C.A. Jones, Inc et al v. Mayson Capital Partners, LLC et al

Filing 16

MEMORANDUM OPINION & ORDER denying 8 Motion to Dismiss for Failure to State a Claim; denying 8 Motion to Dismiss for Lack of Jurisdiction; denying 12 Motion to Dismiss for Failure to State a Claim; Telephone Conference set for 1/21/2015 at 10:00 AM before Senior Judge Thomas B. Russell. Signed by Senior Judge Thomas B. Russell on 1/15/2015. cc: Counsel(KJA)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
PADUCAH DIVISION
CIVIL ACTION NO. 5:14-CV-00174-TBR

C.A. JONES, INC. ET AL.

Plaintiffs

v.
MAYSON CAPITAL PARTNERS, LLC, ET AL.

Defendant

MEMORANDUM OPINION AND ORDER
This matter is before the Court upon Defendants’ motion for dismiss. (Docket #8, 12).
Plaintiffs, without leave of Court, filed an amended complaint. (Docket #11). Defendants
moved to dismiss this amended complaint. (Docket #12). Plaintiffs have responded. (Docket
#14). Defendants have replied. (Docket #15). These matters now are ripe for adjudication. For
the following reasons, Defendants’ motions to dismiss (Docket #8, 12) are DENIED.
BACKGROUND
This action arises out of a loan to Charles A. Jones, C.A. Jones, Inc., and Global Book
Resellers (collectively “Jones”). Jones was loaned $1.1 million dollars by Mayson Capital
Partners, LLC, Missouri Book Company, LLC, PAJCO, Inc., and Jeffrey Maurer (collectively,
“Mayson”).
In May, 2014, Mayson allegedly approached Jones “about participating in a potential
business opportunity.” (Docket #1, Ex. 1). Jones “permitted” Mayson to loan Jones $1.1
million. The parties apparently did not put the terms of this loan into writing. Three months
later the parties reached a disagreement as to what amount Mayson was entitled to be repaid and
when repayment was due. (Docket #1, Ex. 1).
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Jones filed this lawsuit claiming Mayson has attempted to extort Jones by demanding
“many times the amount” that Mayson loaned, “threatening to have Jones prosecuted
criminally,” and “by interfering in other litigation in which Jones is involved.” (Docket #1, Ex.
1). Jones also seeks a declaration of that the transaction is unenforceable and that Jones has no
obligation to Mayson. (Docket #1, Ex. 1).
Mayson now moves to dismiss Jones’s complaint for failure to state a claim upon which
relief can be granted. (Docket #8, 12).
STANDARD
The Federal Rules of Civil Procedure require that pleadings, including complaints,
contain a “short plain statement of the claim showing that the pleader is entitled to relief.” Fed.
R. Civ. P. 8(a)(2). A defendant may move to dismiss a claim or case because the complaint fails
to “state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b). When considering a
Rule 12(b)(6) motion to dismiss, the court must presume all of the factual allegations in the
complaint are true and draw all reasonable inferences in favor of the non-moving party. Total
Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir.
2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). “The court
need not, however, accept unwarranted factual inferences.” Id. (citing Morgan v. Church’s Fried
Chicken, 829 F.2d 10, 12 (6th Cir. 1987)).
Even though a “complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement to
relief requires more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations
omitted). Instead, the plaintiff’s “[f]actual allegations must be enough to raise a right to relief
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above the speculative level on the assumption that all the allegations in the complaint are true
(even if doubtful in fact).” Id. (citations omitted). A complaint should contain enough facts “to
state a claim to relief that is plausible on its face.” Id. at 570. A claim becomes plausible “when
the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)
(citing Twombly, 550 U.S. at 556). If, from the well-pleaded facts, the court cannot “infer more
than the mere possibility of misconduct, the complaint has alleged - but has not ‘show[n]’ - ‘that
the pleader is entitled to relief.’” Id. at 1950 (citing Fed. R. Civ. P. 8(a)(2)). “Only a complaint
that states a plausible claim for relief survives a motion to dismiss.” Id.
DISCUSSION
As an initial matter, the Court will address Jones’ amended complaint, which Jones filed
without seeking leave from the Court. The Court then turns to whether Jones has pled sufficient
facts for his request for a declaratory judgment and his extortion claim.
I.

