B.Y.O.B., Inc. et al v. State of Montana et al

Filing 46

ORDER denying 28 Motion to Strike ; granting in part and denying in part 11 Motion to Dismiss for Failure to State a Claim; granting in part and denying in part 13 Motion for judicial notice. Signed by Judge Donald W. Molloy on 9/25/2015. (dle)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
B.Y.O.B., INC., a Montana Corporation,
JIM GLANTZ, Individually and as
Personal Representative of the ESTATE
OF DONNA GLATZ, Deceased, on
behalf of the Estate of Donna Glantz,
BARBARA RILEY, MEADOW LAKE
REAL ESTATE a/b/n of CYA, INC.,
GILDO, LLC, a Montana Limited
Liability Company, BEEZ-NEEZ, INC., a
Montana Corporation, TERIN GILDEN,
NATHAN GILDEN,

CV 15–36–M–DWM

ORDER

Plaintiffs,
vs.
STATE OF MONTANA, a governmental
entity; THE MONTANA DEPARTMENT
OF REVENUE, a political subdivision of
the State of Montana; and DOES A-Z,
Defendants.

INTRODUCTION
Plaintiffs B.Y.O.B., Inc., Jim Glantz, the Estate of Donna Glantz, Barbara
Riley, Meadow Lake Real Estate, Gildo, LLC, Beez-Neez, Inc., Terin Gilden, and
Nathan Gilden (collectively “Plaintiffs”) brought this action against the State of
Montana, claiming the Department of Revenue (“the Department”) intentionally
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and/or negligently interfered with the prospective sale of an agency liquor store
franchise agreement. (Complaint, Doc. 5.) The Department has not yet answered
and has moved to dismiss the Complaint. They also seek judicial notice of certain
documents. (Docs. 11, 13.) Plaintiffs have moved to strike the Department’s
motions. (Doc. 28.) For the reasons stated below, the motion to dismiss is granted
in part and denied in part, the Department’s motion for judicial notice is granted in
part and denied in part, and Plaintiffs’ motion to strike is denied.
BACKGROUND
The Complaint makes the following factual allegations, which must be
accepted as true. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). The
Department administers the retail sale of liquor for the State of Montana. Pursuant
to Montana statutes and regulations, independent merchants operate agency liquor
stores according to agency franchise agreements with the Department. Beginning
in 1998, B.Y.O.B. Inc., of which Donna Glantz was the sole shareholder, held an
Agency Franchise Agreement with the Department to operate Agency Liquor
Store No. 12 in Kalispell, Montana. Jim Glantz is Donna’s husband, and since
Donna’s death, is the personal representative of Donna’s estate. In late 2010 or
early 2011, B.Y.O.B. was listed for sale through real estate agent Barbara Riley of
Meadow Lake Real Estate, which is an assumed business name of CYA, Inc. Over
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the next year, “several bona fide offers to purchase B.Y.O.B. were made,” but the
Department “ultimately prevented realization of the purchase of B.Y.O.B. in each
of these instances.” (Doc. 5 at 3.) One such offer was made by Gildo, LLC, of
which Terin and Nathan Gilden are members. Around December 2011, B.Y.O.B.
filed for bankruptcy. Sometime around February 2013,1 B.Y.O.B. was sold at
auction by the bankruptcy trustee. Beez-Neez, Inc., of which Nathan Gilden is
president, “sought to participate in the auction,” but the Department “ultimately
prevented realization of Beez-Neez’s purchase of B.Y.O.B.” (Id. at 3–4.)
Plaintiffs filed this case in the state district court, Lake County, on January
29, 2015. The claims are against the Department and Does A–Z. The Complaint
contains 10 Counts for: Negligence/Negligence Per Se, Tortious Interference,
Breach of Contract, Breach of the Covenant of Good Faith and Fair Dealing,
Intentional and Negligent Misrepresentation, Abuse of Process, Violation of
Constitutional Rights Pursuant to 42 U.S.C. § 1983, Violation of the Montana
Constitution, Constructive Fraud, and Defamation. The Department removed the
case to federal court on April 8, 2015. (Notice of Removal, Doc. 1.)

