Real Estate School of Nevada et al v. Kapp et al

Filing 31

MEMORANDUM DECISION AND ORDER granting in part and denying in part 19 Motion to Dismiss: Plaintiffs may file an amended complaint on or before 8/28/15. Signed by Judge David Nuffer on 8/10/15 (alt)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
REAL ESTATE SCHOOL OF NEVADA, a
Nevada corporation;
REALTYSCHOOL.COM, LLC, a Nevada
limited liability company; and LYNN E.
WARDLEY, an individual;
Plaintiffs,
v.
TIM J. KAPP, an individual; CITIGEN,
LLC, a Utah limited liability company;
REBOUND STRATEGIES, a Nevada
limited liability company; REBOUND
STRATEGIES SERIES OF HENDERSON
SYSTEMS, LLC, a Nevada limited liability
company; and ADDO RECOVERY, LLC, a
Utah limited liability company;

MEMORANDUM DECISION AND
ORDER GRANTING MOTION TO
DISMISS IN PART AND DENYING
MOTION TO DISMISS IN PART

Case No. 2:15-cv-00043-DN
District Judge David Nuffer

Defendants.
Defendant Addo Recovery, LLC (“Addo”) filed a motion to dismiss (“Motion”) 1
Plaintiffs’ third, eleventh, and twelfth claims set forth in Plaintiffs’ First Amended Complaint
(“Amended Complaint”) 2 pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.
The matter has been fully briefed by the parties. For the reasons set forth herein, Addo’s motion
is GRANTED IN PART and DENIED IN PART. The motion to dismiss Plaintiffs’ third claim
for aiding and abetting the breach of a fiduciary duty3 is GRANTED. The motion to dismiss

1

Motion to Dismiss Amended Complaint and Memorandum in Support, docket no. 19, filed April 16, 2015.

2

First Amended Complaint, docket no. 17, filed April 13, 2015.

3

Amended Complaint ¶ 87, at 15.

Plaintiffs’ eleventh claim for breach of contract 4 and Plaintiffs’ twelfth claim for unjust
enrichment 5 is DENIED.

TABLE OF CONTENTS
BACKGROUND ........................................................................................................................... 2
STANDARD OF REVIEW—MOTION TO DISMISS............................................................. 6
ANALYSIS .................................................................................................................................... 8
I. Plaintiffs’ Third Claim: Aiding and Abetting the Breach of a Fiduciary Duty ................... 8
II.
Plaintiffs’ Eleventh Claim: Breach of Contract ............................................................. 11
III. Plaintiffs’ Twelfth Claim: Unjust Enrichment ............................................................... 12
ORDER ........................................................................................................................................ 14

BACKGROUND
When considering a motion to dismiss for failure to state a claim, a court presumes the
thrust of all well-pleaded facts in the complaint, but need not consider conclusory allegations. 6
Therefore, the recitation of allegations in this order are from the Amended Complaint only and
are accepted as true for the purposes of determining this motion. Any disputes with the
allegations in the Amended Complaint and subsequent responses are disregarded for the
purposes of this motion.
This case is based on an intricate web of relationships between various businesses and
those businesses’ members and managers. 7 In mid-2011, Defendant Tim J. Kapp solicited an
investment from Plaintiff Lynn E. Wardley to create Rebound, a small start-up company that

4

Id. ¶ 174, at 26.

5

Id. ¶ 185, at 27.

6

See Cory v. Allstate Ins., 583 F.3d 1240, 1244 (10th Cir. 2009).

7

Id. at 2.

2

focused on helping smokers overcome their smoking addictions. 8 On October 5, 2011, Rebound,
LLC was formed with Mr. Kapp as the initial manager of the company. 9 Ownership of Rebound
was vested in three members: (1) 55% in Citigen, LLC (Mr. Kapp’s personal company); (2) 35%
in Rebound Strategies Series of Henderson Systems, LLC; and (3) 10% in Mr. Wardley. 10 Mr.
Wardley, in addition to being a member of Rebound, is the President of Real Estate School of
Nevada, Inc. and a member of RealtySchool.com (“Realty School”). 11
In late 2013 or early 2014, Mr. Kapp expressed a desire to merge Rebound and Addo—a
small business that offers access to an online library of videos, audio programs, and assessments
for members who work to overcome certain addictions and emotional problems. 12 To
successfully merge with Addo, Rebound’s Operating Agreement required a super-majority
(75%) approval by Rebound’s ownership. 13
In early 2013, entirely apart from their joint creation of Rebound, Mr. Kapp and Citigen
assisted Mr. Wardley and Realty School in procuring computer software which the parties refer
to as the learning management system (“LMS”). 14 In late 2013 or early 2014, Rebound, Realty
School and Addo entered into a “what appeared to be a mutually agreeable bargain.” 15 Realty
School agreed to provide Addo with a temporary license to Realty School’s LMS, which Realty

