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Fratelli Cosulich Unipessoal, S.A. v. Specialty Fuels Btu, LLC

United States District Court, S.D. Alabama, Southern Division

June 4, 2015



WILLIAM E. CASSADY, Magistrate Judge.

This cause is before the Magistrate Judge for issuance of a report and recommendation, pursuant to 28 U.S.C. § 636(b), on the motions to dismiss filed by the Defendants, Specialty Fuels BTU, LLC, ("BTU"), F. Javier Brito ("Brito"), and Bunkers International Corp. ("BIC") (docs. 65 and 67), the response filed by the Plaintiff, Fratelli Cosulich Unipessoal, S.A., ("Fratelli") (doc. 73), and the replies filed by the Defendants (docs. 74 and 75). Upon consideration of the foregoing pleadings, the Magistrate Judge RECOMMENDS that BIC's motion to dismiss (doc. 65) be DENIED and that BTU and Brito's motion to dismiss (doc. 67) be GRANTED IN PART and DENIED IN PART, as discussed below.

I. Background and Relevant Allegations in the Third Amended Complaint ("TAC")

As alleged by the Plaintiff in the TAC (doc. 64), this matter arises from a series of transactions involving the Plaintiff, the Defendants, and former Defendant Specialty Fuels Bunkering, LLC, ("Bunkering").[1] ( Id. )

A. The Parties.

The Plaintiff is a foreign corporation "engaged, in part, in the business of vessel bunkering and the trading of fuel oil and fuel oil by-products." ( Id., ¶ 1.) Bunkering and BTU are domestic limited liability companies that "were engaged in the business of wholesale supply of fuel products." ( Id., ¶¶ 2-3, 8.) Brito allegedly was the controlling member of both Bunkering and BTU. ( Id., ¶ 4.) According to the TAC, "Brito was the principal founder [and] investor... and... the disputed managing member of Bunkering, " as well as "the principal founder [and] investor... and... the managing and sole member of BTU." ( Id. ) The Plaintiff alleges that Bunkering and BTU

operated, jointly and/or separately, by buying fuel components, blending them to make specific types of fuel, and then selling the finished fuel or fuel oil by-product to a buyer. This type of operation required enough capital or credit on the part of Bunkering and BTU to enable each entity to purchase the component parts of the fuel, store them, blend them, sell them, deliver the product and then await payment. Bunkering and BTU engaged in business in such a manner, and through representations by their representatives and [BIC], that [the Plaintiff] considered them to be essentially the same company, "Specialty", [2] owned, managed and controlled by one person, Brito.

( Id., ¶ 8.) BIC is a domestic corporation that served as the exclusive broker for the Plaintiff's transactions with Bunkering and BTU from 2011 onward. ( Id., ¶¶ 5, 10-11.)

B. BIC's relationship with the Plaintiff and Specialty.

Prior to 2011, the Plaintiff transacted directly with Bunkering and BTU. ( Id., ¶ 9.) Paul Pappaceno handled those transactions on behalf of the Plaintiff. ( Id. ) At the time, he was employed by the Plaintiff's agent, Asamar, Inc. ( Id. ) However, Pappaceno began working for BIC in late 2010. ( Id., ¶ 10.)

Shortly thereafter at Pappaceno's urging, he and [the Plaintiff's] management orally agreed that [BIC] would act as [the Plaintiff's] broker for all Bunkering and BTU transactions.
... From the time that Pappaceno began working for [BIC] through and including one or both of the transactions that are the subject of this lawsuit, all of [the Plaintiff's] transactions and dealings with Bunkering and BTU were conducted solely through Pappaceno and his employer, [BIC], as broker for [the Plaintiff], and as the exclusive representative of Bunkering, BTU and Brito.
... In consideration for these services, [BIC] received monetary commissions from [the Plaintiff] on the transactions.
... During this time frame, Pappaceno, on behalf of [BIC], demanded that [the Plaintiff] not directly contact anyone at Bunkering or BTU which resulted in Pappaceno and [BIC] becoming the sole intermediary and conduit for information between [the Plaintiff] and "Specialty" (Bunkering and BTU). Because of this insistence, [the Plaintiff] was placed into a position of having to trust that Pappaceno and [BIC] would provide it with timely and accurate information concerning "Specialty's" financial ability to perform on the transactions, among other things.
... Over this same considerable time frame, Pappaceno and [BIC], for their own financial gain, cultivated a position of trust and confidence with [the Plaintiff] in its dealings with all of the Defendants... by reassuring [the Plaintiff] that they could be trusted and relied upon.

