KCI Restaurant Management LLC v. Seldin

          ORDER

          David G. Campbell United States District Judge.

         Plaintiffs KCI Restaurant Management, LLC (“KCIR”) and KCI Acquisitions II, LLC (“KCI Acquisitions”) have sued Defendant Theodore Seldin and many others (“Defendants”) for indemnity, contribution, unjust enrichment, and breach of fiduciary duty. Doc. 1. Defendants ask the Court to dismiss the complaint under Rule 12(b)(6) for failure to state a claim (Doc. 23), and Plaintiffs ask the Court to strike portions of Defendants' reply (Doc. 47). The motions are fully briefed and no party requests oral argument. The Court will grant Defendants' motion and deny the motion to strike.

         I. Background.

         This case arises from a complex set of relationships and events that produced bankruptcy litigation, a state court lawsuit, a Nebraska arbitration, and this action. The facts are not easily grasped, and the Court will recount only those that are essential to this ruling. For purposes of this motion, the allegations of Plaintiffs' complaint are deemed true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         SVP Financial Services Partners, LLLP (“SVP Partners”) and Sky Financial Investments, LLC (“Sky Financial”) were established in 1999 as vehicles for 96 individuals to invest in 204 Pizza Hut restaurants. Doc. 1 ¶ 19. By 2003, SVP Partners and Sky Financial were in danger of bankruptcy. Id. ¶ 20. Sky Colonial II Management LLC (“Colonial”) took over the management of Sky Financial in 2004. Id. ¶ 21. Plaintiff KCIR is the sole member and owner of Colonial, and Colonial has assigned its litigation rights to Plaintiff KCIR. Id. Plaintiff KCIR took over the management of SVP Partners in 2005. Id. This order will refer to Plaintiff KCIR and Colonial collectively as Plaintiff KCIR.

         Under the terms of the management agreements, Plaintiff KCIR was entitled to “an annual management fee equal to 1% of the contributed capital” as well as “reimbursement of its expenses.” Id. ¶ 25. Although Plaintiff KCIR covered approximately one million dollars in expenses for SVP Partners and Sky Financial, it did not receive its annual management fee for nine years. Id. ¶ 26. On September 26, 2013, SVP Partners and Sky Financial paid Plaintiff KCIR $1, 814, 511 to cover some, but not all, of its management fees and expenses. Id. ¶¶ 31, 33. Sky Financial's share of this sum was $1, 075, 007. Id. ¶¶ 39. Plaintiff KCIR terminated its management relationships four days later. Id. ¶ 24.

         SVP Partners and Sky Financial filed for bankruptcy on September 26, 2014. Id. ¶ 34 (citing No. 2:14-bk-14741-BKM). The bankruptcy trustee filed two complaints against Plaintiff KCIR (the “Avoidance Claims”). First, in October 2014, the trustee sought return of the $1, 814, 511 payment, alleging that it was a recoverable preference. Id. ¶ 35. Second, in September 2016, the trustee sought recovery of the same $1, 814, 511 as a fraudulent conveyance. Id. ¶ 36. Plaintiffs spent approximately $647, 292.73 in response to these Avoidance Claims: Plaintiff KCIR spent approximately $500, 000 defending against the claims, Plaintiff KCI Acquisitions spent $130, 000 to extinguish them at a public auction, and Plaintiffs spent $17, 292.73 to subordinate their proof of claim in the bankruptcy proceeding. Id. ¶¶ 47, 57.

         Meanwhile, Defendants - who were investors in Sky Financial - initiated a Nebraska arbitration proceeding against an unspecified party. Defendants argued in the arbitration that they were entitled to two-thirds of $1, 075, 007 that Sky Financial paid to Plaintiff KCIR. Id. ¶¶ 37-38. On October 23, 2016, the arbitrator awarded Defendants two-thirds of the $1, 075, 007 figure. Id. ¶ 39.

         Plaintiffs claim in this lawsuit that if Defendants were entitled to recover this sum in the arbitration, then they also were partly responsible for defending against the Avoidance Claims brought by the bankruptcy trustee and should be required to reimburse Plaintiffs for some of the costs Plaintiffs incurred in defending against and extinguishing those claims. Id. ¶¶ 40-41. Defendants characterize this assertion as an attempt to make an end-run around the arbitrator's award. Doc. 23 at 5.^[1]

         II. Legal Standard.

         A successful motion to dismiss under Rule 12(b)(6) must show either that the complaint lacks a cognizable legal theory or fails to allege facts sufficient to support its theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint that sets forth a cognizable legal theory will survive a motion to dismiss as long as it contains “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (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.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).

         III. Discussion.

         Plaintiffs allege that Defendants owe them at least two-thirds of the approximately $647, 292.73 they spent in defending against and extinguishing the Avoidance Claims. Doc. 1 ¶¶ 40-41. Plaintiffs present four causes of action. Id. ¶¶ 52-72.

         A. ...