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H.C. Duke & Son, LLC v. Prism Marketing Corp.

July 9, 2012

H.C. DUKE & SON, LLC, PLAINTIFF,
v.
PRISM MARKETING CORP., ET AL, DEFENDANTS.



The opinion of the court was delivered by: Sara Darrow United States District Judge

E-FILED Monday, 09 July, 2012 11:01:38 AM Clerk, U.S. District Court, ILCD

ORDER

This case involves a contract dispute between Plaintiff H.C. Duke & Son, LLC ("Duke"), a Delaware Corporation with its principal place of business in East Moline, Illinois, and co-Defendants Prism Marketing Corporation ("Prism"), a Nevada Corporation with its principal place of business in Las Vegas, Nevada, Superior Quality Equipment, Inc. ("Superior"), a California corporation with its principal place of business in Corona, California, and Steven Levine, a resident of Washington (collectively, the "Defendants"). The Court has diversity-based jurisdiction pursuant to 28 U.S.C. § 1332.

Presently before the Court is Defendants' Motion to Dismiss. (ECF No. 38.) For the reasons set forth below, the Court DENIES the Motion.

I.BACKGROUND

On August 25, 2003, Plaintiff and Prism entered into the Distributorship Agreement (the "Duke-Prism Distributor Agreement") for Electro Freeze, a line of soft-serve ice cream machinery. (See Second Amended Complaint (hereafter referred to as "Sec. Am. Compl."), Ex. A, ECF No. 37.) Under the Duke-Prism Distributor Agreement, Prism would actively promote the sale and distribution of Plaintiff's Electro Freeze equipment throughout various counties in California and Nevada. (Id.) The Agreement included an explicit termination clause, allowing either party to terminate the contractual relationship by providing thirty days written notice by certified or registered mail. (Id.) The Agreement also provided that outstanding balances were due within thirty days of the invoice date. (Id.)

Beyond the disputed Duke-Prism Distributor Agreement, three other agreements are implicated in this case. First, Steven Levine signed a "Personal Guarantee to H.C. Duke & Son, Inc." for any unpaid debt owed by Prism (the "Levine Personal Guarantee"). (Sec. Am. Compl. Ex. C.) Second, on September 16, 2010, Plaintiff entered into a "Security Agreement" with Superior, allowing Plaintiff to enforce payment upon any future default by Superior (the "Superior-Duke Security Agreement"). (Sec. Am. Compl. Ex. D.) The Superior-Duke Security Agreement included a term specifying that it was to be interpreted pursuant to the California Commercial Code. (Id.) Third, on October 29, 2010, Plaintiff entered into a separate "Security Agreement" with Prism (the "Prism-Duke Security Agreement"). (Sec. Am. Compl. Ex. F.) Clause 24 of the Prism-Duke Security Agreement specified that Nevada Uniform Commercial Code would govern the default interpretation of any contractual language. (Id.)

The parties' dispute arose from an alleged breach of contract. Plaintiff claims that it sold certain goods to Prism pursuant to the Duke-Prism Distributor Agreement but Prism never paid for them. (Sec. Am. Compl. ¶ 4.) In a letter dated January 18, 2011, Plaintiff informed Prism and Superior of its intention to terminate their business relationships pursuant to the provision governing termination in the Duke-Prism Distributorship Agreement. (Sec. Am. Compl. ¶ 12, Ex. B.) Prism and Superior contend that the letter did not provide proper notice of Plaintiff's intent to terminate because it did not comply with the manner of notice specified in the Duke- Prism Distributorship Agreement. (Sec. Am. Compl. ¶ 13.) As such, Prism and Superior contend that the Duke-Prism Distributorship Agreement remains in force.

Plaintiff filed its initial complaint on February 2, 2011, seeking declaratory relief and a determination of breach of contract under the Duke-Prism Distributorship Agreement and additional relief under the Levine Personal Guarantee and security agreements. (ECF No. 1.) On March 31, 2011, Defendants filed a Motion to Dismiss the initial complaint. (ECF No. 11.) That motion was denied, but thereafter the parties jointly sought and were granted leave for Plaintiff to file an amended complaint. (See ECF No. 20; June 20, 2011 Text Order.)

Plaintiff filed the Amended Complaint on June 23, 2011, and Defendants responded with another motion seeking dismissal or, in the alternative, a more definite statement. (See ECF Nos. 21, 23.) Instead of opposing the motion to dismiss, Plaintiff sought permission to file a Second Amended Complaint to address Defendants' assertions that it failed to adequately state certain claims, including that it was deficient in its factual allegations regarding Plaintiff's alter ego allegations. (See Mot. and Am. Mot. for Leave to File Sec. Am. Compl., ECF. Nos. 28, 30.) Leave was granted and on September 26, 2011, Plaintiff filed a Second Amended Complaint. Specifically, in the Second Amended Complaint Plaintiff expanded on its alter ego allegations with the following facts:

Plaintiff is informed and believes and thereon alleges there is such a unity of interest and ownership between Defendants Prism and Superior such that any individuality and separateness between them have ceased, and that Superior is the alter ego of Prism in that Plaintiff is informed and believes and thereon alleges that: (1) Superior was not adequately capitalized, (2) the assets and management of the two (2) Defendants, Prism and Superior, have been intermingled, and (3) required corporate formalities as between the two (2) corporate entities have not been maintained, such that Superior is merely a sham in order to evade liability that otherwise would rest with Prism. Levine, Prism and Superior have intentionally schemed to squirrel assets into Superior, in an attempt to remove assets from the ownership and control of Prism, so as to prevent Plaintiff from satisfying any judgment obtained against Prism. By their actions, Levine, Prism and Superior have abused the corporate form such that adherence to the fiction of two (2) separate corporate entities would promote injustice. (Sec. Am. Compl. ¶ 6, ECF No. 37.)

Plaintiff's Second Amended Complaint seeks relief for five discrete causes of action. First, Plaintiff seeks a declaratory judgment as to their relationship with Prism and Superior in view of the January 18, 2011 letter purporting to exercise the termination provision of the Duke-Prism Distributorship Agreement. (Sec. Am. Compl. ¶ 10-15.) Second, Plaintiff alleges a breach of contract, claiming that Prism failed to pay past invoices in the amount of $899,881 and, as Prism's alter ego, Superior is liable for the debt. (Sec. Am. Compl. ¶ 16-20.) Third, Plaintiff alleges Levine breached the Levine Personal Guarantee as he has not paid the debts owed by Prism. (Sec. Am. Compl. ¶ 21-26.) Fourth, Plaintiff seeks foreclosure on all collateral specified in the Prism-Duke Security Agreement. (Sec. Am. Compl. ¶ 27-30.) Finally, Plaintiff seeks foreclosure on all collateral specified in the Superior-Duke Security Agreement on the grounds that Superior is liable as the alter ego of the indebted Prism. (Sec. Am. Compl. ¶ 31-34.) As relief for these five counts, Plaintiff seeks judgment against Prism, Superior, and Levine in the amount of $899,881 plus interest at the legal rate allowed by Illinois law.

In response to the Second Amended Complaint, Defendants moved to dismiss Superior from the first and second causes of action as well as to dismiss the fifth cause of action in its entirety as to all Defendants pursuant to FRCP 12(b)(6). (Mot. to Dismiss, ECF No. 38.) Defendants argue that Plaintiff failed to plead sufficient facts to support its contention that Superior is the alter ego of Prism under Nevada law. (Mot. to Dismiss ΒΆ 1.) Defendants also allege that Plaintiff failed to sufficiently plead facts that would demonstrate that ...


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