Turney, Jr. et al v. Fifth Third Bank et al

Filing 92

MEMORANDUM AND ORDER- Defendants' motions to dismiss plaintiffs' third party complaint 81 82 83 87 are granted in part and denied in part. The motions are granted with respect to Counts I through X of plaintiffs third amended compla int, and those claims are hereby dismissed. The motions are denied with respect to Count XI of plaintiffs third amended complaint. Plaintiffs are also granted leave to file a fourth amended complaint, on or before October 1, 2010, by which they may amend Count X to cure the pleading deficiencies noted herein. Signed by District Judge John W. Lungstrum on 09/20/2010. (ses)

T u r n e y , Jr. et al v. Fifth Third Bank et al

D o c . 92

IN THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF KANSAS

F R A N K TURNEY, JR., et al.,

) ) P l a i n t if f s , ) ) v. ) ) D Z BANK AG DEUTSCHE ZENTRAL ) G E N O S S E N S C H A F T S B A N K , et al., ) ) D e f e n d a n ts . ) ) _______________________________________)

C a s e No. 09-2533-JWL

M E M O R A N D U M AND ORDER I n this action, four plaintiffs seek declaratory judgments and assert claims against f o u r defendants arising out of plaintiffs' purchase of insurance franchises from affiliates o f Brooke Corporation (collectively, "Brooke" or "the Brooke entities"). Defendants are b a n k s that, according to plaintiffs, provided financing to Brooke and now seek to enforce lo a n s made by Brooke to plaintiffs to finance the franchise purchases. O n April 29, 2010, the Court dismissed plaintiffs' second amended complaint, but it allowed plaintiffs to amend to cure their pleading deficiencies (Doc. # 74). Plaintiffs d id file a third amended complaint,1 and defendants have now moved to dismiss that

By omission from the third amended complaint, plaintiffs have abandoned claims o n behalf of three other franchisees, claims against three other defendants, and a claim th a t defendants conspired with Brooke to commit fraud, all of which had been asserted in the second amended complaint.

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c o m p l a in t as well (Doc. ## 81, 82, 83, 87). For the reasons set forth below, defendants' m o tio n s are granted in part and denied in part. The motions are granted with respect to Counts I through X of plaintiffs' third amended complaint, and those claims are h ere b y dismissed. The motions are denied with respect to Count XI of plaintiff's third a m e n d e d complaint. Plaintiffs' are also granted leave to file a fourth amended

c o m p la in t, on or before October 1, 2010, by which they may amend Count X to cure the p le a d in g deficiencies noted herein.

I.

Plaintiffs' Claims

In their third amended complaint, plaintiffs allege as follows: The Brooke entities b ro k e re d and sold insurance franchises. Brooke Franchise Corporation, which later

b e c a m e Brooke Capital Corporation ("Brooke Capital"), served as the franchising arm, b ro k e rin g the franchise sale and actually becoming the seller and franchisor. American H e r ita g e , another Brooke entity, conducted due diligence and valued the sold business a s a going concern, for which services plaintiffs paid a fee. Brooke Capital purported t o set the franchise purchase price based on American Heritage's valuation, but it in f la te d the purchase price by misrepresenting and failing to disclose certain information a b o u t the book of business being purchased. P u rc h a s e rs were required to finance the purchases through another Brooke entity, B ro o k e Credit Corporation ("Brooke Credit"). Brooke Capital and Brooke Credit then

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a ss ig n e d their rights under the franchise agreement and loan agreement respectively to B ro o k e Agency Services Company ("BASC"). BASC financed the operation by

b o r ro w in g from defendants and other banks, who took security interests in the franchise a c co u n ts and sales commissions. The banks delegated servicing responsibilities for the loan s to a company that then delegated those responsibilities to a Brooke entity. In re lian c e on their security interests, the banks ceded control of underwriting, approval, a n d servicing to Brooke, with little oversight, despite obvious conflicts of interest. In mid-2008, Brooke collapsed, as it ceased remitting payments to plaintiffs and d ef au lt e d on its obligations to the banks, who filed suit against Brooke. Under a se ttle m e n t approved by the bankruptcy court, the banks gained control of the accounts c o n ta in in g the franchisees' commissions. Defendants now seek to enforce the loans m a d e by Brooke Credit to plaintiffs. In their first declaratory judgment claims (Counts I, V(B)2 ), plaintiffs allege that th e Brooke entities "were used as a mere subterfuge and as an implement for fraud or ille g a lity, and they seek a declaration that "defendants DZ Bank are [sic] subject to all c laim s and defenses [plaintiffs] have or have had against [the Brooke entities] and their a s s ig n s , and that such claims and defenses render [the franchise loans to plaintiffs]

