W. Range Reclamation, LLC v. Scott's Co., Civil Action No. 16-cv-02161-RM-KMT

• Decision Date: 28 February 2018
• Docket Number: Civil Action No. 16-cv-02161-RM-KMT
• Parties: WEST RANGE RECLAMATION, LLC, Plaintiff, v. THE SCOTT'S COMPANY, LLC, Defendant.
• Court: U.S. District Court — District of Colorado

WEST RANGE RECLAMATION, LLC, Plaintiff, v. THE SCOTT'S COMPANY, LLC, Defendant.

Civil Action No. 16-cv-02161-RM-KMT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

February 28, 2018

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Magistrate Judge Kathleen M. Tafoya

This case comes before the court on the "Motion of Defendant the Scotts Company LLC to Dismiss Plaintiff's Second Amended Complaint" (Doc. No. 40 [Mot.], filed January 31, 2017). Plaintiff filed its response on February 21, 2017 (Doc. No. 42 [Resp]), and Defendant filed its reply on March 6, 2017 (Doc. No. 43 [Reply]).

STATEMENT OF THE CASE

Plaintiff, proceeding pursuant to 28 U.S.C. § 1332, asserts claims against Defendant for breach of contract and promissory estoppel. (See Doc. No. 36 [Am. Compl.].) Plaintiff states its business consists of logging and clearing forests of dead and damaged pine trees. (Id., ¶ 8.)

On February 9, 2015, Defendant issued to Plaintiff a purchase order ("the Contract") for 20,000 cubic yards of chipped white wood ("Goods") at $11.25 per cubic yard, with a total value of $225,000. (Id., ¶¶ 9-10.) The Contract provides Defendant may unilaterally terminate the Contract at any time by written notice to Plaintiff, and that, upon such notice, Plaintiff shall discontinue performance and be entitled to payment for goods "specifically manufactured" for Defendant "prior to termination."¹ (Id., ¶ 18; Mot., Ex. 1 [Contract], ¶ 15.) The Contract also provides that "[u]pon such payment, [Defendant] shall have the option to take possession of and/or resell such partially completed goods." (Am. Compl., ¶ 19; Contract, ¶ 15.)

Plaintiff delivered Goods to Defendant in the amount of $90,000. (Id., ¶ 14.) Plaintiff states Defendant never complained about the quality or quantity of the Goods, and Defendant paid Plaintiff in full for the Goods. (Id., ¶¶ 15, 17.) Pursuant to the Contract, Plaintiff continued to manufacture goods ("Additional Goods"). (Id., ¶ 21.) In about March 2014, Defendant notified Plaintiff via email that it no longer wanted any more Goods delivered and that it wanted to terminate the Contract. (Id., ¶ 23.) Plaintiff stopped manufacturing the Goods and issued an invoice to Defendant in the amount of $75,452.94 for the Additional Goods. (Id., ¶¶ 25-26.)

On about September 29, 2014, Defendant issued a Change Order reducing the total amount of goods under the Contract and capping the total Contract requirements to the delivered and paid-for goods. (Id., ¶ 28.) Plaintiff states it never received the Change Order and never has received payment for the Additional Goods. (Id., ¶¶ 30-31.)

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6)(2007). "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations and quotation marks omitted).

"A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff." Hall v. Bellmon, 935 F.2d 1106, 1198 (10th Cir. 1991). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pleaded facts which allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The Iqbal evaluation requires two prongs of analysis. First, the court identifies "the allegations in the complaint that are not entitled to the assumption of truth," that is, those allegations which are legal conclusion, bare assertions, or merely conclusory. Id. at 679-81. Second, the Court considers the factual allegations "to determine if they plausibly suggest an entitlement to relief." Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 679.

Notwithstanding, the court need not accept conclusory allegations without supporting factual averments. Southern Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir. 1998). "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S at 678.Moreover, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does the complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (citation omitted). "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of 'entitlement to relief.' " Id. (citation omitted).

ANALYSIS

Defendant argues that Plaintiff's claims are barred by the United States Bankruptcy Court's rejection of the contract at issue in this case. (Mot. at 6-13.)

