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Rezac Livestock Commission Co., Inc. v. Pinnacle Bank and Dinsdale Bros., Inc.

United States District Court, D. Kansas

June 6, 2017

REZAC LIVESTOCK COMMISSION COMPANY, INC., Plaintiff,
v.
PINNACLE BANK and DINSDALE BROS., INC., Defendants.

          MEMORANDUM AND ORDER

          Daniel D. Crabtree, United States District Judge

         Plaintiff Rezac Livestock Commission Company, Inc. accuses defendant Dinsdale Bros., Inc. of being a modern-day cattle rustler and also accuses defendant Pinnacle Bank of serving as Dinsdale's accomplice. Doc. 46. Plaintiff contends that it sold Dinsdale nearly $1 million worth of cattle in September 2015 but Dinsdale has never paid for them. So, trying to recover the money, plaintiff makes three claims against Dinsdale (breach of contract, conversion, and quantum meruit), one claim against Pinnacle Bank (conversion), and two claims against Dinsdale and Pinnacle Bank together (unjust enrichment and civil conspiracy).

         Dinsdale has filed a Motion to Dismiss Second Amended Complaint seeking to extricate itself from this litigation entirely. Dinsdale's Motion argues that plaintiff's Second Amended Complaint states no claim against it and so the court should dismiss it under Federal Rule of Civil Procedure 12(b)(6). Doc. 48. After carefully reviewing the parties' submissions, the court denies Dinsdale's motion.

         I. Background

         Because Dinsdale brings its motion under Rule 12(b)(6), plaintiff's Second Amended Complaint (“Complaint”) supplies the governing facts and the court must accept those facts as true.[1] See S.E.C. v. Shields, 744 F.3d 633, 640 (10th Cir. 2014).

         Plaintiff Rezac Livestock Commission Company, Inc. is a Kansas corporation that sells cattle in St. Marys, Kansas.[2] On September 29, 2015, a man named Charles D. Leonard attended one of plaintiff's livestock auctions at Dinsdale's direction. Dinsdale is a Nebraska corporation who buys and sells cattle. At the auction, Mr. Leonard told plaintiff that Dinsdale had sent him to the auction to fill a large order of cattle for Dinsdale. This was not uncommon for Mr. Leonard. He had purchased livestock from plaintiff on behalf of Dinsdale in the past-a fact that plaintiff knew well. For this auction, Dinsdale had given Mr. Leonard specific instructions about what cattle to purchase: “no steers over 900 lbs. and no heifers over 800 lbs.” Doc. 46 ¶ 13. Mr. Leonard did as Dinsdale asked, purchasing 668 head of cattle for Dinsdale from plaintiff for a total cost of $980, 361.45. Mr. Leonard wrote plaintiff a check for the full purchase price, drawn on Pinnacle Bank. He then told plaintiff that Dinsdale wanted the cattle shipped directly to two Colorado feedlots. Plaintiff complied and shipped the cattle to Colorado.

         Around October 1, 2015-after plaintiff had shipped the cattle-Dinsdale wired funds to Pinnacle Bank to cover Mr. Leonard's check. But before Dinsdale wired the funds, it communicated with Pinnacle Bank about Mr. Leonard's financial status. Mr. Leonard owed Pinnacle Bank more than $1 million when he wrote plaintiff that $980, 361.45 check. And Dinsdale knew it, because the same family owns Dinsdale and Pinnacle Bank. Plaintiff alleges that this common ownership gave Dinsdale access to information about Mr. Leonard's financial situation that it otherwise might not have had. See Id. ¶ 24. Indeed, when the auction occurred, Dinsdale knew that Mr. Leonard was behind in repaying his debt to Pinnacle Bank. And, because of this knowledge, Dinsdale's bookkeeper had been told “that any payments for cattle purchased through [Mr.] Leonard would require payment directly to the sale barn, ” here, plaintiff. Id. ¶ 27. But Dinsdale did not pay plaintiff directly. Instead, Dinsdale decided to wire the funds to Pinnacle Bank-after Dinsdale and Pinnacle Bank “specifically discussed . . . timing . . . the wire to correspond with [plaintiff's] presentation of [Mr.] Leonard's check to Pinnacle Bank.” Id. ¶ 29.