Plaintiffs' third amended complaint contains two different counts labeled as C o u n t V. 3

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u n e n f o rc e ab le against [plaintiffs]." 3

Plaintiffs have not identified those defenses

e x p lic itly in the declaratory judgment counts, although they allege fraud and breach of f id u c iar y duty by the Brooke entities in separate counts. In their fraud counts (Counts I I I , VII), plaintiffs allege that Brooke Capital and American Heritage made m isre p re se n tatio n s and omissions regarding the true value of the franchises sold to p la in tif f s, by failing to account for certain deductions and expenses, thereby inflating the p u rc h a se price, while Brooke Credit was aware of the misrepresentations. Similarly, in th e ir counts alleging breach of fiduciary duty (Counts II, VI), plaintiffs allege that B ro o k e Capital and American Heritage breached fiduciary duties to plaintiffs by failing to disclose information regarding the true value of the franchises, thereby effecting a f r a u d and inducing the purchases.4

Although plaintiffs have used the plural with respect to defendants in these c o u n ts , they have named only defendant DZ Bank; thus it is unclear whether plaintiffs in ten d e d these claims to apply to the other defendants as well. A lth o u g h plaintiffs allege generally in their fraud and fiduciary duty counts that th e y suffered damages, they have not set forth any basis in those counts for making d e f en d a n t s liable for any such tortious conduct by the Brooke entities. Therefore, the C o u rt interprets these counts as setting forth the defenses to which the first declaratory ju d g m e n t counts refer. That interpretation is consistent with plaintiffs' second amended c o m p la in t, in which the fraud and fiduciary duty allegations were included as part of the d e c la ra to ry judgment claim, and with plaintiffs' statement in opposing the prior motions to dismiss that they did not assert an affirmative fiduciary duty claim. Plaintiffs do not a p p e ar to have complied with the Court's instruction in its prior order that plaintiffs sh o u ld make clear in any subsequent pleading the specific claims to which their fiduciary d u ty allegations relate. See Memorandum and Order of Apr. 29, 2010, at 15. If in fact p lain tiff s have intended to assert affirmative claims seeking damages from defendants f o r fraud and breach of fiduciary duty, such claims would be subject to dismissal, for the (continued...) 4
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S e c o n d , in a separate count titled "Prior Breach" (Count IX), plaintiffs allege that B r o o k e Capital, Brooke Credit, and/or BASC, "or their assigns" breached obligations u n d e r plaintiffs' franchise agreements by failing to pay certain amounts, and that those e n titie s violated plaintiffs' loan agreements by failing to account properly for c o m m is s io n s , by wrongfully "sweeping" accounts, and by wrongfully adding principal to the loans. Plaintiffs further allege that such "prior breaches" "eliminate any claim that D e f en d a n t Banks have that (1) Plaintiff Franchises are in default under the terms of the F r a n c h is e Agreements or Financing Agreements; or (2) termination of the Franchise A g re e m e n ts in exchange for renegotiating the terms of the Financing Agreements was a n offer made [by defendants] with consideration." Accordingly, although plaintiffs h av e made these allegations in a separate count, it does not appear that plaintiffs are a ss e rtin g an affirmative claim against defendants based on contractual breaches by the B ro o k e entities; rather, they appear to be seeking a declaratory judgment relating to the b a n k s' ability to enforce plaintiffs' contractual obligations, and the Court will treat this c o u n t as such.5

(...continued) re a so n that, as noted above, plaintiffs have failed to allege a plausible basis for d e f e n d a n t s' liability for torts committed by the Brooke entities. T h e second amended complaint was similarly confusing in this regard, which p ro m p te d the Court to give plaintiffs the directive that "[i]n any amended pleading, p lain tiff s should also make clear whether its prior material breach allegations relate to th e ir declaratory judgment claims or represent a separate affirmative claim against any d e f en d a n t." See Memorandum and Order of Apr. 29, 2010, at 14 n.8. In light of (continued...) 5
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T h ird , plaintiffs seek declarations that defendants cannot enforce plaintiffs' loans b e c a u se defendants are not holders in due course with respect to those loans, for six sep ara te reasons (Counts IV, V(A), VIII). F o u r th , plaintiffs assert affirmative claims against defendants. Plaintiffs have b ro u g h t a claim for breach of contract (Count X), alleging that defendants breached p la in tif f s ' financing or franchise agreements or the Brooke bankruptcy settlement a g re e m e n t by failing to remit commissions and other amounts to plaintiffs. Plaintiffs a ls o assert a claim for money had and received (Count XI), based on defendants' w ith h o l d in g commissions from plaintiffs.