Plaintiff is the Debtor in the Chapter 11 bankruptcy proceeding in the United States Bankruptcy Court for the District of Colorado (Case No. 15-13676) ("Bankruptcy Proceeding"). On June 7, 2016, Plaintiff filed in the Bankruptcy Court a "Motion to Reject Executory Contract with the Scott's [sic] Company, LLC."² (Mot., Ex. 2 ["Mot. Reject"].) In the Motion to Reject, Plaintiff sought an order, pursuant to 11 U.S.C. § 365, rejecting the "executory contract" between Plaintiff and Defendant, which Plaintiff identified as the Contract. (Id., ¶¶ 1, 5.) Plaintiff represented to the Bankruptcy Court that it "wishes to reject this Contract because it has determined that its terms are not financially beneficial to the estate or its creditors" and that the "rejection of the Contract benefits the estate by allowing the Debtor to continue operations without the burdensome and unprofitable Contract terms." (Mot. Reject, ¶ 6. The Bankruptcy Court granted Plaintiff's Motion to Reject. (Mot., Ex. 3 ["Rejection Order"].) Defendant argues,as a matter of law, Plaintiff is precluded from enforcing the contract's provisions. (Mot. at 3-10.)

The Tenth Circuit has adopted the "Countryman" test for determining whether a contract is executory:

[A] contract is executory if the obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete the performance would constitute a material breach excusing the performance of the other.

In re Spoverlook, LLC, 551 B.R. 481, 485 (Bankr. D.N.M. 2016) (quoting Vern Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn. L. Rev. 439, 460 (1973), as quoted in In re Baird, 567 F.3d 1207, 1210 (10th Cir.2009)). "Executory contracts in bankruptcy are best recognized as a combination of assets and liabilities to the bankruptcy estate; the performance the nonbankrupt owes the debtor constitutes an asset, and the performance the debtor owes the nonbankrupt is a liability." In re Spoverlook, 551 B.R. at 484 (quoting In re Columbia Gas System, Inc., 50 F.3d 233, 238 (3d Cir. 1995) (citing Thomas H. Jackson, The Logic and Limits of Bankruptcy Law 106-07 (1986). "The debtor will assume an executory contract when the package of assets and liabilities is a net asset to the estate. When it is not the debtor will (or ought to) reject the contract." In re Spoverlook, 551 B.R. at 484 (quoting In re Columbia Gas System, Inc., 50 F.3d at 238 (citing 11 U.S.C. § 365(a))). "The statutory purpose of § 365 is to enable the trustee to assume those executory obligations which are beneficial to the estate while rejecting those which are onerous or burdensome to perform." In re Anderson, 604 F. App'x 735, 737 n.4 (10th Cir. 2015).

"The general rule is that in order for a contract to be assumed or rejected under § 365 of the Bankruptcy Code, that contract must be assumed or rejected in its entirety." In re DickinsonTheatres, Inc., No. 12-22602, 2012 WL 4867220, at *2 (Bankr. D. Kan. Oct. 12, 2012) (quoting In re Convenience USA, Inc., 2002 WL 230772, *2 (Bankr.M.D.N.C.2002)). "Rejection of an executory contract constitutes a breach of the contract as of the date immediately before the petition date." In re Spoverlook, LLC, 560 B.R. 358, 362 (Bankr. D.N.M. 2016) (citing § 365(g)(1); In re Siggins, 2014 WL 1796685, at *5 (Bankr. D.N.M. 2014)). The rejection "entitles the other party to the contract to assert a claim for such breach for determination by the court." King v. Baer, 482 F.2d 552, 557 (10th Cir. 1973) (emphasis added) (quoting Workman v. Harrison, 282 F.2d 693 (10th Cir. 1960)). See In re Spoverlook, LLC, 560 B.R. at 362 ("The breach gives rise to a claim" against the bankruptcy estate by a non-debtor.) (citing 11 usc § 502(g)(1)).

"A debtor cannot assume the beneficial aspects of a contract while rejecting the burdensome parts—the contract must be accepted or rejected as a whole." In re Wagstaff Minnesota, Inc., No. BR 11-43073, 2012 WL 10623, at *3 (D. Minn. Jan. 3, 2012) (citing In re UAL Corp., 346 B.R. 456, 467 (Bankr. N.D. Ill. 2006)). Thus, "[i]mportantly, because rejection is treated as a breach, a trustee [or debtor] who rejects an executory contract can no longer enforce its provisions." Sullivan v. Mathew, No. 14 C 6877, 2015 WL 1509794, at *4 (N.D. Ill. Mar. 30, 2015) (citing In re Warner, 480 B.R. 641, 650-51 (Bankr. N.D. W. Va. 2012). See also In re Hooker Investments, Inc., 131 B.R. 922, 928 (Bankr. S.D.N.Y. 1991) (...