AASI Creditor Liquidating Trust v. Data Sys. Int'l, Inc. (In re All Am. Semiconductor, Inc.)

623 B.R. 643

IN RE: ALL AMERICAN SEMICONDUCTOR, INC., et al., Debtor.

AASI Creditor Liquidating Trust, by and Through Kenneth A. Welt, Liquidating Trustee, Pursuant to the confirmed Third Amended Plan of Liquidation of the Official Committee of Unsecured Creditors, Plaintiff,

v.Data Systems International, Inc., Defendant.

Case No. 07-12963-BKC-LMI (Jointly Administered)

Adv. Case No. 09-01466-BKC-LMI

United States Bankruptcy Court, S.D. Florida.

Signed October 30, 2020

Jesse R. Cloyd, Agentis PLLC, Coral Gables, FL, Brett D. Lieberman, Miami, FL, Thomas M. Messana, Esq., Scott A. Underwood, Esq., Fort Lauderdale, FL, Thomas G. Zeichman, Boca Raton, FL, for Plaintiff.

John M. Lyons, Philadelphia, PA, Lea Souza-Rasile, Esq., Miami, FL, for Defendant.

MEMORANDUM OPINION GRANTING MOTION TO DISMISS THE THIRD AMENDED COMPLAINT AGAINST DATA SYSTEMS INTERNATIONAL

Laurel M. Isicoff, Chief United States Bankruptcy Judge

This matter came before the Court for hearing on June 29, 2020 (the "Hearing"), on the Motion to Dismiss the Third Amended Complaint Against Data Systems International (ECF #779) (the "Motion to Dismiss") filed by Data Systems International, Inc. ("DSI" or "Defendant"). The Court has reviewed the Motion to Dismiss, as well as the Response¹ and the Reply² . For the reasons set forth below, the Motion to Dismiss is GRANTED, and the Third Amended Complaint (ECF #542) (the "Third Amended Complaint") is DISMISSED WITH PREJUDICE.³

PROCEDURAL HISTORY⁴

The Plaintiff, the AASI Creditors Liquidating Trust by and through its Liquidating Trustee ("Plaintiff"), initiated this adversary proceeding on April 24, 2009, with its first Complaint, as amended, against DSI and 16 other defendants (ECF #2) (the "First Amended Complaint"). On June 29, 2009, in response to the First Amended Complaint, DSI filed a Motion to Dismiss Amended Complaint or for Abstention (ECF #143). The Court abated and stayed this adversary proceeding as to DSI on July 21, 2010 (ECF #287), pursuant to an agreement between the parties and allowed the Plaintiff to seek arbitration with respect to the dispute with DSI, as contemplated by the operative agreement between All American Semiconductor Inc. ("AASI") and DSI.⁵

The Plaintiff filed its Second Amended Complaint (ECF #302) (the "Second Amended Complaint") on July 28, 2010. Certain defendants, including Oracle USA, Inc. (f/k/a PeopleSoft USA, Inc.) ("Oracle"), filed motions to dismiss the Second Amended Complaint.⁶ The Court previously granted in part and denied in part those motions to dismiss in its Memorandum Opinion on Defendants' Motion to Dismiss (ECF #521) (the "Oracle Opinion").

The Plaintiff then filed its Third Amended Complaint (ECF #542) on February 22, 2013.⁷ Nearly seven years later, having taken no action in the adversary proceeding with respect to DSI, the Plaintiff filed an Arbitration Demand against DSI before the American Arbitration Association. DSI then filed a Motion To Lift Stay And To Dismiss Third Amended Complaint Against Data Systems International (ECF #759) (the "Lift Stay Motion") on the grounds that the Plaintiff had waived the right to arbitrate and the Plaintiff's claims were time-barred based on contractual limitations. The Court granted the Lift Stay Motion, ruling that the Plaintiff had waived its right to arbitrate, and directed this adversary proceeding to go forward.⁸ The Court denied the motion to dismiss without prejudice, and directed DSI, should it wish to proceed with such relief, to file another motion to dismiss to address certain open issues, and include other arguments for dismissal that DSI raised at the oral argument on the Lift Stay Motion.⁹

FACTUAL ALLEGATIONS AGAINST DSI

The Plaintiff sued DSI for its part in the alleged negligent design, installation, and implementation of an inventory management system, referred to as an Enterprise Resource Planning System (the "ERP System"), the failure of which, according to the Plaintiff, caused the financial collapse of AASI and its various subsidiaries and affiliates. The Third Amended Complaint alleges that the ERP System, after a two-year delay, and running over budget, went live on or about February 7, 2006 (the "Go Live Date"), even though the system was not working properly, which resulted in "devastating effects" that AASI "felt immediately," and paralyzed AASI's business. AASI allegedly was never able to properly function again, and revenues decreased substantially, all of which lead to the demise of AASI's business.

