Teran v. GB International
Teran v. GB International
Opinion of the Court
MEMORANDUM AND ORDER
Plaintiff Carlos Teran brings this lawsuit against GB International, S.P.A. (“GB International”) and GB Miami, S.R.L. (“GB Miami”) (collectively “Defendants”), asserting claims for breach of fiduciary duty, tortious interference with a business relationship, unfair competition, declaratory relief, and breach of contract.
The following facts are derived from the First Amended Complaint. Teran has been in the tractor part supply business for decades, with a sales concentration and strong relationships in South, Central, and Latin America. Starting in June 2002, Teran formed, owned and operated a successful tractor part supply company, Teran Tractor.
Defendants are foreign corporations organized under the laws of Italy. On January 9, 2004, GB International entered into a Supply Agreement with American Crane and Tractor Parts, Inc. (“ACTP”), a Missouri corporation, that requires ACTP to purchase certain products from GB International, provided that the price did not exceed other sources by more than 15%.
In April 2005, GB International purchased a 65% ownership of Teran Tractor, with Teran holding the remaining 35%. The perceived benefits to Teran Tractor from this transaction included the advantages of greater exposure from a bigger organization, introduction into new markets, and purchasing power efficiencies. In January 2004, prior to acquiring a controlling share in Teran Tractor, GB International purchased 65% of ACTP, a competitor of Teran Tractor. ACTP’s strength was in the North American market, and they lacked Teran Tractor’s connections and sales in South, Central, and Latin America. GB International also owned other companies in the tractor supply industry, including CGR, an Italian manufacturer of tractor supply parts that had little penetration or market share anywhere in the Americas.
Previously, Teran Tractor and ACTP discussed a merger of the two companies, and during the due diligence period shared confidential information with each other that included pricing data, sourcing data and customer information. Soon after GB International purchased Teran Tractor, and while the two subsidiaries were still separate, ACTP began to use confidential information it obtained during the due diligence process to undercut Teran Tractor’s prices in an effort to steal away some of Plaintiffs market share in Latin America.
In November 2006, Teran Tractor and ACTP were merged, and began operating under ACTP’s name; Teran Tractor remained only as a brand name. Plaintiff objected to the merger, but did not possess sufficient voting authority to stop it from occurring. On November 9, 2006, Teran entered into the Second Amended and Restated Shareholders Agreement (“Shareholders Agreement”) with GB International, GB Miami and three individual shareholders in the newly-merged ACTP.
Also on November 9, 2006, Teran entered into an Employment Agreement with ACTP, under which he served as ACTP’s Managing Director of the Latin American markets.
Pursuant to a Redemption Agreement entered into on November 10, 2006, between GB International and ACTP, GB International exercised its right to require ACTP to redeem the 692.723 shares of ACTP stock that GB International’s affiliate, GB Miami, received as part of the merger.
At the time of the merger, ACTP had four shareholders in addition to Teran, making it a closely held company. Pursuant to the Shareholders Agreement, GB International was permitted to designate four of seven members of the Board of Directors of ACTP.
After the merger, GB International over time systematically engaged in practices that caused significant losses to ACTP and diminished the competitive edge that it had gained through its own efforts and those added by the merger with Teran Tractor. As a direct result of these practices, it became virtually impossible for ACTP to remain profitable. These activities were undertaken to benefit GB International and CGR at the expense of ACTP and thus, Plaintiff, and included unreasonable ordering restrictions and requirements, purchase prohibitions, and minimum price requirements under the Supply Agreement. These activities were part of a scheme employed by GB International to boost the revenues and profitability of CGR, to which GB International had direct obligations and certain of its principals had personal guarantees, and whose strong balance sheet and profitability was critical to both the continued expansionist ambitions of GB International in Italy and as its goal to eventually take the Italian company public. The actions by GB International led ACTP to lose customers, including numerous customers in Latin America that were brought in by Teran. Teran complained repeatedly to GB International and its owners about the poor business practices that it engaged in and the fact that it was damaging ACTP’s ability to work competitively and make a profit, but his complaints were ignored.
