Swimwear Solution, Inc. v. Orlando Bathing Suit, LLC
Filing
47
MEMORANDUM AND ORDER granting with prejudice as to Counts III, V, VI, VII, and X of Plaintiff's Complaint, and with leave to amend as to Count IX 5 Motion to Dismiss; granting as to Count VIII 7 Motion for More Definite Statement; and denying 14 Plaintiff's Motion to Dismiss EBW's Counterclaim. Please see order for details. Signed by Chief District Judge Julie A Robinson on 3/30/2018. (ydm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
SWIMWEAR SOLUTION, INC.,
Plaintiff,
v.
Case No. 17-CV-02691-JAR-GLR
ORLANDO BATHING SUIT, LLC, d/b/a
EVERYTHING BUT WATER
Defendant.
MEMORANDUM AND ORDER
Plaintiff Swimwear Solution, Inc. (“Swimwear”) filed this action against Defendant
Orlando Bathing Suit, LCC, d/b/a Everything But Water (“EBW”), in the District Court of
Johnson County, Kansas on November 6, 2017, bringing claims for breach of contract (Count I),
tortious interference with existing, exclusive supplier contracts (Count II), tortious interference
with existing employee contracts (Count III), tortious interference with prospective business
(Count IV), breach of fiduciary duty (Count V), misappropriation of trade secrets under Kansas
law (Count VI), misappropriation of trade secrets under New York law (Count VII),
misrepresentation and fraud (Count VIII), unjust enrichment (Count IX), conversion (Count X),
and declaratory judgment (Count XI).1
After removing the action to this Court, Defendant filed its Answer and Counterclaim on
December 15, 2017, asserting a breach-of-contract counterclaim against Plaintiff.2 This matter
now comes before the Court on Defendant’s Motion to Dismiss Counts III, V, VI, VII, IX and X
of the Complaint (Doc. 5), Plaintiff’s Motion to Dismiss EBW’s Counterclaim (Doc. 14), and
1
Doc. 1-1.
2
Doc. 9.
Defendant’s Motion for a More Definite Statement (Doc. 7) as to Count VIII. The motions are
fully briefed, and the Court is prepared to rule. For the reasons set forth below, Defendant’s
Motion to Dismiss is granted, with leave to amend as to Count IX, Plaintiff’s Motion to Dismiss
EBW’s Counterclaim is denied, and Defendant’s Motion for a More Definite Statement is
granted.
I.
Motions to Dismiss
A.
Legal Standard
To survive a motion to dismiss brought under Fed. R. Civ. P. 12(b)(6), a complaint must
contain factual allegations that, assumed to be true, “raise a right to relief above the speculative
level”3 and must include “enough facts to state a claim for relief that is plausible on its face.”4
Under this standard, “the complaint must give the court reason to believe that this plaintiff has a
reasonable likelihood of mustering factual support for these claims.”5 The plausibility standard
does not require a showing of probability that “a defendant has acted unlawfully,” but requires
more than “a sheer possibility.”6 “[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of
the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual
allegations to support each claim.”7 Finally, the court must accept the nonmoving party’s factual
allegations as true and may not dismiss on the ground that it appears unlikely the allegations can
be proven.8
3
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing 5C Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1216, at 235–36 (3d ed. 2004)).
4
Id. at 570.
5
Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis in original).
6
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).
7
Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Twombly, 550 U.S. at
8
Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555).
555).
2
The Supreme Court has explained the analysis as a two-step process. For the purposes of
a motion to dismiss, the court “must take all the factual allegations in the complaint as true, [but
is] ‘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
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
B.
Factual Allegations
The following facts are taken from Plaintiff’s Complaint and Defendant’s First Amended
Answer and Counterclaim, and are assumed to be true for the purposes of the parties’ respective
motions to dismiss. Plaintiff is a local, family-owned boutique retailer of swimwear and other
apparel. Plaintiff’s retail shop is located in the Kansas City suburb of Overland Park, Kansas,
and Plaintiff has been serving the metropolitan area for nearly thirty years by being “the go-to
shop for access to unique and fashionable swimwear and apparel.”13 Plaintiff is widely known
throughout the community and enjoys a loyal customer base due to its knowledgeable customer
service and unmatched selection. Plaintiff “has established and built its unique brand on the
foundation of its owner, Laurel Jones’ intimate knowledge of the preferences, style, and buying
9
Id. (quoting Twombly, 550 U.S. at 555).
10
Id. at 678–679.
11
Id. at 679.
12
Id. at 678 (citing Twombly, 550 U.S. at 556).
13
Doc. 1-1, ¶ 2.
3
trends of the local market.”14 Plaintiff’s “marketplace knowledge has taken years to develop,”15
and Plaintiff has grown its business through “the cultivation of exclusive, valuable relationships
with a substantial number of luxury swimwear and apparel vendors” that supply its inventory.16
The success of Plaintiff’s business depends upon the exclusivity of these relationships with
vendors, as well as the retention of its highly-trained staff.
Defendant is a national chain of approximately 100 retail stores, operating under the
name “Everything But Water,” that sells swimwear and apparel “predominately throughout
California, Florida, and Texas, as well as other states.”17 In early June 2012, Plaintiff was
approached by Defendant’s Chairman, Randall Blumenthal, for the purported purpose of
discussing Defendant’s acquisition of Plaintiff.
On July 9, 2012, Plaintiff and Defendant entered into a Mutual Nondisclosure Agreement
(“MNDA”). The MNDA, attached as an exhibit to Plaintiff’s Complaint, protected:
… any information disclosed by either party to the other party, either
directly or indirectly, in writing, orally or by inspection, including
without limitation documents, prototypes, samples, and information
relating to, without limitation, (i) each party’s trade secrets, past,
present and future research, development or business activities or
the results from such activities, business plans, strategies, methods
and/or practices; and (ii) each party’s business that is not generally
known to the public, including, but not limited to, information about
each party’s personnel, products, customers, marketing strategies,
services or future business plans.18
14
Id. ¶ 13.
15
Id.
16
Id. ¶ 14.
17
Id. ¶ 4–5.
18
Id., Ex. 1, ¶ 2.
4
The MNDA forbade each party from using the confidential information of the other party “for
any purpose except to evaluate and engage in discussions concerning a potential business
relationship between the parties.”19
Each party was obligated under the MNDA to use its best efforts to protect the other
party’s confidential information, and to return any copies of information provided to it upon
request. The MNDA further stated that:
The obligations of each receiving party hereunder with respect to
any particular Confidential Information shall survive until the earlier
of such time as such Confidential Information of the other party
disclosed hereunder becomes publicly known and made generally
available through no action or inaction of the receiving party, or two
(2) years from the date such Confidential Information was disclosed
to the receiving party hereunder.20
Over the course of three years, the parties engaged in discussions during which
Defendant sought—and Plaintiff provided—certain confidential information that Plaintiff had
acquired “through years of effort to become the leading swimwear boutique in the area.”21 This
information included Plaintiff’s “advertising strategies, exclusive vendor contracts, local market
reports, employee compensation and retention policies, revenues and operating figures, optimal
store locations, sales records, reports of the strongest selling products, and the company’s
financial history, all of which fell under the protections of the MNDA.”22
During the parties’ negotiations, Mr. Blumenthal “admitted he had little to no knowledge
of the business climate that would support the existence of a boutique swimwear store in Johnson
19
Id., Ex. 1, ¶ 3.
20
Id., Ex. 1, ¶ 9.
21
Id. ¶¶ 25, 29.
22
Id. ¶ 25.
5
County,”23 and “offered wildly differing valuations of [Plaintiff’s] business.”24 As negotiations
continued, the parties renewed the MNDA on January 21, 2015 and July 16, 2015. However,
Defendant refused to enter into a non-compete agreement that Plaintiff proposed in July 2015.
On or about August 31, 2015, Defendant communicated to Plaintiff that Defendant was
under time pressure to make the deal happen. Plaintiff then reviewed, amended, and emailed
contracts to Defendant with the intent of selling its business, despite having become skeptical
about Defendant’s true intentions. In an October 27, 2015 email transmitting the amended
contracts to Defendant, Jones reminded Blumenthal that pursuant to the terms of the MNDA,
Defendant was not permitted to “use any of [Plaintiff’s] confidential information to facilitate the
opening of a retail or wholesale operation in competition with [Plaintiff’s] store.”25 Jones further
stated: “I hope our negotiations are successful, but if they are not, please understand that I am
prepared to take all necessary action if you or your company should open a competing store in
the Kansas City area.”26
On October 28, 2015, Defendant’s attorney sent Jones a letter terminating business
negotiations between the parties due to Jones’s “threat” to take any action necessary to protect
her business.27 On November 9, 2015, Blumenthal followed up with an email confirming that
Defendant would not follow through with the transaction because it was not the “right fit.”28 On
the same day, Blumenthal relayed to Jones in conversation that he had not looked at the terms of
the revised contract prior to rejecting it.
23
Id. ¶ 20.
24
Id. ¶ 21.
