ABEC, Inc. v. Eat Just, Inc.

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ABEC, INC., Plaintiff, v. EAT JUST, INC. AND GOOD MEAT, INC., Defendants.

Civil Action No. 23-1091

United States District Court, E.D. Pennsylvania

December 21, 2023

MEMORANDUM OPINION

WENDY BEETLESTONE, J.

Plaintiff ABEC, Inc. (“ABEC”) alleges that Defendants Eat Just, Inc. (“Eat Just”) and GOOD Meat, Inc. (“GOOD Meat”) (together “Defendants”) have failed to pay it over $100 million in cash and stock for machines that it built for them to grow cultivated meat. Defendants move to compel arbitration or, in the alternative, dismiss the Amended Complaint. Fed.R.Civ.P. 12(b)(6). For the reasons set forth below, GOOD Meat's motion to compel arbitration will be denied, and Eat Just's motion to stay the case pending arbitration will be denied too. Finally, both of Defendants' Motions to Dismiss will be granted in part and denied in part.

I. FACTUAL BACKGROUND^[1]

ABEC is an “the industry leading large scale cell culture development company.” It builds bioreactors, which are used in the development of cultivated meat-in this case cultivated chicken. These machines-large vessels that are used to grow organic material-are used to harvest cell cultures from animals and turn them into meat products that can be sold.

Starting in 2021, ABEC entered into a series of agreements with Defendants, which develop and market plant-based alternatives to animal-based foods.

A. The Pilot Plant Agreement

The first such agreement (the “Pilot Plant Agreement”) entered into in June 2021 between ABEC and Eat Just was to construct, for $14.7 million, a “[b]ioreactor growth suite for pilot scale plants” in Alameda, California and Singapore. Purchase order 187859, written on letterhead for the “JUST” company, was recorded on Eat Just paperwork, signed by an individual with an Eat Just email address, and was to be billed to GOOD Meat's address.

B. The Bioreactor Development Agreement

Two months later, ABEC entered into a separate, more extensive contract with GOOD Meat. Under this contract (the “Bioreactor Development Agreement”), ABEC was to design and develop a 100,000-to-250,000-liter bioreactor. The contract was divided into five stages across thirty-six months, from feasibility through design validation to construction, installation, and commissioning. Payment, in the form of both cash and shares of GOOD Meat common stock, was divided between these five stages as well. GOOD Meat's payment obligations were triggered by receipt and acceptance of ABEC's purchase orders and ABEC's completion of certain deliverables under the contract. GOOD Meat also had to provide ABEC with certain information going forward, including quarterly financial updates and board meeting summaries.

The contract included a choice-of-law provision such that it was to be “governed by the substantive laws of the State of Delaware without reference to any conflicts of laws provisions,” as well as an arbitration provision that read:

Any dispute, controversy or claim arising out of or in connection with this Agreement, or the breach, termination or invalidity thereof, shall be finally settled by arbitration in accordance with the Commercial Arbitration Rules and Mediation Procedures of the American Arbitration Association. The arbitral tribunal shall be composed of three (3) arbitrators, one (1) selected by [GOOD Meat], one (1) selected by ABEC and one (1) mutually agreed upon between the Parties. The seat of arbitration shall be Wilmington, DE.

It also included an integration clause stating that the instrument “constitutes the entire agreement between the Parties with respect to the subject matter of this Agreement and, except as expressly contemplated herein, supersedes all prior agreements . . . with respect to the subject matter of this Agreement.”

C. Amendments to the Bioreactor Development Agreement

According to the Amended Complaint, “[b]y the end of 2022, [D]efendants had issued approximately $280 million worth of work in purchase orders and agreed changes to ABEC” under the Bioreactor Development Agreement “and had reserved production capacity to support over $550 million of work.” But GOOD Meat had trouble complying with its payment obligations, so in early 2023, the parties agreed to certain amendments to the Bioreactor Development Agreement (the “Amendments”).

