Flinn v. R.M.D. Corp. et al
MEMORANDUM OPINION AND ORDER by Judge John G. Heyburn, II on 2/29/12 denying 32 Motion for New Trial; denying 32 Motion to Alter Judgment; granting 32 Motion for Leave to to Amend Complaint cc:counsel (DAK)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
CIVIL ACTION NO. 3:11-CV-00386-H
MICHAEL E. FLINN
R.M.D. CORP. and NEAL HARDING
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Plaintiff’s motion to alter or amend its Memorandum
Opinion dated October 21, 2011, or alternatively, for leave to amend. Having reviewed
Plaintiff’s arguments and, for the reasons that follow, the Court will sustain Plaintiff’s motion for
leave to amend, and deny his other motions.
This case concerns an alleged agreement between Plaintiff and Neal Harding for the
acquisition of R.M.D. Corporation (“RMD”), which owns and operates thirty-eight Hooters
restaurants across four states. In 2007, Plaintiff initiated efforts to acquire RMD from Harding,
the company’s sole shareholder and director. During negotiations, Plaintiff served as the
unofficial president of RMD. Plaintiff alleges that the parties ultimately agreed that Harding
would finance part of Plaintiff’s purchase if Plaintiff would personally guarantee part of RMD’s
debt and serve officially as president of the company. The Court has described the other relevant
facts in its previous Memorandum Opinion.
Eventually, Plaintiff brought suit against Defendants for breach of contract. Defendants
moved to dismiss the contract claim as unenforceable under Kentucky’s statute of frauds. The
Court, in its prior Memorandum Opinion agreed, noting that the plain language of the statute,
Ky. Rev. Stat. Ann. § 371.010 (West 1990), requires that any agreement involving the financial
assistance of a business enterprise be in writing and signed by the party to be charged. Plaintiff
now moves to amend that judgment, and alternatively, for leave to amend his Complaint.
Pursuant to Federal Rules of Civil Procedure 59(a) and 59(e), a district court may grant a
new trial or amend a prior judgment to correct a clear error of law, prevent manifest injustice, or
to consider newly discovered evidence. Mkt. Finders Ins. Corp. v. Scottsdale Ins. Co., No. 02433-C, 2007 WL 2025210, at *1 (W.D. Ky. July 9, 2007) (citation omitted). The decision to do
so is “left to the district court’s sound discretion.” Clayton v. Morillo, No. 3:09-CV-P265-S,
2010 WL 569839, at *1 (W.D. Ky. Feb. 12, 2010) (citation omitted). However, such a “motion
is not properly used as a vehicle to re-hash old arguments or to advance positions that could have
been argued earlier, but were not.” Id. (citing Sault Ste. Marie Tribe of Chippewa Indians v.
Engler, 146 F.3d 367, 374 (6th Cir. 1998)). “Accordingly, a motion for reconsideration that
merely presents the same issues ruled upon by the court, either expressly or by reasonable
implication, shall be denied.” Id. (internal quotation marks, brackets, and citation omitted).
Plaintiff argues that the Court’s prior ruling was wrong and should be reversed. In
addition, Plaintiff contends that his performance of the contract removes it from the purview of
the statute of frauds. The Court will address each of these arguments.
Plaintiff argues that the Court should reconsider whether the parties’ alleged contract was
one to finance a business transaction. According to the Complaint, Harding agreed to seller
finance part of Flinn’s purchase of RMD if Flinn would personally guarantee part of RMD’s debt
and serve as president of the company. Flinn and Harding agreed to an option purchase contract
that allowed Flinn to take over the reins of RMD, begin improving its performance, and begin
earning seller-financed equity while seeking financiers to close the remainder of the purchase.
In the Court’s view, the Complaint indisputably asserts an agreement to assist or finance
a business enterprise. Flinn sought to purchase RMD, and the contract provided terms for seller
financing and payments to be applied toward the purchase price. Because the agreement directly
concerned the financing of a business enterprise, the statute of frauds applies. Plaintiff offers no
new arguments or facts to refute this conclusion.
Plaintiff cites Hirby v. Lytle to support his argument that the Court’s Memorandum
Opinion was premature. In Hirby, the parties could not agree on the subject of their own
agreement and whether the loan in question involved a “business enterprise.” No. 2006-CA001024-MR, 2007 WL 1229502, at *3 (Ky. Ct. App. April 27, 2007). The Kentucky Court of
Appeals therefore held that a genuine question of fact existed regarding the nature of the
agreement, and more consequently, whether it fell within the statute of frauds as a loan “for a
business enterprise.” Id. No such dispute exists here.1 Both parties acknowledge that the
subject of their negotiations and dealings was the purchase of RMD. Thus, the statute of frauds
Plaintiff next attempts to save his contract claim by arguing that his part performance
renders the statute of frauds inapplicable. As support, Plaintiff cites only cases involving
contracts not to be performed within one year, which Kentucky courts have often excepted from
In fact, the new claims which Plaintiff asserts in his Amended Complaint also say that Defendants failed
to provide the financing promised.
the statute of frauds, but which are not the subject matter of the instant action. Certainly, partial
performance could be a factor in determining whether an oral agreement could be performed
within one year. None of the cases cited by either party addresses suspension of the statute of
frauds in cases involving financial assistance for businesses. Furthermore, any such partial
performance would not seem to be relevant to the issue of financing. For that reason and without
any other proper support, the Court has no grounds upon which to believe that Kentucky courts
are likely to entertain such an exception to the general rule.
