NewPaper, LLC v. Party City Corporation et al

Filing 103

MEMORANDUM OPINION AND ORDER granting in part and denying in part 51 Defendants' Partial Motion to Dismiss Plaintif's Amended and Second Supplemental Complaint (Written Opinion). Signed by Judge Ann D. Montgomery on 07/01/2014. (TLU)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Newpaper, LLC,
Plaintiff,
v.

MEMORANDUM OPINION
AND ORDER
Civil No. 13-1735 ADM/LIB

Party City Corporation and
Amscan Holdings, Inc.,
Defendants.
______________________________________________________________________________
Stanford P. Hill, Esq., and Steven P. Aggergaard, Esq., Bassford Remele, PA, Minneapolis, MN,
and James M. Njus, Esq., Meyer & Njus, PA, Minneapolis, MN, on behalf of Plaintiff.
Eric L. Yaffe, Esq., Justin L. Sallis, Esq., and Ashley Bennett Ewald, Esq., Gray, Plant, Mooty,
Mooty & Bennett, PA, Washington, DC, and Minneapolis, MN, on behalf of Defendants.
______________________________________________________________________________
I. INTRODUCTION
On April 15, 2014, the undersigned United States District Judge heard oral argument on
Defendants Party City Corporation (“Party City”) and Amscan Holdings, Inc.’s (“Amscan”)
Partial Motion to Dismiss Plaintiff’s Amended and Second Supplemental Complaint (the
“Second Amended Complaint”) [Docket No. 51]. Plaintiff Newpaper, LLC (“Newpaper”)
opposes the motion. For the reasons set forth below, the motion to dismiss is granted in part and
denied in part.
II. BACKGROUND
The alleged facts underlying this dispute have been discussed at length by the Court in its
previous order. Order, Sept. 25, 2013 [Docket No. 29]; Newpaper, LLC v. Party City Corp., No.
13-1735, 2013 WL 5406722 (D. Minn. Sept. 25, 2013). In short, Newpaper and its affiliates

own 26 Party City franchise stores, primarily in the Midwest.1 2d Am. Compl. [Docket No. 50]
(“Compl.”) ¶ 1. Defendant Party City owns or franchises more than 800 party supply stores
nationwide. Id. ¶ 7. Defendant Amscan designs, manufactures, and distributes party goods, and
sells a significant portion of its products to Party City, which it acquired in 2005. Id. ¶ 10.
Amscan also acquired Party America Corporation in 2006, and Factory Card & Party Outlet in
2007, making Amscan the largest party goods retailer in the country. Id. ¶ 11.
On September 24, 2007, Newpaper executed a franchise agreement with Party City (the
“Franchise Agreement”). Defs.’ Mem. Supp. Partial Mot. to Dismiss [Docket No. 56] (“Defs.’
Mem.”) Ex. 2. Newpaper and its affiliates also entered into a general agreement (the
“Agreement”) with Party City and PA Acquisition Corporation, which Amscan guaranteed.
Compl. Exs. A (Agreement), B (Guaranty). In the Agreement, Newpaper agreed to convert its
existing Party America stores into Party City stores. In return, Newpaper and its affiliates
received territorial exclusivity in Minnesota, Iowa, North Dakota, South Dakota, and certain
counties in Wisconsin (the “Territory”). See id. ¶ 16.
On April 30, 2010, Newpaper executed an addendum to the Franchise Agreement (the
“Internet Addendum”). Defs.’ Mem. Ex. 3. In the Internet Addendum, Newpaper agreed Party
City was entitled to sell party products over the internet. Newpaper also agreed to allow in-store
returns of goods purchased online. In exchange, Newpaper received a share of revenue from
online sales based on a formula. Id.
On June 13, 2013, Newpaper filed this action against Defendants, alleging breach of

