ECB USA, Inc. v. Savencia, S.A.

ECB USA, INC. and ATLANTIC VENTURES CORP., Plaintiffs, v. SAVENCIA, S.A. and ZAUSNER FOODS CORP.,on behalf of itself and as successor in interest to ZNHC, INC., Defendants.

Civil Action No. 19-731-RGA-CJB

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

July 28, 2021

REPORT AND RECOMMENDATION

In this case, Plaintiffs ECB USA, Inc. ("ECB") and Atlantic Ventures Corp. ("Atlantic Ventures" and collectively with ECB, "Plaintiffs") bring breach of contract and various state law tort claims against Savencia, S.A. ("Savencia") and Zausner Foods Corp. ("Zausner") (collectively, "Defendants"). Pending before the Court are: (1) Zausner's motion to dismiss ("Zausner's Motion"), in which Zausner seeks to dismiss all counts of the operative Second Amended Complaint ("SAC") against it, for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), (D.I. 155); and (2) Savencia's motion to dismiss ("Savencia's Motion," and collectively with Zausner's Motion, "the Motions"), in which Savencia also seeks to dismiss all counts of the SAC against it for failure to state a claim pursuant to Rule 12(b)(6), (D.I. 157). For the reasons set forth below, the Court recommends that both Motions be GRANTED-IN-PART and DENIED-IN-PART.

I. BACKGROUND

A. Factual Background

On July 10, 2020, the Court issued a lengthy Report and Recommendation ("July 10, 2020 R&R"), in which it addressed Savencia's and Zausner's motions seeking dismissal of the then-operative First Amended Complaint ("FAC"). (See D.I. 135) The Court assumes familiarity with the July 10, 2020 R&R here, but below it will also summarize the relevant factual allegations in the SAC.¹

1. The Parties and Related Entities

Plaintiffs ECB and Atlantic Ventures are Florida corporations with their principal places of business located in that state. (D.I. 147 at ¶¶ 3-4)

Defendants are all in the business of food, and in particular, cheeses. (Id. at ¶¶ 13, 16-19) Defendant Savencia is a French company with its principal place of business located in France. (Id. at ¶ 5) It is a "multinational conglomerate" which is alleged to be "the second largest producer of cheese in France" and to "sell[] cheese and other dairy products in over 120 countries." (Id. at ¶¶ 5, 16) Over 20 years ago, Savencia (then known as "Bongrain, S.A."), acquired non-party Schratter Foods, Inc. ("Schratter") to develop Schratter as Savencia's distribution arm in the United States. (Id. at ¶ 18) Over time, Schratter became a market leader in the United States for the distribution of specialty cheeses and other dairy products; Schratter grossed over $200 million in 2012, much of that from the distribution of Savencia's products. (Id. at ¶ 19) The other Defendant, Zausner, is a Delaware corporation that "do[es] business throughout the United States." (Id. at ¶ 6) Zausner is an affiliate of Savencia. (Id. at ¶ 13) TheSAC states that Zausner is the successor in interest to ZNHC, Inc. ("ZNHC"), and that any reference to Zausner includes ZNHC. (Id. at ¶ 7)

2. Relevant Non-Parties

The SAC refers to three people who are described throughout as "ECB Representatives[,]" meaning that they were representatives of Plaintiffs in the relevant time frame. (See, e.g., id. at 1-2) They are Arno Leoni, Bruno Blandin and Claude Blandin ("C. Blandin"). (Id.)

Several of Defendants' directors or representatives are also named throughout the SAC as being integral players with regard to the SAC's allegations. Alex Bongrain ("Bongrain") was the "chairman of Savencia" and acted "on behalf of Savencia." (Id. at ¶ 8) Pierre Ragnet ("Ragnet") was previously Zausner's President and "at all relevant times, [was] secretary general of Savencia" who acted "on behalf of Savencia[.]" (Id. at ¶ 9) J.M. Wild ("Wild") was the Chief Financial Officer ("CFO") for Savencia's North American affiliates. (Id. at ¶ 10) Wild is also alleged to have been the "de facto [CEO] of Schratter from June 30, 2014[] until December 31, 2014." (Id.) Thomas Swartele ("Swartele") was a director of Savencia who acted "on behalf of Savencia[.]" (Id. at ¶ 11) Lewis Gitlin ("Gitlin") was Zausner's chief legal officer and acted "on behalf of Zausner[.]" (Id. at ¶ 12) Alain Voss ("Voss") was Schratter's President and Chief Executive Officer ("CEO"), and also eventually became a director of Atlantic Ventures. (Id. at 2; id. at ¶¶ 14, 20) Bertrand Proust ("Proust") was Schratter's CFO. (Id. at ¶ 15)

3. Relevant Events Relating to Plaintiffs' Purchase of Schratter

The parties' overarching dispute centers on a transaction that occurred in December 2014, in which ECB and Atlantic Ventures purchased Schratter.² The terms of the purchase were set out in a Stock Purchase Agreement, or "SPA." (Id., ex. 1 (hereinafter "SPA")) The basic gist of the SAC is that, as part of the Schratter sale process and thereafter, Zausner, Savencia, the above-referenced representatives of Zausner and Savencia, Voss and Proust all engaged in what the SAC refers to as the "Savencia Conspiracy" in order to harm Plaintiffs and cause them damage. (See, e.g., id. at ¶ 38)

