Opinion
No. 218-2017-CV-00545
10-13-2017
North American Dismantling Corporation v. Cate Street Capital, Inc., CSC Group Holdings, LLC, NewCo Energy, LLC, Berlin Station, LLC and Burgess Biopower, LLC
ORDER
The Plaintiff, North American Dismantling Corporation ("North American"), has brought a declaratory judgment action against the Defendants, Cate Street Capital, Inc. ("Cate Street"), CSC Group Holdings, LLC ("CSC"), NewCo Energy, LLC ("NewCo"), Berlin Station, LLC ("Berlin Station") and Burgess Biopower, LLC ("Burgess") in order to obtain an order that North American is entitled to review certain documents identified in Exhibit B to its Complaint, and that it is entitled to access such further documents as may be reasonably necessary to comply with the provisions of an existing Asset Purchase Agreement ("APA") entered into by North American. North American alleges that the APA entitles North American to obtain five percent (5%) of the cash flow of a "Biomass Project," from companies that Cate Street manages. The Defendants have moved to dismiss. For the reasons stated in this Order, the Motion to Dismiss is DENIED. The Defendants shall provide an answer to the Complaint within 30 days from the date of the Clerk's Notice transmitting this Order.
As defined in the APA. (See Compl., Ex. A at 3.)
I
North American alleges that it is entitled to review the documents it seeks by the explicit terms of the APA entered into between it and Laidlaw Berlin Biopower, LLC ("Laidlaw"). Under the terms of the APA, "[f]or a period of ten (10) years from the commencement of commercial operations of the Biomass Project that the Purchaser intends to develop (the 'Earn-Out Period'), the Seller shall be entitled to five percent (5%) of the net cash flow earned by the Purchaser from the operation of the Business ('the Earn-Out')." (Compl., Ex. A at 5.) According to the Complaint, the APA requires that:
Laidlaw is defined as the "Purchaser" in the APA. (See Compl., Ex. A at 2.)
The Purchaser shall maintain full and correct books and records showing in detail the earnings and expenses of the Premises and will permit the Seller, or its representatives, during regular business hours, to examine said books and records and all supporting vouchers and data from time to time upon request upon the Seller. Any such access shall occur at the expense of the Seller.(Compl. ¶ 24.) North American seeks to review the documents described in Exhibit B to its Complaint (the "Documents"). (Id. ¶ 12.) It alleges that "[t]his case is necessary because the Defendants refused to provide the Documents to [North American] for its review." (Id. ¶ 13.)
North American alleges that after the APA was executed in 2008:
16. Thereafter, Laidlaw transferred its rights and obligations under the APA to the companies that Cate Street manages with respect to the ownership and operation of a 75 megawatt biomass power plant that Cate Street developed at the location of the former Fraser Pulp Mill ("Berlin Power Plant").
17. The companies that Cate Street manages with respect to the Berlin Power Plant, and which actually hold, own, operate and/or comprise the corporate structure of the Berlin Power Plant, include [CSC], NewCo, Berlin Station
and Burgess.
18. In turn:
(Id. ¶¶ 16-18.)A. [CSC] holds a number of companies, including NewCo, each of which constitutes the parent entity of a separate investment project including the Berlin Power Plant;
B. NewCo holds a number of companies, all of which together comprise the entities that hold, own, operate and/or comprise the corporate structure of the Berlin Power Plant;
C. Berlin Station is the owner of the Berlin Power Plant; and
D. Burgess is the operator of the Berlin Power Plant.
Apart from alleging a transfer of rights, North American alleges that:
43. With respect to the Documents requested, as described in Exhibit B hereto, each of the companies identified therein is managed by Cate Street within the corporate structure of the Berlin Power Plant, and thus each falls within the meaning of the Biomass Project, Business and/or the Premises as defined and used within the Earn-Out provisions of the APA.
44. By virtue of its management of the companies within the corporate structure of the Berlin Power Plant, Cate Street has in its possession, custody and/or control the Documents that [North American] seeks through this action and has failed to produce them.
45. By virtue of its existence as the holding company for Cate Street's investment projects, including the Berlin Power Plant, [CSC] has in its possession, custody and/or control the Documents that [North American] seeks through this action and has failed to produce them.
46. By virtue of its existence as the holding company for the Berlin Power Plant investment project, NewCo has in its possession, custody and/or control the Documents that [North American] seeks through this action and has failed to produce them.
47. By virtue of its existence as the owner of the Berlin Power Plant, Berlin Station has in its possession, custody and/or control the Documents that [North American] seeks through this action and has failed to produce them.
48. By virtue of its existence as the operator of the Berlin Power Plant,
Burgess has in its possession, custody and/or control the Documents that [North American] seeks through this action and has failed to produce them.(Id. ¶¶ 43-48.)
