Shepherd Seed Company, LLC v. Pioneer Hi-Bred International, Inc.

Filing 14

OPINION AND ORDER denying 9 Motion to Dismiss for Failure to State a Claim. Signed by U.S. District Judge Roberto A. Lange on 6/21/2018. (JLS)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
CENTRAL DIVISION

3:18-CV-03001-RAL

SHEPHERD SEED COMPANY,LLC,
Plaintiff,

OPINION AND ORDER DENYING
MOTION TO DISMISS

vs.

PIONEER HI-BRED INTERNATIONAL,INC.,
Defendant.

Plaintiff Shepherd Seed Company,LLC(Shepherd Seed)sued Defendant Pioneer Hi-Bred
International, Inc.(Pioneer) for breach of contract, claiming that Pioneer owes it bonus payments

for selling Pioneer's soybean seed. Doc. 8. Pioneer moved to dismiss Shepherd Seed's amended

complaint, arguing that the statute of frauds made the alleged contract imenforceahle. Doc. 9.
Because Shepherd Seed has adequately pleaded an exception to the statute of frauds. Pioneer's
motion to dismiss is denied.
I.

Facts

In 2010, Scott Johnson, a Pioneer representative, began recruiting Steve Shepherd and his
sons Caleb and Shane (collectively "the Shepherds")to sell Pioneer soybean seed in bulk. Doc.8

at THI 5, 7. Selling Pioneer soybean seed in bulk required building a costly bulk system, but
Pioneer's ProBulk System Sales program allowed bulk seed sales representatives to receive
bonuses of $2.50 from Pioneer for every unit of bulk sales, up to 75% of the construction or

purchase price of the bulk system, excluding concrete and electricity costs. Doc. 8 at ^7-8.

1

During an event Pioneer hosted in Chamberlain, South Dakota, in the fall of 2010, Pioneer s

representatives introduced the Shepherds to the ProBulk System Sales program and persuaded
them to sell Pioneer's seed in bulk. Doc. 8 at Tflf 7-8. Sometime during or shortly after the event

in Chamberlain, the Shepherds, as officers of Shepherd Seed, executed a written ProBulk System

Sales Representative Agreement(Agreement)provided by Pioneer. Doc. 8 at 9. Shepherd Seed
alleges that this Agreement constituted a written contract between the parties embodying the terms
of the ProBulk System Sales program, namely that bulk seed sales representatives would receive

the bonus payments discussed above. Doe. 8 at 9. Shepherd Seed provided the executed
|
Agreement to Johnson, who in turn submitted the Agreement to Pioneer. Doe. 8 at ^ 10.

Relying on Pioneer's representations in the Agreement and at the Chamberlain event.

Shepherd Seed constructed a bulk system consisting offive bins,a seed treater and treater building,
pumps, computer systems, and the other necessary components. Doc. 8 at ^ 11. Shepherd Seed
began selling Pioneer's seed in bulk out ofits bulk system in 2011 and continued doing so through
August 2016. Doe. 8 at T| 15. As part of the Agreement and the ProBulk System Sales program.
Pioneer placed its logo on Shepherd Seed's bins and buildings at Shepherd Seed's expense. Doc.

8 at 114. Shepherd Seed expanded its bulk system in 2013 and submitted its costs ofconstruction
to Pioneer. Doc. 8 at ^ 16. Shepherd Seed alleges that it was mcentivized to expand when it did
because the Shepherds understood that while Pioneer would be discontinuing the ProBulk System
Sales program, bulk systems existing before that time would be grandfathered into the program.
Doc. 8 at^ 16.

According to Shepherd Seed,Pioneer has refused to pay Shepherd Seed any ofthe bonuses

promised imder the ProBulk System Sales program and the parties' Agreement. Doe. 8 at ]f 18.

When Shepherd Seed inquired about the unpaid bonus payments.Pioneer initially claimed that the

payments were included in the periodic commission payments Shepherd Seed received. Doc. 8 at

^19. Pioneer later claimed that no honus payments were made because Shepherd Seed did not
enter into an agreement with Pioneer to participate in the ProBulk System Sales program until
2015. Doc. 8 at1|20.

