MWI Veterinary Supply Co. v. Wotton et al

Filing 34

MEMORANDUM DECISION AND ORDER granting in part and denying in part 24 Plaintiff's Motion to Dismiss Defendant's Counterclaim. Defendants breach of contract counterclaim to the extent it is based upon the alleged failure to correctly cal culate pre-2012 earnout payments is STAYED. All other claims shall proceed in this litigation and are not stayed. Any amended counterclaim shall be filed within 30 days of this Order. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
MWI VETERINARY SUPPLY CO.,
Case No. 1:12-cv-00055-BLW
Plaintiff,
v.

MEMORANDUM DECISION AND
ORDER

HARROLD M WOTTON, III and
DARRROLL SOTTON,
Defendants.

INTRODUCTION
The Court has before it plaintiff MWI Veterinary Supply Co.’s Motion to Dismiss
Defendants’ Counterclaim (Dkt. 24). The Court has determined oral argument would not
significantly assist the decisional process and will decide the motions without a hearing.
For the reasons expressed below, the Court will grant the motion to dismiss the fraud
claim with leave to amend. The Court will also dismiss the wrongful termination and the
negligent misrepresentation claims, as the defendants do not oppose dismissal of these
claims. Finally, the Court will stay one aspect of the contract claim, as the parties agree it
should be arbitrated. The motion to dismiss will be denied in all other respects.

MEMORANDUM DECISION AND ORDER - 1

FACTS
Defendants and Counterclaimants Harold and Darroll Wotton are brothers. Harold
is a biomedical engineer. In 1996, he formed a business – Securos – that designed,
manufactured, and sold surgical implants and instruments for the veterinary orthopedic
market. Darroll is an accountant who works in the veterinary business. In 2003, Darrell
founded International Veterinary Distribution Network (which does business as “IVDN”)
“for the purpose of providing wholesale distribution services primarily to the veterinary
industry.” Shortly after forming IVDN, Darroll joined his brother at Securos as the
company accountant.
In June 2007, the Wottons sold Securos and IVDN to MWI Veterinary Supply Co.
They joined MWI as employees in charge of running MWI’s Securos division. The
Wottons allege they were fraudulently induced to sell their businesses to MWI based
upon John J. Francis’s (an employee of MWI) misrepresentations. Each of these
representations is detailed below. The gist of all the alleged misrepresentations, however,
is that Francis promised MWI would fully support and promote Securos’ business and
products within MWI, but failed to do so.
The Wottons further allege that despite MWI’s failure to support Securos, they
nevertheless managed to increase the Securos division’s revenues by 200% in the four
and one-half years following the transfer. The Wottons say that this performance would
have entitled them to “receive substantial ‘earnout’ payments on September 30,
2012 . . . .” but MWI preemptively fired them to avoid making these payments.
MEMORANDUM DECISION AND ORDER - 2

MWI sued the Wottons around in January 2012. Compl., Dkt. 1-2. MWI alleges
numerous state law claims against the Wottons, including breach of contract and
numerous tort claims. The Wottons counterclaimed shortly thereafter. In this motion,
MWI attacks seven of the Wottons’ ten claims, including those for: (1) fraud in the
inducement; (2) breach of contract; (3) breach of the duty of good faith and fair dealing;
(4) misrepresentation (5) wrongful termination; (6) unjust enrichment; and (7) unfair and
deceptive business practices in violation of Massachusetts statutory law.
ANALYSIS
1.

Count 1 – Fraud
MWI argue that the Wottons’ fraud counterclaim should be dismissed because (1)

it is time barred, (2) it is based upon non-actionable statements regarding future events;
and (3) it is not pled with sufficient particularity under Federal Rule of Civil Procedure
9(b). The Court will address each argument in turn, though it will first set out the
elements of fraud.
To prove fraud, a plaintiff must establish the following elements: “(1) a
representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge about its
falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person
and in the manner reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7)
his reliance on the [representation]; (8) his rights to rely thereon; (9) his consequent and
proximate injury.” Jenkins v. Boise Cascade Corp., 141 Idaho 233, 108 P.3d 380, 386
(Idaho 2005) (internal citation omitted).

