Baltequera Inc. v. Bell-Carter Foods, LLC

Background

The court considered defendants Bell-Carter Foods, LLC, Bell-Carter Group, Inc., Timothy T. Carter, and Paul Adcock’s motion to dismiss claims brought on behalf of Dcoop, S. Coop. And. and Olives Way LLC. The court treated the complaint’s factual allegations as true for purposes of the motion.

The complaint alleged that, during negotiations in May 2018, Carter and Adcock provided Dcoop and Olives Way with a spreadsheet stating that Bell-Carter Foods’ inventory was properly valued at $140 million. In July 2018, Carter sent them a financial forecast projecting earnings before interest, taxes, depreciation, and amortization of $4.4 million, $9.2 million, $14.1 million, and $15.2 million for 2018 through 2021. Plaintiffs alleged that these statements were not based on reasonable assumptions and were made knowingly, recklessly, or without reasonable grounds.

Dcoop and Olives Way allegedly relied on the statements when they created and funded Baltequera to invest in Bell-Carter Foods. On August 21, 2018, Baltequera paid $15 million for a 20% membership interest in Bell-Carter Foods. Plaintiffs alleged that Bell-Carter Foods’ inventory was later reported at much lower values, its actual earnings differed substantially from the projections, and defendants asserted a right to redeem Baltequera’s interest while indicating that it had almost no value.

The complaint asserted twelve claims, including federal securities claims, common-law misrepresentation and concealment claims, California securities-law claims, rescission, unfair competition, civil conspiracy, and aiding and abetting.

Standing

Defendants made a factual challenge to Article III standing, arguing that Dcoop and Olives Way had not signed the purchase or operating agreements and therefore had no legally cognizable injury. The court denied this part of the motion. It held that Dcoop and Olives Way adequately alleged a direct injury because the defendants allegedly made the false statements directly to them, they relied on those statements to create and fund Baltequera, and their investment allegedly became virtually worthless.

Claims that survived dismissal

The court denied dismissal of the first and second claims under Section 10(b), Securities and Exchange Commission Rule 10b-5, and Section 20(b) of the Securities Exchange Act. Although defendants argued that only actual purchasers or sellers of securities may bring the federal securities claims, the court found that Dcoop and Olives Way sufficiently alleged that they were purchasers for this purpose because they relied on defendants’ statements, created and funded Baltequera to make the investment, and suffered a loss from the purchase.

The court also denied dismissal of the third, fourth, and fifth claims for intentional misrepresentation, negligent misrepresentation, and fraudulent concealment. It concluded that these claims were based on statements allegedly made directly to Dcoop and Olives Way before the purchase agreement, rather than merely on harm to Baltequera or on the contractual relationship.

The court denied dismissal of the seventh claim under California Corporations Code Section 25400 because contractual privity was not required for that claim. It also denied dismissal of the tenth, eleventh, and twelfth claims to the extent they were based on the first through fifth and seventh claims.

Claims dismissed

The court granted dismissal of the sixth claim under California Corporations Code Section 25401, concluding that a private claim under that provision requires privity of contract and that only Baltequera signed the purchase agreement. Dcoop and Olives Way therefore lacked statutory standing for that claim.

The court granted dismissal of the eighth claim under Section 25403 because that provision does not create a private cause of action. It also granted dismissal of the ninth claim for rescission because Dcoop and Olives Way were not parties to the purchase agreement and thus had no contract to rescind.

Because the tenth claim for unfair competition, and the eleventh and twelfth claims for civil conspiracy and aiding and abetting, were pleaded as derivative of the other claims, the court granted dismissal of those claims to the extent they were based on the dismissed sixth, eighth, and ninth claims. The court denied dismissal of them to the extent they were based on the first through fifth and seventh claims.

Disposition

Judge Maxine M. Chesney ordered that defendants’ motion to dismiss was granted in part and denied in part. The motion was granted as to the sixth, eighth, and ninth claims asserted on behalf of Dcoop and Olives Way; granted as to the tenth, eleventh, and twelfth claims insofar as they were based on the sixth, eighth, and ninth claims; and denied in all other respects.