1

As noted in the Court’s September 25, 2013 Order, Newpaper’s affiliates are not
parties to this action. The present Order, and this action as a whole, concern allegations made by
Newpaper alone.
2

contract claims, a breach of the covenant of good faith and fair dealing, and conversion.
Defendants moved to dismiss, and the Court granted the motion in part by dismissing two counts
with prejudice and one count without prejudice. Order, Sept. 25, 2013.
On October 29, 2013, Newpaper filed a “Supplemental Complaint” [Docket No. 40]. On
January 29, 2014, Newpaper filed the Second Amended Complaint, which incorporates a
“Second Supplemental Complaint,” and alleges six counts: (1) breach of the Agreement’s
provisions regarding Halloween stores; (2) breach of the territorial exclusivity clauses in the
Agreement; (3) breach of the Internet Addendum; (4) breach of the covenant of good faith and
fair dealing; (5) violations of the Minnesota Franchise Act; and (6) promissory estoppel. Compl.
¶¶ 57-92.
III. DISCUSSION
A. Motion to Dismiss Standard
Rule 12 of the Federal Rules of Civil Procedure states that a party may move to dismiss a
complaint for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6).
The court construes the pleadings in the light most favorable to the nonmoving party, and the
facts alleged in the complaint must be taken as true. Hamm v. Groose, 15 F.3d 110, 112 (8th
Cir. 1994) (citation omitted). And, as discussed above, the court may not consider matters
outside the pleadings at this stage. But, “documents necessarily embraced by the complaint are
not matters outside the pleading[s].” Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151 (8th
Cir. 2012) (citation omitted).
Defendants argue that despite the six labeled counts in the Second Amended Complaint,
Newpaper actually alleges approximately 31 theories of liability. As a result, Defendants’

3

motion to dismiss focuses on specific theories, as opposed to counts. Defendants move to
dismiss the entire Second Amended Complaint, except for five theories of liability: (1) breach of
the Halloween stores provision in the Agreement, Compl. ¶ 59; (2) violation of the Minnesota
Franchise Act, id. ¶ 84(2)(d); (3) breach of the Internet Addendum by failing to properly share
revenue, id. ¶ 75; (4) breach of the covenant of good faith and fair dealing by underpricing
products, id. ¶ 80(2); and (5) breach of the covenant of good faith and fair dealing for failure to
ship advertised products, id. ¶ 80(4). See Defs.’ Mem. at 6-7. Because these five theories are
agreed to allege plausible claims for relief, the discussion below addresses only the remaining
claims.2
B. Breach of Contract Allegations
1. Online Sales
In the Second Amended Complaint, Newpaper alleges Defendants violated the territorial
exclusivity provision of the Agreement by selling party products on the website
“www.halloweencity.com.” See Agreement § E. Section E grants Newpaper the exclusive right
to establish and operate Party City franchise stores in the Territory. Id. This section also
prohibits Defendants from establishing or franchising within the Territory “a temporary retail
Halloween store premises” or “any store premises where the sales of Halloween related
merchandise comprise a majority of the annual sales (a ‘Halloween Store’).” Id. § E.2.
Newpaper alleges that Defendants’ sales through “www.halloweencity.com” constitute a
violation of the prohibition against “Halloween Stores” in the Territory.

2

The analysis is organized toward an effort to promote efficiency and clarity. While
each specific allegation may not be addressed expressly herein, the Court has reviewed and
considered each operative theory of liability.
4

Newpaper’s allegations ignore both the language of key contracts as well as the Court’s
prior Order. Newpaper is correct that the Agreement prohibits Party City from operating
Halloween Stores in the Territory. But the language of the Agreement emphasizes that this
prohibition addresses physical stores: the Agreement contemplates the sale of Halloween
merchandise from “store premises.” Agreement § E.2. The word “premises” narrows the
restriction to brick-and-mortar store sales. Even more clearly, Newpaper expressly agreed that
the exclusivity provision did not restrict Party City from:
offering or selling products, including the same or materially the
same products (regardless of percentage of inventory volume) as
those offered and sold by the Newpaper franchised Party City retail
goods stores to customers located within the Territory through any
channel of distribution, including wholesale sales and sales by or
through the internet, and from any premises other than a Party Cityowned retail store premises located within the Territory.
Agreement § E.2 (emphasis added). The Agreement states that for purposes of the exclusivity
provision, the term “Party City” includes Party City and its affiliates, and Newpaper does not
dispute that “Halloween City” is an affiliate. Newpaper further agreed in the Internet Addendum
that Party City was “not prohibited from selling any products over the Internet, to any customers
regardless of location, and in any manner whatsoever.” Internet Addendum § 1. Newpaper
attempts to avoid the application of clear contract terms by restating many of the same arguments
it made previously. And, for the same reasons stated in the prior Order, Newpaper’s arguments
again fail. See Order, Sept. 25, 2013 at 6-11.
2. Party America Stores
In the Agreement, Defendants agreed that they would not establish new Party City stores
in the Territory, nor authorize anyone other than Newpaper to do so. However, Defendants