( Id., ¶¶ 10-12, 14-15.) Specifically, in the course of the Plaintiff's dealings with BIC on transactions with Bunkering and BTU, Pappaceno sent messages to the Plaintiff stating "[y]ou can trust me" and "[d]on't worry" to assure the Plaintiff that it would receive payment from Bunkering and BTU. ( Id., ¶¶ 15(a)-15(b).)

BIC further established a position of trust and confidence by informing the Plaintiff of its extensive relationship with Bunkering and BTU. ( Id., ¶ 15.) Specifically, BIC disclosed to the Plaintiff that it had participated in factoring arrangements with Bunkering and BTU, including instances where it paid Bunkering and/or BTU's financial obligations to the Plaintiff. ( Id., ¶ 15(c).) BIC also informed the Plaintiff that it participated in other independent transactions with Bunkering and BTU where it acted as a principal and bought and sold fuel oil on extended credit terms. ( Id., ¶ 15(e).) Additionally, Pappaceno informed the Plaintiff that he invested his personal funds in Bunkering and/or BTU. ( Id., ¶ 15(f).) Based on the aforesaid information conveyed by BIC, the Plaintiff reasonably inferred that BIC "was not engaged in typical broker conduct"; "was privy to detailed financial information about the business operations of Bunkering[, ] BTU and Brito"; and "was by its own conduct vouching for Bunkering and BTU's reliability as financially sound and responsible business entities... when it solicited [the Plaintiff] to do business with those entities." ( Id., ¶¶ 15(c)-15(f).)

Additionally, BIC conveyed the closeness of its relationship with Brito and "Specialty" by informing the Plaintiff of BIC's direct conversations with Brito regarding the status of payments owed to the Plaintiff. ( Id., ¶ 16.) Such conduct demonstrated BIC's "apparent, if not actual, insider position with Bunkering and BTU." ( Id. )

Through this conduct and course of dealings over time, [BIC] created and assumed certain duties, including the duty to conduct its brokerage activities with reasonable skill and diligence, the duty to engage in due diligence, and the duty to inform [the Plaintiff], its principal, of material information it acquired through the exercise of reasonable diligence, as a result of its expansive, close individual dealings with Bunkering, BTU and Brito.
... All of this created a custom and practice over time between [BIC] and [the Plaintiff] and established a course of dealings upon which [the Plaintiff] reasonably relied and placed its trust as was intended by [BIC] and resulted in the creation of a "special" or fiduciary relationship between [the Plaintiff] and [BIC].

( Id., ¶¶ 18-19.)

C. The transactions at issue.

Central to this action are two agreements-"STEM 6277" and "STEM 6322"- involving the sale and repurchase of oil. The Plaintiff describes these transactions "as a close-in-time purchase (by [the Plaintiff]) and sale (by Bunkering or BTU) of oil or fuel oil by-product on the promise that "Specialty" (i.e., Bunkering or BTU, depending on the transaction), would buy the product back at a higher price." ( Id., ¶ 13.) BIC brokered both agreements. ( Id., ¶ 11, 29.)

Pursuant to the STEM 6277 agreement, on January 11, 2013, the Plaintiff paid BTU $2, 828, 322.00 for the purchase of 22, 447 barrels of cutterstock, [3] and BTU was obligated to purchase those barrels back in thirty days at the price of $2, 857, 503.10. ( Id., ¶ 29(a).) Subsequently, BTU requested, and the Plaintiff agreed, to roll over the agreement four times such that the due date for BTU's payment for the repurchase of the fuel-oil was extended into August 2013 and interest was added to the outstanding payment. ( Id. ) On July 24, 2013, the Plaintiff received $1, 500, 000.00 in partial satisfaction of the outstanding debt. ( Id. ) However, the remainder has not been paid. Thus, the Plaintiff alleges that it is still owed $1, 532, 589.70, plus interest, under the STEM 6277 agreement. ( Id. )

