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Pipeline Productions, Inc. v. The Madison Companies, LLC

United States District Court, D. Kansas

December 19, 2019

PIPELINE PRODUCTIONS, INC., et al., Plaintiffs,
v.
THE MADISON COMPANIES, LLC, et al., Defendants.

          MEMORANDUM AND ORDER

          KATHRYN H. VRATIL UNITED STATES DISTRICT JUDGE.

         On May 21, 2015, Pipeline Productions, Inc. and Backwood Enterprises, LLC sued Horsepower Entertainment and The Madison Companies, LLC. Complaint (Doc. #1). On June 19, 2017, OK Productions, Inc. and Brett Mosiman joined as plaintiffs. Amended Complaint (Doc. #56). On August 30, 2019, plaintiffs added as defendants Kaaboo LLC, KaabooWorks Services LLC (“KWS”), KaabooWorks LLC, Kaaboo Del Mar LLC (“KDM”) and WarDawgz, LLC. Second Amended Complaint (Doc. #570) (“SAC”). Plaintiffs allege that defendants reneged on their promise to partner in the production of a music festival, and bring claims for breach of contract (Count I), breach of fiduciary duty (Count II), fraud (Count III), tortious interference (Count IV) and successor liability (Count V). This matter is before the Court on Defendants' Motion To Dismiss Plaintiffs' Second Amended Complaint (Doc. #614) filed October 11, 2019. For reasons stated below, the Court sustains defendants' motion in part.

         Factual Background

         Highly summarized, plaintiffs' SAC alleges as follows:[1]

         Brett Mosiman is a producer of live music festivals, and is the principal of OK Productions, Backwood Enterprises and Pipeline Productions - music festival entities. Bryan Gordon, Seth Wolkov and Rob Walker own Madison, which is a venture capital firm. In turn, Madison wholly owns its music festival business, Horsepower. In November 2014, Madison and Horsepower formed Kaaboo and KDM. In June 2015, Madison and Horsepower formed KaabooWorks and KWS. In December 2016, Gordon, Wolkov and Walker (the owners of Madison), along with Barbara O'Hare, formed WarDawgz.

         In January 2014, Mosiman met Gordon, who expressed interest in producing music festivals by using Mosiman's reputation in the live music business and Madison's significant resources. Gordon proposed that Madison, Horsepower and the Mosiman companies produce music festivals on an ongoing basis, including the Thunder festival. On July 28, 2014, after months of negotiating and substantial due diligence, Gordon (on behalf of Madison and Horsepower) and Mosiman (on behalf of Backwood and Pipeline) entered into a non-binding letter of intent (“LOI”) for Madison and Horsepower to purchase 51 per cent of plaintiffs' music festival business.

         On August 28, 2014, Mosiman emailed Gordon to inform him of a “major concern” regarding the LOI and Thunder. Specifically, Mosiman would not be able to follow through with artist offers if the parties did not consummate the LOI. Accordingly, Mosiman asked whether Madison and Horsepower would partner on Thunder regardless whether they completed the deal. Gordon gave Mosiman his assurance that Madison and Horsepower would cover the finances for Thunder even if the LOI fell through. Having this commitment, plaintiffs began to book artists to appear at Thunder.

         On October 23, 2014, approximately a week before the LOI was set to expire, Madison and Horsepower proposed a substantially different agreement for significantly less money. Plaintiffs rejected the proposal, which constituted a revocation of the LOI.