         When Pinnacle Bank received Dinsdale's wire to Mr. Leonard's account, it “closed [Mr.] Leonard's account and set off the funds in the account against debts [that Mr.] Leonard owed to Pinnacle Bank.” Id. ¶ 44. As a result, when plaintiff presented Mr. Leonard's check to Pinnacle Bank, his account had no money left in it to pay plaintiff. Plaintiff tried to cash Mr. Leonard's check twice, but both times Pinnacle Bank “refused to release the funds.” Id. ¶ 36. Because no one had paid plaintiff for the cattle, it “attempted to reclaim the livestock and demanded [that] Dinsdale” return the cattle “for lack of payment.” Id. ¶ 37. Dinsdale declined. In response, plaintiff filed this lawsuit on September 29, 2015, trying to recover the more than $900, 000 that it claims Dinsdale still owes for the 668 head of cattle Mr. Leonard purchased.

         On February 3, 2017, Dinsdale filed its Motion to Dismiss, arguing that plaintiff's Complaint fails to state a claim against it and thus should be dismissed under Federal Rule of Civil Procedure 12(b)(6). Doc. 48. The court considers Dinsdale's Motion to Dismiss under the legal standard outlined in the following section.

         II. Rule 12(b)(6) Legal Standard

         Rule 8(a)(2) provides that a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Although this Rule “does not require ‘detailed factual allegations, '” it demands more than “[a] pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Id. (quoting Twombly, 550 U.S. 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. (citing Twombly, 550 U.S. at 556). “Under this standard, ‘the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.'” Carter v. United States, 667 F.Supp.2d 1259, 1262 (D. Kan. 2009) (quoting Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007)).

         On a motion to dismiss like this one, the court assumes the complaint's factual allegations are true, but need not accept mere legal conclusions as true. Id. at 1263. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements” are not enough to state a claim for relief. Iqbal, 556 U.S. at 678.

         III. Analysis

         Dinsdale asks the court to dismiss all five of plaintiff's claims against it because they fail to state a claim. The court considers each claim, separately, below.

         A. Count I: Breach of Contract

         In count one, plaintiff asserts a breach of contract claim against Dinsdale. But plaintiff never alleges that Dinsdale made any contract with it. Instead, plaintiff alleges that a sale contract existed between plaintiff and Mr. Leonard, in which Mr. Leonard agreed to pay plaintiff $980, 361.45 in exchange for 668 head of cattle.[3] Plaintiff alleges that Dinsdale is bound to this contract just as if it were a party because Mr. Leonard had authority as Dinsdale's agent to enter into the sale contract on Dinsdale's behalf. Finally, plaintiff alleges that Dinsdale has breached this contract by failing to pay for the cattle.

         For its part in this controversy, Dinsdale contends that count one states no breach of contract claim. It advances three arguments to support this position: (1) plaintiff “lacks the contractual privity necessary to maintain a breach of contract claim against” Dinsdale; (2) “the statute of frauds bars the contract” that plaintiff alleges between it and Dinsdale; and (3) the Complaint “contains no indication of an agency relationship” between Dinsdale and Mr. Leonard. Doc. 49 at 5, 9.

         Dinsdale's privity and statute of fraud arguments rely on its agency argument. In its privity and statute of fraud arguments, Dinsdale contends that plaintiff, to state a claim, must allege that a written contract exists, and that plaintiff and Dinsdale both signed the contract. Dinsdale then characterizes the Complaint as alleging only two contracts: one between Dinsdale and Mr. Leonard and one between Mr. Leonard and plaintiff. But plaintiff can allege a contract exists between it and Dinsdale under an agency theory. That is, if plaintiff alleges that Mr. Leonard acted as Dinsdale's agent and that he had authority to purchase the cattle on Dinsdale's behalf, then plaintiff need not allege a contract signed by plaintiff and Dinsdale. Under that theory, such a contract would bind Dinsdale to the contract it admits exists between Mr. Leonard and plaintiff because “[a] contract executed by an authorized agent in his own name, but in fact in behalf of his principal, is the contract of the principal, and suit may be brought against him to enforce its provisions.” C. A. Karlan Furniture Co. v. Richardson, 324 P.2d 180, 183 (Kan. 1958) (quoting Edwards v. Gildemeister, 59 P. 259, Syl. ¶ 2 (Kan. 1899)). So, if plaintiff has alleged that Mr. Leonard acted as Dinsdale's authorized agent for the purpose of buying the cattle, all three of Dinsdale's arguments against plaintiff's breach of contract claim would fail. The court thus begins its analysis with Dinsdale's agency argument.