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The Complaint states that the auction occurred in or around February 2012, but that date
appears to be an error. (See Statement of Stipulated Facts, Doc. 23 at 4 (filed in anticipation of
preliminary pretrial conference and containing the complete procedural background of the case).)
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STANDARD
“To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted).
“A claim has facial plausibility 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. The court “accept[s] all factual allegations in the
complaint as true and construe[s] the pleadings in the light most favorable to the
nonmoving party.” Knievel, 393 F.3d at 1072. “Conclusory allegations and
unwarranted inferences, however, are insufficient to defeat a motion to dismiss.”
Johnson v. Lucent Techs. Inc., 653 F.3d 1000, 1010 (9th Cir. 2011).
ANALYSIS
I.

Motions for Judicial Notice and to Strike
“If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings

are presented to and not excluded by the court, the motion must be treated as one
for summary judgment under Rule 56. All parties must be given a reasonable
opportunity to present all the material that is pertinent to the motion.” Fed. R. Civ.
P. 12(d). Given the number of matters outside the Complaint that have been
presented by both parties, conversion of the Department’s Motion to Dismiss to
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one for summary judgment would be warranted. However, Plaintiffs’ argument
that it is too early to decide the case on summary judgment without some
discovery has merit. Therefore, the motion to dismiss will not be treated as one
for summary judgment.
“A court may . . . consider certain materials—documents attached to the
complaint, documents incorporated by reference in the complaint, or matters of
judicial notice—without converting the motion to dismiss into a motion for
summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).
Here, there were no documents attached to the Complaint, and the “incorporated
by reference” doctrine does not apply here where the Complaint in no way
“depends on the contents of” any of the Department’s exhibits. Knievel, 393 F.3d
at 1076. Therefore, the Department’s exhibits could only be considered as matters
of judicial notice.
“The court may judicially notice a fact that is not subject to reasonable
dispute because it: (1) is generally known within the trial court’s territorial
jurisdiction; or (2) can be accurately and readily determined from sources whose
accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). The court may
take judicial notice of matters of public record, including documents on file in
state and federal courts. Harris v. Cnty. of Orange, 682 F.3d 1126, 1132 (9th Cir.
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2012). Although a court may take judicial notice of a matter of public record, it
may not take judicial notice of disputed facts stated in public records. See Lee v.
City of L.A., 250 F.3d 668, 689–90 (9th Cir. 2001).
Judicial notice of only two exhibits is warranted at this time. The
Settlement Agreement, which was filed in the bankruptcy proceeding, is a public
record. Plaintiffs do not dispute its authenticity, do not object to the Court taking
judicial notice of it, and attached the document to their response. (See Brief in
Opposition to Motion to Dismiss, Doc. 27 at 16–17; Settlement Agreement, Doc.
27-1.) Therefore, judicial notice of the Settlement Agreement, (Doc. 12-9 at
7–16), is proper. ASARCO, LLC v. Union Pac. R.R. Co., 765 F.3d 999, 1008 n.2
(9th Cir. 2014). Plaintiffs also do not challenge judicial notice or the authenticity
of the bankruptcy court’s Memorandum of Decision approving the Settlement
Agreement, as they attached the document to their reply to the Motion to Strike.
(See Doc. 38-1.) The Memorandum of Decision is a public record, and therefore
judicial notice of it, (Doc. 12-10), is proper. The remaining documents, however,
are unnecessary for deciding the motion, and the Department concedes in its reply
that “[t]he Court may also choose to decide [its] motion to dismiss without
considering those matters of which [it] has requested the Court take judicial
notice.” (Reply to Motion to Dismiss, Doc. 37 at 7.) Judicial notice of the
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remaining documents, (Docs. 12-1 through 12-8 and 12-11 through 12-13), is
therefore denied. Likewise, the affidavits and exhibits filed by Plaintiffs, (Docs.
31–34 and accompanying exhibits; 38-2) are excluded.
The Department’s arguments in its Motion to Dismiss are cognizable in a
12(b)(6) motion to dismiss and can be addressed based on the allegations in the
Complaint and the Settlement Agreement and Memorandum of Decision.
Consequently, the Motion to Strike is denied.
II.

Motion to Dismiss
A.

