United States District Court, D. South Dakota, Southern Division
OPINION AND ORDER GRANTING MOTION FOR LEAVE TO AMEND
COMPLAINT AND GRANTING ONLY IN PART MOTION TO
DISMISS
ROBERTO A. LANGE UNITED STATES DISTRICT JUDGE
Plaintiff
LBC Holdings, LLC (LBC), filed a complaint against defendant
ResQSoft, Inc. (ResQSoft), alleging ResQSoft had violated a
verbal loan agreement. Doc. 1. ResQSoft moved to dismiss
LBC's complaint for failure to state a claim, Doc. 6, and
LBC opposed that motion and alternatively moved for leave to
amend its complaint, Doc. 8. This Court now grants LBC's
motion for leave to amend its complaint and grants
ResQSoft's motion to dismiss only as to LBC's claim
founded in breach of contract.
I.
Background
LBC is
a limited liability company incorporated under the laws of
South Dakota and has its principal place of business in South
Dakota. Doc. 1 at ¶ 1; Doc 8-1 at ¶ 1. ResQSoft is
a Virginia corporation with its principal place of business
in Virginia. Doc. 1 at ¶ 2; Doc. 8-1 at ¶2. LBC
alleges that in early 2014, LBC and ResQSoft entered into a
verbal partnership to secure government contracts dealing
with legacy software upgrades, and that under this
arrangement, LBC forwarded funds to ResQSoft in the amount of
$126, 558.83 between March of 2014 and January of 2015. Doc.
1 at ¶¶ 6-7; Doc. 8-1 at ¶¶ 6-7. LBC
further alleges that ResQSoft agreed these funds were given
as a loan, which would accrue interest at five percent per
annum, but that this loan agreement was not reduced to any
form of writing. Doc. 1 at ¶¶ 8-9; Doc. 8-1 at
¶¶ 8-9. LBC has demanded repayment of these funds,
and ResQSoft has refused this demand. Doc. 1 at ¶¶
11-12; Doc. 8-1 at ¶¶ 11-12.
After
LBC filed its complaint, ResQSoft moved under Rule 12(b)(6)
of the Federal Rules of Civil Procedure to dismiss the
complaint for failure to state a claim, arguing that the
statute of frauds under South Dakota law barred LBC's
claim because loan agreements must be in writing. Doc. 7 at
2-3. LBC counters that equitable estoppel prevents ResQSoft
from invoking the statute of frauds, and alternatively seeks
leave to amend its complaint to allege claims of both breach
of contract and unjust enrichment. Doc. 9 at 1-3. ResQSoft
argues that equitable estoppel does not apply here as a
matter of law and that LBC should not be allowed to amend its
complaint because the unjust enrichment claim fails as a
matter of law. Doc. 13 at 2-6. This Court first addresses
LBC's motion to amend and the unjust enrichment claim
therein, and then addresses whether the equitable estoppel
argument saves LBC's breach of contract claim.
II.
Discussion
A.
LBC's Motion to Amend its Complaint to Include Unjust
Enrichment
LBC
moves to amend its complaint, Doc. 8, and attached its
proposed amended complaint. Doc. 8-1. "A decision
whether to allow a party to amend [a] complaint is left to
the sound discretion of the district court" Popoalii
v. Corr. Med. Servs.. 512 F.3d 488, 497 (8th Cir. 2008).
"A party may amend its pleading once as a matter of
course within ... 21 days after serving it."
Fed.R.Civ.P. 15(a)(1)(A). "In all other cases, a party
may amend its pleading only with the opposing party's
written consent or the court's leave." Fed.R.Civ.P.
15(a)(2). Motions for leave to amend "should be freely
given in order to promote justice." Plymouth Cty. v.
Merscorp, Inc., 774 F.3d 1155, 1160 (8th Cir. 2015).
LBC's
proposed amended complaint does not actually add any factual
allegations, but rather specifies two counts-breach of
contract and unjust enrichment. Doc. 8-1 at 3. LBC's
original complaint, while not entirely clear, can be read to
allege only breach of an oral loan agreement. See Doc. 1.
LBC's original complaint contained factual allegations to
support a claim for unjust enrichment, but did not expressly
plead unjust enrichment. LBC's proposed amended complaint
specifies separate claims of breach of contract and unjust
enrichment, albeit based on the same factual allegations in
the original complaint. Doc. 8-1 at ¶¶ 15-24.
ResQSoft argues that the unjust enrichment claim fails as a
matter of law, and opposes the motion for leave to amend.
Doc. 13 at 4-6.
Because
this action is brought under diversity jurisdiction, this
Court applies state substantive law. See Fogelbach v.
