United States District Court, D. Kansas
MEMORANDUM AND ORDER
D. CRABTREE UNITED STATES DISTRICT JUDGE.
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.
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.
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. 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.”
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.
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.
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.
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.
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.
Real Party in Interest
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
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 ...