Jones Amended Complaint.

Generally, a party may amend his complaint “only with the opposing party’s written
consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). “The court should freely give leave when
justice so requires.” Id. The trial court has the discretion to permit or deny an amendment.
Gootee v. Colt Industries, Inc., 712 F.2d 1057 , FN 7 (6th Cir. 1983).
Jones did not seek leave of the Court before filing the First Amended Complaint.
(Docket #11). However, the amended complaint only minimally alters the original complaint.
The original complaint stated: “Under the Kentucky Declaratory Judgment Act, KRS 418.040,
the Court is empowered to make a binding declaration of rights.” (Docket #1, Ex. 1). The
amended complaint, filed after this case was removed to federal court, now states: “Under 28
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U.S.C. § 2201 and KRS 418.040, the Court is empowered to make a binding declaration of rights
of the parties.” (Docket #11). In addition, one paragraph was altered to add detail to Jones’s
extortion claim, a change which Mayson admits is “negligibl[e].” (Docket #12).
Considering how minor the changes are between Jones’s original complaint and the
amended complaint, the Court will allow Jones’s First Amended Complaint (Docket #11) to be
entered.
II.

Request for Declaratory Judgment.

Jones first claim seeks a declaratory judgment that “the plaintiffs have no obligation to
pay any amount to the defendants because the transaction is unenforceable under the Statute of
Frauds, KRS 371.010.” (Docket #11). Mayson argues there is no actual case or controversy at
this time and therefore Jones merely seeks an advisory opinion. (Docket #12, 15).
KRS § 418.040 allows a court to make a binding declaration of rights “wherein it is made
to appear that an actual controversy exists.” The federal Declaratory Judgment Act (“Act”)
states that in a “case of actual controversy within its jurisdiction, . . . any court of the United
States, . . . may declare the rights and other legal relations of any interested party seeking such
declaration.” 28 U.S.C. § 2201(a).
An actual case or controversy means a party must be “immediately in danger of
sustaining some direct injury.” Miyazawa v. City of Cincinnati, 45 F.3d 126, 127 (6th Cir. 1995)
(quoting Massachusetts v. Mellon, 262 U.S. 447, 448 (1923)). The “injury must be both real and
immediate, not conjectural or hypothetical.” (punctuation omitted) Id. (quoting O'Shea v.
Littleton, 414 U.S. 488, 494 (1974). “The two principal criteria guiding the policy in favor of
rendering declaratory judgments are (1) when the judgment will serve a useful purpose in
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clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief
from the uncertainty, insecurity, and controversy giving rise to the proceeding. It follows that
when neither of these results can be accomplished, the court should decline to render the
declaration prayed.” Grand Trunk W. R. Co. v. Consolidated Rail Corp., 746 F.2d 323, 326 (6th
Cir. 1984) (citation omitted).
A strong majority of state courts have held a declaratory action may be maintained to
“declare rights, status, and other legal relations in situations where there is no written
instrument.” Carpenter v. Free, 357 P.2d 882 (Mont. 1960) (noting Missouri and Oregon
allowed declaratory judgments on oral contracts and distinguishing Ohio’s precedent); see also
McCarl v. Fernberg, 126 N.W.2d 427 (Iowa 1964); Zab, Inc. v. Berenergy Corp., 136 P.3d 252
(Colo. 2006) (noting “substantial harmony among the states and the federal judiciary in allowing
declaratory relief over oral contract disputes” and stating “[c]ases that appear to support a
contrary conclusion are limited or unpersuasive.”). Several federal courts have considered a
declaratory action “to determine whether an alleged oral contract between the parties had been
made and, if so, was enforceable.” Transit Advertisers, Inc. v. New York, N. H. & H. R. Co., 194
F.2d 907 (2nd Cir. 1952); Walling v. Green Head Bit & Supply Co., 138 F.2d 453 (10th Cir.
1943); Vernon v. Qwest Communs. Int'l, Inc., 643 F. Supp. 2d 1256 (W.D. Wash. 2009).
The Court is convinced that it has the authority to declare the rights and obligations
arising under an oral contract. The Court also holds that Jones has presented a set of facts which
are ripe for consideration. Jones claims that Mayson loaned $1.1 million dollars to Jones and
that Mayson is now demanding repayment. (Docket #11). The parties disagree about the
validity of the transaction and the terms of the loan. A declaratory action would both clarify the

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legal relationship between Jones and Mayson and afford relief from the controversy. Grand
Trunk, 746 F.2d at 326.
III.

