Karum Holdings LLC et al v. Lowe's Companies, Inc. et al

Filing 47

MEMORANDUM Opinion and Order Signed by the Honorable John Z. Lee on 7/8/15Mailed notice(ca, ).

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
KARUM HOLDINGS, LLC; KARUM
)
GROUP, LLC; KARUM LATIN AMERICA)
S. de R.L. de C.V.; and KARUM CARD
)
SERVICES S.A. de C.V., SOFOM, E.N.R., )
)
Plaintiffs,
)
v.
)
)
LOWE’S COMPANIES, INC.; and
)
LOWE’S COMPANIES MEXICO,
)
S. de R.L. de C.V.,
)
)
Defendants.
)

15-cv-0380
Judge John Z. Lee

MEMORANDUM OPINION AND ORDER
Plaintiffs Karum Holdings, LLC (“Karum Holdings”), Karum Group, LLC
(“Karum Group”), Karum Latin America S. de R.L. de C.V. (“Karum LA”), and
Karum Card Services S.A. de C.V., SOFOM, E.N.R. (“KCS”) (collectively “Karum”)
have filed a complaint against Defendants Lowe’s Companies, Inc. (“Lowe’s Inc.”)
and Lowe’s Companies Mexico, S. de R.L. de C.V. (“Lowe’s Mexico”) (collectively
“Lowe’s”), alleging that Lowe’s breached a series of agreements, whereby Karum
agreed to provide credit card services for Lowe’s’ stores in Mexico. According to the
Complaint, three writings set forth the parties’ contractual relationship: the Private
Label Credit Card Program Agreement (“Program Agreement”); the Master Credit
Services Agreement (“Services Agreement”); and the Profit Sharing and Funding
Agreement (“Funding Agreement”).

Lowe’s has filed a partial motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), seeking to dismiss (1) all claims predicated upon the Services
Agreement, and (2) all claims Plaintiffs have asserted on behalf of Karum LA. For
the reasons provided herein, the motion to dismiss is granted.
I. Factual Background 1
In 2009, Lowe’s and Karum agreed that Karum would provide Lowe’s stores
in Mexico with a Private Label Credit (“PLC”) program. Compl. ¶ 5. Three writings
referenced in the Complaint and incorporated as exhibits memorialized the PLC
program: the Program Agreement; the Funding Agreement; and the Services
Agreement). 2 Each contract contains a choice of law provision adopting New York
state law. Id. ¶ 6(o).
After its growth in Mexico fell short of projections, Lowe’s sought to
terminate the agreements on August 21, 2014. Id. ¶ 13, 16. Karum alleges that, in
doing so, Lowe’s knowingly breached numerous aspects of the various agreements.
See id. ¶ 16. The Court will outline each of the three agreements in turn.

When reviewing a defendant’s motion to dismiss, the Court assumes the alleged
facts in the complaint are true and draws all possible inferences in a plaintiff’s favor.
Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). Furthermore, a copy of any
written instrument attached as an exhibit to a complaint is considered to be part of the
pleadings. Fed. R. Civ. P. 10(c); 188 LLC v. Trinity Indus., Inc., 300 F.3d 730, 735 (7th Cir.
2002).
1

For much of the Complaint, these contracts are referred to collectively as “the
Agreements.” See, e.g., Compl. ¶¶ 14, 15, 21.
2

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A.

The Program Agreement

KCS, a subsidiary of Karum, was intended to be a joint venture between
Lowe’s and Karum to service the PLC program.

Id. ¶¶ 1, 7.

The Program

Agreement provides that KCS would issue credit cards to customers of Lowe’s
Mexico. Id. ¶ 10; see also id. Ex. 1, Program Agreement, at 5. It further establishes
the general obligations of Karum and Lowe’s in administering the PLC program.
Compl. ¶ 10. Dated February 10, 2010, the Program Agreement was signed by
KCS, Karum Holdings, and Lowe’s Mexico. Id. ¶ 5; Id. Ex. 1, Program Agreement,
at 1.

According to Karum, Lowe’s breached several provisions of the Program

Agreement, including those providing Karum with the right of first refusal for any
loyalty programs, gift cards or special credit programs; those addressing contractual
governance; and those requiring Lowe’s to cooperate with Karum on day-to-day
business issues. Compl. ¶¶ 13(h), 13(i), 26.
B.

The Funding Agreement

Signed four years after the Program Agreement, the Funding Agreement
adjusted funding and profit percentages with respect to the operation of KCS. Id. ¶
11. Because disproportionate funding had become a burden for Karum (although it
is unclear for which Plaintiff), the Funding Agreement specified that Lowe’s would
satisfy 99% of KCS’s funding and receive 99% of KCS’s profits on a going forward
basis. Id. The Funding Agreement was entered into by KCS, Karum Group, Karum
Holdings, and Lowe’s Mexico on April 4, 2014. Id. ¶ 5; Compl., Ex. 3, Funding
Agreement, at 1. Plaintiffs allege that Defendants (although it is unclear which

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Defendant) breached the Funding Agreement by failing to honor certain contractual
governance provisions. Compl. ¶ 13(i).
C.