5

carved out an exception for any “Party City,” “Party America,” or “Paper Factory” stores already
operating in the Territory. Agreement § E.2. At the time the parties executed the Agreement,
three non-Newpaper “Party America” stores operated in the Territory (the “Excepted Stores”).
In its original complaint, Newpaper alleged that Defendants, under the guise of supply
agreements, had entered into “new legal relationship[s]” with the Excepted Stores. Not. of
Removal [Docket No. 1] Ex. 1 ¶ 38. The Court dismissed this claim in the September 25, 2013
Order, finding Newpaper had not alleged that Defendants had established new stores in the
Territory.
In its Second Amended Complaint, Newpaper makes the same, previously-dismissed
allegations regarding the Excepted Stores. As before, Newpaper alleges Party City formed new
relationships with the Excepted Stores, and that these stores are functionally operating under the
Party City name. Specifically, Newpaper alleges the Excepted Stores sell many of the same
products, have similar layouts, and use the same fixtures as Newpaper’s own stores. Compl. ¶¶
42-43. Newpaper also replaces its previous allegations about marketing the Excepted Stores as
“Party City” stores on Google.com with allegations about marketing on Yellowpages.com. Id.
But Newpaper does not plausibly allege that Defendants have established new Party City stores
in the Territory. The very purpose of creating an exception for the Excepted Stores was to allow
these stores to continue operating despite Newpaper’s territorial exclusivity. As before, even if
Party City formed new supply agreements with the Excepted Stores, Newpaper has not alleged
an actual breach of contract.
3. Return of Online Purchases
In the Second Amended Complaint, Newpaper alleges two theories of liability in

6

connection with the in-store return of products purchased by customers online.
First, Newpaper alleges it is “forced” to accept returns of seasonal goods sold online,
which lose their value after the season has passed. Compl. ¶ 73. Under the Internet Addendum,
a customer may purchase an item online and then return the item to a Newpaper store, for a
refund paid by Newpaper. Internet Addendum § 5. Newpaper may then return these items to
Defendants twice per year in cartons totaling at least $100 in goods, as shown by return receipts
or current retail value. Id. Newpaper alleges these terms force it to hold seasonal goods long
after the season has passed and the products have fallen “out of date.” Compl. ¶ 73. As
Defendants argue, these allegations do not state a theory of breach of contract so much as
express disappointment with the Internet Addendum’s terms. For online returns, the Internet
Addendum entitles Newpaper to a credit for the “net amount of any such return in excess of the
inventory cost” of the sold goods. Internet Addendum § 5. Newpaper does not allege Party City
violated this provision by failing to credit such amounts.
Second, Newpaper alleges Defendants have failed to reimburse the cost of shipping
“web-only” products, or products only available for sale online, to Defendants’ distribution
center. Instead of alleging a breach of contract, Newpaper claims Defendants have failed to
abide by the terms of an April 15, 2010 email, in which Defendants enclosed the Internet
Addendum and allegedly promised to cover all return costs. Compl. ¶ 74, Ex. D. In the email,
Defendants wrote they would “assume the costs associated with the return of web-only items to
the Naperville distribution center subject to reasonable efforts to preserve efficiency as outlined
in the attached addendum.” Id. This theory fails as a matter of law. In Minnesota, parol
evidence may not “vary, contradict, or alter” a written contract. Hruska v. Chandler Assocs.,