Extortion Claim.

Jones second claim is that Mayson attempted to extort Jones by “threatening to cause
Jones to be criminally prosecuted, and in threatening to detrimentally interfere with Jones’
litigation.” (Docket #11). Mayson argues that Jones’ extortion claim must meet the more
stringent pleading standard for fraud found in Rule 9(b). (Docket #12). The Court disagrees.
In general, a pleading requires only a “short plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). However, if a claim “sounds in fraud,”
it “triggers Rule 9(b)’s heightened standard.” Republic Bank & Trust Co. v. Bear Stearns & Co.,
683 F.3d 239, 247 (6th Cir. 2012). Whether a state law claim sounds in fraud is a matter of state
substantive law. Id. (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 82 L. Ed. 1188
(1938)).
Neither party cites to a Kentucky case which discusses the pleading standard for state
extortion claims. However, courts in this Circuit and other Circuits routinely analyze motions to
dismiss extortion claims under Rule 8, not under Rule 9(b). 1 Caudill Seed & Warehouse Co. v.
Jarrow Formulas, Inc., 2013 U.S. Dist. LEXIS 112303 *8 (W.D. Ky. 2013); Ferluga v. Eickhoff,
408 F. Supp. 2d 1153, 1159 (D. Kan. 2006) (“But in this case plaintiff alleges predicate acts of
extortion, not fraud, and therefore no such heightened pleading standard applies”); Robbins v.
Wilkie, 300 F.3d 1208, 1211 (10th Cir. 2002).

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“The text of Kentucky Rule of Civil Procedure 9.02 is materially identical to the text of Rule
9(b).” Republic Bank & Trust Co. v. Bear Stearns & Co., 683 F.3d 239 FN 2 (6th Cir. 2012).
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Mayson argues that “RICO violations premised on extortion [must] meet Rule 9(b)’
stringent requirements.” (Docket #12). In support, Mayson cites Heinrich v. Waiting Angels
Adoption Servs., 668 F.3d 393 (6th Cir. 2012). The Heinrich court discussed the pleading
standard for RICO claims sounding both in fraud and in extortion, but only those claims
sounding in fraud were held to the “more rigorous pleading standards of Rule 9(b).” Id. at 403.
The Heinrich court analyzed the extortion claim under the general pleading requirement found in
Rule 8. Other courts have also distinguished extortion claims from other RICO claims sounding
in fraud. See e.g. K.B.A. Constr., LLC v. Home Acres Bldg. Supply Co, 2005 U.S. Dist. LEXIS
48630 *6-7 (W.D. Mich. 2005); see generally Robbins v. Wilkie, 300 F.3d 1208, 1211 (10th Cir.
2002) (“Defendants confuse the requirement to plead with particularity RICO acts predicated
upon fraud pursuant to Rule 9(b) with Rule 8's more general notice pleading typically required of
all litigants”); Olathe/Santa Fe P'ship v. Doull, 2013 U.S. Dist. LEXIS 105621 *5 (D. Kan.
2013) (“The court expressly recognized that mail fraud and wire fraud sound in fraud and must
be alleged with particularity. The court did not make a similar statement for Hobbs Act extortion.
Instead, the court understood that the general pleading requirements applied to those
allegations”).
The Court holds that Jones’ extortion claim must only the general pleading standard
found in Rule 8. To the extent Mayson argues that Jones’s extortion claim fails to meet even this
standard, the Court finds that argument unpersuasive. Rule 8 requires only a “short plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
Jones has claimed Mayson is demanding “many times the amount they provided,” has threatened
to “have Jones criminally prosecuted,” and has “interfere[ed] in other litigation in which Jones is

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involved” in an attempt to seek repayment. (Docket #11). This is sufficient to put Mayson on
notice of the claims Jones has asserted.
CONCLUSION
For the foregoing reasons, Defendants’ motions to dismiss (Docket #8, 12) are DENIED.
A telephonic status/scheduling conference is set January 21, 2015 at 10:00 a.m. Central Time. The
Court shall place the call to counsel.

cc: counsel of record

January 15, 2015

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