25
Id., Ex. 5.
26
Id., Ex. 5.
27
Id., Ex. 6.
28
Id., Ex. 7.
6
Shortly after Defendant ceased negotiations with Plaintiff, Defendant began entering into
lease and construction agreements to open a store directly across the street and approximately
600 feet from Plaintiff’s location. Defendant’s “primary development, planning, and creative
actions taken to open and develop the [EBW] Store occurred while [Defendant] was legally
bound by . . . the MNDA.”29 Further, in October 2017, an agent of Defendant contacted one of
Plaintiff’s employees both in Plaintiff’s store and over the phone, attempting to persuade the
employee to work for Defendant despite knowing that this employee was party to a non-compete
agreement with Plaintiff. Defendant warned the employee not to tell other co-workers about the
solicitation. Plaintiff contends that Defendant never had any intention of purchasing Swimwear,
but induced Plaintiff to enter into the MNDA so that Defendant could acquire Plaintiff’s
confidential information and trade secrets for the purpose of opening a competing store.30
In its answer to Plaintiff’s Complaint, Defendant brings a counterclaim for breach of
contract. Defendant contends that Plaintiff has breached the MNDA by failing to return
Defendant’s confidential information upon Defendant’s written request. Defendant alleges that
Plaintiff failed to respond to an October 2015 letter requesting the return of specifically
identified and highly confidential, proprietary information, and that after the filing of this
lawsuit, Plaintiff returned some—but not all—of the requested information. Defendant alleges
that Plaintiff “has lost, misplaced, or disposed of some of EBW’s Confidential Information.”31
29
Id. ¶ 43.
30
Id. ¶¶ 19, 31.
31
Doc. 30, ¶ 11.
7
C.
Choice of Law
Because this Court is sitting in diversity jurisdiction, it must apply the choice-of-law rules
of the forum state, Kansas.32 The Court is therefore bound to apply Kansas’s rule as to whether a
contractual choice-of-law provision is enforceable.33 Kansas law recognizes that parties may
agree “for the law of another state to govern their rights and duties so long as the transaction at
issue has ‘a reasonable relation’ to that state.”34 Here, the parties’ MNDA contains a choice-oflaw provision providing that “the Agreement shall be governed by laws of the State of New
York.”35 Neither party argues that New York law should not apply; rather, both parties cite New
York law with regard to the contractual claims at issue. Kansas courts have in the past permitted
choice-of-law provisions to control, and the Court sees no reason why Kansas would not give
effect to the parties’ choice of New York law under the circumstances of this case.36 Thus, New
York law governs the parties’ claims arising from the MNDA.
In a tort action, however, Kansas courts apply the doctrine of lex loci delicti, meaning
“the law of the place where the tort was committed” or where the wrong occurred.37 Where the
wrong occurred is generally considered to be the place where the injury was suffered. 38 Here,
32
Klaxton Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Missouri Pac. R. Co. v. Kan. Gas &
Elec. Co., 862 F.2d 796, 798 n. 1 (10th Cir. 1988).
33
Equifax Servs., Inc. v. Hitz, 905 F.2d 1355, 1360 (10th Cir. 1990); Old Colony Ventures I, Inc. v.
SMWNPF Holdings, Inc., 918 F. Supp. 343, 346 n.4 (D. Kan. 1996).
34
Nat’l Equip. Rental, Ltd. v. Taylor, 587 P.2d 870, 872 (Kan. 1978).
35
Doc. 1-1, Ex. 1, ¶ 11.
36
See Atchison Casting Corp. v. Dofasco, Inc., 889 F. Supp. 1445, 1455 (D. Kan. 1995) (applying Ontario
or Canadian law to contracts claim per choice-of-law provision); O.V. Mktg. Assocs., Inc. v. Carter, 766 F. Supp.
960, 964 (D. Kan. 1991) (applying Nebraska law where parties had agreed that Nebraska law would govern their
contractual relationship).
37
Ritchie Enters. v. Honeywell Bull, Inc., 730 F. Supp. 1041, 1046 (D. Kan. 1990) (citing Hawley v. Beech
Aircraft Corp., 625 F.2d 991, 993 (10th Cir.1980); Ling v. Jan’s Liquors, 703 P.2d 731, 735 (Kan. 1985)); Atchison
Casting Corp., 889 F. Supp. at 1455.
38
Ritchie Enters., 730 F. Supp. at 1046 (citing Ling, 703 P.2d at 735).
8
Plaintiff alleges that Defendant’s tortious conduct and Plaintiff’s resulting injury occurred in
Kansas. Because Kansas law is settled regarding the application of lex loci delicti, and because
“the express and unambiguous wording of the parties’ choice of law provision reveals only an
agreement on what law should govern their contract, rather than any agreement on what law
should apply to tort claims arising from the circumstances of their contractual relationship,”39
Kansas law will govern Plaintiff’s tort claims.
D.
Analysis
1.
Defendant’s Motion to Dismiss Counts III, V, VI, VII, IX and X of the
Complaint
i.
Count V (Breach of Fiduciary Duty)
Plaintiff brings a claim against Defendant for breach of fiduciary duty, alleging that the
MNDA created a fiduciary relationship between the parties that continued until the MNDA
expired and that Defendant breached its fiduciary duty through misrepresentations and the
misuse of Plaintiff’s confidential information.40 Defendant argues that Plaintiff’s breach-offiduciary-duty claim relies on the same duties agreed to in the MNDA and should therefore be
dismissed as a restatement of its breach-of-contract claim. In response, Plaintiff alleges that
Defendant owed certain additional fiduciary duties based on the special confidence it placed in
Defendant and that dismissal is premature because the existence of an implied-by-law fiduciary
duty requires inquiring into the factual relationship between the parties. Defendant counters that
the Complaint does not sufficiently plead any special confidence or any additional fiduciary
duties independent of the MNDA.
39
Id. at 1046–47 (applying Massachusetts law to contract claims pursuant to choice-of-law provision but
finding that Kansas law governed tort claims, and collecting cases separating contract and tort claims and applying
choice-of-law provisions only to the former) (citations omitted).
40
Doc. 1-1, ¶¶ 87, 90, 92.
9
Kansas courts are careful to point out that a contractual relationship between parties does
not bar all tort claims.41 However, tort claims such as breach of fiduciary duty can be pleaded in
parallel with breach-of-contract claims only if the tort is independent of the bargained-for duties
in the contract.42 Plaintiff cites two cases—Pipeline Productions, Inc. v. Horsepower
Entertainment43 and Burcham v. Unison Bancorp, Inc.44—in which courts allowed breach-offiduciary-duty claims to be pleaded in parallel with breach-of-contract claims.45 In both cases,
however, the court identified a fiduciary duty independent of the contract before allowing the
breach-of-fiduciary-duty claims to proceed.46 Here, Plaintiff alleges the existence of certain
fiduciary duties such as Defendant’s duty to safeguard and maintain Plaintiff’s confidential
information. But unlike the independent duties in Pipeline Products and Burcham, Plaintiff
bargained for these duties in the MNDA. The MNDA expressly states that the parties shall not
“disclose any Confidential Information of the other party to third parties or to such party’s
employees,” and that the parties agree to “use [their] best efforts to protect the secrecy of and
avoid disclosure and unauthorized use of the Confidential Information of the other party.”47
Therefore, any alleged breach of these duties cannot constitute an independent tort under Kansas
law.
41
Burcham v. Unison Bancorp, Inc., 77 P.3d 130, 145 (Kan. 2003); see also Regal Ware, Inc. v. Vita Craft
Corp., 653 F. Supp. 2d 1146, 1152 (D. Kan. 2006).
42
Accountable Health Sols., LLC v. Wellness Corp. Sols., LLC, No. 16-2494-DDC-TJJ, 2017 WL 6039537,
at *12 (D. Kan. Dec. 6, 2017) (citing Burcham, 77 P.3d at 146).
43
No. 15-4890-KHV, 2017 WL 4536420 (D. Kan. Oct. 11, 2017).
44
77 P.3d 130 (Kan. 2003).
45
Doc. 21 at 9.
46
Pipeline Prods., Inc., 2017 WL 4536420, at *3–4 (describing breach of fiduciary duty, based on duties of
loyalty and care not expressly bargained for in the contract, as an “independent tort”); Burcham, 77 P.3d at 146
(noting that the plaintiffs’ action was “based upon an independent tort and as a matter of law [was] not based upon
breach of a contract”).
47
Doc. 1-1, Ex. 1, ¶¶ 3, 4.
10
Plaintiff implies that additional fiduciary duties—such as duties to refrain from unfair
competition and from usurping business opportunities—exist independent of the MNDA.48 As
Defendant notes, Plaintiff fails to explain why (assuming these duties are indeed independent)
such a fiduciary relationship creating these additional duties would exist in the first place.