II.

Governing Standards

T h e Court will restate the standards set forth in its prior opinion. Defendants a rg u e that plaintiffs have not satisfied the pleading standards set forth by the Supreme C o u rt in Bell Atlantic Corporation v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iq b a l, __ U.S. __, 129 S. Ct. 1937 (2009). Those standards were summarized by the S u p r e m e Court in Iqbal as follows: [ T ] h e pleading standard Rule 8 announces does not require detailed f a c tu a l allegations, but it demands more than an unadorned, the-defendant(...continued) p la in tif f s' failure to follow that direct instruction, the Court will not interpret this count a s asserting an affirmative claim against defendants. Moreover, any such claim would b e subject to dismissal based on plaintiffs' failure to allege a basis for holding d e f e n d a n t s liable for breaches by the Brooke entities. 6
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u n la w f u lly-h a rm e d -m e accusation. A pleading that offers labels and c o n c lu s io n s or a formulaic recitation of the elements of a cause of action w i l l not do. Nor does a complaint suffice if it tenders naked assertions d e v o id of further factual enhancement. T o survive a motion to dismiss, a complaint must contain sufficient f a c tu a l matter, accepted as true, to state a claim to relief that is plausible o n its face. A claim has facial plausibility when the plaintiff pleads factual c o n te n t that allows the court to draw the reasonable inference that the d ef en d an t is liable for the misconduct alleged. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer p o s s ib ility that a defendant has acted unlawfully. Where a complaint p le a d s facts that are merely consistent with a defendant's liability, it stops sh o rt of the line between possibility and plausibility of entitlement to r e lie f . T w o working principles underlie our decision in Twombly. First, th e tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the e le m e n t s of a cause of action, supported by mere conclusory statements, d o not suffice. Rule 8 marks a notable and generous departure from the h yp e r-te c h n ic a l code-pleading regime of a prior era, but it does not unlock th e doors of discovery for a plaintiff armed with nothing more than c o n c lu s io n s . Second, only a complaint that states a plausible claim for re lie f survives a motion to dismiss. Determining whether a complaint s ta te s a plausible claim for relief will . . . be a context-specific task that re q u ire s the reviewing court to draw on its judicial experience and co m m o n sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has a lle g e d -- b u t it has not shown--that the pleader is entitled to relief. In keeping with these principles a court considering a motion to d ism iss can choose to begin by identifying pleadings that, because they are n o more than conclusions, are not entitled to the assumption of truth. W h ile legal conclusions can provide the framework of a complaint, they m u s t be supported by factual allegations. When there are well-pleaded f a ctu a l allegations, a court should assume their veracity and then d e te rm in e whether they plausibly give rise to an entitlement to relief. I q b a l, 129 S. Ct. at 1949-50 (citations and internal quotations omitted) (quoting 7

T w o m b ly , 550 U.S. at 555-57, 570; Fed. R. Civ. P. 8(a)). S h o rtly after Twombly, the Tenth Circuit described that opinion as one that "seeks to find a middle ground between `heightened fact pleading,' which is expressly rejected, a n d allowing complaints that are no more than `labels and conclusions' or `a formulaic re c itatio n of the elements of a cause of action,' which the [Supreme] Court stated `will n o t do.'" Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (citations omitted) (q u o tin g Twombly, 550 U.S. at 555, 570). The Tenth Circuit also clarified the meaning o f "plausible" under the Twombly standard: T h u s , "plausible" cannot mean "likely to be true." Rather, "plausibility" in this context must refer to the scope of the allegations in a complaint: if they are so general that they encompass a wide swath of conduct, much o f it innocent, then the plaintiffs "have not nudged their claims across the lin e from conceivable to plausible." The allegations must be enough that, if assumed to be true, the plaintiff plausibly (not just speculatively) has a c la im for relief. Id . (citations omitted) (quoting Twombly, 550 U.S. at 570). The Tenth Circuit noted that " [ t]h is requirement of plausibility serves not only to weed out claims that do not (in the a b se n c e of additional allegations) have a reasonable prospect of success, but also to in f o rm the defendants of the actual grounds of the claim against them." Id. at 1248. D e f en d a n ts also argue that plaintiffs have failed to plead their claims of fraud w ith sufficient particularity as required by Fed. R. Civ. P. 9(b). Under that rule, p l a in t if f s ' complaint must "set forth the time, place and contents of the false re p re se n ta tio n s , the identity of the party making the false statements and the

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c o n se q u e n ce s thereof." See Koch v. Koch Indus., 203 F.3d 1202, 1236 (10th Cir. 2000) (qu o tatio n omitted).

