Opinion
Civil Action 19-cv-02541-PAB-SKC
09-13-2022
TITAN FEEDING, LLC, Plaintifv. v. COREY CATTLE COMPANY, LLC, JON COREY, and DANTES HOLDINGS, LLC, Defendants.
ORDER
PHILIP A. BRIMMER CHIEF UNITED STATES DISTRICT JUDGE
This matter is before the Court on Plaintiff's Second Motion to Dismiss Third and Fourth Counterclaims [Docket No. 119]. Defendant Corey Cattle Company, LLC (“Corey Cattle”) responded, Docket No. 128, and plaintiff replied. Docket No. 133.
I. BACKGROUND
This action arises, in part, due to plaintiff's alleged breach of contract with Corey Cattle and Corey Cattle's claim that plaintiff wrongfully controlled certain proceeds of an auction of Corey Cattle's cattle. Docket No. 59 at 17, ¶¶ 3-4. On November 4, 2018, plaintiff and Corey Cattle entered into agreements (the “Cattle Custom Feeding Agreements” or the “Agreements”) under which Corey Cattle was to receive from plaintiff 3,385 head of steers and 2,478 head of heifers. Id. at 18, ¶¶ 10-11. The Agreements required Corey Cattle to “background feed” the cattle, which plaintiff would pay for by the pound of weight gain. Id. at 19, ¶¶ 13-14. Corey Cattle housed and fed the cattle and increased the cattle's weight as the Agreements required. Id. at 19, ¶ 15. According to Corey Cattle, plaintiff refused to pay for the weight gain and owes Corey Cattle $369,079.30 pursuant to the Agreements. Id., ¶¶ 16-17.
On September 17, 2019, ‘R' Livestock Connection, LLC (“R Livestock”) sold certain Corey Cattle-branded cattle at an auction. Id., ¶ 18. Corey Cattle states that it “was informed” that R Livestock issued a check for $36,800, for the proceeds of the auction, made payable to both Corey Cattle and plaintiff. Id., ¶ 19. R Livestock included plaintiff as a payee on the joint check after discovering certain of plaintiff's Uniform Commercial Code (“UCC”) filings. Id., ¶ 20. Plaintiff made three “bailee/bailor” filings in which plaintiff stated that it was the “owner of certain cattle,” which cattle were identified on attachments to the filings. Id., ¶ 21.
When Corey Cattle learned that R Livestock had named plaintiff as a payee on the check, Corey Cattle contacted R Livestock to explain that the Corey Cattle-branded cattle sold at the auction were not the same cattle as those that plaintiff identified on the UCC filing, did not have plaintiff's branding, and were not owned by plaintiff. Id. at 20, ¶ 22. Corey Cattle believes that R Livestock relayed that information to plaintiff. Id., ¶ 23. Corey Cattle alleges that plaintiff “instructed R Livestock not to remove [plaintiff's] name from the check.” Id. R Livestock declined to re-issue the check due to plaintiff's “instructions” that R Livestock should not remove plaintiff's name, based on plaintiff's UCC filings. Id., ¶ 24. As a result, Corey Cattle alleges that it has been deprived of the proceeds of the sale of its cattle at auction. Id., ¶ 25.
Corey Cattle brings four counterclaims against plaintiff: (1) breach of contract, or, alternatively (2) unjust enrichment; (3) civil theft; (4) violation of Utah Code Ann. § 70A-9a-607. Id. at 20-22, ¶¶ 26-43.Plaintiff moves to dismiss Corey Cattle's third and fourth counterclaims. See generally Docket No. 119.
