HCG Platinum v. Preferred Product Placement

Filing 32

MEMORANDUM DECISION granting #5 Third Party Defendants' Motion to Dismiss for Failure to State a Claim. Signed by Judge Ted Stewart on 10/26/2011. (tls)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

HCG PLATINUM, LLC,
Plaintiff,

MEMORANDUM DECISION AND
ORDER GRANTING THIRD PARTY
DEFENDANTS’ MOTION TO
DISMISS

vs.

PREFERRED PRODUCT PLACEMENT
CORPORATION,

Case No. 2:11-CV-496 TS

Defendant.
_____________________________________
PREFERRED PRODUCT PLACEMENT
CORPORATION,
Counter-Claimant,

vs.
HCG PLATINUM, LLC,
Counter-Claim Defendant.

1

This matter is before the Court on Third Party Defendants’ Right Way Nutrition LLC,
Kevin Wright, and Ty Mattingly’s (collectively “Third-Party Defendants”) Motion to Dismiss1 of
Preferred Product Placement Corporation’s (“PPPC”) Third-Party Complaint. For the reasons
discussed below, the Court will grant the Motion to Dismiss.
I. STANDARD OF REVIEW
In considering a motion to dismiss under Rule 12(b)(6), all well-pleaded factual
allegations, as distinguished from conclusory allegations, are accepted as true and viewed in the
light most favorable to plaintiff as the nonmoving party.2 The plaintiff must provide “enough
facts to state a claim to relief that is plausible on its face.”3 All well-pleaded factual allegations
are accepted as true and viewed in the light most favorable to the nonmoving party.4 But, the
court “need not accept . . . conclusory allegations without supporting factual averments.”5 “The
court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties
might present at trial, but to assess whether the plaintiff’s complaint alone is legally sufficient to
state a claim for which relief may be granted.”6 The Supreme Court has explained that a plaintiff

1

Docket No. 5.

2

Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir. 2002).

3

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007).

4

GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.

1997).
S. Disposal, Inc., v. Tex. Waste, 161 F.3d 1259, 1262 (10th Cir. 1998); Hall v. Bellmon,
935 F.2d 1106, 1110 (10th Cir. 1991).
5

6

Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991).
2

must “nudge[ ][his] claims across the line from conceivable to plausible” to survive a motion to
dismiss.7
Thus, the mere metaphysical possibility that some plaintiff could prove some set
of facts in support of the pleaded claims is insufficient; the complaint must give
the court reason to believe that this plaintiff has a reasonable likelihood of
mustering factual support for these claims.8
The Supreme Court recently provided greater explanation of the standard set out in
Twombly in Ashcroft v. Iqbal.9 In Iqbal, the Court reiterated that while FED .R.CIV .P. 8 does not
require detailed factual allegations, it nonetheless requires “more than unadorned, the-defendantunlawfully harmed-me accusation[s].”10 “A pleading that offers ‘labels and conclusions’ or ‘a
formulaic recitation of the elements of a cause of action will not do.’”11 “Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”12
II. FACTUAL BACKGROUND
In March 2010, PPPC and HCG Platinum, LLC (“HCG”) entered into two contracts: a
Marketing Agreement and a Non-Circumvent Agreement.13 The two signatories of both

Twombly, 550 U.S. at 547.

7

The Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007)
(emphasis in original).
8

129 S.Ct. 1937 (2009).

9

10

Id. at 1949.

11

Id. (quoting Twombly, 550 U.S. at 555).

12

Id. (quoting Twombly, 550 U.S. at 557).

13

Docket No. 2, at 10, 12.
3

agreements were PPPC and HCG.14 Pursuant to the Marketing Agreement, PPPC was to provide
marketing and broker services to HCG. In return, PPPC was to be paid specified percentages of
net sales with respect to certain stores located on appendices of the Marketing Agreement.15
According to the Third Party Complaint, Kevin Wright informed PPPC that HCG would
no longer comply with certain aspects of the Marketing Agreement.16 HCG then filed suit
against PPPC in Utah state court seeking to invalidate the Marketing Agreement. PPPC initiated
this action against HCG and Third Party Defendants for damages and injunctive relief resulting
from the anticipatory breach and breach of the two contracts.
III. DISCUSSION
In its Third Party Complaint, PPPC alleges two causes of action, both for breach of
contract. PPPC asserts that Third Party Defendants, as alter egos of HCG, breached the
Marketing Agreement and the Non-Circumvent Agreement.17 PPPC does not, however,
specifically set forth a separate alter ego/piercing of the corporate veil claim against the Third
Party Defendants.

14

Docket No. 13, at 2.

15

Docket No. 2, at 12.

16

Docket No. 2, at 11-12.

17

Id. at 8.
4

A.

BREACH OF MARKETING AGREEMENT
PPPC alleges that the Third Party Defendants breached the Marketing Agreement.