Plaintiff appears to plead that a fiduciary relationship existed between the parties only because
they entered into a contractual relationship and because Defendant possessed Plaintiff’s most
sensitive confidential information.49 But these allegations are insufficient to establish the
plausible existence of a fiduciary relationship. Although one party placing confidence in another
is one element required to establish the existence of an implied-by-law fiduciary relationship in
Kansas,50 it is not the only element. Rather, in Kansas, a fiduciary relationship additionally
requires “a certain inequality, dependence, . . . business intelligence, knowledge of the facts
involved, or other conditions, giving to one advantage over the other.”51 A fiduciary relationship
requires “confidence reposed on one side and resulting domination and influence on the other,”52
and a fiduciary is defined as “a person with a duty to act primarily for the benefit of another.”53
Plaintiff has pleaded sufficient facts to plausibly show that it placed confidence in
Defendant, but Plaintiff has not pleaded any facts demonstrating that Defendant held a position
of domination or influence over Plaintiff or that Defendant had a duty to act primarily for
Doc. 1-1, ¶ 92; Doc. 21 at 9–10. The Court acknowledges Defendant’s argument that Plaintiff blurs the
line between the existence of fiduciary duties, as described at ¶¶ 88 and 91 of the Complaint, and breach of those
duties, as described at ¶ 92. Doc. 32 at 4. But Plaintiff provides enough detail in alleging breach in ¶ 92 of the
Complaint for the Court to infer what duties must have existed to begin with.
48
49
Doc. 1-1, ¶¶ 87, 89.
50
Ritchie Enters. v. Honeywell Bull, Inc., 730 F. Supp. 1041, 1053 (D. Kan. 1990) (citing Olson v.
Harshman, 668 P.2d 147, 151 (Kan. 1983)).
51
Id.
52
Denison State Bank v. Madeira, 640 P.2d 1235, 1241 (Kan. 1982) (emphasis added).
53
Id. (emphasis added).
11
Plaintiff’s benefit. Reasonably sophisticated business entities negotiating at arm’s length, as
here, typically act primarily for their own benefit rather than that of the other party. The Court
agrees with Defendant that Plaintiff has not sufficiently pleaded the existence of a special
relationship between the parties that would give rise to these additional fiduciary duties.54
Plaintiff argues that it is premature to dismiss its breach-of-fiduciary-duty claim because
facts might emerge in discovery showing the existence of an implied-by-law fiduciary
relationship.55 On a motion to dismiss, however, the court looks to whether the complaint
contains “enough facts to state a claim for relief that is plausible on its face.”56 Plaintiff’s
Complaint does not set forth facts giving rise to a plausible inference that Defendant had a
position of domination or influence over Plaintiff, or that Defendant was obligated to act
primarily for Plaintiff’s benefit. The Court therefore grants Defendant’s motion to dismiss
Plaintiff’s breach-of-fiduciary-duty claim with prejudice.
ii.
Count X (Conversion)
Plaintiff brings a claim against Defendant for the tort of conversion, alleging that
Defendant has assumed a right of ownership over Plaintiff’s confidential information. Defendant
argues that this claim must be dismissed because it is duplicative of Plaintiff’s breach-of-contract
claim. Defendant argues alternatively that Plaintiff waived its conversion claim by entering into
a contract with a provision that expressly disclaims any additional duties beyond the contract
itself. This Court does not need to reach Defendant’s waiver argument, however, because it
agrees with Defendant that Plaintiff’s conversion claim is duplicative of its breach-of-contract
claim and must be dismissed.
54
Doc. 32 at 5.
55
Doc. 21 at 10.
56
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
12
Again, Kansas law is clear that where parties enter into a contract that defines their rights
and duties, they are precluded from bringing tort causes of action concerning the same subject
matter as that covered by the contract.57 A tort claim can proceed in parallel with a breach-ofcontract claim only when the tort is independent of the contract and the contract does not
expressly permit the allegedly tortious conduct.58 Because the parties’ MNDA does not
expressly permit conversion, the only question is whether the acts constituting the alleged
conversion are independent of the duties and obligations bargained for in the MNDA. The Court
agrees with Defendant that Plaintiff’s conversion claim is not independent of the MNDA, and
that the conversion claim must therefore be dismissed.
Determining whether a tort is independent of a contract is often difficult.59 Here,
however, the broad language of the MNDA makes the analysis straightforward. Plaintiff bases
its conversion claim on Defendant’s alleged “retention and use” of Plaintiff’s confidential
information to the exclusion of Plaintiff’s own property rights.60 But the MNDA contains broad
terms expressly governing both the retention and use of Plaintiff’s confidential information. As
to retention, the MNDA states that all documents or tangible objects in the other party’s
possession “shall be promptly returned to the disclosing party upon the disclosing party’s written
request.”61 As to use, the MNDA states that “[e]ach party agrees not to use any Confidential
Information of the other party for any purpose except to evaluate and engage in discussions
concerning a potential business transaction between the parties.”62 The MNDA therefore
57
Ford Motor Credit Co. v. Suburban Ford, 699 P.2d 992, 998 (Kan. 1985).
58
Burcham v. Unison Bancorp, Inc., 77 P.3d 130, 145 (Kan. 2003).
59
Id.
60
Doc. 1-1, ¶ 147.
61
Id., Ex. 1, ¶ 7.
62
Id., Ex. 1, ¶ 3.
13
governs both Defendant’s retention and use of Plaintiff’s confidential information, and Plaintiff
must rely on its breach-of-contract claim to the exclusion of its conversion claim.63
Plaintiff argues that it must be able to plead its tort claims to be adequately compensated
for its harm, asserting that a tort claim is considered independent of a breach of contract claim if
it results in additional damages.64 But the Court agrees with Defendant that Plaintiff misreads
Kansas law on this issue. The authority on which Plaintiff relies does not define an independent
tort according to available damages, nor does it conflict with settled Kansas law, which states
that a tort claim cannot proceed in parallel with a breach-of-contract claim unless the tort is
independent of the contract.65 As discussed above, the alleged conversion is not independent of
the contract terms, and the Court therefore grants Defendant’s motion to dismiss Plaintiff’s
conversion claim with prejudice.
iii.
Count VI (Misappropriation of Trade Secrets under Kansas
Law) and Count VII (Misappropriation of Trade Secrets
Under New York Law)
Plaintiff additionally brings claims against Defendant for misappropriation of trade
secrets under both Kansas and New York law. Trade-secret misappropriation is governed by
statute in Kansas and by common law in New York. Defendant again offers alternative theories
63
See Regal Ware, Inc. v. Vita Craft Corp., 653 F. Supp. 2d 1146, 1152 (D. Kan. 2006) (granting motion to
dismiss conversion claim where contract defined the rights to the property at issue).
64
Doc. 21 at 6 (citing Wade v. EMCASCO Ins. Co., 483 F.3d 657, 675–76 (10th Cir. 2007)).
65
Burcham v. Unison Bancorp., Inc., 77 P.3d 130, 145 (Kan. 2003). Wade, on which Plaintiff relies, finds
that the basis of a fraud claim must be different from the conduct on which a breach-of-contract claim is based.
Plaintiff appears to focus on a parenthetical from Wade stating that “there must be an independent tort resulting in
additional injury before punitive damages can be recovered in a breach of an insurance contract action.” Wade, 483
F.3d at 675 (citing Guarantee Abstract & Title Co. v. Interstate Fire & Cas. Co., 652 P.2d 665, 668 (Kan. 1982)).
Plaintiff interprets this language as meaning that a tort is independent of breach of contract if it results in damages
greater than those caused by the breach, but this is incorrect. This parenthetical language starts with the
presumption of an independent tort, then says that the tort must result in additional injury to make punitive damages
available.
14
for dismissing these claims, first on the ground that any duties to protect trade secrets are the
same as those bargained for in the MNDA and are therefore displaced by it, and second on the
ground that the MNDA expressly waives any trade-secret protections for Plaintiff’s confidential
information. The Court agrees with Defendant that Plaintiff waived its trade-secret remedies by
entering into the MNDA. There is therefore no need to reach the question of displacement.
Although Plaintiff brings trade-secret claims under both Kansas and New York law,
whether those claims were validly waived is ultimately a contract question, which must be
resolved under New York law. In New York, “[a]bsent some violation of law or transgression of
a strong public policy, the parties to a contract are basically free to make whatever agreement
they wish, no matter how unwise it might appear to a third party.”66 The parties’ MNDA
contains a merger clause expressly waiving trade-secret protections for both parties.67 It appears
on the facts pleaded that Plaintiff entered into the MNDA despite unequivocal language waiving
trade-secret obligations. Further, not only did Plaintiff enter into the MNDA initially, but it
agreed to renew it on two separate occasions.68
Plaintiff now argues that the MNDA’s waiver provision is unenforceable. First, Plaintiff
argues that the provision is ambiguous, and that ambiguous waivers are unenforceable under
both Kansas and New York law.69 But there is nothing ambiguous about the waiver provision
here. Indeed, the provision could hardly be more clear in waiving trade-secret protections when
it states that the MNDA “contains the entire agreement between the parties with respect to the
66
Rowe v. Great Atl. & Pac. Tea Co., 385 N.E.2d 566, 569 (N.Y. 1978). Kansas law is substantially the
same on this point. See Metro. Life Ins. Co. v. Strnad, 876 P.2d 1362, 1371 (Kan. 1994) (citing Wille v. Sw. Bell
Tel. Co., 549 P.2d 903, 905 (Kan. 1976) (“[A] party who has fairly and voluntarily entered into . . . a contract is
bound thereby, notwithstanding it was unwise or disadvantageous to that party.”).