8

Id. ¶ 11, at 4.

9

Id. ¶ 12, at 4.

10

Id. ¶ 13, at 4.

11

Id. ¶ 1, at 3.

12

Id. ¶ 45–47, at 8.

13

Id. ¶ 50, at 9.

14

Id. ¶ 25, at 6.

15

Id. ¶ 1, at 3.

3

School itself described as “poorly designed and poorly executed.” 16 In exchange, Addo agreed
to produce for Rebound a video-based online addiction course for smokers. 17 Thereafter, the
“mutually agreeable bargain” called for Realty School to provide Addo with a proposed contract
to use the LMS for a reasonable fee. 18
In accordance with the “mutually agreeable bargain,” Realty School did provide a
temporary license to Addo to use the LMS, and Addo used the LMS. 19 Addo created video
content to assist smokers in overcoming their addiction and provided access to those videos to
Mr. Kapp and Rebound. 20 Realty School later proposed a software licensing agreement to Addo
which Addo rejected. 21 The Amended Complaint does not allege that the “mutually agreeable
bargain” required Addo to accept the proposed software license agreement.
Plaintiffs filed a Complaint on January 22, 2015. 22 The Complaint named multiple
defendants (including Addo) and alleged claims against Addo for aiding and abetting the breach
of a fiduciary duty, breach of contract, and unjust enrichment. 23 On March 23, 2015, Addo filed
a Motion to Dismiss for Failure to State a Claim. 24 Plaintiffs then filed their First Amended
Complaint on April 13, 2015. The Amended Complaint’s allegations related to Addo include the
following:

16

Id. ¶ 36, at 7; ¶ 53, at 9.

17

Id. ¶ 54, at 9.

18

Id. ¶ 54, at 9.

19

Id. ¶ 55, at 9

20

Id. ¶ 1, at 3.

21

Id. ¶ 90(e-f), at 16.

22

Complaint, docket no. 2, filed January 22, 2015.

23

Id.

24

Motion to Dismiss for Failure to State a Claim, docket no. 14, filed March 23, 2015.

4

44.
. . . Mr. Kapp has specifically aligned himself with Addo and Addo’s
interests to the direct and significant detriment of Rebound, and in breach of his
fiduciary duties.
....
52.
Initially, to move toward an online course and service based business
model, a three-way deal was struck with Addo.
53.
Mr. Wardley (as Rebound member) and Realty School agreed to provide
Addo with a temporary, but free, license to Realty School’s LMS.
54.
In exchange, Addo agreed to produce a complete video-based online
addiction course for smokers. Thereafter, the agreement called for Realty School
to provide Addo and Rebound with a contract or license to use the LMS for a
reasonable fee.
55.
In accordance with the agreement, Mr. Wardley and Realty School
delivered the LMS to Addo, and Addo began using the LMS.
56.
On information and belief, Addo provided Mr. Kapp with access to a
video course, but Plaintiffs have not yet been able [to] ascertain whether the video
course was complete. 25
Addo then filed a Motion to Dismiss Amended Complaint and Supporting Memorandum
of Defendant Addo Recovery, LLC on April 16, 2015. Addo contends that Plaintiffs’ Amended
Complaint fails to state claims upon which relief can be granted. 26 Specifically, Addo argues
that the third claim should be dismissed because Addo owed no fiduciary duty to Mr. Wardley
and the Plaintiffs have failed to plead a plausible claim for aiding and abetting against Addo. 27
Further, Addo argues that the eleventh (breach of contract) and twelfth (unjust enrichment)

25

Amended Complaint ¶ 44, 52–56, at 8–9.

26

Motion at 1.

27

Motion at 2.

