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Laurel Grocery Co., LLC v. Freshway, Inc.

United States District Court, E.D. Kentucky, Southern Division, London

December 30, 2019

LAUREL GROCERY COMPANY, LLC, Plaintiff / Counterclaim Defendant,
FRESHWAY, INC., et al., Defendants / Counterclaim Plaintiffs.

          OPINION & ORDER

          Robert E. Wier, United States District Judge.

         The Freshway Defendants,[1] operators of several Ohio grocery stores, bought grocery products from Laurel,[2] a Kentucky grocery wholesaler, for a decade or more. In August 2016, Freshway, after receiving bills claiming an unpaid balance exceeding $150, 000, began questioning its dealings with Laurel. In 2018, Freshway terminated the relationship. Laurel soon initiated this suit to reclaim the alleged amounts due. Post-removal, Freshway filed its own set of grievances regarding Laurel's conduct as supplier and alleged accountant for Freshway. See DE 22 (Am. Answer & Counterclaim). Laurel now targets five of Freshway's counterclaims with a motion for partial dismissal. See DE 23.

         For the following reasons and under the applicable standards, the Court GRANTS IN PART and DENIES IN PART Laurel's motion. The Court dismisses Counterclaim Count 5 but permits Counts 1-4 to proceed.

         I. BACKGROUND


         Freshway bases the challenged counterclaims on the following factual allegations.[3] In the spring of 2007, Freshway began negotiating a wholesale agreement for grocery products with Laurel based on the anticipated purchase of a grocery store, Rittman IGA. During the talks, Laurel offered, and Freshway accepted the following terms:

Freshway would receive wholesale grocery products on three-week terms and a 3% rebate on all products purchased by Freshway until the terms were repaid by Freshway. In return, Freshway would buy its groceries from Laurel Grocery during that same period.

DE 22 at 13, ¶ 15; see also DE 22-1 (4/20/2007 e-mail in support of alleged promise). In addition to this so-called “Rittman Agreement, ” Freshway, in March 2007, signed a “Customer Application and Agreement” that set out further terms for Laurel's supply of the Rittman store. DE 1-1 at 22 (Laurel Ex. 2); see also DE 22 at 13, ¶ 17 (describing Ex. 2 as a “true and accurate copy” of the subject agreement).

         Per Freshway, the 2007 agreements terms concluded in 2009, when Freshway purchased a new store, West Salem IGA. See DE 22, at 14-15, ¶¶ 26-29. In December 2009, Freshway and Laurel entered two new agreements governing Freshway's grocery purchases. See Id. at ¶¶ 29-30 (describing Laurel Exs. 1 & 3 as “true and accurate” copies); DE 1-1 at 16-20 & 25-26 (Laurel Exs. 1 & 3). The 2009 terms included a 2% rebate “for the first five (5) years[.]” DE 1-1 at 16.

         Relatedly, Freshway contends that Laurel employed a “staff of accountants and associates to serve independent retailers' accounting needs[, ]” to include providing “financial statements and information to assist [Laurel's] customers in making informed decisions regarding growth and profitability.” DE 22 at 12, ¶¶ 6-7. In early 2007, Freshway gave Laurel “exclusive control over [its] books and finances”; Laurel from that point, and for the remainder of the parties' relationship, was Freshway's “accountant[.]” Id. at 14, ¶¶ 21, 25. As Freshway tells it, Laurel never applied, and never intended to apply, the 3% rebate during the period of the 2007-09 Rittman Agreement. DE 22 at 17 & 19, ¶¶ 48, 66. Further, Laurel, as accountant, covered up its alleged overcharging by providing Freshway only “sporadic[, ] . . . irregularly prepared[, ] . . . incomplete and inaccurate” financial records. DE 22 at 16 & 19, ¶¶ 42-43, 60.

