United States District Court, S.D. Indiana, Indianapolis Division
ENTRY ON DEFENDANTS' MOTION TO DISMISS AND MOTION FOR SANCTIONS
TIM A. BAKER, District Judge.
Plaintiffs, Bryan and Catherine Dant, were the principal owners of Global Dehumidification Solutions, Inc. ("GDSI"). Plaintiffs entered into agreements with Defendant, Kenneth Cochran, and two of his companies, Equipment Zar, LLC and Defendant, Midwest Rental & Supply, Inc. ("Midwest"). Plaintiffs allege that Defendants converted their property, breached an oral contract, and breached an employment agreement. Defendants move to dismiss Count I (breach of verbal contract), Count III (conversion), Count II's claim for recovery of stock options, and the request for attorney's fees. In addition, Defendants move for sanctions pursuant to Rule 11. For the reasons set forth below, the court GRANTS in part and DENIES in part the motion to dismiss and for sanctions.
The Dants were, at all relevant times until its dissolution, the principal owners of Global Dehumidification Solutions, Inc. ("GDSI"), a company engaged in the business of water disaster recovery. (Complaint ¶¶ 10-11, Filing No. 1, at ECF p. 3). Around April 2010, Plaintiffs, as principals of GDSI, and Defendant Kenneth Cochran began to discuss a merger of GDSI and Defendant Midwest. ( Id. at ¶ 12, Filing No. 1, at ECF p. 3). Rather than merging, on August 8, 2010, GDSI dissolved. ( Id. at ¶ 13, Filing No. 1, at ECF p. 3). On September 15, 2010, Plaintiffs entered into the Equipment Purchase Agreement with Cochran's second company, Equipment Zar, LLC ("Equipment Zar"). ( Id. at ¶ 14, Filing No. 1, at ECF p. 3). Pursuant to the Equipment Purchase Agreement, Equipment Zar agreed to buy all equipment and personal property owned by GDSI and the Dants located at 2620 Leah Drive, Columbia, Tennessee 38401. (Equipment Purchase Agreement, Defendants' Exhibit 1, Filing No. 16-1 at ECF p. 1).
Prior to the execution of the Equipment Purchase Agreement, Plaintiffs entered into a verbal contract with Cochran and Midwest allowing Midwest to use Plaintiffs' equipment and office space in Tennessee to respond to a flood in Nashville, Tennessee. (Complaint ¶ 16, Filing No. 1, at ECF p. 3). Pursuant to that agreement, Plaintiffs were to receive a fair rental rate for all GDSI equipment used by Midwest and a portion of any profits realized by Midwest. ( Id. at ¶ 17, Filing No. 1, at ECF p. 4). Midwest and Cochran have not paid Plaintiffs in accordance with this agreement. ( Id. at ¶ 18, Filing No. 1, at ECF p. 4).
In addition to the Equipment Purchase Agreement, Bryan Dant and Midwest entered into an Employment Agreement on September 14, 2010. ( Id. at ¶ 22, Filing No. 1, at ECF p. 4). As part of this agreement, Dant became responsible for Midwest's marketing activities. ( Id., Filing No. 1, at ECF p. 4). In exchange, Dant received a base salary, a signing bonus, and the possibility of stock options and additional benefits. ( Id. at ¶ 23, Filing No. 1, at ECF p. 5). Dant received his base salary, but did not receive stock options, commissions, or other benefits. ( Id. at ¶¶ 24-25, Filing No. 1, at ECF p. 5).
Defendants bring their motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which authorizes the dismissal of claims for "failure to state a claim upon which relief may be granted." FED. R. CIV. P. 12(b)(6). The purpose of a motion to dismiss is to test the legal sufficiency of the complaint, not the merits of the lawsuit. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). A court may grant a Rule 12(b)(6) motion to dismiss only if a complaint lacks "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A complaint sufficient on its face need not give "detailed factual allegations, " but it must provide more than "labels and conclusions, and a formulaic recitation of the elements of a cause of action." Id. at 555. The court accepts all well-pleaded factual allegations in the complaint as true and draws all reasonable inferences in favor of the plaintiff. See Yeksigian v. Nappi, 900 F.2d 101, 102 (7th Cir. 1990).
A. Count I - Breach of Verbal Contract
In Count I, Plaintiffs allege that Midwest breached an oral contract made between Plaintiffs and Midwest regarding the rental of GDSI equipment and office space in May 2010. According to Defendants, this claim must be dismissed pursuant to the parol evidence rule because the Equipment Purchase Agreement, entered into between Equipment Zar and Plaintiffs, governs the understanding. The parol evidence rule applies, according to Defendants, because the Equipment Purchase Agreement encompasses the same subject matter as the prior verbal agreement and it includes an integration clause, incorporating all prior agreements between the parties on the subject matter. Plaintiffs respond that the verbal contract was between Midwest and Plaintiffs, and thus, the parol evidence rule is inapplicable.
The court agrees with Plaintiffs. The prior verbal agreement between Midwest and Plaintiffs is not subject to the parol evidence rule. The verbal contract and written contract, as alleged in the complaint, are between different entities. The fact that Cochran negotiated both contracts is irrelevant to the parol evidence rule when, as here, the court must accept as true that the verbal agreement was with Midwest rather than Equipment Zar. Therefore, the court will not dismiss this claim.
B. Count II - Breach of Employment Contract
In Count II of the Complaint, Plaintiff alleges that Midwest breached the Employment Agreement by failing to pay Dant for commissions, stock options, expense reimbursements and other compensation. Midwest seeks to dismiss only the claim to the ...