Wal-Mart Stores. Inc.. 270 F.3d 696, 698 (8th Cir.
2001). Both parties' briefing recognizes that South
Dakota-where LBC is incorporated and has its principal place
of business-is the state whose substantive law applies here.
Docs. 7, 9, 13. Under South Dakota law, "[u]njust
enrichment occurs when one confers a benefit upon another who
accepts or acquiesces in that benefit, making it inequitable
to retain that benefit without paying." Hofeldt v.
Mehling. 658 N.W.2d 783, 788 (S.D. 2003) (citation and
internal quotation marks omitted). A plaintiff alleging
unjust enrichment under South Dakota law must prove three
elements: 1) that the plaintiff conferred a benefit on the
defendant; 2) that the defendant was aware of the benefit;
and 3) that the defendant would be unjustly enriched if it is
allowed to retain the benefit without reimbursing the
plaintiff. N. Valley Commc'ns. LLC v. Qwest
Comm'n Corp.. 659 F.Supp.2d 1062, 1071 (D.S.D 2009);
Parker v. W. Dakota Ins.. Inc.. 605 N.W.2d 181, 187
(S.D. 2000).
The
question here is whether LBC has pleaded factual allegations
sufficient to make a plausible showing that it is entitled to
relief under a theory of unjust enrichment. Ashcroft v.
Iqbal. 556 U.S. 662, 678 (2009). The first element of
LBC conferring a benefit on ResQSoft is clearly met; LBC
alleges that it provided funds to ResQSoft in the amount of
$126, 558.83 between March of 2014 and January of 2015. Doc.
1 at ¶¶ 6-7; Doc. 8-1 at ¶¶ 6-7. LBC
further alleges that ResQSoft used those funds in its
business, and has refused LBC's demand for repayment,
Doc. 1 at ¶¶ 11-12; Doc. 8-1 at ¶¶ 11-12,
thus establishing the second element of ResQSoft being aware
of the benefit.
Whether
LBC has pleaded factual allegations sufficient to plausibly
establish the third element is the contested issue here.
Showing that an enrichment would be unjust is an inquiry
which "is necessarily focused on the nature of the
transfer itself." Dowling Family P'ship v.
Midland Farms. 865 N.W.2d 854, 864 (S.D. 2015). "An
enrichment is unjust if it 'lacks an adequate legal
basis; [i.e., ] it results from a transaction that the law
treats as ineffective to work a conclusive alteration in
ownership rights.'" Id. (alteration in
original) (quoting Restatement (Third) of Restitution and
Unjust Enrichment § 1 cmt. b (2011)). "Enrichment
is unjust if it is a result of money paid by mistake."
Parker, 605 N.W.2d at 187 (citation omitted). LBC
alleges that the parties intended the funds transferred to
ResQSoft by LBC to constitute a loan with interest at five
percent, but South Dakota law requires loan agreements to be
in writing and LBC has admitted that no such writing exists.
See SDCL § 53-8-2(4); Doc. 1 at ¶ 9; Doc. 8-1 at
¶ 9. LBC has alleged that it paid money to ResQSoft
pursuant to a mistake of law, and has therefore established
the third element for a claim of unjust enrichment. See
United States v. Black Hills Tree Farm. No. CIV.
09-5049-JLV, 2011 WL 1044376, at *11 (D.S.D. Mar. 17, 2011)
("Whether by fraud ... or a mistake of law or fact under
the common law claims, the retention of these funds by . . .
defendants would be a mistake, and thus, unjust
enrichment.") (internal quotations omitted);
Parker. 605 N.W.2d at 187 ("Enrichment is
unjust it is a result of money paid by mistake.").
LBC's complaint sufficiently pleads facts which
"state a claim to relief that is plausible on its face,
" and therefore justice is promoted by granting
LBC's motion to amend its complaint.
B.
ResQSoft's Motion to Dismiss
On a
motion to dismiss under Rule 12(b)(6), a court must accept
the plaintiffs factual allegations as true and construe all
inferences in the plaintiffs favor, but need not accept a
plaintiffs legal conclusions. Retro Television Network,
Inc. v. Luken Commc'ns, LLC. 696 F.3d 766, 768-69
(8th Cir. 2012). To survive a motion to dismiss for failure
to state a claim, a complaint must contain "a short and
plain statement of the claim showing that the pleader is
entitled to relief." Fed.R.Civ.P. 8(a)(2). Although
detailed factual allegations are unnecessary, the plaintiff
must plead enough facts to "state a claim to relief that
is plausible on its face." Iqbal, 556 U.S. at
678 (quoting Bell Atl. Corp. v. Twomblv. 550 U.S.
544, 570 (2007)). "A claim has ...