Immunity

The Department’s immunity argument is premature. The Department argues
that it is entitled to absolute quasi-judicial immunity “[t]o the extent that any of
Plaintiffs’ claims are based on” the Department having previously initiated
termination of its Agency Franchise Agreement with B.Y.O.B. (Brief in Support
of Motion to Dismiss, Doc. 12 at 18–19.) Yet, the Complaint does not mention
termination of the Agency Franchise Agreement, nor can any of the counts as pled
be reasonably read to be based on the occurrence of a termination proceeding.
(See Doc. 5.) The Department also argues that it is entitled to absolute
prosecutorial immunity “[t]o the extent that any of Plaintiffs’ claims are based on .
. . settlement discussions” that occurred in relation to the termination of the
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Agency Franchise Agreement. (Doc. 12 at 22.) The Complaint makes no
allegations based on Agency Franchise Agreement settlement discussions.
Instead, the Complaint alleges the Department interfered with prospective
sales, refused to review and approve requests for assignment of the Agency
Franchise Agreement, and frustrated the assignment process. When the
Department insists that these allegations “could only have occurred in the context
of attempts to resolve the pending litigation regarding the Department’s final order
terminating the Agency Franchise Agreement,” (Id. at 20), it asks the Court to
accept as true facts not yet established and not alleged in any pleading. The
affirmative defense of immunity is unavailable based on the face of the Complaint.
In order to reach the merits of immunity at this stage and perform the proper
“functional comparison of the activities performed,” Stapley v. Pestalozzi, 733
F.3d 804, 811 (9th Cir. 2013), a factual inquiry outside the Complaint would need
to be made. Such an inquiry is impermissible under Rule 12. 5 Charles Allen
Wright et al., Federal Practice and Procedure § 1277 (3d ed. 2004). It is also
clear the parties dispute the context of the allegations in the Complaint. Yet,
“affirmative defenses may not be asserted by motion to dismiss if they raise
disputed issues of fact.” ASARCO, LLC, 765 F.3d at 1009 (citing Scott v.
Kuhlmann, 746 F.2d 1377, 1378 (9th Cir. 1984)). The Department’s attempt to
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dismiss the Complaint on this basis at this time is denied.2
B.

Settlement Agreement

The Department maintains that the Complaint should be dismissed because
under the terms of the Settlement Agreement entered into between B.Y.O.B. and
the Department during the Agency Franchise termination and bankruptcy
proceedings, B.Y.O.B. released any claims against the Department. As an initial
matter, the only parties to the Settlement Agreement are B.Y.O.B. and the
Department. Therefore, it cannot serve as a basis to dismiss the claims of the other
plaintiffs. As for its impact on B.Y.O.B., “‘[t]he interpretation of a contract
presents a mixed question of law and fact. The existence of an ambiguity must be
determined as a matter of law. If an ambiguity exists, a question of fact is
presented.’” ASARCO, LLC, 765 F.3d at 1009 (quoting State Farm Mut. Auto. Ins.
Co. v. Fernandez, 767 F.2d 1299, 1301 (9th Cir. 1985)). Thus, if the terms of the
Settlement Agreement are ambiguous, “then interpretation of the agreement
presents a fact issue that cannot be resolved on a motion to dismiss.” Id.
In arguing that Plaintiffs released all claims against it, the Department relies

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The Department’s collateral estoppel argument will also not be considered at this time
because it was raised for the first time in the Department’s reply brief. See Bazuaye v. INS, 79
F.3d 118, 120 (9th Cir. 1996) (“Issues raised for the first time in the reply brief are waived.”).

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on the “Costs, Fees, and Expenses; Damages” provision in the Agreement:
Each party shall bear its own costs, fees, and expenses, including
attorneys fees, arising in any manner from these disputes, and each
releases the other, its attorneys, employees, agents and assigns from any
liability for such costs, fees and expenses and from any damages, known
or unknown, liquidated or unliquidated, arising in any manner from
these disputes.
(Doc. 12-9 at 14.) This provision is not ambiguous because it is not “reasonably
susceptible to more than one interpretation.” ASARCO, LLC, 765 F.3d at 1009
(internal quotation marks omitted). But it also does not apply to the claims in this
case that, according to the allegations in the Complaint, do not arise from the
Agency Franchise Agreement termination proceedings.
Plaintiffs rely on the more appropriate “Scope of the Agreement” provision
to show that the Settlement Agreement did not release the Department of the
claims against it. That provision states:
This Agreement constitutes the final agreement between the Agent and
the Department and supersedes any and all previous written or oral
agreements with the Department. This Agreement is in settlement of the
violations listed above, and is not intended to cover any other disputes,
known or unknown, between the parties.
(Doc. 12-9 at 12.) The “violations listed above” refers to charges the Department
brought against B.Y.O.B. for violations of the Agency Franchise Agreement.
Again, this provision is not ambiguous. And the provision clearly excludes

