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Grose v. Rice

United States District Court, E.D. Wisconsin

December 23, 2019



          William C. Griesbach, District Judge.

         This case arises out of a dispute between four members of a limited liability company named Fun2Play Toys, LLC, a toy and novelty company. Two of the members, Plaintiffs David Grose and Richard Corvese, sued two other members, Defendants Olen B. Rice, III and Michael J. Bettiga, alleging claims for breach of contract, breach of fiduciary duties, statutory theft, and violation of Wisconsin's Uniform Securities Act (“WUSA”). The complaint alleges the plaintiffs are both citizens of Canada, Defendants Rice and Bettiga are citizens of Wisconsin and Texas, respectively, and the amount in controversy exceeds $75, 000. The court thus has jurisdiction under 28 U.S.C. § 1332. The case is before the court on Defendants' motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Dkt. No. 7. Plaintiffs have stipulated to the dismissal of their WUSA claim, and Defendants' motion will be granted as to the other claims with leave to replead.


         A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Fed.R.Civ.P. 12(b)(6); Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). To state a cognizable claim, the plaintiff is required to provide a “short and plain statement of the claim showing that he is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A complaint must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957). “While 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 ‘entitle[ment] 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 (2007) (citations omitted). In considering a motion to dismiss, the court construes all allegations in the complaint in the light most favorable to the plaintiff, accepts all well-pleaded facts as true, and draws all inferences in favor of the non-moving party. Estate of Davis v. Wells Fargo Bank, 633 F.3d 529, 533 (7th Cir. 2011). But while well-pleaded facts are accepted as true at the pleading stage, conclusions of law are not. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Twombly, 550 U.S. at 555.

         In Twombly, 550 U.S. at 558-64, and Ashcroft v. Iqbal, 556 U.S. 662, 684-85 (2009), the Supreme Court adopted a plausibility standard for deciding Rule 12(b)(6) motions to dismiss. The adoption of this standard was intended in part to permit district courts to “weed out” groundless lawsuits at the pleading stage in order to limit the burden and high cost of litigation in cases with non-existent claims. In describing the new standard, the Supreme Court reminded lower courts and litigants that “Rule 8 marks a notable and generous departure from the hypertechnical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Iqbal, 556 U.S. at 678-79. Under the “plausibility” standard, “[t]o 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.'” Id. at 678 (quoting Twombly, 550 U.S. at 556). “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. (citing Twombly, 550 U.S. at 556). The complaint's allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citation omitted). “[T]he plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. “[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 ‘show[n]'-‘that the pleader is entitled to relief.'” Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).

         The standard is higher where there are allegations of fraud. For complaints alleging claims sounding in fraud, Rule 9(b) imposes a heightened pleading standard that requires a plaintiff to “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). Pleading with particularity means providing “the who, what, when, where, and how: the first paragraph of any newspaper story.” U.S. ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009) (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990)).

         With these principles in mind, the court now turns to the allegations of the complaint.


         The complaint alleges that “Fun2Play is a toy and novelty company that advertises the provision of ‘wacky and creative' products for customers.” Compl. ¶ 9. Plaintiffs allege that they were primarily responsible for the success of the business. Plaintiff Corvese provided the creative and artistic contributions, and Plaintiff Grose was primarily involved in sales. Id. at ¶¶ 12-14. Defendant Rice was a co-president of the company, but contributed little before abruptly resigning in February 2018. Id. ¶¶ 115-17. The complaint alleges that Rice controlled the monetary resources and used this control to pay himself and a separate company he owned while failing to pay Plaintiffs. Defendant Rice allegedly gave Defendant Bettiga an ownership interest and power of attorney over Fun2Play without Plaintiffs' consent. Both Defendants are alleged to have interfered with Plaintiffs' relationships with customers and associates by making false statements about them and their relationship to Fun2Play. Rice “fabricated ‘resignations' by Corvese and Grose, and his counsel has attempted to move forward as if Corvese and Grose have resigned.” Id. ¶¶ 20, 27-30. The complaint alleges that Plaintiffs have not resigned and are entitled to a share of the seven figure revenue generated through their efforts. Defendants are allegedly denying Plaintiffs those benefits “through an intentional scheme to defraud Plaintiffs and to benefit themselves.” Id. ¶¶ 32, 33.


         As noted above, the remaining claims are breach of contract, breach of fiduciary duty, and statutory theft. The court will address each in turn.

         A. Breach of Contract

         Count I of the complaint first realleges and incorporates all of the foregoing paragraphs. Compl. ¶ 35. The complaint next alleges that “through the above actions, Defendants have breached their contractual obligations to Plaintiffs in the Operating Agreement.” Id. ¶ 36. Finally, the complaint alleges “these breaches are material and substantial and have damaged Plaintiffs in an amount to be determined at trial.” Id. ¶ 37. Although the complaint alleges in an earlier paragraph that the Operating Agreement for Fun2Play is “attached hereto as Exhibit A, ” id. ¶ 11, no exhibit is attached. No contractual language is cited in the complaint, and there is no indication of what conduct of Defendants constitutes a breach of which provision. There are no allegations about which of the two Defendants did anything described as a breach of a contractual provision, nor is there any explanation of how whatever was done constitutes a breach of contract.

         These allegations are insufficient to state a claim for breach of contract. The complaint fails to provide Defendants notice of what conduct they engaged in that might be actionable under such a theory. The allegation that “Defendants have breached their contractual obligations to Plaintiffs in the Operating Agreement” is nothing more than a conclusion of law. Under Twombly and Iqbal, conclusions of law are to be disregarded and are not enough to “unlock the doors of discovery” and ...

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