Alternatively, Plaintiff moves for leave to amend his Complaint to allege claims for
quantum meruit, unjust enrichment, fraud, and equitable estoppel. In response to Defendants’
earlier motion for dismissal, Plaintiff failed to articulate these particular claims or to submit an
Amended Complaint reflecting them. Absent any specific claims, the Court naturally denied the
Now Plaintiff presents specific new claims. The litigation has not yet involved extensive
discovery. Except on the statute of frauds issue, no extensive motion practice has occurred.
Consequently, reconsideration of the prior motion would not seem unfairly prejudicial or unfair
to Defendants. True, Plaintiff could have raised those issues earlier. Nevertheless, these issues
are not so late as to prevent the Court from considering them now.
Before leave may be granted, however, the Court must conduct a cursory review of the
newly presented allegations and issues and deny leave if allowing an “amendment would be
futile.” Crawford v. Roane, 53 F.3d 750, 753 (6th Cir. 1995). Futility exists where “the
proposed amendment would not permit the complaint to survive a motion to dismiss.” Miller v.
Calhoun Cnty., 408 F.3d 803, 817 (6th Cir. 2005) (citation omitted). The Court will consider
each proposed claim accordingly.
Plaintiff first seeks to recover the value of services he rendered to Defendants under the
theory of quantum meruit. Plaintiff alleges that the following benefits were conferred upon
Defendants: (1) Plaintiff personally guaranteed roughly $14 million of RMD’s debt, freeing up
Harding’s personal line of credit and personal guarantees, and permitting Harding to eliminate
other outstanding obligations; and (2) Plaintiff, as president, improved the performance of
RMD’s Hooters restaurants. Because Plaintiff was only partially compensated for his services
and credit, he seeks to recover the reasonable market value of the remaining services.
Recovery under quantum meruit can be sought in cases of both implied-in-law contracts
and implied-in-fact contracts. The distinction lies in whether recovery is rooted in the laws of
restitution or contract. Since the Court has already determined that Plaintiff inadequately pleads
a contract claim, his quantum meruit claim must lie in restitution. See JP White, LLC v. Poe
Cos., LLC, Nos. 2010-CA-000267-MR, 2010-CA-000299-MR, 2011 WL 1706751, at *5 n.5
(Ky. Ct. App. May 6, 2011) (noting “that an action for restitutionary relief based upon quantum
meruit must be an alternative remedy to an action for damages upon breach of contract.”) In
such cases, quantum meruit is recoverable on implied-in-law contracts, or those “contract
setting[s] where a party doubts the existence of a contract.” Gonzalez v. Imaging Advantage,
LLC, No. 11-243-C, 2011 WL 6092469, at *2 (W.D. Ky. Dec. 7, 2011) (quoting Advanced
Plastics Corp. v. White Consol. Indus., 828 F. Supp. 484, 491 (E.D. Mich. 1993)). To recover, a
party must prove: “(1) that valuable services were rendered, or materials furnished; (2) to the
person from whom recovery is sought; (3) which services were accepted by that person, or at the
last were received by that person . . . ; and (4) under such circumstances as reasonably notified
the person that the plaintiff expected to be paid by that person.” MidAmerican Distrib., Inc. v.
Clarification Tech., Inc., 807 F. Supp. 2d 646, 680-81 (E.D. Ky. 2011).
A cursory review of these factors reveals that Plaintiff has alleged facts sufficient to
pursue a quantum meruit claim. Plaintiff’s service as both president and personal guarantor of
RMD likely conferred some value to Defendants for which Plaintiff expected compensation in
return. Of course, it may be that the compensation already received is sufficient. Regardless, it
suffices at this stage to determine only that the claim is not futile.
Plaintiff next seeks to recover Defendants’ unjust enrichment as a result of the benefit
Plaintiff conferred upon them. The same factual allegations presented above support this claim.
Namely, Defendants benefitted from increased cash flow, the ability to settle personal debts, and
latitude to pursue new investments or enterprises.
Similar to the theory of quantum meruit, unjust enrichment is actionable upon implied-inlaw contracts. “The claim for unjust enrichment is a legal fiction created to permit recovery
where equity says there should be recovery, although there is no recovery in contract.” Holley
Performance Prods., Inc. v. Keystone Auto. Operations, Inc., No. 1:09-CV-00053-TBR, 2009
WL 3613735, at *5 (W.D. Ky. Oct. 29, 2009) (citing Perkins v. Daugherty, 722 S.W.2d 907, 909
(Ky. Ct. App. 1987)). Thus, “‘[t]he doctrine of unjust enrichment has no application in a
situation where there is an explicit contract which has been performed.’” Id. (citation omitted).
