MSW Capital LLC v. Aaron's Inc et al

Filing 29

Order: Accordingly, after reviewing the motions, record in this case, applicable law, Report, and conducting a de novo review of the Defendants' objections, the court determines that the findings and conclusions of the magistrate judge are correct to the extent as stated in this order. Therefore accepts, as modified, the findings and conclusions of the magistrate judge, grants Defendant Aaron's Motion to Dismiss; overrules Plaintiff's objections to the Report; and dismisses with prejudice MSW's claims against Aaron's. Plaintiff's claims for Breach of Contract, Recession, and Attorneys Fees against Defendant Turtle Creek Assets, Ltd. remain. (Ordered by Judge Sam A Lindsay on 8/18/2017) (ndt)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
MSW CAPITAL, LLC,
Plaintiff,
v.
AARON’S, INC. and TURTLE CREEK
ASSETS, LTD.,
Defendants.

§
§
§
§
§
§
§
§
§

Civil Action No. 3:16-CV-3076-L

ORDER
Before the court is Defendant Aaron’s, Inc.’s Motion to Dismiss Plaintiff’s Complaint
Against Defendant Aaron’s, Inc. (Doc. 9), filed November 28, 2016. On April 20, 2017, United
States Magistrate Judge David L. Horan entered the Findings, Conclusions, and Recommendation
of the United States Magistrate Judge (“Report”). The Report recommends that Defendant
Aaron’s, Inc. (“Aaron’s”) motion to dismiss be granted, and that Plaintiff’s claim against Aaron’s
for tortious interference with an existing business relationship and exemplary damages be
dismissed with prejudice. The Report found that Plaintiff MSW Capital, LLC (“MSW” or
“Plaintiff”) failed to plead an essential element of its claim for tortious interference with an existing
business relationship against Aaron’s, as it did not allege sufficient facts to demonstrate Aaron’s
willful and intentional interference with the MSW/Turtle Creek contractual relationship. As such,
the Report recommends MSW’s claim for tortious interference based on Aaron’s failure to produce
documents, along with its request for exemplary damages for that claim, be dismissed with
prejudice. Although MSW characterizes its claim as one for tortious interference with a business
relationship (Pl.’s Orig. Compl. 9-10, ¶¶ 62-67), the correct designation of its claim is tortious
interference with a contract. This is so because MSW alleges that Aaron’s interfered with an
Order – Page 1

existing contract between it and Turtle Creek Assets, Ltd. (“Turtle Creek”). Id. ¶ 64. The court,
therefore, will construe MSW’s claim against Aaron’s as one for tortious interference with a
contract. Plaintiff filed three objections to the Report.
First, Plaintiff objects to the Report’s finding that it did not allege sufficient facts to support
the willful and intentional element of its tortious interference with an existing business relationship
claim against Aaron’s. Plaintiff contends that “Texas law does not require a plaintiff to explicitly
allege that a defendant ‘induced or intended to induce’ a breach in order to satisfactorily plead the
intent element of a tortious interference with a business relationship claim.” (emphasis in original).
Pl.’s Obj. 4. Plaintiff contends that the Report “has imposed an additional pleading requirement –
i.e., that MSW must explicitly allege that Aaron’s ‘induced’ a breach of contact.” (emphasis
added). Pl.’s Obj. 4. Instead, Plaintiff contends that “to properly plead a ‘willful and intentional
act of interference,’ a plaintiff need only allege facts to demonstrate that the defendant ‘desire[d]
to cause the consequences of his act, or . . . believe[d] that the consequences are substantially
certain to result from it.’” Pl.’s Obj. 5 (quoting Wolf v. Cowgirl Tuff Co., No. 1:15-CV-1195 RP,
2016 WL 4597638 at *3 (W.D. Tex. September 2, 2016) (Pitman J.) (alterations in original) The
holding in Wolf correctly reflects Texas law. See Amigo Broad., LP v. Spanish Broad. Sys., Inc.,
521 F.3d 472, 490 (5th Cir. 2008) (quoting Sw. Bell Tel. Co. v. John Carlo Tex., Inc., 843 S.W.2d
470, 472 (Tex. 1992)). Plaintiff contends that it has pleaded sufficient factual allegations to show
that “Aaron’s refusal to produce the necessary documents caused or ‘induced’ Turtle Creek to
breach the Turtle Creek/MW Agreement.” Pl.’s Obj. 9.
The court agrees that the Report does not state the correct standard to prove the “intent”
element; however, the court concludes that the result reached by the magistrate judge is correct.
The Report incorrectly states that “inducement” is part of the “intent” element. This error is of no
Order – Page 2