67
Doc. 1-1, Ex. 1, ¶ 11.
68
Doc. 1-1, ¶¶ 22, 32, 34.
69
Doc. 21 at 7.
15
subject matter hereof, and neither party shall have any obligation, express or implied by law,
with respect to trade secret or proprietary information of the other party except as set forth
herein.”70 Plaintiff argues that the remedies provision71 in the contract conflicts with the waiver
provision by allowing the parties to seek “all legal remedies,” and therefore renders the waiver
contradictory and unclear. Read in context, however, the remedies provision seems clear
enough—“all legal remedies” is juxtaposed against “injunctive relief,” an equitable remedy, and
simply refers to all legal remedies for a breach-of-contract claim. Thus, Plaintiff retains all
available remedies for breach of contract, if proven, but has waived trade-secret protection for its
confidential information except as set forth in the MNDA.
Second, Plaintiff argues that the waiver of trade-secret remedies is unenforceable because
it violates public policy. Where the application of the contracting parties’ choice-of-law
provision would produce a result contrary to Kansas public policy, Kansas courts will not apply
another state’s law.72 Here, however, the Court agrees with Defendant that the MNDA’s waiver
term does not violate public policy under either Kansas or New York law, and therefore
dismisses Plaintiff’s trade-secret misappropriation claims because they are waived by the express
provisions of the MNDA.
In Kansas, “[a] contract is not void as against public policy unless [it is] injurious to the
interests of the public or contravenes some established interest of society.”73 “The public policy
of a state is the law of that state as found in its constitution, statutory enactments, and judicial
70
Doc. 1-1, Ex. 1, ¶ 11 (emphasis added).
71
Id., Ex. 1, ¶ 10.
72
See, e.g., Brenner v. Oppenheimer & Co., Inc., 44 P.3d 364, 375 (Kan. 2002); HealthOne, Inc. v.
Columbia Wesley Med. Ctr., 93 F. Supp. 2d 1152, 1155–56 (D. Kan. 2000) (citations omitted).
73
Frazier v. Goudschaal, 295 P.3d 542, 554–55 (Kan. 2013).
16
decisions.”74 Although contracts that contravene public policy are unenforceable, “it is the duty
of the courts to sustain the legality of contracts in whole or in part when possible.”75 New York
law is substantially the same on this point. In New York, contract terms are generally
enforceable unless they are illegal or violate a “strong public policy.”76 Public policy “mean[s]
the law of the state, whether found in the Constitution, the statutes or judicial records.”77
Plaintiff has cited no authority establishing that a voluntary waiver of trade-secret
remedies in favor of contract remedies contravenes anything in the constitutions, statutes, or
judicial decisions of Kansas or New York. Kansas has a trade-secret statute, the Kansas Uniform
Trade Secrets Act, but that Act expressly states that while it displaces tort remedies, it leaves
contract remedies undisturbed.78 This indicates respect by the legislature for bargained-for
relations between parties. Plaintiff relies on a First Circuit case that describes the public’s
“manifest interest in commercial innovation and development” as motivating trade-secret
protection in Massachusetts.79 But the court goes on to suggest that a waiver of trade-secret
protection would be valid so long as it was explicit and unambiguous.80
Plaintiff also cites cases from both Kansas and New York in which contract terms
purporting to waive tort liability were found to violate public policy.81 None of these cases
addresses trade secrets specifically, and the Court agrees with Defendant that the cases are
74
Petty v. City of El Dorado, 19 P.3d 167, 172 (Kan. 2001).
75
Id.
76
Rowe v. Great Atl. & Pac. Tea Co., 385 N.E.2d 566, 569 (N.Y. 1978).
77
Kraut v. Morgan & Brother Manhattan Storage Co., 343 N.E.2d 744, 748 (N.Y. 1976).
78
K.S.A. 60-3326(b)(1).
79
Burten v. Milton Bradley Co., 763 F.2d 461, 467 (1st Cir. 1985).
Id. (describing the expectation that “absent an explicit waiver, the exchange of ideas will take place in
trust and confidence”) (emphasis added).
80
81
Doc. 21 at 3–4.
17
distinguishable because the contract terms at issue generally disclaim all liability for defendants’
actions.82 By contrast, even though Plaintiff waived its trade-secret remedies in this case, it still
has a claim for breach of contract and can attempt to recover damages for any alleged misuse of
its trade secrets. Under either Kansas or New York law, Plaintiff’s voluntary agreement to an
express provision waiving its trade-secret remedies in favor of contract remedies is binding. The
Court therefore grants Defendant’s motion to dismiss Plaintiff’s trade-secret claims under
Kansas law (Count VI) and New York law (Count VII) with prejudice.
iv.
Count IX (Unjust Enrichment)
Plaintiff also brings a claim against Defendant for unjust enrichment based on Plaintiff
allegedly conferring benefits on Defendant by providing Defendant with valuable business
information about the Johnson County swimwear market. Plaintiff contends that Defendant’s
receipt and alleged ongoing use of these benefits is inequitable without payment to Plaintiff and
that Defendant has therefore been unjustly enriched. Defendant argues that this claim must be
dismissed because unjust enrichment cannot be pleaded when a valid, enforceable contract
controls the parties’ relationship. The Court agrees with Defendant.
Unjust enrichment falls under the category of quantum meruit and restitution, and these
“are not available theories of recovery when a valid, written contract addressing the issue
82
Wolfgang v. Mid-Am. Motorsports, Inc., 898 F.Supp. 783, 787–88 (D. Kan. 1995) (waiver void if it
released defendant not just from liability for negligence but also from gross negligence and willful or wanton
conduct); Hunter v. Am. Rentals, Inc., 371 P.2d 131, 133 (Kan. 1962) (refusing to enforce defendant’s exemption
from negligence liability, which would have left plaintiff with no recourse for seeking damages); Osterhaus v. Toth,
187 P.3d 126, 134–35 (Kan. Ct. App. 2008) (refusing to allow home seller to waive all liability for material
misrepresentations about condition of house); Charron v. Sallyport Glob. Holdings, Inc., No. 12 Civ. 6837(WHP),
2014 WL 464649, at *4 (S.D.N.Y. Feb. 3, 2014) (refusing to allow broad liability waiver to release defendant from
liability for intentional acts); Great N. Assocs., Inc. v. Cont’l Cas. Co., 596 N.Y.S.2d 938, 939 (N.Y. App. Div.
1993) (refusing to enforce contract term that released defendants from “any liabilities” and waived “all rights to
future legal actions”).
18
exists.”83 The parties do not dispute that a valid, written contract exists. In its Complaint,
Plaintiff asserts that the parties entered into the “binding and enforceable” MNDA in 2012 and
renewed it twice in 2015.84 Defendant, for its part, describes the MNDA as a “valid, express
contract between the parties.”85 Furthermore, the MNDA addresses the conduct at issue—
Defendant’s alleged receipt and ongoing use of Plaintiff’s confidential information—through its
broad terms governing the exchange of the parties’ confidential information and their agreement
to limit use of this information.86 Because the parties agree that a valid, written contract exists,
and because the contract addresses Defendant’s alleged retention and use of Plaintiff’s
confidential information, unjust enrichment is not an available theory of recovery and Plaintiff’s
claim must be dismissed.87
Plaintiff offers two main arguments that its unjust enrichment claim should proceed, but
both are unavailing. First, Plaintiff argues that quasi-contractual remedies such as unjust
enrichment may be available where a contract is void or unenforceable. The Court agrees that
unjust enrichment may be an available remedy “if the contract is void, unenforceable, rescinded,
83
Ice Corp. v. Hamilton Sundstrand Inc., 444 F. Supp. 2d 1165, 1170 (D. Kan. 2006) (citing Britvic Soft
Drinks Ltd. v. ACSIS Techs., Inc., No. 01–223–CM, 2004 WL 1900584, at *2 (D. Kan. June 8, 2004)); Fusion, Inc.
v. Neb. Aluminum Castings, Inc., 934 F. Supp. 1270, 1275 (D. Kan. 1996) (citing Whan v. Smith, 285 P. 589, 591
(Kan. 1930)). New York law is substantially the same on this point. See, e.g., Corsello v. Verizon N.Y., Inc., 967
N.E.2d 1177, 1185 (N.Y. 2012) (“An unjust enrichment claim is not available where it simply duplicates, or
replaces, a conventional contract or tort claim.”).
84
Doc. 1-1, ¶¶ 22, 32, 34, 51.
85
Doc. 6 at 10.
