Graphic Technology, Inc. v. Pitney Bowes Inc.

• Court: U.S. District Court — District of Kansas
• Writing for the Court: Van Bebber
• Citation: Graphic Technology, Inc. v. Pitney Bowes Inc., 968 F.Supp. 602 (D. Kan. 1997)
• Decision Date: 19 June 1997
• Docket Number: Civil Action No. 97-2040-GTV.
• Parties: GRAPHIC TECHNOLOGY, INC., Plaintiff, v. PITNEY BOWES INC. and MONARCH MARKING SYSTEMS, INC., Defendant.

968 F.Supp. 602

GRAPHIC TECHNOLOGY, INC., Plaintiff, v. PITNEY BOWES INC. and MONARCH MARKING SYSTEMS, INC., Defendant.

Civil Action No. 97-2040-GTV.

United States District Court, D. Kansas.

June 19, 1997.

Douglas M. Weems, Angela D. Gupta, Teresa A. Woody, Spencer, Fane, Britt & Browne, Kansas City, MO, for Graphic Technology Inc.

Mark Moedritzer, Joseph G. Matye, Shook, Hardy & Bacon, L.L.P., Kansas City, MO, for Pitney Bowes, Inc.

Irvin V. Belzer, Robert J. Hoffman, R. Jeffrey Harris, Bryan Cave, L.L.P., Kansas City, MO, for Monarch Marking System, Inc.

MEMORANDUM AND ORDER

VAN BEBBER, Chief Judge.

This breach of contract action is before the court on the following:

(1) Motion for partial dismissal (Doc. 13) by defendant Pitney Bowes Inc. pursuant to Fed.R.Civ.P. 12(b)(6).

(2) Motion for partial dismissal (Doc. 16) by defendant Monarch Marking Systems, Inc. pursuant to Fed.R.Civ.P. 12(b)(6).

Plaintiff has responded (Doc. 28), and opposes the motions. Each of the motions seeks dismissal pursuant to Fed.R.Civ.P. 12(b)(6) of plaintiff's breach of contract claim alleged in Count I of its amended complaint; of plaintiff's negligent misrepresentation claim set out in Count III; and of plaintiff's claim seeking reformation of a licensing agreement which is involved in this case alleged in Count VI. For the reasons set forth in this memorandum and order, the motions are granted with respect to plaintiff's breach of contract claim and claim for reformation based on mutual mistake (Counts I and VI), and denied with respect to the negligent misrepresentation claim (Count III).

The court has subject matter jurisdiction in this matter pursuant to 28 U.S.C. § 1332 in that the parties are diverse and the amount in controversy exceeds $75,000.00. Venue is proper under 28 U.S.C. § 1391(a) in that a substantial portion of the events or omissions giving rise to plaintiff's claims occurred in this district and both defendants are subject to the court's personal jurisdiction.

In its amended complaint, plaintiff alleges that it purchased the outstanding shares of Data Systems, Inc. from Monarch and Pitney in early 1990 pursuant to a stock purchase agreement. At that time, Monarch was a subsidiary of Pitney. Plaintiff claims that representations and warranties that defendants made during negotiations and in the purchase agreement were false. Plaintiff's amended complaint contains the following claims: breach of contract (count I); fraudulent misrepresentation (count II); negligent misrepresentation (count III); declaratory judgment (count IV); rescission (count V); and reformation (count VI).

Both defendants seek dismissal of the same claims — counts I, III, and VI. Defendants advance essentially the same arguments in support of their motions. The court will address the motions collectively.

I. LEGAL STANDARDS

Defendants seek dismissal of plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(6). In ruling on a motion to dismiss, the court must assume the truth of all well-pleaded facts in the plaintiff's complaint and view them in a light most favorable to the plaintiff. Zinermon v. Burch, 494 U.S. 113, 118, 110 S.Ct. 975, 979, 108 L.Ed.2d 100 (1990); see Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir.1984) ("[a]ll well-pleaded facts, as distinguished from conclusory allegations, must be taken as true"). The court must view all reasonable inferences in favor of the plaintiff, and the pleadings must be construed liberally. Id.; see Fed.R.Civ.P. 8(a); Lafoy v. HMO Colorado, 988 F.2d 97, 98 (10th Cir. 1993); Gas-A-Car, Inc. v. American Petrofina, Inc., 484 F.2d 1102 (10th Cir.1973). The issue in reviewing the sufficiency of plaintiff's amended complaint is not whether it will prevail, but whether it is entitled to offer evidence to support the claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). The court may not dismiss a cause of action for failure to state a claim "unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Jacobs, Visconsi & Jacobs, Co. v. City of Lawrence, 927 F.2d 1111, 1115 (10th Cir.1991); Grider v. Texas Oil & Gas Corp., 868 F.2d 1147, 1148 (10th Cir. 1989).

