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Orinoco Natural Resources, Inc. v. Modern American Recycling Service, Inc.

United States District Court, E.D. Louisiana

November 14, 2019

ORINOCO NATURAL RESOURCES, INC., MERIDA NATURAL RESOURCES, INC., AND THOMAS M. CLARKE
v.
MODERN AMERICAN RECYCLING SERVICE, INC.

         SECTION “R” (4)

          ORDER AND REASONS

          SARAH S. VANCE UNITED STATES DISTRICT JUDGE.

         The Court has received the partial Rule 12(b)(6) motion to dismiss for failure to state a claim from defendant Modern American Recycling Service, Inc. (“MARS”).[1] The Court grants the motion in part: the Court dismisses the recission of contract and unjust enrichment claim (Counts Four and Five), but denies the motion as to the conversion claim (Count Two).

         I. BACKGROUND

         This case arises from a dispute over the scrapping of drilling rigs.[2]Plaintiffs-Orinoco Natural Resources, LLC, Merida Natural Resources, LLC, and Thomas Clarke[3]-allege that they entered into an agreement with defendant MARS to share profits from the scrapping of two rigs, [4] the Brage and the ENSCO 80.[5] Under the alleged agreement, plaintiff would finance the purchase of the rigs, and defendant would conduct the scrapping operation at its facility in Denmark.[6] To this end, plaintiffs advanced defendant approximately three million dollars.[7] But plaintiffs contend that defendant failed to scrap the rigs within the required timeframe.[8]

         Specifically, plaintiffs allege that defendant entered two agreements setting deadlines for scrapping the rigs: MARS entered an agreement with Borr Brage, Ltd., to purchase the Brage and scrap it by March 8, 2019.[9]MARS also entered into an agreement with ENSCO Offshore U.K. Ltd. to purchase the ENSCO 80 and scrap it by August 23, 2019.[10] Plaintiffs state that they “believed themselves to have a profit-sharing agreement (in principle, if not necessarily in writing)” regarding the Brage operation, [11] and that this agreement would “serve as a template for future profit-sharing agreements, . . . including (without limitation) the ENSCO 80.”[12] Defendant allegedly did not timely execute the written profit-sharing agreements concerning the Brage and ENSCO 80.[13]

         Plaintiffs state that following defendant's failure to execute these agreements, they sent a repudiation letter requesting the return of the funds they had remitted to defendant.[14] Although defendant “proposed to forward a mutually executed copy of one of the underlying agreements, ”[15] defendant allegedly did not “return[] Plaintiffs' investment.”[16] Additionally, defendant has not scrapped either rig.[17] The vessels are allegedly at defendant's Denmark facility, but at the time of the complaint, the facility itself was not operational.[18]

         Plaintiffs filed a complaint[19] and amended complaint[20] in this Court seeking in the first instance return of their payment, the fruits of this investment, and damages for breach of agreement.[21] Defendant moved to dismiss the amended complaint in part.[22] Additionally, defendant filed counterclaims, [23] which plaintiff has moved to dismiss.[24] Defendant has also asked the Court to enjoin a parallel proceeding in Denmark.[25] The Court now addresses defendant's motion to dismiss.

         II. LEGAL STANDARD

         To overcome a Rule 12(b)(6) motion, a party must plead “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “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.” Id. A court must “accept all factual allegations in the complaint as true” and “must also draw all reasonable inferences in the plaintiff's favor.” Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009).

         A legally sufficient complaint must establish more than a “sheer possibility” that the party's claim is true. See Iqbal, 556 U.S. at 678. It need not contain “detailed factual allegations, ” but it must go beyond “‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action.'” See Id. (quoting Twombly, 550 U.S. at 555). In other words, “[t]he complaint (1) on its face (2) must contain enough factual matter (taken as true) (3) to raise a reasonable hope or expectation (4) that discovery will reveal relevant evidence of each element of a claim.” Lormand, 565 F.3d at 257 (citations omitted). The claim must be dismissed if there are insufficient factual allegations “to raise a right to relief above the speculative level, ” Twombly, 550 U.S. at 555, or if it is apparent from the face of the complaint that there is an insuperable bar to relief, see Jones v. Bock, 549 U.S. 199, 215 (2007).

         “In considering a motion to dismiss for failure to state a claim, a district court must limit itself to the contents of the pleadings, including attachments thereto.” Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000). “If, on a motion under Rule 12(b)(6) . . ., matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56.” Fed.R.Civ.P. 12(d). “Documents that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to her claim.” Causey v. Sewell Cadillac- Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004).

