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Cooper Marketing Consulting LLC v. The Gerson Co.

United States District Court, D. Kansas

January 3, 2018




         This matter comes before the court on defendant The Gerson Company's Motion to Dismiss (Doc. 7). All parties have filed responses and replies. For reasons explained below, the court denies the motion. After identifying the governing facts, this order explains why.

         I. Facts

         The following facts come from the Complaint (Doc. 1). Because the current dismissal motion relies on Federal Rule of Civil Procedure 12(b)(6), the court must accept the pleaded facts as true and view them in the light most favorable to plaintiff. Ramirez v. Dep't of Corrs., 222 F.3d 1238, 1240 (10th Cir. 2000). The court emphasizes that this standard controls the facts at this stage of the case. In short, the court expresses no opinion whether they represent the facts that, ultimately, the factfinder would believe.

         This case revolves around decorative sculptures that glow at night. Cooper Marketing Consulting, LLC, plaintiff, is the successor-in-interest to Garden Meadow, Inc., Garden Meadow, Ltd. (collectively “Garden Meadow”), and Sandy Cooper.[1] Garden Meadow designed, manufactured, and sold decorative garden sculptures that glowed at night thanks to a solar unit inside the sculpture. The Gerson Company, defendant, imports and distributes home décor, seasonal, and gift products. On May 5, 2014, defendant and Garden Meadow entered into an Asset Purchase Agreement (“the APA”). The APA required defendant to pay Garden Meadow 15% of the gross profits defendant earned from selling Garden Meadow products from July 14, 2014 to July 16, 2016. To ensure defendant paid Garden Meadow the proper amount, the APA required defendant to supply Garden Meadow with backup data and documentation needed to support defendant's profit calculation. Also as part of the agreement, defendant required Garden Meadow to stop using the name “Garden Meadow.”[2]

         Also on May 5, 2014, defendant entered into a consulting agreement with Sandy Cooper, the founder and sole owner of Garden Meadow, Inc. Ms. Cooper agreed to consult for defendant in the design, manufacture, and sale of Garden Meadow products. Defendant, in return, agreed to pay Ms. Cooper 12.5 to 15% of defendant's net sales of Garden Meadow products between July 16, 2016, and July 16, 2017.

         Once defendant started selling Garden Meadow products, it directed all payments to plaintiff. But defendant did not account for its sales in the fashion that the APA and the consulting agreement required. Defendant sold Garden Meadow products outside the product line, failed to include sales of Garden Meadow products in its sales report to plaintiff, and inflated customer returns. These actions reduced its sales numbers of Garden Meadow products. Defendant did so to reduce its payments to plaintiff and to reinvent defendant's outdoor lighting brand. And defendant did not provide the requisite back up data needed to support its calculations.

         Plaintiff has brought a breach of contract claim against defendant on behalf of Garden Meadow and Ms. Cooper. Plaintiff brought this claim as the successor-in-interest to Garden Meadow and Ms. Cooper. In response, defendant has filed the Motion to Dismiss. Defendant asserts that the court should grant the motion for three reasons: (1) plaintiff is not the real party in interest; (2) plaintiff has failed to join indispensable parties, namely Garden Meadow and Ms. Cooper; and (3) the Complaint fails to state a claim for breach of contract. The court will address defendant's arguments in that order.

         II. Applicable Law

         Before addressing the substance of defendant's arguments, the court must determine which state's substantive law governs. Rigby v. Clinical Reference Lab., Inc., 995 F.Supp. 1217, 1221 (D. Kan. 1998) (citing Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). Because the Complaint alleges that the parties are citizens of different states and the amount in controversy exceeds $75, 000, the court has diversity subject matter jurisdiction over this case. See 28 U.S.C. § 1332. In a diversity case, federal courts apply the choice of law rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). “Where the parties to a contract have entered an agreement that incorporates a choice of law provision, Kansas courts generally [apply] the law chosen by the parties . . . .” Brenner v. Oppenheimer & Co. Inc., 44 P.3d 364, 375 (Kan. 2002). Here, the parties chose Kansas law to govern both contracts. Doc. 8-2 at 27; Doc. 8-3 at 7. The court thus applies Kansas law to this dispute.

         Decisions by the Kansas Supreme Court determine the substantive law of Kansas. Etherton v. Owners Ins. Co, 829 F.3d 1209, 1223 (10th Cir. 2016). But the court may consider lower court decisions as persuasive authority for what the Kansas Supreme Court would hold unless evidence suggests otherwise. Id.

         III. Real Party in Interest

         “An action must be prosecuted in the name of the real party in interest.” Fed.R.Civ.P. 17(a)(1). In contract cases-such as this one-only the parties to the contract can enforce the contract. Wade v. EMCASCO Ins. Co., 483 F.3d 657, 675 (10th Cir. 2007) (applying Kansas law). But Kansas allows parties to assign breach of contract claims that they own to others. Glenn v. Fleming, 799 P.2d 79, 90 (Kan. 1990). When an “injured party assigns all of his rights to a third party, the [third party] becomes the real party in interest . . . .” Wade, 483 F.3d at 675. Here, the Complaint alleges plaintiff is the successor-in-interest to rights previously held by Garden Meadow, Inc., Garden Meadow, Ltd., and Sandy Cooper. The Complaint thus alleges that plaintiff is the real party in interest.

         Defendant offers two reasons why the court should find that plaintiff is not the real party in interest. First, defendant asserts that plaintiff has failed to establish it is a successor-in-interest to Garden Meadow because plaintiff never alleged a transaction or corporate event that made plaintiff being the successor-in-interest. Defendant cites United States v. ConocoPhillips Co., 744 F.3d 1199 (10th Cir. 2014), for support. ConocoPhillips, however, presented materially different facts. ConocoPhillips involved a dispute between the IRS, Arco Transportation, and Conoco-who had acquired Arco Transportation. Id. at 1201. In the 1980s, the IRS and Arco Transportation settled a tax dispute. Id. Certain provisions of the settlement applied to any “successors-in-interest.” Id. at 1202. A dispute later arose that required the court to interpret “successors-in-interest” in the settlement agreement. Id. at 1206. ConocoPhillips never considered whether a party must plead a corporate event to show it is a real party in interest under ...

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