Shepherd Seed filed an amended complaint against Pioneer in March 2018. Doc. 8. Count
I of the amended complaint asserted a claim for breach of contract, alleging that Pioneer had
violated the Agreement by failing to pay Shepherd Seed bonuses for selling Pioneer's soybean

seed in bulk. Doc. 8 at^21-25. Count U ofthe amended complaint asserted a claim for breach
of the implied covenant of good faith and fair dealing, alleging that Pioneer had violated the

implied covenant by falsely claiming that the bonus payments had been made as part of Shepherd
Seed's conunission payments and by denying that Shepherd Seed was a participant in the ProBulk

System Sales program. Doc. 8 at

26-31. Pioneer moved to dismiss the amended complaint for

failure to state a claim under Rule 12(b)(6) ofthe Federal Rules of Civil Procedure. Doc. 9.'
II.

Standard for a Motion to Dismiss under Rule 12(b)(6)

On a motion to dismiss under Rule 12(b)(6), courts must accept a plaintiffs factual

allegations as true and construe all inferences in the plaintiffs favor, but need not accept a

plaintiffs legal conclusions. Retro Television Network. Inc. v. Luken Commc'ns. LLC,696 F.3d
766,768-69(8th Cir. 2012). To survive a motion to dismiss for failure to state a claim,a complaint
must contain"a short and plain statement ofthe claim showing that the pleader is entitled to relief."
Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are unnecessary, the plaintiff must

plead enough facts to "state a claim to rehef that is plausible on its face." Ashcroft v. Iqhal, 556

^Pioneer also requested oral argument on its motion. Because the parties' positions are clear from
the briefs and because oral argument would not aid in the decisional process but would instead add
more cost and delay to the case, this Court denies Pioneer's request.

U.S. 662, 678 (2009)(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A
claim is plausible on its face "when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the miseonduet alleged," Id,"even

ifit strikes a sawyjudge that actual proofofthose facts is improbable, and 'that a recovery is very
remote and unlikely,'" Twomblv,550 U.S. at 556(quoting Seheuer v. Rhodes,416 U.S. 232, 236

(1974)). Still, "eonelusory statements" and "naked assertion[s] devoid of further factual
enhancement"do not satisfy the plausibility standard. Iqbal. 556U.S. at 678(alteration in original)
(citation and internal marks omitted),
in.

Analysis
A. Breach of Contract Claim

Pioneer's motion to dismiss Shepherd Seed's breach of contract claim turns on South
Dakota's statute of frauds. Under that statute, an "agreement that by its terms is not to be

performed within a year from the making thereof is unenforceable unless the agreement is reduced
to writing and signed by the party to be charged. SDCL § 53-8-2(1). The purpose of the statute
of frauds "is to remove uncertainty by providing written evidence of an enforceable obligation,"

but the statute cannot itself be used to perpetrate a fraud. Biegler v. Kraft. 924 F. Supp. 2d 1074,

1084(D.S.D. 2013)fquoting Jaeobson v. Gulbransen. 623 N.W.2d 84,90(S.D. 2001)). Thus,for
instance, a party could not "accept the benefits of a contract that the statute of frauds requires to
be in writing, and then invoke the statute to avoid payment." Lampert Lumber Co. v. Pexa, 184

N.W.207,208(S.D. 1921). To avoid such injustices. South Dakota recognizes certain exceptions
to the statute of frauds. Jaeobson. 623 N.W.2d at 90-91. The question here is whether one of

these exceptions applies. Pioneer argues that Shepherd Seed fails to state a claim for breach of
contract because although Shepherd Seed alleges a multi-year agreement, it fails to allege the

existence of a written contract signed by Pioneer. Pioneer evidently did not countersign the

Agreement it had Shepherd Seed sign. Shepherd Seed does not contend that its Agreement with
Pioneer could have been performed within one year such that the statute of frauds does not apply.
Instead, Shepherd Seed argues that the doctrine of promissory estoppel removes the Agreement
from the statute offmuds.

