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Brown v. Kruger Family Holdings, II, LLC

United States District Court, N.D. Oklahoma

August 28, 2019

JOHN P. BROWN, Plaintiff,
KRUGER FAMILY HOLDINGS II, LLC, an Oklahoma limited liability company; WARREN F. KRUGER; and DAVID KRUGER, Defendants.



         This matter comes before the court on the Joint Motion to Dismiss [Doc. 11] of defendants Kruger Family Holdings II, LLC, Warren F. Kruger, and David Kruger. For the reasons set forth below, the motion is denied.

         I. Allegations of the Complaint

         The Complaint includes the following allegations. Plaintiff John P. Brown has long been employed in the plastics industry and is skilled in the art of polymer formulations. [Doc. 2, ¶ 7]. Brown met defendants Warren F. Kruger and David Kruger through their involvement in the plastics industry. [Id. ¶ 8]. For several years prior to 2013, Brown provided consulting services to the Krugers and their business, Greystone Logistics, LLC, a manufacturer of plastic delivery pallets. [Id.].

         In 2013, the Krugers became interested in purchasing the assets of a company in receivership-Lexington Logistics, LLC. Lexington's assets included plastics manufacturing equipment, and the Krugers planned to use those assets in a new entity, Trienda. [Id. ¶ 9]. The Krugers anticipated that Trienda could utilize the Lexington equipment in conjunction with a formula developed by Brown to produce less expensive plastic resin (“Brown Formula”), and wanted Brown to go into business with them. [Id.]. To that end, Brown, the Krugers, and Kruger Family Holdings II, LLC[1], negotiated a Memorandum of Agreement (“Agreement”).[2] [Id. ¶ 10]. Per the Agreement, Brown provided a $250, 000 loan to defendants, which allowed defendants to obtain financing for the Lexington asset purchase. [Id.]. Upon the closing of the asset purchase, the loan was converted to purchase twelve percent (12%) equity in Trienda. [Id.; see also Doc. 2-1, § 2.2]. Brown serves as the Chief Executive Officer of Trienda and David Krueger is Trienda's President. [Doc. 2, ¶ 10]. Ownership of Trienda was transferred to Kruger Brown Holdings, LLC (“Kruger Brown”) and Brown holds a minority interest in Kruger Brown. [Id.]. Brown asserts that “[t]he business relationship between Brown and Defendants amounts to a joint venture.” [Id. ¶ 29].

         The Agreement further provided “[t]hat BROWN is to receive 1 USD ccp (cent per pound) royalty, in perpetuity, on any resin material black master batch produced on behalf of Trienda Holdings LLC.” [Id.11; Doc. 2-1, § 3.1(d)]. The Complaint alleges the royalty provision “was the lynch pin of [Brown's] agreement with the Krugers, ” and that, “[w]ithout the royalty payments, Brown would never have agreed to go into business with the Krugers.” [Doc. 2, ¶ 12]. Brown alleges that defendants agreed to Brown's royalty demand because Brown's expertise and involvement was “necessary to induce Defendants' lenders to provide financing.” [Id. ¶ 13].

         After the Lexington asset purchase closed, extrusion, conveying, and storage equipment, now owned by Trienda, was installed at the Greystone Logistics facility. [Id. ¶ 14]. There, Brown alleges that, as a result of hundreds, if not thousands, of hours of work by Brown, the Brown Formula was successfully implemented, and resin was produced for resale to Trienda. [Id.]. The price for the Brown Formula resin sold to Trienda included a markup for the royalty payable to Brown. [Id. ¶ 15]. Brown alleges royalty payments were “slow to begin, ” but that he eventually began receiving royalties on the Greystone-produced Brown Formula resin resold to Trienda. [Id.].

         Meanwhile, Brown oversaw the design and installation of equipment necessary for producing the Brown Formula resin at Trienda's facility. [Id. ¶ 16]. Shortly after the Trienda process was up and running, in December 2017, David Kruger informed Brown that Brown would no longer receive royalty payments provided for in the Agreement. [Id.]. David Kruger took the position that Brown had waived his right to the royalty payments. [Id.].

         Brown alleges that he never signed any document to modify the Agreement. [Id. ¶ 17]. Further, prior to Brown completing the installation of the equipment to produce the Brown Formula at the Trienda facility, the Krugers allegedly did not mention to Brown that he had “somehow waived” his royalty right and would no longer be receiving royalty payments on the Brown Formula resin produced by Trienda. [Id.]. Brown asserts that defendants never informed him of their intent to stop paying his royalty and “never mentioned to [him] that his royalty rights might be impacted by various Trienda transactions-until after Brown had completed installation of equipment necessary to produce the Brown Formula resin at Trienda.” [Id. ¶ 30].

         Based on the foregoing allegations, Brown asserts three claims: (1) breach of contract; (2) unjust enrichment; and (3) breach of fiduciary duty. [Id. at pp. 4-5]. Brown also seeks a declaratory judgment that the Agreement is a valid contract between Brown and the defendants, and explicitly provides that Brown is entitled to royalties on the Brown Formula resin produced on behalf of Trienda in perpetuity. [Id. at p. 6].

         II. Motion to Dismiss Standard

         Federal Rule of Civil Procedure 8 requires a pleading to contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). “To 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.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Id. (quoting Twombly, 550 U.S. at 555). “Factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. The court accepts as true all factual allegations, but the tenet is inapplicable to legal conclusions. Iqbal, 556 U.S. at 678.

         III. Analysis

         As previously stated, Brown asserts three claims for relief: (1) breach of contract; (2) unjust enrichment; and (3) breach of fiduciary duty. Defendants seek dismissal of the unjust enrichment and breach of fiduciary duty claims. The court separately ...

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