86
Doc. 1-1, Ex. 1, ¶¶ 1, 3, 7.
87
See Ice Corp., 444 F. Supp. 2d at 1171 (dismissing plaintiff’s unjust enrichment claim where the parties
had stipulated that a written contract existed between them).
19
or waived by the party seeking to recover.”88 But nowhere has Plaintiff alleged that—in the
alternative to the existence of a valid contract—the MNDA is void.89
Plaintiff next argues that its unjust enrichment claim should stand because the MNDA
has expired and therefore no longer governs the parties’ relationship while Defendant allegedly
continues to be enriched at Plaintiff’s expense. According to Plaintiff, unjust enrichment is the
only way it can recover damages for the post-MNDA period. Plaintiff’s argument is
unpersuasive, however, because the events that led to Defendant’s alleged unjust enrichment—
Plaintiff’s conferral of its knowledge of the local swimwear market, for instance—occurred prior
to expiration of the MNDA, while it still governed the parties’ relationship. Plaintiff does not
contend that it supplied any additional beneficial information to Defendant after the MNDA
expired. Under New York law, Plaintiff is entitled to restitution damages for breach of contract
if it can prove that Defendant materially breached the MNDA.90 Like unjust enrichment,
restitution damages for breach of contract are an equitable remedy that allow a plaintiff to
recover “the reasonable value of services rendered, goods delivered, or property conveyed”
under the contract.91 Therefore, unjust enrichment is duplicative of Plaintiff’s remedies for
88
Id. (citing Britvic Soft Drinks, 2004 WL 1900584, at *2); see also Mendy v. AAA Ins., Case No. 17-2322DDC-GLR, 2017 WL 4422648, at *7 (D. Kan. Oct. 5, 2017) (citing Ice Corp., 444 F. Supp. 2d at 1171).
89
Rather, as discussed above, Plaintiff makes unavailing arguments in its response brief regarding the
validity of the MNDA’s waiver of trade-secret remedies. See Doc. 21 at 3–4 (arguing that contract terms that
attempt to waive extra-contractual liability are unenforceable). Plaintiff does not allege in Count IX that the MNDA
as a whole is void, unenforceable, rescinded, or waived.
90
See, e.g., Bausch & Lomb Inc. v. Bressler, 977 F.2d 720, 729–30 (2d Cir. 1992) (applying New York
law). The Court notes that Plaintiff did not plead restitution damages, but Plaintiff’s failure to do so does not affect
the Court’s analysis of unjust enrichment when such damages are theoretically available.
Id. at 729; see also Restatement (Second) of Contracts § 373(1) (Am. Law Inst. 1981) (“[O]n a breach by
non-performance that gives rise to a claim for damages for total breach or on a repudiation, the injured party is
entitled to restitution for any benefit that he has conferred on the other party by way of part performance or
reliance.”).
91
20
breach of contract even for the period after the MNDA expired, and under New York law
Plaintiff must rely on its breach-of-contract claim instead.92
Kansas does not appear to have yet addressed the issue of whether unjust enrichment is
available when a plaintiff confers benefits on a defendant during the term of a contract and
enrichment continues after the contract expires. But like New York, Kansas recognizes
restitution damages for breach of contract.93 And like New York, Kansas does not allow an
unjust enrichment claim where contractual remedies are available.94 Therefore the outcome is
the same under either New York or Kansas law: Plaintiff cannot rely on its unjust enrichment
claim when a binding and enforceable contract existed between the parties and all benefits are
alleged to have been conferred during the term of that contract. The Court therefore grants
Defendant’s motion to dismiss Count IX with leave to amend to allege, in the alternative, a cause
of action for unjust enrichment on the basis that the MNDA was not a valid and enforceable
contract.
v.
Count III (Tortious Interference with Employee Contracts)
Plaintiff brings a claim against Defendant for tortious interference with existing
employee contracts based on Defendant’s alleged attempt to hire away one of Plaintiff’s
employees in October 2017, despite that employee being bound by a non-compete agreement
with Plaintiff. Defendant argues that this claim must be dismissed because Plaintiff has failed to
92
See Summit Props. Int’l, LLC v. Ladies Prof’l Golf Assoc., No. 07 Civ 10407(LBS), 2010 WL 4983179,
at *7 (S.D.N.Y. Dec. 6, 2010) (limiting analysis of Plaintiff’s unjust enrichment claim to benefits conferred after
contract expired).
93
Sharman v. Webber Supply Co., 441 P.2d 867, 874 (Kan. 1968); see also Fusion, Inc. v. Neb. Aluminum
Castings, Inc., 934 F. Supp. 1270, 1275 (D. Kan. 1996) (citations omitted) (stating that under Kansas law, “quantum
meruit and restitution are not available theories of recovery when a valid, written contract addressing the issue
exists”).
94
Ice Corp. v. Hamilton Sundstrand Inc., 444 F. Supp. 2d 1165, 1170 (D. Kan. 2006) (citing Britvic Soft
Drinks Ltd. v. ACSIS Techs., Inc., No. 01–223–CM, 2004 WL 1900584, at *2 (D. Kan. June 8, 2004)).
21
plead the essential elements of a claim for tortious interference with contract under Kansas law.
The Court agrees.
“Kansas has long recognized that a party who, without justification, induces or causes a
breach of contract will be answerable for damages caused thereby.”95 In Kansas, the elements of
a claim for tortious interference with contract are “(1) the contract; (2) the wrongdoer’s
knowledge thereof; (3) his intentional procurement of its breach; (4) the absence of justification;
and (5) damages resulting therefrom.”96 Defendant contends that Plaintiff has failed to plead all
of the necessary elements because “Plaintiff has not asserted that its contract with any employee
was breached. Instead, [P]laintiff alleges that EBW unsuccessfully tried to convince [P]laintiff’s
employees to breach their contracts.”97
Plaintiff does not, in fact, allege the breach of any employee’s non-compete agreement.
Rather, Plaintiff alleges that “[o]n or about October 25, 2017, an agent of [EBW] contacted a
Swimwear employee both in store and over the phone, attempting to lure the employee to work
for [EBW]. . . . . [Defendant] warned the Swimwear employee not to tell other co-workers about
the solicitation.”98 Plaintiff further alleges that “[b]y soliciting Swimwear employees’ [sic] in
person, and over the phone, to work for the competing [EBW] Store, [Defendant] actively sought
to procure a breach of the employees’ existing non-compete contracts.”99 Although this latter
allegation refers to “employees” in the plural, the Complaint contains no allegation of any
95
Dickens v. Snodgrass, Dunlap & Co., 872 P.2d 252, 257 (Kan. 1994) (citing Turner v. Halliburton Co.,
722 P.2d 1106 (Kan. 1986)).
96
Diederich v. Yarnevich, 196 P.3d 411, 418 (Kan. Ct. App. 2008) (quoting Burcham v. Unison Bancorp.,
Inc. 77 P.3d 130, 150 (Kan. 2003)); see also Bushnell Corp. v. ITT Corp., 973 F. Supp. 1276, 1288 (D. Kan. 1997)
(citation omitted).
97
Doc. 6 at 11.
98
Doc. 1-1, ¶ 47.
99
Id. ¶ 72.
22
attempt to poach a Swimwear employee other than the attempt in October 2017. Regardless of
whether Defendant contacted one employee or multiple employees, nowhere has Plaintiff alleged
that any employee breached his or her non-compete agreement as a result, and “this most basic
element of breach must be alleged to state a claim for tortious interference with contract.”100
“[A]n action for tortious interference with contract does not extend to claims of adverse impact
or increased burden which fall short of inducing or causing actual breach.”101
In opposition to Defendant’s motion to dismiss Count III, Plaintiff does not argue that it
has properly alleged breach, nor does Plaintiff suggest that it could amend its Complaint to do so.
Rather, Plaintiff concedes that “no breach of contract has yet occurred” and argues that its claim
for tortious interference with employee contracts should survive because Defendant’s assertion
that there is no “ongoing interference” remains “unproven in the record.”102 However, Kansas
law requires that Plaintiffs plead more than that Defendants are engaging in ongoing efforts to
solicit Plaintiff’s employees—Kansas law requires that Plaintiff plead the essential element of
actual breach, which Plaintiff has failed to do. Plaintiff’s Complaint fails to state a claim for
tortious interference with employee contracts and, therefore, Count III is dismissed.
2.
Plaintiff’s Motion to Dismiss Defendant’s Counterclaim
Defendant brings a counterclaim against Plaintiff for breach of contract. In its original
Answer and Counterclaim, Defendant alleged that pursuant to the terms of the MNDA, Plaintiff
was required to return Defendant’s confidential information promptly upon written request, and
100
Bushnell Corp., 973 F. Supp. at 1288 (citing Reazin v. Blue Cross & Blue Shield of Kan., 663 F. Supp.
1360, 1491 (D. Kan. 1987), aff’d 899 F.2d 951 (10th Cir. 1990)).
