Panthera Rail Car LLC v. Kasgro Rail Corp.

PANTHERA RAIL CAR LLC, Plaintiff, v. KASGRO RAIL CORPORATION, a Pennsylvania corporation,KASGRO LEASING, LLC, KR LOGISTICS, LLC,and KASGRO RAIL CAR MANAGEMENT, LLC, Defendants.

Civil Action No. 13-679

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

Date: August 21, 2013

Judge Nora Barry Fischer

OPINION

This action arises out of allegedly improper rail car leasing arrangements involving Plaintiff Panthera Rail Car LLC ("Panthera") and Defendants Kasgro Rail Corporation, Kasgro Leasing, LLC, Kasgro Rail Car Management ("KRCM"), and KR Logistics, LLC ("KRL"). Plaintiff originally brought this lawsuit in the United States District Court for the Northern District of California, advancing claims for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional and negligent interference with prospective economic advantage, fraud, negligent misrepresentation, aiding and abetting fraud, and violating the California Unfair Competition Law ("UCL") against some or all Defendants. (Docket No. 30, at 20-28).

Defendants filed motions to dismiss on March 1, 2013, asserting lack of personal jurisdiction, improper forum, and the doctrine of forum non conveniens. (Docket Nos. 37; 38; 40). In addition, KRL filed a substantive motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Docket No. 38, at 8). On May 13, 2013, Judge Susan Illston sitting in the Northern District of California transferred the case to the Western District ofPennsylvania after finding that personal jurisdiction over Defendants was lacking. (Docket No. 52). Notwithstanding the transfer, KRL's motion to dismiss did not terminate. (Docket No. 85). Both Panthera and KRL filed supplemental briefs. (Docket Nos. 90; 91). During oral argument on the motion to dismiss, the Court granted Defendant KRL's Motion and ordered that Panthera submit a Second Amended Complaint. (Docket No. 98). The Court now writes separately to elaborate on its ruling and to provide guidance on the controlling substantive law in this case as to the claims asserted against KRL.

I. Federal Rule of Civil Procedure 12(b)(6) Standard

A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure challenges the legal sufficiency of a complaint. To survive a motion to dismiss, a complaint must contain sufficient factual pleadings to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); accord Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (citing Twombly). "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 (2009). The Court's plausibility determination is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679; accord Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009) (quoting Iqbal). This requirement is designed to facilitate the federal notice-pleading standard, which requires "a short and plain statement of [a] claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2) (emphasis added). With respect to allegations of fraud, "a party must state with particularity the circumstances constituting fraud." FED. R. CIV. P. 9(b).

When ruling on a Rule 12(b)(6) motion, a court must accept as true all well-pleaded factsand allegations and must draw all reasonable inferences therefrom in favor of the plaintiff. See Iqbal, 556 U.S. at 678; see also Mayer v. Belichick, 605 F.3d 223, 229 (3d Cir. 2010) (explaining that the ultimate determination in a Rule 12(b)(6) analysis is "whether plaintiff may be entitled to relief under any reasonable reading of the complaint"). The Court may consider "only the allegations in the complaint, exhibits attached to the complaint, matters of public record, and documents that form the basis of a claim." Lum v. Bank of Am., 361 F.3d 217, 222 n.3 (3d Cir. 2004). Nevertheless, a court need not credit bald assertions, unwarranted inference, or legal conclusions cast in the form of factual averments. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 n.8 (3d Cir. 1997). The plaintiff's obligation to provide the grounds of his legal entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). By authorizing dismissal on the basis of some dispositive issue of law, Rule 12(b)(6) dispenses with "needless discovery and factfinding" for the ultimate purpose of streamlining litigation. Neitzke v. Williams, 490 U.S. 319, 326-27 (1989).

II. Plaintiff's Allegations

A. The Parties

Panthera is a Delaware LLC based in San Francisco, California. (Docket No. 30, at ¶ 1). Kasgro Rail Corporation and Kasgro Leasing, LLC are Pennsylvania corporate entities headquartered in New Castle, Pennsylvania. Id. at ¶ 2-3. The Kasgro Rail Corporation is a manufacturer of rail cars, while Kasgro Leasing, LLC is a leasing company. Id. at ¶ 31. KRCM was incorporated and operates in Indiana.¹ Finally, KRL is a Wisconsin LLC and subsidiary of Kasgro Rail Corporation, with its principal place of business in Milwaukee, Wisconsin. Id. at ¶4. It is alleged that Kasgro Leasing, KRCM, and KRL are subsidiaries of Kasgro Rail Corporation. Id. at ¶¶ 3-5.

