United States District Court, D. Maryland
MEE DIRECT LLC, et al. Plaintiffs,
TRAN SOURCE LOGISTICS, INC., et al., Defendants.
JAMES K. BREDAR, District Judge.
Plaintiffs MEE Direct, LLC ("MEE Direct") and MEE Apparel, LLC ("MEE Apparel" and, collectively with MEE Direct, "Plaintiffs") brought this suit against Tran Source Logistics, Inc. ("Tran") and Howard Cates ("Cates" and, together with Tran, "Defendants") alleging the following four causes of action: (1) breach of contract against Tran; (2) unjust enrichment against Tran and Cates, (3) piercing the corporate veil against Cates; and (4) breach of fiduciary duty against Tran and Cates. Now pending before the Court are Cates's motion for partial summary judgment (ECF No. 41) and Plaintiffs' cross motion for summary judgment (ECF No. 42). The issues have been briefed and no hearing is required. Local Rule 105.6. For the reasons set forth below, Cates's motion will be GRANTED and Plaintiffs' motion will be GRANTED IN PART and DENIED IN PART.
MEE Direct and MEE Apparel are limited liability companies engaged in, respectively, the retail and wholesale sale of Marc Ecko-branded clothing. (ECF No. 1, Compl., at ¶ 1.) MEE Direct is organized under the laws of Delaware, and its sole member is Holton99, LLC a limited liability company organized under the laws of New Jersey. (ECF No. 13 at ¶ 2.) Holton 99, LLC, in turn, is owned by Seth Gerszberg, a citizen of New Jersey, and Holton 1, Inc., a corporation incorporated and with its principal place of business in New Jersey. ( Id. ) MEE Apparel is organized under the laws of New Jersey and shares MEE Direct's ownership structure. Tran is a Maryland corporation that provides transportation management services. (Compl. at ¶ 2.) Cates is the president of Tran and is a citizen of Pennsylvania. ( Id. at ¶ 3.)
On June 29, 2009, Plaintiffs entered into a contract with Tran ("the Agreement") under which Plaintiffs retained Tran to provide certain transportation services in return for monthly payments. (ECF No. 41-3.) These services included collecting, reviewing, and auditing the invoices received from MEE's freight carriers, namely Federal Express, Argix, and UPS. ( Id.; Compl. at ¶ 5.) The Agreement also provided that Tran would make payments to freight carriers on Plaintiffs' behalf "[a]fter receipt of funds sent or transferred to" Tran by Plaintiffs. (ECF No. 41-3.)
By 2011, Tran had failed to make payments of approximately $368, 000 to Plaintiffs' freight carriers. (Compl. at ¶¶ 7-8; ECF No. 49-1 at 64-65; ECF No. 44-1.) Indeed, Tran used the funds transferred by Plaintiffs for "general corporate purposes, " such as paying other customers' vendors and paying payroll, corporate debt, and other corporate expenses. (ECF No. 49-1 at 65.)
In 2007, when Cates took over Tran as its President and sole shareholder, Tran had a deficit of $800, 000. ( Id. at 49.) Tran's outgoing President, Mark Fetty, loaned the company approximately $100, 000 to $150, 000 upon his departure. In addition, from 2009 onward, Cates loaned Tran a total of over $110, 000. ( Id. at 39.) However, these loans were insufficient to cover the amounts Tran owed to freight carriers. ( Id. at 47, 51.) As a result, Tran was unable to pay all of its bills on time and began paying bills according to the "urgency of the situation" as funds came in from clients. ( Id. at 51, 56, 57.) When Plaintiffs started making payments to Tran-including payments to cover invoices from freight carriers-those funds became part of Tran's general operating account-an account that was in deficit-and were used to pay Tran's most urgent bills. ( Id. at 53.)
Defendants never disclosed Tran's dire financial status to Plaintiffs. ( Id. at 61.) It was Cates's hope that Tran could use fees paid by Plaintiffs for invoice auditing and other transportation services in order to pay Plaintiffs' freight carrier bills. ( Id. )
Since at least 2007, Tran has failed to make a profit. ( Id. at 53.) Cates has not drawn a salary from Tran since 2007 though he has received payments for car, travel, and other businessrelated expenses. ( Id. at 76.) Tran has also repaid some of Cates's loans, particularly where Cates had borrowed the money he had lent to the company and was required to make a payment on the debt. ( Id. at 94-100.) In addition, Tran has made interest payments on the loan from Mark Fetty, although it has not made any such payments for approximately the past two years. ( Id. at 68.)
Cates is Tran's only shareholder and its only director. ( Id. at 16-18.) The corporation does not hold board meetings. ( Id. ) Tran has two employees, in addition to Cates. ( Id. at 21.)
On August 13, 2012, Plaintiffs filed the present law suit in the Supreme Court of New York for the County of New York. (EECF No. 1 at 7.) On September 12, 2012 Defendants removed the case to the United States District Court for the Southern District of New York. ( Id. at 1-5.) On December 26, 2012, it was transferred to this Court pursuant to 28 U.S.C. § 1406. (ECF No. 14 at 17.) Now pending before this Court are (1) Defendant Cates's motion for partial summary judgment with regard to Count II-Unjust Enrichment, Count III-Piercing the Corporate Veil, and Count IV-Breach of Fiduciary Duty (ECF No. 41); and (2) Plaintiffs' cross-motion for summary judgment on all counts (ECF No. 42).
II. LEGAL STANDARD
A party seeking summary judgment must show "that there is no genuine dispute as to any material fact" and that he is "entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). If a party carries this burden, then the court will award summary judgment unless the opposing party can identify specific facts, beyond the allegations or denials in the pleadings, that show a genuine issue for trial. FED. R. CIV. P. 56(e)(2). To carry these respective burdens, each party must support its assertions by citing specific evidence from the record. FED. R. CIV. P. 56(c)(1)(A). The court will assess the merits of the motion, and any responses, viewing all facts and reasonable inferences in the light most favorable to the opposing party. Scott v. Harris, 550 U.S. 372, 378 (2007); Iko v. Shreve, 535 F.3d 225, 230 (4th Cir. 2008).
The Court will apply Maryland law in reviewing this motion to dismiss. This diversity action was transferred from the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 1406. As a result, the Court will apply Maryland choice-of-law rules. GBJ Corp. v. E. Ohio Paving Co., 139 F.3d 1080, 1084 (6th Cir. 1998) (When a case is transferred on... [the] basis [of 28 U.S.C. § 1406], the choice-of-law rules of the transfer ee court apply."); Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).
The present action involves causes of action both in contract and in tort. With regard to the causes of action in contract, where, as here, a contract has no forum selection clause, Maryland's choice-of-law rule is one of lex loci contractus. Specifically,
[a]s to choice of law questions regarding contract issues, Maryland courts generally follow the lex loci contractus approach and thus hold that while the law of the forum governs the remedy for breach of contract, the law of the place of contracting governs questions regarding the nature, validity and construction ...