101
Class Commc’ns, Inc. v. Rural Tel. Serv. Co., 956 F. Supp. 910, 921 (D. Kan. 1997) (citing Pizza
Mgmt., Inc. v. Pizza Hut, Inc., 737 F. Supp. 1154 (D. Kan. 1990); Noller v. Gen. Motors Corp., 772 P.2d 271 (Kan.
1989)).
102
Doc. 21 at 13–14.
23
that Plaintiff has failed to do so. Defendant alleges that on or around October 28, 2015,
Defendant sent Plaintiff “a letter that identified in detail proprietary and highly confidential
information that EBW had provided to [Swimwear], and requested in writing for [Swimwear] to
return all of that information.”103 Defendant alleged that prior to filing this lawsuit, Plaintiff did
not return any of the requested information and, since initiating suit, has returned some—but not
all—of the materials.104 Thus, Defendant alleged that Plaintiff is in breach of the MNDA and
that “EBW has been damaged.”105
Plaintiff moves to dismiss Defendant’s counterclaim, arguing that Defendant has failed to
plead the essential elements of a breach-of-contract claim because Defendant has not provided
factual allegations of damages.106 Plaintiff argues that the allegation that Defendant “has been
damaged” by Plaintiff’s failure to return confidential information is insufficient to state a claim
for breach of contract because Defendant has left it to the Court and Plaintiff to speculate as to
what its damages are or will be, and how Plaintiff’s failure to return documents that Defendant
already has in its possession has somehow harmed Defendant. Plaintiff argues that “there is no
allegation that EBW lost any money or incurred any expense as a result of Swimwear having
copies of the Information,”107 and that Defendant has “not even attempted to assert any facts
connecting Swimwear’s alleged breach of the MNDA to any actual damages suffered.”108
In response to Plaintiff’s motion to dismiss, Defendant filed a First Amended Answer and
Counterclaim pursuant to Fed. R. Civ. P. 15(a)(1)(B), which it contends moots Plaintiff’s
103
Doc. 9 at 15, ¶ 13.
104
Id. at 15, ¶¶ 14–15.
105
Id. at 15, ¶¶ 15–16.
106
Doc. 15 at 4–6.
107
Id. at 5.
108
Id.
24
arguments.109 The only differences between the original and amended counterclaims are: (1) the
added allegation that Plaintiff has “lost, misplaced, or disposed of some of EBW’s Confidential
Information”110; and (2) Defendant’s request for “compensatory damages, nominal damages,
specific performance and/or restitution.”111 As for any further allegations of damages, the First
Amended Answer and Counterclaim—like the original counterclaim—merely alleges that “[a]s a
direct and proximate result of [Swimwear’s] breaches, EBW has been damaged.”112
New York law governs disputes arising under the MNDA, including Defendant’s breachof-contract counterclaim. To state a claim for breach of contract under New York law, a party
must prove the following elements: “‘(1) a contract; (2) performance of the contract by one
party; (3) breach by the other party; and (4) damages.’”113 Plaintiff argues that even in its
amended counterclaim, Defendant fails to allege the element of damages because Defendant has
not provided factual allegations concerning exactly how it has been damaged.
In its response in opposition to Plaintiff’s motion to dismiss, Defendant makes two
arguments. First, Defendant argues that it has properly stated a claim for breach of contract
because its counterclaim seeks relief in the form of specific performance—Defendant requests
that the Court issue an order requiring Plaintiff to return all of Defendant’s confidential
information.114 Second, Defendant contends that it has adequately pleaded damages, and that
“additional allegations in the counterclaim provide factual content that allows the court to draw
109
Doc. 30.
110
Id. at 15, ¶ 11.
111
Id. at 16, ¶ 17.
112
Id. at 15, ¶ 16.
113
Goldblatt v. Englander Comms., L.L.C., No. 06 Civ. 3208 (RWS), 2007 WL 148699, at *4 (S.D.N.Y.
Jan. 22, 2007) (quoting Terwilliger v. Terwilliger, 206 F.3d 240, 245–46 (2d Cir. 2000)).
114
Doc. 31 at 3.
25
the reasonable inference that EBW has been damaged sufficiently to state a claim under New
York law.”115 Defendant also contends that it need not plead actual loss because nominal
damages are always available for breach of contract under New York law. The amended
counterclaim expressly seeks “compensatory damages, nominal damages, specific performance
and/or restitution.”116
Specific performance is an equitable remedy that is “appropriate when money damages
would be inadequate to protect the ‘expectation interest of the injured party’ and when
performance will not impose a disproportionate or inequitable burden on the breaching party.”117
Whether to grant specific performance is committed to the sound discretion of the trial court,
which “must determine, in the first instance, whether money damages would be an adequate
remedy by considering, ‘among other factors, the difficulty of proving damages with reasonable
certainty and of procuring a suitable substitute performance with a damages award.’”118
Although Plaintiff argues that Defendant has improperly asserted specific performance as
a “remedy” rather than as a separate claim,119 New York courts have held that “specific
performance is an equitable remedy for a breach of contract, rather than a separate cause of
action.”120 To obtain the remedy of specific performance, “the complaint must show: (1) the
making of the contract and its terms; (2) that the plaintiff is ready, willing, and able to perform
115
Id. at 5.
116
Doc. 30, ¶ 17.
117
Cho v. 401-403 57th St. Realty Corp., 752 N.Y.S.2d 55, 57 (N.Y. App. Div. 2002) (noting that
traditionally, specific performance has been held to be a proper remedy in actions for breach of contract for the sale
of real property, or when the uniqueness of the goods in question makes the calculation of money damages to
difficult or uncertain) (citations omitted).
118
Id. at 57 (quoting Sokoloff v. Harriman Estates Dev. Corp., 754 N.E.2d 184, 188 (N.Y. 2001)).
119
Doc. 37 at 4.
120
See Maestro West Chelsea SPE LLC v. Pradera Realty Inc., 954 N.Y.S.2d 819, 828 (N.Y. App. Div.
2012) (dismissing separate cause of action for specific performance but permitting plaintiff to seek specific
performance as a remedy).
26
the contract and has fulfilled all of the plaintiff’s duties to date; (3) that it is within the
defendant’s power to perform . . . ; and (4) that there is no adequate remedy at law . . . .”121
Plaintiff argues that Defendant has not properly alleged facts establishing these elements,
and that Defendant’s request for specific performance therefore cannot stand in the place of
damages allegations. “Ordinarily, the issue of whether damages would adequately compensate a
plaintiff is inappropriate for resolution on a motion to dismiss.”122 “Thus, it is premature at the
motion to dismiss state to determine what form of damages may be appropriate,”123 provided that
damages are adequately alleged.
Defendant alleges that it “has been damaged” by Plaintiff’s breach and seeks nominal
damages in addition to compensatory damages, specific performance, and/or restitution.124 The
availability of nominal damages is recognized under New York law, even where the party
alleging breach of contract acknowledges that the exact nature of its damages is uncertain.125
Nominal damages are a “trifling sum awarded to a plaintiff in an action where there is no
substantial loss or injury to be compensated, but the law still recognizes a technical invasion of
his [or her] rights or a breach of the defendant’s duty. These are formal damages as
distinguished from real or substantial ones.”126 In a recent case where the plaintiff vaguely
alleged that it had been damaged in an amount to be determined at trial due to the defendant’s
121
Lezell v. Forde, 891 N.Y.S.2d 606, 613 (N.Y. App. Div. 2009) (citations omitted).
122
Lia v. Saporito, 909 F. Supp. 2d 149, 168 (E.D.N.Y. 2012) (citing Sokoloff, 754 N.E.2d 184).
123
Cicel (Beijing) Science & Tech. Co., Ltd. v. Misonix, Inc., 2:17-cv-1642 (ADS) (SIL), 2017 WL
4535933, at *5 (E.D.N.Y. Oct. 7, 2017) (citing Lia, 909 F. Supp. 2d at 169).
124
Doc. 30 at 15–16, ¶¶ 16–17.
125
See Goldblatt v. Englander Comms., L.L.C., No. 06 Civ. 3208 (RWS), 2007 WL 148699, at *4
(S.D.N.Y. Jan. 22, 2007) (collecting cases).
126
McWeeney v. Lambe, 30 N.Y.S.3d 189, 190 (N.Y. App. Div. 2016) (quoting Berney v. Adriance, 142
N.Y.S. 748, 752 (N.Y. App. Div. 1913)).
27
breach of certain contract provisions, the U.S. District Court for the Southern District of New
York held that if the plaintiff could prove breach, then “at minimum it will be able to recover
nominal damages.”127 The court explained:
[Defendant] cites a number of cases (and more exist) in which lower
courts both in this district and in the New York State court system
have dismissed contract suits for failure to adequately plead
damages. However, none of these cases consider the availability of
nominal damages in a suit for breach of contract, and [Plaintiff] has
adequately pled nominal damages. New York law provides that
nominal damages are always available in a breach of contract suit.
