Walden et al v. D B & D, LLC et al

Filing 24

ORDER granting in part and denying in part 9 Motion to Dismiss for Failure to State a Claim; denying 14 Motion to Dismiss for Failure to State a Claim. Counts II, III, and IV are DISMISSED against the individual Defendants. Signed by Judge Dana L. Christensen on 1/28/2013. (dle)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION

BREANNE WALDEN, JACKIE GREAVU,
DANIELLE DUNCAN, SABRINA REMUS,
BARBARA SLOAN, KYRA TILSON,
JENNIFER DEMENT, JACKIE MULLENAX,
WHITNEY TRAEHOLT, SARA ONSAGER,
MOLLY STILSON, JESSICA BLACKWEASEL,
DANIELLE DESCHENES, BETH HAYES,
KEALLIE LIETZ, AMANDA GILBREATH,
and ANDREA DOSTIE,

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Plaintiffs,
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vs.
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D B & D, LLC (d/b/a DAHL’S COLLEGE OF
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BEAUTY), DOUGLAS C. DAUGHENBAUGH, )
BARBARA J. DAUGHENBAUGH, and
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PHILIP G. BELANGIE, and DOES 1-50,
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inclusive,
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Defendants.
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________________________________________ )

CV 12-138-M-DLC

ORDER

Defendants Douglas Daughenbaugh, Barbara Daughenbaugh, and Philip
Belangie filed a motion to dismiss Plaintiffs’ complaint alleging it fails to
specifically allege claims against them as individual Defendants. (Doc. 9.)
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Plaintiffs’ filed a motion to dismiss Defendants’ counterclaims alleging
Defendants failed to allege an excuse for non-performance of the contract with
Plaintiffs. (Doc. 14.) Defendants’ motion will be granted in part and Counts II,
III, and IV will be dismissed against the individual Defendants only. Plaintiffs’
motion will be denied because Defendants’ counterclaims state plausible breach of
contract and tortious interference with contract claims.
I. Facts
All Plaintiffs apart from Plaintiffs Gilbreath and Dostie were students of
Dahl’s College of Beauty in Great Falls, Montana (“Student Plaintiffs”). The
Student Plaintiffs allege Defendants, as owners of Dahl’s College of Beauty, failed
to provide qualified instructors and an adequate curriculum and expelled them
without cause in order to profit from their tuition payments and financial aid.
Plaintiffs allege the individual Defendants had a pattern and practice of enrolling
students for only a period of time until the school could keep the tuition payments
without providing a refund, then expelling students without cause or valid reason.
Plaintiffs allege the individual Defendants failed to follow their internal policies
for expulsion of students, including progressive discipline, counseling, probation,
suspension, expulsion hearings, and re-establishment of progress.
Plaintiffs Gilbreath and Dostie were employees of Dahl’s until their
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discharge (“Employee Plaintiffs”). Both the Employee and Student Plaintiffs
allege their relative discharge or expulsion occurred after they filed internal or
external complaints of unprofessional conduct by instructors, sexual harassment,
health and safety violations, violations of licensing rules and regulations, and
failure to conform to National Accrediting Commission of Career Arts & Sciences
Standards.
Plaintiffs’ complaint consists of five counts: Montana Unfair Trade Practice
and Consumer Protection Act of 1973, Mont. Code Ann. § 30-13-101, et seq.;
sexual harassment in violation of Title IX, 20 U.S.C. § 1681; Montana Wrongful
Discharge in Employment Act, § 39-2-901, et seq.; Breach of Contract; and Unjust
Enrichment. Plaintiffs’ sexual harassment claims are based on alleged
inappropriate sexual conduct by a Dahl’s instructor who later became the school
director.
II. Motion to Dismiss Standard
To survive a motion to dismiss for failure to state a claim, a complaint must
allege sufficient facts “to state a claim for relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Threadbare recitals of the
elements of a claim and conclusory allegations are disregarded in determining
whether a claim is stated. Alvarez v. Chevron Corp., 656 F.3d 925, 930-931 (9th