Section 2.9(B)(d) of the Shareholders Agreement states, in part:
If the Company [ACTP] terminates the employment of [Teran] within ten (10 years of April 29, 2005) “with cause” ... or if [Teran] terminates the Carlos Employment Agreement under paragraph 5(a) of such agreement within ten (10) years of April 29, 2005, then, in each case, GB Miami shall have a call right, exercisable immediately, and continuing thereafter, for a total purchase price of One Dollar ($1.00) for all of [Teran’s] ownership in the Company; ...
On July 25, 2010, Teran severed his employment relationship with ACTP effective October 29, 2010, for reasons directly related to the manipulations and improper activities directed by GB International.
On October 29, 2010, ACTP offered Teran a new position with the company, and on that date he executed a letter accepting the new employment agreement.
Teran subsequently terminated the new employment agreement with ACTP effective December 23, 2010. Teran’s shares at the time he left ACTP had a value of zero. The same shares were worth approximately $2,191,000 at the time of the merger. But for GB International’s scheme to benefit itself at the expense of ACTP, Teran alleges that his shares would have a value in excess of $6 million, and he would have received yearly dividends in excess of $200,000.
Section 5.2 of the Shareholders Agreement contains a forum selection provision that states:
Governing Law and Consent to Jurisdiction. (a) This Agreement shall be governed by and construed in accordance with the internal substantive laws and not the choice of law rules of the State of Kansas.
(b) Any and all disputes with respect to this Agreement must be brought in the form of a judicial proceeding in the District Court of Wyandotte County, Kansas, or in the United States District Court sitting in Kansas City, Kansas, and by execution and delivery of this Agreement, each party (I) accepts, generally and unconditionally, the exclusive jurisdiction of such courts and any related appellate court, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement and (ii) irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum.9
Teran brings five claims against Defendants: Breach of Fiduciary Duty (Count I); Tortious Interference with Business Relationships (Count II); Unfair Competition (Count III); Declaratory Judgment seeking a declaration that his employment with ACTP was not terminated, that GB Miami did not have the right to repurchase his shares of stock for $1.00, that the repurchase provision of the Shareholders Agreements unconscionable and that he is the beneficial owner of the stock entitled to all benefits and distributions (Count IV); and Breach of the Shareholders Agreement (Count V).
11. Discussion
A. Personal Jurisdiction
Plaintiff has the burden of establishing personal jurisdiction over defendant.
Defendants argue that Plaintiffs breach of Shareholders Agreement claim provides the only legitimate argument for assertion of any personal jurisdiction over Defendants. Defendants urge that, because the breach of Shareholders Agreement claim theory fails on its face, there is no personal jurisdiction over them at all. Plaintiff responds that Defendants’ challenge to his breach of Shareholders Agreement claim improperly requires him to prove the merits of his claim before he is allowed to utilize the jurisdictional consent provision in the Shareholders Agreement. The Court agrees. In order for the Court to determine that Plaintiffs breach of Shareholders Agreement count fails to state a claim upon which relief can be granted, it must have jurisdiction over the parties. Thus, the Court must first determine whether the forum selection provision is enforceable.
A party who consents to jurisdiction in a forum selection clause waives any due process claims.
Defendants do not dispute the validity of the forum selection provision with respect to the breach of Shareholders Agreement claim, beyond the circular argument that the claim does not have merit, and therefore the Court does not have jurisdiction. Nor do Defendants dispute, or even discuss, the validity of the forum selection provision with respect to Plaintiffs declaratory judgment action regarding the parties’ rights under the Agreement. They do contend, however, that the forum selection provision does not apply to Plaintiffs tort claims against Defendants. The Court disagrees. Although the Tenth
B. Failure to State a Claim
To survive a motion to dismiss, a complaint must present factual allegations, assumed to be true, that “raise a right to relief above the speculative level” and must contain “enough facts to state a claim to relief that is plausible on its face.”