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The Wottons allege that MWI defrauded them when John Francis of MWI made
the following misrepresentations:
A. MWI would pay the Wottons a total of $5 million plus cash incentives
to purchase the assets of Securos and IVDN;
B. MWI would set up the Securos Division as an independent division of
MWI’s Specialty Resources Group for the Wottons to continue the
business of Securos and IVDN;
C. MWI’s leadership team would fully support and promote the business
and products of the Securos Division to grow it rapidly through MWI’s
extensive distribution network resulting in a realization of substantial
cash incentives for the Wottons;
D. MWI was committed to the future success of the Securos Division;
E. MWI’s sales teams would fully support and promote the business and
products of the Securos Division to grow it rapidly through MWI’s
extensive distribution network resulting in substantial future
compensation for the Wottons;
F. MWI would fully integrate the Securos Division with all of the “state of
the art” office technologies of MWI;
G. MWI would provide marketing support for the Securos Division above
and beyond the marketing efforts Securos and IVDN had been able to
undertake on their own;
H. MWI would provide training support for the employees of the Securos
Division and the sales representatives of MWI;
I. MWI would support the expansion of the Securos Division into Europe;
J. MWI would allow H. Wotton to manage the Securos Division and act as
entrepreneur as he had done for more than ten (10) years;
K. MWI would allow the Wottons to assist two Securos Division vendors
from Germany in retaining their relationships with Webster Veterinary
(“Webster”), a competitor of MWI; and

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L. MWI would promote the Securos Division to at least two other national
distributors besides MWI, namely Webster and Butler Schein Animal
Health (“Butler”).
Compl. ¶ 16(A)-(L).
A.

Statute of Limitations

The fraud claim is subject to a three-year statute of limitations. See Idaho Code §
5-218(4). The three-year clock starts ticking when a plaintiff knew, or with reasonable
diligence should have known, that a fraud claim might exist. Nerco Minerals Co. v.
Morrison Knudsen Corp., 90 P.3d 894, 901 (Idaho 2004). Generally, the date of
discovery is a fact question for the jury. Id.
In this case, however, the face of the counterclaim – in particular, paragraphs 25
and 26 – reveal that the Wottons discovered the falsity of MWI’s misrepresentations
more than three years before they filed suit. In those paragraphs, the Wottons allege that
by February 2008 – four years before they sued – MWI had failed to follow through on
the pre-transfer promises, causing Securos to lose money.
Paragraph 25 of the counterclaim alleges that “[c]ontrary to what J. Francis and
MWI represented prior to the Transfer, the following occurred after the Transfer: . . . .”
The Wottons then describe MWI’s failure to follow through on the pre-transfer promises.
See Counterclaim, ¶ 25(A) – (E). For example, they allege that MWI (1) did not have
plans to integrate the Securos division into MWI’s business; (2) did not support or
promote Securos’ business and products; (3) actively sold products that competed
directly with Securos’ products; (4) forced Securos to use an outdated purchasing system
and offered little to no training on how to use the system or any of MWI’s systems; (5)
MEMORANDUM DECISION AND ORDER - 5

did not provide marketing support; and (6) “all but eliminated” Securos’ advertising
budget. Then, in paragraph 26, the Wottons allege that “[d]ue to MWI’s flagrant
mistreatment of the SECUROS Division after the Transfer, the SECUROS Division was
losing money rapidly by February 2008.”
This Court is hesitant to infer knowledge of fraud. See McCoy v. Lyons, 820 P.2d
360, 368 (Idaho 1991) (“courts of this state should hesitate to infer knowledge of fraud”).
But on these alleged facts, the only logical inference is that the Wottons discovered the
fraud by February 2008. After all, according to the counterclaim, by that point MWI had
“flagrantly mistreated” the Wottons by not following through on the pre-transfer
promises, and the Securos division was “losing money rapidly.” The Court will therefore
dismiss the fraud claim, but will grant the Wottons leave to amend.
It appears that the Wottons may be able to allege sufficient facts to withstand a
12(b)(6) motion based on the statute of limitations. In their opposing papers, the Wottons
indicate that they knew something was wrong by February of 2008, but MWI’s most
senior executives repeatedly assured them “from the date of the sale through May of 2009
and beyond that MWI fully supported SECUROS, and that the loss of customers and
money were attributable to ‘growing pains’ following the lack of transfer; MWI’s lack of
experience with acquisitions similar to the transfer . . . and internal communications
problems with MWI’s sales force . . . .” Opp., Dkt. 30, at 5 (citing H. Wotton Aff. ¶¶ 57)). As the Idaho Supreme Court explained in McCoy v. Lyons, 820 P.2d 360 (Idaho
1991), “[t]he discovery rule applicable to fraud requires more than an awareness that
something may be wrong but requires knowledge of the facts constituting fraud.”
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Because it seems probable that the Wottons will be able to draft an adequate claim
in terms of the limitations period, the Court will address MWI’s remaining challenges to
the fraud claim.
B.

