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Shepherd Seed Co., LLC v. Pioneer Hi-Bred International, Inc.

United States District Court, D. South Dakota, Central Division

June 21, 2018

SHEPHERD SEED COMPANY, LLC, Plaintiff,
v.
PIONEER HI-BRED INTERNATIONAL, INC., Defendant.

          OPINION AND ORDER DENYING MOTION TO DISMISS

          ROBERTO A. LANGE UNITED STATES DISTRICT JUDGE

         Plaintiff Shepherd Seed Company, LLC (Shepherd Seed) sued Defendant Pioneer Hi-Bred International, Inc. (Pioneer) for breach of contract, claiming that Pioneer owes it bonus payments for selling Pioneer's soybean seed. Doc. 8. Pioneer moved to dismiss Shepherd Seed's amended complaint, arguing that the statute of frauds made the alleged contract unenforceable. Doc. 9. Because Shepherd Seed has adequately pleaded an exception to the statute of frauds, Pioneer's motion to dismiss is denied.

         I. Facts

         In 2010, Scott Johnson, a Pioneer representative, began recruiting Steve Shepherd and his sons Caleb and Shane (collectively "the Shepherds") to sell Pioneer soybean seed in bulk. Doc. 8 at ¶¶ 5, 7. Selling Pioneer soybean seed in bulk required building a costly bulk system, but Pioneer's ProBulk System Sales program allowed bulk seed sales representatives to receive bonuses of $2.50 from Pioneer for every unit of bulk sales, up to 75% of the construction or purchase price of the bulk system, excluding concrete and electricity costs. Doc. 8 at ¶¶ 7-8. During an event Pioneer hosted in Chamberlain, South Dakota, in the fall of 2010, Pioneer's representatives introduced the Shepherds to the ProBulk System Sales program and persuaded them to sell Pioneer's seed in bulk. Doc. 8 at ¶¶ 7-8. Sometime during or shortly after the event in Chamberlain, the Shepherds, as officers of Shepherd Seed, executed a written ProBulk System Sales Representative Agreement (Agreement) provided by Pioneer. Doc. 8 at ¶ 9. Shepherd Seed alleges that this Agreement constituted a written contract between the parties embodying the terms of the ProBulk System Sales program, namely that bulk seed sales representatives would receive the bonus payments discussed above. Doc. 8 at ¶9. Shepherd Seed provided the executed Agreement to Johnson, who in turn submitted the Agreement to Pioneer. Doc. 8 at ¶ 10.

         Relying on Pioneer's representations in the Agreement and at the Chamberlain event, Shepherd Seed constructed a bulk system consisting of five bins, a seed treater and treater building, pumps, computer systems, and the other necessary components. Doc. 8 at ¶ 11. Shepherd Seed began selling Pioneer's seed in bulk out of its bulk system in 2011 and continued doing so through August 2016. Doc. 8 at ¶ 15. As part of the Agreement and the ProBulk System Sales program, Pioneer placed its logo on Shepherd Seed's bins and buildings at Shepherd Seed's expense. Doc. 8 at ¶ 14. Shepherd Seed expanded its bulk system in 2013 and submitted its costs of construction to Pioneer. Doc. 8 at ¶ 16. Shepherd Seed alleges that it was incentivized to expand when it did because the Shepherds understood that while Pioneer would be discontinuing the ProBulk System Sales program, bulk systems existing before that time would be grandfathered into the program. Doc. 8 at ¶ 16.

         According to Shepherd Seed, Pioneer has refused to pay Shepherd Seed any of the bonuses promised under the ProBulk System Sales program and the parties' Agreement. Doc. 8 at ¶ 18. When Shepherd Seed inquired about the unpaid bonus payments, Pioneer initially claimed that the payments were included in the periodic commission payments Shepherd Seed received. Doc. 8 at ¶ 19. Pioneer later claimed that no bonus payments were made because Shepherd Seed did not enter into an agreement with Pioneer to participate in the ProBulk System Sales program until 2015. Doc. 8 at ¶ 20.

         Shepherd Seed filed an amended complaint against Pioneer in March 2018. Doc. 8. Count I of the amended complaint asserted a claim for breach of contract, alleging that Pioneer had violated the Agreement by failing to pay Shepherd Seed bonuses for selling Pioneer's soybean seed in bulk. Doc. 8 at ¶¶ 21-25. Count II of the amended complaint asserted a claim for breach of the implied covenant of good faith and fair dealing, alleging that Pioneer had violated the implied covenant by falsely claiming that the bonus payments had been made as part of Shepherd Seed's commission payments and by denying that Shepherd Seed was a participant in the ProBulk System Sales program. Doc. 8 at ¶¶ 26-31. Pioneer moved to dismiss the amended complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Doc. 9.[1]

         II. Standard for a Motion to Dismiss under Rule 12(b)(6)

         On a motion to dismiss under Rule 12(b)(6), courts must accept a 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." Ashcroft v. Iqbal 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly. 550 U.S. 544, 570 (2007)). A claim is plausible on its face "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., "even if it strikes a savvy judge that actual proof of those facts is improbable, and 'that a recovery is very remote and unlikely, '" Twombly, 550 U.S. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (i974)). Still, "conclusory statements" and "naked assertion[s] devoid of further factual enhancement" do not satisfy the plausibility standard. Iqbal, 556U.S.at678 (alteration in original) (citation and internal marks omitted).