III.

Declaratory Judgment Claims ­ Loans Subject to Claims and Defenses

A s set forth above, in their first set of claims, plaintiffs seek a declaratory ju d g m e n t (Counts I, V(A)) that defendants are subject to plaintiffs' defenses against the B ro o k e entities--specifically, fraud (Counts III, VII) and breach of fiduciary duty ( C o u n t s II, VI)--which render plaintiffs' loans unenforceable by defendants. D e f en d a n ts argue that these claims fail because plaintiffs have not pleaded their fraud claim s with particularity, in accordance with Fed. R. Civ. P. 9(b) and the Tenth Circuit's s ta n d a rd from Koch. In its prior order, the Court dismissed the fraud claims from p l a in t if f s ' second amended complaint on this same basis, as follows: P la in tif f s do not dispute that they have failed to allege the particular d e ta ils of the alleged misrepresentations and omissions (date, location, s p e c if ic contents, person making the representations). Plaintiffs argue o n ly that defendants have been given sufficient notice of the claims. None o f the cases cited by plaintiffs, however, suggests that the Koch standard m a y ever be disregarded in a case involving a fraud claim. Memorandum and Order of Apr. 29, 2010, at 16-17. The Court gave plaintiffs the o p p o rtu n ity to cure that deficiency in another amended complaint. T h e Court agrees with defendants, however, that, despite the Court's prior re f ere n c e to required allegations of "date, location, specific contents, person making the re p re se n ta tio n s ," plaintiffs have still failed to allege those necessary details concerning 9

t h e i r fraud claim.

Plaintiffs have only alleged that the Brooke entities made

m isre p re se n tatio n s and omissions in telling them the value of the franchises and in s e ttin g the purchase prices, in connection with eventual purchases by plaintiffs on s p e c if ic dates. Thus, although plaintiffs have identified the subject of the alleged m is re p re se n ta tio n s and omissions--the value of the franchises--they have not alleged the actual misrepresentations made by the Brooke entities (i.e., that the franchises are w o rth some specific amount). Plaintiffs have still not alleged the dates or locations or e v e n the manner in which the representations concerning value were made. Plaintiffs n o te that they have alleged the dates of the transactions, and they point to the statement f ro m Sunbird Air Services, Inc. v. Beech Aircraft Corp., 789 F. Supp. 364 (D. Kan. 1 9 9 2 ), that "where allegations of fraudulent conduct are numerous or take place over an e x t e n d e d period of time, less specificity is required to meet the requirements of Rule 9 (b )." See id. at 366. Plaintiffs have not alleged that the misrepresentations were n u m e r o u s , however, or that they took place over an extended period of time; rather, p la in tif f s appear to allege simply that the Brooke entities lied when they told plaintiffs w h a t the franchises were worth and what the purchase prices would be. Given the lim ited number of transactions here, plaintiffs were required to identify when and in w h a t manner the alleged misrepresentations were made. F in a lly, plaintiffs have also failed yet again to identify the person or persons who m a d e the allege misrepresentations (or who provided information while omitting certain

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f a c ts). In arguing that allegations of fraud by an entity may be proper, plaintiffs cite to S c h w a r tz v. Celestial Seasonings, Inc., 124 F.3d 1246 (10th Cir. 1997), but that case a c tu a lly favors defendants here. In Schwartz, the Tenth Circuit held only that