         Because this is a diversity case, the court “appl[ies] the substantive law of the forum state, including its choice of law rules.” Pepsi-Cola Bottling Co. of Pittsburgh, Inc. v. PepsiCo, Inc., 431 F.3d 1241, 1255 (10th Cir. 2005) (citations omitted). Here, Kansas is the forum state and the parties never contest the state law that should apply. Both party's papers rely on Kansas law. Because the parties have made the deliberate choice to rely on Kansas law, the court applies Kansas law throughout this Memorandum and Order, and the parties have waived any argument that some other state's law applies to this motion. See Dr Pepper Co. v. Adams Inv. Co., 940 F.2d 1538, 1991 WL 148876, at *1 (10th Cir. 1991) (finding that the parties had waived a choice-of-law argument when both relied upon Texas law in their briefs); McCammond v. Schwan's Home Serv., Inc., 791 F.Supp.2d 1010, 1012 n.1 (D. Colo. 2011) (“The Court notes that the Motion was briefed pursuant to Colorado law and, at the hearing on the Motion, neither party argued that Minnesota law applies to this issue. Accordingly, any right to assert Minnesota law was arguably waived by the parties.” (citing Air Liquide Am. Corp. v. Cont'l Cas. Co., 217 F.3d 1272, 1275 n.2 (10th Cir. 2000))).

         So, the court looks to Kansas agency law to settle the parties' dispute whether plaintiff has alleged facts sufficient to show that Dinsdale is bound to the sale contract between plaintiff and Mr. Leonard. But applying Kansas law is more difficult than one might anticipate. The difficulty arises from the murky state of Kansas agency law, a topic the Kansas Supreme Court has wrestled with recently. Golden Rule Ins. Co. v. Tomlinson, 335 P.3d 1178, 1187 (Kan. 2014).

         In Golden Rule Insurance Co. v. Tomlinson, the Kansas Supreme Court set out “to improve upon the clarity of Kansas agency law, ” which, the court explained had been murky for years. Id. This lack of clarity arose from the existence of “some historical imprecision in Kansas agency law.” Id. To explain this imprecision, the court must digress from its discussion of Golden Rule and briefly provide some background about general, common law agency law principles.

         For many years, courts and commentators across the country have treated the questions whether a principal-agent relationship exists and whether an agent has authority to act as two separate questions.[4] As a consequence, they have utilized a two-step process to determine whether an alleged principal is liable for a contract signed by her alleged agent.[5] In step one, courts ask whether an agency relationship exists. E.g., Koricic v. Beverly Enters.-Neb., Inc., 773 N.W.2d 145, 150-51 (Neb. 2009). If it does, the court moves to step two and asks whether the agent had the authority-either actual or apparent-to execute the contract at issue on the principal's behalf. See, e.g., id. at 151 (holding that “an agency relationship existed between” the alleged principal and alleged agent, but that the agent's “actual authority did not extend to signing an arbitration agreement”). But for many years, Kansas courts have not explicitly divided their agency inquiry into two steps. Instead, they have asked just one question: Did the alleged agent have one of the “two types of agency” recognized by the courts, “one actual and the other ostensible or apparent?” Greep v. Burns, 159 P.2d 803, 808 (Kan. 1945) (citations omitted); accord In re Scholastic Book Clubs, Inc., 920 P.2d 947, 954 (Kan. 1996); Mohr v. State Bank of Stanley, 734 P.2d 1071, 1075 (Kan. 1987). Asking just this one question led to the historical impression that the Kansas Supreme Court set out to clarify in Golden Rule. See Golden Rule, 335 P.3d at 1189 (explaining the difference between common law agency principles and Kansas agency law as arising from the fact that present-day Kansas case law has its “genesis in much older caselaw, which in turn relied on then current statements of agency law made in various treatises” (first citing Greep, 159 P.2d at 807-09; further citations omitted).

         Before it began its analysis, Golden Rule explained that the court must ask and answer two questions to determine whether the alleged agent could bind the alleged principal to a contract. Id. at 1186-87. Those two questions were: (1) “whether the evidence . . . supported the existence of an agency relationship between [the plaintiff] as principal and [the alleged agent] as agent” and (2) “whether [the agent's] acts were within the scope of his authority as agent or were otherwise binding on” the principal. Id. So, before the court even began its analysis in Golden Rule, it had signaled an intent to adopt the two-step process.

         The court then reviewed the general common law agency principles enshrined in the Third Restatement of Agency and explained that those principles require “any agency analysis [to] begin[] by first identifying whether a principal-agent relationship exists and, if so, determining the nature and scope of the agent's authority.” Id. at 1189. The court then reviewed Kansas's common law agency principles, arguing that “Kansas caselaw has been consistent with the general common law agency principles . . . in substance if not always in form.” Id. The court explained that the most “notable difference between Kansas cases and the Restatements” was Kansas's “focus on ‘types of agencies' rather than types of authority.” Id. The court dismissed this difference as one consisting merely of “terminology” caused by the fact that present-day Kansas case law has its “genesis in much older caselaw, which in turn relied on then current statements of agency law made in various treatises.” Id. (citations omitted). Then the court went on to employ the Restatement's two-step process, id. at 1193-95, but never explicitly replaced Kansas's previous one-step inquiry with that process.

