Opinion
Civil Action No. 02-2593-GTV
April 24, 2003.
MEMORANDUM AND ORDER
The court has under consideration the Motion to Dismiss (Doc. 3) filed by Defendants JDN Real Estate, JDN Realty Corporation ("JDN Realty"), JDN Development Company ("JDN Development"), and Belle Meade Acquisition Corporation ("Belle Meade"). Plaintiff Terra Venture, Inc., brings this suit against Defendants for breach of contract, breach of fiduciary duty, and an accounting. The case arises out of two written agreements between Plaintiff and Defendant JDN Real Estate relating to the development of a 100-acre tract of undeveloped land. Plaintiff claims that Defendants wrongfully failed to notify Plaintiff when Defendants conveyed portions of the land to other entities and failed to efficiently and expeditiously develop the land. For the following reasons, the court denies Defendants' motion to dismiss (Doc. 3) in part and grants it in part. The court dismisses Count Two of Plaintiff's complaint, the claim for breach of fiduciary duty.
I. STANDARD FOR JUDGMENT
Defendants move to dismiss Plaintiff's complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted.
A Rule 12(b)(6) motion to dismiss will be granted only if it appears beyond a doubt that the plaintiff is unable to prove any set of facts entitling him to relief under his theory of recovery. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). "All well-pleaded facts, as distinguished from conclusory allegations, must be taken as true." Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir. 1984). The court must view all reasonable inferences in favor of the plaintiff, and the pleadings must be liberally construed. Id.; Fed.R.Civ.P. 8(f). The issue in reviewing the sufficiency of a complaint is not whether the plaintiff will prevail, but whether the plaintiff is entitled to offer evidence to support his claims. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Harlow v. Fiztgerald, 457 U.S. 800 (1982).
II. FACTUAL BACKGROUND
The following facts are based upon the allegations in Plaintiff's complaint. In 1998, Plaintiff entered into a written agreement with Ranchmart, Inc. to purchase approximately 100 acres of undeveloped land in Overland Park, Kansas. Under the agreement, Plaintiff had the option of assigning its right to purchase to JDN Realty or a related entity. On March 15, 1999, Plaintiff entered into sale and fee agreements with JDN Real Estate, pursuant to which Plaintiff agreed to assign its interest in the Ranchmart sale agreement to JDN Real Estate, and JDN Real Estate agreed to engage Plaintiff as the exclusive marketing agent for the property.
Plaintiff alleges that while entering into the March 15, 1999 sale and fee agreements, JDN Real Estate represented to Plaintiff that JDN Real Estate would "efficiently and expeditiously develop the property." Under paragraph three of the March 15, 1999 sale agreement, JDN Real Estate agreed to obtain written consent from Plaintiff before assigning its interest in the Ranchmart sale agreement. Under paragraph four, JDN Real Estate agreed to require any entity that acquired an interest in the Ranchmart sale agreement or in the subject property to agree to assume JDN Real Estate's obligations under the fee agreement and to deliver to Plaintiff a copy of such agreement.
At the closing of the transaction with Ranchmart on October 1, 1999, Belle Meade, rather than JDN Real Estate, acquired title to the property. Belle Meade ratified the fee agreement with Plaintiff at that time.
Plaintiff alleges that Belle Meade has conveyed portions of the property to other entities, including JDN Realty and JDN Development, without the knowledge or consent of Plaintiff and without the delivery of any agreement as required by paragraph four of the March 15, 1999 sale agreement. Plaintiff further alleges that all Defendants have hindered, impeded, and delayed its efforts to market the property.
III. DISCUSSION
As noted above, Plaintiff brings three claims in its complaint: breach of contract, breach of fiduciary duty, and a claim for an accounting. All claims are against all Defendants. Defendants have moved to dismiss the entire case.
A. Breach of Contract Claim
Defendants argue that the court should dismiss Plaintiff's breach of contract claim for several reasons: (1) The claim against JDN Realty and JDN Development should be dismissed because they are not parties to either of the March 15, 1999 contracts; (2) The claim for breach of paragraphs three and four of the sale agreement should be dismissed because Plaintiff has not alleged damages stemming from breach of those provisions; and (3) Any oral agreement to develop the property efficiently and expeditiously is unenforceable under the parol evidence rule and the statute of frauds. The court declines to dismiss Plaintiff's claim on these grounds.
The court determines that Plaintiff has sufficiently alleged that JDN Realty and JDN Development are alter egos of JDN Real Estate and/or Belle Meade. A party who is not a signatory of a contract may be bound by that contract if the party is an alter ego of a signatory. See ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1460-61 (10th Cir. 1995) (holding that a court must determine whether a corporation contractually bound to arbitrate is the alter ego of a shareholder before determining that the shareholder is bound to arbitrate). Throughout its complaint, Plaintiff alleges that all Defendants are related entities. Plaintiff also alleges that JDN Realty is the parent company of all Defendants. Construed liberally, these allegations are sufficient to support a claim that all Defendants are bound by the contracts because they function as a single entity. The court will allow Plaintiff to present evidence to support its claim that all parties are bound by the March 15, 1999 contracts. The court need not address the parties' other arguments regarding the issue at this time.
