8th Circuit: Ronnoco Coffee not on hook for debts after sale

A panel of the 8th U.S. Circuit Court of Appeals ruled Sept. 19 that St. Louis-based Ronnoco Coffee, which in 2015 bought an unrelated competitor’s assets at a bank foreclosure sale, had no successor liability for inventory purchases the competitor had made before the sale.

“We’re pleased that the 8th Circuit affirmed summary judgment for our clients in this case,” said John D. Comerford, a partner at Dowd Bennett and counsel for Ronnoco.

Westfeldt Brothers Inc., a coffee supplier in New Orleans, was the opposing party in this case and had alleged successor liability and other claims against Ronnoco. Westfeldt was represented by Tarak Anada and Jefferson R. Tillery of Jones Walker and David Coffman, a partner at Thompson Coburn. They did not respond to a request for comment.

In 2010, Westfeldt began selling coffee to an Iowa company, U.S. Roasterie Inc., according to the opinion. By August 2012, U.S. Roasterie had racked up $3 million in unpaid bills to Westfeldt, but Westfeldt kept selling the coffee on unsecured credit.

Meanwhile, U.S. Roasterie had $5 million in secured loans at Great Western Bank that in 2014 were reaching maturity. The bank declined to extend the term of the loans, demanded payment in full and foreclosed when U.S. Roasterie failed to comply.

Ronnoco was watching this situation because it had an interest in acquiring U.S. Roasterie, but after learning of U.S. Roasterie’s shaky financial situation, decided not to purchase the company’s assets directly. Rather, at the bank’s foreclosure sale, Ronnoco bought U.S. Roasterie’s collateral through an affiliated limited liability company.

“It is undisputed,” the panel found, “this was a commercially reasonable transaction.”

That transaction left Westfeldt still waiting on payment for $2.69 million in unsecured debt. In the foreclosure sale agreement, Ronnoco and its affiliate expressly did not assume U.S. Roasterie’s liabilities or obligations. Ronnoco did, however, continue to roast coffee at U.S. Roasterie’s Iowa facility, retained most of its employees and kept on two corporate officers for part of the first year.

Ronnoco filed for a declaratory judgment to establish that it was not on the hook for unpaid bills to Westfeldt. Westfeldt filed counterclaims alleging successor liability, unfair trade practices, conversion and unjust enrichment, among other claims.

U.S. District Judge Jean Hamilton entered a summary judgment dismissing Westfeldt’s counterclaims, finding that the Louisiana coffee supplier had not produced evidence that the foreclosure and asset sale were anything other than above-board transactions. Westfeldt appealed to the 8th Circuit, arguing that on the successor liability counterclaim, Hamilton had reached this conclusion based on Iowa law when she should have applied Louisiana law.

“On the facts of this case,” wrote Judge James B. Loken, with Roger W. Wollman and David R. Stras concurring, “we conclude that the result would be the same under the law of both states — no successor liability.”

The panel took note of Westfeldt’s theory that Ronnoco, the bank and U.S. Roasterie had “developed a plan” in which the latter would stop servicing its debt so the bank could foreclose, thereby placing assets beyond the reach of creditors. Yet there was no evidence in the record to support that theory, the panel found.

“The essential contrary fact is that Ronnoco purchased USR’s assets, not from USR, but from Great Western,” the panel concluded, affirming Hamilton’s judgment. “There is nothing inherently wrongful or fraudulent in purchasing assets at a foreclosure sale, free from encumbrances, rather than directly purchasing the assets.”

Said Comerford, Ronnoco’s lawyer: “The district court judge, Jean Hamilton, had a very well-thought-out and reasoned opinion that disposed of all of Westfeldt Brothers’ claims, and all of that was upheld on appeal.”

The case is Ronnoco Coffee LLC et al. v. Westfeldt Brothers Inc., 18-1498.