Promissory estoppel is a "recognized exception" to South Dakota's statute of frauds.
Biegler, 924 F. Supp. 2d at 1086. The Supreme Court of South Dakota has provided two similar
but slightly different tests for promissory estoppel. In some cases, the Supreme Court of South
Dakota has identified the elements of promissory estoppel as "a promise which the promissor

should reasonably expect to induce action or forbearance on the part of the promisee or a third

person and which does induce such action or forbearance." Jacobson,623 N.W.2d at 91 (alteration
and internal marks omitted)(quoting Scott v. Hvde. 440 N.W.2d 528, 531 (S.D. 1989)). Such a

promise becomes binding "if injustice can be avoided only by enforcement of the promise." Id
(internal marks omitted). In other cases, however, the Supreme Court of South Dakota has stated
that promissory estoppel requires: 1) a promise; 2) that the detriment suffered in reliance on the
promise was substantial in an economic sense; 3)that the loss to the promisee was foreseeable by
the promissor; and 4) that the promisee acted reasonably in justifiable reliance on the promise
made. Durkee v. Van Well. 654 N.W.2d 807, 815 (S.D. 2002), abrogated on other grounds bv
Mundhenke v. Holm,787 N.W.2d 302(S.D. 2010).

Shepherd Seed has adequately pleaded promissory estoppel under both tests. According
to the amended complaint. Pioneer promised Shepherd Seed bonus payments in exchange for

Shepherd Seed selling Pioneer's soybean seed in bulk. Doc. 8 at Tjf 5-9. Taking Shepherd Seed's
factual allegations as true and construing all inferences in its favor. Pioneer should have expected

that its promise would induce Shepherd Seed to enter into the Agreement and build a bulk system,

particularly when Pioneer promised to pay bonuses amounting to up to 75% of the construction

price of the bulk system (excluding concrete and electricity costs) and Shepherd Seed signed a
contract to that effect. Doc. 8 at

8-10. Pioneer's promise induced Shepherd Seed to build a

costly bulk system, which consisted offive bins, a seed treater and treater buildings, pumps, and a
computer system. Doc. 8 at TfH 7, 11. Although Pioneer argues that Shepherd Seed's reliance on
Pioneer's alleged promise was unreasonable. Shepherd Seed has alleged that Pioneer recruited

Shepherd Seed to sell its product,invited Shepherd Seed to the event in Chamberlain, and provided
Shepherd Seed with a contract setting forth the terms of the promise, which Shepherd Seed then
signed and returned to Pioneer. Doc. 8 at

5, 7-10. These allegations make it plausible that

Shepherd Seed had a reasonable basis for relying on Pioneer's promise. In addition, constructing
the costly bulk system caused a detriment to Shepherd Seed that was substantial in an economic
sense. Finally, Shepherd Seed has pleaded enough facts to make it plausible that injustice can be
avoided only by enforcing Pioneer's promise to pay Shepherd Seed bonuses. Pioneer's motion to
dismiss Shepherd Seed's breach of contract claim is denied.
B.

Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing

All contracts in South Dakota contain an implied covenant of good faith and fair dealing.

Nvpap^rd V. Sioux Vallev Hosns. & Health Svs.. 731 N.W.2d 184, 193 (S.D. 2007). This implied
covenant allows a plaintiff to sue for breach of contract when the defendant s lack of good faith
"limited or completely prevented" the plaintifffrom receiving the reasonably expected benefits of
the contract. Id. at 194(citation omitted). A plaintiffsuing under the implied covenant can recover
for breach of contract even when the defendant did not violate the contract s express terms. Ifr at
194.