         III. DISCUSSION

         Defendant moves to dismiss three of the five counts in plaintiffs' amended complaint: Count Two for conversion, Count Four for recission of contract, and Count Five for unjust enrichment. The Court addresses each in turn.

         A. Conversion (Count Two)

         Defendant argues that plaintiffs have alleged insufficient facts to satisfy the elements of conversion.[26] Specifically, defendant contends that plaintiffs have not established any form of ownership over the property at issue.[27] Because the complaint states sufficient facts to establish a plausible ownership interest in the property by way of a joint venture, the Court rejects this argument.

         As an initial matter, the Louisiana “Civil Code itself does not identify causes of action for ‘conversion.'” Dual Drilling Co. v. Mills Equip. Invs., Inc., 721 So.2d 853, 856 (La. 1998). That said, “causes of action for conversion have been inferred from the Codal articles providing that the right of ownership, possession, and enjoyment of movables [is] protected by actions for the recovery of the movables themselves, actions for restitution of their value, and actions for damages.” Id. Here, plaintiffs sue “to recover either the Vessels, or compensation for their loss.”[28] To recover movables, a revendicatory action is available, under which “[t]he owner of a thing is entitled to recover it from anyone who possesses or detains it without right.” Gibbs v. Harris, 799 So.2d 665, 670 (La.App. 2 Cir. 2001) (quoting La. Civ. Code art. 526). To recover damages, “a delictual action . . . is available to an owner dispossessed as a result of an offense or quasi-offense or, in other words, a ‘tort.'” Dual Drilling Co., 721 So.2d at 857. Such a delictual action “is grounded on the unlawful interference with the ownership or possession of a movable and is frequently termed an action for ‘conversion' in Louisiana.” Id.

         In other words, under Louisiana law, “conversion consists of an act in derogation of plaintiff's possessory rights, and any wrongful exercise or assumption of authority over another's goods, depriving him of the possession, permanently or for an indefinite time, is a conversion.” Tubos de Acero de Mexico, S.A. v. Am. Int'l Inv. Corp., 292 F.3d 471, 479 (5th Cir. 2002) (quoting Quealy v. Paine, Webber, Jackson & Curtis, Inc., 475 So.2d 756, 760 (La. 1985)). Such an act can occur in a variety of ways:

1) possession is acquired in an unauthorized manner; 2) the chattel is removed from one place to another with the intent to exercise control over it; 3) possession of the chattel is transferred without authority; 4) possession is withheld from the owner or possessor; 5) the chattel is altered or destroyed; 6) the chattel is used improperly; or 7) ownership is asserted over the chattel.

Dual Drilling Co., 721 So.2d at 857. Generally, though, prevailing on a conversion claim requires a plaintiff to “prove that (1) [he] owned [property] misused by [defendant]; (2) the misuse was inconsistent with [plaintiff's] rights of ownership; and (3) the misuse constituted a wrongful taking of the [property].” Chrysler Credit Corp. v. Perry Chrysler Plymouth, Inc., 783 F.2d 480, 484 (5th Cir. 1986).

         Defendant argues that plaintiffs have failed to allege facts sufficient to establish the “ownership” element of conversion.[29] Specifically, defendant suggests that plaintiff presents a legal conclusion that they are the “true owners” of the rigs at issue, but does not support this conclusion with sufficient facts.[30] According to defendant, plaintiffs may have helped finance the purchase of the property, but their “loan[]” did not confer any rights of ownership.[31]

         The complaint, though, avers that the parties formed a business relationship represented by a contract in which plaintiffs promised “to finance [MARS's] acquisition” of two offshore drilling units in exchange for MARS's agreement to scrap the rigs and share with plaintiffs the proceeds from the sale of the scrapped materials.[32] Plaintiffs allegedly advanced MARS $2, 882, 995 for the purchase of the two offshore drilling units under their agreement.[33] The profit-sharing agreement was not reduced to writing.[34] Based on these alleged facts, the complaint asserts that the plaintiffs are the “true owners” of the drilling units purchased.[35]

         The Court finds that these facts provide a facially plausible basis that plaintiffs had some rights of ownership in the rigs. In particular, the relationship described in the complaints bears the hallmarks of a joint venture. “Under Louisiana law, a joint venture requires: (1) ‘[a] contract between two or more persons'; (2) ‘[a] juridical entity or person is established'; (3) ‘[c]ontribution by all parties of either efforts or resources'; (4) contributions ‘in determinate proportions'; (5) a ‘joint effort'; (6) ‘a mutual risk [of] losses'; and (7) ‘a sharing of profits.'” Dragna v. KLLM Transp. Servs., L.L.C., 638 Fed.Appx. 314, 317 (5th Cir. 2016) (per curiam) (alterations in original) (citing Cajun Elec. Power Coop., Inc. v. McNamara, 452 So.2d 212, 215 (La.App. 1 Cir. 1984)).