The court is limited in its review of defendants' motions to dismiss. The court may consider only the well-pleaded allegations contained within the four corners of plaintiff's complaint. Gagan v. Norton, 35 F.3d 1473, 1474 n. 1 (10th Cir.1994), cert. denied, 513 U.S. 1183, 115 S.Ct. 1175, 130 L.Ed.2d 1128 (1995). Although plaintiff need not state precisely each element of the claim, he must plead minimal factual allegations on those material elements that must be proved. Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir.1991).

II. FACTUAL ALLEGATIONS

In January 1990, plaintiff entered into a stock purchase agreement with defendants and Data Systems to acquire all of the outstanding stock in Data Systems.¹ Section 4.20 of the agreement contained defendants' and Data Systems' representation and warranty that Data Systems was not in default of any contract, agreement, or lease as set forth in Schedule 4.20.² In section 8.1, the parties agreed that all representations, warranties, and covenants contained in the agreement were true and correct as of the closing date of the stock purchase transaction.

On March 9, 1990, the parties closed on the stock purchase transaction. Carole St. Mark, chairman of Monarch and Data Systems and a representative of Pitney, signed the certification that all representations and warranties contained in the agreement were true and correct as of that date. This certification included the warranty that Data Systems was not in default of any contract listed in Schedule 4.20.

Additional factual allegations will be set forth as necessary in the court's discussion.

III. ANALYSIS

Defendants contend that plaintiff cannot state a claim for relief on either its breach of contract or reformation claims because the Kansas statute of limitations bars the claims. Additionally, based on plaintiff's request for purely economic damages, defendants assert that plaintiff has not stated a claim under Kansas law for negligent misrepresentation. The court will address defendants' theories in turn.

A. Statute of Limitations

Defendants argue that the Kansas five-year statute of limitations for written contracts bars plaintiff's claims for breach of contract and reformation.³ See K.S.A. § 60-511(1). Under Kansas law, the five-year limitations period applies not only to actions for breach of contract, see Brubaker v. Branine, 237 Kan. 488, 493, 701 P.2d 929 (1985), but also to reformation claims. See Conner v. Koch Oil Co., 245 Kan. 250, 255, 777 P.2d 821 (1989); see also Ferrell v. Ferrell, 11 Kan. App.2d 228, 230-31, 719 P.2d 1 (1986).

In the amended complaint, plaintiff alleges that it entered into the stock purchase agreement in January 1990 and closed the sale on March 9, 1990. A copy of the stock purchase agreement and its schedules are attached to plaintiff's amended complaint. Under section 4.20 of the agreement, defendants warranted that Data Systems was not in default of any contract or agreement listed under Schedule 4.20. St. Mark certified that as of March 9, 1990, all representations and warranties in the agreement were true and correct.

Plaintiff claims that defendants were in breach of the warranty provision in section 4.20 on the date of closing. One of the contracts included under Schedule 4.20 was between Data Systems and Image Data Systems Limited. In 1988, Data Systems had granted Image Data an exclusive license to use and market Data Systems' SET computer software in England, Scotland, Wales, Northern Ireland, Eire, Belgium, and Holland. The SET software allowed the user to design and produce certain types of point-of-sale materials. Under the terms of the exclusive licensing agreement, Image Data could manufacture and sell the software in its territory in exchange for paying royalties to Data Systems on the sale of the software. Pitney and Monarch were aware of this exclusive licensing agreement.

On the closing date, but before the close of the transaction, Pitney requested and received from Data Systems a licensing agreement for the use of Data Systems' SET computer software. The licensing agreement allowed Pitney to use the software worldwide on a non-exclusive basis. At the same time, Pitney granted Monarch a non-exclusive worldwide sublicense to use the software. Because they could use the software anywhere in the world, the licenses granted Pitney and Monarch were in conflict with the exclusive territory granted in the Image Data license.

In February 1995, Monarch began using the software in England, which was part of Image Data's exclusive territory. Image Data claimed that Monarch's action was a breach of the exclusive licensing agreement between Data Systems and Image Data. Image Data informed plaintiff that it was terminating and/or rescinding the exclusive licensing agreement and that it would make no further payments under the agreement. Plaintiff avers that Data Systems breached the Image Data licensing agreement when it granted the license to defendants. Because this breach occurred prior to the closing date, plaintiff claims that defendants were in breach of the warranty provisions in sections 4.20 and 8.1 of the agreement at the time the sale closed on March 9, 1990.

Upon discovering the conflict between the Image Data license and defendants' licenses in February 1995, plaintiff made an immediate written demand on defendants to stop using the software in a manner inconsistent with the terms of the Image Data licensing agreement. However, plaintiff did not file suit against defendants for allegedly breaching the stock purchase agreement until January 22, 1997.

Under Kansas law, the clock...