5

claims should be dismissed because sufficient facts are not alleged in the Amended Complaint to
establish agreements or relationships between the Plaintiffs and Addo. 28
Plaintiffs then filed a Memorandum in Opposition to Defendant Addo Recovery, LLC’s
Motion to Dismiss on May 4, 2015. 29 Plaintiffs argue that Addo knowingly participated in Mr.
Kapp’s breach of a fiduciary duty to Mr. Wardley. 30 Plaintiffs further argue that Addo breached
the “mutually beneficial agreement” between itself, Rebound, and Realty School but still
received the benefit of using the LMS. 31
STANDARD OF REVIEW—MOTION TO DISMISS
Defendants are entitled to dismissal under Rule 12(b)(6) when the complaint, standing
alone, is legally insufficient to state a claim for which relief may be granted. 32 When
considering a motion to dismiss for failure to state a claim, a court presumes the thrust of all
well-pleaded facts in the complaint, but need not consider conclusory allegations. 33 Nor is a
court bound to accept the complaint’s legal conclusions and opinions, whether or not they are
couched as facts. 34 “In evaluating a Rule 12(b)(6) motion to dismiss, courts may consider not
only the complaint itself, but also attached exhibits, and documents incorporated into the
complaint by reference.” 35

28

Id.

29

Memorandum in Opposition to Defendant Addo Recovery, LLC’s Motion to Dismiss, docket no. 21, filed May 4,
2015.
30

Id at 2.

31

Id at 3.

32

See Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999).

33

See Cory v. Allstate Ins., 583 F.3d 1240, 1244 (10th Cir. 2009).

34

See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). See also Brown v. Zavaras, 63 F.3d 967, 972 (10th
Cir. 1995).

35

Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009) (citations omitted). See also Tellabs, Inc. v. Makor

6

The United States Supreme Court has held that satisfying the basic pleading requirements
of the federal rules “demands more than an unadorned, the defendant-unlawfully-harmed-me
accusation. A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the
elements of a cause of action will not do.’” 36 “[T]he tenet that a court must accept as true all of
the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” 37
“[N]aked assertions devoid of further factual enhancement,” 38 does not state a claim sufficiently
to survive a motion to dismiss.
“But where the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader
is entitled to relief.’” 39 “[T]he 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.” 40 That is, “[t]he allegations must be enough that, if assumed to be true, the
plaintiff plausibly (not just speculatively) has a claim for relief.” 41 “This requirement of
plausibility serves not only to weed out claims that do not (in the absence of additional

Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (citing 5B WRIGHT & MILLER § 1357 (3d ed. 2004 & Supp.
2007)).
36

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly , 550 U.S. at 555).

37

Id.

38

Id.

39

Id.at 679 (quoting Fed. R. Civ. P. 8(a)(2)).

40

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

41

Robbins v. Oklahoma 519 F.3d 1242, 1247–48 (10th Cir. 2008).

7

allegations) have a reasonable prospect of success, but also to inform the defendants of the actual
grounds of the claim against them.” 42
ANALYSIS
I.

Plaintiffs’ Third Claim: Aiding and Abetting the
Breach of a Fiduciary Duty

Plaintiffs’ third claim alleges Addo aided and abetted Mr. Kapp’s breach of a fiduciary
duty owed to Mr. Wardley. 43 Utah law recognizes a cause of action for aiding and abetting the
breach of a fiduciary duty. 44 This claim has three elements. 45 A plaintiff must show that (1) a
breach of a fiduciary duty owed to the plaintiff; (2) the defendant’s knowing participation in the
breach; and (3) damages. 46 The gravamen of the claim is the defendant’s knowing participation
in the fiduciary’s breach. 47 “Knowing participation” means that the act was done voluntarily and
intentionally, and not because of mistake or accident. 48
The Plaintiffs’ allegations about Addo’s involvement are that:
(a) Mr. Kapp utilizes the email address [e-mail];
(b) On August 25, 2014, Mr. Kapp advised Mr. Wardley that Addo would be
moving off the Realty School LMS to some other company’s software system;
(c) On August 27, 2014, Addo’s managing partner, Danny Jackson, stated that
although he believed licensing terms for the LMS were different than those
identified by Realty School, as far as he was aware, Addo would be continuing on
Realty School’s system;

42

Id. at 1248.