In the opening recitals to the Amendments, GOOD Meat concedes that “ABEC has performed services and is due payment” for certain invoices.^[2] It also notes that the parties “have agreed to amend and modify certain of the terms and conditions of the Purchase Orders and” the Bioreactor Development Agreement. By way of these amendments, GOOD Meat agreed to pay almost $38 million for the invoices identified as “past-due” or “recent past-due” according to a payment schedule and “ratifie[d] and reaffirm[ed] the validity, enforceability and binding nature of its obligation to pay . . . in full.” It also conceded the validity and binding nature of certain invoices that would be due soon.^[3] If GOOD Meat “fail[ed to timely make any of the payments in full . . . “all amounts with respect to” the invoices “shall automatically be immediately due and payable without any further action by any party,” and ABEC could terminate the contract notwithstanding the notice procedure laid out in the Bioreactor Development Agreement. Moreover, in such an instance, “ABEC may pursue any and all rights and remedies against [GOOD Meat], at law or in equity, with respect to” the invoices mentioned (emphasis added). The Amendments also granted ABEC one-year extensions on the delivery dates for certain purchase orders,^[4] changing their price and requiring GOOD Meat to issue updated orders reflecting these changes. They also reaffirmed ABEC's right to certain GOOD Meat financial disclosures. “Except as modified” in the Amendments, the Bioreactor Development Agreement “remain[ed] in full force and effect and subject to all terms and conditions thereof, which are hereby ratified and confirmed in all respects.”

D. Defendants' Struggle to Pay Under the Agreements

Even after amending the Bioreactor Development Agreement, however, ABEC invoices continued to go unpaid. The promised updates to certain purchase orders mentioned in the Amendments never came. In light of this continued nonpayment, on March 2, 2023 ABEC sent a notice to Defendants that they were in breach of their contractual obligations. By March 7, ABEC was due almost $63 million on outstanding invoices.

E. The Relationship Between Eat Just and Good Meat

The Amended Complaint describes GOOD Meat as “a wholly owned division” of Eat Just. Eat Just apparently formed GOOD Meat after the parties had begun to do business together. And while they are separate entities, they appear to be at least closely related. “Upon information and belief,” ABEC alleges that they “are subject to common control by Josh Tetrick, the CEO of both [Eat Just] and [GOOD Meat]” and “have common ownership” such that “[GOOD Meat] is an enterprise of defendant [Eat Just] and is engaged in a common commercial endeavor with [Eat Just].” Indeed, Tetrick, in his capacity as CEO of Eat Just, signed a letter of intent (“LOI”) from one of the company's lenders, Nexseer Capital, identifying as collateral for a loan thirty purchase orders “provided by [Eat Just].” These included at least four purchase orders subject to this suit^[5]-one for the Pilot Plant Agreement, the other three among those whose delivery dates and prices were modified in the Amendments. That agreement also permitted “Nexseer to take a lien on all used equipment at the Alameda pilot facility as additional collateral,” although the pilot agreement was between ABEC and GOOD Meat.

II. PROCEDURAL BACKGROUND

Having declared that Defendants were in material breach of their obligations under these contracts, ABEC filed a four-count complaint in the Court of Common Pleas of Northampton County, Pennsylvania. Defendants removed to the Eastern District of Pennsylvania on the basis of diversity jurisdiction. 28 U.S.C. §§ 1332, 1441. The Amended Complaint alleges: (1) breach of the Pilot Plant Agreement for failure to pay over $900,000 in outstanding balance on that contract; (2) breach of the Bioreactor Development Agreement and Amendments for failure to make tens of millions of dollars in payments on certain invoices, plus consequential damages; (3) in the alternative, that ABEC is entitled to payment on its “running account with Defendant [GOOD Meat];” and, (4) in the alternative, Eat Just “agreed to make sure that ABEC was paid for its work on four . . . purchase orders,”^[6] so it is obligated to pay ABEC over $26 million due on those agreements.

Defendants now move to compel arbitration under the Bioreactor Development Agreement or, in the alternative, dismiss the Amended Complaint for failure to state a claim. Fed.R.Civ.P. 12(b)(6).

III. LEGAL STANDARD

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “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.” Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. When analyzing a motion to dismiss, the complaint must be construed “in the light most favorable to the plaintiff,” with the question being “whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). This...