1. Breach of Shareholders Agreement
The Shareholders Agreement states that the Agreement shall be governed by Kansas law, and the parties agree that Kansas law applies to Plaintiff’s breach of Shareholders Agreement claim. In Kansas, the elements of a breach of contract claim are: 1) the- existence of a contract between the parties; 2) sufficient consideration to support the contract; 3) plaintiffs performance or willingness to perform in compliance with the contract; 4) defendant’s breach of the contract; and 5) damages to plaintiff caused by the breach.
As an alternative to his declaratory judgment action, Plaintiff alleges two breaches of the Shareholders Agreement: 1) GB Miami’s conduct in exercising its Call Right to purchase Plaintiffs shares in ACTP for $1.00, and 2) Defendants’ conduct in “allowing ACTP to continuously lose money and leave no profit margin or real revenues from which to pay minority shareholders, including Teran.” Defendants argue that neither of these allegations of breach is sufficient to state a claim because Plaintiff admits in his Complaint that he resigned from his November 9, 2006, Employment Agreement with ACTP, which triggered the Call Right, and because there is no provision in the Shareholders Agreement that has been breached as a result of Defendants continuously allowing ACTP to lose money.
The Court agrees in part. Contrary to Defendants’ contention that he admits he resigned from the November 6, 2006, Employment Agreement, Plaintiff specifically contends that Agreement ceased to exist and was superceded by the October 10, 2010 new Agreement and that by entering into the new Agreement, Defendant gave up the Call Right. Plaintiff further asserts that since the Call Right could not have come into effect until the October 29, 2010 effective date of the severance of his employment with ACTP, and that termination did not occur since a new employment agreement was entered into on that day, the Call Right never became effective. Accordingly, the Court finds that Plaintiff has sufficiently pled a plausible breach of contract claim with respect to his allegation that the condition for GB Miami’s exercise of the Call Right never’ came into effect.
The Court reaches a different conclusion with respect to Plaintiffs second allegation of breach. Plaintiff contends that Defendants’ conduct in allowing ACTP to lose money constitutes a breach of Section 1.3 of the Shareholders Agreement, which provides that “any amendment or modification by the Company of the Supply Agreement” “shall require the consent of the Board of Directors and the approval of the Continuing Shareholders,” and thus Defendants’ actions essentially constitute improper modifications or amendments to the Supply Agreement referenced in Section 1.3(b).- Plaintiff acknowledges that this claim should be more particularly plead. The Court will dismiss this second allegation without prejudice to permit Plaintiff to seek leave to amend this claim, to allege additional supportive facts.
In his response, Plaintiff withdraws his unfair competition claim, leaving claims for breach of fiduciary duty and tortious interference with a business relationship. Defendants argue that Plaintiffs remaining tort claims should be dismissed because they should have been brought as derivative actions, not by Plaintiff in his personal capacity and, alternatively, that Plaintiff fails to properly plead the essential elements of these claims. Both issues require this Court to first determine what substantive law applies to Plaintiffs claims.
Choice of Law
In a diversity case such as this, the substantive law of the forum state, including the forum state’s choice of law rules, are applied.
Derivative Nature of Claims
Defendants move to dismiss Plaintiffs breach of fiduciary duty and tortious interference claims to the extent these causes of action allege derivative claims. Defendants contend that Plaintiffs may not assert such claims as an individual or direct action, but must assert them as a derivative action. As cited by Defendants, the courts of Missouri have established the general rule a corporate shareholder may not bring an action in his or her own name to recover for wrongs done to the corporation or its property.
In this case, Plaintiff asserts that Defendants sought to benefit themselves at the expense of ACTP, and that Defendants’ actions caused ACTP to lose customers, which in turn damaged ACTP’s ability to work competitively and make money. Plaintiff alleges that Defendants’ actions impacted the value of ACTP’s stock, and claims that at the time he left ACTP, his shares in the company should have had a value in excess of $6 million, instead of zero. Plaintiff asserts that many of the customers lost by ACTP were brought in by him, including Todo Tractor, Cadeco, Fernandez Insua, Roda Prensa and D & D, and that Defendants’ actions caused him to lose money and miss business opportunities.
