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Turf Nation, Inc. v. UBU Sports, Inc.

Superior Court of Delaware

October 11, 2017

TURF NATION, INC., Plaintiff,
v.
UBU SPORTS, INC., n/k/a/ ARTIFICIAL TURF SPORTS FIELD, INC., and JOSEPH MICHAEL VRANKIN, Defendants. UBU SPORTS, INC., n/k/a/ ARTIFICIAL TURF SPORTS FIELD, INC., Counterclaim Plaintiff,
v.
TURF NATION, INC., Counterclaim Defendant

          Submitted: July 28, 2017

         Upon Defendant Joseph Michael Vrankin's Motion to Dismiss for Lack of Personal Jurisdiction GRANTED

         Upon Counter-Defendant Turf Nation, Inc.'s Motion to Dismiss Count I of Counter-Plaintiff UBU Sports Inc., n/k/a Artificial Turf Sports Field, Inc.'s Counterclaims DENIED

         Upon Counter-Defendant Turf Nation, Inc.'s Motion for Judgment on the Pleadings on Counts II and III of Counter-Plaintiff UBU Sports Inc., n/k/a Artificial Turf Sports Field, Inc.'s Counterclaims DENIED

          Kenneth J. Enos, Esquire, Kathaleen S. McCormick, Esquire, Mary F. Dugan, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware, and William S. Sugden, Esquire, Thomas P. Clinkscales, Esquire, Alston & Bird, LLP, Atlanta, Georgia, Attorneys for Plaintiff Turf Nation, Inc.

          Stephen E. Jenkins, Esquire, Peter H. Kyle, Esquire, Ashby & Geddes, Wilmington, Delaware and Stephen J. Brown, Esquire, Pedersen & Houpt, P.C., Chicago, Illinois, Attorneys for Defendant Joseph Michael Vrankin.

          Stephen E. Jenkins, Esquire, Peter H. Kyle, Esquire, Ashby & Geddes, Wilmington, Delaware and Stephen J. Brown, Esquire, Pedersen & Houpt, P.C., Chicago, Illinois, Attorneys for Defendant UBU Sports, Inc.

          ERIC M. DAVIS, JUDGE

         I. INTRODUCTION

         This breach of contract action is assigned to the Complex Commercial Litigation Division of the Court. Plaintiff Turf Nation, Inc. ("Turf Nation") brings this action against Defendant UBU Sports, Inc. ("UBU") for breach of contract. Turf Nation also asserts claims against UBU and Defendant Joseph Michael Vrankin for violations of several state Trust Fund Statutes. Turf Nation filed an initial complaint (the "Initial Complaint") on January 12, 2017. UBU answered the Initial Complaint on March 6, 2017, and asserted counterclaims against Turf Nation for: (i) Fraud (Count I); (ii) Breach of Contract (Count II), and (iii) Tortious Interference with Contractual Relations (Count III).

         Mr. Vrankin did not answer the Initial Complaint. Instead, on March 10, 2017, Mr. Vrankin moved to dismiss the Initial Complaint for lack of personal jurisdiction (the "Vrankin Motion to Dismiss"). Subsequently, Turf Nation sought leave to amend the Initial Complaint to clarify the grounds for personal jurisdiction over Mr. Vrankin under 10 Del. C. § 3114. Turf Nation filed an amended complaint (the "Amended Complaint") on May 10, 2017. UBU filed an amended answer on May 24, 2017 and reasserted the counterclaims against Turf Nation (the "Amended Counterclaim").

         Turf Nation then moved to dismiss Count I of the Amended Counterclaim ("Turf Nation Motion to Dismiss") pursuant to Superior Court Civil Rule 12(b)(6) ("Civil Rule 12(b)(6)"). Turf Nation also moved for judgment on the pleadings on Counts II and III of the Amended Counterclaim ("Turf Nation Judgment on the Pleadings Motion").

