Salek v. Reload, Inc.

CHRIS L. SALEK, Plaintiff, v. RELOAD, INC., RELOAD EXPRESS INC., WATCO MECHANICAL CORP. and PHILLIP A. PENNER, Defendants.

No. 11-2585-SAC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

Dated: February 22, 2012

MEMORANDUM AND ORDER

The case comes before the court on the defendant Phillip A. Penner's motion to dismiss (Dk. 20) this matter against him for failure to state a claim upon which relief may be granted. The court also will decide the plaintiff's motion to strike the second affirmative defense entitled "waiver" pleaded by the defendants, Reload, Inc., Reload Express, Inc.,¹ and Watco Mechanical Corp. ("Watco") (Dk. 26). Fully briefed, both motions are ripe for decision.

This action arises from events occurring after Watco's 2008 purchase of Reload, a freight transloading business, from its co-owners, the plaintiff Chris L. Salek ("Salek") and the defendant Phillip A. Penner ("Penner"). Salek alleges that the terms of the stock purchase agreement("SPA") directed a one-time cash payment to him and Penner with potential "earn out payments" over time if Reload's annual earnings met or exceeded certain levels. Amendments to the SPA in 2009 increased Salek's and Penner's potential earn-out payments. Reload executives and employees worked on Watco's planning and building of a new transloading facility in Oklahoma City, Oklahoma, ("Oklahoma City facility") that began operations in mid-2008. Reload executives and employees also planned and worked on providing transloading services for EOG Resources, Inc.'s new crude oil facilities at Stanley, North Dakota, and at Stroud, Oklahoma, ("Stanley and Stround facilities").

For purposes of calculating the earn-out payments for the year ending December of 2010, Watco included the earnings before interest, taxes, depreciation, and amortization ("EBITDA") made at the Oklahoma City facility. Salek alleges that Watco also should have included the EBITDA earned from the Stanley and Stroud facilities but instead buried these earnings in a newly named division called "Transload." Salek further alleges that after the SPA, Penner and Watco entered into a side agreement for earn-out payments as part of a scheme to cheat Salek out of his earn-out payments.

Salek brings two claims against the defendants Watco and Reload. Count one alleges these defendants breached the SPA and itsamendment by failing to include the EBITDA from the Stanley and Stroud facilities in the calculations of his earn-out payments and also breached the implied duty of good faith and fair dealing by engaging in the same conduct and by entering into a side agreement with Penner to cheat Salek of his earn-out payments. Count two seeks a declaratory judgment against these same defendants that the EBITDA from the Stanley and Stroud facilities and other transloading facilities should be included in Salek's earn-out payment calculations under the agreements. Finally, count three asserts a breach of fiduciary duty claim against the defendant Penner by entering into a side agreement from which he received earn-out payments and worked with other defendants in carrying out a scheme to cheat Salek out of his earn-out payments.

MOTION TO DISMISS STANDARDS

"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." Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991). The court accepts all well-pled factual allegations as true and views these allegations in the light most favorable to the nonmoving party. United States v. Smith, 561 F.3d 1090, 1098 (10th Cir. 2009), cert. denied, 130 S. Ct. 1142 (2010). The court, however, is not under a duty toaccept legal conclusions as true. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868, 884 (2009). "Thus, mere 'labels and conclusions' and 'formulaic recitation of the elements of a cause of action' will not suffice." Khalik v. United Air Lines, ---F.3d---, 2012 WL 364058, at *2 (10th Cir. Feb. 6, 2012) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

The Supreme Court recently clarified the focus of such motions:

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim for relief that is plausible on its face." Id. [Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)) at 570. 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. at 556. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.'" Id. at 557.

Ashcroft v. Iqbal, 129 S.Ct. at 1949. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S.Ct. at 1949. "[C]ourts should look to the specific allegations in the complaint to determine whether they plausibly support a legal claim for relief." Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215 n.2 (10th Cir. 2007). If the allegations "are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs 'have not nudged their claims across the line from conceivable to plausible.'" Robbins v. Oklahomaex rel. Dep't of Human Servs., 519 F.3d 1242, 1247 (10th Cir. 2008) (quoting Twombly, 550 U.S. at 570).

The Tenth Circuit has observed that "[t]he nature and specificity of the allegations required to state a plausible claim will vary based on context." Kansas Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1215 (10th Cir. 2011). The Supreme Court in Iqbal similarly noted that "[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common-sense." 129 S. Ct. at 1950. "While the 12(b)(6) standard does not require that Plaintiff establish a prima facie case in her complaint, the elements of each alleged cause of action help to determine whether Plaintiff has set forth a plausible claim." Khalik, 2012 WL 364058, at *3 (citations omitted). "But because dismissal under Rule 12(b)(6) 'is a harsh remedy, . . . a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.'" Tyler v. Tsurumi (America), Inc., 425 Fed. Appx. 702, 704 (10th Cir. 2011) (quoting Dias v. City & Cnty. of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (citations and quotations omitted).

In evaluating a Rule 12(b)(6) motion to dismiss, a court must "consider the complaint in its entirety" and also examine documents"incorporated into the complaint by reference." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). It generally must convert a motion to dismiss to one for summary judgment when it considers materials submitted by parties that are outside the pleadings. Alvarado, 493 F.3d at 1215. Conversion is unnecessary if the court only considers "documents referred to in the complaint if the documents are central to the plaintiff's claim and the parties do not dispute the documents' authenticity." Alvarado, 493 F.3d at 1215 (internal quotation marks and citation omitted).

Count III

In his breach of fiduciary duty claim against Penner, Salek alleges he and Penner "were joint venturers in maximizing EBITDA from transloading services and thereby maximizing the earn out payments under the Agreement and the Amended Agreements." (Dk. 1, ¶ 92). This conclusion of a joint venture is preceded by the following factual allegations:

88. As part of the Agreement, both Plaintiff and Defendant Penner signed employment contracts and promised that they would continue to work for Defendant Reload for a period of up to three years.

89. After entering into the Agreement, the employment contracts, and the Amended Agreements, Plaintiff and Defendant Penner both had a contractual right to receive 50% of future earn out payments of up to $4,950,000.

90. The main purpose of the employment contracts and the Amended Agreements was to maximize the likelihood that both Plaintiff and Defendant Penner would receive future earn out payments.

91. Plaintiff and Defendant Penner were in a special combination oftwo persons devoted to a specific enterprise in which profit is jointly sought without actual partnership or corporate designation.

(Dk. 1, p. 17). Also preceding the general allegation of a joint venture, there was the incorporated allegations that Salek and Penner had co-owned Reload, that Watco purchased their shares, and that the SPA provided for Salek and Penner to receive earn-out payments based on annual earnings levels through the calendar year of 2017. Finally, Salek alleges Penner breached his fiduciary duties by entering into a side agreement with Watco to receive earn-out payments that also resulted in Salek being denied earn out payments.

Kansas Law on Joint Ventures

Kansas law generally recognizes that "a 'fiduciary duty' exists among joint venturers." Terra Venture v. JDN Real Estate Overland, 443 F.3d 1240, 1245 (10th Cir. 2006) (citations and internal quotation marks omitted). A joint venture "is an association of two or more persons to carry out a single business enterprise for profit," and it exists "only by the agreement of the parties." Modern Air Conditioning, Inc. v. Cinderella Homes, Inc., 226 Kan. 70, 75, 596 P.2d 816 (1979). Here is an appropriate summary of Kansas law on joint ventures:

In Kansas, a joint venture exists where two or more corporations associate to carry

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