The relevant events regarding the Savencia Conspiracy began in 2014. In mid-to-late 2014, the SAC alleges that the ECB Representatives "became enmeshed with Zausner, Savencia, [] Bongrain, Swartele, Ragnet, Wild, Gitlin, Voss[] and Proust, who then began their efforts to fraudulently induce the ECB Representatives, and ultimately Plaintiffs, to enter into [the SPA] for the purchase of all of Schratter's stock." (Id. at ¶ 23)³ More specifically, the SAC alleges that these entities and people all agreed to take various steps necessary to "strip Schratter of assets, to strip Voss of his corporate offices and authority, to make the necessary misrepresentations to sell Schratter at an inflated price, and to take such further action as was needed to harm Schratter, and any ultimate purchaser of Schratter, for the benefit of Savencia and its affiliates." (Id. at ¶ 38)

The SAC asserts that a key factor in Defendants' ability to perpetrate this scheme was that Voss served as an "[i]nside [m]an." (See, e.g., id. at 6 & ¶ 26 (emphasis omitted)) Because the ECB Representatives "did not have any experience in the cheese distribution business" and "did not have permission to work in the United States[,]" then if Plaintiffs were going to purchase Schratter, Plaintiffs and the ECB Representatives would have to rely on Schratter's senior management to help run the company. (Id. at ¶ 26) During the sale negotiations, "Zausner, Savencia, Bongrain, Ragnet, Wild, Gitlin[] and Voss [] held Voss out as Schratter's trusted, knowledgeable [] and effective [CEO], for the purpose of persuading the ECB Representatives to accept Voss as a fiduciary and partner and to partner with him to purchase Schratter." (Id. at ¶ 27) In reliance on these representations, the ECB representatives and Plaintiffs: "(a) took Voss [] as a fiduciary; (b) partnered with Voss to purchase Schratter; (c) relied on Voss for much of the due diligence regarding the acquisition of Schratter; (d) 'retained' Voss as [P]resident and [CEO] of Schratter [after the acquisition]; and (e) [later] appointed Voss as the [P]resident of Atlantic Ventures." (Id. at ¶ 28)

In order to incentivize Voss to participate in this conspiracy, "the other members of the [] [c]onspiracy negotiated and caused Schratter and Zausner to enter into a series of agreements with Voss to lock[ ]down his loyalty and participation" (referred to in the SAC as the "June 30 agreements"). (Id. at ¶ 40) One of the June 30 agreements was a letter, signed by Bongrain, which set up a "secret corporate structure in violation of the documents defining Schratter's corporate governance." (Id. at ¶ 42) That letter (referred to as the "Schratter Employment Letter") purported to maintain Voss as Schratter's President and CEO, while in fact divesting him of all such authority and secretly vesting that authority in Wild. (Id. at ¶ 44) The SAC alleges that the Schratter Employment Letter states in part:

[I]n view of [Voss's] history with [Schratter], the title President/[CEO] . . . is mainly to enhance the effectiveness of Employee's sales efforts.

All other aspects of the operation of [Schratter] shall be the responsibility of J. Wild, who although carrying the title of Executive Vice President, will have the de facto position of [CEO]. These responsibilities shall include, but not be limited to

1. Finance

2. Human Resources

3. Quality

4. Information Systems

5. All other corporate functions.

(Id. at ¶ 45 (emphasis omitted, certain alterations in original); see D.I. 158, ex. 2 at ex. A) In an effort to "conceal th[is] corporate deceit, [] Zausner, Savencia, Bongrain, Swartele, Ragnet, Wild[] and Gitlin[] required Voss to sign a confidentiality agreement regarding the[se] secret terms of his continued employment." (D.I. 147 at ¶ 47) And as further inducement for Voss to participate, "Zausner and Savencia, acting through Bongrain, Swartele, Ragnet, Wild[] and Gitlin" promised to pay Voss an additional $350,000 for the year 2015; they did so through a second employment letter (the "Corman Employment Letter") between Voss and a newly-created shell company, Corman Ship Supplies, LLC ("Corman"). (Id. at ¶¶ 48-50; see also D.I. 158, ex. 2 at ex. B) Moreover, the SAC alleges that Defendants also provided other forms of compensation to Voss in order to obtain his participation, including:

• The purchase of Voss's 25 percent interest in Schratter for $3 million.

• Payment of a bonus to Voss of up to an additional $1 million determined primarily in the discretion of Bongrain.

• Payment to Voss of 25 percent of the net proceeds from the sale of Corman.

• The transfer of Chocolate Stars, a "valuable division of Schratter," to Voss for one dollar.

• The financing of Voss's "'purchase'" of Chocolate Stars' inventory with an unsecured loan in the amount of $676,852.97.

• The continuation of Voss's then-current salary as President and CEO of Schratter, "even

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