Mary Kay Inc. v. Dunlap
| Decision Date | 21 June 2012 |
| Docket Number | Civil Action No. 3:12-CV-0029-D |
| Parties | MARY KAY, INC. Plaintiff-counterdefendant, v. AMY DUNLAP, Defendant-counterplaintiff. |
| Court | U.S. District Court — Northern District of Texas |
In this removed action, plaintiff-counterdefendant moves under Fed. R. Civ. P. 12(b)(6) to dismiss defendant-counterplaintiff's counterclaims under the Texas Deceptive Trade Practices-Consumer Protection Act ("DTPA") and the Sherman Act for failure to state a claim on which relief can be granted, and moves under Rule 12(f) to strike defendant-counterplaintiff's general denial and three of her affirmative defenses. The court grants the motions in part and denies them in part, and grants defendant-counterplaintiff leave to replead.
Plaintiff-counterdefendant Mary Kay, Inc. ("Mary Kay") filed suit in state court against defendant-counterplaintiff Amy Dunlap ("Dunlap") seeking to recover for breach of contract.1 Dunlap removed the case to this court and asserted counterclaims under theDTPA, the Sherman Act, and in the alternative, contract reformation. Mary Kay moves under Rule 12(b)(6) to dismiss Dunlap's DTPA and Sherman Act claims for failure to state a claim on which relief can be granted, and moves to strike Dunlap's general denial and several of Dunlap's affirmative defenses.
Mary Kay is a manufacturer and distributor of cosmetics and other related products. It sells its products at wholesale prices to Independent Beauty Consultants ("IBCs") who sell the products to their customers. Certain IBCs are offered the opportunity to become National Sales Directors ("NSDs"). Mary Kay provides NSDs with special benefits and opportunities that it does not provide IBCs.
In 2005 Dunlap became an NSD by entering into an Independent National Sales Director Agreement (the "Agreement") with Mary Kay. Dunlap alleges that she performed her obligations under the Agreement and became one of Mary Kay's largest distributors; that, throughout her tenure as a distributor, Mary Kay continually represented to her that she owned her own business; and that, on terminating the Agreement, Mary Kay failed to pay her the value of her business, and in doing so, violated the DTPA and federal antitrust laws.
In deciding Mary Kay's motion, the court evaluates the sufficiency of Dunlap's counterclaims by "accept[ing] 'all well-pleaded facts as true, viewing them in the light most favorable to [Dunlap].'" In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). To survive Mary Kay's motion to dismiss, Dunlap must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "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." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.; see also Twombly, 550 U.S. at 555 (). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not 'shown'—'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)) (alteration omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 678 (citation omitted).
The court turns first to Dunlap's counterclaims under the DTPA.
The DTPA provides, in pertinent part:
Tex. Bus. & Com. Code Ann. § 17.50(a) (West 2011) (emphasis added). Under the DTPA, a consumer is a person "who seeks or acquires by purchase or lease, any goods or services." Id. at § 17.45(4).2 "To be [a] consumer[] under the DTPA . . . the goods or services must form the basis of [her] complaint." Lonergan v. A.J.'s Wrecker Serv. of Dall., Inc., 1999 WL 462333, at *3 (N.D. Tex. July 6, 1999) (Fitzwater, J.) (citing Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349, 351-52 (Tex. 1987)). "The question of whether a plaintiff is aconsumer under the DTPA is a question of law for the trial court." Fisher Controls Int'l, Inc. v. Gibbons, 911 S.W.2d 135, 139 (Tex. App. 1995, writ denied). Chastain v. Koonce, 700 S.W.2d 579, 581 (Tex. 1985). "The DTPA does not apply to wholly intangible property rights." Meineke Disc. Muffler v. Jaynes, 999 F.2d 120, 125 (5th Cir. 1993) (citing Texas Cookie Co. v. Hendricks & Peralta, Inc., 747 S.W.2d 873, 876 (Tex. App. 1988, writ denied)). Both the acquisition of a business entity, see Texas Cookie, 747 S.W.2d at 877, and the right to act as a company's sales representative, see Fisher Controls, 911 S.W.2d at 139, are intangible property rights that the DTPA does not cover. "[W]hen a transaction's central objective is the acquisition of an intangible, Texas law requires . . . that a collateral service was an objective of the transaction and not merely incidental to the performance of a transaction excluded under the DTPA." FDIC v. Munn, 804 F.2d 860, 865 (5th Cir. 1986). For example, Texas courts have held that the DTPA applies "to franchise situations where the collateral services provided to a franchisee formed the basis of the DTPA claim." Meineke Disc. Muffler, 999 F.2d at 125 (citing Texas Cookie, 747 S.W.2d at 877); see also Harris v. Chang, 2002 WL 24581, at *5 (Tex. App. 2002, pet. denied) ().
Mary Kay maintains for four distinct reasons that Dunlap is not a consumer under the DTPA: (1) she did not acquire "goods or services;" (2) any goods or services acquired were not acquired by "purchase or lease;" (3) any goods or services acquired were not animportant objective of the transaction; and (4) any goods or services acquired do not form the basis of her complaint. Dunlap responds that she is a DTPA consumer because the Agreement involves the acquisition of both goods and services that were central to the success of her "business" as an NSD under the Agreement, and that these goods and services form the basis of her claim that Mary Kay misrepresented that she would own her own business.
The court considers first whether any goods or services that Dunlap acquired as part of the Agreement were an important objective of the transaction. Dunlap cites several paragraphs of the Agreement to demonstrate that she acquired goods or services under it. For example, the Agreement provides that Dunlap, as an NSD, will continue her business of selling products purchased from Mary Kay and reselling them to the ultimate consumers; Dunlap has the right to receive a 50% discount on certain Mary Kay products; Dunlap has the right to purchase or receive promotional items and materials; Dunlap can receive special recognition, financial compensation, and specialized education from Mary Kay; Dunlap can access Mary Kay's customer reports and information; and Dunlap can use certain copyrighted materials.
Mary Kay also argues that even if it is assumed that the goods or services on which Dunlap relies qualify as DTPA goods or services, they are not central to the Agreement. Dunlap responds that this case is controlled by Texas Cookie. Mary Kay contends that Texas Cookie is distinguishable and that this case is more analogous to Fisher Controls.
The court concludes that the terms of the Agreement distinguish it from the franchise agreement in Texas Cookie. In Texas Cookie the court held that the franchisees of a retail cookie store were consumers under the DTPA because, under the franchise agreement, the franchiser provided the franchisee with "a company training program, a confidential operating manual . . . [and] a 'unique system'" that includes "special merchandising, marketing and specially designed facilities, interior and exterior layout and trade dress; standards and specifications for fixtures and equipment, methods for keeping books and records, inventory control system and training and supervision." Texas Cookie, 747 S.W.2d at 877. The court held that these services were central to the franchise agreement and could not be incidental to it because it then "would have been little more than the right to sell products under the 'Texas Cookie Company' name." Id. Because the goods or services were central to the franchise agreement, the franchisee was a DTPA consumer. Id.
In the instant case, however, the Agreement is not a franchise agreement; instead, it makes Dunlap an independent contractor of Mary Kay. See Answer Ex. A at 7 ( ).
Moreover, the Agreement is more analogous to the agreement in Fisher Controls. In Fisher Controls the court held that the plaintiff was not a DTPA consumer because the "Representative Agreement" merely made him a sales representative for Fisher, not a franchisee "with [the] typical associated collateral services, such as is described in Texas Cookie[.]" Id. at 139. This was because the plaintiff did not pay a franchisee fee under theagreement, and his role under the agreement was...
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