United States District Court, D. Kansas
MEMORANDUM AND ORDER
D. Crabtree, United States District Judge
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).
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.
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. See S.E.C. v.
Shields, 744 F.3d 633, 640 (10th Cir. 2014).
Rezac Livestock Commission Company, Inc. is a Kansas
corporation that sells cattle in St. Marys,
Kansas. 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.
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.
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
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.
Rule 12(b)(6) Legal Standard
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
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.
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.
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.
Count I: Breach of Contract
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. 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.
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.
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.
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))).
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).
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.
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. 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. 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).
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.
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.
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
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
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.
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.
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,  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”
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
Benefit to the Principal
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.
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.
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