United States District Court, D. Kansas
CINEMA SCENE MARKETING & PROMOTIONS, INC, BRAD DERUSSEAU, MICHAEL HOLMES, JOSEPH ROSS, AND BRUCE SIMS, Plaintiffs,
CALIDANT CAPITAL, LLC, DREW N. BAGOT, AND DAVID LAI, Defendants.
MEMORANDUM AND ORDER
A. ROBINSON, UNITED STATES DISTRICT JUDGE.
filed this action alleging Defendants lied to induce them to
sign a buy-out letter of intent with Defendants, who neither
had the money to buy Plaintiffs' business nor the intent
to follow through with the purchase. This caused Plaintiffs
to reject another potential buyer and ultimately sell their
business for less than what Defendants had promised. Before
the Court is Defendants' Motion to Dismiss Counts I and
II of Plaintiffs' First Amended Complaint (Doc.
The motion is fully briefed and the Court is prepared to
rule. For the reasons stated below, the Court denies the
motion as to Count I, but grants dismissal as to Count II.
following facts are alleged in the First Amended Complaint
(“FAC”) and assumed to be true for purposes of
deciding this motion.
Cinema Scene Marketing & Promotions, LLC (“Cinema
Scene”) is in the theater electronic screen and menu
business. Its principals are Plaintiffs Brad Derusseau,
Michael Holmes, Joseph Ross, and Bruce Sims (“CS
Principals”; collectively with Cinema Scene,
“Plaintiffs”), all of whom are residents of
Johnson County, Kansas.
Calidant Capital, LLC (“Calidant”) is a Texas
capital investment limited liability company with two
members, Defendants Drew Bagot and David Lai.
fall of 2015, Calidant first told Cinema Scene that it wanted
to invest in Cinema Scene and buy-out Cinema Scene's
principals. The CS Principals interviewed a number of
consultants who sought to purchase and/or finance the
acquisition of the CS Principals' ownership of Cinema
Scene, including Defendants. Recognizing that they had
significant competition to secure a deal, Lai and Bagot made
three major misrepresentations to induce Plaintiffs to enter
a buy-out letter of intent (“LOI”) with them: 1)
Defendants had secured all necessary financing to complete
the transaction under the LOI; 2) Defendants could
“deliver” Studio Movie Grill (“SMG”)
as a partner in Plaintiffs' operations; and 3) Defendants
would facilitate meetings between Plaintiffs and Cinemark
USA, Inc. (“Cinemark”) and deliver Cinemark as a
client and/or partner.
to entering into the LOI, the parties met in person at their
respective offices or at a restaurant. They also had
telephone conferences. Cook Jordan and David Kakareka,
brokers serving as Plaintiffs' representatives, were
present at some of these meetings. The alleged
misrepresentations were made on various dates, including
August 15, 2015, September 17, 2015, October 6, 2015, October
7, 2015, and October 26, 2015.
around November 11, 2015, the parties executed a LOI, which
generally outlined some of the basic terms of a future deal,
the precise terms of which were to be later negotiated and
finalized and thoroughly documented, as is customary in such
complicated transactions. The LOI obligated the parties to
negotiate in good faith toward a purchase agreement-and other
documents incident to such purchase agreement-in conformance
with guidelines provided in the LOI. The LOI also contained
an exclusivity term whereby Cinema Scene agreed to not
negotiate with parties other than Calidant regarding
transactions alternative to the transaction contemplated by
the LOI for a period of ninety days following execution of
signing the LOI, the parties began negotiating Calidant's
investment contemplated by the LOI (the
“Transaction”). In January and February 2016, the
parties corresponded on countless occasions, both directly
through their principals and indirectly through their
attorneys and brokers.
to the LOI's original ninety-day exclusivity period
expiring in early February 2016, Plaintiffs agreed to extend
the exclusivity period through February 29, 2016 to close the
Transaction. When this extended period expired, Plaintiffs
again agreed to extend the exclusivity period to March 15,
February 2016, Defendants and their would-be financial
partner Saratoga presented to Plaintiffs several one-sided
documents-including a credit agreement and management
services agreement-that severely favored Defendants.
Plaintiffs responded, requesting changes, and reiterating its
desire to close the Transaction. Defendants did not respond
to the requested changes.
about March 3, 2016, AMC made public its acquisition of
Carmike Cinemas. Within approximately eight hours of
AMC's announcement, Defendants informed Plaintiffs that
their financial partner, Saratoga, backed out of the
Transaction in light of AMC's announcement.
believe Defendants and Saratoga were aware of AMC's
acquisition of Carmike Cinemas prior to the announcement.
parties continued to talk after the LOI's exclusivity
period lapsed on March 15, 2016, but Defendants' new
proposals contained terms substantially different and less
favorable than the LOI.
mid-April 2016, Plaintiffs attended CinemaCon and made
contacts that eventually led to a sale of their business to a
third party. That sale closed on terms substantially inferior
to those offered in the LOI.
before the closing on the third-party sale, Calidant demanded
Cinema Scene pay it $385, 000 for attorneys' fees
allegedly incurred in connection with the Transaction.