moment, as Texas courts require proof of inducement to establish another element of a tortious
interference claimproximate cause. See Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Servs., Inc., 787
F.3d 716, 731 (5th Cir. 2015) (citing Davis v. HydPro, Inc., 839 S.W.2d 137, 139 (Tex. App.—
Eastland 1992, writ denied)) (emphasis in original).
Regardless of whether Plaintiff has set forth allegations from which the court can
reasonably infer that it has sufficiently alleged proximate cause, Plaintiff’s claim ultimately fails
for the several alternative reasons as stated in the Report, namely that:
Aaron’s is correct that “Plaintiff’s allegation that Aaron’s purportedly was aware
that Plaintiff’s collection efforts would be affected still fails to establish willful and
intentional interference by Aaron’s.” Id. at 8-9. Neither can MSW – particularly in
the face of the language in the Aaron’s/Turtle Creek Agreement disclaiming any
third-party reliance or beneficiary – allege a tortious-interference claim based on
allegations that Aaron’s breached its contractual obligations to Turtle Creek under
the Aaron’s/Turtle Creek Agreement without any allegations that this did or could
induce a breach of the Turtle Creek/MSW Agreement. See Cuba, 814 at 717.
And, as Aaron’s asserts, even if MSW “is considered an ‘assign’ of the
Aaron’s/Turtle Creek Agreement, [MSW] still fails to state a claim for tortious
interference [with the Aaron’s/Turtle Creek Agreement] because Aaron’s, as the
purported tortfeasor, was not a ‘stranger’ to [that] contract.” Dkt. 17 at 4 n.6; accord
Matter of Dallas Roadster, Ltd., 846 F.3d 112, 124 (5th Cir. 2017) (noting that a
defendant “cannot tortiously interfere with its own contracts”); Morgan Stanley &
Co. v. Texas Oil Co., 958 S.W.2d 178, 179 (Tex. 1997) (noting that “a person must
be a stranger to a contract to tortiously interfere with it”).
Alternatively, MSW focuses on the contract language, arguing that Turtle
Creek breached the Turtle Creek/MSW Agreement by failing to provide requested
documents that are “included among the Contracts.” When a dispute arises from
the terms of a contract and the contract is not ambiguous, the Court can determine
the parties’ rights and obligations under the agreement as a matter of law. See ACS
Inv’rs, Inc. v. McLaughlin, 942 S.W.2d 426, 430 (Tex. 1997). Ordinarily, merely
inducing a contract obligor to do what it has a right to do is not actionable
interference. See id. (citing C.E. Servs., Inc. v. Control Data Corp., 759 F.2d 1241,
1258 (5th Cir. 1985)). Moreover, a contracting party’s preemptive rights are not
triggered by the other contracting party’s negotiations with a third-party purchaser.
See id.
Even if the “included among the Contracts” language required Aaron’s to
produce the requested documents, there is no provision in the Turtle Creek/MSW
Agreement providing that Turtle Creek would be in breach by unsuccessfully
asking Aaron’s for additional documents. Therefore, even crediting MSW’s
Order – Page 3

