Stifel, Nicolaus & Company, Incorporated v. Firemoon Energy, Llc et al

MOTION to Dismiss for Failure to State a Claimor for Lack of Personal Jurisdiction

D. Md.July 14, 2016

1332303.1 07/14/2016 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND (Greenbelt Division) STIFEL, NICOLAUS & COMPANY § INCORPORATED § § Plaintiff § § v. § CIVIL ACTION NO. 8:16-cv-00628-GJH § FIREMOON ENERGY, LLC, § VERTEX ENERGY PARTNERS, LLC, § and LONGS PEAK RESOURCES, LLC § § Defendants § SPECIALLY APPEARING DEFENDANT LONGS PEAK RESOURCES LLC’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION OR FOR FAILURE TO STATE A CLAIM Specially appearing defendant Longs Peak Resources LLC (“Longs Peak”) files this Motion to Dismiss the First Amended Complaint (“Amended Complaint”) of Stifel, Nicolaus & Company, Incorporated (“Stifel” or “Plaintiff”) under Rule 12(b)(2) for lack of personal jurisdiction or, alternatively, under Rule 12(b)(6) for failure to state a claim as follows: I. INTRODUCTION Longs Peak is an oil and gas exploration and production company headquartered in Houston, Texas. It is 99% owned by Juniper LPR Holdings, also headquartered in Houston, Texas. Longs Peak does not have any employees or officers in Maryland. It has never had any contact with Maryland, never conducted business in Maryland, and does not own any property in Maryland. This Court clearly lacks personal jurisdiction over Longs Peak. Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 1 of 21 2 1332303.1 07/14/2016 Alternatively, Stifel fails to state a claim against Longs Peak, because it has failed to sufficiently allege that Longs Peak was a party to any agreement with Stifel or that Longs Peak received any unjust benefits from Stifel. Stifel’s only allegations in support of its contract claims against Longs Peak consist of bald contentions that (1) Longs Peak is an “affiliate” of Firemoon Energy LLC (“Firemoon”), because two of Firemoon’s principals purportedly control Longs Peak, (2) two principals in Firemoon - the entity that actually signed a contract with Stifel - could bind a then non-existent, only later-formed, entity to that contract; and (3) Stifel purportedly obtained financing for Longs Peak. Stifel’s allegations are grossly inadequate, contradicted by its own pleadings, and unsupported by plain law. Stifel’s contract claims should be dismissed in their entirety. Stifel’s strained claims of unjust enrichment and quantum meruit should also be dismissed for failure to state a claim, because the engagement agreement that Stifel alleges it had with Firemoon expressly precludes providing benefits to a non-party to that agreement. Stifel has also failed to adequately allege that it provided Longs Peak any benefit, that Longs Peak knew of any such benefit, or that it would be inequitable for Longs Peak to retain any such benefit if it obtained it. In clear contradiction to its conclusory allegations in those regards, Stifel has alleged that it worked only on behalf of Firemoon and Vertex. Stifel’s claims for unjust enrichment or quantum merit against Longs Peak should also be dismissed. II. FACTUAL SUMMARY A. The Amended Complaint Stifel has alleged that it engages in the business of representing clients in obtaining financing for such clients from investors through the clients’ issuance of debt or equity securities. Am. Compl., Ex. 1 at p. 1. Stifel has alleged that it charges a percentage fee out of Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 2 of 21 3 1332303.1 07/14/2016 the amount of invested funds that it raises for its clients. In this case, Stifel alleges that defendant Firemoon engaged Stifel to help it obtain financing on February 10, 2014 and Stifel asserts it is now owed a multi-million dollar fee. Am. Compl. at ¶8. But Stifel concedes it never obtained financing for Firemoon. Rather, Stifel generally alleges that it is owed a fee, because nearly two years later, (a) two out of four owners of Firemoon purportedly created a company called Vertex Energy Partners LLC (“Vertex”), (b) Vertex and Juniper LPR Holdings, LLC purportedly created Longs Peak, and (c) Longs Peak purportedly received a commitment from investors to provide $65 million to Longs Peak for it to invest in oil and gas properties. Fatally absent from Stifel’s allegations is any suggestion that Longs Peak has any connection to Maryland or to any of the wrongful conduct alleged here. Indeed, as a practical matter, Stifel concedes that it never sent Longs Peak a demand letter, as it alleges it did to Firemoon and Vertex, and that it did not even sue Longs Peak in its Original Complaint. Am. Compl. ¶48. Now, taking another pass, Stifel complains that Longs Peak is liable for breaching a contract between Stifel, on the one hand, and Firemoon and Firemoon’s affiliates, on the other hand, based on nothing more than conclusory claims that Longs Peak is Firemoon’s “affiliate.” The allegations are grossly insufficient to state a valid claim against Longs Peak. B. Longs Peak As detailed in the accompanying Declaration of Longs Peak’s controlling director Edward Geiser (“Geiser Decl.”), Longs Peak has no contacts with Maryland or Stifel. (Geiser Decl. at ¶¶7-8). Longs Peak is a Delaware corporation with its headquarters in Houston, Texas. (Geiser Decl. at ¶2). Longs Peak has never had offices, bank accounts, mailing addresses, telephone numbers, real property, personal property, member meetings, or director meetings in Maryland. (Geiser Decl. at ¶¶10-18). Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 3 of 21 4 1332303.1 07/14/2016 Longs Peak was created in November 2015. (Geiser Decl. at ¶2). It was originally formed and owned 100% by Juniper LPR Holdings, LLC, which is also headquartered in Houston, Texas. (Geiser Decl. at ¶2). It is currently owned 99% by Juniper LPR Holdings LLC and 1% by Vertex. (Geiser Decl. at ¶4). Longs Peak is managed by its board of directors, and voting by the board of directors is in proportion to the ownership interests in Longs Peak that are held by the companies who designate individuals to Longs Peak’s board. (Geiser Decl. at ¶5). In other words, since Juniper LPR Holdings LLC owns 99% of it, Longs Peak is controlled entirely by Juniper LPR Holdings LLC. (Geiser Decl. at ¶5). Neither Firemoon, Vertex, nor any of either of their principals has control over Longs Peak. (Geiser Decl. at ¶5). Rather, Vertex provides operational services to Longs Peak as a contractor on oil and gas properties that Longs Peak owns. Vertex serves in that role at the pleasure of Longs Peak’s board. (Geiser Decl. at ¶5). Vertex’s operational services to Longs Peak could be terminated at any time. (Geiser Decl. at ¶5). Vertex is not a subsidiary of Longs Peak. (Geiser Decl. at ¶9). Neither Longs Peak, Juniper LPR Holdings, nor Juniper Capital Advisors has ever engaged Stifel to obtain financing. (Geiser Decl. at ¶8). III. LACK OF PERSONAL JURISDICTION A. Authority and Summary Plaintiff bears the burden of establishing that jurisdiction lies over a nonresident defendant. Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 59-60 (4th Cir. 1993). The Court may determine the jurisdictional issue by relying on declarations. Aphena Pharma Sols.-Maryland LLC v. BioZone Labs., Inc., 912 F. Supp. 2d 309, 314 (D. Md. 2012) (finding lack of personal jurisdiction based upon non-resident defendant’s declaration) (citing Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 396 (4th Cir. 2003)). Allegations in a plaintiff’s Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 4 of 21 5 1332303.1 07/14/2016 complaint are taken as true only to the extent not contradicted by defendant’s declaration. See McLaughlin v. McPhail, 707 F.2d 800, 806 (4th Cir. 1983) (holding that district court did not abuse its discretion in denying jurisdictional discovery when, “[a]gainst the defendants' affidavits,” plaintiff “offered nothing beyond his bare allegations that the defendants had had significant contacts with the [forum] state of Maryland.”) (internal quotation marks omitted). Maryland’s long arm statute regarding personal jurisdiction is co-extensive with the due process protections of the 14th Amendment. Therefore, the personal jurisdiction analysis may be collapsed into a single due process inquiry. Carefirst, 334 F.3d at 396-97; Stover v. O'Connell Assocs., Inc., 84 F.3d 132, 135-36 (4th Cir. 1996). Personal jurisdiction exists over a nonresident defendant only when two elements are satisfied: (1) the defendant has purposely availed himself of the benefits and protections of the forum state by establishing “minimum contacts” with that state; and (2) the exercise of jurisdiction over that defendant does not offend traditional notions of fair play and substantial justice. Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). Establishing “minimum contacts” requires a showing of either specific or general jurisdiction. Helicopteros Nacionales de Colombia, SA v. Hall, 466 U.S. 408, 414 (1984). Furthermore, the nonresident defendant’s availment must be such that it should reasonably anticipate being haled into court in the forum state. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). These rigorous constitutional standards cannot be satisfied by Stifel here. No basis for specific jurisdiction exists because Longs Peak has not purposefully directed any of its activities towards Maryland, and the controversy at issue does not arise out of any contact Longs Peak has had with Maryland. Moreover, no basis for general jurisdiction exists, because Longs Peak does not have any contact with Maryland, much less the wide-ranging, substantial, continuous, and Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 5 of 21 6 1332303.1 07/14/2016 systematic contacts that general jurisdiction requires. The Amended Complaint must therefore be dismissed. B. No Specific Jurisdiction Over Longs Peak Specific jurisdiction lies if a defendant has purposefully directed its activities at residents of the forum state and if the litigation results