43

Amended Complaint ¶ 87, at 15.

44

Mower v. Simpson, 278 P.3d 1076, 1088 (Utah Ct. App. 2012).

45

Id.

46

Id. (quoting Future Group, II v. Nationsbank, 478 S.E.2d 45, 49 (S.C. 1996).)

47

Id.

48

See Russell/Packard Development Inc. v. Carson, 78 P.3d 616, 626 (Utah Ct. App. 2003).

8

(d) On August 27, Mr. Kapp stated that he had received communications “via
Addo” and also that he understood Realty School would be “working with Addo
over the next weeks to come up with a new licensing agreement with terms
TBD;”
(e) On September 24, 2014, Realty School provided a software licensing
agreement to Addo by email to Mr. Jackson;
(f) On September 25, 2014, Addo rejected the software licensing agreement by
email, but not before circulating Addo’s draft response to the email to Mr. Kapp
and speaking with Mr. Kapp regarding the same;
(g) Mr. Kapp personally began to work on new software to take care of Addo’s
needs; and
(h) Mr. Kapp, on behalf of Addo, requested data from Realty School so that Addo
could discontinue its use of Realty School’s LMS. 49
But the Amended Complaint does not allege that Addo knowingly participated in an
underlying breach of a fiduciary duty. The Amended Complaint merely alleges that Addo knew
that Mr. Kapp and Mr. Wardley had a business relationship and interacted. Addo’s familiarity
with the Kapp-Wardley business relationship is not sufficient for the “knowing participation”
required to support a claim for aiding and abetting the breach of a fiduciary duty. 50 The
Complaint must not only allege knowledge of a relationship and interactions but also allege
actual knowledge of actions related to the underlying breach of the duty. 51
The Amended Complaint alleges that Mr. Kapp breached his fiduciary duty to Wardley
and Rebound in the following ways:
(a) By allowing Rebound to fall behind in monthly payments to Mr. Kelley;
(b) By failing to bring Mr. Kelley current with funds wired by Mr. Wardley for
that express purpose;
49

Amended Complaint ¶ 90(a) –(h), at 16.

50

278 P.3d 1076 at 1088.

51

Id.

9

(c) By relinquishing Rebound’s rights to QuitSmoking.com and the other internet
domains instead of bringing Rebound current in its payment obligations under the
Asset Purchase Agreement;
(d) By disposing of Rebound’s assets without first obtaining a Super-Majority
vote of members’ interests;
(e) By placing the needs of Addo before the interests of Rebound and its
members;
(f) By failing to explore alternative methods of obtaining, or using, video content
Mr. Kapp alleged was critical to Rebound’s success;
(g) By making the unilateral decision to scuttle Rebound’s business operations;
and
(h) By denying Mr. Wardley’s additional ownership interest in Rebound, and at
the same time, failing to return funds contributed to Mr. Wardley which were not
used for their intended purpose. 52
The Amended Complaint makes no allegation that Addo had actual knowledge of these
actions. This claim is therefore DISMISSED because it fails to allege knowing participation, the
second element of aiding and abetting the breach of a fiduciary duty.
There are other issues which may guide Mr. Wardley if the claim is amended. For a
claim for aiding and abetting the breach of a fiduciary duty to survive a motion to dismiss, there
must be allegations of an underlying breach of a fiduciary duty. 53 As the manager of Rebound,
Mr. Kapp owed a fiduciary duty to Rebound. But it is unclear that this relationship gives Mr.
Kapp a fiduciary relationship with Mr. Wardley personally. 54 And while Mr. Kapp’s actions
may not have always been in the best interests of Mr. Wardley, this does not necessarily mean
that Mr. Kapp breached a fiduciary duty.

52

Amended Complaint ¶ 74(a) –(h), at 11-12.

53

See IOSTAR Corp. v. Stuart, No. 1:07-CV-133, 2009 WL 270037, at *9 (D. Utah Feb. 3, 2009).

54

Id.

10

II.