The court also determines that Plaintiff has sufficiently alleged that it has suffered damages as a result of the breach of paragraphs three and four. Plaintiff alleges generally that it has been damaged as a result of two breaches: the breach of paragraphs three and four, and the breach of the agreement to develop the property efficiently and expeditiously. Plaintiff alleges that "[a]s a direct and proximate result of those breaches, plaintiff has suffered damages in the amount of at least $6,133,784, plus the amount of any liability it might have to Wal-Mart due to overcharges." While Plaintiff may have difficulty adducing evidence that its damages were caused by Defendants' failure to comply with paragraphs three and four, Plaintiff has sufficiently alleged damages to survive a motion to dismiss.
Finally, the court declines to dismiss Plaintiff's claim that Defendants failed to efficiently and expeditiously develop the property. Plaintiff's claim can reasonably be interpreted as a claim for breach of the implied covenant of good faith and fair dealing; Plaintiff claims that "Plaintiff consummated the October 1, 1999 transaction on the condition, and with the understanding, that defendant JDN Real Estate would act in good faith and would allow plaintiff to market the property efficiently and expeditiously; that understanding was an implied term of the contract." As a claim for breach of the implied covenant of good faith and fair dealing, Plaintiff's claim does not rest solely on the alleged oral representation that Defendant JDN Real Estate would act efficiently and expeditiously. The court, therefore, need not address at this stage of the litigation, whether the oral representation would be unenforceable under the parol evidence rule or the statute of frauds.
In sum, the court concludes that Plaintiff has pleaded sufficient facts to survive Defendants' motion to dismiss its breach of contract claim against all Defendants.
B. Breach of Fiduciary Duty Claim
Defendants submit that the court should dismiss Plaintiff's breach of fiduciary duty claim against JDN Realty and JDN Development because they are not parties to any contract with Plaintiff. Defendants also submit that Plaintiff's claim should be dismissed against all Defendants because Plaintiff has failed to plead facts from which the court can infer a "conscious assumption" of a fiduciary duty by Defendants, as required by Kansas law. The court agrees that Plaintiff has failed to plead facts from which the court can infer a "conscious assumption" of a fiduciary duty by Defendants, and dismisses the claim on such basis.
Under Kansas law, "[a] fiduciary relation . . . exist[s] in cases where there has been a special confidence reposed in one who, in equity and good conscience, is bound to act in good faith and with due regard to the interests of the one reposing the confidence." Denison State Bank v. Madeira, 640 P.2d 1235, 1242 (Kan. 1982) (quoting Lindholm v. Nelson, 264 P. 50, 54 (Kan. 1928)). There are generally two types of fiduciary relationships:
(1) those specifically created by contract such as principal and agent, attorney and client, and trustee cestui que trust, for example, and those created by formal legal proceedings such as guardian and/or conservator and ward, and executor or administrator of an estate, among others, and (2) those implied in law due to the factual situation surrounding the involved transactions and the relationship of the parties to each other and to the questioned transactions.
Rajala v. Allied Corp., 919 F.2d 610, 613 (10th Cir. 1990) (quoting Denison, 640 P.2d at 1241). The Kansas Supreme Court has identified several broad principles that should be considered in determining whether a fiduciary relationship exists:
A fiduciary relationship imparts a position of peculiar confidence placed by one individual in another. A fiduciary is a person with a duty to act primarily for the benefit of another. A fiduciary is in a position to have and exercise, and does have and exercise influence over another. A fiduciary relationship implies a condition of superiority of one of the parties over the other. Generally, in a fiduciary relationship, the property, interest or authority of the other is placed in the charge of the fiduciary.
Denison, 640 P.2d at 1241 (citation omitted). Absent clear intent by the parties, an ordinary business relationship should not be converted into a fiduciary relationship. Gottstein v. Nat'l Ass'n for the Self Employed, 53 F. Supp.2d 1212, 1222 (D.Kan. 1999) (citing Denison, 640 P.2d at 1243). "[C]onscious assumption of the alleged fiduciary duty is a mandatory element under Kansas law." Rajala, 91 F.2d at 615 (citation omitted).
Although a party alleging a breach of fiduciary duty need only satisfy the general pleading standard of Fed.R.Civ.P. 8(a), the court concludes that Plaintiff has not met its burden in the instant case. Plaintiff has failed to allege that Defendants consciously assumed a fiduciary duty. Furthermore, Plaintiff has failed to allege any facts that would suggest that Defendants agreed to act primarily for the benefit of Plaintiff or that Defendants were in a superior position to Plaintiff. Plaintiff has simply made the conclusory allegation that "defendant JDN Real Estate and the other defendants . . . owed plaintiff a fiduciary duty, and all were required to act in good faith and with due regard to plaintiff's interests." Plaintiff's complaint insufficiently alleges the existence of a fiduciary relationship between the parties, and the court therefore dismisses Plaintiff's claim for breach of fiduciary duty.
C. Claim for an Accounting
Defendants ask the court to dismiss Plaintiff's claim for an accounting because it is "merely incidental" to Plaintiff's other claims, and assuming that the court dismisses Plaintiff's other claims, the claim for an accounting should also be dismissed. Because the court has declined to dismiss Plaintiff's breach of contract claim, the court will not dismiss Plaintiff's claim for an accounting.
IT IS, THEREFORE, BY THE COURT ORDERED that Defendants' motion to dismiss (Doc. 3) is denied in part and granted in part. Count Two of Plaintiff's complaint, the claim for breach of fiduciary duty, is dismissed.
Copies or notice of this order shall be transmitted to counsel of record.