from alleged injuries arising out of or relating to those activities. Burger King¸ 471 U.S. at 472-73. Maryland courts properly require the nonresident’s acts to be very closely related to plaintiff’s claims. Christian Book Distribs., Inc. v. Great Christian Books, Inc., 137 Md. App. 367, 768 A.2d 719, 734-35 (2001) (finding that it would violate due process to exercise jurisdiction over a corporate agent who had negotiated a contract with a corporation based in the forum state, where the agent never had been physically present in the forum state, had limited contacts with the other corporation, and was acting solely in his corporate capacity); Pharmabiodevice Consulting, LLC v. Evans, GJH-14-00732, 2014 WL 3741692, at *4 (D. Md. July 28, 2014) (holding “isolated telephone calls and e-mails made from outside Maryland into the state, without more, are insufficient to demonstrate that Evans regularly solicited business in Maryland for purposes of establishing personal jurisdiction over an out-of-state defendant like Evans.”); CFA Institute v. Institute of Chartered Financial Analysts of India, 551 F.3d 285, 292 n. 15 (4th Cir. 2009) (Finding specific jurisdiction requires “that the relevant conduct have such a connection with the forum state that it is fair for the defendant to defend itself in that state.”). “To satisfy the long-arm prong of the analysis, a plaintiff must specifically identify a statutory provision that authorizes jurisdiction, either in his complaint or in opposition to a Rule 12(b)(2) motion.” Hausfeld v. Love Funding Corp., No. 14-0142, 2014 WL 1573009, at *2 (D. Md. Apr. 18.2014). Here, Stifel alleges that personal jurisdiction may extend to Longs Peak Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 6 of 21 7 1332303.1 07/14/2016 pursuant to Maryland’s long arm statute on the basis that “Defendants have transacted business in Maryland, specifically with Stifel.” Am. Compl. at ¶6. Stifel is wrong. There is simply no basis for finding that Longs Peak has transacted business in Maryland. Neither Longs Peak nor its 99% owner has conducted any business in Maryland, much less any business that relates to the allegations in the Amended Complaint. Longs Peak did not travel to Maryland and did not negotiate the alleged engagement agreement between Stifel and Firemoon in Maryland. (Geiser Decl. at ¶8). Longs Peak did not sign the alleged agreement with Stifel. Am. Compl. at Ex. 1. Longs Peak did not even exist at the time of the alleged agreement between Firemoon and Stifel. (Geiser Decl. at ¶2). The agreement itself does not require taking any action in Maryland. See Am. Compl. at Ex. 1. Other than having general knowledge that owners in Vertex had worked with Stifel in the past, Longs Peak was not in any way involved in engaging Stifel to do anything, much less in Maryland. Indeed, Stifel nowhere alleges that Longs Peak or its 99% owner Juniper LPR Holdings LLC had any role in Firemoon’s engaging Stifel to obtain financing. Stifel asserts instead that Longs Peak is liable as a supposed successor affiliate of Firemoon by the mere fact that two of Firemoon’s principals allegedly manage and control Longs Peak. See Am. Comp. at ¶44. As aforementioned, that conclusory allegation is false. (Geiser Decl. at ¶5). But even if that conclusory contention were true, it is insufficient to extend specific jurisdiction over Longs Peak. The Amended Complaint is devoid of any allegations that Longs Peak directed its activities toward Maryland, that it purposely availed itself of the privilege of conducting business in Maryland, or that Stifel’s claims result from any contacts that Longs Peak directed at Maryland. Exercising specific jurisdiction over Longs Peak would be improper. Burger King¸471 U.S. at 472-73. Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 7 of 21 8 1332303.1 07/14/2016 C. No General Jurisdiction Over Longs Peak General jurisdiction may be asserted when a defendant’s contacts with the forum state are substantial and “continuous and systematic” even though unrelated to the particular cause of action in issue. Helicopteros, 466 U.S. at 414, n.8. The United States Supreme Court has identified the following examples of “substantial” contacts favoring the exercise of general jurisdiction: (1) continuous and systematic supervision of corporate activities in the forum; (2) the location of corporate files in the forum; (3) holding director’s meetings in the forum; (4) maintaining substantial accounts in the forum; (5) making key business decisions in the forum; and (6) maintaining a principal place of business in the forum. Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 779 n.11 (1984). “[T]he threshold level of minimum contacts sufficient to confer general jurisdiction is significantly higher than for specific jurisdiction.” ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 715 (4th Cir. 2002); see also Estate of Bank v. Swiss Valley Farms Co., 286 F. Supp. 2d 514, 517-18 (D. Md. 2003) (“[G]eneral jurisdiction is ordinarily reserved for those defendants who have such substantial contacts with the forum state that they may be considered ‘essentially domiciled’ within that state.”) (quoting Atlantech Distribution, Inc. v. Credit Gen. Ins. Co., 30 F. Supp. 2d 534, 536 (D. Md. 1998)). A single contract is insufficient to establish general jurisdiction, even in combination with a series of other contracts. Nichols v. G.D. Searle & Co., 991 F.2d 1195, 1200 (4th Cir. 1993). Moreover, contracts of a subsidiary cannot impute jurisdiction to its parent entity. Mylan Labs., 2 F.3d at 61-62. The factors articulated by the courts above plainly are not present here as to Longs Peak. Longs Peak is a Delaware limited liability company with its principal place of business in Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 8 of 21 9 1332303.1 07/14/2016 Houston, Texas. (Geiser Decl. at ¶2). Longs Peak has never maintained an office, mailing address or telephone number in Maryland. (Geiser Decl. at ¶¶14-16). Longs Peak has never maintained any personal property, real estate, or bank accounts in Maryland. (Geiser Decl. at ¶¶10, 18). Longs Peak does not advertise in Maryland. (Geiser Decl. at ¶13). Further, Longs Peak does not have any employees who reside in Maryland. (Geiser Decl. at ¶11). And it never has held a meeting of its members or board of directors in Maryland. (Geiser Decl. at ¶18). Longs Peak does not have wide-ranging, substantial, continuous or systematic contacts with Maryland, and general jurisdiction cannot be established. D. Due Process Concerns Preclude Jurisdiction Over Longs Peak It is fundamental that jurisdiction, whether general or specific, may not be exercised over a nonresident defendant if that exercise would violate due process. Int’l Shoe, 326 U.S. at 316. Accordingly, a second and independent test must be satisfied before a Maryland court may exercise jurisdiction over a nonresident defendant consistent with due process: the assertion of jurisdiction over the defendant must be reasonable. Asahi Metal Indus. Co. v. Super. Ct., 480 U.S. 102, 113-116 (1987). The United States Supreme Court instructs that the following factors be weighed in determining whether the exercise of jurisdiction is reasonable: (1) the burden on the defendant; (2) the forum state’s interest in adjudicating the dispute; (3) the plaintiff’s interest in obtaining convenient and effective relief; (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several states in furthering fundamental substantive social policies. Id. (citing World-Wide Volkswagen, 444 U.S. at 292). Evaluation of the foregoing factors confirms that it would be unreasonable for this Court to exercise personal jurisdiction over Longs Peak. Litigating this matter in Maryland would be a Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 9 of 21 10 1332303.1 07/14/2016 heavy burden on Longs Peak since, as discussed above, it has no contact with Maryland. Further, Stifel has named other defendants, but has not alleged a single fact suggesting that Longs Peak is essential or even meaningful to establishing its claims. Therefore, dismissing Longs Peak would not hinder Stifel’s interest in obtaining effective relief. Int’l Shoe Co., 326 U.S. at 319. Finally, foreseeability is critical to the due process analysis. Courts “ask whether the defendant's conduct and connection with the forum [s]tate are such that he should reasonably anticipate being haled into court there.” Fed. Ins. Co. v. Lake Shore Inc., 886 F.2d 654, 658 (4th Cir. 1989) (quoting World-Wide Volkswagen, 444 U.S. at 297) (internal quotation marks omitted). Critically, Longs Peak could not have anticipated that it would be forced to litigate in Maryland for issues related to its having engaged Vertex to provide contract operational services for properties located in Colorado and granting Vertex the ability to invest in Longs Peak for a 1% ownership interest. Stifel never sent an engagement agreement to Longs Peak to sign or even to review and never stated that it was working for Longs Peak, much less that it was doing anything for Longs Peak in Maryland. (Geiser Decl. at ¶5.) Fair play and substantial justice compel the conclusion that personal jurisdiction over Longs Peak is not reasonable. Personal jurisdiction over Longs Peak fails on the due process analysis. IV. FAILURE TO STATE A CLAIM1 A. Twombly and Iqbal Require Dismissal This action should be dismissed pursuant to Rule 12(b)(6), because the Amended Complaint does not allege a single fact that directly implicates Longs Peak. The conclusory allegation that Longs Peak is an “affiliate” of Firemoon is not enough to state a viable claim. 1 Longs Peak’s Motion to Dismiss pursuant to Rule 12(b)(6) for failure to state a claim is made subject to and without waiver of its Motion to Dismiss pursuant to Rule 12(b)(2) for lack of personal jurisdiction. Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 10 of 21 11 1332303.1 07/14/2016 While in considering a Rule 12(b)(6) motion the Court must accept as true all material allegations in the complaint, conclusory allegations, unwarranted factual inferences, and legal conclusions need not be taken as true. Proctor v. Metro. Money Store Corp., 579 F. Supp. 2d 724, 731 (D. Md. 2008) (“[T]he Court is not required to accept as true ‘a legal conclusion couched as a factual allegation,’ conclusory allegations devoid of any reference to actual events, or ‘allegations that are merely conclusory, unwarranted deductions of fact or unreasonable inferences’”) (citations omitted). Importantly, the United States Supreme Court has made clear that “[w]hile a complaint attacked by a motion to dismiss for failure to state a claim upon which relief can be granted does not need detailed factual allegations [internal citation omitted], a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In Ashcroft v. Iqbal, the United States Supreme Court reiterated that the Tombly decision sets forth two “working principles”: First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]’ - ‘that the pleader is entitled to relief.’ Fed. Rule Civ. Proc. 8(a)(2). Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009) (internal citations omitted). To survive a 12(b)(6) motion, “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 11 of 21 12 1332303.1 07/14/2016 B. Stifel Fails To Sufficiently Allege That Longs Peak Is Firemoon’s Affiliate In the Amended Complaint, Stifel baldly concludes that Longs Peak is Firemoon’s “affiliate” and that “Firemoon/Vertex’s main principals, Toombs and Clarkson, manage the day- to-day affairs of Longs Peak and continue to exert a significant degree of control over Firemoon, Vertex, and Longs Peak.” Am. Compl. at ¶¶44 and 68. Stifel presents no factual allegations to base these purely conclusory allegations. The Amended Complaint is devoid of any alleged facts regarding how Firemoon/Vertex’s principals could possibly exert “a significant degree of control” over Longs Peak, what their degree of ownership may be, or what terms the governing company agreement might provide regarding control. The notion that Firemoon’s principals could somehow control Longs Peak or that their company, Vertex, is an affiliate of Longs Peak, also contradicts common sense inferences based on the allegations that do exist in the Amended Complaint. Stifel concedes that Longs Peak has separate headquarters, different owners, and a different registered agent. See Am. Compl. at p. 1 listing registered agents and ¶¶ 3-4. As if that were not enough, Stifel further admits that it represented only Firemoon and Vertex, not Juniper Capital Advisors (“Juniper”) or the “new entity” that Juniper allegedly intended to create with Firemoon or Vertex (allegedly Longs Peak). Firemoon and Vertex, on the one hand, and Juniper and the “new entity” Longs Peak, on the other hand, were clearly different entities under separate control. In particular, Stifel alleges that “Schmidt, on behalf of Juniper, provided an initial term sheet for Firemoon … the term sheet provided that Firemoon and Juniper intended to form a new entity together to proceed with these investments.” Am. Compl. at ¶26; see also Am. Compl. at ¶ 27 (“During September and October 2015, Stifel continued to work and negotiate terms of the deal with Juniper on Firemoon’s behalf.”) Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 12 of 21 13 1332303.1 07/14/2016 (emphasis added). Even after two of Firemoon’s owners created Vertex, Stifel concedes that it represented only Vertex, not Juniper or the contemplated new entity. Am. Compl. at ¶ 35 (“The day after Vertex was formed, Vertex and Juniper executed a final term sheet for the $65 million investment and the creation of a new limited liability company or partnership to carry out this investment.”); Am. Compl. at ¶ 36 (“The basic structure of the transaction set forth in the final term sheet is the same as that in the preliminary term sheet except that Vertex is inserted in place of Firemoon.”); Am. Compl. at ¶ 37 (“Stifel assisted Vertex and negotiated terms in connection with this final term sheet.”) (emphasis added). The Fourth Circuit has made clear that “‘Affiliate’ is a well-established term in the business context, and always denotes some significant degree of control between two entities.” Jermar, Inc. v. L.M. Communications II of S. Carolina, Inc., 181 F.3d 88, *4 (4th Cir. 1999). Firemoon/Vertex and Longs Peak plainly do not fit the definition of affiliates. Vertex is a contract operator, serving at the pleasure of Longs Peak and able to be replaced as contract operator at any time. Vertex co-invested alongside Juniper for a 1% ownership stake in Longs Peak. But operating oil and gas wells on a contract basis and having a 1% ownership stake does not constitute having control or render the two entities “affiliates.” Oil and gas companies regularly structure deals with operators on such terms. Using an analogy outside the oil and gas context, the relationship is similar to a business allowing an administrative staffing company the ability to purchase a 1% ownership stake. The staffing company may run the day-to-day administrative needs for the business, but that is a far cry from the staffing company’s significantly controlling the business or becoming an affiliate. To paraphrase the Fourth Circuit, “[u]nder the established definition of ‘affiliates,’ there is no doubt that, because [Longs Peak] was not controlled by [Vertex], it was not his affiliate.” Id. Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 13 of 21 14 1332303.1 07/14/2016 Absent adequate allegations tying Longs Peak to Stifel’s claims against Firemoon and Vertex beyond unadorned labels of “control” and “affiliate” - indeed, in the face of its allegations to the contrary - Stifel’s Amended Complaint against Longs Peak should be dismissed. If such labels were sufficient, it would portend far-reaching and grave consequences for all businesses, resulting in fractional owners or shareholders haling companies into jurisdictions across the country and purporting to bind them to contracts that the companies did not sign. This Court should not permit it. C. No Privity of Contract With Longs Peak Even if Stifel sufficiently alleged a factual basis for Firemoon’s or Vertex’s exerting control over Longs Peak, which it cannot do and has not done, Stifel also cannot bind to a contract an entity that did not even exist at the time of the subject contract. Copiers Typewriters Calculators, Inc. v. Toshiba Corp., 576 F. Supp. 312, 322 (D. Md. 1983) (“Absent some recognized exception, it is hornbook law that only the parties to a contract can enforce it and that they may enforce it against only the parties to the contract. See 2 Williston on Contracts §§ 273, 347, at 178-80, 793 (3d ed. 1959 & 1983 Supp.). Therefore, absent some showing by the plaintiff of an exception to this requirement, privity is required for breach of contract claims.”); Cecilia Schwaber Trust Two v. Hartford Acc. & Indem. Co., 437 F. Supp. 2d 485, 489 (D. Md. 2006) (“As a general rule, ‘a contract cannot be enforced by or against a person who is not a party to it.’”) (citing Crane Ice Cream Co. v. Terminal Freezing & Heating Co., 147 Md. 588, 128 A. 280, 281 (Md. 1925)); Premium of Am., LLC v. Sanchez, 213 Md. App. 91, 121, 73 A.3d 343, 361 (2013) (“[A] defendant cannot be held liable for breaching a contract if there is no contractual privity between the parties.”). Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 14 of 21 15 1332303.1 07/14/2016 There is no privity of contract between Stifel and Longs Peak and no exception to the privity rule applies here, because Stifel concedes that Longs Peak did not exist at the time of the Stifel engagement letter. The well-established rule, applied by court after court, is that a company which does not exist when an agreement is formed cannot be a party to the agreement, and the contract cannot be enforced against it, because that company could not have assented to that contract’s terms. Eg., Gresh v. Waste Servs. of Am., Inc.¸ No. 30-204-DLB, 2009 WL 5219035, at *5 (E.D. Ky. Dec. 31, 2009) (“Defendant RCD is entitled to summary judgment as a matter of law. … RCD was also not in existence at the time of the … agreement, and thus not a party to the agreement….”); Monroe Community Mental Health Auth. V. Michigan AFSCME Counsel 25, No. 239265, 2003 WL 21362953, at *3 (Mich. Ct. App. June 12, 2003) (“Plaintiff did not exist when defendant and the county reached this agreement and was not a party to the agreement.”); Pores v. Purity Milk Co., 287 P.2d 169, 172 (Cal. Ct. App. 1955) (“[T]he agreements here sued upon were originally obligations of Montgomery and pre-dated existence of the corporation. … At the time the agreements were entered into the corporation could not have been under any theory the alter ego of Alves, for the corporation did not exist ….”); United States v. American Vault Co., No. 77 C 260, 1980 WL 1566, at *2 (E.D.N.Y. May 5, 1980) (“AVCI was not a party to this agreement and was not in existence at the time the agreement was made.”). This is also the rule in Maryland. Bell v. Intervale Mortg. Corp., CIV.A. AW-13-582, 2013 WL 1943055, at *2 (D. Md. May 8, 2013) (Dismissing the plaintiff’s claims and holding, “Indeed, Plaintiff cannot allege that Impac committed any wrongdoing because it did not even exist at the time Plaintiff and Intervale entered the loan agreement in October 2005.”). In Texas, the principal place of Longs Peak’s business, this axiomatic rule also applies. See e.g., HTS Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 15 of 21 16 1332303.1 07/14/2016 Servs. Inc. v. Hallwood Realty Partners, L.P., 190 S.W.3d 108, 113 (Tex.App.