Winthrop Res. Corp. v. Apollo Educ. Grp., Inc., Civil No. 17-1448 (DWF/SER)
| Decision Date | 16 August 2017 |
| Docket Number | Civil No. 17-1448 (DWF/SER) |
| Parties | Winthrop Resources Corporation, Plaintiff, v. Apollo Education Group, Inc., Defendant. |
| Court | U.S. District Court — District of Minnesota |
Shawn M. Raiter, Esq., Larson King, LLP, counsel for Plaintiff.
Aron J. Frakes, Esq., Fredrikson & Byron, PA; and Douglas E. Whitney, Esq., Douglas Whitney Law Offices LLC, counsel for Defendant.
The defendant-lessee in this case sought to terminate its leaseback agreement with the plaintiff-lessor for certain equipment. In the process of returning the equipment, the defendant discovered that some equipment had been lost. The defendant wrote to the plaintiff explaining the situation, including identifying which equipment was lost. The defendant also sent a check for the fair market value of the equipment as measured by an independent third party. The plaintiff refused to discuss how the defendant's performance was deficient. Instead, the plaintiff contended that the defendant had renewed the entire lease (including for the returned equipment) pursuant to a renewal provision that provided that the lease would be renewed if the equipment was not returned.
When the defendant refused to make payments under the renewed lease, the plaintiff filed suit. The case is before the Court on the plaintiff's motion to dismiss the defendant's counterclaims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment. (Doc. No. 9.) The plaintiff also has moved to strike certain allegations about prior cases accusing the plaintiff of bad faith and deceptive practices. For the reasons discussed below, the Court grants the plaintiff's motion to dismiss the unjust-enrichment claim but denies the remainder of the plaintiff's motion.
In late 2010, Plaintiff Winthrop Resources Corporation ("Winthrop") contracted with Defendant Apollo Education Group, Inc. ("Apollo"). As part of the contract, Winthrop bought over 1,000 servers selected by Apollo and then leased the equipment back to Apollo. As relevant here, the lease agreement was in place for an initial term of 60 months and then would continue indefinitely for four-month terms until terminated. (See Doc. No. 8, Ex. H ("Lease Agreement") ¶ 1.)
Apollo elected not to renew the lease and undertook the proper notice procedures to end the lease. Pursuant to the lease, Apollo had to return the equipment to Park City, Illinois. Under the lease agreement, the notice of termination would be voided if Apollo did not return the equipment and the lease would be automatically renewed. (Id. ¶ 7.) When, however, equipment is lost, Apollo must provide Winthrop with written notice and pay for the lost equipment. (See id. ¶ 12.) The amount that Apollo had to pay woulddepend on a formula based on the original costs of the lost equipment, the amount of time left on the lease, and the amount still owed under the lease.1
In the process of returning the equipment, Apollo discovered that some of the equipment had been lost—roughly 3%. Apollo returned the rest of the equipment and wrote to Winthrop explaining that some equipment was lost. The letter identified the equipment and included a check for $58,000, which was the fair market value as calculated by an independent third party. To put the $58,000 in context, Apollo had paid more than $180,000 per month to lease the equipment. Winthrop refused the check, refused to negotiate further, and contended that the entire lease agreement had been renewed (including for the returned equipment) because the lost equipment was not returned.
When Apollo failed to make payments under the renewed lease, Winthrop filed suit. Winthrop brought a single claim for breach of contract, alleging that Apollo failed to make lease payments on the renewed lease, failed to return all equipment, and failed to obtain maintenance agreements on the equipment. Apollo has counterclaimed: (1) seeking a declaration that the lease has been terminated; (2) for breach of contract; (3) breach of the implied covenant of good faith and fair dealing; and (4) unjust enrichment. Winthrop has moved to dismiss Apollo's claims for implied covenant of good faith and fair dealing and for unjust enrichment. Winthrop also moved to strikecertain allegations regarding old cases about its sales practices (including allegations made by Winthrop's current counsel in other cases).2
In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in the complaint to be true and construes all reasonable inferences from those facts in the light most favorable to the complainant. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). In doing so, however, a court need not accept as true wholly conclusory allegations, Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th Cir. 1999), or legal conclusions drawn by the pleader from the facts alleged, Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). A court deciding a motion to dismiss may consider the complaint, matters of public record, orders, materials embraced by the complaint, and exhibits attached to the complaint. See Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
To survive a motion to dismiss, a complaint must contain "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). Although a complaint need not contain "detailed factual allegations," it must contain facts with enough specificity "to raise a right to relief above the speculativelevel." Id. at 555. As the Supreme Court reiterated, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements," will not pass muster under Twombly. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). In sum, this standard "calls for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of [the claim]." Twombly, 550 U.S. at 556.