         Based on these facts, Freshway levels seven state law theories against Laurel. DE 22 at 17- 24. Laurel pursues Rule 12 dismissal of Freshway's breach of contract, breach of fiduciary duty, fraudulent inducement, fraudulent misrepresentation, and promissory estoppel claims (Counts 1- 5, respectively). See DE 23. The motion-fully briefed, see DE 24 (Response), DE 25 (Reply)- stands ripe for review.

         Governing Standard

         A Rule 12(b)(6) motion targeting counterclaims is subject to the familiar Twombly / Iqbal plausibility rubric. See Static Control Components, Inc. v. Lexmark Int'l, Inc., 697 F.3d 387, 401 (6th Cir. 2012). 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, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1974 (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.” Id. However, “a formulaic recitation of a cause of action's elements will not do[.]” Twombly, 127 S.Ct. at 1965. Courts “must construe the complaint in the light most favorable to the plaintiff and accept all allegations as true.” Keys, 684 F.3d at 608. Yet, courts need not accept “legal conclusion[s] couched as [ ] factual allegation[s].” Papasan v. Allain, 106 S.Ct. 2932, 2944 (1986). The Court evaluates and tests the well-pleaded Complaint contents. Peterson v. Ostrander, No. 17-2160, 2018 WL 4739692, at *2 (6th Cir. Apr. 6, 2018) (“[T]he court must confine its analysis to the pleadings and accept all well-pleaded allegations as true.”).

         Generally, “matters outside of the pleadings are not to be considered by a court in ruling on a . . . motion to dismiss.” Weiner v. Klais & Co., 108 F.3d 86, 88 (6th Cir. 1997). However, the Court may “consider other materials that are integral to the complaint, are public records, or are otherwise appropriate for the taking of judicial notice.” Ashland, Inc. v. Oppenheimer & Co., 648 F.3d 461, 467 (6th Cir. 2011) (internal quotation marks and citation omitted).

         Hinging on Rule 8's minimal standards, Twombly and Iqbal require a plaintiff to “plead facts sufficient to show that her claim has substantive plausibility.” Johnson v. City of Shelby, 135 S.Ct. 346, 347 (2014). Where plaintiffs state “simply, concisely, and directly events that . . . entitle[ ] them to damages, ” the rules require “no more to stave off threshold dismissal for want of an adequate statement[.]” Id.; El-Hallani v. Huntington Nat. Bank, 623 Fed.Appx. 730, 739 (6th Cir. 2015) (“Although Twombly and Iqbal have raised the bar for pleading, it is still low.”).

         II. ANALYSIS

         a. Breach of Contract - Count 1

         Laurel argues that the Kentucky UCC's[4] 4-year statute of limitations bars Freshway's claim regarding breach of the 2007 Rittman Agreement. DE 23-1 at 5-6. Freshway contends that the UCC does not govern and that the claim is timely under Kentucky's 15-year limitations period for contracts executed prior to July 15, 2014. KRS 413.090. Alternatively, Freshway avers that Laurel's obfuscation (as Freshway's accountant) of the alleged failure to apply rebates warrants tolling under KRS 413.190(2). The Court, for the following reasons, finds that KRS 355.2-725[5]provides the applicable limitations period and, though the contract claim is facially untimely, that the pleadings plausibly frame a basis for equitable tolling.

         Governing Limitations Period

         In Kentucky, the sales article of the UCC applies to “transactions in goods[.]” KRS 352.2-102; see Riffe v. Black, 548 S.W.2d 175, 177 (Ky. Ct. App. 1977).[6] Kentucky's UCC coverage includes “mixed contracts for goods and services where the predominant factor is the sale of goods.” Marley Cooling Tower Co. v. Caldwell Energy & Envtl., Inc., 280 F.Supp.2d 651, 659 (W.D. Ky. 2003); see also Riffe, 548 S.W.2d at 177 (finding UCC warranty provisions applicable to “services when the sale is primarily one of goods and the services are necessary to insure that those goods are merchantable and fit for the ordinary purpose”). Freshway contends that the Rittman Agreement only “tangentially involved the purchase of goods” and that “its primary purpose was to provide Freshway with the means to purchase [the] Rittman” store. DE 24 at 7. But, two significant problems:

First, the operative pleading contains neither direct allegations to this effect or inferential support for the argument. Indeed, the pleaded facts are to the contrary. See, e.g., DE 22 at 13, ¶ 14 (“agreement regarding Freshway's purchases from Laurel Grocery”); id. at ¶ 15 (alleging that, under the Rittman Agreement, “Freshway would receive wholesale grocery products” and “Freshway would buy its groceries from Laurel Grocery”). Second, Freshway expressly contradicts its theory as to store-purchase primacy by also contending that “the Rittman Agreement was tangentially related to Freshway's purchase of” the Rittman store. DE 24 at 14 n.37 (emphasis added). Though Freshway's briefing vacillates between theories as to the Rittman's Agreement's purpose, the relevant pleading is unequivocal.

         The Court finds that Freshway unambiguously alleges a contract predominantly concerned with the sale of goods. Freshway pleads that Laurel “set forth the terms of the Rittman Agreement in” an April 20, 2007, e-mail. See DE 22 at 13, ¶ 16. The subject e-mail directly speaks to purchases of goods from Laurel. See DE 22-1 at 4 (“Opening Inventory purchased from Laurel”). Moreover, the crux of Freshway's breach counterclaim is Laurel's alleged promise to grant a “3% rebate on all products purchased by Freshway[.]” DE 22 at 13, ¶ 15. Freshway's contention that the primary concern of an agreement setting terms for Freshway expenditures was to provide it the “means to purchase” a business is illogical and, on the pleaded facts, wholly unfounded. Because Freshway alleged an agreement to purchase goods from Laurel, the KRS 355.2-725(1) four-year limitations period governs Freshway's breach claim.[7]

         Timeliness Generally

         Freshway does not dispute Laurel's contention that, per the pleading, any breach of the alleged Rittman Agreement must have occurred in or before 2009. See DE 23-1 at 5. Freshway's factual claims fully support this contention.[8] Thus, Freshway's 2019[9] counterclaim is facially untimely and, absent delayed accrual or tolling, barred by KRS 355.2-725(1).

         Statutory Tolling & Equitable Estoppel

         Three state-law provisions frame the balance of the parties' timeliness dispute. Under KRS 355.2-725(2), “[a] cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach.” Thus, in the Commonwealth, a sales contract “breach can occur before the aggrieved party actually knows of it and is damaged by it.” Willits v. Peabody Coal Co., 188 F.3d 510 (6th Cir. 1999) (table). Notwithstanding this unflagging accrual rule, per subsection (4), “the law on tolling” persists. KRS 355.2-725(4). Thus, Freshway contends, DE 24 at 11, that it has pleaded facts to justify tolling under KRS 413.190:

When a cause of action mentioned in KRS 413.090 to 413.160 accrues against a resident of this state, and he by absconding or concealing himself or by any other indirect means obstructs the prosecution of the action, the time of the continuance of the absence from the state or obstruction shall not be computed as any part of the period within which the action shall be commenced. But this saving shall not prevent the limitation from operating in favor of any other person not so acting, whether he is a necessary party to the action or not.

KRS 413.190(2). Laurel argues that KRS 413.190 is inapplicable because the tolling statute's cross-referenced coverage-KRS 413.090 to 413.160-does not include KRS 355.2-725. DE 25 at 3. Laurel, however, cites no authority for its interpretation of KRS 355.2-725. Further, the Court notes that KRS 413.190 extends to “causes of action mentioned in” the referenced limitations statutes, not merely to claims subject to the limitations periods those provisions supply. See id. Those causes of action include contract claims. In any event, the Court, for present purposes, need not decide whether KRS 413.190 applies to UCC sales contracts. The tolling statute is merely “a codification of equitable estoppel principles[.]” 500 Assocs., Inc. v. Vermont Am. Corp., 496 Fed.Appx. 589, 595 (6th Cir. 2012); see also Emberton v. GMRI, Inc., 299 ...

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