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ARA, Inc. v. Waste Management National Services, Inc.

United States District Court, D. Minnesota

October 25, 2017

ARA, INC., Plaintiff,
v.
WASTE MANAGEMENT NATIONAL SERVICES, INC., Defendant.

          Daniel J. Cragg, Lara R. Sandberg, and Vince C. Reuter, Eckland & Blando, Counsel for Plaintiff.

          Holli Pryor-Baze and Kallie A. Gallagher, Akin Gump Strauss Hauer & Feld, and Stephen P. Laitinen, Larson King, LLP, Counsel for Defendant.

          MEMORANDUM OF LAW & ORDER

          Michael J. Davis United States District Court

         I. INTRODUCTION

         This matter is before the Court on Defendant's Motion to Dismiss Plaintiff's Second Amended Complaint Pursuant to Federal Rule of Civil Procedure 12(b)(6). [Docket No. 44] Because the UCC sections on which Counts 1 and 2 are based do not provide an independent cause of action for the secured party, Defendant's motion is granted.

         II. BACKGROUND

         A. Factual Background

         Plaintiff ARA, Inc., (“ARA”) is a Minnesota corporation with its principal place of business in Minnesota. (Second Amended Complaint (“SAC”) ¶ 1.)

         Defendant Waste Management National Services, Inc., (“Waste Management”) is a Delaware corporation with its principal place of business in Texas that provides waste removal and recycling services throughout the United States, including Minnesota. (SAC ¶ 2.)

         JG Staffing, Inc., (“JG Staffing”) was a Texas corporation with its principal place of business in Arizona. (SAC ¶ 8; SAC, Ex. B Factoring Agreement at 1.) It was controlled by Jeff and Michele Griffin. (SAC ¶ 8.)

         On December 29, 2009, JG Staffing entered into a Master Agreement with Waste Management, under which JG Staffing provided temporary labor personnel and services to Waste Management and Waste Management agreed to reimburse JG Staffing through Waste Management's payment agent. (SAC ¶ 8; SAC, Ex. A.)

         On May 4, 2011, JG Staffing entered into a factoring agreement with ARA. (SAC ¶ 9; SAC, Ex. B, Factoring Agreement.) ARA purchased JG Staffing's invoices at a discount in exchange for the right to receive payment from the customer on those invoices. (SAC ¶ 9.) The factoring agreement granted ARA a security interest in JG Staffing's business assets to secure repayment of the invoices and authorized ARA to file a lien under the UCC to perfect its security interest. (Id.)

         On June 28, 2011, ARA filed a UCC financing statement with the Arizona Secretary of State (SAC, Ex. C), and on July 25, 2012, it filed a UCC financing statement with the Texas Secretary of State (SAC, Ex. D). (SAC ¶ 10.) Both financing statements name ARA as the secured party and JG Staffing as the debtor, and they describe the covered collateral, which includes “[a]ll present and future accounts receivable, contract rights and other obligations for payment of money” owing to JG Staffing, including “all accounts and general intangibles” and “all proceeds of the foregoing.” (SAC, Exs. C-D; SAC ¶ 11.)

         Until 2015, ARA purchased millions of dollars of Waste Management invoices from JG Staffing. (SAC ¶ 12.) Waste Management, through its payment agent, paid those invoices from JG Staffing directly to ARA. (Id.)

         In September 2014, JG Staffing asked Waste Management to make two payments directly to JG Staffing's account. (SAC ¶ 13.) Waste Management knew that ARA owned JG Staffing's invoices and knew ARA had rights as an assignee and secured party. (Id.) Despite this knowledge, Waste Management issued the two payments directly to JG Staffing. (Id.) After the two September 2014 payments, Waste Management then resumed issuing payments to ARA. (Id.)

         In March 2015, ARA learned that JG Staffing had breached the factoring agreement with ARA. (SAC ¶ 14.) The day after ARA declared a material breach of the factoring agreement, the Griffins formed a new entity called Premium Placements, LLC (“Premium Placements”). (SAC ¶¶ 8, 15.) The Griffins transferred money, furniture, computers, and customer accounts, including the Waste Management account, from JG Staffing to Premium Placements. (Id. ¶ 15.) JG Staffing and Premium Placements offered the same business services, occupied the same offices, and used the same equipment and signs. (Id. ¶ 16.) ARA claims that the Griffins changed the name of their business entity from JG Staffing to Premium Placements and continued the business operations after transferring both customers and capital from JG Staffing to Premium Placements. (Id.)

         Waste Management issued payments for invoices from JG Staffing directly to JG Staffing. (SAC ¶ 17.) ARA contacted Waste Management and stated that ARA continued to own JG Staffing invoices and that JG Staffing owed ARA approximately $1 million and provided documentation to prove that ARA had a ...


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