         On November 4, 2014, Mosiman proposed to Gordon a new agreement between Backwood/Pipeline and Madison/Horsepower for the limited purpose of owning and producing the Thunder festival. Mosiman's proposal gave Gordon two options. On behalf of Madison and Horsepower, Gordon agreed to a modified version of “Option B.” Under this final version (“the Agreement”), Madison and Horsepower would pay Backwood and Pipeline $750, 000 for a 51 per cent interest in Thunder, fund $500, 000 of operating capital for the festival and pay Backwood and Pipeline $80, 000 to produce and operate Thunder. On November 6, 2014, Mosiman sent an email to Gordon seeking confirmation of Madison/Horsepower's acceptance, which Gordon provided. Mosiman then asked Gordon, as the controlling owner, about booking Carrie Underwood - to which Gordon responded, “Do it, Please!” On November 19, 2014, Madison and Horsepower created four entities to produce Thunder, all with different variations of the name “Thunder on the Mountain.” In reliance on the Agreement, plaintiffs spent over 4, 000 hours producing Thunder, which included making industry commitments to artists, selling tickets, engaging vendors, creating infrastructure and marketing. During this time, Mosiman obtained commitments from approximately 50 artists, including Carrie Underwood, Zac Brown, Big & Rich, the Eli Young Band and Sarah Evans. Pursuant to the Agreement, Madison and Horsepower funded $272, 000 by making deposit payments directly to artists. Madison and Horsepower also exercised significant control over Thunder's operations - Gordon decided which bands to book and how much to pay them, and he was heavily involved in marketing and scheduling.

         On December 12, 2014, Madison and Horsepower sent various draft documents to formalize the Agreement, which reflected the key terms that they had negotiated. The documents included an additional $150, 000 in payments to plaintiffs, and several other new terms.

         When the parties began selling tickets, plaintiffs updated Madison and Horsepower daily about advance sales. From this information, plaintiffs were able to forecast that like most new festivals, Thunder would operate at a loss in 2015. On March 29, 2015, just months before the start of the festival, Madison and Horsepower became increasingly nervous and attempted to change the terms of the Agreement. On April 7, 2015, plaintiffs' counsel emailed Madison/Horsepower's counsel to reiterate the terms of the Agreement and demand performance. Plaintiffs' counsel also warned of the significant financial and reputational damage that plaintiffs would incur if Madison and Horsepower did not perform.

         On April 14, 2015, while plaintiffs continued to produce Thunder, Madison and Horsepower filed a lawsuit in Delaware, in which they denied and repudiated the Agreement, the promises that Gordon had made and the five months of performance that had already occurred. On April 15, 2015, Suzanne Land, a Madison consultant who was now in charge of Thunder, notified plaintiffs of the lawsuit and that Madison and Horsepower would no longer participate in Thunder. Land gave plaintiffs two options: (1) execute a fully-secured promissory note for an alleged loan that never existed; or (2) face scorched-earth litigation from Gordon, Madison and Horsepower. Madison and Horsepower refused to provide the remaining payments, reneged on their responsibility for Thunder losses and simply walked away. They did not attempt to mitigate Thunder losses or reimburse Thunder ticket holders, vendors or sponsors. Defendants also sent defamatory letters to artist agencies about their relationship with plaintiffs, knowing that the letters would substantially harm plaintiffs' reputation.

         In April 2015, the second round of artist payments became due. Because Madison and Horsepower had breached the Agreement, plaintiffs had to borrow money from other festivals in an attempt to keep Thunder afloat. Plaintiffs searched for an alternative financial partner, but could not find one in the short time before the festival. Accordingly, plaintiffs could not satisfy the contracts with Thunder artists, and the artists consequently refused to appear. As a result, plaintiffs had to cancel Thunder.

         In addition to breaching the Agreement, Madison and Horsepower attempted to destroy plaintiffs' businesses by hiring away their key partners, employers and agents. Using Madison and Horsepower email addresses and letterhead, defendants communicated with plaintiffs' partners, employees and agents about positions and consulting deals with defendants.