The Court finds that Plaintiff has failed to allege any facts tending to establish that he has been harmed individually by Defendants’ alleged misconduct. Instead, any improprieties on Defendants’ part necessarily harmed ACTP, and only indirectly harmed Plaintiff in his capacity as a shareholder. Although Plaintiff makes much of the fact that the customers ACTP lost were brought in by Plaintiff as part of his customer base developed before the merger of Teran Tractor and ACTP, the fact remains that those customers belonged to ACTP. Plaintiff does not allege that he maintained his own customer base or explain how he incurred any separate damage as a result of his origination of these customers and thus, any action seeking relief must be brought derivatively.
Plaintiff concedes that Florida law mirrors Missouri law requiring claims for damages to a corporation to be pursued derivatively,
Plaintiffs argument is without merit. Kansas law embraces the general rule that a shareholder suit for injuries to a corporation as a result of officer or director misconduct, including self-dealing or breach of fiduciary duty, must be brought as a derivative action and not a direct action unless the corporation is a closely held corporation and the plaintiffs can prove that the action will not unfairly expose the corporation to a multiplicity of action, or prejudice the corporation or interfere with individual shareholder recovery.
IT IS THEREFORE ORDERED BY THE COURT that Defendants’ Motion to Dismiss Plaintiffs First Amended Complaint (Doc. 55) is GRANTED in part and DENIED in part as follows:
1) Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction is DENIED;
2) Defendants’ Motion to Dismiss for Failure to State a Claim is GRANTED in part. Plaintiffs tort claims set forth in Counts I and II, are DISMISSED; Defendants’ Motion to Dismiss Plaintiffs breach of Shareholders Agreement claim set forth in Count V related to Defendants’ exercise of the Call Right is DENIED; Plaintiffs breach of Shareholders Agreement claim related to Section 1.3(b) of the Agreement is DIS*1189 MISSED without prejudice to seek leave to amend.
IT IS SO ORDERED.
. In his First Amended Complaint, Plaintiff drops as a defendant GB Italy and adds American Crane and Tractor Parts, Inc. ("ACTP”). To date, Plaintiff has not obtained service upon ACTP, nor has it entered an appearance in this action.
. Doc. 54, Ex. A.
. Id.. Ex. B.
. Id., Ex. E.
. Id.. Ex. G.
. Id., Ex. D.
. Id., Ex. F.
.Id., Ex. C.
. Id., Ex. B, at 19-20.
. Bell Helicopter Textron, Inc. v. Heliqwest Int’l, Ltd., 385 F.3d 1291, 1295 (10th Cir. 2004).
. Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995).
. OMI Holdings, Inc. v. Royal Ins. Co., 149 F.3d 1086, 1091 (10th Cir. 1998).
. Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007));
. Pytlik, 887 F.2d at 1376.
. Dudnikov, 514 F.3d at 1070.
. Behagen, 744 F.2d at 733.
. OMI Holdings, 149 F.3d at 1091 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)).
. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 590, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991).
. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972); Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 957 (10th Cir. 1992).
. Riley, 969 F.2d at 958.
. Carnival Cruise Lines, 499 U.S. at 588, 111 S.Ct. 1522.
. See Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 203 (3d Cir. 1983), overruled on other grounds, Lauro Lines v. Chasser, 490 U.S. 495, 109 S.Ct. 1976, 104 L.Ed.2d 548 (1989)); Lambert v. Kysar, 983 F.2d 1110, 1121-22 (1st Cir. 1993) (holding that "contract-related tort claims involving the same operative facts as a parallel claim for breach of contract should be heard in the forum selected by the contracting parties.”).
. See Mann v. Auto. Prot. Corp., 777 F.Supp.2d 1234, 1242-43 (D.N.M. 2011) (finding a forum selection clause stating that "any legal action regarding this Agreement” encompassed tort claims).
. Because the Court finds the forum selection clause to be dispositive of this question, it does not consider Defendants' constitutional argument as to personal jurisdiction.
. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
. Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007).
. Robbins v. Oklahoma, 519 F.3d 1242, 1247-48 (10th Cir. 2008). "'Plausibility' in this context must refer to the scope of the allegations in a complaint: if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs 'have not nudged their claims across the line from conceivable to plausible.' ” Id. (internal citations omitted).
. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 555, 557, 127 S.Ct. 1955).
. Id.
. City of Andover v. Sw. Bell Tel. L.P., 37 Kan.App.2d 358, 153 P.3d 561, 565 (2007).
. Plaintiff withdraws his related claim that GB Miami did not own shares of ACTP stock at the time it exercised the Call Right.
. See Pepsi-Cola Bottling Co. of Pittsburg, Inc. v. Pepsico, Inc., 431 F.3d 1241, 1255 (10th Cir. 2005) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)).
. Ling v. Jan's Liquors, 237 Kan. 629, 703 P.2d 731, 735 (1985).
. Jayhawk Capital Mgmt., LLC v. LSB Indus., Inc., 2012 WL 4210462, at *7 (D.Kan. 2012) (quoting Brown v. Mailman, 1995 WL 716785, at *3 (D.Kan. Nov. 13, 1995) (holding that Missouri law applied to the plaintiff's breach of fiduciary duty claim because “it is corporate law that defines the contours of that duty”)).
. Id. (citing Consol. Beef Indus., Inc. v. Schuyler, 239 Kan. 38, 716 P.2d 544, 547 (1986), accord Waddell & Reed Fin., Inc. v. Torchmark Corp., 337 F.Supp.2d 1243, 1250 (D.Kan. 2004)).
. Cook v. Cook, 143 S.W.3d 709, 711 (Mo.Ct.App. 2004).
. Clockwork Home Servs., Inc. v. Robinson, 423 F.Supp.2d 984, 990 (E.D.Mo. 2006) (citing Dawson v. Dawson, 645 S.W.2d 120, 125 (Mo.App. 1982)).
. Id.
. Arent v. Distrib. Sciences, Inc., 975 F.2d 1370, 1374 (8th Cir. 1992) (citation omitted).
. Clockwork, 423 F.Supp.2d at 990 (citing Gray v. Bicknell, 86 F.3d 1472, 1487 (8th Cir. 1996)).
. Id. at 990-91 (quoting Gill v. Three Dimension Syst., Inc., 87 F.Supp.2d 1278, 1286 (M.D.Fla. 2000)).
. Id.
. Id. at 991. The Court notes that Plaintiffs 2006 Employment Agreement contains a Non-Competition clause, which prohibits Plaintiff from conducting activities in the business conducted by ACTP within North America, Central America, or Latin America for two years after termination of the Agreement. Doc. 54, Ex. E.
. Id. at n. 7 (citing Peterson v. Kennedy, 791 S.W.2d 459, 464 (Mo.App. 1990)).
. See Karten v. Woltin, 23 So.3d 839, 840 (Fla.Ct.App. 2009) ("Generally, a shareholder cannot sue in the shareholder’s name for injuries to a corporation unless there is a special duty between the wrongdoer and the shareholder and the shareholder has suffered an injury separate and distinct from that suffered by other shareholders.”).
. See, e.g., Hartford Accident & Indem. Co. v. Am. Red Ball Transit Co., 262 Kan. 570, 938 P.2d 1281, 1286 (1997).
. Prince Alexander v. Beech Aircraft Corp., 952 F.2d 1215, 1223 (10th Cir. 1991).
.St. Paul Surplus Lines Ins. Co. v. Int’l Playtex, Inc., 245 Kan. 258, 111 P.2d 1259, 1269 (1989).
. See Lightner v. Lightner, 46 Kan.App.2d 540, 266 P.3d 539, 548 (2011).
. See Karten, 23 So.3d at 840; Dawson, 645 S.W.2d at 125.
Reference
- Full Case Name
- Carlos TERAN v. GB INTERNATIONAL, S.P.A.
- Cited By
- 2 cases
- Status
- Published