For a “[p]laintiff to prevail under unjust enrichment, it must establish three elements: (1) a
benefit conferred upon [a] defendant at [the] plaintiff’s expense; (2) a resulting appreciation of
benefit by [the] defendant; and (3) inequitable retention of benefit without payment for its
value.” MidAmerican Distrib. Inc., 807 F. Supp. 2d at 680. Although the elements required to
prove claims for unjust enrichment and quantum meruit admittedly appear similar, perhaps even
redundant, Kentucky courts apply two distinct tests for them, and this Court will duly regard
them as independent theories of recovery. See id.
A cursory review of the Amended Complaint shows that Plaintiff may be able to prove
the elements for this claim. Defendants allegedly agreed to compensate Plaintiff for his services,
apply certain revenues to the purchase price of RMD, and relieve Plaintiff’s personal guarantee
of RMD’s debts if he fulfilled his obligations. If Defendants failed to perform their promise,
Flinn’s services likely conferred some benefit, unaccounted for, upon Defendants. Therefore, a
claim of equitable estoppel does not appear to be futile at this stage.
Plaintiff also seeks to assert a fraud claim. The Amended Complaint alleges that Harding
made false representations to Flinn with the intention that the parties’ purchase agreement would
be fulfilled by Flinn but disregarded by Harding. By establishing a price for RMD, Harding
motivated Plaintiff to remain as RMD’s president, improve RMD’s performance, continue
pursuing the purchase, and personally guarantee RMD’s debts. According to Plaintiff, Harding
never had the intention of upholding his part of the agreement and sought only to benefit from
Plaintiff’s reliance upon these misrepresentations.
Under Kentucky state law, a plaintiff asserting a cause of action for fraud must prove six
elements: (1) a material representation; (2) falsity; (3) knowledge of falsity or recklessness; (4)
performed with inducement to be acted upon; (5) reliance thereon; and (6) resulting injury.
Sudamax Industria E Comercio De Cigaros, LTDA v. Buttes & Ashes, Inc., No. 1:05-CV-60-M,
2006 WL 3627725, at *3 n.2 (W.D. Ky. Dec. 8, 2006) (citation omitted). The heightened
pleading standard of Federal Rule of Civil Procedure 9 requires that “in ‘all averments of fraud
or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.’”
Id. (citation omitted). Thus, plaintiffs must “allege the time, place, and content of the alleged
misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the
defendants; and the injury resulting from the fraud.” Id. (internal quotation marks and citation
Here, Plaintiff’s motion sufficiently alleges fraud. Plaintiff identifies the representations
he believes were false, why they were false or misleading, and when they were made. Although
it is far too early to delve into the substantive merits of Plaintiff’s claim, the Court is satisfied
that allowing Plaintiff to plead fraud in his Amended Complaint would not be futile.
Finally, Plaintiff raises equitable estoppel as a means of enforcing the terms of the
parties’ agreement. Plaintiff argues that Defendants, by way of negotiating and agreeing to the
parties’ contract, induced Plaintiff to take action in reliance of Defendants’ promises.
Equitable estoppel “may be invoked by an innocent party who has been fraudulently
induced to changer their position in reliance on an otherwise unenforceable oral agreement.”
Rivermont Inn, Inc. v. Bass Hotels & Resorts, Inc., 113 S.W.3d 636, 643 (Ky. Ct. App. 2003)
(citation omitted). A party asserting equitable estoppel must prove five elements:
(1) Conduct, including acts, language and silence, amounting to a
representation or concealment of material facts; (2) the estopped
party is aware of these facts; (3) these facts are unknown to the
other party; (4) the estopped party must act with the intention or
expectation his conduct will be acted upon; and (5) the other party
in fact relied on this conduct to his detriment.
Santa Escolastica, Inc. v. Pavlovsky, No. 09-358-KSF, 2011 WL 4948958, at *5 (E.D. Ky. Oct.
18, 2011) (quoting Hinshaw v. Hinshaw, 237 S.W.3d 170, 173 (Ky. 2007)).
Plaintiff alleges that Harding, having no intention to sell RMD to Plaintiff, and in fact
soliciting alternative prospective purchasers while purporting to deal exclusively with Plaintiff,
convinced him to begin performing his obligations under the agreement. Then, once Flinn
complied by personally guaranteeing 70% of RMD’s debts and incurring significant legal
expenses, Harding failed to honor his half of the arrangement. Plaintiff argues that Defendants
reasonably should have expected their representations would prompt Plaintiff’s action in reliance
of the promise for financing and ultimate purchase of RMD. There are a number of possible
explanations for the events that transpired, but the Court acknowledges that Plaintiff’s
allegations are plausible and therefore pass the “futility” standard on reconsideration.
The Court being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Plaintiff’s Motion for New Trial, to Alter or Amend the
Judgment is DENIED.
IT IS FURTHER ORDERED that Plaintiff’s Motion for Leave to Amend is
SUSTAINED and the Amended Complaint is ORDERED FILED.
February 29, 2012
Counsel of Record
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