II. LEGAL STANDARD
To survive a motion to dismiss under Rule 12(b)(6), a complaint must allege enough factual matter that, taken as true, makes the plaintiff's “claim to relief . . . plausible on its face.” Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The ‘plausibility' standard requires that relief must plausibly follow from the facts alleged, not that the facts themselves be plausible.” RE/MAX, LLC v. Quicken Loans Inc., 295 F.Supp.3d 1163, 1168 (D. Colo. 2018) (citing Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008)). Generally, “[s]pecific facts are not necessary; the statement need only ‘give the defendant fair notice of what the claim is and the grounds upon which it rests.'” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Twombly, 550 U.S. at 555) (alterations omitted). However, a plaintiff still must provide “supporting factual averments” with his allegations. Cory v. Allstate Ins., 583 F.3d 1240, 1244 (10th Cir. 2009) (“[C]onclusory allegations without supporting factual averments are insufficient to state a claim on which relief can be based.” (citation omitted)). Otherwise, the court need not accept conclusory allegations. Moffet v. Halliburton Energy Servs., Inc., 291 F.3d 1227, 1232 (10th Cir. 2002). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -but it has not shown - that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (quotations and alterations omitted); see also Khalik, 671 F.3d at 1190 (“A plaintiff must nudge [his] claims across the line from conceivable to plausible in order to survive a motion to dismiss.” (quoting Twombly, 550 U.S. at 570)). If a complaint's allegations are “so general that they encompass a wide swath of conduct, much of it innocent,” then plaintiff has not stated a plausible claim. Khalik, 671 F.3d at 1191 (quotations omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.” Bryson, 534 F.3d at 1286 (alterations omitted).
III. ANALYSIS
Plaintiff moves to dismiss Corey Cattle's civil theft and UCC counterclaims. See generally Docket No. 119.
A. Civil Theft Counterclaim
Under Colorado law, a person commits civil theft when he or she “‘knowingly obtains, retains, or exercises control over anything of value of another without authorization or by threat or deception,' and acts intentionally or knowingly in ways that deprive the other person of the property permanently.” Van Rees v. Unleaded Software, Inc., 373 P.3d 603, 608 (Colo. 2016) (quoting Colo. Rev. Stat. § 18-4-401(1)). A person must have “the specific intent to permanently deprive the owner of the benefit of property.” Id. In an action for civil theft, a person may maintain an action to recover “property obtained by theft, robbery, or burglary.” Colo. Rev. Stat. § 18-4-405; see Itin v. Ungar, 17 P.3d 129, 134 (Colo. 2000) (holding that the statute provides an owner of property with a private remedy that “requires proof of a specified criminal act”). The statute allows for the recovery of only the stolen property itself, not “property or proceeds for which the stolen property may have been exchanged.” In re Marriage of Allen, 724 P.2d 651, 657 (Colo. 1986); see also DTC Energy Grp., Inc. v. Hirschfeld, 420 F.Supp.3d 1163, 1179 (D. Colo. 2019).
Corey Cattle alleges that plaintiff knew that Corey Cattle, not plaintiff, owned the cattle sold at the R Livestock auction. Docket No. 59 at 21, ¶ 36. Corey Cattle states that the cattle had Corey Cattle's branding, not plaintiff's, and were not the same cattle that plaintiff listed on its UCC bailee/bailor filings. Id. By refusing to allow R Livestock to remove plaintiff's name from the check, Corey Cattle alleges that plaintiff “knowingly obtained and exercised unauthorized control” over the auction's proceeds, which belong to Corey Cattle. Id. at 22, ¶ 37. Corey Cattle alleges that plaintiff has acted with a “specific intent and purpose to permanently deprive” Corey Cattle of the auction's proceeds. Id., ¶ 38.
First, plaintiff argues that the civil theft counterclaim must be dismissed because Corey Cattle does not allege that plaintiff knowingly obtained control over the cattle. Docket No. 119 at 3. Plaintiff's argument misunderstands Corey Cattle's counterclaim. Corey Cattle does not allege that plaintiff wrongfully obtained the cattle, but rather that plaintiff wrongfully obtained the proceeds of the R Livestock auction. See Docket No. 59 at 22, ¶¶ 37-38 (“By refusing to allow R Livestock to remove [plaintiff's] name from the check to [Corey Cattle], [plaintiff] knowingly obtained and exercised unauthorized control over the proceeds from the auction which rightfully belong to [Corey Cattle].”).Thus, plaintiff's argument that there is “no basis to conclude” that plaintiff “ever obtained” the cattle, see Docket No. 119 at 3 (quoting DTC Energy, 420 F.Supp.3d at 1180), misses the point. Similarly, plaintiff's argument that it never “touched” the check, see id., is unconvincing because Corey Cattle alleges that R Livestock issued a joint check that listed plaintiff as a payee. Although the answer does not allege that the joint check requires both payees to endorse it, assuming that requirement, Corey Cattle has plausibly alleged that plaintiff has knowingly obtained control over the proceeds of the auction because plaintiff controls the funds. Moreover, Corey Cattle has alleged that plaintiff's control was wrongful, as plaintiff knew that the cattle sold at the auction belonged to Corey Cattle, not plaintiff. See Docket No. 59 at 21, ¶ 36. Accepting the allegations as true, Corey Cattle has plausibly alleged that plaintiff had no entitlement to the auction's proceeds and that plaintiff's control over the proceeds was wrongful.