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Cir. 2011). Courts generally limit their considerations to the allegations in the
complaint. Twombly, 550 U.S. at 555-559. Those allegations are accepted as true
and viewed in a light most favorable to the plaintiff. Lazy Y Ranch Ltd. v.
Behrens, 546 F.3d 580, 588 (9th Cir. 2008).
III. Defendants’ Motion to Dismiss
A. Count I: UTPA/CPA Claim
Plaintiffs’ UTPA/CPA claim will not be dismissed because their allegations
state a plausible claim under the applicable statutes. The UTPA/CPA prohibits
“[u]nfair methods of competition and unfair or deceptive acts or practices in the
conduct of any trade or commerce [.]” Mont. Code Ann. § 30-14-103. The statute
defines “consumer” as “a person who purchases or leases goods, services, real
property, or information primarily for personal, family, or household purposes.” §
30-14-102(1). “Trade” and “commerce” are jointly defined as “the advertising,
offering for sale, sale, or distribution of any services, any property, tangible or
intangible, real, personal, or mixed, or any other article, commodity, or thing of
value, wherever located, and includes any trade or commerce directly or indirectly
affecting the people of this state.” § 30-14-102(8).
The statute is interpreted broadly and flexibly so as to effect its object and
promote justice. Baird v. Norwest Bank, 843 P.2d 327, 333 (Mont. 1993). “The
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approach to defining what is meant by the word ‘services’ in the statute should be
broad in scope.” Id. The Baird Court held that the UTPA/CPA applied to lending
and collecting of consumer loans by banks. Id. at 334. The liberal construction
applied to the UTPA/CPA does not require plaintiffs to have a consumer
relationship with defendants in order to state a claim. McCullough v. Johnson,
610 F.Supp.2d 1247, 1252 (Mont. 2009).
Plaintiffs’ allegations that Defendants had a pattern and practice of enrolling
students without a qualified curriculum and expelling the Student Plaintiffs after
the tuition refund time had passed state a claim under the UTPA/CPA. The
Student Plaintiffs fall under the statute’s broadly interpreted definition of
consumer as persons who purchased services or information primarily for personal
purposes. The Student Plaintiffs purchased cosmetology instruction from
Defendants for the purpose of gaining personal knowledge in the cosmetology
industry. Plaintiffs’ allegations against Defendants also satisfy the trade and
commerce requirements because Plaintiffs allege Defendants were unlawfully
selling their cosmetology instruction services in a manner that directly affected
Plaintiffs. Viewing these allegations in a light most favorable to Plaintiffs and
interpreting the statutory language liberally, as required, Plaintiffs state a claim
under the UTPA/CPA against Defendants.
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B. Count II: Title IX Violation
Plaintiffs correctly concede that their Title IX claim is not asserted against
the individual Defendants. (Doc. 13 at 6.) See Davis Next Friend LaShonda D. v.
Monroe County Bd. of Educ., 526 U.S. 629, 636 (1999)(“With regard to
petitioner's claims under Title IX, the court dismissed the claims against individual
defendants on the ground that only federally funded educational institutions are
subject to liability in private causes of action under Title IX”). Defendants’
motion will be granted on Count II and the individual Defendants will be
dismissed as to this count.
C. Count III: Montana’s Wrongful Discharge in Employment Act (“WDEA”)
Defendants correctly point out that the allegations in Count III of Plaintiffs’
complaint are at odds with the arguments in their response brief regarding the
WDEA. Plaintiffs specifically and appropriately limit their WDEA claims to only
the Employee Plaintiffs in the complaint. (Doc. 1 at 8.) However, in their
response brief, Plaintiffs argue the claim applies to the Student Plaintiffs. (Doc.
13 at 6-7.) The WDEA applies to discharge from employment–not expulsion from
school–so this claim will be analyzed only as to the Employee Plaintiffs.
Defendants argue the Employee Plaintiffs’ WDEA claim against them fails
because Plaintiffs fail to allege they worked for the individual Defendants.
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The WDEA provides certain rights and remedies with respect to wrongful