Promissory Fraud

MWI argues that even if the fraud claim is not time-barred, the alleged
misrepresentations are not actionable because they are opinions or predictions about
future events. It is generally true that an “action for fraud or misrepresentation will not
lie for statements of future events.” Country Cove Dev. v. May, 150 P.3d 288 (Idaho
2006). The misrepresentation “must concern past or existing material facts.” Maroun v.
Wyreless Sys., Inc., 114 P.3d 974 (2005). But the Idaho Supreme Court has recognized
exceptions to the general rule, including this one: “if the speaker made the promise
without any intent to keep it, but to induce action on the part of the promisee” the
promise is actionable. Gillespie v. Mountain Park Estates, L.L.C., 132 P.3d 428 (Idaho
2006) (citing Pocatello Sec. Trust Co. v. Henry, 206 P. 175, 177 (Idaho 1922)). To
succeed under this exception, plaintiffs must plead and prove that the speaker had no
intent of performing the future act when he or she made the promises. See id.
Here, the Wottons come very close to alleging that when Francis made the
statements detailed in the counterclaim, he knew they were false. But they do not quite
get there. Specifically, at paragraph 38, the Wottons allege that “MWI made the
Representations in bad faith and with the intent of fraudulently inducing the Wottons to
enter into the Transfer Agreements.” Given that the Wottons must amend their fraud

MEMORANDUM DECISION AND ORDER - 7

claim anyway, the Court will require a plainer allegation that MWI had no intent to keep
the promises at the time they were made.
Finally, the Court rejects the Wottons’ argument that paragraph 25 of the
counterclaim satisfies this requirement. That paragraph (which includes five subparagraphs) mainly just lays out what happened after the sale. It does not plainly speak
to MWI’s intent at the time the promises were made.
MWI next argues that even if the Wottons cure this defect in an amended
pleading, the representations are still too vague to fit within the exception related to
future acts. Here, MWI says that to be actionable, the promises relating to future events
must be “discrete and ‘certain act[s]’ that a Court could determine whether or not
performed. Reply, Dkt. 31, at 2.
There are a couple of problems with this argument. First, MWI is stretching a
little when it suggests that the alleged representations are actionable only if they refer to
“discrete” acts. The “certain acts” language MWI invokes sprang from a case where the
defendant allegedly promised – falsely – that a business would succeed. The Court
pointed out that these types of predictions are not actionable:
Opinions or predictions about the anticipated profitability of a business are
usually not actionable as fraud. However, when there is an affirmative
promise or statement that a certain act will be undertaken, such a statement
is actionable providing the other elements of fraud are shown.
Hudson v. Cobbs, 797 P.2d 1322 (Idaho 1990) (citing Sharp v. Idaho Investment Corp,
95 Idaho 113, 122–123 (1972) (emphasis added by Hudson)). In that context, it simply
means that the defendants must promise to take some act, as opposed to merely making

MEMORANDUM DECISION AND ORDER - 8

predictions. In that regard, Morningstar Holding Corp. v. G2, LLC, Case No. CV-10439-BLW, 2011 WL 864300 (D. Idaho Mar. 10, 2011), a case defendants rely upon, is
distinguishable. In Morningstar, this Court held that allegations “regarding [the]
potential success of the recovery and timing of the recovery are the type of prospective
statements not actionable in fraud.” Id. at *7.
Here, the Wottons allege that MWI promised to do something – i.e., support the
Securos division after the sale in some specific ways. See Compl. ¶¶ 16.F to 16.L. They
do not rely solely on MWI’s alleged predictions that the Securos division would be
successful. The Court does observe, however, that some non-actionable predictions are
entwined with the actionable allegations. For example, paragraphs 16.C and 16.E allege
that MWI’s leadership and sales teams “would fully support and promote the business
and products of the SECUROS Division to grow it rapidly through MWI’s extensive
distribution network resulting in” substantial “cash incentives” and “future
compensation” for the Wottons. These types of promises – specifically, the part about
rapidly growing the Securos division, which would result in large payments for the
Wottons – are more in the nature of non-actionable predictions, and should be omitted
from any amended counterclaim.
C.