" [ i]d e n tif yin g the individual sources of statements is unnecessary when the fraud a lle g a tio n s arise from misstatements or omissions in group-published documents such a s annual reports, which presumably involve collective actions of corporate directors or o f f ic e rs ." Id. at 1254. In this case, plaintiffs have not alleged a fraud based on sta tem e n ts in an annual report or similar corporate document, but instead based their c la im on specific representations made only to them concerning the value of specific a s s e ts ; accordingly, Schwartz does not provide any relief from the general rule requiring p l a in t if f s to identify the person making the alleged misrepresentations. F o r these reasons, plaintiffs have failed to satisfy the particularity requirement of R u le 9(b), and the Court dismisses their fraud claims for that reason. Plaintiffs do not d is p u te that Rule 9(b) would also apply to their claims for breach of fiduciary duty, w h ic h are explicitly based on plaintiffs' fraud allegations. Cf. Sheldon v. Vermonty, 31 F . Supp. 2d 1287, 1295 (D. Kan. 1998) (Lungstrum, J.) (compliance with Rule 9(b) was n o t required where breach of fiduciary duty claim was not based on fraud). Therefore, th e Court also dismisses plaintiffs' fiduciary duty counts for the same reason. Finally, th e se declaratory judgment counts were based solely on the defenses of fraud and breach o f fiduciary duty (as plaintiffs failed to identify any other claim or defense against the

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B roo k e entities that could support a plausible claim for a declaratory judgment). B e c au s e those underlying claims have been dismissed, plaintiffs' declaratory judgment c la im s cannot stand, and they are also dismissed. P la in tif f s' declaratory judgment counts (and also, therefore, the dependent fraud a n d fiduciary duty counts) are also subject to dismissal because of plaintiffs' failure to s e t forth in their complaint any facts or theory to show why the existence of such claims o r defenses against the Brooke entities would render the loans unenforceable. In their o p p o si tio n brief, plaintiffs argue that they have pleaded sufficient facts to support p ie rc in g the Brooke entities' corporate veils, thereby making each entity responsible for th e wrongful conduct of the others. Plaintiffs have not explained, however, how such p ie rc in g would make the loans unenforceable. Moreover, plaintiffs' "piercing"

a lle g a t io n s (that the Brooke entities shared an office, controlling executives and owners, e m p lo ye e s, some expenses, a website, and a consolidated financial statement) are hardly s u f f ic ie n t to allow the Brooke entities' separate corporate forms to be ignored, under eith er Delaware or Kansas law. See, e.g., Old Colony Ventures I, Inc. v. SMWNPF H o ld in g s Inc., 1996 WL 707025, at *2-4 (D. Kan. Oct. 2, 1996) (Lungstrum, J.) (setting o u t Delaware law); Doughty v. CSX Transp., Inc., 258 Kan. 493, 497-500 (1995) (setting o u t Kansas law).6 In light of defendants' failure to analyze which state's law would govern p la in tif f s' fiduciary duty claims, the Court will not address defendants' argument that th o s e claims should be dismissed because of plaintiffs' failure to allege specifically that (continued...) 12
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IV .

Declaratory Judgment Claim ­ Prior Breach

In Count IX, plaintiffs essentially seek a declaration that their franchise and loan a g r e e m e n t s are unenforceable because of the Brooke entities' prior breaches of those a g re e m e n ts . Defendants seek dismissal of this count for various reasons. Plaintiffs have n o t responded to these arguments in their opposition brief. Accordingly, the Court d e e m s this count to have been abandoned by plaintiffs, see, e.g., Bushnell Corp. v. ITT C o r p ., 973 F. Supp. 1276, 1283 (D. Kan. 1997) (Lungstrum, J.) (plaintiff abandoned c laim by failing to address it in response brief), and defendants' motions to dismiss this c o u n t are granted as uncontested, see D. Kan. R. 7.4. M o re o v e r, plaintiffs' pleading of this count is deficient. By this count, plaintiffs se e k to excuse or discharge their obligations under the franchise and loan agreements b e c a u s e of prior breaches by the Brooke entities. The rescission of a contract or the d isch arg e of obligations does not arise from every prior breach, however: T h e breach of contract must be material and the failure to perform so su b sta n tial as to defeat the object of the parties in making the agreement. A breach which goes to only a part of the consideration, which is in c id e n ta l and subordinate to the main purpose of a contract, does not w a rra n t rescission. S e e City of Shawnee, Kan. v. AT&T Corp., 910 F. Supp. 1546, 1552-53 (D. Kan. 1995)

(...continued) th e Brooke entities consciously assumed a fiduciary duty. 13

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(L u n g s tru m , J.) (quoting In re Estate of Johnson, 202 Kan. 684, 691-92 (1969)).7 In this c o u n t, plaintiffs allege that the Brooke entities breached the agreements by failing to pay p re m iu m s and other amounts to plaintiffs and by "sweeping" accounts and adding p rin c ip a l to the loans. Plaintiffs have not alleged any facts, however, to support an a lleg a tio n that such breaches were material and so substantial as to defeat the main p u r p o s e of those contracts (the granting of the franchise and the loan of the purchase p r ic e ) , such that the breaches might excuse all performance by plaintiffs under those c o n tra c ts. The Court therefore dismisses plaintiffs' prior material breach count for this a d d itio n a l reason.