discharge and is the exclusive remedy for a wrongful discharge from employment.
Mont. Code Ann. § 39–2–902. The WDEA “does not envision lawsuits against
corporate employees, officers or shareholders.” Buck v. Billings Montana
Chevrolet, Inc., 811 P.2d 537, 543 (Mont.1991). All of the remedies provided by
the WDEA run against the employer. Id. The vast majority of WDEA cases in
Montana are solely against the entity that formerly employed the Plaintiff, not
against the employer’s owners or managers. See Johnson v. Costco Wholesale,
152 P.3d 727 (Mont. 2007); Kestell v. Heritage Health Care Corp., 858 P.2d 3
(Mont. 1993); Becker v. Rosebud Operating Services, Inc., 345 Mont. 368 (Mont.
2008); Schwartz v. Metro Aviation, Inc., 2009 WL 352599 (D.Mont. 2009).
The individual Defendants will be dismissed as to Count III. Plaintiffs do
not specifically allege they were employed by the individual Defendants. More
importantly, the WDEA “does not envision lawsuits against corporate employees”
but rather against the entity that employed the terminated employee. Plaintiffs do
not provide any reason why a WDEA suit against the individual Defendants is
appropriate in this case, or why the Court should stray from the law as interpreted
by the Montana Supreme Court. Plaintiffs WDEA claim will survive against D B
& D (d/b/a Dahl’s College of Beauty) for Employee Plaintiffs only.
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D. Count IV: Breach of Contract
Plaintiffs also concede that their breach of contract claim is not asserted
against the individual Defendants. This claim will be dismissed as to the
individual Defendants.
E. Count V: Unjust Enrichment
Montana law is not entirely clear on the issue of whether the doctrine of
unjust enrichment applies only in the absence of a contract between the parties. In
Maxted v. Barrett the Montana Supreme Court held that “[t]he theory of unjust
enrichment and restitution is brought into play when no contract exists and the
court implies a contract in law.” 643 P.2d at 1164. “The doctrine of unjust
enrichment is an equitable means of preventing one party from benefitting from
his or her wrongful acts, and in the absence of a contract between parties, it may
create an implied contract in law.” Hinebauch v. McRae, 264 F.3d 1098, 1103
(D.Mont. 2011) citing Estate of Pruyn v. Axmen Propane, Inc., 223 P.3d 845
(Mont. 2009).
However, the Montana Supreme Court has also held that “where one party
repudiates a contract or breaches it by non-performance, the injured party may
seek restitution of the unjust enrichment.” Robertus v. Candee, 670 P.2d 540, 542
(Mont. 1983). Causes of action in Montana frequently contain breach of contract
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and unjust enrichment claims, and the Montana Supreme Court reaches the merits
of both claims. See Randolph V. Peterson, Inc. v. J.R. Simplot Co., 778 P.2d 879
(Mont. 1989). Other requirements of an unjust enrichment claim include that a
plaintiff must “show the element of misconduct or fault on the part of the
defendant or that the defendant somehow took advantage of the plaintiff.” Estate
of Pruyn, 223 P.3d at 857. A plaintiff who suffers actual damage may maintain an
action for unjust enrichment and recover the actual damage proved, for the benefit
wrongfully obtained, or restitution of property wrongfully withheld, if the action is
maintainable under existing law. Mont. Code Ann. § 27–1–602. In sum, it
appears that while an implied contract cannot exist absent unjust enrichment, an
unjust enrichment claim can exist, at least in some circumstances, in the presence
of a contract between the parties.
Given the ambiguous and somewhat contradictory state of Montana law on
this issue, Plaintiffs’ unjust enrichment claim will not be dismissed at this time.
Plaintiffs’ allegation that the individual Defendants established Dahl’s as a front to
accept tuition from students without providing an education is sufficient to state a
claim for unjust enrichment.
IV. Plaintiffs’ Motion to Dismiss Counterclaims
Plaintiffs move to dismiss Defendant Dahl’s counterclaims for failing to
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allege performance of the contract and failing to allege unlawful or malicious
conduct regarding the tortious interference with contract counterclaim. Plaintiffs’