This proposition was established by the New York Court of Appeals
no later than 1993. In Ely-Cruikshank Co. v. Bank of Montreal . . .
the Court of Appeals held that a “breach of contract cause of action
accrues at the time of the breach.” Crucial to that holding was its
determination that “[s]ince ‘nominal damages are always available
in breach of contract actions,’ all of the elements necessary to
maintain a lawsuit and obtain relief in court” were present when the
breach in that case occurred—even though no actual damages had
yet accrued. The Second Circuit recently drew on Ely-Cruikshank
in determining that a suit for breach of contract could not be
dismissed for failure to plausibly allege damages.128
Plaintiff is correct that Defendant has not alleged facts showing precisely how or to what
extent it has been damaged by Plaintiff’s failure to return confidential information—which
Defendant presumably also has in its possession—other than to suggest that Plaintiff may have
“lost, misplaced, or disposed” of some of that information.129 However, Defendant’s has
127
Saeco Vending, S.P.A. v. Seaga Mfg., Inc., 15-cv-3280 (AJN), 2016 WL 1659132, at *8 (S.D.N.Y. Jan.
28, 2016) (citing Luitpold Pharm., Inc. v. Ed. Geistlich Söhne A.G. Für Chemische Industrie, 784 F.3d 78, 87 (2d
Cir. 2015)).
128
Id., at *7 (quoting Ely-Cruikshank Co. v. Bank of Montreal, 615 N.E.2d 985, 987 (N.Y. 1993); citing
Luitpold Pharm., Inc., 784 F.3d at 87) (other internal citations omitted); see also Kronos, Inc. v. AVX Corp., 612
N.E.2d 289, 293 (N.Y. 1993) (“[A] party’s rights in contract arise from the parties’ promises and exist independent
of any breach. Nominal damages allow vindication of those rights.”); Weinrauch v. Kashkin, 432 N.Y.S. 2d 640,
640 (N.Y. App. Div. 1980) (“In an action for breach of contract, where, as here, a breach on the part of the
defendant is proven, plaintiff is entitled, as a matter of law, to recover at least nominal damages.”) (citation omitted).
129
Doc. 30 at 15, ¶ 11.
28
adequately pleaded nominal damages and, under New York law, Defendant’s amended
counterclaim is therefore sufficient to withstand Plaintiff’s motion to dismiss.130
II.
Motion for More Definite Statement
In Count VIII, Plaintiff brings a claim for misrepresentation and fraud. Defendant has
moved for a more definite statement with respect to this count pursuant to Fed. R. Civ. P. 12(e),
and requests that the Court order Plaintiff to file an amended Complaint that either withdraws
Count VIII or “includes the detailed allegations required to assert it” under Fed. R. Civ. P.
9(b).131 In response, Plaintiff argues that its misrepresentation and fraud allegations comply with
Rule 9(b) and asks that the Court deny Defendant’s motion or, in the alternative, grant Plaintiff
leave to file an amended complaint to provide more detailed allegations.
A.
Legal Standard
“A party may move for a more definite statement of a pleading to which a responsive
pleading is allowed but which is so vague or ambiguous that the party cannot reasonably prepare
a response.”132 “Motions for a more definite statement are generally disfavored in light of liberal
discovery available under the federal rules and are granted only when a party is unable to
determine the issues requiring a response.”133 “‘A motion for more definite statement should not
130
The Court does not consider Plaintiff’s arguments concerning Defendant’s failure to allege a material
breach of the MNDA, which Plaintiff raised for the first time in its Reply brief. See Nat’l R.R. Passenger Corp. v.
Cimarron Crossing Feeders, LLC, Case No. 16-cv-1094-JTM-TJJ, 2018 WL 489100, at *1 (D. Kan. Jan. 19, 2018)
(“[T]he Court will not consider arguments raised for the first time in a reply brief, particularly where the arguments
could have been made in the first instance.”) (citing Martinelli v. Petland, Inc., No. 10-407-RDR, 2010 WL
3947526, at *3 (D. Kan. Oct. 7, 2010)); Kan. Waste Water, Inc. v. Alliant Techsystems, Inc., No. 02-2605-JWLDJW, 2005 WL 327144, at *1 (D. Kan. Feb. 3, 2005) (stating that “this Court generally will not consider evidence
or arguments raised for the first time in a reply brief”) (citing Liebau v. Columbia Cas. Co., 176 F. Supp. 2d 1236,
1244 (D. Kan. 2001); Mike v. Dymon, Inc., No. 95-2405-EEO, 1996 WL 427761, at *2 (D. Kan. July 25, 1996)).
131
Doc. 8 at 1.
132
Fed. R. Civ. P. 12(e).
133
Lowe v. Experian, No. Civ.A. 03-2046-CM, 2004 WL 1004872, at *1 (D. Kan. Mar. 31, 2004) (citing
Resolution Trust Corp. v. Thomas, 837 F. Supp. 354, 355 (D. Kan. 1993)).
29
be granted merely because the pleading lacks detail; rather, the standard to be applied is whether
the claims alleged are sufficiently specific to enable a responsive pleading in the form of a denial
or an admission.’”134
Defendant’s motion for a more definite statement requires consideration of both the
notice pleading requirements of Fed. R. Civ. P. 8 and the heightened pleading requirements of
Fed. R. Civ. P. 9(b). Rule 8(a)(2) provides that “[a] pleading that states a claim for relief must
contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief.”
Rule 9(b) requires more, providing that “[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and
other conditions of a person’s mind may be alleged generally.” Rule 9(b)’s heightened pleading
requirements allow “‘the defending party to prepare an effective response to charges of fraud and
to protect the defending party from unfounded charges of wrongdoing which might injure its
reputation and goodwill.’”135 Rule 9(b) does not, however, supplant the principles of notice
pleading under Rule 8, which calls for pleadings to be “simple, concise, and direct.”136 “In cases
with allegations of fraud or mistake, the court reads the two rules in conjunction.”137 Thus, to
satisfy Rule 9(b), “a complaint alleging fraud [must] ‘set forth the time, place and contents of the
false representation, the identity of the party making the false statements and the consequences
134
First Media Ins. Specialists, Inc. v. OneBeacon Ins. Co., No. 10-CV-2501-EFM/KGG, 2011 WL
5570799, at *5 (D. Kan. Nov. 16, 2011) (quoting Advantage Homebuilding, LLC v. Assurance Co. of Am., No.
Civ.A. 03-2426-KHV, 2004 WL 433914, at *1 (D. Kan. 2004)).
135
Black & Veatch Intern. Co. v. Wartsila NSD N. Am., Inc., No. Civ.A. 97-2556-GTV, 1998 WL 264738,
at *2 (D. Kan. May 21, 1998) (quoting Cattlemen’s Livestock Auction, Inc. v. Walrod, No. Civ.A. 95-2404-EEO,
1996 WL 223918, at *1 (D. Kan. Apr. 3, 1996)).
136
Plastic Packaging Corp. v. Sun Chem. Corp., 136 F. Supp. 2d 1201, 1203 (D. Kan. 2001) (quoting
Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997)).
137
Black & Veatch Intern. Co., 1998 WL 264738, at *2 (citing Midwest Grain Prods. v. Envirofuels Mktg.,
Inc., No. Civ.A. 95-2355-EEO, 1995 WL 769265, at *1 (D. Kan. Dec. 4, 1995)).
30
thereof.’”138 “In other words, the alleging party must specify the ‘who, what, where, and when
of the alleged fraud.’”139
Plaintiff contends that its Complaint satisfies Rule 9(b), but states that it is “willing to
submit an Amended Complaint, which will provide even more details regarding EBW’s
fraud.”140 Plaintiff’s proposed Second Amended Complaint is attached as an exhibit to its
response in opposition to Defendant’s motion for a more definite statement and includes
additional allegations in support of Plaintiff’s fraud and misrepresentation claim.141 Under Fed.
R. Civ. P. 15(a)(1), a “party may amend its pleading once as a matter of course within 21 days
after serving it, or if the pleading is one to which a responsive pleading is required, 21 days after
service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f),
whichever is earlier.” Plaintiff here submitted an amended complaint as an exhibit to its
response within 21 days after the filing of Defendant’s Rule 12(e) motion for a more definite
statement. Thus, Plaintiff could have filed the amended complaint as a matter of course without
this Court’s leave. Plaintiff instead requests leave to file its Second Amended Complaint,
presumably pursuant to Fed. R. Civ. P. 15(a)(2),142 should the Court grant Defendant’s motion.
Defendant argues that the fraud and misrepresentation allegations set forth in Plaintiff’s
original Complaint are deficient in several respects, including Plaintiff’s failure to identify (1)
138
Tal v. Hogan, 453 F.3d 1244, 1263 (10th Cir. 2006) (quoting Koch v. Koch Indus., 203 F.3d 1202, 1236
(10th Cir. 2000)).
139
Cinema Scene Mktg. & Promotions, Inc. v. Calidant Capital, LLC, Case No. 2:16-CV-2759-JAR, 2017
WL 3730475, at *5 (D. Kan. Aug. 30, 2017) (quoting Lee v. Kan. State Univ., No. 12-CV-2638-JAR-DJW, 2013
WL 2476702, at *11 (D. Kan. June 7, 2013)).