Plaintiffs’ Eleventh Claim: Breach of Contract

Plaintiffs’ eleventh claim alleges Addo breached its contract with Rebound. 55 This claim
has four elements. 56 A plaintiff must show (1) the existence of a contract; (2) performance by
the party seeking recovery; (3) breach of the contract by the other party; and (4) damages. 57
Sufficient facts are pled to allege existence of a contract. Some sort of “mutually
agreeable bargain” existed between Rebound, Addo, and Realty School. 58 However, it is unclear
if the “mutually agreeable bargain” constitutes an enforceable contract. 59 There are no clear
allegations of the terms of the bargain or whether any documentary evidence exists.
There are sufficient facts pled to allege performance. For example, Plaintiffs allege that
Realty School provided Addo with a temporary license to use the LMS and that Addo did indeed
use the LMS. 60
Allegations are sufficient that performance of the “mutually beneficial agreement” may
not be complete. 61 For example, Plaintiffs allege that Addo has provided Rebound and Mr. Kapp
with access to a video course, but Plaintiffs have not yet been able to ascertain whether the video
course was complete. 62

55

Amended Complaint at 26.

56

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

57

Id.

58

Amended Complaint ¶ 1, at 3.

59

Id. ¶ 52–60, at 9.

60

Id.

61

Id. ¶ 56, at 9.

62

Id. ¶ 1, at 3; ¶ 56, at 9.

11

Viewed in the light most favorable to the Plaintiffs, these allegations are sufficient to
assert that Addo breached a contract. Therefore Addo’s motion to dismiss Plaintiffs’ claim for
breach of contract is DENIED.
III.

Plaintiffs’ Twelfth Claim: Unjust Enrichment

Plaintiffs’ twelfth claim alleges Addo was unjustly enriched by Real Estate School of
Nevada and RealtySchool.com. 63 This claim has three elements. 64 A plaintiff must show (1) a
benefit conferred on one person by another; (2) an appreciation or knowledge of the benefit by
the conferee; and (3) the acceptance or retention by the conferee of the benefit under such
circumstances as to make it inequitable for the conferee to retain the benefit without payment of
its value. 65
Sufficient facts have been pled to allege that Mr. Wardley and Realty School provided
the LMS to Addo for some period of time. 66 For example, Plaintiffs allege that the parties
entered into the “mutually agreeable bargain” sometime in late 2013 or early 2014 and that
Realty School delivered the LMS to Addo at some point after that. 67
Plaintiffs further allege that Addo used the LMS until sometime in September 2014 when
Addo rejected the proposed software licensing agreement. 68 This shows Addo’s knowledge and
appreciation of the benefit.

63

Id. at 27.

64

Desert Miriah, Inc. v. B&L Auto, Inc., 12 P.3d 580, 582 (Utah 2000).

65

Id.

66

Amended Complaint ¶ 55, at 9.

67

Id. ¶ 1, at 3; ¶ 56, at 9.

68

Id. ¶ 75(e)(iii)(5), at 13.

12

Sufficient allegations state that the video content provided by Addo to Rebound may or
may not be complete. 69 For example, Plaintiffs allege that Addo has provided Rebound and Mr.
Kapp with access to a video course, but Plaintiffs have not yet been able to ascertain whether the
video course was complete. 70
Viewed in the light most favorable to the Plaintiffs, these allegations are sufficient to
assert that Addo has been unjustly enriched by use of the LMS. Therefore Addo’s motion to
dismiss Plaintiffs’ claim for unjust enrichment is DENIED.

69

Id. ¶ 56, at 9.

70

Id. ¶ 1, at 3; ¶ 56, at 9.

13

ORDER
For the reasons stated above, the Motion 71 is GRANTED IN PART and DENIED IN
PART as follows:
1.

Defendant’s motion to dismiss Plaintiffs’ third claim for aiding and abetting the

breach of a fiduciary duty 72 is GRANTED;
2.

Defendant’s motion to dismiss Plaintiffs’ eleventh claim for breach of contract 73

is DENIED;
3.

Defendant’s motion to dismiss Plaintiffs’ twelfth claim for unjust enrichment 74 is

DENIED.
IT IS FURTHER ORDERED that on or before August 28, 2015, Plaintiffs may file an
amended complaint, modified only as to their third claim for relief.
Dated August 10, 2015.

BY THE COURT:

____________________________
David Nuffer
United States District Judge

71

Motion to Dismiss Amended Complaint and Memorandum in Support, docket no. 19, filed April 16, 2015.

72

First Amended Complaint at 15.

73

Id. at 26.

74

Id. at 27.

14