Mansfield Oil Co. of Gainesville v. Capitala Fin. Corp. (In re On-Site Fuel Serv.)

IN RE: ON-SITE FUEL SERVICE, INC., DEBTOR.

MANSFIELD OIL COMPANY OF GAINESVILLE, INC. PLAINTIFF v. CAPITALA FINANCE CORP., CAPITAL SOUTH PARTNERS FUND II, LP,

CAPITAL SOUTH PARTNERS SBIC FUND III, LP,

JOHN F. MCGLINN, HARBERT MEZZANINE PARTNERS III SBIC, LP, AND

JOHN C. HARRISON DEFENDANTS

CONSOLIDATED UNDER ADV. PROC. 19-00059-NPO WITH:

EILEEN N. SHAFFER, TRUSTEE FOR

THE BANKRUPTCY ESTATE OF ON-SITE FUEL SERVICE, INC. PLAINTIFF v. DIESEL DIRECT, INC., CAPITALA FINANCE CORP.;

CAPITALSOUTH PARTNERS FUND II, L.P.;

CAPITALSOUTH PARTNERS SBIC FUND III, L.P.; AND

HARBERT MEZZANINE PARTNERS III SBIC, L.P. DEFENDANTS

CASE NO. 18-04196-NPO

ADV. PROC. 19-00059-NPO

ADV. PROC. 20-00007-NPO

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF MISSISSIPPI

May 8, 2020

The Order of the Court is set forth below. The docket reflects the date entered.

CHAPTER 7

MEMORANDUM OPINION AND ORDER ON: (1) HARBERT AND HARRISON'S RULES 9(b), 12(b)(7) & 12(c) MOTION FOR JUDGMENT ON THE PLEADINGS AND (2) CAPITALA DEFENDANTS' MOTION TO DISMISS FIRST AMENDED COMPLAINT

This matter came before the Court for a telephonic hearing on March 17, 2020 (the "Hearing"), on Harbert and Harrison's Rules 9(b), 12(b)(7) & 12(c) Motion for Judgment on the Pleadings (the "Harbert Motion") (Adv. Dkt. 88)¹ filed by Harbert Mezzanine Partners III, LP, f/k/a Harbert Mezzanine Partners III SBIC, LP ("Harbert") and John C. Harrison ("Harrison" or together with Harbert, the "Harbert Defendants"); Harbert and Harrison's Memorandum of Authorities in Support of their Rules 9(b), 12(b)(7) & 12(c) Motion for Judgment on the Pleadings (the "Harbert Brief") (Adv. Dkt. 89) filed by the Harbert Defendants; the Plaintiff's Response to Harbert Defendants' Rules 9(b), 12(b)(7) & 12(c) Motion for Judgment on the Pleadings (the "Mansfield Response to Harbert Motion") (Adv. Dkt. 99) filed by Mansfield Oil Company of Gainesville, Inc. ("Mansfield"); Plaintiff's Memorandum Brief in Opposition to Harbert Defendants' Rule 12 Motion (the "Mansfield Brief in Response to Harbert Motion") (Adv. Dkt. 100) filed by Mansfield; Defendants Harbert and Harrison's Rebuttal in Support of Their [88] Rules 9(b), 12(b)(7) & 12(c) Motion for Judgment on the Pleadings (the "Harbert Rebuttal") (Adv. Dkt. 104) filed by the Harbert Defendants; Capitala Defendants' Motion to Dismiss First Amended Complaint (the "Capitala Motion") (Adv. Dkt. 90) filed by Capitala Finance Corp. ("Capitala I"), Capital South Partners Fund II, LP ("Capitala II"), Capital South Partners SBIC Fund III, LP ("Capitala III" or collectively, "Capitala"), and John F. McGlinn ("McGlinn" or together withCapitala, the "Capitala Defendants"); Capitala Defendants' Memorandum of Law in Support of Motion to Dismiss First Amended Complaint (the "Capitala Brief") (Adv. Dkt. 91) filed by the Capitala Defendants; Plaintiff's Response to Capitala Defendants' Motion to Dismiss First Amended Complaint (the "Mansfield Response to Capitala Motion") (Adv. Dkt. 101) filed by Mansfield; Plaintiff's Memorandum Brief in Opposition to Capitala Defendants' Rule 12 Motion (the "Mansfield Brief in Response to Capitala Motion") (Adv. Dkt. 102) filed by Mansfield; Capitala Defendants' Reply in Further Support of Motion to Dismiss Amended Complaint (the "Capitala Rebuttal") (Adv. Dkt. 108) filed by the Capitala Defendants in the Adversary. The Harbert Defendants and the Capitala Defendants are referred to collectively as the "Defendants."