The Services Agreement

The creation of the PLC program involved an additional undated agreement,
the Services Agreement, which specified that Karum would provide all services to
KCS for operation of the program.

Id. ¶ 9.

KCS itself possessed none of the

infrastructure to service the program. Id.
The Complaint does not specify which Karum entity would provide these
services to KCS, but the attached contract indicates that Karum LA was the sole
other signatory. Id.; Compl., Ex. 2, Services Agreement, at 1. 3 Both signatories,
KCS and Karum LA, are Plaintiffs in the present action. Unlike with the other two
contracts, no specific breaches of the Services Agreement are alleged in the
Complaint.
As an additional note, Karum LA was a party only to the Services Agreement
and is a subsidiary of Karum Group. Compl. ¶ 1. Beyond this introduction, Karum
LA is never mentioned again in the Complaint, except by way of its inclusion in the
collective “Karum.” Plaintiffs do not elaborate on Karum LA’s involvement in the
transactions and activities discussed in the Complaint.
II. Legal Standard
To survive a motion to dismiss pursuant to Rule 12(b)(6), the complaint must
“state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,
Plaintiffs ask the Court to disregard the signatories of the agreements and instead
accept their allegations that the writings “collectively comprise the agreement of the
parties.” Pl.’s Mem. Opp’n 3. That argument is addressed below.
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678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The
factual allegations in the complaint must at least “raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555. The Court must accept as true all
well-pleaded allegations in the complaint and draw all possible inferences in the
plaintiff’s favor. See Tamayo, 526 F.3d at 1081.
III. Analysis
A.

Breach of the Services Agreement

Defendants argue that any claims predicated on the Services Agreement
must be dismissed because neither Defendant is a party to the agreement.

In

support, they point to the agreement itself, which is attached to the Complaint. See
188 LLC, 300 F.3d at 735 (a written instrument attached as an exhibit to a
complaint is part of the pleadings).
In response, Plaintiffs acknowledge that Defendants are not expressly made
parties to the Services Agreement, but argue that the Court should not consider this
as dispositive, because the Complaint alleges that “the documents collectively make
up the agreement.” Compl. ¶ 5.
exhibits.”

Pl.’s Mem. Opp’n 5.

Plaintiffs argue that these “allegations trump
However, aside from this conclusory statement,

nothing in the Complaint or attached exhibits plausibly allege that the three
contracts were intended to form a master agreement wherein the breach of one
contract would constitute the breach of the other. Id. ¶ 5. And merely conclusory
allegations to this effect without more do not satisfy the pleading standard. See
Iqbal, 556 U.S. at 678.

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What is more, a closer reading of the contracts suggests a different
conclusion. For example, both the Program Agreement and Funding Agreement—
the agreements to which Lowe’s is a party—contain integration clauses, providing
that they each “constitute the entire agreement” and “supersede[] all prior
agreements and/or understandings . . . concerning matters addressed herein.” See
Compl, Ex. 1, Program Agreement § 12.10; see also Compl., Ex. 3, Funding
Agreement § 13.12. And there is no language in any of the agreements (nor any
factual allegations in the Complaint) that would support the assertion that they all
were part of single larger “Agreement.” 4
Plaintiffs additionally contend that Lowe’s is party to the Services Agreement
in “substance” because it provides 99% of KCS’s funding and receives 99% of KCS’s
profits by the terms of the Funding Agreement. Pl.’s Mem. Opp’n 4; see also Compl.
¶ 11. 5 But this argument also is unpersuasive. On the one hand, Plaintiffs allege
that Lowe’s funded KCS in part and that KCS “was designed to be a joint venture”
between Karum and Lowe’s. Compl. ¶ 7. However, Plaintiffs do not allege that
Lowe’s controlled the operations of KCS in whole or in part. Nor does Plaintiffs
allege that KCS was an alter-ego of Lowe’s. To the contrary, the Complaint asserts

A complaint may contradict the apparent meaning of an attached written
instrument in certain circumstances, but Plaintiffs have pleaded no facts to suggest that
such circumstances exist here. See, e.g., Bogie v. Rosenburg, 705 F.3d 603, 609 (7th Cir.
2013) (noting that allegations of fraud or coercion would trigger an exception).

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To support this emphasis on substance, Plaintiffs rely on out-of-circuit precedent
interpreting the Truth in Lending Act to require “substance-over-form” analysis in line with
other consumer protection statutes. Edwards v. Your Credit Inc., 148 F.3d 427, 436 (5th
Cir. 1998). The Services Agreement, however, is governed by New York law and does not
involve the Truth in Lending Act. Compl., Exh. 2, Services Agreement § 17.

