Kansas City Live Block 124 Retail, LLC v. Kobe Kansas, LLC et al
MEMORANDUM OPINION. Signed by Judge George Levi Russell, III on 10/16/2015. (hmls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
KANSAS CITY LIVE BLOCK
124 RETAIL, LLC,
Civil Action No. GLR-14-3236
KOBE KANSAS, LLC, et al.,
Defendant’s, Kansas City Live Block 124 Retail, LLC (“KC Live”),
Motion to Dismiss Defendants’/Counter-Plaintiffs’, Kobe Kansas,
LLC, Young W. Bae, and Chan H. Bae (the “Baes”), Counterclaim.
(ECF No. 21).
This case involves alleged misrepresentations KC
Live made to the Baes to induce them to open a restaurant in a
mixed-use development that KC Live owned.
Principally at issue is
whether the Baes state a claim for fraudulent inducement and
whether their claim is barred by the compulsory counterclaim rule,
the equitable doctrines of waiver and estoppel, or the statute of
The issues have been fully briefed, and the Motion is ripe for
The Court, having reviewed the Motion and supporting
documents, finds no hearing necessary pursuant to Local Rule 105.6
For the reasons outlined below, KC Live’s Motion to
Dismiss will be denied.
KC Live, a Maryland limited liability company, is the owner of
a mixed-use leasing area in Kansas City, Missouri known as the
Kansas City Power & Light District (the “District”).
Virginia, including a location leased from the parent company of KC
Live—the Cordish Company (“Cordish”).
In February 2005, Cordish’s
Director of Leasing and Development, Michael Morris, contacted the
Baes regarding an opportunity to open a restaurant in the District.
The Baes accepted an invitation to visit the District.
there, Morris advised the Baes that “time was of the essence
because most of the available premises were already leased to wellknown nationally-operated franchises and only a few areas in the
District were still available.”
(Countercl. ¶ 21, ECF No. 17).
Morris recommended a site within the “heart” of the District, and
stated that a high-rise condominium building would be constructed
above the site, which would “increase their customer base and the
amount of foot traffic in that portion of the District.”
location of the site within the district, the other tenants already
committed to the District, and the housing that would be built
above the site, the Baes could “easily achieve sales of $3 million
Unless otherwise noted, the following facts are taken from
the Counterclaim and are assumed true. See Mylan Labs., Inc. v.
Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993).
per year” with their restaurant.
(Countercl. ¶ 26).
Following the Baes’ visit, owners of the District continued to
publicly represent that the District was expected to be welloccupied by national tenants when it opened in 2008.
early 2007, a Cordish executive announced during a press
conference that the District had “commitments” for 85% of the total
(Countercl. ¶ 30).
In October 2006, having committed to launching a restaurant in
the District, the Baes entered into a lease agreement with KC Live.
Various problems, however, delayed the opening of the restaurant
until eight months after the Baes began paying rent.
2009, when the Baes were finalizing preparations for their grand
(Countercl. ¶ 46).
When the restaurant finally opened in October
2009, all of the lease sites adjacent to the restaurant were
vacant, nearly half of the lease sites in the entire District
remained vacant, and the residential condominiums had not been
What is more, for the first two years of operation,
annual sales for the restaurant averaged $600,000—far less than the
$3 million projected.
In August 2011, KC Live filed suit against Defendants in this
Court (the “2011 suit”) for late opening charges and unpaid rent.
Kansas City Live Block 121 Retail, LLC v. Kobe Kansas, LLC et al.,
No. l:ll-CV-02171-WDQ (D.Md dismissed Jan. 18, 2012).
Baes failed to respond to KC Live’s complaint, the Clerk of the
Court entered an Order of Default against the Baes for “want of
answer or other defense.”
Notwithstanding this Order, the parties
ultimately agreed to settle the 2011 suit.
The terms of the
settlement were memorialized in a Lease Amendment (the “2011
Amendment”) dated November 22, 2011.
The 2011 Amendment reduced
the amount owed by the Baes from approximately $2.1 million to
KC Live also agreed to dismiss the 2011
suit without prejudice.
Following the 2011 suit, Cordish reaffirmed its representation
restaurant, however, was operating at a significant loss, with
annual sales still averaging $600,000.
2013, the Baes ceased paying rent.
Consequently, in November
To date, at least twelve of the
approximately forty-five sites remain vacant—a 73% occupancy rate—
and all three lease sites adjacent to the Baes’ restaurant have
never been occupied since the restaurant opened.
condominiums that Morris promised have never been constructed.
In October 2014, KC Live again filed suit against Defendants
in this Court, this time alleging breach of contract.
KC Live filed an Amended Complaint in January 2015.
(ECF No. 1).
(ECF No. 11).
Counterclaim for fraudulent inducement. (ECF No. 17).
filed a Motion to Dismiss the Counterclaim on March 4, 2015.
Defendants then filed a Response in Opposition on April
1, 2015 (ECF No. 24), and KC Live filed a Reply to the Response in
Opposition on April 24, 2015 (ECF No. 25).