allegations and arguments, MSW cannot allege that Aaron’s knowingly and
intentionally induced Turtle Creek to breach – or intended to induce a breach of –
the Turtle Creek/MSW Agreement, which MSW must do to state a claim for
tortious interference with contract.
Report 13-14. Accordingly, the court overrules Plaintiff’s first objection.
Second, MSW objects to the Report’s finding that Turtle Creek’s failure to produce the
Lease Agreement or a substitute affidavit is not a breach of its agreement with MSW. Plaintiff
contends that it can establish a tortious interference with a contract claim against Aaron’s because
Aaron’s caused Turtle Creek’s failure to produce account documents, which is a breach of the
Turtle Creek/MSW Agreement. Further, MSW objects to the Report because it contends that the
Report erroneously holds that Turtle Creek’s failure to produce the lease agreement or a substitute
affidavit is not a breach of its agreement with MSW. Plaintiff contends that the terms of the
Agreement are ambiguous, and “the Court should not determine the parties’ rights and obligations
as a matter of law where there is an ambiguous contract.” Pl.’s Obj. 13.
The MSW/Turtle Creek Agreement states, “‘[F]ailure to provide any documentation that
is not included among the Contracts will not constitute a Breach on the part of’ Turtle Creek.”
Report at 12; Ex. G at 16, § 8.16. The Agreement defines “the Contracts” as “the rental contracts
relating to the Accounts under which Seller has leased to customers items of furniture, electronics,
appliances and other merchandise and such other available documents and/or electronic media in
Seller’s possession that support the accounts.” Ex. G at 3, § 1.1. The Agreement further defines
“Account Documents” as “the signed rental agreement and last billing statement[,]” where said
documents are available. Ex. G at 20-21, Annex I § 8. Where the Account Documents are
unavailable, the Agreement states that “an affidavit will be provided in a form reasonably
acceptable to Buyer [MSW].” Id. The Agreement, however, only requires the Seller to retrieve
Order – Page 4

or transmit the “documentation related to the Accounts (e.g. Seller’s lease agreement or affidavit
if the lease agreement is missing) as are available to Seller[.]” Ex. G at 11, § 5.1.
The court conducted an independent review of the MSW/Turtle Creek Agreement. The
court determines that the language in the agreement is not ambiguous, as it is not susceptible to
more than one reasonable interpretation. The MSW/Turtle Creek Agreement expressly provides
that failure to deliver documentation does not constitute a breach. Therefore, Plaintiff’s second
objection is overruled.
Third, Plaintiff objects to its claims being dismissed with prejudice under rule 12(b)(6).
Even when liberally construed in its favor, Plaintiff is unable to state a claim for tortious
interference with a contractual or business relationship. The court determines that Plaintiff’s
pleadings cannot be amended in such a way to cure the legal deficiencies herein identified, and,
therefore, attempts to amend will be futile and unnecessarily delay resolution of the tortious
interference with a contract claim. Moreover, MSW has not requested, except on one point, * to
amend its pleadings, and has not informed the court how it would amend to cure the legal
deficiencies identified herein by the court. Accordingly, dismissal with prejudice is warranted.
Plaintiff’s objection, therefore, is overruled.
Accordingly, after reviewing the motions, record in this case, applicable law, Report, and
conducting a de novo review of the Defendants’ objections, the court determines that the findings
and conclusions of the magistrate judge are correct to the extent as stated in this order. The court

*

MSW states, “To the extent the Court finds that the word “induce” should be explicitly pled in the Complaint to
plead a tortious interference claim, MSW alternatively requests that the claims against Aaron’s be dismissed without
prejudice and requests leave to file an amended complaint.” Pl.’s Obj. 14, n.7. The court agreed with MSW on this
point, and addressed it earlier in this order. As the court explained, the use of the incorrect standard by the magistrate
judge would not change the outcome. Thus, there is no need for MSW to amend its pleadings regarding this issue.
As MSW has not requested to amend beyond this issue, its request to amend is moot.

Order – Page 5

therefore accepts, as modified, the findings and conclusions of the magistrate judge, grants
Defendant Aaron’s Motion to Dismiss; overrules Plaintiff’s objections to the Report; and
dismisses with prejudice MSW’s claims against Aaron’s. Plaintiff’s claims for Breach of
Contract, Recession, and Attorney’s Fees against Defendant Turtle Creek Assets, Ltd. remain.
It is so ordered this 18th day of August, 2017.

_________________________________
Sam A. Lindsay
United States District Judge

Order – Page 6