-Houston [1st Dist.] 2005, no pet.) (“The Hermann Group, L.P. did not exist at the time the parties entered into the consulting agreement; as a result, the Hermann Group, L.P. was not, and could not have been, a party to the consulting agreement.”). Absent privity of contract, Stifel’s contract claims against Longs Peak must be dismissed. D. Alleged Facts Do Not Fall Under Express Terms of Stifel Engagement Even if Stifel had adequately alleged its claims against Longs Peak and even if there were privity of contract between Stifel and Longs Peak, which there is not, the terms of the alleged engagement agreement clearly do not apply to the facts alleged. The subject engagement agreement provides that Stifel is to “act as exclusive financial advisor and financing agent for Firemoon Energy, LLC (together with any present and future subsidiaries and affiliates of Firemoon Energy LLC, the ‘Company’) in seeking, arranging, negotiating, and generally advising with respect to the placement, in one or a series of transactions of debt or equity securities of the Company or any combination thereof (the ‘Financing’) ….” Am. Compl. at Ex. 1 (emphasis added). Stifel’s terms of engagement further confirm that “Stifel will endeavor to obtain one or more commitments for the Financing (individually a ‘Commitment’ and collectively the ‘Commitments’) from one or more financial institutions or other sources (the ‘Investors’).” Id. That is not what happened here, and it is not what Stifel has alleged happened here. Stifel was not in any way involved in placing the debt or equity of Firemoon, Vertex, or Longs Peak to obtain financing or obtaining commitments for financing from investors. Stifel nowhere alleges in its Amended Complaint that it was involved in obtaining financing commitments from any investors in Firemoon, Vertex, or Longs Peak. Rather, the very opposite happened. According to Stifel’s own allegations, it worked for Firemoon and later Vertex in a Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 16 of 21 17 1332303.1 07/14/2016 deal for them to form a new company with Juniper. Am. Compl. at ¶¶26, 32, 36, 37. Vertex invested cash in Longs Peak related to Vertex’s 1% ownership stake, which had been previously formed and owned 100% by Juniper. Simply put, the money went in the wrong direction for Stifel to have earned a fee under the express terms of its engagements and the allegations in the Amended Complaint. E. Stifel’s Unjust Enrichment and Qauntum Meruit Claims Must Be Dismissed, Because Stifel Did Not Provide Any Benefit To Longs Peak In order to support a claim for unjust enrichment under Maryland law, a plaintiff must establish: (1) a benefit conferred upon the defendant by the plaintiff; (2) an appreciation or knowledge by the defendant of the benefit; and (3) the acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without the payment of its value. Abt Associates v. JHPIEGO, 104 F.Supp.2d 523, 535 (D.Md.2000) (citing Everhart v. Miles, 47 Md.App. 131, 422 A.2d 28 (1980)). Similarly, with regard to quantum meruit: Three elements must be established by a plaintiff in order to sustain a claim for quantum meruit: ‘(1) [a] benefit conferred upon the defendant by the plaintiff; (2)[a]n appreciation or knowledge by the defendant of the benefit; and (3)[t]he acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without the payment of its value.’ Paramount Brokers, Inc. v. Digital River, Inc., 126 F.Supp.2d 939 (D.Md.2000) (quoting Everhart, 47 Md.App. at 136, 422 A.2d 28). Stifel’s unjust enrichment and quantum meruit claims should be dismissed, because it has not sufficiently alleged that it provided any benefit to Longs Peak. To the contrary, its engagement agreement expressly limits any benefits as provided only to the “Company,” i.e. Firemoon and its affiliates. See Am. Compl. at Ex. 1, p. 6. (“Stifel is being retained to serve as Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 17 of 21 18 1332303.1 07/14/2016 financial advisor and financing agent solely to the Company, and it is agreed that the engagement of Stifel is not, and shall not be deemed to be, on behalf of, and is not intended to, and will not, confer rights or benefits upon any shareholder or creditor of the Company or upon any other person or entity.”). Unjust enrichment and quantum meruit, are available theories of recovery only in the absence of a contract. County Com'rs of Caroline County v. J. Roland Dashiell & Sons, Inc., 358 Md. 83, 101, 747 A.2d 600, 610 (2000); see also Am. Compl. at ¶105. Generally, a plaintiff would nevertheless be entitled to plead both contractual claims and quasi-contractual claims in the alternative. But here, the contract Stifel has attached to its Amended Complaint expressly precludes the alternative pleading. If there is not a contract between Stifel and Longs Peak, the plain language of Stifel’s engagement agreement confirms that Stifel could not, and has not, provided any benefit to non-party Longs Peak. Am. Compl. at Ex. 1, p. 6. And if there is a contract between Stifel and Longs Peak, the quasi-contractual claims of unjust enrichment and quantum meruit must fail as a matter of law. Stifel cannot have it both ways in light of the terms of its own alleged engagement agreement. Thus, for all of the same