Smith v. 21ST Century Natural Fuels, LLC, CIVIL ACTION NO. 3:14-12507

CLYDE J. SMITH, Plaintiff, v. 21st CENTURY NATURAL FUELS, LLC, a Pennsylvania Limited Liability Company; 21st CENTURY NATURAL FUELS, LLC, an Ohio Limited Liability Company;ALTERNATIVE FUEL SOLUTIONS OF PENNSYLVANIA LLC; JAMES J. O'DONNELL; DENNIS J. O'DONNELL; andDEBORAH A. VASENDA, Defendants.

CIVIL ACTION NO. 3:14-12507

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA HUNTINGTON DIVISION

April 14, 2016

MEMORANDUM OPINION AND ORDER

Pending are cross motions for summary judgment brought by Plaintiff Clyde Smith and Defendants 21st Century Natural Fuels, LLC, an Ohio Limited Liability Company ("21st Century"); Alternative Fuel Solutions of Pennsylvania LLC; James J. O'Donnell; Dennis J. O'Donnell; and Deborah Vasenda (collectively "Defendants"). Pl.'s Mot. for Summ. J., ECF No. 39; Defs.' Mot. for Summ. J., ECF No. 41. Mr. Smith seeks summary judgment in his favor on Complaint counts I (restitution), II (unjust enrichment), and IV (individual member liability) and Counterclaim counts I (declaration regarding contract formation) and II (breach of fiduciary duty). Defendants seek summary judgment on the issue of federal subject matter jurisdiction previously considered by this Court when it denied Defendants' motion to dismiss for lack of subject matter jurisdiction, see Smith v. 21st Century Nat. Fuels, LLC, No. 14-12507, 2014 WL 4387569, at *1 (S.D.W. Va. Sept. 4, 2014), ECF No. 22. For the following reasons, the Court DENIES Plaintiff's motion for summary judgment on Complaint counts I, II, and IV and Counterclaim counts I and II. Treating Defendants' motion for summary judgment as a motion to dismiss for lack of subject matter jurisdiction, the Court GRANTS Defendants' motion and DISMISSES without prejudice Plaintiff's Complaint and Defendants' Counterclaim.

I. Background

Mr. Smith's action arises from his attempt to acquire an ownership interest in 21st Century. 21st Century is a limited liability company (LLC) in the business of selling and installing conversion kits that permit automotive vehicles to run on natural gas. Defs.' Memo. in Supp. of Mot. for Summ. J. 2, ECF No. 42; Affidavit of Deborah Vasenda ¶¶ 3, 5, ECF No. 41-1 [hereinafter Aff.]. Prior to October 2013, Mr. Smith, through his business West Virginia CNG, LLC, installed natural gas conversion kits sold to him by 21st Century. Aff. ¶ 7. This arrangement also required 21st Century to render technical assistance and advice to Mr. Smith. Id.

Upon first meeting 21st Century's representatives, Mr. Smith expressed a desire to buy an interest in 21st Century. See id. ¶ 8. But the representatives were reluctant to sell him an interest at that time because 21st Century, then a Pennsylvania LLC, was planning to re-organize as an Ohio LLC. Id.

At some point thereafter, Mr. Smith obtained an order for twenty truck conversions from the West Virginia Department of Transportation ("WVDOT"). See Aff. ¶ 9; Defs.' Memo. in Supp. of Mot. for Summ. J. at 3; Deposition of Clyde Smith 14-16, 20-24, ECF No. 43 [hereinafter Smith Depo.]. Mr. Smith was ill-equipped to complete these installations, and so he acquired assistance from 21st Century's subsidiary, Defendant Alternative Fuel Solutions of Pennsylvania ("Alternative Fuels"). Aff. ¶ 9; Smith Depo. at 20-25. Alternative Fuels sold Mr. Smith the twentykits at a price discounted from the wholesale rate, and it provided him technical assistance, garage upgrades, and labor to install the kits. Smith Depo. at 20-25. During this collaboration, Mr. Smith again expressed interest in buying into 21st Century. Id. at 25-26.

In October 2013—after this series of conversations about his purchasing an interest in the company—21st Century prepared and sent by e-mail to Mr. Smith a proposed purchase agreement setting forth the terms upon which it would be willing to sell him a membership. Smith Depo. at 33-36; Aff. ¶ 12; Compl. ¶ 24. Prior to receiving the agreement, Mr. Smith understood that 21st Century would create the agreement and send it to him. Smith Depo. at 34-36. The purchase agreement document was unsigned when sent to Mr. Smith. See Purchase Agreement, Ex. A, ECF No. 39-1 [hereinafter Purchase Agreement]. Additionally, in the e-mail accompanying the purchase agreement, 21st Century assured Mr. Smith it was the agreement they had previously spoken about, and 21st Century representative Deborah Vasenda told Mr. Smith "[w]e'll sign, after you sign." E-mail from Deborah Vasenda to Clyde Smith (Oct. 30, 2013), Ex. C, ECF No. 39-3.