7

Inc., 372 N.W.2d 709, 713 (Minn. 1985). The Internet Addendum provides the only mechanism
by which Newpaper may return “web-only” items, and Newpaper does not allege a violation of
these terms, or demonstrate how these terms are ambiguous. Tellingly, the April 15, 2010 email
itself defers to the written contract. Compl. Ex. D.
C. Good Faith and Fair Dealing Claims
1. Development of Halloween City
Newpaper alleges Defendants have breached the covenant of good faith and fair dealing
by using franchise fees designated for Party City advertising (“Ad Fund” fees) for Halloween
City’s benefit. Newpaper claims Defendants have operated affiliate websites
“www.partyamerica.com” and “www.halloweencity.com” using the same “servers, registrant,
and administrators” as “www.partycity.com.” Am. Compl. ¶ 80(3). Thus, Newpaper alleges,
Party City has used funds paid by Newpaper to further internet sales of competing brands.
What Newpaper fails to allege in the Second Amended Complaint, however, is how this
alleged misuse of the Ad Fund amounts to a breach of the covenant of good faith and fair
dealing. The covenant of good faith and fair dealing prohibits one party to a contract from
thwarting the other party’s rights under the contract. Thus, a party may breach the covenant by,
for example, “wrongfully repudiating a contract,” “avoiding performance by affirmatively
blocking the happening of a condition precedent,” or “refusing to allow a party to perform unless
the performing party waived other contractual rights.” Cox v. Mortg. Elec. Registration Sys.,
Inc., 685 F.3d 663, 671 (8th Cir. 2012) (quotations and citations omitted). Newpaper’s amended
allegations regarding the Ad Fund do not allege bad faith or a frustration of purpose: the
allegations, if true, allege a breach of contract. A breach of contract and a breach of the

8

covenant of good faith and fair dealing, while closely related, are qualitatively different. See In
re Hennepin Cnty. 1986 Recycling Bond Litig., 540 N.W.2d 494, 503 (Minn. 1995) (“[A] claim
for breach of an implied covenant of good faith and fair dealing implicitly assumes that the
parties did not expressly articulate the covenant allegedly breached.”). As defined by Minnesota
law, Newpaper has not alleged a breach of the covenant.
It in its response memorandum, Newpaper attempts to broaden its position by arguing
that Defendants’ very development of a competing brand using the same party products
constitutes a breach of the covenant. This allegation fails to state a claim for which relief may be
granted, because the implied covenant of good faith and fair dealing does not create extracontractual obligations. The implied covenant requires that “one party not unjustifiably hinder
the other party’s performance of the contract,” but it “does not extend to actions beyond the
scope of the underlying contract.” Id. (quotation omitted). Put another way, the covenant
“serves only to enforce existing contractual duties, and not to create new ones.” Watkins Inc. v.
Chilkoot Distrib., Inc., 719 F.3d 987, 994 (8th Cir. 2013) (citation omitted). Newpaper cites no
provision in any of the contracts at issue which prohibits Defendants from developing other
brands, franchises, or stores, nor does Newpaper plausibly allege how the development of a
separate brand has frustrated the purpose of the Franchise Agreement. To the extent Newpaper
alleges Defendants have forced it to unfairly compete with Halloween City through the pricing
of goods or similar strategies, those facts are relevant to Newpaper’s underpricing claim, which
has already survived dismissal. See Order, Sept. 25, 2013, at 18-19.
2. Product and Supplier Requirements
Next, Newpaper alleges Defendants have violated the covenant of good faith and fair

9

dealing by “imposing a ‘vertical integration’ model,” which unfairly limits Newpaper in terms of
the products it may sell. See Compl. ¶¶ 55-56, 80(4). This theory of liability fails as a matter of
law.
Newpaper alleges Defendants have failed to offer “new and/or improved” products until
older products are sold, but Newpaper fails to identify any contractual obligation to offer new
products. See id. ¶ 80(4). As discussed above, the covenant of good faith and fair dealing only
enforces existing contractual obligations; it does not create new ones. See Watkins Inc., 719
F.3d at 994.
Further, Newpaper’s allegations regarding the increased supply of Amscan products do
not state a cause of action. In the past, Newpaper alleges, Party City negotiated for lower
wholesale prices from a variety of party product suppliers, and then offered this variety of
products to Newpaper.3 At the time, only 25% of products offered by Party City were made by
Amscan. More recently, Party City increased its volume of Amscan products to 60%, and began
offering Amscan and third-party products through “Amscan Bypass,” a vendor established by
Defendants. Compl. ¶ 56. Through this narrowing of choices, Newpaper alleges Defendants
have limited its ability to offer third-party products to customers, because Newpaper primarily
relies on Defendants for wholesale purchasing. Id. These allegations fail to state a claim
because Newpaper does not identify any contractual obligation on the part of Defendants to offer