Pursuant to the Marketing Agreement, Utah law governs any dispute.18 In Utah, the elements of
a prima facie case for breach of contract are (1) a contract, (2) performance by the party seeking
recovery, (3) breach of the contract by the other party, and (4) damages.19 Third Party
Defendants argue that PPPC has failed to bring forth sufficient evidence to support a breach of
contract claim against them in their individual capacities. Specifically, Third Party Defendants
argue that PPPC has failed to demonstrate that it had an enforceable agreement with each of
them. Although PPPC does not allege a contract with the Third Party Defendants, PPPC's breach
of contract claim against these defendants is inextricably linked to its alter ego theory.
The alter ego theory provides another means for a breach of contract action to be
maintained by or against a non-party to a contract. In order to plead the alter ego theory, PPPC
must plead sufficient facts to show that “(1) such a unity of interest and ownership that the
separate personalities of the corporation and the individual no longer exist, but the corporation is,
instead, the alter ego of one or a few individuals, and (2) if observed, the corporate form would
sanction a fraud, promote injustice, or result in an inequity.”20
It appears that PPPC’s theory of alter ego asserts that Third Party Defendants should be
held individually liable for the alleged breach of the Marketing Agreement. PPPC alleges that

18

Docket No. 2-1, at 3.

19

Bair v. Axiom Design, LLC, 20 P.3d 388, 392 (Utah 2001).

20

d’Elia v. Rice Dev., Inc., 147 P.3d 515, 522 (Utah Ct. App. 2006)
5

Third Party Defendants acted as the alter ego of each other “in commingling business operations
and funds, having failed to observe corporate formalities, having represented to the public that
they are one in the same, and having formed shell business entities to avoid valid debts.”21
Third Party Defendants argue that PPPC has not provided sufficient allegations that Third
Party Defendants are alter egos of HCG because the two contracts were negotiated by two
sophisticated entities in an arms length transaction. Further, Third Party Defendants argue that
there are no allegations that the Third Party Defendants had any personal involvement with the
contractual relationship between HCG and PPPC.
Merely alleging that Third Party Defendants are alter egos of HCG is not enough to
satisfy the pleading requirements of Rule 8(a) as interpreted by Twombly and its progeny.22
Although under federal notice pleading, Third Party Plaintiff is not required to plead extensive
facts, “[f]actual allegations must be enough to raise a right to relief above the speculative
level.”23 The Third Party Complaint contains no allegations that any actions by Right Way
Nutrition and Ty Mattingly caused any harm to PPPC, or that HCG held them out as part of the
contractual relationship. Instead, the Third Party Complaint simply lists them as parties.
The Third Party Complaint does allege that Kevin Wright acted as an agent on behalf of
HCG in communicating with PPPC. However, PPPC does not plead sufficient facts to permit a
reasonable inference that such a unity of interest and ownership existed between HCG and Kevin

21

Docket No. 2, at 8.

22

Twombly, 550 U.S. at 555-556.

23

Id. at 555.
6

Wright to justify disregarding their separate identities and treating both entities as one. Rather,
the Third Party Complaint makes the conclusory allegation that the Third Party Defendants acted
as alter egos, providing no factual averments to support this conclusion. Such a pleading is
insufficient. Therefore, the Court finds that the Third Party Complaint fails to state a claim upon
which relief can be granted.
B.

BREACH OF NON-CIRCUMVENT AGREEMENT
PPPC also alleges that Third Party Defendants breached the Non-Circumvent Agreement.

Pursuant to this Agreement, California law governs any dispute.24 Same as above, Third Party
Defendants argue that (1) PPPC has failed to bring forth sufficient allegations to support a breach
of contract claim against them in their individual capacities, and (2) that PPPC has failed to
demonstrate that it had an enforceable agreement with Third Party Defendants.
For this cause for action, the Third Party Complaint includes only the conclusory
allegation that there was a breach by HCG. For this reason, the breach of contract fails as against
the Third Party Defendants. The alter ego claim against the Third Party Defendants similarly
fails. In California, in order to establish liability under an alter ego theory, PPPC must allege
that 1) there is “such a unity of interest and ownership between the two corporations that their
separate personalities no longer exist,” and 2) “an inequitable result would follow if [Third Party
Defendants] were not held liable.”25 For the same reasons set forth in the preceding section, the
Court finds that PPPC has failed to allege sufficient allegations to support an alter ego theory.

24

Docket No. 2-2, at 3.

25

Laird v. Capital Cities/ABC, Inc., 68 Cal. App. 4th 727, 742 (Cal. Ct. App. 1998).
7

C.

LEAVE TO AMEND
In its opposition, Third Party Plaintiff requests leave to amend. Third Party Defendants

do not appear to oppose. Federal Rules of Civil Procedure 15 provides that a party may amend
its pleading with leave of the court and that the court should freely give leave when justice so
requires. The Court will grant the Third Party Plaintiff leave to file an Amended Third Party
Complaint to attempt to address the defects highlighted in this Order.
IV. CONCLUSION
It is therefore
ORDERED that Third Party Defendants’ Motion to Dismiss (Docket No. 5) is
GRANTED and the Third Party Complaint is Dismissed without prejudice. Third Party Plaintiff
may file an Amended Third Party Complaint within thirty (30) days of this Order. The
November 29, 2011 hearing is STRICKEN.

DATED October 26, 2011.
BY THE COURT:

_____________________________________
TED STEWART
United States District Judge

8