         Still, the court is convinced that the Kansas Supreme Court, by favorably discussing the Third Restatement of Agency and structuring its analysis on the principles recited in that Restatement, intended to adopt the Restatement's two-step process. The court thus employs this two-step process, and considers Kansas case law discussing “types of agencies” where they are applicable within this two-step framework. This means the court must ask two questions here: (1) Has plaintiff alleged facts sufficient to support a plausible inference that Mr. Leonard and Dinsdale had a principal-agent relationship when Mr. Leonard purchased the 668 cattle from plaintiff?; and, if so, (2) Has plaintiff alleged facts sufficient to support a plausible inference that Mr. Leonard acted within the scope of his authority as Dinsdale's agent when he purchased the 668 cattle from plaintiff?

         1. Principal-Agent Relationship

         In Golden Rule, the Kansas Supreme Court explained that a principal-agent relationship (also referred to as an agency relationship) is created “when one person (a ‘principal') manifests assent to another person (an ‘agent') that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.” 335 P.3d at 1188 (quoting Restatement (Third) of Agency § 1.01 (Am. Law Inst. 2005)). And, a principal-agent relationship cannot exist unless the agent acts for the principal's benefit. See Merchant v. Foreman, 322 P.2d 740, 745 (Kan. 1958) (explaining the duties of an agent to a principal, which require an agent “to act with the utmost good faith and loyalty for the furtherance and advancement of the interests of his principal” (citations omitted)); 2A C.J.S. Agency § 5, Westlaw (database updated Apr. 11, 2017) (“[T]here are three elements that are integral to an agency relationship: the agent is subject to the principal's right of control; the agent has a duty to act, as a fiduciary, primarily for the benefit of the principal; and the agent holds the power to alter the legal relations of the principal.” (footnote omitted)). So, a principal-agent relationship has three components: assent by both parties, benefit to the principal, and control by the principal.

         Dinsdale contends that plaintiff has not alleged a principal-agent relationship between Dinsdale and Mr. Leonard for several reasons, all of which the court considers in the coming pages. But one of Dinsdale's arguments transcends the three elements of a principal-agent relationship, so the court begins with it. In this argument, Dinsdale attacks plaintiff's allegations of agency broadly, asserting that, “[i]n its entirety, the [Complaint] makes only three allegations (¶¶ 4, 9, 47) that Leonard was Dinsdale Bros.' agent, ” and that “[n]one of these allegations are entitled to any deference or special treatment, especially since each such allegation is bald and conclusory, with no supporting facts.” Doc. 49 at 6. To put it plainly, Dinsdale contends that plaintiff alleges no facts supporting its agency theory. This contention does not fairly portray plaintiff's Complaint. Although Dinsdale is correct that paragraphs 4, 9, and 47 of the Complaint allege legal conclusions-i.e., that Mr. Leonard was Dinsdale's agent-and so need not be accepted as true, Dinsdale's argument ignores the rest of plaintiff's Complaint. In doing so, Dinsdale ignores many factual allegations that support plaintiff's legal conclusion of agency. The court thus disregards the allegations in paragraphs 4, 9, and 47 of the Complaint, but does consider whether plaintiff's factual allegations-if true-could support the elements of a principal-agent relationship. This analysis begins with the requisite assent.

         a. Assent

         In Golden Rule, the Kansas Supreme Court explained that parties can manifest their assent to create a principal-agent relationship “through written or spoken words or other conduct.” 335 P.3d at 1188 (quoting Restatement (Third) of Agency § 1.03). So, “[a] principal's manifestation of assent to an agency relationship may be informal, implicit, and nonspecific.” Restatement (Third) of Agency § 1.01 cmt. d; see also In re Scholastic, 920 P.2d at 955 (“While an express contract may create an agency relationship, conduct implying an agency relationship serves just as well.”). But, “it is not necessary to the formation of a relationship of agency that the agent manifest assent to the principal.” Restatement (Third) of Agency § 1.01 cmt. d. For example, the court may find that an alleged agent has assented to a principal-agent relationship when the principal asks the alleged agent to act on its behalf, and the alleged agent “performs the service requested by the principal following the principal's manifestation.” Id.; accord Id. § 1.01 cmt. c.