3

In its opposition memorandum, Newpaper attempts to expand its allegations by
claiming Defendants have used their discretion to dictate franchise “standards and
specifications,” including store equipment, fixtures, and layout, to limit the amount of shelf
space Newpaper may use for third-party products. See Franchise Agreement § 6.2 (“Standards
and Specifications”). Newpaper did not make these allegations in the Second Amended
Complaint, and they are not considered here.
10

a certain amount of third-party products, or to offer them in a certain manner of sale. The
covenant of good faith and fair dealing cannot create this obligation where the contracts are
silent. See Watkins Inc., 719 F.3d at 994.
In a related claim, Newpaper alleges Defendants have made it unreasonably difficult for
Newpaper to obtain approval for new products or vendors; this allegation also fails. Under the
Franchise Agreement, Newpaper must seek Defendants’ approval before offering any new
products or purchasing wholesale products from new third-party suppliers. Franchise Agreement
§§ 6.3, 6.5. However, Newpaper never alleges that it attempted to seek product or vendor
approval and that Defendants unreasonably withheld or denied the request. Newpaper’s claim in
this regard is speculative; no actual abuse of discretion or frustration of purpose has yet
occurred. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007) (“Factual allegations must
be enough to raise a right to relief above the speculative level.”). As a result, this theory of
liability is also dismissed.
3. Development of Franchise System
Newpaper’s allegation that Defendants have stopped granting new Party City franchises
or are otherwise “ceasing franchisee development efforts” is not a claim for which relief may be
granted. Newpaper identifies no contractual provision requiring Defendants to expand their
franchise system, and to impose such a requirement on Defendants under the guise of the
covenant of good faith and fair dealing would be precisely the sort of duty-creation prohibited by
Minnesota law. See Burnette Techno-Metrics, Inc. v. TSI, Inc., 44 F.3d 641, 643 (8th Cir. 1994)
(holding the covenant of good faith and fair dealing does not limit a party’s right to act in
accordance with the bargained-for terms of the agreement).

11

D. Minnesota Franchise Act Claims
In addition to its contractual and common law claims, Newpaper alleges several
violations of the Minnesota Franchise Act (“MFA”). In relevant part, the MFA prohibits
franchisors from engaging in “any unfair or inequitable practice,” as those terms are defined in
rules promulgated by the Minnesota Commissioner of Commerce. Minn. Stat. § 80C.14, subd.
1. The Commissioner, in turn, has set forth rules prohibiting specific types of conduct as “unfair
and inequitable.” See Minn. R. 2860.4400. The MFA also has an “anti-waiver” provision that
voids any contractual term attempting to circumvent compliance with the Act. Minn. Stat. §
80C.21.
1. Discrimination
For its first MFA claim, Newpaper alleges Defendants violated Minn. Rule §
2860.4400(B) by discriminating against Newpaper stores in favor of Excepted Stores. Compl. ¶
84(1). Newpaper alleges that instead of forming or continuing franchise agreements with the
Excepted Stores, Defendants terminated the Excepted Stores’ Party America franchises.
Defendants then offered “supply agreements” by which the Excepted Stores gained the benefits
of operating Party City stores without having to pay the related Ad Fund, advertising, or royalty
fees. Id. Defendants concede that they terminated the Excepted Stores’ franchise agreements
and executed new supply agreements with the stores. As a result, Defendants argue the
Excepted Stores are no longer franchises, and do not fall under the purview of the MFA.
Newpaper has sufficiently alleged a violation of the MFA in connection with the
Excepted Stores. Regardless of its label, an agreement may establish a franchise relationship
under the MFA, provided the relationship satisfies the statutory elements. See Minn. Stat. §

12

80C.01, subd. 4(a); see Pac. Equip. & Irrigation., Inc. v. Toro Co., 519 N.W.2d 911, 918 (Minn.
Ct. App. 1994) (declining to grant injunction where “parties legitimately dispute whether a
product distributor is actually a franchisee under the Minnesota Franchise Act”); Chase
Manhattan Bank, N.A. v. Clusiau Sales & Rental, Inc., 308 N.W.2d 480, 492-93 (Minn. 1981)
(finding dealership agreement was a franchise within meaning of MFA). Newpaper has
plausibly alleged that the supply agreements have allowed the Excepted Stores to continue a
franchise relationship with Defendants by another name. Taking those allegations as true,
Newpaper has also plausibly alleged that the Excepted Stores receive more favorable treatment
as compared to Newpaper.4 Thus, Newpaper has alleged a viable claim for discrimination under
the MFA.
Defendants argue that even if the Excepted Stores constitute franchises, these stores
belong to a different system altogether: the “Party America” system. This argument may have
merit, but is premature at this stage of litigation. The evidence may later demonstrate that the
Excepted Stores do not have franchise relationships with Defendants, or that the Excepted Stores
operate under a separate “Party America” franchise system. In either case, Newpaper’s MFA
discrimination claim would necessarily fail. At this stage, however, Newpaper plausibly alleges
that despite the “Party America” name, Defendants have deliberately advertised the Excepted
Stores using “Party City” trademarks. See, e.g., Compl. ¶¶ 44-45. Newpaper also alleges
Defendants have offered precisely the same products, store designs, and other benefits to the