V.

Declaratory Judgment Claims ­ Holders in Due Course

In three counts (Counts IV, V(B), VIII), plaintiffs seek declarations that their lo a n s are not enforceable because defendants are not "holders in due course," for six s e p a ra te reasons that track the definition of "holder in due course" found in K.S.A. § 843 -3 0 2 . Defendants seek dismissal of these counts for various reasons. Plaintiffs have n o t included any argument relating to these counts in their opposition brief; therefore, p lain tiff s are deemed to have abandoned these counts, and defendants' motions to

The parties have generally applied Kansas law in this case, apparently based on K ansa s choice-of-law provisions contained in plaintiffs' contracts and Brooke's location in Kansas. This requirement of a prior material breach is generally universal among the s ta te s, however, and thus this result would be the same regardless of whether another s ta te 's law should apply. See, e.g., E. Allan Farnsworth, Contracts § 8.16 (2d ed. 1990). 14

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d is m is s them are granted as uncontested. T h e se counts are also deficient under the applicable standards. In their second a m e n d e d complaint, plaintiffs alleged generally that defendants were not holders in due c o u rs e for these same six reasons. In dismissing that complaint, the Court ordered p la in tif f s, in any amendment, to identify which of those six reasons applied to each loan. S e e Memorandum and Order of Apr. 29, 2010, at 14. In their third amended complaint, p lain tiff s separated this claim into three separate counts, linking the particular loans to p a rtic u la r defendants, but they still alleged all six reasons for denying holder-in-duec o u r s e status in each count. The Court agrees with defendants that such

a lle g a tio n s -- th a t all six reasons apply for each loan and for each defendant--are not p la u sib le . As the Court noted in its prior order, ordinarily plaintiffs would not be re q u ire d to provide specific details about alleged alterations or unauthorized signatures o r other reasons, see id.; nevertheless, in this case, some factual support is required to m o v e plaintiffs' allegations away from the type of boilerplate, conclusory, statutetra c k in g pleading that the Supreme Court has forbidden. In the absence of such factual s u p p o rt, plaintiffs' claims that each of the statutory reasons is applicable to each loan and e a ch defendant is simply not plausible. In these counts in their third amended complaint, plaintiffs have added a single f a ctu a l allegation after three of the six reasons. While such factual statements might lend s o m e support to the conclusory pleading of the six reasons, the plausibility is undermined

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b y the fact that the same factual allegations are mimicked in each of the three counts. T h u s, plaintiffs have alleged that for each of four separate loans, indorsements have "in so m e instances" been backdated and "in other instances" contain signatures added "well a f te r the fact." Viewing the allegations as a whole, the Court concludes that plaintiffs h a v e not pleaded sufficient facts to make plausible claims that each defendant is not a h o ld e r in due course for each loan for the same six reasons, namely each reason set out in the statute. T h e se counts remain fundamentally flawed for another reason. Whether

d e f e n d a n ts may be holders in due course is relevant only to the extent that it makes p la in tif f s' loans unenforceable (the declaration sought by plaintiffs)--otherwise, the e x e rc ise is academic and no justiciable controversy exists. A party might assert that it is a holder in due course in order to overcome some defense asserted by the party o b lig a te d on an instrument. See, e.g., K.S.A. § 84-3-305(a). Thus, there must be an u n d e r lyin g defect or defense for plaintiffs to assert, in order for the holder-in-due-course a n a lysis to become relevant. In their third amended complaint, plaintiffs have only p le a d ed the defenses of fraud, breach of fiduciary duty, and prior material breach, but th o s e claims are subject to dismissal, as discussed above. Therefore, because no defense p l e a d e d by plaintiffs remains, there is no reason for the Court to adjudicate defendants' h o ld e r-in -d u e -c o u rs e status, and there is no support for plaintiffs' requested declarations th a t the loans are unenforceable.

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V I.

