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LLC v. Mattress Warehouse Inc.

United States District Court, E.D. Virginia, Newport News Division

October 16, 2014

VA C 12266 JEFFERSON, LLC, et. al., Plaintiffs,
v.
MATTRESS WAREHOUSE INC., et al., Defendants.

OPINION AND ORDER

ROBERT G. DOUMAR, Senior District Judge.

This matter comes before the Court upon a Motion to Dismiss by Mattress Warehouse Inc. AND Mattress Warehouse of Newport News, LLC (collectively "Defendants" or "Mattress Warehouse"). ECF No. 21. For the reasons herein, Defendants' Motion to Dismiss is GRANTED and Plaintiffs' Amended Complaint is DISMISSED with LEAVE TO AMEND. ECF. Nos. 20, 21.

I. PROCEDURAL BACKGROUND

On March 27, 2014, Plaintiffs (••Jefferson") filed a Complaint against Defendants, asking the Court to find that Mattress Warehouse of Newport News ("MWNN") is an alter-ego of Mattress Warehouse, Inc. ('"MWI") (Count I), breach of contract (Count II), and breach of implied contract (Count III).

On May 23, 2014, Mattress Warehouse filed a Motion to Dismiss for Failure to State a Claim. ECF No. 6. It filed an Answer to Jefferson's Complaint on the same date. ECF No. 10. On June 6, 2014, Jefferson filed a Motion to Amend/Correct its Complaint, which the Court granted on July 7, 2014. ECF Nos. 14, 19. In the same Order, the Court took Mattress Warehouse's Motion to Dismiss under advisement pending its mootness. ECF No. 19.

On July 22, 2014, Jefferson filed an Amended Complaint, asking the Court to find that MWNN is an alter-ego of MWI (Count I), breach of contract (Count II), and breach of implied contract (Count III). ECF No. 20. On August 4, 2014, Mattress Warehouse filed a Motion to Dismiss for Failure to State a Claim and an Answer to Jefferson's Complaint. ECF Nos. 21, 23. On September 5, 2014, Mattress Warehouse requested a hearing on its Motion to Dismiss, which the Court granted. ECF No. 27. The hearing occurred on October 6, 2014. ECF No. 29. At this hearing, Jefferson moved to amend its Amended Complaint.

II. FACTS ALLEGED IN AMENDED COMPLAINT

The following summarizes the facts and inferences alleged in Plaintiffs' Amended Complaint. These are Plaintiffs' allegations, not the Court's findings of fact. For the purposes of the instant Motion to Dismiss, the Court construes the factual allegations "in the light most favorable to [P]laintiff[s]." Schatz v. Rosenberg , 943 F.2d 485, 489 (4th Cir. 1991).

On November 26, 2003, MWNN entered into a 15 year lease ("Lease") with Interface Properties, Inc. ("Interface") to lease the property located at 12266 Jefferson Avenue, Newport News ("Property"). Pls.' Am. Compl., ECF No. 20 at ¶¶ 9, 13. As part of the lease, MWI executed a guaranty of MWNN's obligations under the Lease ("Guaranty") for a term of 3 years. Id. at ¶ 10. Interface was induced to enter into the Lease by MWI's Guaranty. Id. at ¶ 11.

MWNN failed to make timely payments throughout the lease. Id. at ¶ 28. On April 29, 2013, Plaintiffs sent Defendants a Notice of Default and demand for payment of all outstanding amounts due. Id. at ¶ 34. In or about June 2013, Defendants completely stopped making payments for the Property. Id. at ¶ 35. At or about that same time, MWNN failed to pay its annual fee to the Virginia State Corporation Commission, causing the agency to cancel MWNN's authority to conduct business in Virginia. Id. at ¶ 36. At some unknown point in time, MWNN vacated the Property without warning or notice of any kind. Id. at ¶ 37. Defendants failed to cure the defaults and refused to pay the amounts due. Id. at ¶ 38. Defendants owe at least $1, 382, 126.00 under the Lease. Id. at ¶ 40.

The Lease and Guaranty were both signed by John Ahem, who is the managing member of MWNN and the principal owner of MWI. Id. at ¶ 14. MWNN and MWI have identical principal addresses, identical owners, and identical contact information. Id. at ¶ 44. Throughout the entire tenancy, monthly rent payments were made directly by MWI, drawn on MWI's corporate bank accounts, and MWI claimed the rent payments on its Federal Income Tax forms. Id. at ¶ 16. MWNN was undercapitalized and completely financially dependent on MWI. Id. at ¶¶ 17, 18. As of August 2012, Plaintiffs were directed to correspond directly with MWI corporate employees. Id. at ¶ 33. MWNN's existence as a Virginia business entity closely tracks with the term of the lease. Id. at ¶ 20. MWNN voluntarily cancelled its status as a Virginia limited liability company ("LLC") during the same month it defaulted on the Lease. Id . MWI has set up more than fifty LLCs associated with its store locations in Virginia, and at least 19 LLCs have been voluntarily cancelled, to the detriment of creditors. Id. at ¶ 24.

III. MOTION TO DISMISS STANDARD

Federal Rule of Civil Procedure 8(a)(2) mandates that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief, ' in order to give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555 (2007). This directive has not been interpreted to require "detailed factual allegations." Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009). It does, however, require "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id . (citing Twombly , 550 U.S. at 556). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements" are insufficient to allow such an inference. Id . (citing Twombly , 550 U.S. at 555).

The Court's gatekeeper duties are especially important as the cost of litigation continues to rise. As the Supreme Court held in Twombly, "it is self-evident that the problem of discovery abuse cannot be solved by careful scrutiny of evidence at the summary judgment state." Twombly , 550 U.S. at 559. Because of this, the Court must be diligent at the pleading stage. It is only by taking care to require that the factual allegations support each element of each claim "that we can hope to avoid the potentially ...


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