         The Court held a hearing on the Vrankin Motion to Dismiss, the Turf Nation Motion to Dismiss, and the Turf Nation Judgment on the Pleadings Motion (collectively, the "Motions") on July 28, 2017. After hearing argument, the Court took the Motions under advisement. This is the Court's decision on the Motions. For the reasons set forth below, the Court will (i) GRANT the Vrankin Motion to Dismiss, (ii) DENY the Turf Nation Motion to Dismiss, and (iii) DENY the Turf Nation Judgment on the Pleadings Motion.

         II. RELEVANT FACTS[1]

         Turf Nation is a Delaware corporation with its principal place of business in Dalton, Georgia.[2] Turf Nation manufacturers synthetic sports turf and related products.[3] UBU[4] is a Delaware corporation with its principal place of business in Downers Grove, Illinois.[5] UBU sells and installs turf products manufactured by companies like Turf Nation.[6] Vrankin is a resident of Illinois who served as the President and CFO of UBU from January 2014 to January 2017.[7]

         A. Turf Nation's Allegations and Claims

         Between May 2016 and November 2016, UBU placed orders for turf products with Turf Nation.[8] Turf Nation manufactured and supplied the turf products via requests orders, and billed UBU for the turf products via invoices.[9] The invoices represent orders corresponding to at least twenty installation projects (the "Projects") across the United States.[10]

         UBU purportedly defaulted on its obligations under the invoices by failing to timely pay the amounts owed for the turf products.[11] On November 15, 2016, Turf Nation sent a letter to UBU providing notice of UBU's default.[12] To date, UBU has not paid any of the outstanding debt.[13]

         The Projects and amounts owed for each Project are: (i) $21, 667.06 for turf for the University of Pittsburgh (the "Pittsburgh Project"); (ii) $215, 495.59 for turf for Tarleton State University in Texas; (iii) $202, 175.77 for turf for Liberty Christian School in Texas; (iv) $216, 477.79 for turf for the Texan's NRG Stadium in Texas; (v) $244, 540.76 for turf for Indian River High School in New York (the "Indian River Project"); (vi) $144, 555.49 for turf for the Buffalo Bills training center in New York (the "Buffalo Bills Project"); (vii) $124, 594.94 for turf for Telluride High School in Colorado; (viii) $175, 673.06 for turf for Logan High School in Wisconsin; and (xiv) $19, 213.08 for turf for Lincoln Middle School in Wisconsin. [14]

         Turf Nation alleges that UBU has not paid its subcontractors and suppliers, like Turf Nation, for their work on the Projects.[15] As one example, Turf Nation learned that Adhan Piping Company, the general contractor for the Indian River Project and the Buffalo Bills Project, paid UBU approximately $220, 246 for work performed on the Indian River Project.[16] Adhan Piping Company also paid UBU approximately $403, 916 for work performed on the Buffalo Bills Project. UBU, however, has not paid its subcontractors or suppliers for their work on these Projects.[17]

         Based on the foregoing, Turf Nation initiated this action against UBU for breach of contract resulting from the unpaid invoices and for violation of Pennsylvania's Contractor and Subcontractor Payment Act for the violations associated with the Pittsburgh Project. Turf Nation also asserted claims against UBU and Mr. Vrankin for violations of Texas, New York, Colorado, and Wisconsin Trust Fund Statutes. Finally, Turf Nation asserts a claim against Mr. Vrankin individually for receipt of trust funds in violation of Wisconsin law.

