Shafer Kline & Warren, Inc. v. Allen Group-Kansas City, LLC, The et al

Filing 32

MEMORANDUM AND ORDER granting 14 Defendant Richard Allen's Motion to Dismiss Count III. Signed by District Judge Julie A. Robinson on 5/15/2014. (ms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
SHAFER, KLINE & WARREN, INC.,

)
)
Plaintiff,
)
)
)
vs.
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)
THE ALLEN GROUP-KANSAS CITY, )
LLC, and RICHARD ALLEN,
)
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Defendants.
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____________________________________)

Case No. 13-2472-JAR-TJJ

MEMORANDUM AND ORDER
Plaintiff Shafer, Kline & Warren, Inc. (“SKW”) alleges several state law claims against
Defendants The Allen Group-Kansas City, LLC and Richard Allen, related to professional
services for which Plaintiff claims it was not paid. Before the Court is Defendant Richard
Allen’s Motion to Dismiss Count III (Doc. 14), for constructive trust. The motion is fully
briefed and the Court is prepared to rule. As explained more fully below, Defendant’s motion to
dismiss is granted.
I.

Facts Alleged in the First Amended Complaint
The following facts are alleged in the First Amended Complaint and viewed in the light

most favorable to Plaintiff.1 Prior to 2011, BNSF Railway Company (“BNSF”) began planning
the construction of a several hundred acre intermodal center in or near Edgerton, Kansas, in
Johnson County, to be called Logistics Park Kansas City (“LPKC”). LPKC was planned to
eventually accommodate over 500,000 shipping containers, and host such entities as agricultural
1

The First Amended Complaint (Doc. 28) was filed after the briefing on the motion to dismiss. In granting
Plaintiff’s unopposed motion for leave to amend, Magistrate Judge Teresa James noted that the amendments do not
involve Count III and that the Court would construe the briefing on the motion to dismiss as applicable to the First
Amended Complaint. See Doc. 27.

exporters, e-commerce companies, traditional retailers, and product distributors. BNSF used the
services of The Allen Group-Kansas City (“TAG”) to assist with and facilitate the project. In
2010, TAG retained SKW to secure and facilitate the proper municipal annexation of the real
property where LPKC would be built. Over the course of the next several months, TAG
routinely and repeatedly requested SKW perform professional services for TAG and the LPKC
project; SKW performed these services. TAG accepted SKW’s services and SKW sent invoices
and statements to TAG setting forth its charges and requests for payment. TAG has failed and
refused to pay SKW for the services it provided to TAG for the LPKC project.
In Count III, SKW alleges that it is entitled to a constructive trust against Defendant
Richard Allen, claiming that “TAG was insolvent after the transfer of certain assets relating to
the LPKC project,” and alleges that “Allen holds title to or possesses the value received for the
assets TAG transferred relating to the LPKC project.” SKW alleges that Allen is subject to an
equitable duty to convey the value he has received because otherwise, he would be unjustly
enriched. And SKW alleges that Allen is under a legal or equitable duty to hold that value in
trust for SKW.
II.

Standard
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must present

factual allegations, assumed to be true, that “raise a right to relief above the speculative level”
and must contain “enough facts to state a claim to relief that is plausible on its face.”2 Under this
standard, “the complaint must give the court reason to believe that this plaintiff has a reasonable

2

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007).

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likelihood of mustering factual support for these claims.”3 The plausibility standard does not
require a showing of probability that “a defendant has acted unlawfully,”4 but requires more than
“a sheer possibility.”5
The plausibility standard enunciated in Bell Atlantic v. Twombly,6 seeks a middle ground
between heightened fact pleading and “allowing complaints that are no more than ‘labels and
conclusions’ or ‘a formulaic recitation of the elements of a cause of action,’ which the Court
stated ‘will not do.’”7 Twombly does not change other principles, such as that a court must
accept all factual allegations as true and may not dismiss on the ground that it appears unlikely
the allegations can be proven.8
The Supreme Court has explained the analysis as a two-step process. For purposes of a
motion to dismiss, the court “must take all the factual allegations in the complaint as true, [but]
we ‘are not bound to accept as true a legal conclusion couched as a factual allegation.’”9 Thus,
the Court must first determine if the allegations are factual and entitled to an assumption of truth,
or merely legal conclusions that are not entitled to an assumption of truth.10 Second, the Court
must determine whether the factual allegations, when assumed true, “plausibly give rise to an

3

Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis in original).