reasons that Stifel has failed to adequately allege that Longs Peak is an affiliate of Firemoon or a party to the alleged engagement agreement, supra, its pleadings preclude its having provided any benefit to Longs Peak. Its quasi-contractual claims must be dismissed. But that is not all. Stifel repeatedly alleges that it represented and provided value only to Firemoon and Vertex, not any other parties or entities. Am. Compl. at ¶¶26, 32, 36, 37. Stifel further confirms that Juniper provided the initial term sheet, not Stifel or its clients Firemoon and Vertex. Am. Compl at ¶26. And Stifel’s engagement letter is limited to projects principally in the state of Wyoming. Am. Compl. at Ex. 1. Longs Peak is in the DJ Basin in northeast Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 18 of 21 19 1332303.1 07/14/2016 Colorado and southeast Wyoming, hundreds of miles away from any projects or assets for which Stifel attempted to raise financing for Firemoon. Stifel nowhere alleges that it found investors, prepared the initial term sheet for Juniper, or that it ever represented Juniper or Longs Peak. F. Stifel’s Unjust Enrichment and Quantum Meruit Claims Must Be Dismissed, Because Stifel Did Not Provide Notice To Longs Peak Stifel has also failed to allege that Longs Peak ever knew that it received a benefit from Stifel. Stifel only alleges that it provided notice that it would charge a 5% fee in the context of Stifel’s seeking to have Juniper invest in Firemoon and the “McKinnon Prospect.” Am. Compl. at ¶23. There is no allegation that Stifel gave notice in writing, email, or even verbally to Longs Peak or any of its owners that it would charge Longs Peak a 5% fee on the basis that Vertex decided to contract operate, invest in and become a member of Longs Peak. Indeed, all of its allegations and representations were to the contrary, i.e., Stifel represented to Juniper that it was working on behalf of only Firemoon and Vertex. Am. Compl. at ¶¶26, 32, 36, 37. V. CONCLUSION As demonstrated above, Longs Peak is not properly named in this action. Longs Peak respectfully requests: (a) Pursuant to Rule 12(b)(2), that the Amended Complaint be dismissed in its entirety against Longs Peak because personal jurisdiction does not lie as to Longs Peak; or Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 19 of 21 20 1332303.1 07/14/2016 (b) Pursuant to Rule 12(b)(6), that the Amended Complaint be dismissed against Longs Peak because Stifel fails to state a claim on which relief can be granted. Respectfully submitted, WYNNE & WYNNE LLP /s/ David E. Wynne David E. Wynne (Attorney-in-Charge) Pro hac vice pending Fed. Bar. No. 566468 Texas Bar No. 24047150 1021 Main Street, Suite 1275 One City Centre Houston, TX 77002 (713) 227-8835 (telephone) (713) 227-6205 (facsimile) dwynne@wynne-law.com Attorneys for Defendant Longs Peak Resources, LLC Of Counsel: Edward J. Baines Fed. Bar. No. 06776 SAUL EWING LLP Lockwood Place 500 East Pratt Street, 9th Floor Baltimore, MD 21202 (410) 332-8814 (telephone) 410-332-8953 (facsimile) ebaines@saul.com and Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 20 of 21 21 1332303.1 07/14/2016 Kenneth R. Wynne Fed. Bar No. 00837 Texas Bar No. 22110000 WYNNE & WYNNE LLP 1021 Main Street, Suite 1275 One City Centre Houston, TX 77002 (713) 227-8835 (telephone) (713) 227-6205 (facsimile) kwynne@wynne-law.com CERTIFICATE OF SERVICE I certify that a true and correct copy of the foregoing has been served on all counsel listed below either electronically through the Court’s filing system, direct e-mail or facsimile on this the 14th day of July, 2016. David B. Hamilton WOMBLE CARLYLE SANDRIDGE & RICE, PLLC 250 West Pratt Street, Suite 1300 Baltimore MD 21201 /s/ Edward J. Baines Case 8:16-cv-00628-GJH Document 18 Filed 07/14/16 Page 21 of 21 Case 8:16-cv-00628-GJH Document 18-1 Filed 07/14/16 Page 1 of 4 Case 8:16-cv-00628-GJH Document 18-1 Filed 07/14/16 Page 2 of 4 Case 8:16-cv-00628-GJH Document 18-1 Filed 07/14/16 Page 3 of 4 Case 8:16-cv-00628-GJH Document 18-1 Filed 07/14/16 Page 4 of 4 1332307.1 07/14/2016 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND (Greenbelt Division) STIFEL, NICOLAUS & COMPANY § INCORPORATED § § Plaintiff § § v. § CIVIL ACTION NO. 8:16-cv-00628-GJH § FIREMOON ENERGY, LLC, § VERTEX ENERGY PARTNERS, LLC, § and LONGS PEAK RESOURCES, LLC § § Defendants § ______________________________________________________________________________ ORDER Upon consideration of Specially Appearing Defendant Longs Peak Resources LLC’s Motion to Dismiss Plaintiff’s First Amended Complaint, memorandum of law in support thereof, and any opposition thereto, it is this ____ day of ________________, 2016, hereby ORDERED that Defendant’s Motion to Dismiss Plaintiff’s First Amended Complaint is GRANTED; and it is further ORDERED that Plaintiff’s First Amended Complaint is dismissed in its entirety, with prejudice. George J. Hazel United States District Judge Case 8:16-cv-00628-GJH Document 18-2 Filed 07/14/16 Page 1 of 1