AASI entered into a Software License, Services, and Maintenance Agreement (the "Agreement") with DSI in October of 2004. DSI provided technology intended for utilization in the ERP System. The Plaintiff alleges that DSI's technology was intended to facilitate appropriate warehousing and shipping of products, as well as management of product supply and demand, all of which were components of the ERP System.

The Third Amended Complaint alleges that the software DSI provided was not integrated properly within the ERP System and the services provided by DSI did not adequately address the needs of AASI. Plaintiff asserts that DSI recklessly and with a gross lack of care, facilitated AASI's ERP System going live on February 7, 2006, without first conducting adequate testing of its components or training, and without ensuring an adequate backup or parallel system was in place should the system fail. The Third Amended Complaint alleges that DSI's dcLink module of the ERP System consequently rendered AASI's existing system's mechanism for inventory and shipping (the "Existing System") inoperable, and further, that rendering the Existing System inoperable was not part of the Agreement between AASI and DSI.

Based on that alleged failure under the Agreement, the Plaintiff brings claims against DSI for Breach of Contract (Count V), Breach of Warranty (Count X), Strict Liability (Count XVI), Negligence (Count XXI), Gross Negligence (Count XXVI), and Avoidance and Recovery of Fraudulent Transfers (Counts XXVIII and XXIX).

JURISDICTION AND STANDARD OF REVIEW

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). As discussed in more detail in the Court's prior opinion dismissing the First Amended Complaint, this adversary proceeding involves intertwined core and non-core matters.¹⁰ The fraudulent transfer count pursuant to 11 U.S.C. § 548 is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F). The state law claims, which existed prior to and independent of the bankruptcy case are non-core matters, but are related to the bankruptcy case and the fraudulent transfer count pursuant to 28 U.S.C. § 157(c)(2)¹¹ .

" Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice of what the ... claim is and the grounds upon which it rests.’ While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal citations omitted).

To survive a motion to dismiss, the complaint must "state a claim to relief that is plausible on its face." Id. at 570, 127 S.Ct. 1955. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

On a motion to dismiss, a court must construe the complaint in the light most favorable to the plaintiff and accept the plaintiff's factual allegations as true. Brooks v. Blue Cross & Blue Shield of Fla., Inc. , 116 F.3d 1364, 1369 (11th Cir. 1997). "The scope of review on a motion to dismiss under Rule 12(b)(6) is limited to the four corners of the complaint." Bencomo Enterprises v. United Specialty Ins. Co. , 345 F. Supp. 3d 1401, 1404 (S.D. Fla. 2018).

Lastly, in evaluating a motion to dismiss under Rule 12(b)(6) on statute of limitations grounds, a court must determine "if it is ‘apparent from the face of the complaint’ that the claim is time-barred." La Grasta v. First Union Sec., Inc. , 358 F.3d 840, 845 (11th Cir. 2004) (citations omitted).

ANALYSIS

1. The Claims Against DSI Are Time Barred

DSI seeks dismissal of all counts against it, on the basis that the claims are time barred. The Agreement states, in relevant part "[n]o action arising out of or related to this Agreement may be brought more than one (1) year after the claiming party knew or should have known." Agreement at Article XI.1.¹² DSI argues that AASI knew or should have known on the Go Live Date that it might have a claim against DSI, and therefore, the time to file a claim against DSI expired prior to the Petition Date. The Plaintiff, in its Response, argues that the contractual limitations provision in the Agreement does not bar the claims because the claims did not accrue until later than the Go Live Date, and the Third Amended Complaint was, therefore, timely filed.

a. Delaware Law Applies

The Agreement is governed by the laws of the State of Delaware.¹³ The one-year limitations period in the Agreement is shorter than the applicable Delaware statute of limitations.¹⁴ Florida recognizes, and will enforce, a shortened statute of limitations period if such a period is enforceable under the state law applicable to the dispute. Burroughs Corp. v. Suntogs of Miami, Inc. , 472 So. 2d 1166 (Fla. 1985) (A contract with a statute of limitations period...