE Mobile cannot rely on the proposed
settlement agreement because a party may not rely on settlement
proposals to prove a disputed claim. Fed. R. Evid. 408(a)(1);
Powell v. F. Acquisition, LLC, No. 2:12-cv-305, 2012 WL 6930437,
at *3 (E.D. Va. Feb. 15, 2012). Accordingly, I dismiss GE
Mobile's breach of contract claims against Clean Runner.
B. Unjust Enrichment
GE Mobile next argues that Red Desert, Clean Runner, and
Cate Street "have all been unjustly enriched at GE's expense."
The defendants note that unjust enrichment is "narrower, more
predictable, and more objectively determined" than the words
"unjust enrichment" connote, and that the remedy is only
available "where an individual receives 'a benefit which would
be unconscionable for him to retain.'" Clapp v. Goffstown Sch.
Dist., 159 N.H. 206, 210 (2009) (quoting Kowalski v. Cedars of
Portsmouth Condo. Ass'n, 146 N.H. 130, 133 (2001)).
Accordingly, they move to dismiss the unjust enrichment claim by
arguing that GE Mobile has failed to sufficiently allege that it
ever received such a benefit. They are correct.
GE Mobile's complaint contains little more than conclusory
assertions that either Clean Runner or Cate Street was unjustly
13 enriched. The complaint does not claim that GE Mobile's work on
Red Desert's behalf resulted in any benefit to Cate Street.
Rather, the complaint indicates that the project failed - that
Cate Street likely lost money on the project, and that Clean
Runner went out of business.
GE Mobile's opposition memorandum provides more ample
support for its claim, alleging that Cate Street and Clean
Runner aimed to use the site as a platform to showcase
technology with an eye toward expanding their recycling efforts
nationwide. Although increased visibility and an advertising
platform could benefit Cate Street and Clean Runner, GE Mobile
has nevertheless failed to sufficiently allege that either
defendant ever realized any benefit from the project. Rather,
the complaint suggests that Cate Street and Clean Runner's pilot
platform failed, and the latter corporation was forced to wind
up its business operations. Even in a best case scenario, these
facts could not support a claim that either defendant received a
benefit that would be unconscionable for it to retain.
I thus deny GE Mobile's unjust enrichment claims, not
because it has not alleged wrongdoing by Cate Street or Clean
Runner, but simply because the alleged wrongdoing did not result
14 in an unconscionable benefit to the defendants.
C. Negligent Misrepresentation
GE Mobile bases its negligent misrepresentation claim on
three representations: (1) prior to entering the Contract,
Cleveland "represented to GE that Cate Street, being funded with
$40 million for the Project, would be able 'to make good' on the
invoices issued by GE for the Project;" (2) on August 3, 2012,
Cleveland emailed Fischer, stating, in pertinent part, "[i]f I
can get CSC to cut you a check for $100k on Monday to be applied
to RO Invoices will that help you?"; and (3) at the September 4,
2012 meeting, Cate Street informed GE Mobile that it lacked
sufficient funding, but "was finishing a $1 million job for a
large customer and that receipt of funds from this job would
allow Cate Street to pay the amount owed under the Contract."
Doc. Nos. 1, 1-4.
All three of the statements GE Mobile cites are statements
of intention.3 While such statements can support a fraud claim
if they are false when made, they cannot serve as the basis for
3 Although the statements also contain representations of present or historic fact, GE Mobile does not assert that any of Cate Street's statements of fact were false. Rather, it bases its claim on Cate Street's failure to act in accordance with its stated intentions.
15 a negligent misrepresentation claim because honestly held
statements of intention are not false or misleading when made
even if the speaker later fails to act in accordance with the
stated intention. Alpine Bank v. Hubbell, 555 F.3d 1097, 1107
(10th Cir. 2009); see also Daley v. Blood, 121 N.H. 256, 257
(N.H. 1981) (rejecting negligent misrepresentation claim on
Statute of Frauds grounds); J.G.M.C.J. Corp. v. C.L.A.S.S.,
Inc., 155 N.H. 452, 464 (2007) (same). Because GE Mobile does
not allege that Cate Street's statements of intention were false
when made, its misrepresentation claim must be dismissed.
D. Promissory Estoppel
GE Mobile asserts a claim against Cate Street based on
promissory estoppel, arguing that (1) Cate Street represented
that it would pay Red Desert's invoices; (2) GE Mobile
reasonably relied upon Cate Street's representations; (3) its
reliance was foreseeable; and (4) GE Mobile was thereby injured.
A successful promissory estoppel claim in New Hampshire must
allege "a promise reasonably understood as intended to induce
action[, ] enforceable by one who relies on it to his detriment
or to the benefit of the promisor." Rockwood v. SKF USA Inc.,
758 F. Supp. 2d 44, 57 (2010) (citing Panto v. Moore Bus. Forms,
16 Inc., 130 N.H. 730, 738 (1988)). Here, GE Mobile has
unquestionably alleged that Cate Street made several promises
both during contract negotiations and later, after the contract
was signed, to address GE Mobile's concerns with Red Desert's
failure to make payments. It has submitted evidence that Cate
Street's promises were intended to induce GE Mobile to continue
working on the project, and it has alleged that it relied on
these promises in entering the Contract and continuing to
perform in the face of nonpayment. Finally, it asserts that its
reliance was reasonable, and that it was harmed.