Finally, North American alleges that "[i]n 2015, Cate Street, Berlin Station and Burgess, on behalf of themselves and their subsidiaries and affiliates, admitted that they are obligated to provide documents for review as required by the Earn-Out provisions of the APA." (Id. ¶ 37.)
North American requests that the Court:
A. Declare that [North American] is entitled to review the Documents;(Id. ¶ 55.)
B. Declare that [North American] is entitled to review such further documents as may be reasonably necessary to comply with the provisions of the APA;
C. Award [North American] reasonable attorney's fees, costs and disbursements associated with bringing this action to enforce its rights under the Earn-Out provisions of the APA; and
D. Grant such other relief as this Court deems just and proper.
II
When considering a Motion to Dismiss, the court must determine whether the facts as pled are sufficient under the law to set forth a cause of action. Brzica v. Trustees of Dartmouth College, 147 N.H. 443, 450 (2002). In reviewing the allegations, a court must rigorously scrutinize the complaint to determine whether, on its face, it asserts a cause of action. Id. The court must accept the truth of all well pleaded facts, with all reasonable inferences therefrom. Mt. Springs Water Co. v. Mt. Lakes Vill. Dist., 126 N.H. 199, 200 (1985). A reviewing court need not accept as true statements in the complaint that are merely conclusions of law. Chase v. Vill. Dist. of Eastman, 128 N.H. 807, 814 (1986).
All of the Defendants claim that the Complaint must be dismissed because it does not state a cause of action for damages. For example, Cate Street and CSC argue:
[D]efendants Cate Street and [CSC] respectfully request dismissal of this action against them, both (1) because the Complaint fails to allege facts sufficient to support any claim against defendant Cate Street and (2) because, with respect to defendant [CSC], the Complaint merely asserts the legal conclusion that an obligation was "transferred" to [CSC] without alleging any predicate facts supporting that legal conclusion . . . .(Defs. Cate Street and CSC's Mem. of Law in Supp. of Mot. to Dismiss, at 1-2 (emphasis added).) A similar argument is made by NewCo, Berlin Station and Burgess:
In this case, [North American] has brought a declaratory judgment action based upon a single, broad, and unsupported legal conclusion that the defendants generally—and apparently each and every defendant separately—are successors in liability as it relates to the APA. In other words, [North American] has simply stated that there is successor liability, without providing even a modicum of the most basic information as to how the alleged successor liability has been established generally, let alone with respect to each individual defendant. Instead, [North American] points very generally to a subsequent Laidlaw transaction and a muddled description of defendants' perceived corporate structure as somehow reflecting successor liability. . . . Indeed, beyond indicating that this subsequent transaction occurred, [North American] failed to provide any information or assert any factual allegations supporting the claim of liability.(Defs. NewCo, Berlin Station and Burgess' Mem. of Law in Supp. of Mot. to Dismiss, at 3-4 (emphasis added).)
But North American does not seek damages; it seeks an equitable remedy of discovery pursuant to RSA 491:22, the declaratory judgment statute. North American requests only that it be permitted to review the Documents and that it is entitled to access such further documents as may be reasonably necessary to comply with the provisions of the APA.
The Defendants do not assert that the use of a Declaratory Judgment is improper in this case. The New Hampshire Supreme Court has stated that "[t]he remedy of declaratory judgment affords relief from uncertainty and insecurity created by a doubt as to rights, status or legal relations existing between the parties." Benson v. New Hampshire Ins. Guar. Ass'n, 151 N.H. 590, 593-94 (2004). Declaratory judgment actions are said to be "sui generis as they partake of some of the characteristics of both law actions and equity proceedings." Merchants Mut. Ins. Co. v. Transformer Serv. Inc., 112 N.H. 360, 364-65 (1972). However, the Court has been unable to find a case which supports use of a declaratory judgment action brought pursuant to RSA 491:22 in order to obtain pre-litigation discovery. It is doubtful that a declaratory judgment action is the proper vehicle by which North American's claim should proceed.
The substance of the pleading, and not the form of the pleading before the Court is essential to the determination of a remedy. In re Proposed N.H. Rules of Civil Procedure, 139 N.H. 512, 515-16 (1995). North American seeks discovery so that it can make a claim. The Court has authority to treat a properly served Complaint captioned as a declaratory judgment action, but seeking a remedy more properly characterized as a petition for pre-suit discovery as such a petition, and the Court will do so in this case. See Owen v. Weston, 63 N.H. 599, 603 (1885) ("To cure a defect of form, an amendment may be ordered; but without an amendment, such a defect may be disregarded."); Super. Ct. Civ. R. 1(d).
