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McDorman v. D&G Properties

United States District Court, W.D. Kentucky, Paducah

July 24, 2019

MICHAEL MCDORMAN, PLAINTIFF
v.
D&G PROPERTIES., et al, DEFENDANTS

          MEMORANDUM OPINION & ORDER

          Thomas B. Russell, Senior Judge.

         This matter is before the Court upon two motions to dismiss. Defendants move the Court to dismiss Count VII of Plaintiff's Complaint for failure to state a claim upon which relief can be granted. (DN 25). Plaintiff moves the Court to dismiss in its entirety the Counterclaim Complaint filed against him by defendants, D&G Properties, Inc. and DGW Investments, Inc. (collectively, the “Companies”). (DN 30). The parties have filed their responses and replies to these motions with the Court. Fully briefed, this matter is ripe for adjudication, and for the reasons stated herein, both motions are DENIED.

         Background

         The factual allegations as set out in the Complaint, (DN 1) and taken as true are as follows.[1] D&G and DGW (collectively referred to herein as “Companies”) own and operate multiple Sonic Drive-In (“Sonic”) and Taco John's franchises in Missouri, Tennessee, Kentucky, Indiana, Ohio, and West Virginia. Id. at 5. DGW was formed by Tom Dunivant, Bruce Grisham, and Daniel Williams. Id. D&G was formed by Dunivant and Grisham. Id.

         In June 1996, Plaintiff met with Defendants in West Plains, Missouri and discussed his prospective employment with the Companies. Id. at 6. Defendants offered Plaintiff the job of controlling the franchises and he accepted the offer shortly thereafter. Id. As part of his employment agreement, Plaintiff would receive a 10% ownership interest in all future franchises purchased by the Companies. Id. Plaintiff acquired his first 10% ownership interest in a newly acquired franchise when Plaintiff and a separate company owned by Dunivant executed an operating agreement to establish Sonic of Malden, LLC (“The Malden Operating Agreement”). Id. at 7. Thereafter, Plaintiff and Defendants established eight additional Limited Liability Companies to control newly acquired Sonic and Taco John's franchises (“The McDorman Interest LLCs”). Id.

         Plaintiff continued to manage the operations of the McDornam Interest LLCs, as well as the franchises wholly owned and operated by D&G and DGW, until March 2016. Id. at 10. In March 2016, Dunivant was bought out of his ownership interest by the other shareholders of the Companies. Id. Upon learning of Dunivant's departure, Plaintiff notified Defendants of his desire to voluntarily withdraw from the LLCs. Id. at 11. According to the terms of the McDorman Interest LLC operating agreements, this notification triggered a buy-out of Plaintiff's ownership interests. Id.

         Defendants, however, desired to continue their business relationship with Plaintiff and set up a meeting in order to persuade Plaintiff to continue his role as Company Controller. Id. at 11-12. At the meeting, Plaintiff agreed to continue his role as Company Controller for three years (“The Amended Employment Agreement”). Id. at 12. In exchange for this commitment, Defendants agreed to purchase 50% of Plaintiff's ownership interests in the McDorman Interest LLCs immediately, and then purchase the remainder of Plaintiff's ownership interest at the conclusion of the three-year term. Id. On April 12, 2016 Defendants purchased 50% of Plaintiff's ownership interests in the McDorman Interest LLCs. Id. at 13.

         Approximately one-year into the Amended Employment Agreement, Plaintiff began to sense a lack of communication from the shareholders of the companies. Id. Because of this perceived lack of communication, on February 6, 2017, Plaintiff approached Defendants at the West Plains, Missouri office to express his frustration. Id. Defendants told Plaintiff that the shareholders had discussed the need to continue their business without Plaintiff's services. Id.

         The next day, February 7, 2017, Plaintiff and Defendants met at Defendants' office in Paducah, Kentucky. Id. At this meeting, Defendants offered Plaintiff a severance agreement (the “Severance Agreement”) and Plaintiff accepted the offer. Id. at 14. On February 21, 2017 a meeting was held to install Plaintiff's replacement, Selina Harner, as the new Director of Operations of the companies. Id. at 15. Sometime after March 14, 2017, Plaintiff received a letter sent by the law firm Husch Blackwell on behalf of Defendants notifying Plaintiff that his employment with the Companies was terminated “effective immediately.” Id.

         Plaintiff alleges that the Companies have not fulfilled their obligations under the terms of the Severance Agreement, Amended Employment Agreement, and operating agreements of the McDorman Interest LLCs. Id. at 17-22. Plaintiff further alleges that Defendants have breached their fiduciary duties. Id. at 22-24. Plaintiff also claims that he was fraudulently induced to continue his employment with the companies after he expressed his desire to retire and sell his interests in the LLCs. Id. at 24-25.

         In their answer, the Companies bring counterclaims for fraud and breach of fiduciary duty. The factual allegations as set out in the Counterclaim Complaint (DN 24) and taken as true are as follows. Plaintiff began his employment with the Companies in 1996. Id. at 20. Plaintiff's job duties included the management of finances and preparation of financial information for the Companies. Id. The Companies placed trust and confidence in Plaintiff to manage the finances of the companies. Id. Part of Plaintiff's compensation came from bonuses he received based upon the net profits of the franchises operated by the Companies. Id. The Companies claim that Plaintiff committed fraud and breached his fiduciary duties by creating inflated profit and loss statements for the franchises and paying himself monthly bonuses based on the inflated figures. Id. at 20 - 22.

         Standard

         The Federal Rules of Civil Procedure require that pleadings, including complaints, contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A complaint may be attacked for failure “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the court will presume that all the factual allegations in the complaint are true and will draw all reasonable inferences in favor of the nonmoving party. Total Benefits Planning Agency v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir.2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir.1983)). “The court need not, however, accept unwarranted factual inferences.” Id. (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir.1987)).

         Even though a “complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). Instead, the plaintiff's “[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. (citations omitted). That is, a complaint must contain enough facts “to state a claim to relief that is plausible on its face.” Id. at 570, 127 S.Ct. 1955. A claim becomes plausible “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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). If, from the well-pleaded facts, the court cannot “infer more than the mere possibility of misconduct, the complaint has alleged-but has not ‘show[n]'-‘that the pleader is entitled to relief.' ” Id. at 679, 129 S.Ct. 1937 (quoting Fed.R.Civ.P. 8(a)(2)). “[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss.” Id.

         Additionally, the Rules require a plaintiff alleging fraud to “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). “The Sixth Circuit interprets Rule 9(b) as requiring plaintiffs to ‘allege the time, place, and content of the alleged misrepresentation on which he or she relies; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.' ” Yuhasz v. Brush Wellman, Inc.,341 F.3d 559, 563 (6th Cir.2003) (quoting Coffey v. Foamex L.P.,2 F.3d 157, 161-62 (6th Cir.1993)). In other words, the “complaint must ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.' ” Frank v. Dana Corp.,547 F.3d 564, 570 (6th Cir.2008) (quoting Gupta v. Terra Nitrogen Corp.,10 F.Supp.2d 879, 883 (N.D.Ohio 1998)). Rule 9(b)'s heightened pleading standard is “designed to prevent ‘fishing expeditions,' to protect defendants' reputations from allegations of fraud, and to narrow potentially ...


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