Helena Chemical Company v. Holthaus et al

Filing 24

MEMORANDUM AND ORDER denying 13 Motion to Dismiss. Signed by District Judge Carlos Murguia on 1/29/2018. (ydm)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
HELENA CHEMICAL COMPANY d/b/a
HELENA FINANCE,
Plaintiff,
Case No. 17-2642
v.
STEVEN EDWARD HOLTHAUS, et al.,
Defendants.

MEMORANDUM AND ORDER
Plaintiff Helena Chemical Company d/b/a Helena Finance filed a complaint asserting claims
for breach of loan agreement and replevin against defendants Steven Edwards Holthaus, Connie S.
Holthaus (“the borrowers”), and a claim for quantum meruit against Derik S. Holthaus. Plaintiff’s
claims arise out of defendants’ alleged failure to repay a loan they obtained from plaintiff. This matter
is now before the court on defendants’ Motion to Dismiss. (Doc. 13.) For the reasons set forth below,
defendants’ motion is denied.
I.

Background

In May 2015, the borrowers completed an Application and Loan Agreement in which they
requested a $200,000 credit account with plaintiff. In January 2016, the borrowers executed a Security
Agreement in which they pledged certain collateral to plaintiff to secure the amounts owed by the loan.
Pursuant to the Security Agreement, the borrowers granted plaintiff a security interest in and lien on all
of the borrowers’ accounts, inventory, equipment, farm products, general intangibles, insurance
payments on any crop loss, and a purchase money security interest in all goods and services provided
by plaintiff to the borrowers. Plaintiff perfected the Security Agreement on January 21, 2016 when it
filed a UCC-1 financing statement with the Kansas Secretary of State. On January 25, 2016, plaintiff

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approved the Loan Agreement. In August 2016, plaintiff revised the credit amount in the Loan
Agreement to $400,000.
The total credit amount utilized by the borrowers was $395,122.87. A portion of the total
credit amount—$96,331.48—was used by defendant Derick Holthaus. He made two payments on the
loan reducing his amount to $68,831.48. The principal and interest owed under the Loan Agreement is
$444,680.33 as of September 30, 2017.
Plaintiff alleges that defendants are in default under the Loan Agreement for their failure to pay
the amounts due. On November 2, 2017, plaintiff filed a Verified Complaint against defendants
alleging four causes of action: 1) Breach of Loan Agreement Against defendants Steven and Connie
Holthaus, 2) Quantum Meruit Against defendant Derick Holthaus, 3) Replevin Against defendants
Steven and Connie Holthaus, and 4) Injunctive Relief.
II.

Legal Standards

Under Rule 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon which
relief can be granted.” Rule 8(a)(2) states that a pleading must contain “a short and plain statement of
the claim showing that the pleader is entitled to relief.” To withstand a motion to dismiss under
12(b)(6), a complaint must contain “enough allegations of fact, taken as true, ‘to state a claim to relief
that is plausible on its face.’” Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)). A claim is plausible when “the
pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). When the complaint contains
well-pleaded factual allegations, a court should “assume their veracity and then determine whether
they plausibly give rise to an entitlement to relief.” Id.

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III.

Analysis

Defendants move to dismiss plaintiff’s complaint on three grounds: 1) plaintiff’s claims against
defendants Steven and Connie Holthaus are required to be arbitrated pursuant to the Security
Agreement, 2) the claim against defendant Derick Holthaus is for damages of less than $75,000 and
therefore the court lacks jurisdiction, and 3) necessary parties have not been joined as required by
K.S.A. § 60-219(a).
Defendants first argue that pursuant to paragraph 11.10 of the Security Agreement, plaintiff’s
claims against Steven and Connie Holthaus must be arbitrated. Paragraph 11.10 states:

Importantly, the paragraph states that any “controversy, claim, action, or dispute arising out of
or relating to this Agreement . . . must be resolved by binding arbitration.” (Emphasis added.) Plaintiff
notes that the controversy at issue is regarding a breach of the Loan Agreement, not a dispute with the
Security Agreement. The court agrees. The allegations in plaintiff’s verified complaint involve
defaults under the Loan Agreement, and not a dispute as to the extent and scope of the Security

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Agreement. Because the Loan Agreement does not include an arbitration clause, defendants’ argument
fails.
Next defendants argue that the claim against defendant Derik Holthaus should be dismissed for
lack of diversity jurisdiction because the amount in controversy is less than $75,000. Plaintiffs believe
this court may exercise supplemental jurisdiction over the Derik Holthaus claim.
Diversity jurisdiction exists when there is 1) complete diversity of citizenship among the
parties, and 2) the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. Under 28 U.S.C. §
1367(a), in any case where a federal court has original jurisdiction, the court “shall have supplemental
jurisdiction over all other claims that are so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy under Article III of the United States
Constitution.” A claim arises out of the same case or controversy when it “derive[s] from a common
nucleus of operative fact.” United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966). Here, the
quantum meruit claim against defendant Derik Holthaus arises out of the alleged failure to repay the
loan obtained from plaintiff. Because this claim involves the same dispute as the claims against
defendants Steven and Connie Holthaus, and because this court has diversity jurisdiction over those
claims, it is proper for the court to exercise supplemental jurisdiction over the claim against defendant
Derik Holthaus.
Finally, defendants argue plaintiff’s complaint should be dismissed because it failed to join
necessary parties under K.S.A. § 60-219(a).

Defendants claim United Bank & Trust, Deere &

Company, the Cooperative Finance Association, Inc., and the United States through the Farm Service
Agency are necessary parties to this action. Defendants, however, don’t explain why the parties are
necessary or why this case cannot be resolved without joining them. In its response, plaintiff notes that
these parties hold liens to the collateral which are superior to plaintiff’s liens.

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Under K.S.A. § 60-219(a), a party must be joined to an action if:
(A) In that person's absence, the court cannot accord complete relief among existing
parties; or
(B) that person claims an interest relating to the subject of the action and is so situated
that disposing of the action in the person's absence may:
(i) As a practical matter, impair or impede the person's ability to protect the
interest; or
(ii) leave an existing party subject to a substantial risk of incurring double,
multiple or otherwise inconsistent obligations because of the interest.
Plaintiff claims that the rights of the other secured creditors will not be impaired by the
disposition of this action as they will retain their ability to sue defendants and still retain the priority of
their security interest in the collateral, even if it is possessed by plaintiff. Defendants did not dispute
this and, again, do not explain why these parties are necessary to the action. The court therefore denies
defendants’ motion to dismiss on all three grounds.
IT IS THEREFORE ORDERED that defendants’ Motion to Dismiss (Doc. 13) is denied.

Dated January 29, 2018, at Kansas City, Kansas.

s/ Carlos Murguia
CARLOS MURGUIA
United States District Judge

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