Particularity

Finally, turning to MWI’s third argument related to the fraud claim, the Court
finds that the Wottons’ fraud claim lacks particularity.
Under Federal Rule of Civil Procedure 9(b), a plaintiff must plead each of the
elements of a fraud claim with particularity – meaning that a plaintiff “must set forth
MEMORANDUM DECISION AND ORDER - 9

more than the neutral facts necessary to identify the transaction.” Cooper v. Pickett, 137
F.3d 616, 625 (9th Cir.1997). In other words, fraud claims must be accompanied by the
“who, what, when, where, and how” of the fraudulent conduct charged. Vess v. Ciba–
Geigy Corp., USA, 317 F.3d 1097, 1106 (9th Cir. 2003). A pleading is sufficient under
Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can
prepare an adequate answer from the allegations. Moore v. Kayport Package Express,
Inc., 885 F.2d 531, 540 (9th Cir. 1989). While statements of the time, place, and nature of
the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud are
insufficient. Id.
Here, the counterclaim stumbles at the beginning, as it does not specifically
identify who made the alleged false promises. Granted, the counterclaim indicates that
John Francis made the promises, but elsewhere it alleges that “[m]any of the
misrepresentations were also made by other executives of MWI.” Counterclaim ¶ 18.
This later allegation renders the “who” part of the inquiry vague and non-specific. MWI
is entitled to know which individuals allegedly made which specific representations.
As for the “when” part of the inquiry, the Wottons only generally allege that the
misrepresentations were made in 2007. Counterclaim ¶ 15. One can infer that the
representations were made prior to June 2007, or in “mid-2007” given that MWI
allegedly approached the Wottons in mid-2007, and the deal was struck in June of that
year. But MWI is entitled to a more precise time frame – particularly given the Wotton’s
allegation that “multiple” individuals made false promises to them. Accord Brown v.
North Cent. F.S., Inc., 173 F.R.D. 658, 668 (N.D. Iowa 1997) (allegations that
MEMORANDUM DECISION AND ORDER - 10

misrepresentations were made in the “spring” of a particular year, or a “similarly broadly
identified time frame” did not satisfy Rule 9(b)).
The counterclaim is also deficient in that it fails to particularly allege how the
Wottons were damaged. The Wottons allege that, despite MWI’s “poor treatment” of the
Securos division, the Securos division increased its revenues and, by December 2011,
had its highest sales month ever. See Counterclaim ¶¶ 28-29. Given these allegations,
the later boilerplate allegation in the counterclaim (“[t]he Wottons reasonably relied to
their detriment on the Representations, and have suffered injury due to the falsity
thereof”, id. ¶ 51) is insufficient. See generally Ashcroft v. Iqbal, 556 U.S. 662, 677
(2009) (Rule 8 does not require factually detailed allegations, “but it demands more than
an unadorned, the-defendant-unlawfully-harmed-me accusation”). Any amended
counterclaim should more specifically identify how the misrepresentations at issue
harmed the Wottons.
In sum, the fraud claim, as presently drafted, is not sufficiently particular under
Rule 9(b). It will therefore be dismissed for this reason as well. As already noted,
however, the Court will grant the Wottons leave to amend.
2.

Count 2 – Breach of Asset Purchase Agreements
The Wottons’ breach of contract claim is based upon the Asset Purchase