motion will be denied because Defendant’s allegations state plausible breach of
contract and tortious interference with contract claims.
A. Breach of Contract Counterclaim
Defendant first alleges that several Student Plaintiffs breached their Student
Enrollment Contracts and owe Dahl’s various sums for unpaid tuition and fees.
Plaintiffs aver Defendant failed to allege a valid excuse for its nonperformance of
the contract by failing to provide an adequate education so the counterclaims must
be dismissed. A material breach of a contract gives rise to the equitable remedy of
rescission for the non-breaching party. Norwood v. Service Distributing, Inc., 994
P.2d 25, 31-33. The determination of whether a breach is material is a question of
fact. Id. at 33. “A party who breaches a contract cannot claim entitlement to that
contract's benefits after such breach. . . . A party to a contract cannot take
advantage of his own act or omission to escape liability thereon.” Western Media,
Inc. v. Merrick, 757 P.2d 1308, 1312 (Mont. 1988) (citing Gramm v. Insurance
Unlimited, 378 P.2d 662, 665 (Mont. 1963)).
Defendant’s allegations that Dahl’s is an accredited and licensed
cosmetology school and Plaintiffs breached their Student Enrollment Contracts are
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sufficient to state a breach of contract claim. Whether Plaintiffs were entitled to
rescind their contracts due to Defendants’ non-performance or whether Plaintiffs
breached their contracts by failing to pay their tuition and fees is a factual dispute
that is at the heart of this case. Factual disputes cannot be resolved on a motion to
dismiss, so Plaintiffs’ motion must be denied as to this counterclaim.
B. Tortious Interference with Contract Counterclaim
Defendant next alleges Plaintiff Amanda Gilbreath, Dahl’s former financial
aid director, tortiously interfered with Dahl’s student enrollment contracts by
inciting students to quit the school. Plaintiffs contend Defendant failed to allege
Plaintiff Gilbreath committed any unlawful or malicious acts as required for a
tortious interference with contract claim. To establish a claim of tortious
interference with contract, a plaintiff must prove the defendant's acts: “1) were
intentional and willful; 2) were calculated to cause damage to the plaintiff in his or
her business; 3) were done with the unlawful purpose of causing damage or loss,
without right or justifiable cause on the part of the actor; and 4) that actual
damages and loss resulted.” Emmerson v. Walker, 236 P.3d 598, 603 (Mont.
2010).
Plaintiffs cite to Lachenmeir v. First Bank Systems, Inc. for the proposition
that “unlawful and malicious” acts are required to establish a tortious interference
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with contract claim. 803 P.2d 614 (Mont. 1990). The Montana Supreme Court
has not used the malicious requirement in its more recent tortious interference
cases, replacing it with an “intentional and willful” standard. See Emmerson, 236
P.3d at 603; Hardy v. Vision Serv. Plan, 120 P.3d 402 (Mont. 2005); Hughes v.
Lynch, 164 P.3d 913 (Mont. 2007). As the Montana Supreme Court no longer
appears to require malice to sustain a tortious interference with contract claim, the
Court will not enforce that requirement at the pleading stage in this case.
Defendant’s allegations that Plaintiff Gilbreath contacted students after she
was fired from Dahl’s with the intent of causing enough withdrawals to force
Dahl’s to close states a claim for tortious interference with a contractual
relationship. The allegations demonstrate intentional and willful conduct
calculated to cause Dahl’s damage without justifiable cause. Dahl’s alleges it
sustained damages as a result of students leaving the school and prospective
students not enrolling. Defendant’s allegations state a claim and Plaintiffs’ motion
to dismiss must be denied. Accordingly,
IT IS ORDERED that Defendants’ motion to dismiss (doc. 9) is GRANTED
IN PART AND DENIED IN PART. Counts II, III, and IV are dismissed against
the individual Defendants.
IT IS FURTHER ORDERED that Plaintiffs’ motion to dismiss Defendants’
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counterclaims (doc. 14) is DENIED.
Dated this 28th day of January, 2013.

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