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that KCS was established by and is a subsidiary of Karum Group. See id. ¶¶ 1, 13.
And KCS is included as a plaintiff in this action that is suing Lowe’s. These are
hardly the acts of an alter-ego.
Thus, the allegations in the Complaint simply do not support Plaintiffs’
argument that Lowe’s was a party to the Services Agreement, explicitly or
otherwise. Under New York law, which the parties agree controls, an individual or
entity that is not a party to a contract cannot be held liable for a breach of that
contract, and Plaintiffs’ claim against Lowe’s for breaching the Services Agreement
is dismissed. See Travelers Cas. & Sur. Co. v. Dormitory Auth.-N.Y., 735 F. Supp.
2d 42, 80 (S.D.N.Y. 2010) (citing Davis v. Blige, 505 F.3d 90, 103 (2d Cir. 2007)); see
also Black Car & Livery Ins., Inc. v. H&W Brokerage, Inc., 813 N.Y.S.2d 751, 751
(N.Y. App. Div. 2006).
Plaintiffs’ attempt to hold Lowe’s liable for breaching the Services Agreement
fails for the additional reason that the allegations in the Complaint are too vague to
properly plead a breach of contract claim. Here, although Plaintiffs point to specific
provisions of the Program Agreement and Funding Agreement that were allegedly
breached by Defendants, they do not cite to any particular provision of the Services
Agreement or even claim that the Services Agreement was breached in any way.
Cf. Compl. ¶¶ 13, 25, 26. Other counts in the Complaint only allege breaches of the
agreements collectively or behavior on the part of Lowe’s that is not tied to the
Services Agreement in particular. See id. at ¶¶ 13(a)–(g), 14, 15, 16, 20, 23, 24 27–
28, 30–31.

As such, the allegations fail to meet the Rule 8(a)(2) threshold of

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“put[ting] the defendant on notice of the plaintiff’s claims.” Fed. R. Civ. P. 8(a)(2);
Standard v. Nygren, 658 F.3d 792, 799 (7th Cir. 2011). “The rules do not require
unnecessary detail, but neither do they promote vagueness or reward deliberate
obfuscation.” E.E.O.C. v. Concentra Health Serv., Inc., 496 F.3d 773, 780 (7th Cir.
2007).
Because Lowe’s is not a party to the Services Agreement and because
Plaintiffs have not sufficiently pleaded a breach of the Services Agreement to satisfy
Rule 8, any claims against Lowe’s for breach of the Services Agreement are
dismissed without prejudice.
B.

Karum LA

Defendants also argue that Karum LA cannot remain as a plaintiff in this
case because it is not a party to any of the other agreements. The elements of
breach of contract under New York law are “(1) formation of a contract between
plaintiff and defendant, (2) performance by plaintiff, (3) defendant’s failure to
perform, and (4) resulting damage.” Clearmont Property, LLC v. Eisner, 58 A.D.3d
1052, 1055 (N.Y. App. Div. 2009). The Complaint does not allege a contract was
formed between Karum LA and any of the Defendants. Indeed, Karum LA is never
mentioned in the Complaint other than being introduced as a party in this case.
See generally Compl. Accordingly, any claims asserted on behalf of Karum LA are
dismissed without prejudice.

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C.

Basis for Jurisdiction

Pursuant to Rule 8(a)(1), Plaintiffs must state the basis for the Court’s
jurisdiction over their claim. Fed. R. Civ. P. 8(a)(1); see also Hemmings v. Barian,
822 F.2d 688, 693 (7th Cir. 1987).

Plaintiffs invoke this Court’s diversity

jurisdiction. See Compl. ¶ 3 (invoking 28 U.S.C. § 1332(a)(3)). Section 1332(a)(3)
grants jurisdiction for civil actions between “citizens of different States and in
which citizens or subjects of a foreign state are additional parties.” 28 U.S.C. §
1332.

While the specific citizenships of foreign parties bears no weight on the

1332(a)(3) analysis, diversity can only be maintained if “citizens of states are on
both sides of the litigation” and if these state citizens “are completely diverse.”
Allendale Mut. Ins. Co. v. Bull Data Systems, Inc., 10 F.3d 425, 428 (7th Cir. 1993).
Two of the Plaintiffs, Karum Holdings and Karum Group, are limited liability
companies organized under the laws of Delaware.

Compl. ¶ 1.

Although the

Complaint lists their citizenships based on place of incorporation and principal
place of business, Delaware limited liability companies bear the citizenship of each
of their members for diversity purposes. Wise v. Wachovia Securities, 450 F.3d 265,
267 (7th Cir. 2006). Further, the citizenship of such organizations “must be traced
through however many layers of partners or members there may be.” Meyerson v.
Harrah’s East Chicago Casino, 299 F.3d 616, 617 (7th Cir. 2002).
Accordingly, the Court directs Plaintiffs to submit a jurisdictional statement
within fourteen days of this Order setting forth the complete citizenship of Karum

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Holdings and Karum Group for the purposes of invoking the Court’s diversity
jurisdiction. See N.D. Ill. L.R. 3.2(B).
IV. Conclusion
For the reasons provided herein, the Court grants Defendants’ motion to
dismiss [9]. Plaintiff Karum LA and all claims alleging breaches of the Services
Agreement are dismissed without prejudice. In the event that Plaintiffs seek to
amend the Complaint in a manner consistent with this Order, a motion for leave to
amend along with the proposed amended complaint should be filed within fourteen
days of the entry of this Order.
SO ORDERED

ENTER: 7/8/15
______________________________
JOHN Z. LEE
United States District Judge

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