Affirmative Claims A. Jurisdiction

T h e foregoing analysis leaves only plaintiffs' affirmative claims against d ef en d an ts for breach of contract and for money had and received (Counts X, XI), r e la tin g to defendants' alleged failure to pay plaintiffs' commissions after the collapse o f Brooke. Defendants argue that, once the other claims have been dismissed, there is n o longer diversity jurisdiction because the commissions at issue do not exceed the ju ris d ic tio n a l amount of $75,000. The Court rejects this argument. The relevant time f o r establishing the amount in controversy is the filing of the complaint. "Just because th e court dismisses certain claims, which reduce the amount of recovery, . . . does not n e c es s a rily destroy jurisdiction or prove that the plaintiff acted in bad faith." Watson v. B la n k in sh ip , 20 F.3d 383, 387 (10th Cir. 1994); see also 15 Moore's Federal Practice ¶ 102.104[3] (3d ed. 2010) ("If diversity jurisdiction existed at the time the case was f iled , it is not affected by the dismissal of one of the claims, whether on motion to d is m is s or summary judgment, even though the amount recoverable on the remaining claim is less than the required amount."); 14AA Charles A. Wright, et al., Federal P r a c tic e and Procedure § 3702, at 80 (2009) (in accord). D e f en d a n ts have not disputed that plaintiffs' entire complaint satisfied the am o u n t-in -co n tro v ersy requirement for diversity jurisdiction. Therefore, the Court re ta in s jurisdiction over plaintiffs' affirmative claims, even after dismissal of the other

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c la im s . B. Breach of Contract Claim

In their claim for breach of contract (Count X), plaintiffs allege that defendants b re a ch e d plaintiffs' financing or franchise agreements or the Brooke bankruptcy s e ttle m e n t agreement by failing to remit commissions and other amounts to plaintiffs. D e f en d a n ts argue that such claims are barred on the face of those contracts, as plaintiffs a re not parties to the bankruptcy settlement agreement, defendants are not parties to the f ra n c h is e agreements, and the loan agreements contain no obligation to pay c o m m iss io n s.8 In its prior order, in requiring plaintiffs to identify the particular contracts a lle g e d ly breached by defendants, the Court noted that plaintiffs had "alleged that d e f e n d a n ts breached obligations under contracts to which defendants were not originally p a rtie s, and that they breached bankruptcy orders and settlement agreements to which p la in tif f s may not have been parties." See Memorandum and Order of Apr. 29, 2010, at 1 6 . Despite this warning, the third amended complaint still does not contain facts that w o u ld establish that a particular contract contained an obligation to pay plaintiffs and th a t defendants were bound by that obligation. Nor in their response brief have plaintiffs a n sw e re d defendants' objection or explained specifically how defendants (non-parties to the franchise and loan agreements) may be held liable for breaching a particular

If a document is central to the plaintiff's claim, the defendant may submit an in d is p u ta b ly authentic copy for consideration upon a motion to dismiss. See GFF Corp. v . Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997). 18

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c o n tra c tu a l obligation to pay money to plaintiffs, other than to insist that the complaint id e n tif ie s the particular contracts on which their claim is based. Certainly by asserting a claim against defendants, plaintiffs have alleged that defendants had some obligation to make payments; such allegation is only conclusory, however, and plaintiffs have not a lle g e d a plausible basis for holding defendants liable for breach of contract. Therefore, th e Court dismisses plaintiffs' claim for breach of contract. C. Money Had and Received Claim

In their final claim, plaintiffs assert a claim for money had and received, based o n defendants' alleged failure to pay commissions due to plaintiffs (Count XI). In its o n ly argument for dismissal of this claim, defendants argue that such an equitable claim is barred because of the availability of an adequate remedy at law, namely, asserting the c la im in the bankruptcy court under procedures set forth in the bankruptcy settlement a g re e m e n t. T h e Court rejects this argument for a number of reasons. First, defendants have c ite d a Texas case, Stonebridge Life Insurance Co. v. Pitts, 236 S.W.3d 201 (Tex. 2007), p re su m a b ly because plaintiffs are located in Texas. Defendants have not undertaken any c h o ice -o f -la w analysis, however, or attempted to explain why Texas law should apply in light of the potentially-relevant facts that any commissions were withheld by d e f en d a n ts outside of Texas and that the contracts that allegedly imposed the payment o b lig a tio n s had Kansas choice-of-law provisions or were executed in Kansas. See, e.g.,