STEM 6322 involved two payments by the Plaintiff to Bunkering for the purchase of a total of 23, 500 barrels of Number 2 diesel fuel, which Bunkering was required to purchase back. ( Id., ¶ 29(b).) Pursuant to the STEM 6322 agreement, on April 22, 2013, the Plaintiff paid Bunkering $1, 600, 000.00 for a portion of the diesel fuel, and Bunkering was obligated to purchase that portion back in thirty days at the price of $1, 616, 377.93. ( Id. ) On May 21, 2013, the Plaintiff paid Bunkering $1, 384, 500.00 for the remainder of the diesel fuel, and Bunkering was obligated to repurchase that amount in thirty days at the price of $1, 398, 671.94. ( Id. ) As with the STEM 6277 agreement, the STEM 6322 agreement was rolled over multiple times such that the due date for Bunkering's payment was extended to August 2013 and interest was added to the balance. ( Id. ) However, the Plaintiff received no payments from Bunkering and, therefore, Bunkering owes the Plaintiff $3, 092, 527.82, plus interest, under the STEM 6322 agreement. ( Id. )

Accordingly, the Plaintiff alleges that the grand total that Bunkering and/or BTU owes the Plaintiff under the STEM agreements is $4, 625, 117.52, plus interest. ( Id., ¶ 30.)

D. Warehouse Receipt and status of fuel-based product serving as collateral.

The Plaintiff alleges that, on April 8, 2013, Bunkering, BTU and Brito "issued a Warehouse Receipt' to [the Plaintiff] to lead [the Plaintiff] to believe that [the Plaintiff] had and maintained a right to possess the product at issue as security for the debt evidenced by the invoices." ( Id., ¶ 49.) Additionally, three days later, BIC represented to the Plaintiff that the Plaintiff's transactions with Specialty were secured by fuel oil. ( Id., ¶ 57(k)-(l).)

The Plaintiff alleges that the Warehouse Receipt was false and misleading and that the Plaintiff's accounts were not, in fact, secured by fuel-based product. ( Id., ¶¶ 49, 57(1), 61.)[4] Thus, the Plaintiff alleges that the Defendants misrepresented that fuel oil secured the transactions at issue and failed to disclose the true status of that collateral. ( Id., ¶¶ 64, 74.)

E. Specialty's financial condition.

The Plaintiff alleges that Specialty's financial condition began deteriorating in May 2012. "On May 29, 2012, Bunkering commenced litigation against Brito in the Circuit Court of Baldwin County, Alabama, in which other members of Bunkering sought, among other things, to wrest control of Bunkering from Brito." ( Id., ¶ 23.) Due to the management dispute involved in that lawsuit, Bunkering could not meet its financial obligations. ( Id., ¶ 24.) In June 2012, Brito filed pleadings in the Baldwin County matter representing that

Bunkering's financing sources, ... including [BIC], were not being paid and that Bunkering's customers' ships or vessels were at risk of seizure by [BIC];
Bunkering was losing the trust and good will of its customers thereby damaging Bunkering's ability to do business in the future;
Bunkering's relationship with [BIC] (a finance source) was being "irreparably damaged"; [and]
Bunkering's ability to conduct business in general was being "irreparably damaged[.]"

( Id. ) The Plaintiff alleges that BIC was aware of the Baldwin County litigation and the financial difficulties that had "irreparably damaged" its relationship with Bunkering. ( Id., ¶ 25.) The Plaintiff further alleges that Bunkering's financial difficulties "worsened over time such that the ability of Bunkering and BTU to do business as normal became materially impaired, " ( id., ¶ 26), and that BIC knew that Bunkering's and BTU's financial condition was deteriorating, ( id., ¶ 27). "On April 29, 2013, Brito filed a Motion for Judicial Dissolution as to Bunkering in the [Baldwin County] litigation based on allegations of financial misconduct, misappropriation and waste." ( Id., ¶ 32.)

On or about July 19, 2013, Brito filed an affidavit executed by him in support of his... Motion for Judicial Dissolution..., in which he testified that "Specialty [i.e., Bunkering] [was] operating at a negative equity position... its liabilities exceed[ed] its assets.... Specialty ha[d] no cash reserves, no available credit on terms that are viable to the continued ...

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