Upon the formation of KRL, John Silseth became its registered agent for service of process purposes and serves as one of its members. (Docket No. 30, at ¶¶ 4, 77). Mr. Silseth is also the President of Antietam LLC, which is the owner of Kasgro Rail Corporation, as well as the Treasurer and a Director of Kasgro Rail Corporation. Id. at ¶ 77. In addition, a number of other corporate officers for KRL serve as corporate officers for Kasgro Leasing, LLC, including Joseph F. Crawford, Jr., Jeffrey A. Plut, Predrag Stojanovic, Brian A. Blevins, David C. Boerke, Kenneth J. Heydon, and David V. Uihlein, Jr. Id. at ¶¶ 3-4.

B. Background Facts on the Heavy Rail Car Industry

Between the years 1998-2002, Kasgro Rail Corporation built several hundred heavy duty rail cars, primarily for other owners/lessors. Id. at ¶ 32. During this time, Kasgro Rail Corporation and Kasgro Leasing, LLC (collectively, the "Kasgro Entities") entered into a series of ten-year identical leases with owners and lessors of heavy duty rail cars wherein the Kasgro Entities, in turn, acted as lessees and sublessors of the cars, renting them out to end users as an active operator. Id. at ¶ 33. The Kasgro Entities leased substantially all of the approximately 300 heavy duty rail cars they operated pursuant to a 1997 Lease with CLC Equipment Company ("CLC") and approximately fourteen other lessors. Id. at ¶¶ 41, 43; (Docket No. 30-1). The 1997 Lease was amended by the 2003 Lease Agreement, which was signed by CLC and the Kasgro Entities. (Docket No. 30, at ¶ 48; Docket No. 30-2).

By 2005, however, market demand for these rail cars did not meet expectations, and the Kasgro Entities had to ask their lessor group for a large scale, across the board rent reduction onthe heavy duty rail cars under lease to them.² (Docket No. 30, at ¶ 34). Pursuant to the 2005 Amendment and the resulting 2005 Revised Lease, the lessor group agreed to globally permit rent reductions of over 60%, which was conditioned on specific restrictions against the Kasgro Entities' ability to purchase or lease additional heavy duty rail cars.³ Id. at ¶¶ 34-35; (Docket No. 30-3, at 9). In addition, the lessors secured other important rights through the 2005 Amendment, such as: (a) a $400,000 cap on the Kasgro Entities' annual capital expenditures between 2005 and 2013, effectively preventing them from becoming purchasers of heavy duty rail cars; (b) a profit sharing arrangement based on a percentage of the Kasgro Entities' profits; (c) a limitation of management fees to Antietam, LLC,⁴ the Kasgro Entities' owner; and (d) a liquidated damages provision that would be triggered upon a breach of the 2005 Amendment and the 2005 Revised Lease.⁵ (Docket No. 30, at ¶¶ 35, 49-56).

There are only approximately 2,200 active heavy duty rail cars in the United States today, with no plans to build any additional heavy duty rail cars in the future. Id. at ¶¶ 14, 28, 37. Virtually no heavy duty rail cars have been built since 2002, and a number have been scrapped. Id. at 37.

C. Panthera's Entry into the Heavy Rail Car Industry

Panthera is a private investment firm that focuses primarily on investment in large cost equipment known to have a long economic life. Id. at ¶ 12. Sensing an opportunity to enter the heavy duty rail car leasing industry, Panthera purchased a fleet of twenty-two heavy duty railcars that were under an existing lease to the Kasgro Entities in September 2011.⁶ Id. at ¶¶ 16, 57. Panthera hoped that its purchase, plus its plans to acquire an additional 150 to 200 heavy duty rail cars, would give it additional leverage and bargaining power in the lease renewal negotiations with the Kasgro Entities. Id. at ¶ 22.

The Kasgro Entities provided Panthera with a written acknowledgement on August 31, 2011, recognizing Panthera as the new lessor and owner of the twenty-two rail cars ("Kasgro Acknowledgement"). Id. at ¶¶ 18, 58; (Docket No. 30-4). Pursuant to the Kasgro Acknowledgement, the Kasgro Entities represented that all rents going forward would be paid to Panthera and that no defaults or breaches of any representations, warranties, or covenants under the 2005 Revised Lease had occurred or were continuing to occur. (Docket No. 30, at ¶¶ 18, 59). Accordingly, Panthera believed that the Kasgro Entities were not a major owner of heavy duty rail cars and that they had not acquired or leased any new rail cars since 2005. Id. at ¶¶ 60-61.

D. The Kasgro...