Agreements underlying the June 2007 transfer of the Wottons’ businesses (Securos and
IVDN) to MWI. Under these agreements, the Wottons allege they are entitled to receive
annual “earn-out” payments. They allege that MWI breached its obligations to pay past
and future earnout payments.
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Regarding the past payments, the Wottons allege that MWI “purposefully
miscalculated” them. Counterclaim ¶ 42. This claim is easily dispensed with, however,
because the parties agree that claims dealing with calculations must arbitrated. The Court
will therefore stay the breach of contract claim to the extent it relies on breaches related
to past earnout payments. Cf. 9 U.S.C. § 3 (trial court shall “on application of one of the
parties stay the trial of the action until such arbitration has been had in accordance with
the terms of the agreement, . . . .”).
The 2012 earnout payment, however, will not become due until later this year.
MWI therefore argues that this aspect of the claim must be dismissed because there is no
live controversy before the Court. This argument lacks merit because MWI has
preemptively stated it will not pay 2012 earnout payments, based on its contention that
the Wottons have breached their obligations to MWI. See Counterclaim ¶ 30. It is well
established that if one party anticipatorily breaches a contract, the non-breaching party
may sue at once; it does not need to wait until the breach has actually occurred. See, e.g.,
Foley v. Munio, 669 P.2d 198, 200-01 (Idaho 1983). The breach of contract claim
regarding the 2012 earnout payments is therefore live.
MWI next argues that accounting issues surrounding the 2012 earnout payments
will eventually have to be arbitrated anyway, and urges the Court to dismiss the contract
claim for that reason as well. The problem, of course, is that MWI allegedly repudiated
its obligation to make any 2012 payments under the contracts. In other words, the parties
have disputes other than just accounting ones and it appears that neither side is interested

MEMORANDUM DECISION AND ORDER - 12

in arbitrating non-accounting disputes. 1 The Court will therefore deny the motion to
dismiss the breach of contract claim, as that claim relates to 2012 earnout payments. The
parties should be aware, however, that if it is later determined that MWI wrongfully
refused to make 2012 earnout payments, the Court would anticipate ordering the parties
to arbitrate any related accounting issues.
3.

Count 3 – Breach of the Duty of Good Faith & Fair Dealing
MWI contends that the Wottons’ counterclaim for breach of the duty of good faith

and fair dealing fails because it seeks to impose new contractual obligations upon MWI
that are directly contrary to the fully integrated Asset Purchase Agreements. More
specifically, MWI asserts that each Asset Purchase Agreement grants MWI the authority
to run the businesses it purchased as it sees fit. The agreements are not quite that broad,
however. They state that MWI may change its business (or any division’s business) at
any time for any reason. See Asset Purchase Agreements, Dkts. 2-1, 2-2, ¶ 2.5.4
1