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settlement of “any other disputes, known or unknown, between the parties.”
Buttressing the conclusion that B.Y.O.B. did not release its claims against
the Department is the bankruptcy court’s clarification in its Memorandum of
Decision approving the Settlement Agreement that “[n]othing in this decision
prohibits the Glantz family, Gildo, CYA or others from seeking relief against the
[Department] for arbitrary conduct or failure to comply with state law.” (Doc. 1210 at 8 n.2.) Accordingly, the Department’s motion to dismiss the Complaint on
this basis is denied.
C.

Failure as a Matter of Law
1.

Sufficiency of the Pleading

According to the Department, Counts II, III, V, VI, and IX are insufficiently
pled. Rule 8 requires “a short and plain statement of the claim showing that the
pleader is entitled to relief, in order to give the defendant fair notice of what the . .
. claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007) (internal quotation marks omitted). “While 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 entitle[ment] to
relief requires more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Id. (internal citations and quotation
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marks omitted).
Although detailed factual allegations are not needed, the Complaint does
amount to “a formulaic recitation of the elements” of the causes of action. In each
of these counts, the Complaint does not differentiate the allegations between each
plaintiff, even though each plaintiff had differing interactions with the
Department, which likely resulted in differing damages. The Complaint is vague
as to the timing and individual grounds upon which the claims rest. Each count is
made up of labels and conclusions that leaves the Department without notice of
the specific grounds for each claim. Tellingly, Plaintiffs’ responses to the
Department’s insufficiency arguments often rely on the factual allegations
contained in the affidavits and exhibits that Plaintiffs filed in opposition to the
Motion for Judicial Notice, which are not considered for the reasons stated above.
Counts II, III, V, VI, and IX are dismissed, without prejudice.
Plaintiffs request leave to amend. The affidavits and exhibits they filed in
opposition to the Motion for Judicial Notice set forth ample factual details that, if
incorporated, would satisfy the pleading standard. At this stage of the case, “a
party may amend its pleading only with the opposing party’s written consent or the
court’s leave. The court should freely give leave when justice so requires.” Fed.
R. Civ. P. 15(a)(2). Plaintiffs are granted leave to amend the Complaint because
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amendment may not be futile. Moreover, the Department does not object to
allowing the amendments. (Doc. 37 at 7.)
2.

Count I – Negligence/Negligence Per Se

The Department assumes the negligence per se claim arises from an alleged
violation of Montana Code Annotated § 16–2–101(10), and the parties dispute
whether that statute creates a private right of action. Plaintiffs also argue that
regardless of that issue, their negligence claim should survive, and the Department
seems to dispute whether the Department owed Plaintiffs a duty. A decision as to
private right of action and duty cannot be made based on the face of this
Complaint. The Complaint presents insufficient factual allegations as well as an
incomplete statutory allegation for the claim. Therefore, Count I is also dismissed
with leave to amend.
3.

Count IV – Breach of the Covenant of Good Faith and Fair
Dealing

The Department argues that this claim should be dismissed because the
Agency Franchise Agreement, from which the Department contends this claim
arises, is not subject to the covenant of good faith and fair dealing. (Docs. 12 at
29; 37 at 12.) Although the claim actually relates to the oral contracts Plaintiffs
allege existed between them and the Department, Plaintiffs do not respond to the

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Department’s argument and instead group their response on the covenant with
their response on breach of contract. (Doc. 27 at 29.) Breach of the implied
covenant of good faith and fair dealing and breach of contract claims are
inextricably linked. Story v. City of Bozeman, 791 P.2d 767, 775 (Mont.1990),
overruled in part on other grounds by Arrowhead Sch. Dist. No. 75, Park Co. v.
Klyap, 79 P.3d 250, 264 (Mont. 2003). Because the breach of contract claim is
dismissed with leave to amend, Count IV is also dismissed with leave to amend.
4.