Standard of Review
When reviewing a Federal Rule of Civil Procedure 12(b)(6)
motion to dismiss a counterclaim, “[t]his Court applies the same
standard of review that would be applied to a Rule 12(b)(6) motion
to dismiss a complaint.”
First Data Merch. Servs. Corp. v.
SecurityMetrics, Inc., No. RDB-12-2568, 2013 WL 6234598, at *3
(D.Md. Nov. 13, 2013) (citing Shoregood Water Co. v. U.S. Bottling
Co., No. RDB–08–2470, 2010 WL 1923992, at *1–2 (D.Md. May 11,
Accordingly, the counterclaim must allege enough facts to
state a plausible claim for relief.
Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
A claim is 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.”
Id. (citing Twombly, 550 U.S. at 556).
Legal conclusions or
conclusory statements do not suffice and are not entitled to the
assumption of truth.
Id. (citing Twombly, 550 U.S. at 555).
Thus, the Court “must determine whether it is plausible that
the factual allegations in the [counterclaim] are ‘enough to raise
a right to relief above the speculative level.’”
Monroe v. City of
Charlottesville, 579 F.3d 380, 386 (4th Cir. 2009) (quoting Andrew
v. Clark, 561 F.3d 261, 266 (4th Cir. 2009).
And in doing so, the
Court must examine the counterclaim as a whole, consider the
factual allegations in the counterclaim as true, and construe the
factual allegations in the light most favorable to the counterplaintiff.
Albright v. Oliver, 510 U.S. 266, 268 (1994); Lambeth
v. Bd. of Comm’rs of Davidson Cnty., 407 F.3d 266, 268 (4th Cir.
2005) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
Counterclaim: (1) it is procedurally barred by the compulsory
counterclaim rule; (2) it is substantively barred by the equitable
doctrines of waiver and estoppel; (3) it fails to state a claim;
and (4) it is time-barred by the statute of limitations.
will address them in turn.
counterclaim rule—provides that a party must assert a counterclaim
against an opposing party when it “arises out of the transaction or
occurrence that is the subject matter of the opposing party’s
claim; and . . . does not require adding another party over whom
the court cannot acquire jurisdiction.”
“Although the rule does
not explicitly so state, the effect of a defendant’s failure to
assert a counterclaim made compulsory by section (a) is to preclude
its assertion in a later action against the former plaintiff.”
Mesker Bros. Iron Co. v. Donata Corp., 401 F.2d 275, 278–79 (4th
inducement was a compulsory claim in the 2011
precluding it from the present suit.
The Court is not persuaded.
responsive pleading was filed in an
dismissed without prejudice.
See Mellon Bank, N.A. v. Ternisky,
999 F.2d 791, 795 (4th Cir. 1993).
Rule 13(a) simply “does not
come into play” when a defendant did not file a pleading in the
And because dismissals without prejudice are
not final judgments on the merits, Neal v. Residential Credit
Solutions, Inc., No. CIV. JKB-11-3707, 2013 WL 428675, at *8 (D.Md.
Feb. 1, 2013), they “do not bar subsequent suits by res judicata,”
Choice Hotels Int’l, Inc. v. Goodwin & Boone, 11 F.3d 469, 473 (4th
See Painter v. Harvey, 863 F.2d 329, 331 (4th Cir.
1988) (explaining that whether res judicata would bar a subsequent
determining if a counterclaim is compulsory).
Accordingly, because the Baes did not file a responsive
pleading in the 2011 suit, which was dismissed without prejudice,
the Court finds the compulsory counterclaim rule does not apply.
Waiver & Estoppel
Generally, “a court may not consider extrinsic evidence at
the 12(b)(6) stage.”
Chesapeake Bay Found., Inc. v. Severstal
Sparrows Point, LLC, 794 F.Supp.2d 602, 611 (D.Md. 2011).
however, “a defendant attaches a document to its motion to dismiss,
‘a court may consider it in determining whether to dismiss the
complaint [if] it was integral to and explicitly relied on in the
Chiropractic Ass’n, Inc. v. Trigon Healthcare Inc., 367 F.3d 212,
234 (4th Cir. 2004)).
Also, a court may consider matters outside the pleadings if it
converts a motion to dismiss into a motion for summary judgment.
See Laughlin v. Metro. Wash. Airports Auth., 149 F.3d 253, 260–61
(4th Cir. 1998) (“When ‘matters outside the pleading are presented
to and not excluded by the court, [a 12(b)(6) motion to dismiss]
shall be treated as one for summary judgment and disposed of as
provided in Rule 56.’” (quoting Fed.R.Civ.P. 12(d))).
A court may,
however, exclude matters outside the pleadings, thereby precluding
conversion to summary judgment.
Finley Lines Joint Protective Bd.
Unit 200, v. Norfolk S. Corp., 109 F.3d 993, 996 (4th Cir. 1997)
(explaining that Rule 12 vests district courts with discretion to
determine whether or not to exclude matters outside the pleadings).