The purchase agreement offered a 2.5% interest in 21st Century in exchange for what amounted to $250,000 from Mr. Smith. Smith Depo. at 36-37; Purchase Agreement 1-2; Aff. ¶ 15-16. Additionally, 21st Century agreed to forgo its costs in assisting Mr. Smith with the WVDOT kit installations and allow Mr. Smith to keep all profits from that job. Smith Depo. at 36-37; Aff. ¶ 15-16. at 4. Paragraph 16 of the purchase agreement provides:

[Mr.] Smith will receive paperwork showing he is an owner of 2.5% of 21st Century . . . after the wire of $200,000 posts. 21st Century . . . will start the paperwork and provide [Mr.] Smith with all the necessary paperwork from the Secretary of State of Ohio, within 30 working days of this document.

Purchase Agreement ¶ 16. The purchase agreement does not specify in more detail what this paper work is or that time was of the essence in providing it.

On October 31, 2013, Mr. Smith signed the purchase agreement and returned it to 21st Century without making other changes to the document. Smith Depo. at 37-38; Aff. ¶ 18. In response, 21st Century provided Mr. Smith with wire instructions, and on November 1, 2013, Mr. Smith wired $200,000 to 21st Century and forgave $50,000 that 21st Century owed him at the time. Smith Depo. at 40-41; Aff. ¶¶ 18-20; Compl. ¶¶ 27-29. On November 21, 2013, 21st Century filed documents with the Ohio Secretary of State's Office to re-organize as an Ohio LLC. The filed documents consist of 21st Century's Articles of Organization as a Domestic LLC. Aff. ¶ 21; Articles of Organization, Ex. B, ECF No. 41-1. Nowhere on the Articles of Organization does it call for the applicant to list all of the proposed LLC's shareholders or members, but it does call for signatures of up to three members, managers, or representatives of the LLC. See id. at 4. Mr. Smith did not sign the Articles of Organization. According to Defendants, the Ohio Secretary of State's Office does not prepare share certificates for LLCs. Aff. ¶ 23. On November 23, 2013, 21st Century prepared—but did not deliver to Mr. Smith—a share certificate evincing Mr. Smith's 2.5% ownership in 21st Century. Aff. ¶ 21.

On February 7, 2014, Mr. Smith, having not received any paperwork showing he owned an interest in 21st Century, sent a letter, by counsel, to 21st Century asserting that the purchase agreement was a mere offer which 21st Century had failed to accept, and he attempted to "rescind"¹ the offer. See ECF No. 39-4. Defendants responded to Mr. Smith by asserting their delivery of the purchase agreement to Mr. Smith was the relevant offer, and that Mr. Smith accepted Defendants' offer by returning the agreement with his signature and immediately conveying $200,000 to 21stCentury. See ECF No. 39-5. On February 17, 2014, 21st Century sent Mr. Smith the certificate it allegedly prepared in November 2013. Id. at 2.

On March 17, 2014, Mr. Smith filed a complaint against Defendants setting forth counts for restitution, unjust enrichment, fraud, and individual shareholder liability, and demanding return of $250,000 and additional damages as warranted. ECF No. 1. Subsequently, Defendants moved to dismiss this action for lack of subject matter jurisdiction, arguing that complete diversity between the parties was lacking. ECF No. 13. The citizenship of the parties at the time of filing is as follows:

1. Plaintiff, Mr. Smith, is a citizen of West Virginia.

2. Defendant Mr. James O'Donnell is a citizen of Ohio.

3. Defendant Mr. Dennis O'Donnell is a citizen of Pennsylvania.

4. Defendant Ms. Vasenda is a citizen of Ohio.

5. Defendants 21st Century and Alternative Fuel Solutions of Pennsylvania, LLC, for purposes of diversity jurisdiction, are each citizens of the states where each member is a citizen.

ECF No. 1. The Court denied Defendants' motion to dismiss for lack of subject matter jurisdiction, finding that the jurisdictional issue depended upon a substantive issue, namely whether Mr. Smith formed a contract with 21st Century to purchase membership in 21st Century. 21st Century Nat. Fuels, LLC, 2014 WL 4387569, at *1. If the two formed a contract, 21st Century would have become a citizen of West Virginia by virtue of Mr. Smith's West Virginia citizenship, thereby destroying complete diversity and this Court's jurisdiction over the case. Id. at 2. In the order denying Defendants' motion, the Court noted it would dismiss the action if, after discovery, it became apparent the Court lacked jurisdiction. Id at 3.

After completing discovery, the Parties filed cross motions for summary judgment. Mr. Smith seeks summary judgment on his claims for restitution, unjust enrichment, and individual liability for 21st Century's members. Additionally, Mr. Smith asks for summary judgment on the counts in Defendants' Counterclaim, specifically their request for a declaration that the Parties entered into a purchasing contract and their claim that Mr. Smith breached his fiduciary duty to 21st Century. In Defendants' motion for summary judgment, they re-raise the issue of federal subject matter jurisdiction previously considered by this Court.

II. Legal Standard

To obtain summary judgment, the moving party must show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In considering a motion for summary judgment, the Court will not "weigh the evidence and determine the truth of the matter." Anderson v. Liberty...