         Here, Dinsdale contends that plaintiff fails to allege facts capable of supporting a plausible inference that Dinsdale and Mr. Leonard assented to a principal-agent relationship between them. Dinsdale asserts that plaintiff “may not salvage [its] theory [of agency] by claiming [plaintiff] assumed an agency relationship existed, or that [Mr.] Leonard acted as such, or that the circumstances made agency seem natural and probable.” Doc. 49 at 8. This assertion faithfully summarizes Kansas law, [6] but the court finds no support for Dinsdale's characterization of plaintiff's Complaint. Instead, the court finds plaintiff's allegations sufficient to support its claim that Dinsdale and Mr. Leonard assented to a principal-agent relationship. Specifically, the Complaint alleges that Dinsdale sent Mr. Leonard to plaintiff's auction “for the purpose of purchasing livestock for and on behalf of Dinsdale, ” and that Mr. Leonard in fact attended the auction and purchased cattle on Dinsdale's behalf. Doc. 46 ¶¶ 9-11, 13-14. These allegations by themselves, provide a sufficient basis to support a plausible inference that Dinsdale and Mr. Leonard assented to a principal-agent relationship. Cf. Blewett, 8 P.2d at 358 (holding that a cattle buyer was the agent of a livestock company in part because the company “had sent him, or permitted him to go, on [the] particular trip” in question).

         Nevertheless, Dinsdale seems to argue that plaintiff cannot allege assent without alleging or producing a written contract between Dinsdale and Mr. Leonard establishing Mr. Leonard's agency. This argument contradicts long-established principles of Kansas law: “It is not essential that any actual contract should subsist between the parties . . . .” Walker, 251 P. at 1095 (citation omitted); see also In re Scholastic, 920 P.2d at 955 (“While an express contract may create an agency relationship, conduct implying an agency relationship serves just as well.”). The court is not persuaded by Dinsdale's arguments and it evaluates the Complaint under the correct statement of the substantive Kansas law governing this issue. Plaintiff thus alleges facts that, if proven, suffice to support an inference that Dinsdale and Mr. Leonard assented to a principal-agent relationship.

         b. Benefit to the Principal

         Dinsdale concedes that Mr. Leonard's actions at the September 29, 2015 sale were “beneficial to Dinsdale.” Doc. 49 at 7; see also Id. at 8-9. By doing so, Dinsdale concedes that plaintiff has alleged facts supporting the second element of an agency relationship. See Id. at 7 (“Rezac asks the Court to imply Dinsdale Bros. as a party to the contract . . . because [Mr.] Leonard's role in the contract was beneficial to Dinsdale Bros.”); see also Id. at 9 (“Instead, Rezac alleges a buyer-seller relationship between Dinsdale Bros. and [Mr.] Leonard . . . In dealing with Rezac, [Mr.] Leonard acted for his own benefit and the benefit of his customer, ” Dinsdale). Despite this concession, Dinsdale argues that plaintiff has failed to allege that Mr. Leonard's actions were intended to benefit Dinsdale. Dinsdale asserts two arguments trying to support this contention.

         First, Dinsdale asks the court to compare the facts of this case-such as they are at the motion to dismiss stage-with those of Shugar v. Antrim, 276 P.2d 372 (Kan. 1942). In Shugar, the defendant's post-trial motion asked the Kansas Supreme Court to decide whether a principal-agent relationship existed between a grain elevator owner, Howard Antrim, and Continental Grain Company, a company who bought large amounts of grain from Antrim and had helped finance his purchase of the grain elevator. Id. at 374. The plaintiffs in Shugar-farmers who had stored their wheat at Antrim's elevator-alleged that Continental owed them for “the value of their wheat” when Antrim failed to pay them because Antrim was Continental's agent. Id. at 373. The court held that no principal-agent relationship existed between Antrim and Continental. Id. at 376. It based this holding in part on the fact that Continental's name did not appear on Antrim's checks or in the name of Antrim's business. Id. at 375-76. The court also relied on the fact that Antrim had not sold the plaintiffs' wheat to Continental, which showed that Antrim had acted to benefit himself, not Continental. See Id. at 374-75.

         Plaintiff's Complaint here alleges some facts similar to those in Shugar. But the facts alleged here and the facts of Shugar are not so similar that the court must dismiss plaintiff's Complaint for failing to state a claim. For instance, plaintiff alleges that the name of Mr. Leonard's company is “Leonard Cattle Company.” Doc. 46 ¶ 4. So, as in Shugar, Dinsdale's name does not appear in the name of Mr. Leonard's company. But plaintiff also alleges that Mr. Leonard purchased the cattle at issue here specifically for Dinsdale. Id. ¶¶ 9-14. Thus, unlike Shugar, ...


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