         III. Analysis

         A. Breach of Contract Claim

         Pioneer's motion to dismiss Shepherd Seed's breach of contract claim turns on South Dakota's statute of frauds. Under that statute, an "agreement that by its terms is not to be performed within a year from the making thereof is unenforceable unless the agreement is reduced to writing and signed by the party to be charged. SDCL § 53-8-2(1). The purpose of the statute of frauds "is to remove uncertainty by providing written evidence of an enforceable obligation, " but the statute cannot itself be used to perpetrate a fraud. Biegler v. Kraft. 924 F.Supp.2d 1074, 1084 (D.S.D. 2013) (quoting Jacobson v. Gulbransen. 623 N.W.2d 84, 90 (S.D. 2001)). Thus, for instance, a party could not "accept the benefits of a contract that the statute of frauds requires to be in writing, and then invoke the statute to avoid payment." Lampert Lumber Co. v. Pexa, 184 N.W. 207, 208 (S.D. 1921). To avoid such injustices, South Dakota recognizes certain exceptions to the statute of frauds. Jacobson. 623 N.W.2d at 90-91. The question here is whether one of these exceptions applies. Pioneer argues that Shepherd Seed fails to state a claim for breach of contract because although Shepherd Seed alleges a multi-year agreement, it fails to allege the existence of a written contract signed by Pioneer. Pioneer evidently did not countersign the Agreement it had Shepherd Seed sign. Shepherd Seed does not contend that its Agreement with Pioneer could have been performed within one year such that the statute of frauds does not apply. Instead, Shepherd Seed argues that the doctrine of promissory estoppel removes the Agreement from the statute of frauds.

         Promissory estoppel is a "recognized exception" to South Dakota's statute of frauds. Biegler, 924 F.Supp.2d at 1086. The Supreme Court of South Dakota has provided two similar but slightly different tests for promissory estoppel. In some cases, the Supreme Court of South Dakota has identified the elements of promissory estoppel as "a promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance." Jacobson, 623 N.W.2d at 91 (alteration and internal marks omitted) (quoting Scott v. Hyde, 440 N.W.2d 528, 531 (S.D. 1989)). Such a promise becomes binding "if injustice can be avoided only by enforcement of the promise." Id. (internal marks omitted). In other cases, however, the Supreme Court of South Dakota has stated that promissory estoppel requires: 1) a promise; 2) that the detriment suffered in reliance on the promise was substantial in an economic sense; 3) that the loss to the promisee was foreseeable by the promissor; and 4) that the promisee acted reasonably in justifiable reliance on the promise made. Durkee v. Van Well 654 N.W.2d 807, 815 (S.D. 2002), abrogated on other grounds by Mundhenke v. Holm, 787 N.W.2d 302 (S.D. 2010).

         Shepherd Seed has adequately pleaded promissory estoppel under both tests. According to the amended complaint, Pioneer promised Shepherd Seed bonus payments in exchange for Shepherd Seed selling Pioneer's soybean seed in bulk. Doc. 8 at ¶¶ 5-9. Taking Shepherd Seed's factual allegations as true and construing all inferences in its favor, Pioneer should have expected that its promise would induce Shepherd Seed to enter into the Agreement and build a bulk system, particularly when Pioneer promised to pay bonuses amounting to up to 75% of the construction price of the bulk system (excluding concrete and electricity costs) and Shepherd Seed signed a contract to that effect. Doc. 8 at ¶¶ 8-10. Pioneer's promise induced Shepherd Seed to build a costly bulk system, which consisted of five bins, a seed treater and treater buildings, pumps, and a computer system. Doc. 8 at ¶¶ 7, 11. Although Pioneer argues that Shepherd Seed's reliance on Pioneer's alleged promise was unreasonable, Shepherd Seed has alleged that Pioneer recruited Shepherd Seed to sell its product, invited Shepherd Seed to the event in Chamberlain, and provided Shepherd Seed with a contract setting forth the terms of the promise, which Shepherd Seed then signed and returned to Pioneer. Doc. 8 at ¶¶ 5, 7-10. These allegations make it plausible that Shepherd Seed had a reasonable basis for relying on Pioneer's promise. In ...


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