Cate Street nevertheless contends that the Statute of
Frauds bars GE Mobile's promissory estoppel claims. Promissory
estoppel, however, is not premised upon the existence of a
contract, but rather upon the alternative theory that, even if
there was no contract, the plaintiff was induced to rely on the
defendant's non-contractual promises. See Embree v. Bank of
N.Y. Mellon, 2 013 DNH 169, 15-16; Deutsche Bank Nat. Trust Co.
v. Fadili, No. 09-CV-385-LM, 2011 WL 4703707, at *16 (D.N.H.
Oct. 4, 201 1 ) (noting that promissory estoppel is appropriate
only in the absence of an express agreement on the subject
between parties). In Embree, the court cited the Restatement
17 (Second) of Contracts, "upon which the New Hampshire Supreme
Court relies with regularity," as addressing a defendant's
argument that a promissory estoppel claim was barred by the
statute of limitations:
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.
Embree, 2013 DNH at 15 (citing Restatement (Second) of Contracts
§ 139(1) (1981)). Accepting GE Mobile's allegations as true, it
has successfully pleaded that "injustice can be avoided only by
enforcement of" the defendant's alleged promises. See i d . I
thus deny Cate Street's motion to dismiss the promissory
estoppel claim.
E. Piercing the Corporate Veil
GE Mobile also seeks to pierce the corporate veil and hold
Cate Street liable for Red Desert's alleged failure to fulfill
its obligations under the Contract.4 Cate Street argues in
I follow the practice employed by the New Hampshire Supreme Court in Mbahaba, 163 N.H. at 568, and assume without deciding that the members and managers of a limited liability corporation may be held liable on a veil-piercing theory in an appropriate case. In making this assumption, I express no view as to
18 response that it cannot be held liable on a veil-piercing theory
because GE Mobile has failed to allege sufficient facts to
support its argument that the corporate veil should be pierced.
Courts have considered a variety of factors in determining
whether the corporate veil should be pierced including: whether
the corporation has been insufficiently capitalized, see Terren
v. Butler, 134 N.H. 635, 641 (1991); whether the corporation has
misled others as to its corporate assets, Vill. Press, Inc. v.
Stephen Edward Co., Inc., 120 N.H. 469, 472 (1980); whether the
corporate assets have been intermingled, Zimmerman v. Puccio,
613 F.3d 60, 74 (1st Cir. 2010) (applying Massachusetts law);
and whether corporate formalities have been observed, see
Mbahaba, 163 N.H. at 569. In this case, GE Mobile has pleaded
sufficient facts to state a viable veil-piercing claim.
GE Mobile alleges that Cate Street is the "parent
corporation" of Red Desert, that all three companies operate out
of the same business address, and that Cate Street's officers
hold titles with both Clean Runner and Red Desert. Moreover, it
maintains that Cate Street offered to pay at least a portion of
whether the veil-piercing test that applies to limited liability corporations differs from the test that is used to pierce the corporate veil for a traditional corporation.
19 Red Desert's debt, permitting an inference of the intermingling
of corporate funds. Cate Street officers' primary role in
negotiating the Contract and managing GE Mobile's concerns over
Red Desert's performance permits an inference that Cate Street
in fact controlled the project and was using Red Desert's
corporate form to not only insulate itself from liability but to
commit an injustice. This inference is supported by GE Mobile's
allegations that Red Desert was severely undercapitalized.
Cate Street contends that GE Mobile has not pleaded
sufficient facts in the complaint to support its allegation of
under-capitalization. I disagree, finding the facts alleged
support an inference that Red Desert was provided with
insufficient assets from the outset to meet its expected debts.
See Terren, 134 N.H. at 641. GE Mobile's pleadings describe Red
Desert winding up operations after six months, not even one-
third of the way through a $3.2 million contract. They allege
that Red Desert paid only $20,000 on nearly $1 million owed and
relied on its manager's repeated promises that it would indeed
make good on past due invoices.5 They also allege that Cate
5 In opposing the motion to dismiss, Cate Street submits an affidavit stating that during the September 4, 2012 meeting, Cate Street's president confessed that Cate Street would have to
20 Street represented that the project was funded with $40 million
in investments, permitting an inference that it misled GE Mobile
into believing that the project would be adequately capitalized.
See Vill. Press, 120 N.H. at 472.
GE Mobile has alleged sufficient facts to show that Cate
Street and Red Desert bent the rules regarding corporate
formalities and failed to adequately capitalize Red Desert so as
to cover its prospective debts. It has also sufficiently
alleged that these actions were undertaken to promote an
injustice on Red Desert's creditors. I thus deny Cate Street's
motion to dismiss GE Mobile's veil-piercing claim.
IV. CONCLUSION
For the reasons set forth above, I grant defendants' motion
to dismiss (Doc. No. 15) as it pertains to the contractual
claims against Clean Runner (Counts II and IV), the claim for
unjust enrichment against Clean Runner and Cate Street (Count
recapitalize Red Desert in order to have funds to keep the Project going, and that Cate Street would "go to its investors to obtain more money to pay off Red Desert's debts." Doc. Nos. 18, 18-9. This affidavit may be beyond consideration at this stage of the proceedings, but I need not consider it because GE Mobile alleges sufficient additional evidence that Red Desert was undercapitalized.
21 V ) , and the claim for negligent misrepresentation against Cate
Street (Count V I ) . I deny the motion in all other respects.
SO ORDERED.
/s/Paul Barbadoro Paul Barbadoro United States District Judge
March 17, 2014
cc: Danielle Andrews Long, Esq. Scott H. Harris, Esq.