4

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

5

Id.

6

Twombly, 550 U.S. at 544.

7

Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (quoting Twombly, 550 U.S. at 555).

8

Id. (citing Twombly, 550 U.S. at 556).

9

Iqbal, 556 U.S. at 678.

10

Id. at 679.

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entitlement to relief.”11 “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.”12
III.

Discussion
Defendant Allen moves to dismiss Count III of the First Amended Complaint, which is

asserted against him in his personal capacity. He argues that this claim must be dismissed
because SKW has an adequate remedy at law, and because the facts do not sufficiently allege
that Allen owed SKW a recognizable legal duty.
A constructive trust is an equitable remedy for unjust enrichment; it is not an independent
cause of action.13 Therefore, the Court construes Count III as asserting a claim of unjust
enrichment against Defendant Allen, seeking a constructive trust as a remedy. To succeed on a
claim of unjust enrichment, a plaintiff must show, “(1) a benefit has been conferred upon the
defendant, (2) the defendant retains the benefit, and (3) under the circumstances, the defendant’s
retention of the benefit is unjust.”14 “Kansas law is clear that quasi-contractual remedies, such as
unjust enrichment, ‘are not to be created when an enforceable express contract regulates the
relations of the parties with respect to the disputed issue.’”15 “Generally, equitable remedies are

11

Id.

12

Id. at 678.

13

Nelson v. Nelson, 205 P.3d 715, 723 (Kan. 2009).

14

Estate of Draper v. Bank of Am., N.A., 205 P.3d 698, 706 (Kan. 2009).

15

See Britvic Soft Drinks, Ltd. v. ACSIS Techs., Inc., No. 01-2243-CM, 2004 WL 1900584, at *2 (D. Kan.
June 8, 2004) (citing Member Servs. Life Ins. Co. v. Am. Nat’l Bank & Trust Co., 130 F.3d 950, 957 (10th Cir.
1997)).

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not available if there is an adequate remedy at law.”16
Defendant argues that Plaintiff has an adequate remedy at law against TAG for breach of
contract and that the owners of a corporate entity generally cannot be held personally liable for
corporate debts. Plaintiff responds that (1) a party may plead alternative remedies; (2) special
circumstances exist that would allow the owner of the corporate entity in this case to be held
personally liable for TAG’s corporate debts.
While Plaintiff is correct that alternative remedies are generally permitted under the
federal rules,17 a claim is still subject to dismissal if it is precluded by law.18 “[A] claim must
first be made against the one who violated a duty . . . and a remedy at law must be unavailable
before equitable relief is allowed.”19 Here, the allegations in the First Amended Complaint make
clear that SKW contracted with TAG and that TAG refused to pay for its services. Plaintiff
therefore has an adequate legal remedy for breach of contract against TAG. The mere fact that
TAG may be unable to satisfy a judgment does not mean that SKW’s legal remedy is
inadequate.20
Even if Plaintiff could establish that it does not have an adequate remedy at law, Count
III must be dismissed because it fails to state a plausible claim of unjust enrichment against
Allen. Plaintiff argues that it alleges two special circumstances are present that would allow

16

Nelson, 205 P.3d at 734.

17

Fed. R. Civ. P. 8(a)(3).

18

See Fusion, Inc. v. Neb. Aluminum Castings, Inc., 934 F. Supp. 1270, 1275 (D. Kan. 1996).

19

Nelson, 205 P.3d at 734.

20
See Restatement (First) of Restitution § 160 cmt. f (“a constructive trust will not be imposed merely
because owing to the insolvency of the defendant the remedy at law is inadequate.”).