Second, plaintiff argues that the answer does not allege that plaintiff had a specific intent to permanently deprive Corey Cattle of the property. Docket No. 119 at 4. Plaintiff is mistaken. Corey Cattle alleges that, because plaintiff knew that it had no entitlement to the proceeds of the auction and because the cattle that R Livestock sold were Corey Cattle's, not plaintiff's, plaintiff acted with specific intent to deprive Corey Cattle of the auction's proceeds when plaintiff instructed R Livestock not to issue a new check made out to Corey Cattle alone. Docket No. 59 at 20, ¶¶ 22-23. These allegations are sufficient since Corey Cattle has alleged that plaintiff acted with knowledge that it was not entitled to the proceeds from the auction.
Third, plaintiff argues that a “pleading fails to state a civil theft claim when it claims a third party deprived the plaintiff of property and ‘does not explain why [the defendant] had any obligation to prevent the deprivation.'” Docket No. 119 at 4. Plaintiff purports to rely on DTC Energy, see id., yet the language plaintiff quotes does not appear in that decision. Moreover, DTC Energy is distinguishable. In that case, the plaintiff alleged that it provided a housing allowance for its out-of-state employees, yet the defendant, who acted as a middleman between the employees and landlords, charged the employees far more than he paid the landlords. 420 F.Supp.3d at 1180. The employees then sought reimbursement from plaintiff. Id. The Court held that the plaintiff failed to state a civil theft claim because there was no explanation why the defendant had any obligation to charge the plaintiff's employees the amount of rent equivalent to what the defendant presumably paid to the landlords. Id. Here, however, Corey Cattle alleges that plaintiff itself, not a middleman, has wrongfully exercised control over Corey Cattle's property, namely, proceeds from the auction, to which plaintiff is not entitled.
Finally, plaintiff argues that a civil theft claim permits recovery of the stolen property itself, but not the proceeds for which the stolen property may have been exchanged. Docket No. 119 at 4 (quoting DTC Energy, 420 F.Supp.3d at 1179). Again, plaintiff misreads the counterclaim as alleging that plaintiff wrongfully obtained the cattle, rather than the check or proceeds. Corey Cattle alleges that it has the sole interest in the proceeds from the auction, given that its cattle were sold, not plaintiff's. Because Corey Cattle alleges that plaintiff “knowingly obtains, retains, or exercises control over anything of value of another without authorization” in the proceeds of the auction, Colo. Rev. Stat. § 18-4-401(1), it has plausibly stated a civil theft claim against plaintiff, and the Court will deny plaintiff's motion to dismiss this counterclaim.
B. UCC Counterclaim
The UCC provides, in relevant part, (c) A secured party shall proceed in a commercially reasonable manner if the secured party:
(1) undertakes to collect from or enforce an obligation of an account debtor or other person obligated on collateral; and
(2) is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor or a secondary obligor.UCC § 9-607(c); Colo. Rev. Stat. 4-9-607(c); Utah Code Ann. § 70A-9a-607(3).
A “secured party” is
(A) a person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding;
(B) a person that holds an agricultural lien;
(C) a consignor;
(D) a person to which accounts, chattel paper, payment intangibles, or
promissory notes have been sold;
(E) a trustee, indenture trustee, agent, collateral agent, or other representative in whose favor a security interest or agricultural lien is created or provided for; or
(F) a person that holds a security interest....UCC § 9-102(a)(73); Colo. Rev. Stat. 4-9-102(a)(75); Utah Code Ann. § 70A-9a-102(73). A “security interest” requires “attachment,” which occurs when, as relevant here, the debtor “has authenticated a security agreement that provides a description of the collateral.” UCC § 9-203(b)(3)(A); Colo. Rev. Stat. 4-9-203(b)(3)(A); Utah Code Ann. § 70A-9a-203(2)(c)(i).