4

The terms of the Agreement expressly allow for the continued operation of the
Excepted Stores. At issue under the MFA claim, however, is whether the Excepted Stores
functionally operate as Party City franchisees, and if so, whether they receive unfairly favorable
treatment.
13

Excepted Stores as they have to Party City franchisees. Id. ¶¶ 41, 43. The gravamen of
Newpaper’s claim is that Defendants have circumvented the MFA’s protections by operating
Party City stores under a different name, using agreements designed to avoid the word
“franchise.” Taken as true, these allegations support a claim for discrimination.
2. Unlawful Competition
For its second MFA theory of liability, Newpaper claims Defendants engaged in unlawful
competition. Minn. Rule 2860.4400(C) states it shall be unfair and inequitable for any person to
compete with a franchisee in an exclusive territory “if the terms of the franchise agreement
provide that an exclusive territory has been specifically granted to a franchisee.” Newpaper
argues that Defendants have violated this rule in four ways: (1) by selling products online; (2) by
allowing the Excepted Stores to continue operating in the Territory; (3) by requiring Newpaper
to install e-commerce kiosks in its stores, which facilitate online sales; and (4) by offering “webonly” items. Compl. ¶ 84(2). None of these alleged violations state a claim upon which relief
may be granted.
The first two alleged violations fail for the reasons already discussed. The Agreement
conferred an exclusive territory to Newpaper subject to specific exceptions. Defendants’ sale of
products online, as well as the operation of the Excepted Stores, fall under these exceptions.
The third alleged violation, regarding in-store kiosks, also does not state a claim. In the
Franchise Agreement, Defendants reserved the right to control what equipment and fixtures
Newpaper would have in its stores. Franchise Agreement § 6.2(A). The Internet Addendum
broadly allowed Defendants to begin selling goods online “in any manner whatsoever,” and
expressly contemplated sharing the revenue of goods sold “through in-store ordering.” Internet

14

Addendum § 2. Newpaper does not allege Defendants have failed to share profits in the manner
outlined by the Internet Addendum, nor does Newpaper demonstrate how the use of in-store
kiosks constitutes a violation of the Territory, as that term was defined by the parties.
Newpaper’s fourth alleged theory of unlawful competition, regarding “web-only”
products sold on the internet, fails to state a claim. Newpaper identifies no contractual provision
prohibiting Defendants’ sale of products online, even when some of those products are not
offered to Newpaper. On the contrary, the Agreement states Defendants may offer or sell “any
products” to customers “by or through the Internet.” Agreement § E.2. Given this language, the
sale of products online falls under an agreed-upon exception to the exclusive territory granted to
Newpaper.
As a related consideration, although the MFA prohibits “unfair or inequitable conduct” it
does so only as such conduct is defined by the Commissioner of Commerce:
No person, whether by means of a term or condition of a franchise or
otherwise, shall engage in any unfair or inequitable practice in
contravention of such rules as the commissioner may adopt defining
as to franchises the words “unfair and inequitable.”
Minn. Stat. § 80C.14, subd. 1 (emphasis added). Newpaper may be frustrated with Defendants’
sale of exclusive products online, and may even legitimately view such sales as unfair. But the
MFA does not prohibit conduct according to general notions of fairness, and Rule 2860.4400(C)
only enforces territorial exclusivity to the extent defined by the parties. In this case, Newpaper
expressly agreed to allow Defendants to sell products over the internet.
3. Unreasonable Standards of Conduct
Newpaper alleges Defendants violated Minn. Rule 2860.4400(G), which states a person
engages in unfair and inequitable conduct when they “impose on a franchisee by contract or rule,
15