The Capitala Defendants attached the following two (2) exhibits to the Capitala Motion: (1) excerpts from a transcript of the trial held on the Involuntary Petition from March 11-13, 2019 in the Bankruptcy Case (Adv. Dkt. 90-1) and (2) the Memorandum Opinion and Order on Involuntary Petition Against a Non-Individual; On-Site Fuel Service, Inc.'s Answer to Involuntary Petition for Bankruptcy and Counterclaim under 11 U.S.C. § 303(i); Answer and Affirmative Defenses of Petitioning Creditors to Counterclaim under 11 U.S.C. § 303(i); and Objections to Counter-Designations of Deposition Excerpts Filed by Petitioning Creditors as to Certain Joining Creditors and Jared Prentiss [Dkt. Nos. 132-140] (the "Involuntary Petition Opinion") (Adv. Dkt. 90-2) entered in the Bankruptcy Case on May 24, 2019. At the Hearing, E. Barney Robinson represented the Harbert Defendants; Jeffrey R. Blackwood, Clarence Webster, III, and Anthony P. La Rocco represented the Capitala Defendants; and W. Thomas McCraney, III and Douglas C. Noble represented Mansfield.

At a status conference on April 16, 2020 (the "Status Conference"), the Court announced its decisions on the Harbert Motion and the Capitala Motion from the bench and informed theparties that a written opinion would follow. The objective of the Court in doing so was to assist the parties in completing the discovery process in the time available. (Adv. Dkt. 79, 105). This Memorandum Opinion and Order on: (1) Harbert and Harrison's Rules 9(b), 12(b)(7) & 12(c) Motion for Judgment on the Pleadings and (2) Capitala Defendants' Motion to Dismiss First Amended Complaint (the "Opinion") fulfills the commitment of the Court made at the Status Conference by memorializing and supplementing the Court's bench rulings.

TABLE OF CONTENTS

JURISDICTION .............................................................................................................................. 6

FACTUAL ALLEGATIONS .......................................................................................................... 6

PROCEDURAL HISTORY ........................................................................................................... 17

DISCUSSION ................................................................................................................................ 21

I. CAPITALA MOTION ....................................................................................................... 21

A. Rule 12(b)(7) Dismissal ..................................................................................................... 21

1. Rule 19 Standard .................................................................................................... 21

2. Extrinsic Evidence ................................................................................................. 23

3. Rule 19(a)(1): Necessary Party ............................................................................. 24

a. Rule 19(a)(1)(A): Complete Relief in On-Site's Absence ......................... 24

b. Rule 19(a)(1)(B): Impairing On-Site's Ability to Adjudicate Claims ....... 28

4. Summary—Rule 12(b)(7) Dismissal ..................................................................... 35

B. Rule 12(b)(6) Dismissal ..................................................................................................... 35

1. Rule 12(b)(6) Standard .......................................................................................... 36

2. Extrinsic Evidence ................................................................................................. 37

3. Choice of Law ........................................................................................................ 38

4. Common-Law Tort Claims .................................................................................... 39

a. Fraud and Negligent Misrepresentations ................................................... 40

(1) Statement of Opinion ..................................................................... 44

(2) Inference of Fraudulent Intent ....................................................... 45

(3) Justifiable Reliance ........................................................................ 47

(4) Merger Clauses .............................................................................. 49

(5) Summary—Fraud and Negligent Misrepresentations .................... 50

b. Tortious Interference with Contract ........................................................... 51

c. Aiding and Abetting Breach of Duty ......................................................... 53

d. Civil Conspiracy ........................................................................................ 57

5. Statutory Claim ...................................................................................................... 58

6. Summary—Rule 12(b)(6) Dismissal ..................................................................... 68

C. Summary—Capitala Motion .............................................................................................. 68

II. HARBERT MOTION ........................................................................................................ 68

A. Rule 12(c) Judgment on the Pleadings ............................................................................... 69

1. Rule 12(c) Standard ............................................................................................... 69

2. Extrinsic Evidence ................................................................................................. 70

3. Choice of Law ........................................................................................................ 71

4. Is the Complaint an impermissible "shotgun" pleading? ....................................... 71

5. Does the Complaint state a claim for relief? .......................................................... 79

a. Fraud and Negligent Misrepresentations ................................................... 79

(1) Harbert ........................................................................................... 82

(2) Harrison .......................................................................................... 86(3) Summary—Fraud and Negligent Misrepresentations .................... 90

b. Tortious Interference with Contract ........................................................... 90

c. Aiding and Abetting Breach of Duty ......................................................... 91

d. Civil Conspiracy

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