         Moreover, in order to become judgment-proof, Gordon, Wolkov and Walker (the owners) transferred Madison/Horsepower's music festival business to several other entities that they owned after this litigation began. Specifically, they transferred the music festival business - without receiving value in return - to KaabooWorks, including its assets, employees and the Kaaboo marks and goodwill. Around the same time, the same individuals (Gordon, Wolkov and Walker) then transferred ownership of KaabooWorks itself to WarDawgz. Finally, the owners of WarDawgz (Gordon, Wolkov, Walker and O'Hare) transferred KaabooWorks to Kaaboo, which WarDawgz also owns. Despite these transactions, nothing about Madison's music festival business actually changed except its name. Contracts and agreements that previously belonged to Madison and Horsepower now belong to Kaaboo. The executives and employees of Madison and Horsepower hold those same positions for the new Kaaboo entities and they all use the same offices, computers, servers and cloud-based platforms. As a result, Madison and Horsepower have almost no assets or employees, and no longer work in the music festival industry.

         Legal Standards

         I. Personal Jurisdiction

         When defendants file a motion to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2), plaintiffs must establish personal jurisdiction over each defendant. Rockwood Select Asset Fund XI (6)-1, LLC v. Devine, Millimet & Branch, 750 F.3d 1178, 1179-80 (10th Cir. 2014). At these preliminary stages of litigation, plaintiffs' burden to prove personal jurisdiction is light. AST Sports Sci., Inc. v. CLF Distrib. Ltd., 514 F.3d 1054, 1056 (10th Cir. 2008). To defeat the motion, plaintiffs need only make a prima facie showing of personal jurisdiction. Id. They can do so by showing facts, via affidavit or other written materials, that if true would support jurisdiction over each defendant. Id. When evaluating the prima facie case, the Court must resolve all factual disputes in favor of plaintiffs. Id.

         II. Failure To State A Claim

         In ruling on a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court assumes as true all well-pleaded factual allegations and determines whether they plausibly give rise to an entitlement of relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual matter to state a claim which is plausible - and not merely conceivable - on its face. Id. at 679-80; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To determine whether a complaint states a plausible claim for relief, the Court draws on its judicial experience and common sense. Iqbal, 556 U.S. at 679. Plaintiffs make a facially plausible claim when they plead factual content from which the Court can reasonably infer that defendants are liable for the misconduct alleged. Id. at 678. However, plaintiffs must show more than a sheer possibility that defendants have acted unlawfully - it is not enough to plead facts that are “merely consistent with” defendants' liability. Id. (quoting Twombly, 550 U.S. at 557). Where the well-pleaded facts do not permit the Court to infer more than the mere possibility of misconduct, the complaint has alleged - but has not “shown” - that the pleader is entitled to relief. Id. at 679. The degree of specificity necessary to establish plausibility and fair notice depends on context; what constitutes fair notice under Fed.R.Civ.P. 8(a)(2) depends on the type of case. Robbins v. Okla., 519 F.3d 1242, 1248 (10th Cir. 2008).

         The Court need not accept as true those allegations which state only legal conclusions. See Iqbal, 556 U.S. at 678; Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991). Rather, plaintiffs bear the burden of framing their complaint with enough factual matter to suggest that they are entitled to relief; it is not enough to make threadbare recitals of a cause of action accompanied by conclusory statements. Twombly, 550 U.S. at 556. A pleading that offers labels and conclusions, a formulaic recitation of the elements of a cause of action or naked assertions devoid of further factual enhancement will not stand. Iqbal, 556 U.S. at 678.

         Although the statute of limitations is an affirmative defense, the Court may appropriately resolve a statute of limitations question on a Rule 12(b) motion “when the dates given in the complaint make clear that the right sued upon has been extinguished.” Aldrich v. McCulloch Props., Inc., 627 F.2d 1036, 1041 n.4 (10th Cir. 1980).

         Analysis

         Under Fed.R.Civ.P. 12(b)(2), defendants assert that the Court should dismiss Kaaboo, KDM, KaabooWorks, KWS and WarDawgz because the Court lacks personal jurisdiction over these defendants. Moreover, under Fed.R.Civ.P. 12(b)(6), defendants assert that the Court should dismiss several of plaintiffs' causes of action because they fail to state a claim upon which relief can be granted.

         I. Personal Jurisdiction Over Kaaboo, KDM, ...


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