The Court will resist the temptation to rule on the arbitrability of all issues (not just
accounting ones) within the breach of contract claim. The Court nonetheless observes that both
Asset Purchase Agreements contain broad arbitration clauses. See, e.g. Asset Purchase
Agreement, Dkt. 2-1, Article 10 (Remedies). Further, the Wottons previously “requested MWI
to mediate the Wottons’ claims against MWI [and this was how the arbitration process was to
begin], but MWI refused to do so.” See Opp., Dkt. 30, at 13 n.4. Presumably, the Wottons filed
their counterclaim some time after, only to be met with MWI’s argument that part of the contract
clam must be arbitrated (the part dealing with how payments are calculated). The Wottons are
content to arbitrate the accounting issue, but for reasons that are not entirely clear, they now
argue that “[u]nder the plain language of the APAs, the Wottons’ claim for breach of contract
with respect to the 2012 earnout is not subject to the ADR process.” Id. at 13 (emphasis added).
At the same time, however, they concede that “[t]o the extent that it is determined that MWI’s
refusal to make any of the 2012 earn-out payments is subject to the ADR process, the Wottons
will agree to stay that part of their claim pending completion of the ADR process.” Id. at 12 n.3.
That last statement is an odd one, because neither party is moving to compel arbitration. So, at
this point, the Court will assume neither party is interested in arbitrating non-accounting issues
and will proceed accordingly.
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(“Notwithstanding anything in this Agreement, Buyer may, at its sole election, determine
to change its business, or the business of any division or subsidiary of Buyer, at any time
and for any reason.”).
In any event, based on this contractual provision, MWI argues that the Wottons
cannot rightly complain that MWI failed to take certain specific actions to support
MWI’s newly formed Securos division. MWI believes this would improperly inject new
terms into the fully integrated contract. For example, MWI notes that the agreements do
not require it to “create a commission structure to compensate its sales representatives for
the sale of SECUROS Division’s products” yet the Wottons complain about this very
failure within their good faith and fair dealing claim. MWI then cites decisions where
courts refused to inject new obligations into contracts via the covenant of good faith and
fair dealing.
In crafting this argument, however, MWI focuses too narrowly on both the
contracts and the counterclaim. Further, the cited cases are distinguishable.
Beginning with the contracts, MWI does not meaningfully acknowledge or discuss
its contractual obligation to pay the Wottons cash incentives (the earnout payments). The
central thrust of the Wottons’ good faith and fair dealing claim is that MWI acted so as to
impair or nullify the Wottons’ right to receive the earnout payments. The fact that MWI
had the contractual ability to change its business does not eviscerate the underlying
implied covenant of good faith and fair dealing connected to the obligation to make
earnout payments. Further, there is no allegation that MWI’s alleged failure to promote
Securos had something to do with a decision by MWI to change Securos’ business.
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Moving to the counterclaim, it does not rely solely on affirmative steps the
Wottons believe MWI should have taken. Rather, the Wottons also allege that MWI
breached the implied covenant by “[a]ctively selling and marketing products that
competed directly with, and siphoned business from, the SECUROS Division’s
products.” Counterclaim ¶ 47.A.
Moreover, it bears repeating that the fundamental point of the implied covenant of
good faith and fair dealing is that the parties must not take actions that significantly
impair any benefit of the contract. True, this implied covenant cannot be used to override
existing contractual obligations, and entirely new substantive contractual terms cannot be
injected into a contract. See, e.g., Clement v. Farmers Ins. Exchange, 766 P.2d 768, 770
(Idaho 1988). But the Wottons may properly argue that taking certain actions to support
Securos was inherent in MWI’s underlying obligation to make cash incentive payments.
See Jones v. Micron Tech., Inc., 923 P.2d 486, 492 (Idaho Ct. App. 95) (“The covenant
does not create on the part of the employer a duty that is not inherent in the employment
agreement.”) (citing Metcalf v. Intermountain Gas Co., 778 P.2d 744, 749 (Idaho 1989)).
Attempting to enforce inherent, implied terms is fundamentally different than
attempting to inject an entirely new provision (a forum-selection clause, for example)
into a contract that is silent on the issue. See GMAC Real Estate, LLC v. Gate City Real
Estate Pocatello, Inc., 2006 WL 2095324 (D. Idaho July 27, 2006). MWI’s reliance on
these sorts of cases is therefore unavailing.
Similarly, MWI’s reliance on Independence Lead Mines v. Hecla Mining Co., 137
P.3d 409 (Idaho 2006) is misplaced. In that case, the contract expressly stated that a
MEMORANDUM DECISION AND ORDER - 15

mine operator could operate the mine as it saw fit. Id. at 414. The plaintiff, however,
insisted that the operator could not mine unless it would be profitable for the plaintiff. In
other words, the plaintiff essentially sought to override a specific contractual term. The
court rejected this use of the implied covenant. Id.
MWI attempts to fit within this case by pointing to the contractual provision that
allows it to change its business whenever it wanted to. But, as already noted, the
Wottons are not alleging that MWI could not change its business. Rather, they allege that
MWI failed to adequately support the existing Securos division, and thus impaired their
right to receive earnout payments. Independence Lead Mines is thus distinguishable.
In sum, the Wottons have adequately alleged a claim for breach of the implied
covenant of good faith and fair dealing. The Court will therefore deny MWI’s motion to
dismiss this claim.
4.

Counts 4 and 5 – Negligent Misrepresentation and Wrongful Termination
The Wottons do not object to dismissal of the fourth or fifth claims

(misrepresentation and wrongful termination). The Court will therefore dismiss these
claims.
5.

Count 6 – Unjust Enrichment
MWI contends that the Wottons’ unjust enrichment claim should be dismissed