140
Doc. 13 at 1.
141
Doc. 13-1.
142
Fed. R. Civ. P. 15(a)(2) provides that a party seeking to amend its pleading after the deadlines set forth
in Rule 15(a)(1) have passed may do so “only with the opposing party’s written consent or the court’s leave. The
court should freely give leave when justice so requires.”
31
any specific statement that was allegedly fraudulent or a misrepresentation; (2) the individual or
individuals who allegedly made the misrepresentations; (3) the content of the alleged
misrepresentations; and (4) the time and place of the alleged misrepresentations. In its reply
brief, Defendant states that it will not “address fully the amended Complaint” because the Court
has not yet granted Plaintiff leave to amend, but nonetheless argues that the proposed Second
Amended Complaint is insufficient because while it identifies some allegedly fraudulent or
misleading statements, it signifies that “there are other statements that have not been
included.”143 Defendant asks that if Plaintiff is granted leave to file an amended complaint, the
Court order Plaintiff “to identify and provide the requisite details about each and every statement
that is a basis of its claim for fraud.”144
B.
Analysis
Plaintiff alleges in its proposed Second Amended Complaint that on June 6, 2012,
Defendant’s owner, Blumenthal, approached Plaintiff with “the purported purpose of discussing
the acquisition of Plaintiff’s business.”145 Plaintiff alleges that during the course of the parties’
dealings, “EBW repeatedly represented that it had a then-present interest in purchasing
[Plaintiff’s] business” as evidenced by Blumenthal’s July 10, 2013 inquiry about Plaintiff’s
business and whether Plaintiff would be willing to enter into a business transaction;
Blumenthal’s April 23, 2014 solicitation of Jones concerning a face-to-face meeting in May
2014; and Blumenthal’s offer to buy Swimwear on July 9, 2014, prior to receiving any financial
information concerning the business.146
143
Doc. 25 at 6.
144
Id.
145
Doc. 13-1, ¶ 124.
146
Id. ¶ 125(a)–(c).
32
Plaintiff further alleges that Defendant made false representations about its intent to
acquire Plaintiff for the sole purpose of inducing Plaintiff to divulge confidential information
through a November 21, 2014 request from Blumenthal—and/or another representative of
Defendant, Sheila Arnold—for information about Plaintiff’s business, sales, vendors, and
finances, and through Blumenthal and/or Arnold’s January 15, 2015 request for information
concerning the sale of Plaintiff’s business.147 Additionally, Plaintiff alleges that Defendant made
a false representation of its intent to acquire Swimwear through Arnold’s July 29, 2015 request
for Plaintiff to price its business.148 Plaintiff’s proposed Second Amended Complaint also sets
forth other allegations of false representations by Blumenthal and/or Arnold of Defendant’s
intent to purchase Swimwear that are not tied to a precise date, but are alleged to have occurred
in or throughout a specific month and year.149
Plaintiff’s proposed Second Amended Complaint largely addresses Defendant’s argument
that Plaintiff has failed to satisfy Rule 9(b) because it sets forth allegations that include a date or
a limited date range, the speaker or speakers, and the content of the allegedly fraudulent
statements. While some of Plaintiff’s allegations lack a precise date, the Court finds that
allegations referring to a relatively short, definite timeframe—in no case longer than one
147
Id. ¶ 126(a), (c).
148
Id. ¶ 127(c).
Id. ¶¶ 126(b) (alleging Arnold and/or Blumenthal represented Defendant’s intent to acquire Plaintiff’s
confidential information solely for the purpose of considering the purchase of Swimwear by requesting information
concerning Plaintiff’s inventory, business position, contracts, and sales throughout January 2015); 126(d) (alleging
Arnold and/or Blumenthal represented Defendant’s intent to acquire Plaintiff’s confidential information solely for
the purpose of considering the purchase of Swimwear by requesting information concerning Swimwear’s financial
position, vendor relationships, employment policies, and market information throughout July 2015); 127(a), (b), (d)
(alleging Arnold and/or Blumenthal falsely represented Defendant’s intent to acquire Swimwear through offers to
purchase the business at “vastly different purchase prices” in September 2012, July 2014, and August 2015).
149
33
month—are sufficiently detailed to give Defendant notice of the misconduct alleged.150 Further,
the Court finds that Plaintiff’s identification of Blumenthal and/or Arnold as the individual who
made each statement is likewise sufficient under the rule, given that both are representatives of
the only defendant in this case and the only individuals alleged to have been in communication
with Plaintiff. However, Plaintiff’s allegations still fail to meet the requirements of Rule 9(b)
because they do not indicate the place, or form, of Defendant’s allegedly false statements.151
Further, Plaintiff’s apparent reliance upon additional fraudulent statements or
misrepresentations that are not alleged in the proposed Second Amended Complaint but, instead,
denoted by the phrase “inter alia,” is improper.152 Given that only three individuals were
involved in the series of communications at issue—which took place during a discrete
timeframe—Plaintiff is not excused from alleging each statement upon which it relies in stating a
claim for misrepresentation and fraud. This is not a case where the circumstances of the alleged
fraud are uniquely within the defendant’s knowledge or where it would be unduly burdensome or
150
See, e.g., Petrus v. N.Y. Life Ins. Co., Case No. 14-cv-2268-BAS-JMA, 2016 WL 1255812, at *4 (S.D.
Cal. Mar. 31, 2016) (holding that “exact dates . . . are not always necessary to meet the Rule 9(b) pleading standard)
(citations omitted).
151
See Jamieson v. Vatterott Educ. Ctr., Inc., 473 F. Supp.2d 1153, 1157 (D. Kan. 2007) (holding that
plaintiff failed to adequately allege place of fraud where complaint contained no allegation about place of verbal
misrepresentations or place of written misrepresentations delivered by mail, and did not allege whether written
misrepresentations were made on “brochures, personalized letters, bills, e-mails, or any of the many forms of written
communication.”) (citing In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F. Supp.2d 1107, 1150 (D.
Kan. 2003); Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997)).
152
See, e.g., Moore v. The Climate Corp., Case No. 15-4916-DDC-KGS, 2016 WL 4527991, at * 11 (D.
Kan. Aug. 30, 2016) (“[P]laintiffs, as the recipients of the alleged misrepresentations, should not require discovery
to know the factual detail necessary to assert fraud claims.”); In re Rosen, 132 B.R. 679, 682 (E.D.N.Y 1991) (“If
the Plaintiffs know of the misleading statements or acts made by a Defendant, they must allege each and every
statement with particularity.”); Goldman v. Belden, 98 F.R.D. 733, 738 (W.D.N.Y. 1983) (“In the instant case, either
plaintiff knows of misleading statements made by the defendants or he does not. If he does, then he must allege
each and every statement with particularity. If he does not, then he may not use the federal discovery procedures to
flush statements out.”).
34
impossible to allege each fraudulent statement.153 The Court therefore grants Defendant’s
Motion for a More Definite Statement.
IT IS THEREFORE ORDERED BY THE COURT that Defendant’s Motion to
Dismiss (Doc. 5) is granted with prejudice as to Counts III, V, VI, VII, and X of Plaintiff’s
Complaint, and with leave to amend as to Count IX. Plaintiff’s Motion to Dismiss EBW’s
Counterclaim (Doc. 14) is denied. Defendant’s Motion for More Definite Statement (Doc. 7) as
to Count VIII is granted.
IT IS FURTHER ORDERED BY THE COURT that Plaintiff shall file an amended
complaint within 14 days from the date of this Order setting forth: (1) the place or form of each
false representation alleged in its proposed Second Amended Complaint; and (2) the time, place,
and contents of the false representation, the identity of the party making the false representation,
and the consequences thereof, for each additional fraudulent statement, if any, that forms the
basis of Count VIII. Additionally, Plaintiff may, within 14 days of the date of this Order, file an
amended complaint pleading an alternative claim for unjust enrichment on the basis that the
parties’ contract was invalid.
IT IS SO ORDERED.
Dated: March 30, 2018
S/ Julie A. Robinson
JULIE A. ROBINSON
CHIEF UNITED STATES DISTRICT JUDGE
153
See, e.g., United Air Lines, Inc. v. Gregory, 716 F. Supp. 2d 79, 86 (D. Mass. 2010) (holding that strict
application of Rule 9(b) may be relaxed where the underlying facts are uniquely within the defendant’s control or
where the alleged fraud occurred over an extended time period and involved numerous transactions) (citations
omitted); Highlands Rests., Inc. v. Judy’s Foods, Inc., No. 83-4030, 1990 WL 92484, at *3 (D. Kan. June 26, 1990)
(noting that the requirements of Rule 9(b) may be relaxed in cases of corporate fraud when a group of defendants is
responsible for a document or statement containing fraudulent misrepresentations, or where the alleged fraudulent
acts are numerous and occur over a prolonged period of time) (citations omitted).
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