Calidant asserted that Cinema Scene breached the LOI by
failing to negotiate in good faith, by failing to close the
Transaction, by breaching the LOI's exclusivity
obligations, and by failing to execute documents associated
with the Transaction. Plaintiffs filed this suit in response.
Defendants now move to dismiss the fraudulent and negligent
misrepresentation claims (Counts I and II, respectively).
move to dismiss Counts I and II of the FAC under Fed.R.Civ.P.
12(b)(6). To survive a motion to dismiss for failure to state
a claim, a complaint must present factual allegations,
assumed to be true, that “raise a right to relief above
the speculative level, ” and must contain “enough
facts to state a claim to relief that is plausible on its
face.” To state a claim for relief, “the
complaint must give the court reason to believe that this
plaintiff has a reasonable likelihood of mustering factual
support for these claims.” The plausibility standard
does not require a showing of probability that a defendant
has acted unlawfully, but requires more than “a sheer
possibility.” “[M]ere ‘labels and
conclusions, ' and ‘a formulaic recitation of the
elements of a cause of action' will not suffice; a
plaintiff must offer specific factual allegations to support
each claim.” Finally, the Court must accept the
nonmoving party's factual allegations as true and may not
dismiss on the ground that it appears unlikely the
allegations can be proven.
Supreme Court has explained the analysis as a two-step
process. For the purposes of a motion to dismiss, the court
“must take all the factual allegations in the complaint
as true, [but] we ‘are not bound to accept as true a
legal conclusion couched as a factual
allegation.'” Thus, the court must first determine if
the allegations are factual and entitled to an assumption of
truth, or merely legal conclusions that are not entitled to
an assumption of truth. Second, the court must determine
whether the factual allegations, when assumed true,
“plausibly give rise to an entitlement to
relief.” “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.”
Choice of Law: Kansas Law Governs Counts I and II
argue that because the LOI contains a choice-of-law provision
adopting Texas state law, Texas law governs all claims
arising from the LOI, including Plaintiffs' claims for
fraudulent and negligent misrepresentation. The Court
federal court sitting in diversity must apply the
choice-of-law rules of the state in which it
sits. Thus, the Court will apply Kansas
choice-of-law rules. Two of these rules support applying
Kansas law to these claims.
where the outcome of a dispute would be the same under the
laws of either state, the Court need not decide the conflict
and may apply Kansas law. In this case, both parties
have argued the results will be the same whether the Court
follows Kansas or Texas law. Thus, the Court may apply Kansas
law to these claims.
“[w]here the parties to a contract have entered an
agreement that incorporates a choice of law provision, Kansas
courts generally effectuate the law chosen by the parties to
control the agreement.” Counts I and II, however, are
not based on the LOI, but are tort claims based on
Defendants' alleged breach of common law duties not to
induce reliance by misrepresentations. For tort claims,
Kansas follows the lex loci delicti approach, meaning the law
of the “place of the wrong”
controls. In a misrepresentation claim, “the
place of wrong is where the loss is sustained, not where the
misrepresentations were made.” Because Plaintiffs
sustained their injuries in Kansas, the Court concludes
Kansas law governs these claims.
Economic Loss Doctrine
argue the economic loss doctrine bars Counts I and II because
Plaintiffs suffered no independent injury apart from those
they allegedly suffered with respect to performance of the
LOI. They insist that tort damages are not
recoverable for economic losses resulting from a party's
failure to perform under a contract.
economic loss doctrine is “‘a judicially created
doctrine that sets forth the circumstances under which a tort
action is prohibited if the only damages suffered are
economic losses.'” “In its original form,
the economic loss doctrine simply prohibited a commercial
buyer of defective goods from suing in negligence or strict
liability when the only injury consisted of damage to the
goods themselves.” Courts have extended the
doctrine's application beyond the commercial product
liability sphere to preserve the distinctions between
contract and tort law. Although its scope is still
unfolding, the Kansas Supreme Court (“KSC”) has
held that negligent misrepresentation claims are not subject
to the economic loss doctrine.
Rinehart, Kenneth and Beverly Rinehart contracted
with Morton Buildings for a pre-engineered building for their
home and company, Midwest Slitting LLC. Disputes arose during
construction over the structure's quality. The Rineharts
refused to pay due to dissatisfaction with Morton's
attempts at repair. They sued the builder for damages under
several theories, including breach of contract and warranty
and negligent misrepresentation. Midwest Slitting, not a
party to the contract, alleged Morton misrepresented that the
building would be completed in a timely manner, accommodate
its needs to relocate the business, and meet or exceed all
industry standards. It sought economic damages for rent at
an alternate facility, lost production, relocation costs, and
interest expenses on their line of credit. A jury awarded
Midwest Slitting damages for negligent
misrepresentation. Morton appealed, and the Kansas Court of
Appeals upheld the misrepresentation award, finding that the
economic loss doctrine ...