         B. UBU's Allegations and Counterclaims

         UBU's counterclaims arise out of an entirely different set of facts and set forth an alleged fraud scheme executed by Turf Nation's CEO, Sid Nicholls, and UBU's former CEO, Mark Nicholls. Turf Nation's CEO, Sid Nicholls, is the father of UBU's former CEO and controlling stockholder, Mark Nicholls (collectively, the "Nicholls").[18] In the Fall of 2014, Mark Nicholls sought to obtain equity investments by third parties into UBU through the sale of membership units in UBU's parent, Turf Industry Holdings, LLC ("Turf Industry").[19] The investments would be made pursuant to a Membership Interest Purchase Agreement ("MIPA").[20] Under the MIPA, Mark Nicholls would represent and warrant that UBU had a solid base of existing contracts with its suppliers, such as Turf Nation, purportedly to ease concerns of potential investors.[21]

         On October 4, 2014, Mark Nicholls e-mailed Sid Nicholls and stated that he could not find any contract in place between UBU and Turf Nation.[22] Mark Nicholls then stated that he would start creating a contract if one could not be found.[23] Mark Nicholls found an old draft contract from 2008, but, upon speaking to Sid Nicholls, Mark Nicholls realized that he could not represent the 2008 draft as a contract already in place because UBU was not incorporated until 2009.[24]

         A month later, Mark Nicholls produced a copy of a Manufacture and Supply Agreement (the "Agreement"), dated January 15, 2013, between UBU and Turf Nation to provide to potential investors.[25] The Agreement contained Sid Nicholls' signature, as CEO of Turf Nation, and Mark Nicholls' signature, as President and CEO of UBU.[26] The events precipitating the Agreement and the Agreement itself give rise to UBU's counterclaims.

         i. The Agreement

         Through the Agreement, Turf Nation agrees to manufacture and sell to UBU certain turf products, and UBU agrees to purchase these turf products from Turf Nation.[27] The Agreement specifies that UBU must make all purchases of turf products by a written purchase order.[28] Turf Nation will then invoice UBU for the purchased turf products.[29] Turf Nation agrees not to charge UBU more for the products than it "charges to its most valued customer for the same or substantially similar work, services, component materials, or equivalent Products."[30] UBU must then pay the balance on the invoice within sixty days of delivery and acceptance of the products.[31]

         As it relates to payment, however, Section 5(e) of the Agreement contains a section entitled "Credit."[32] This section states that:

The maximum amount outstanding from UBU to TN in respect of issued invoices at any one time shall not exceed U.S. $5 Million (the "UBU Credit Limit"). However, on an annual basis or as otherwise reasonably requested by UBU, TN and UBU shall review the amount of the UBU Credit Limit in light of other factors in the Parties reasonable discretion. TN and UBU will mutually agree if an increase in the UBU Credit Limit is warranted, and if so, the amount of such increase.[33]

         In order to ensure payment of invoices, Section 5(g) of the Agreement allows Turf Nation to, upon a minimum of ten days' notice in writing:

[T]ake any and all actions necessary or appropriate to establish or perfect security interest on Products released to UBU, including, without limitation, filing a lien or liens on fields installed or in the process of being installed with such Products supplied by TN, filing claims against any performance bonds relating to such fields, or filing claims against payments due to UBU in respect of such fields.[34]

Section 13 of the Agreement then contemplates possible events giving rise to an UBU default, including:

The failure of UBU to pay TN any amount that shall become due and payable under the terms and timing as set out in this Agreement and the continuance of said failure for fifteen (15) days after the giving of written notice of non-payment; or the failure of UBU to perform and observe any other term, condition, covenant, or provision contained in this Agreement and the continuance of such failure for thirty (30) days after the giving of written notice of such failure.[35]

Should UBU fail to cure its default, Section 14 of the Agreement provides Turf Nation certain remedies:

If a UBU Default within the meaning of Section 13 above has occurred and is continuing, then TN may take any or all of the following actions in addition to any and all rights and remedies available at law or in equity:
(d) Terminate this Agreement upon thirty (30) days written notice to UBU; provided, however, that if UBU pays in full any amounts owing under the Agreement, and otherwise cures all UBU Defaults existing under this Agreement, before the effective date of termination, the notice of termination shall be cancelled and the parties shall be restored to their prior position.
(e) Notwithstanding any other provision in this Section 14 or any other Section contained in this Agreement, TN may terminate this Agreement upon thirty (30) days written notice to UBU, for any reason.[36]

         All notices, including notice of default, must be mailed to:

UBU SPORTS, INC. 23022-800 Niagara Street Welland, Ontario, Canada L3C 7E7 Attention: Mark Nicholls Telephone: 800-828-8700 Telecopier: 800-828-1300
TURF NATION, INC. 3525 Old Dixie Highway Dalton, Georgia 30721 Attention: Sid Nicholls Telephone: (706) 278-4001 Telecopier: (706) 278-4002[37]

         ii. Turf Nation Terminates the Agreement

         The term of the Agreement was set to expire on December 31, 2023.[38] However, on November 7, 2014, Sid Nicholls sent Mark Nicholls a letter terminating the Agreement.[39]However, the MIPA, which was dated November 25, 2014, still listed the Agreement as a material contract.[40] In other words, Turf Nation apparently terminated the Agreement two weeks before Mark Nicholls represented to future investors that the Agreement was in effect.[41]

         While Mark Nicholls received notice of the termination, Mark Nicholls, together with Turf Nation, purportedly hid the termination from UBU's officers, investors, and agents for over two years.[42] Turf Nation purportedly did not reveal that it terminated the Agreement until November 22, 2016-after UBU had fired Mark Nicholls as CEO.[43] Prior to that time, UBU believed that it was making payments to Turf Nation in satisfaction of its outstanding credit balance under the Agreement, not in satisfaction of particular invoices.[44] In fact, UBU was paying a 30% premium on all turf products it ordered, which UBU believed Turf Nation was applying to UBU's loan balance.[45] Turf Nation continued accepting UBU's payment under the terms of the $5M line of credit in the Agreement, and it never designated the payment to a particular invoice.[46]

         Based on the foregoing, UBU counterclaimed against Turf Nation for: (i) Fraud, based on Turf Nation's conduct in executing and terminating the Agreement; (ii) Breach of Contract, based on Turf Nation's improper termination of the Agreement and breach of the Agreement's material terms; and (iii) Tortious Interference with Contractual Relations, based on Turf Nation's conduct in contacting UBU's clients to seek repayment of UBU's purportedly defaulted loans.[47]

         III. PARTIES' CONTENTIONS

         A. Vrankin Motion

         i. Mr. Vrankin's Contentions

         Mr. Vrankin first contends that the Court cannot assert personal jurisdiction over him under 10 Del. C. § 3104 ("Section 3104") because had had no contact with the State of Delaware other than through his role as CFO of UBU, a Delaware corporation. Mr. Vrankin also contends that his status as CFO of UBU, on its own, does not satisfy the due process requirement for personal jurisdiction under 10 Del. C. § 3114 ("Section 3114").

         ii Turf Nation's Contentions

         Turf Nation concedes that personal jurisdiction is not appropriate under Section 3104 because Mr. Vrankin did not have sufficient minimum contacts with the State of Delaware. However, Turf Nation argues that personal jurisdiction is appropriate under Section 3114 because Mr. Vrankin is a "necessary and proper party" to this civil action and because Mr. Vrankin controlled the finances of a Delaware corporation.

         B. Turf Nation Dismissal Motion

         i. Turf Nation's Contentions

         Turf Nation contends that the allegations of fraud are not pleaded with the requisite particularity. Alternatively, Turf Nation contends UBU lacks standing to bring a fraud claim because the harm alleged was to investors in UBU's parent, not UBU itself.

         ii. UBU's Contentions

         UBU contends it pleaded its fraud claim with particularity because the Amended Counterclaim names the time, place, content, and source of the fraud. UBU further contends it has standing to assert a fraud claim because the Amended Counterclaim pleads several instances of harm caused directly to UBU.

         C. Turf Nation Judgment on the Pleadings Motion

         i. Turf Nation's Contentions

         Turf Nation argues that the breach of contract and tortious interference with contractual relations claims cannot stand because Turf Nation properly terminated the Agreement in 2014. Alternatively, Turf Nation asserts that even if it did not terminate the Agreement, none of its conduct violated the Agreement for purposes of establishing breach of contract and alike.

         ii. UBU's Contentions.