Count VII – Violation of Constitutional Rights Pursuant to
42 U.S.C. § 1983

The Department argues that Count VII, which names only John Doe
defendants, fails to provide sufficient information for identifying who the
defendants are. “As a general rule, the use of ‘John Doe’ to identify a defendant is
not favored. However, situations arise, such as the present, where the identity of
alleged defendants will not be known prior to the filing of a complaint.” Gillespie
v. Civiletti, 629 F.2d 637, 642 (9th Cir. 2980) (internal citation omitted). “In such
circumstances, the plaintiff should be given an opportunity through discovery to
identify the unknown defendants, unless it is clear that discovery would not
uncover the identities, or that the complaint would be dismissed on other
grounds.” Id. Because it is not clear that discovery would not uncover the

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identities or that the Complaint will be dismissed on other grounds, the
Department’s motion is denied as to Count VII.
5.

Count VIII – Violation of Montana Constitution

The Department insists this count should be dismissed because the
Department “was exercising its police power to protect the public welfare when it
terminated [the] Agency Franchise Agreement,” (Doc. 12 at 34), so it could not
have violated Plaintiffs’ right to pursue life’s basic necessities. Contrary to the
Department’s attempt to shift the focus of the Complaint, Plaintiffs’ three claims
under the Montana Constitution—violations of their rights to pursue life’s basic
necessities; acquire, possess, and protect their property; and equal protection of
the law—do not center on the termination of the Agency Franchise Agreement.
Additionally, the Department, in regulating the sale of liquor, is not excused from
having to do so in a way that conforms with the Montana Constitution. Whether
the constitutional provisions cited are self-executing is an unresolved question at
this time. The Department’s motion is denied as to Count VIII.
6.

Count X – Defamation

The Department assumes that the “toxic” statement referenced in the
Complaint came from the testimony of its Division Administrator during a
bankruptcy hearing. On that basis, the Department argues this count must be
15

dismissed because it is immune as a statement made in a judicial proceeding.
(Doc. 12 at 36 (citing Mont. Bank of Circle v. Ralph Meyers & Son, Inc., 769 P.2d
1208, 1213 (Mont. 1989)).) Plaintiffs maintain “[t]here is certainly no basis to
assume that this is the only context in which the word ‘toxic’ was used,” and they
once again refer to the affidavits they filed in opposition to the Motion for Judicial
Notice. (Doc. 27 at 35.) The Department may be correct that the defamation
claim cannot be predicated on the statement made during the bankruptcy
proceeding. But, this determination cannot be made based on the face of the
Complaint, and Plaintiffs indicate that additional conduct may support this claim.
Count X is therefore dismissed with leave to amend.
CONCLUSION
The parties look to matters outside the pleadings that present a more
complete picture of the background of this case and flesh out the factual bases for
the claims. Yet, the Court will avoid “going down the rabbit hole” and conducting
a mini trial on the pleadings at this early stage of the case. Limited judicial notice
of just two of the Department’s documents and exclusion of Plaintiffs’ affidavits
and exhibits negates the need to convert the Motion to Dismiss into one for
summary judgment and also eliminates any merit in the Motion to Strike. The
Department’s immunity argument is premature, and its Settlement Agreement
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argument fails at this point. The Complaint is insufficiently pled, and nearly every
count is dismissed for that reason. There is no clarity in the Complaint regarding
the claims of the named plaintiffs. But Plaintiffs are granted leave to amend
because amendment may not be futile.
Accordingly, IT IS ORDERED that Defendant’s Motion to Dismiss (Doc.
11) is GRANTED IN PART and DENIED IN PART. Counts I, II, III, IV, V, VI,
IX, and X are dismissed without prejudice as insufficiently pled.
IT IS FURTHER ORDERED that Plaintiffs are granted leave to amend and
have until 15 days from the date of this Order to file an amended Complaint.
IT IS FURTHER ORDERED that Defendant’s Motion for Judicial Notice
(Doc. 13) is GRANTED IN PART and DENIED IN PART. Judicial notice is
taken of the Settlement Agreement (Doc. 12-9 at 7–16) and the bankruptcy court’s
Memorandum of Decision (Doc. 12-10).
IT IS FURTHER ORDERED that Plaintiffs’ Motion to Strike (Doc. 28) is
DENIED.
DATED this 25th day of September, 2015.

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