         More simply, “[a] joint venture, like a partnership, is a juridical person, distinct from its partners, created by an agreement between two or more persons to combine their efforts or resources in determined proportions and to collaborate at mutual risk for their common profit or commercial benefit.” Scheffler v. Adams & Reese, LLP, 950 So.2d 641, 648 n.2 (La. 2007); see also La. Civ. Code art. 2801 (stating the same for the definition of a partnership). An agreement creating a joint venture can occur orally, and “may be inferred from the conduct of the parties and other circumstances.” Riddle v. Simmons, 589 So.2d 89, 92 (La.App. 2 Cir. 1991); see also Cajun Elec., 452 So.2d at 216 (“There are no hard and fast legal rules fixing the requisites for a joint adventure . . . .”).

         Here, plaintiffs alleged that the parties made an “agreement”[36]whereby plaintiffs would provide resources in the form of “funds, ”[37]defendants would apply their efforts in the form of “the actual scrapping of the rigs, ”[38] and both would “share the proceeds.”[39] Plaintiffs have therefore pleaded sufficient facts to allow the Court to infer, for the purposes of a motion to dismiss, that a joint venture existed.

         “Since the essential elements of a joint venture and a partnership are the same, joint ventures are generally governed by partnership law.” Broadmoor, L.L.C. v. Ernest N. Morial New Orleans Exhibition Hall Auth., 867 So.2d 651, 663 (La. 2004); see also Cajun Elec., 452 So.2d at 215.[40]Under Louisiana partnership law, creating a partnership requires that “the property or stock of the enterprise must form a community of goods in which each party has a proprietary interest.” Bulot v. Welch, No. 15-1158, 2016 WL 3365354, at *3 (E.D. La. June 16, 2016) (quoting Darden v. Cox, 123 So.2d 68, 71 (La. 1960)). As a result, wherever a partnership exists, the partners have a proprietary interest in the partnership's property. Put another way, a partner has the interest of an “owner.” See Proprietary Interest, Black's Law Dictionary (11th ed. 2019).

         That said, property can be used in a partnership or joint venture, but owned by only one of the parties. See Hayes v. Muller, 158 So.2d 191, 195 (La. 1963). The parties “do not have to be co-owners of property used in the business.” Id. (emphasis added). In other words, “it may not be clear whether property used extensively in a partnership business has actually become the property of the partnership itself, or whether instead, the original owner of the property has retained its ownership and merely contributed to the partnership its use.” 7 Glenn G. Morris & Wendell H. Holmes, Louisiana Civil Law Treatise, Business Organizations § 3:6 (2d ed. June 2019 update). The test, therefore, is whether “the behavior of a partner has caused his partners reasonably to conclude that an item of property has been contributed to the partnership.” Id.

         Here, plaintiffs have raised in their complaint sufficient facts to state a plausible claim that they reasonably concluded the rigs had been contributed to the partnership. Plaintiffs plead that the “contemplated purpose” of the venture included “purchas[ing] . . . platform drilling rigs.”[41] To this end, “[p]laintiffs agreed to provide funds to finance the acquisition of two offshore drilling units from third parties.”[42] And the parties made plans regarding any rigs “they might acquire”[43] Indeed, plaintiffs allege that their draft profit-sharing agreement “described Defendant's contractual relationship / obligations as ‘partnering with [Plaintiffs] in the acquisition of certain specific assets [. . .] to share the profits from the scrapping of those assets. . . .”[44]

         Further, even if the sales agreements with third parties called for defendant to conduct the actual purchase of the rigs, [45] defendant's subsequent “demand that Plaintiffs advance MARS the . . . purchase price” for one rig, [46] supports plaintiff's reasonable conclusion that any such purchase was part and parcel of the parties' joint venture. Overall, therefore, plaintiff has pleaded sufficient facts at the motion to dismiss stage to state a plausible claim of an ownership interest in the rigs. Consequently, the Court denies the motion to dismiss the conversion claim.

         B. Recission of Contract (Count Four)

         Defendant argues that plaintiffs have failed to state a claim for recission of contract, because any allegedly delayed performance would not constitute impossibility.[47] Defendant is correct, and ...


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