         UBU contends that Turf Nation improperly terminated the Agreement and breached the Agreement by failing to provide the $5M line of credit to UBU and by charging 30% premiums to UBU. Because UBU did not default on its payments based on the terms of the Agreement, UBU contends Turf Nation interfered with its business by contacting UBU's clients.

         IV. STANDARDS OF REVIEW

         A. Civil Rule 12(B)(2)

         Upon a motion to dismiss under Civil Rule 12(b)(2), the plaintiff is obligated to establish a prima facie case, that personal jurisdiction is sound.[48] "Although the plaintiff must plead specific facts and cannot rely on mere conclusory assertions, the factual record is read in the light most favorable to the plaintiff."[49] "There are two legal questions to be answered in considering a motion under Rule 12(b)(2) . . . whether there is a statutory basis for serving the defendant [and] whether this court's exercise of personal jurisdiction over the defendants is consistent with the Due Process Clause."[50]

         B. Civil Rule 12(B)(6)

         Upon a motion to dismiss under Civil Rule 12(b)(6), the Court (i) accepts all well-pleaded factual allegations as true, (ii) accepts even vague allegations as well-pleaded if they give the opposing party notice of the claim, (iii) draws all reasonable inferences in favor of the non-moving party, and (iv) only dismisses a case where the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[51] However, the Court must "ignore conclusory allegations that lack specific supporting factual allegations."[52]

         C. Civil Rule 12(C)

         A party may move for judgment on the pleadings pursuant to Civil Rule 12(c).[53] In determining a motion under Civil Rule 12(c) for judgment on the pleadings, the Court is required to view the facts pleaded and the inferences to be drawn from such facts in a light most favorable to the non-moving party.[54] The Court must take the well-pleaded facts alleged in the complaint as admitted.[55] When considering a motion under Civil Rule 12(c), the Court also assumes the truthfulness of all well-pled allegations of fact in the complaint.[56] The Court must, therefore, accord plaintiffs opposing a Rule 12(c) motion the same benefits as a plaintiff defending a motion under Civil Rule 12(b)(6).[57] The Court may grant a motion for judgment on the pleadings only when no material issue of fact exists and the movant is entitled to judgment as a matter of law.[58]

         V. DISCUSSION

         A. The Court Does Not Have Personal Jurisdiction over Mr. Vrankin under 10 Del. C. § 3114 or 10 Del. C. § 3104

         Under 10 Del. C. § 3114 ("Section 3114"), a nonresident officer of a Delaware corporation, by accepting and holding office, consents to the exercise of personal jurisdiction over him in Delaware courts in two types of cases:

(i) "all civil actions or proceedings brought in this State, by or on behalf of, or against such corporation, in which such officer is a necessary and proper party"; or
(ii) "any action or proceeding against such officer for violation of a duty in such capacity" i.e. a claim for breach of a fiduciary or other statutory duty.[59]

         To qualify as a "necessary and proper party" under prong one, the party asserting personal jurisdiction must establish that: (i) the individual defendant has a legal interest in the dispute separate from the Delaware corporation's interest; and (ii) the plaintiff's claims arose out of the same facts and occurrences as the claims against the Delaware corporation and it serves judicial economy to consider the claims together.[60]

         Even if a nonresident officer qualifies as a "necessary and proper party, " however, the party asserting personal jurisdiction must still prove that personal jurisdiction is consistent with due process.[61] This is done by establishing that the nonresident officer had minimum contacts with the forum state.[62]

         Turf Nation argues under prong one only-that Mr. Vrankin is a "necessary and proper party." Specifically, Turf Nation argues that Mr. Vrankin has a separate legal interest in this civil action stemming from his individual liability as CFO for the Trust Fund Statute violations. Mr. Vrankin argues that his legal interest is not separate from UBU's for purposes of establishing that he is a "necessary and proper party." The ...


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