United States District Court, D. Arizona
G. Campbell United States District Judge.
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.
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).
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.
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. ¶
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.
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. ¶
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.
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).
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.