Date Submitted: February 18, 2014
Sean J. Bellew, Esquire Ballard Spahr LLP
Henry E. Gallagher, Jr., Esquire Connolly Gallagher LLP
Plaintiff Xcell Energy and Coal Company, LLC ("Xcell"), which owns a permit for a coal mine in eastern Kentucky, defaulted on its loan obligations to a creditor, non-party Alpha Credit Resources, LLC ("Alpha"). After Alpha obtained a court-appointed receiver for the company, Xcell, by and through its receiver, now alleges that its past manager and member are liable for their mismanagement and misconduct that supposedly caused those defaults. Specifically, Xcell asserts claims for breach of fiduciary duty and waste against Defendants Energy Investment Group, LLC ("EIG") and Polo Investments, LLC ("Polo") and for aiding and abetting, tortious interference with a contract, and waste against Defendant Edmond L. DiClemente ("DiClemente, " and together with EIG and Polo, the "Moving Defendants"). The Moving Defendants moved to dismiss the Complaint under Court of Chancery Rule 12(b)(6). They contend that Xcell failed to allege the requisite elements—such as a fiduciary relationship or an intent to cause a contract breach—to state a claim.
The Court grants the Moving Defendants' motion to dismiss for the reasons set forth below.
A. The Parties
Xcell, a Kentucky limited liability company ("LLC"),  is in the coal mining business. It owns one permit for one coal mine: Permit No. 877-0175 (the "Permit") for the Grape Creek No. 1 mine (the "Grape Creek Mine"), located in Magoffin and Johnson Counties, Kentucky. The Kentucky Department of Natural Resources (the "Department"), the state agency charged with regulating surface mining, granted the Permit to Xcell in April 2008.
Prior to the appointment of a receiver in June 2013, Xcell was managed by a manager appointed by its member. From 2009 until December 2012, Steinhauser managed Xcell. The Complaint implies, and the Moving Defendants do not dispute, that Polo was Xcell's manager from December 2012 until June 2013.Before January 2013, Xcell's principal place of business was Paintsville, Kentucky; since then, its principal place of business is allegedly Burlington, Connecticut.
When the Complaint was filed, Xcell had one member: EIG, a Delaware LLC. EIG, likewise, had only one member: Polo, a Connecticut LLC. Polo, in turn, had two members: DiClemente and non-party Nathan Capital Holdings, LP.DiClemente has allegedly represented that he is a manager of Polo.
B. Xcell Borrows Money from Alpha
In October 2009, Xcell borrowed $4 million (the "Loan") from Alpha pursuant to the Loan and Security Agreement and a corresponding Promissory Note. The Loan was set to mature on February 21, 2010. In the Loan and Security Agreement, Xcell agreed to maintain material compliance with the Kentucky laws and regulations applicable to its business—namely, the Grape Creek Mine.
Pursuant to the contemporaneous Pledge Agreement, EIG pledged its membership interest in Xcell to Alpha as collateral to secure Xcell's obligations for the Loan. Xcell and EIG also provided confessions of judgment, and EIG further provided its written consent for the Loan.
During its due diligence on Xcell, Alpha commissioned an expert opinion on the value of the Grape Creek Mine's coal reserves. Alpha's expert noted that the Grape Creek Mine "had between 4.295 million tons and 66.1 million tons of permitted and non-permitted coal reserves (respectively) with an estimated value between $12.9 million and $33.1 million (respectively)."
Xcell was to use the proceeds of the Loan for specified business purposes, including purchasing an excavator and preparing the Grape Creek Mine for mining operations. At a deposition in another proceeding, DiClemente allegedly testified that he was unable to identify how Xcell used the Loan proceeds.
C. Xcell Defaults on the Loan
Xcell failed to repay the Loan when it matured in February 2010. The parties to the Loan and Security Agreement then agreed to modify Xcell's obligations through the Omnibus Loan Document Modification and Reaffirmation Agreement (the "Modification Agreement") in April 2010.
Under the Modification Agreement, the new Loan balance was approximately $4, 743, 000, with a maturity date of May 27, 2010. Xcell also agreed to pay a modification fee of $225, 000 by May 3, 2010. As part of the Modification Agreement, EIG reaffirmed its obligations under the Pledge Agreement.
D. Xcell Defaults on the Modification Agreement
Xcell failed to pay the $225, 000 due under the Modification Agreement on May 3. Instead, it made a $100, 000 payment on May 6. Consequently, Alpha declared an event of default.
The parties to the Modification Agreement next agreed to the First Amendment to Omnibus Loan Modification and Reaffirmation Agreement (the "First Amendment") in early May. Xcell was now required to make a $125, 000 payment to Alpha by May 13. As part of the First Amendment, EIG again reaffirmed its obligations under the Pledge Agreement.
E. Xcell Defaults on the First Amendment
Once again, Xcell defaulted on its obligations to Alpha, this time under the First Amendment. At the time, the outstanding ...