The superior court has specific authority to afford discovery under RSA 498:1 and the courts have had such equity powers with respect to discovery since 1842. RS 171:6 (1842) (stating, in pertinent part, that the court "shall have power to hear and determine, as a court of equity . . . in suits for discovery in cases where a discovery may be lawfully required"); see Reynolds v. Burgess Sulfite Fiber Co., 71 N.H. 332, 333 (1902). Equitable discovery arose in response to the common law maxim "nemo tenetur armare adversarium suum contra se"— one is not bound to arm one's adversary against oneself. See Reynolds, 71 N.H. at 333. At common law, this principle generally allowed parties to conceal from each other, up until the time of trial, the evidence upon which they intended to rely. Id. at 333-34. The New Hampshire Supreme Court has noted that "[u]nder this maxim, many claims existed for which there could be no redress, simply because the plaintiff's evidence was, in whole or in part, in the defendant's possession." Gutbier v. Hannaford Bros. Co., 150 N.H. 540, 543 (2004) (citation omitted). "This perceived injustice at common law led to the development of the equitable remedy of bills for discovery." Id. This is the precise position in which North American finds itself.
In the 1920s and 1930s, the former bills of discovery were transmuted in practice into discovery motions and the use of a separate equity proceeding for discovery in aid of a pending action at law fell into disuse. 4 G. MacDonald, New Hampshire Practice: Civil Practice and Procedure, § 22.06, at 22-9 n.32 (4th ed. 2014). However, the New Hampshire Supreme Court has continued to hold that a party may bring a petition for discovery in aid of an action that has not yet been brought. Robbins v. Kalwall Corp., 120 N.H. 451, 452-53 (1980). Such actions are, to be sure, not common, and such an action may not be maintained where a party has a remedy at law. See Gutbier, 150 N.H. at 544. But the whole point of the Defendants' arguments is that North American has no remedy at law, as it is apparent when the arguments made by each Defendant are examined.
Pre-suit discovery is permitted in many American jurisdictions, and by Federal Rule of Civil Procedure 27(a)(1). See generally 23 Am. Jur. 2d Depositions Discovery § 4. --------
III
Cate Street argues that "[t]he failure to allege that any obligations were transferred to Cate Street, or assumed by Cate Street, is fatal to the Complaint against Cate Street." (Defs. Cate Street and CSC's Mem. of Law in Supp. of Mot. to Dismiss, at 3.) Cate Street correctly notes that the allegation that Cate Street manages other Defendants does nothing to change the analysis because "managers have no liability for the contract obligations of the limited liability companies they manage," citing Mbahaba v. Morgan, 163 N.H. 561, 565 (2012). (Id. at 3-4.) But this argument proves too much.
North American does not seek to hold Cate Street liable as a result of its interest or operation of other Defendants; rather, it seeks access to the Documents. It alleges plainly and clearly that "[b]y virtue of its management of the companies within the corporate structure of the Berlin Power Plant, Cate Street has in its possession, custody and/or control the Documents that [North American] seeks through this action and has failed to produce them." (Compl. ¶ 44.) North American has plainly alleged that Cate Street has documents in its possession, that it has an equitable basis to examine the documents, and Cate Street will not produce them.
Similarly, CSC argues that this case should be dismissed because the Complaint does not state a cause of action at law against it: "the Complaint against [CSC] is based upon a bare assertion of liability without any supporting 'predicate facts.'" (Defs. Cate Street and CSC's Mem. of Law in Supp. of Mot. to Dismiss, at 4.) NewCo, Berlin Station and Burgess make similar arguments in their papers: "there simply are no allegations as to how this transaction, in and of itself, gave rise to successor liability." (Defs. NewCo, Berlin Station and Burgess' Mem. of Law in Supp. of Mot. to Dismiss, at 4.)
Pre-suit discovery is appropriate in this instance for precisely the reasons the Defendants seek dismissal—that there is no allegation that any of them are liable under the APA. The reasons for discovery "apply with equal force and some greater reason to a nonparty." Robbins, 120 N.H. at 453 (quotation omitted). "A nonparty often has no interest in participating in the plaintiff's suit against another litigant, and, absent equitable discovery, a plaintiff may have had no means at law to obtain necessary information." Gutbier, 150 N.H. at 544. In this case, while North American may know the form the action should take, breach of contract, it does not know the identity of the proper defendant. In such circumstances, a petition for pre-suit discovery is entirely appropriate. A New Hampshire court cannot countenance a situation in which a claim may exist but "there [can] be no redress, simply because the plaintiff's evidence was, in whole or in part, in the defendant's possession." Id.
Accordingly, the Motion to Dismiss is DENIED. The Defendants shall provide an answer to the Complaint within 30 days from the date of the Clerk's Notice transmitting this Order.
SO ORDERED
10/13/17
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/