Winthrop moves to dismiss Apollo's claim for a breach of the implied covenant of good faith and fair dealing. Apollo alleges that Winthrop has violated the implied covenant of good faith and fair dealing by acting in bad faith to hinder or frustrate Apollo's efforts to terminate the lease agreement. In particular, Apollo hones in on Winthrop's refusal to explain why it would not accept the check for the lost equipment.
"Under Minnesota law, every contract includes an implied covenant of good faith and fair dealing requiring that one party not 'unjustifiably hinder' the other party's performance of the contract." In re Hennepin Cnty. 1986 Recycling Bond Litig., 540 N.W.2d 494, 502 (Minn. 1995) (citations omitted). The implied covenant of good faith and fair dealing serves only "to enforce existing contractual duties, and not to create new ones." Allen v. Thom, No. A07-2088, 2008 WL 2732218, at *5 (Minn. Ct. App. July 15, 2008). "Examples of breach of the duty of good faith and fair dealing by unjustified hindrance include . . . avoid[ing] performance by affirmatively blocking the happening of a condition precedent." Cox v. Mortg. Elec. Registration Sys., Inc., 685 F.3d 663, 671 (8th Cir. 2012) () (internal quotation marks omitted).
Here, Apollo has adequately pleaded a claim for breach of the implied covenant of good faith and fair dealing. Based on the allegations in the Counterclaim, Winthrop, in bad faith, hindered Apollo's efforts to terminate the contract. In particular, Winthrop allegedly refused to explain why Apollo's payment for the lost equipment was insufficient. As alleged, Winthrop's refusal to respond arose from a bad faith intention to hinder Apollo's efforts to terminate the lease agreement. See Columbia Cas. Co. v. 3M Co., 814 N.W.2d 33, 40 (Minn. Ct. App. 2012) (). Thus, Apollo has adequately pleaded a breach of the implied covenant of good faith and fair dealing.
Winthrop's arguments to the contrary are unpersuasive. First, Winthrop argues that Apollo's claim fails because Apollo breached the lease agreement first. Second, Winthrop argues that Apollo's claim fails because Winthrop was merely demanding that Apollo strictly comply with the lease agreement by returning all the equipment. Last, Winthrop argues that Apollo's claim fails because the claim would create new contractual obligations rather than supplement existing ones.
First, Winthrop argues that Apollo's claim should be dismissed because Apollo first breached the lease agreement by failing to keep continuous maintenance agreements on the equipment. Winthrop cites to the black-letter law that a party is excused from performing the contract once the other party breaches the contract. (See Memo. at 12.) "[T]he first breach serves as a defense against the second breach." Winthrop Res. Corp.v. Eaton Hydraulics, Inc., Civ. No. 01-649, 2002 WL 35453165, at *6 (D. Minn. Apr. 23, 2002), aff'd, 361 F.3d 465 (8th Cir. 2004). Winthrop, however, is not seeking to be excused from the contract. Instead, Winthrop is seeking to continue to enforce the contract. Thus, whether Apollo kept maintenance agreements on the equipment has little to do with whether Winthrop hindered Apollo's efforts to terminate the lease agreement.
Second, Winthrop argues that Apollo's claim fails because Winthrop merely sought strict compliance with the lease agreement. Under the lease agreement, if Apollo lost any of the equipment, it was required to provide notice and payment for the lost equipment. (Lease Agreement ¶ 12.) According to the Counterclaim, once Apollo discovered the lost equipment, Apollo wrote to Winthrop and sent a check for the fair...
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