because (1) it is not sufficiently pled, and (2) it is duplicative of the Wottons’ breach of
contract claim. The Court is not persuaded by either argument.
As for the sufficiency of the pleading, the unjust enrichment claim falls within the
liberal notice-pleading standards of Federal Rule of Civil Procedure 8(a). To adequately
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plead unjust enrichment, the Wottons must allege that: (1) they conferred a benefit upon
MWI; (2) MWI appreciated that benefit; and (3) under the circumstances, it would be
unfair for MWI to keep the benefit without paying for it. Vanderford Co. v. Knudson,
165 P.3d 262, 272 (Idaho 2007).
The Wottons’ unjust-enrichment claim contains just a few lines, but it incorporates
prior allegations of a relatively short counterclaim. And earlier in the counterclaim, this
allegation gives a reasonably clear indication of the Wottons’ unjust enrichment theory:
“Having increased the SECUROS Division’s revenues 200% in 4 ½ years
since the Transfer, the Wottons were due to receive substantial ‘earn-out’
payments in on September 30, 2012, under certain agreements the parties
executed in connection with MWI’s purchase of the Wottons’ businesses.
In order to avoid making those payments, MWI purported to terminate the
Wotton brothers for ‘cause on January 23, 2012.”
Counterclaim, at 22 (Introductory Allegations). The Court therefore concludes that the
unjust enrichment claim is sufficiently pled under Rule 8.
Next, MWI argues that the unjust enrichment claim should be dismissed as
unnecessary because the counterclaim plainly alleges a contract between the parties.
Specifically, the Asset Purchase Agreements obligate MWI to make earnout payments.
And, as just noted, MWI’s alleged failure to make the 2012 earnout payment forms the
basis of the Wottons’ unjust enrichment claim. MWI thus points to “blackletter law”
holding that “[u]njust enrichment does not apply ‘where there is an enforceable express
contract between the parties which covers the same subject matter.’” U.S. Welding, Inc. v.
Battelle Energy Allicane, LLC, 728 F. Supp. 2d 1110, 1116 (D. Idaho 2010) (citation
omitted).

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MWI’s reasoning is sound, but dismissal of the unjust enrichment claim is
premature because MWI has not unequivocally admitted that all contractual provisions
are enforceable. See Thomas v. Thomas 249 P.2d 829, 837 (Idaho 2010) (“‘had both
Plaintiffs and Defendants . . . unequivocally admitted the existence and enforceability of
all provisions of the [contract], the Court would have to dismiss Plaintiffs’ unjust
enrichment claim.’”) (citation omitted). To be sure, in its motion, MWI generally states
that the contracts at issue “are enforceable . . . .” Mot. Memo., at 18 and MWI now
suggests it will make the 2012 earnout payments if Securos’ financial performance is
sufficient to trigger the payments. See Mot. Memo., at 13 (“Defendants may or may not
earn a Cash Incentive payment for a particular fiscal year depending on the performance
of Securos.”); Reply, Dkt. 31, at 6 (“Even if the obligation [to make the 2012 earnout
payments] does ultimately arise in 2012, . . . .”). But, on the other hand, the Wottons
have alleged that in January 2012 – well before it could be determined if the Wottons
would be entitled to 2012 earnout payments – MWI flatly stated that it would not make
these payments. Under these circumstances, the Wottons may plead unjust enrichment as
an alternative theory of relief. See Fed. R. Civ. P. 8(a)(3); MK Strategies, LLC v. Ann
Taylor Stores Corp., 567 F. Supp. 2d 729 (D.N.J. 2008) (court regularly permits claims
for both unjust enrichment and breach of contract to proceed at the motion to dismiss
stage).

7.

Count 10 – Statutory Claim for Unfair and Deceptive Business Practices
MWI’s motion to dismiss the Wottons’ statutory unfair and deceptive

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business practices claim hinges on the success of its motion to dismiss other tort
and contract claims. Because the Court is not dismissing all these claims, the
Court will not dismiss the statutory claim either.
MWI also generally argued that the statutory claim fails to the extent it
arises out of the employment relationship between the Wottons and MWI. See
Manning v. Zuckerman, 444 N.E. 2d 1262, 1263-64 (Mass. 1983) (disputes
between employers and employees are not actionable under the statute). But MWI
concedes that the Wottons have alleged facts arising outside the employment
relationship. See Mot. Memo., Dkt. 24-1 at 19. The Court will therefore deny the
motion to dismiss this claim.

ORDER
IT IS ORDERED THAT:
1. Plaintiff’s Motion to Dismiss Defendants’ Counterclaim (Dkt. 24) is
GRANTED in part and DENIED in part as explained above.
2. Defendants’ breach of contract counterclaim – to the extent it is based upon the
alleged failure to correctly calculate pre-2012 earnout payments – is STAYED. All other
claims shall proceed in this litigation and are not stayed.

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3. Any amended counterclaim shall be filed within 30 days of this Order.

DATED: July 3, 2012

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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