Pioneer argues that Shepherd Seed's claim for breach ofthe implied covenant ofgood faith
and fair dealing must be dismissed because there is no enforceable contract between the parties

and Shepherd Seed therefore lacks any basis for an implied covenant ofgood faith and fair dealing.
See id, at 193 ("South Dakota does not recognize an independent tort for breach of the implied
covenant of good faith and fair dealing.")(citation and alteration omitted); Garrett v. BankWest,
Inc.. 459 N.W.2d 833, 841 (S.D. 1990)(explaining that the implied covenant of good faith must
arise from the language ofthe contract or "must be indispensable to effectuate the intention ofthe

parties")(citation omitted). As explained above, however. Shepherd Seed has adequately pleaded
that an enforceable contract existed between the parties, and it therefore has a basis for asserting a

claim for breach of the implied covenant of good faith and fair dealing against Pioneer. ^Dan

B. Dobbs & Caprice L. Roberts, Law of Remedies: Damages. Eouitv. Restitution § 13.1 (3d ed.)

("A valid contract is ... created ifplaintiffsuccessfully argues estoppel to block defendant's statute
offrauds defense to an otherwise valid contract."). IfShepherd Seed had pleaded only promissory

estoppel rather than pleading the existence of a contract whether oral or written, then there likely
would be no viable claim for breach of the implied covenant of good faith and fair dealing.

However, Count I of the amended complaint, which survives Pioneer's motion to dismiss, is a
breach of contract claim, the amended complaint thus plausibly pleads the existence of a contract,

and an implied covenant of good faith and fair dealing inheres in every contract under South
Dakota law.

The Supreme Court of South Dakota has recognized the viability of a claim for breach of
the covenant of good faith and fair dealing in a sumlar fact setting. In Table Steaks. Inc. v. First
Premier Bank. N.A..650 N.W.2d 829(S.D. 2002), a Colorado restaurant and bar with pool tables

named Table Steaks completed an application to process its Mastercard and Visa credit card

transactions through First Premier Bank. li at 832. No written acceptance of the application hy

the bank evidently existed, but Table Steaks submitted and the bank processed credit card
transactions for over two years as if a contractual relationship existed. Id^ Without forewarmng
to Table Steaks and based on a report of possible fraudulent card transactions at Table Steaks, the

bank ceased processing Visa and Mastercard transactions on a busy weekend when Table Steaks

happened to be hosting a pool tournament. li at 832—33. The bank also placed Table Steaks on
the Combined Terminated Merchant File listing which prevented Table Steaks from readily

entering into a relationship with any other merchant processing credit card bank. Id. at 833. After

ajury verdict for Table Steaks including an award on abreach ofcontract claim,the bank appealed.
The Supreme Court of South Dakota noted that it was unclear if any contract was written or oral,
but deemed there to he some contract "[rjegardless ofthe contract's form." Id. at 834. In turn, the
Court found there to be an implied covenant of good faith and fair dealing. The Court then

affirmed thejury verdict for breach of contract because the bank "did not act reasonably or in good
faith when it abruptly terminated its credit card processing agreement with Table Steaks" and
therefore the bank's "method of termination of the contract was unreasonable and a breach ofthe

implied covenant of good faith and fair dealing." Id, at 835. In short, even if Pioneer never

countersigned the Agreement and even if any contract between Pioneer and Shepherd Seed was

only oral, a claim of breach of an implied covenant of good faith and fair dealing may proceed.
See also Kipman V Creech. 268 P.3d 312, 319 (Alaska 2012)(holding that the plaintiffs claim

for breach of the implied covenant of good faith and fair dealing survived summary judgment

because the plaintiff had alleged the existence of an oral agreement and there was a question of
fact concerning whether promissory estoppel saved the agreement from the statute of frauds).

Pioneer's motion to dismiss Shepherd Seed's claim for breach of the implied covenant of good
faith and fair dealing is denied.
IV.

Conclusion

For the reasons stated above, it is hereby
ORDERED that Pioneer's Motion to Dismiss for Failure to State a Claim,Doc.9,is denied.

DATED this 91"**" of June,2018.
BY THE COURT:

ROBERTO A. LAN(

UNITED STATES DISTRICT JUDGE