In arguing that the Counterclaim is substantively barred by
the doctrines of waiver and estoppel, KC Live relies exclusively on
matters outside the pleadings—the 2011 Amendment and a 2009 Tenant
Neither of these documents, however, was integral to the
The integral components of the counterclaim are KC
Live’s representations to encourage Defendants to open a restaurant
in the District.
Furthermore, the Court will exclude the 2011
Amendment and the 2009 Tenant Estoppel Certificate because KC Live
did not style their Motion “in the alternative” as a motion for
Laughlin, 149 F.3d at 261
conversion of motion to dismiss because motion’s caption placed
plaintiff on notice that it might be treated as a motion for
Thus, because KC Live’s waiver and estoppel arguments are
exclusively predicated on the contents of matters outside the
pleadings, the Court will not consider them at this juncture of the
Failure to State a Claim
Under Missouri law,2 the elements of fraud are:
(1) a representation, (2) its falsity, (3) its
materiality, (4) the speaker’s knowledge of
its falsity or his ignorance of its truth,(5)
the speaker’s intent that it should be acted
upon by the person and in the manner
reasonably contemplated, (6) the hearer’s
The Court will apply the common law of Missouri because “[a]
federal court sitting in diversity must apply the substantive law
of the state in which the cause of action arose.” Nationwide Mut.
Ins. Co. v. Welker, 792 F.Supp. 433, 437 (D.Md. 1992) (citing Erie
R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). Here, not only is
the Baes’ restaurant located in Missouri, but also many of the
alleged misrepresentations were made in Missouri.
representation, (7) the hearer’s reliance on
the representation being true, (8) his right
to rely thereon, and (9) the hearer’s
consequent and proximately caused injury.
Arnott v. Kruse, 730 S.W.2d 597, 600 (Mo.Ct.App. 1987).
contends the following representations are not actionable: (1)
residential condominiums would be built above the restaurant; (2)
national franchises; and (3) the Baes’ restaurant could achieve
annual sales of $3 million.
The Court agrees.
“To constitute fraud, the alleged misrepresentation must
relate to a past or existing fact.”
Trotter’s Corp. v. Ringleader
Rests., Inc., 929 S.W.2d 935, 940 (Mo.Ct.App. 1996) (citing Titan
Const. Co. v. Mark Twain Kansas City Bank, 887 S.W.2d 454, 459
“Mere statements of opinion, expectations, and
predictions for the future are insufficient to authorize a recovery
for fraudulent misrepresentation.” Id. (citing Arnott, 730 S.W.2d
To be sure, the three representations that KC Live
attacks are not actionable because they are predictions for the
But these representations are not the only ones the Baes
represented in late 2005 that most of the available premises in the
District were already leased to well-known, nationally-operated
franchises, and in 2007 that there were commitments for 85% of the
lease space in the District.
Because these representations related
to existing facts, they are actionable under Missouri law.
Thus, at this point in the litigation, the Court finds the
Baes succeed in stating a claim for fraudulent inducement, but only
with respect to the representations in 2005 and 2007 regarding the
number and identity of District tenants.
Statute of Limitations
Finally, in Missouri, fraud claims are subject to a five-year
statute of limitations.
Mo.Rev.Stat. § 516.120 (West 2015).
limitations period does not commence until a cause of action for
fraud “accrues,” which occurs not “when the wrong is done or the
technical breach of contract or duty occurs, but when the damage
resulting therefrom is sustained and is capable of ascertainment.”
Id. § 516.100.
KC Live argues the Baes’ cause of action for fraudulent
inducement accrued no later than 2009.
Indeed, the Baes allege
that in April 2009, half of the total lease sites in the District
were vacant, and in October 2009, all the adjacent lease sites were
(Countercl. ¶¶ 46, 50).
To be sure, then, by 2009
the Baes were on notice of the incongruities between KC Live’s
representations about the number of “committed” lease sites and the
actual state of the other lease sites.
The Baes, however, allege
they could not have been aware of the harm resulting from KC Live’s
representations until sometime between June 2010 and August 2010.
(Countercl. ¶ 127).
The Baes did not open their restaurant until
At this point in the litigation, it is a question of
resulting from the lack of other District tenants. See Taryen Dev.,
Inc. v. Phillips 66 Co., 31 S.W.3d 95, 103 (Mo.Ct.App. 2000)
(“Where the running of the statute of limitations depends upon when
the plaintiff discovered or by reasonable diligence could have
discovered the fraud, a question of fact is presented.” (citing
Furthermore, the Baes filed their fraud claim on January 30, 2015—
less than five years after June 2010.
Accordingly, because the Court must assume the Baes’ wellpleaded allegations are true for the purposes of KC Live’s Rule
12(b)(6) Motion, Albright, 510 U.S. at 268, and there exists a
resulting from the alleged misrepresentations, KC Live’s Motion
will be denied without prejudice at this time.
For the foregoing reasons, the Court will deny KC Live’s
Motion to Dismiss.
(ECF No. 21).
A separate Order follows.
Entered this 16th day of October, 2015
George L. Russell, III
United States District Judge
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