In Corey Cattle's UCC counterclaim, it alleges that plaintiff filed three UCC filings, which plaintiff described as “bailee/bailor filings,” declaring that plaintiff was the owner of certain cattle. Docket No. 59 at 19, ¶ 21. Corey Cattle alleges that plaintiff's filings created a security interest pursuant to the UCC. Id. at 22, ¶ 40. Because plaintiff is a secured party, Corey Cattle alleges that plaintiff must proceed in a “commercially reasonable manner” in its enforcement of a security interest and “may not exercise its right under the UCC to take collateral or proceeds it is otherwise not lawfully entitled to take or encumber.” Id., ¶ 41. Corey Cattle asserts that plaintiff acted in a commercially unreasonable manner by asserting its right to be a payee on the R Livestock check. Id., ¶ 42.
Plaintiff moves to dismiss this counterclaim, arguing that Corey Cattle failed to plausibly allege that it meets any of the definitions of “secured party” enumerated in Colo. Rev. Stat. 4-9-102(75). Docket No. 119 at 6. Plaintiff argues that the counterclaim does not allege that plaintiff authenticated a security interest, which means that any purported security interest has not attached and, consequently, any argument that plaintiff must comply with the UCC's secured party obligations fails. Id.
Plaintiff is correct. Corey Cattle's counterclaim does not explain why plaintiff is a secured party. First, there is no allegation that the parties ever executed a security agreement and there is no mention of the other descriptors in UCC § 9-102(73); Colo. Rev. Stat. 4-9-102(75); Utah Code Ann. § 70A-9a-102(73), besides an assertion that plaintiff's “UCC filing created a security interest.” See Docket No. 59 at 22, ¶ 40. That allegation is conclusory, and the Court does not accept it. See Cory, 583 F.3d at 1244; Moffet, 291 F.3d at 1232.
In response, Corey Cattle asserts that plaintiff's filings meet the statutory definition of “security agreement” because the filings “memorializ[ed] the terms” of plaintiff's contract with Corey Cattle. Docket No. 128 at 6. That allegation, however, does not appear in Corey Cattle's answer and counterclaim, and Corey Cattle may not attempt to amend its answer through its response to plaintiff's motion to dismiss. Cf. Abdulina v. Eberl's Temp. Servs., Inc., 79 F.Supp.3d 1201, 1206 (D. Colo. 2015) (citing Jojola v. Chavez, 55 F.3d 488, 494 (10th Cir. 1995)). Moreover, the filings do not support such an allegation. See generally Docket No. 59-1.
Second, a security interest is not effective unless it is attached, which requires the debtor to have authenticated or signed the agreement. See, e.g., J.R. Simplot Co. v. Sales King Int'l, Inc., 17 P.3d 1100, 1105 (Utah 2000) (“In order to attach, the debtor must have signed a security agreement containing a description of the collateral.”); see also UCC § 9-203(b)(3)(a); Colo. Rev. Stat. 4-9-203(b)(3)(A); Utah Code Ann. § 70A-9a-203(2)(c)(i). Plaintiff's filings that Corey Cattle attached to its answer do not reflect a signature or authentication for Corey Cattle. See generally Docket No. 59-1. The only allegations regarding the creation of a security interest are conclusory.
Third, there is no allegation that Corey Cattle is an “account debtor,” as the UCC requires. See UCC § 9-607(c)(1); Colo. Rev. Stat. § 4-9-607(c)(1); Utah Code Ann. § 70A-9a-607(3)(a). An “account debtor” is a “person obligated on an account, chattel paper, or general intangible.” UCC § 9-102(a)(3); Colo. Rev. Stat. § 4-9-102(a)(3); Utah Code Ann. § 70A-9a-102(3)(a). Although the filings list Corey Cattle as the “debtor,” Corey Cattle's answer contains no relevant allegation on this issue. Corey Cattle, therefore, has failed to plausibly allege that plaintiff has any obligation under the UCC. Accordingly, the Court will dismiss this claim.
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that Plaintiff's Second Motion to Dismiss Third and Fourth Counterclaims [Docket No. 119] is GRANTED in part and DENIED in part. It is further
ORDERED that defendant Corey Cattle Company, LLC's fourth counterclaim is DISMISSED with prejudice.