whether written or oral, any standard of conduct that is unreasonable.” Guidance regarding the
“standard of conduct” provision in Rule 2840.4400(G) is limited. See, e.g., Klosek v. Am.
Express Co., No. 08-426, 2008 WL 4057534, at *22 (D. Minn. Aug. 26, 2008) (noting a “dearth
of authority on the meaning of Minn. R. [2]860.4400, subp. G.”). Consistent with its approach to
this litigation, Newpaper has alleged nine separate violations of subsection (G). Many of these
allegations restate previous theories of liability.
Six of the alleged violations fail to identify any standard of conduct whatsoever, let alone
identify how the alleged standard is unreasonable. See Compl. ¶¶ 84(3)(c) (failing to provide
adequate compensation for internet sales); 84(3)(d) (directing Ad Fund monies to promotion of
“www.partycity.com”; 84(3)(e) (alleged misrepresentation regarding share of internet sales
profits); 84(3)(f) (alleged misrepresentation of expected profitability of internet sales); 84(3)(i)
(ceasing to develop Party City franchise); 84(3)(j) (underpricing Newpaper through internet
sales). These theories are dismissed.
The remaining three allegations concern the availability of products: (1) Defendants
required Newpaper to advertise products and then failed to make these products available; (2)
Defendants directed Newpaper to purchase products through Amscan Bypass; and (3)
Defendants limited the products available or otherwise made it difficult for Newpaper to sell
non-Amscan products. Compl. ¶¶ 84(3)(a), (b), (h). These allegations do not concern “standards
of conduct” imposed on Newpaper so much as they accuse Defendants of frustrating Newpaper’s
ability to perform the Franchise Agreement. Thus, these claims have already been addressed

16

under Newpaper’s good faith and fair dealing count, and are dismissed here.5
E. Promissory Estoppel
Finally, Newpaper alleges that in their April 15, 2010 email, Defendants “promised”
Newpaper would receive a revenue share of more than 20% of internet sales based on a formula
stated in the Internet Addendum. In the email, Defendants wrote, “the revenue share that
Franchisees would earn is expected to be in excess of 20% of sales.” Compl. Ex. D (emphasis
original). Newpaper alleges it entered into the Internet Addendum based on this “promise.”
When the first internet sales proved to be lower than expected, Newpaper received “around
11%” of sales based on the revenue share formula. Compl. ¶¶ 88-90. Newpaper now seeks the
full 20% of gross internet sales.
This claim is dismissed. A projection regarding anticipated revenue is not a “clear and
definite promise” of the kind needed to enforce a claim of promissory estoppel. Martens v.
Minn. Mining & Mfg. Co., 616 N.W.2d 732, 746 (Minn. 2000); see also City of St. Joseph, Mo.
v. Sw. Bell Tel., 439 F.3d 468, 477 (8th Cir. 2006) (“A supposed promise that is wholly illusory
or a mere expression of intention, hope, desire, or opinion, which shows no real commitment,
cannot be expected to induce reliance.”) (quotation omitted). Even if the email statement was a
definite promise, promissory estoppel is only available in the absence of a valid contract.
Grouse v. Grp. Health Plan, Inc., 306 N.W.2d 114, 116 (Minn. 1981). Here, the Internet
Addendum controls revenue sharing between the parties, and promissory estoppel may not be
used to alter its terms. Banbury v. Omnitrition Int’l, Inc., 533 N.W.2d 876, 880-81 (Minn. Ct.

5

As discussed, Defendants have conceded the viability of Newpaper’s good faith and
fair dealing claim regarding the failure to ship advertised products. See Defs.’ Mem. at 6;
Compl. ¶ 80(4).
17

App. 1995) (“A party cannot use the doctrine of promissory estoppel to alter a contract by using
evidence that is barred by the parol evidence rule.”).
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS
HEREBY ORDERED that:
1.

Defendants Party City Corporation and Amscan Holdings, Inc.’s Partial Motion to
Dismiss Plaintiff’s Amended and Second Supplemental Complaint [Docket No.
51] is GRANTED in part and DENIED in part.

2.

Defendants have conceded the viability of five claims at issue, and the Court has
recognized one additional claim, discrimination under the Minnesota Franchise
Act, as viable herein. All remaining claims in the Amended and Second
Supplemental Complaint [Docket No. 50] are DISMISSED WITH
PREJUDICE.
BY THE COURT:

s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: July 1, 2014.

18