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Allen to be personally liable for TAG’s liabilities under an unjust enrichment theory: (1) the trust
fund doctrine; and (2) “injustice.” Neither circumstance applies to the facts alleged in the First
Amended Complaint.
Kansas recognizes the trust fund doctrine as follows:
Under the trust fund doctrine the assets of a dissolved corporation
are a trust fund against which the corporate creditors have a claim
superior to that of the stockholders, and creditors have the right to
follow such assets into the hands of stockholders who hold assets
as though the stockholders were trustees. A stockholder of a
dissolved corporation receiving assets of a dissolved corporation is
liable to respond to a creditor of the corporation only to the extent
of the assets so received or the value thereof if the same have been
disposed of by the stockholder.21
While Plaintiff alleges in the First Amended Complaint that TAG was insolvent, it does not
allege that it has been dissolved. Assuming the facts alleged as true, this doctrine does not apply
to Allen.
Next, Plaintiff argues that Allen may be personally liable based on “injustice.” The cases
to which SKW cites apply the doctrine of piercing the corporate veil.22 “‘The doctrine of alter
ego is used to impose liability on the individual who uses a corporation merely as an
instrumentality to conduct his own personal business.’”23 While Plaintiff is correct that
“injustice alone” may be sufficient to pierce the corporate veil under certain circumstances,24

21

Carson v. Davidson, 808 P.2d 1377, 1381–82 (Kan. 1991).

22

Ireland v. Dodson, 704 F. Supp. 2d 1128 (D. Kan. 2010); Louisburg Bldg. & Dev. Co. v. Albright, 252
P.3d 597, 609 (Kan. Ct. App. 2011).
23

Kvassay v. Murray, 808 P.2d 896, 904 (Kan. Ct. App. 1991) (quoting Sampson v. Hunt, 665 P.2d 743
(Kan. 1983)).
24

Id. (stating that “[i]njustice alone will support a disregard of the corporate entity” where the record
showed that the individuals used the corporation as a facade for their own interests and induced the plaintiff to enter
into a contract with the corporation to the detriment of the plaintiff).

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under Kansas law, the Court is to evaluate the following relevant factors to determine whether
the doctrine should apply:
(1) Undercapitalization of a one-man corporation, (2) failure to
observe corporate formalities, (3) nonpayment of dividends, (4)
siphoning of corporate funds by the dominant stockholder, (5)
nonfunctioning of other officers or directors, (6) absence of
corporate records, (7) the use of the corporation as a facade for
operations of the dominant stockholder or stockholders, and (8) the
use of the corporate entity in promoting injustice or fraud.25
Again, there are no facts alleged in the First Amended Complaint that would suggest the
presence of any of these factors, nor does Plaintiff seek to pierce the corporate veil in its
pleading.
SKW states in the response that it believes discovery will show that TAG transferred
unspecified “assets” to NorthPoint Development and that TAG did not receive enough value in
return. SKW believes that Allen did receive some value in exchange for this transfer. But these
facts are not alleged in the First Amended Complaint, which was filed after the motion to
dismiss. Nor do these facts suffice to establish Allen is the alter ego of TAG—there is
absolutely no explanation as to how NorthPoint is related to Allen or TAG nor how this fact
otherwise shows that Allen is the alter ego of TAG. The Court may not consider matters outside
the pleadings on a motion to dismiss.26 The facts alleged in the First Amended Complaint do not
state a plausible claim for piercing the corporate veil to hold Allen accountable for the debts of
TAG. Therefore, the Court grants Defendant’s motion to dismiss Count III against Allen for
unjust enrichment and constructive trust.

25

Amoco Chems. Corp. v. Bach, 567 P.2d 1337, 1341–42 (Kan. 1977).

26

Fed. R. Civ. P. 12(d).

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IT IS THEREFORE ORDERED BY THE COURT that Defendant Richard Allen’s
Motion to Dismiss Count III (Doc. 14) is granted. Count III is hereby dismissed.

Dated: May 15, 2014
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE

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