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E d s o n Consolidated Sch. Dist. No. 2 of Sherman Co. v. School Dist. No. 64 of Sherman C o ., 145 Kan. 847, 848 (1937) (in statute of limitations context, noting that claim for m o n e y had and received was essentially an action in quasi contract for restitution); see a l so Memorandum and Order of Apr. 29, 2010, at 6 (in prior order, noting parties' f a ilu re to address choice-of-law issue). It is not clear that all jurisdictions would deem th is claim an equitable one or impose a requirement that no adequate alternative remedy a t law exist for recovery for money had and received. See, e.g., Granfinanciera, S.A. v. N o r d b e r g , 492 U.S. 33, 47-48 (1989) (court will not sustain a bill in equity for payment o f damages when the like amount "can be recovered at law in an action . . . for money h a d and received"); Coppock v. J.C. Nichols Inv. Co., 146 Kan. 372, 374 (1937) (action f o r money had and received is one at law governed by equitable principles). Thus, in the a b se n c e of a choice-of-law analysis, the Court will not dismiss plaintiff's claim on this b a s is . M o re o v e r, even if Texas law were applied, the case cited by defendants, in dicta, s ta te s only that "some" equitable claims "may be" supplanted "in certain contexts" if an a d e q u a te legal remedy exists. See Stonebridge, 236 S.W.3d at 203 n.1. Such a statement in dicta hardly equates to a holding that the alternative-legal-remedy rule applies to all c la im s for money had and received. At this stage, the Court is not prepared to rule as a m a tte r of law that plaintiffs' claim should be barred by the existence of the bankruptcy p ro c e d u re . Therefore, defendants' motions to dismiss this claim are denied.

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V II.

Further Amendment

A t the conclusion of their response brief, plaintiffs request another opportunity to amend to cure any pleading deficiencies found by the Court. The Court, in its d iscretio n , denies plaintiffs yet another opportunity to state cognizable declaratory ju d g m e n t claims, in light of plaintiffs' failure to cure deficiencies noted by the Court in its prior order. See TV Comm. Network, Inc. v. Turner Network Television, Inc., 964 F .2 d 1022, 1028 (10th Cir. 1992) (failure to cure pleading deficiencies by previous am en d m en ts provides basis for denial of leave to amend). In this case, plaintiffs have already filed four complaints, including two a m e n d m e n ts filed in response to motions to dismiss by defendants. With respect to the f ra u d claims, the Court identified for plaintiffs the particular details needed, and p lain tiff s nevertheless failed to satisfy Rule 9(b) in their third amended complaint. P lain tiff s did not follow the Court's instruction to make clear whether the fiduciary duty c la im related only to the declaratory judgment claim or constituted a separate affirmative c la im . Plaintiffs also failed to comply with the Court's instruction to make clear the b a se s or theories for holding defendants liable for conduct by one or more Brooke en tities. With respect to the prior material breach count, plaintiffs ignored the Court's d ire c tio n to state whether such claim was intended as part of a declaratory judgment c la im or as a separate affirmative claim, and plaintiffs did not see fit to address that c la im in their response brief. Similarly, plaintiffs failed to address the holder-in-due-

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c o u rs e claim in their response, and they continued to rely in boilerplate fashion on all of th e statutory reasons despite the Court's instruction to link specific reasons to specific d e f e n d a n t s. (In addition, there is no basis for amendment of the holder-in-due-course c la im in the absence of an underlying defense to the loans, as explained above.) Even w ith respect to the affirmative contract claim, plaintiffs did not heed the Court's in s tr u c tio n to make clear the basis for defendants' obligation and liability. For these re a so n s , the Court concludes that plaintiffs should not be afforded yet another o p p o r tu n ity to cure their deficiently-pleaded declaratory judgment claims. N e v e rth e le ss , because plaintiffs' affirmative claim for money had and received re m a in s , the Court will allow plaintiffs a final opportunity to amend their companion c la im for breach of contract (Count X), to cure the pleading deficiencies noted herein w ith respect to that count. If plaintiffs intend to amend that count, they shall file a fourth a m e n d e d complaint on or before October 1, 2010.

IT IS THEREFORE ORDERED BY THE COURT THAT defendants' motions to dismiss plaintiffs' third amended complaint (Doc. ## 81, 82, 83, 87) are granted in p a r t and denied in part. The motions are granted with respect to Counts I through X o f plaintiffs' third amended complaint, and those claims are hereby dismissed. The m o tio n s are denied with respect to Count XI of plaintiff's third amended complaint. P lain tiff s' are also granted leave to file a fourth amended complaint, on or before

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O c to b e r 1, 2010, by which they may amend Count X to cure the pleading deficiencies n o te d herein.

IT IS SO ORDERED.

D a te d this 20th day of September, 2010, in Kansas City, Kansas.

s / John W. Lungstrum ___ J o h n W. Lungstrum U n ite d States District Judge

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