Opinion
Case No. 4:19-cv-00161-SMR-SBJ
2020-09-04
WELLS FARGO BANK, N.A., Plaintiff/Counterclaim Defendant, v. WINDOWS USA, LLC, Defendant/Counterclaimant/Third-Party Plaintiff v. Wells Fargo National Bank West, Third-Party Defendant.
Jesse Linebaugh, David Creasey, Kathryn Skilton, Kwesi Atta-Krah, Faegre Drinker Biddle & Reath LLP, Des Moines, IA, for Plaintiff/Counterclaim Defendant/Third-Party Defendant. Guy R. Cook, Laura Nicole Martino, Michael Darrell Currie, Patrick J. McNulty, Sean M. Corpstein, Grefe & Sidney PLC, Adam D. Zenor, Zenor Kuehner, PLC, Des Moines, IA, Bart Calhoun, Pro Hac Vice, Dustin McDaniel, Pro Hac Vice, Vincent M. Ward, Pro Hac Vice, McDaniel Wolff & Benca PLLC, Little Rock, AR, for Defendant/Counterclaimant/Third-Party Plaintiff.
Jesse Linebaugh, David Creasey, Kathryn Skilton, Kwesi Atta-Krah, Faegre Drinker Biddle & Reath LLP, Des Moines, IA, for Plaintiff/Counterclaim Defendant/Third-Party Defendant.
Guy R. Cook, Laura Nicole Martino, Michael Darrell Currie, Patrick J. McNulty, Sean M. Corpstein, Grefe & Sidney PLC, Adam D. Zenor, Zenor Kuehner, PLC, Des Moines, IA, Bart Calhoun, Pro Hac Vice, Dustin McDaniel, Pro Hac Vice, Vincent M. Ward, Pro Hac Vice, McDaniel Wolff & Benca PLLC, Little Rock, AR, for Defendant/Counterclaimant/Third-Party Plaintiff.
ORDER ON MOTIONS TO DISMISS
STEPHANIE M. ROSE, JUDGE
Wells Fargo Bank, N.A. ("Wells Fargo Bank") sued Windows USA, LLC ("Windows USA") for breach of contract and fraud, alleging Windows USA violated the parties’ consumer financing agreement by failing to honor the bank's right of first refusal and promising to abide by that term of the contract without any intention of ever doing so. See [ECF Nos. 1; 50]. Windows USA counter-sued Wells Fargo Bank and Wells Fargo National Bank West ("Wells Fargo National") (collectively, "Wells Fargo") for a declaratory judgment that the right of first refusal is unenforceable and for damages related to Wells Fargo's alleged tortious interference with its business and prospective customer relationships. See [ECF No. 36]. Both parties moved for partial dismissal of the other's complaint. For reasons stated below, Wells Fargo's Motion to Dismiss, [ECF Nos. 42; 55], is GRANTED, and Windows USA's Motion to Dismiss, [ECF No. 62], is DENIED. I. BACKGROUND
The parties requested a hearing on the pending motions, but the Court concludes the matter can be resolved without oral argument. See LR 7(c).
For the purpose of evaluating the parties’ motions to dismiss, the Court accepts as true the factual allegations set forth in each of the amended complaints, respectively. See Brown v. Medtronic, Inc. , 628 F.3d 451, 459 (8th Cir. 2010) (indicating that courts must accept as true the plaintiff's factual allegations, but they need not accept as true the plaintiff's legal conclusions). The Court takes judicial notice of the documents contemplating agreement between Wells Fargo and Windows USA. See Zean v. Fairview Health Servs. , 858 F.3d 520, 526 (8th Cir. 2017) (quoting Stahl v. U.S. Dep't of Agric. , 327 F.3d 697, 700 (8th Cir. 2003) ); Gorog v. Best Buy Co. , 760 F.3d 787, 793 (8th Cir. 2014).
A. Common Facts
This lawsuit stems from a customer financing agreement between Windows USA and Wells Fargo. Windows USA is an exterior home remodeling company that sells and installs custom vinyl windows. On November 11, 2011, Windows USA and Wells Fargo entered into a General Dealer Agreement ("GDA" or the "Agreement") whereby Wells Fargo would provide Windows USA's customers with financing to purchase home improvement products through the Wells Fargo Home Projects Program. See generally [ECF No. 36-1] (GDA) (sealed). The purpose of the GDA was to provide Widows USA's customers with greater access to credit to purchase its products. If Wells Fargo agreed to provide financing for a Windows USA customer, Wells Fargo would pay to Windows USA the amount invoiced to the customer less "the applicable discount rate" the bank charged for its services. Id. ¶¶ 15–16. In an amendment to the GDA, entered into on December 5, 2011, Windows USA agreed to provide Wells Fargo with a right of first refusal and promised it would not participate in any "consumer financing programs" or "unique credit term plans" other than the Wells Fargo Home Projects Program unless it first submitted the credit application to Wells Fargo and Wells Fargo declined the application. See [ECF No. 36-2 ¶ 3] (sealed) (First Amendment; amending GDA ¶ 48). Windows USA and Wells Fargo amended the GDA three more times throughout their business relationship, on March 3, 2013 (Second Amendment), December 5, 2014 (Third Amendment), and April 10, 2015 (Fourth Amendment).
The contract, initially entered into by Wells Fargo Financial National Bank, was transferred to its affiliate, Wells Fargo Bank, N.A., effective March 13, 2018. [ECF No. 50 ¶¶ 7, 25]. Wells Fargo is a national banking association with its main office in Sioux Falls, South Dakota. Id. ¶ 1. Windows USA maintains its principal place of business in Royal, Arkansas. [ECF No. 36 ¶ 1]. The parties agree they have engaged in business activities within this district in connection with their contractual relationship at issue in this case. See id. ¶¶ 5–7; [ECF No. 50 ¶¶ 3–5]
B. Wells Fargo's Allegations
In this lawsuit, Wells Fargo alleges Windows USA failed to honor its right of first refusal by submitting financing applications to competing consumer credit companies in violation of the amended GDA. [ECF No. 50 ¶¶ 14–17]. Wells Fargo alleges that in November of 2017, Michael Allbritton, President and CEO of Windows USA, admitted to Wells Fargo representatives that Windows USA was offering its customers consumer financing programs through other companies like Synchrony Financial and GreenSky LLC without first submitting such applications to Wells Fargo. Id. ¶¶ 15–17. Wells Fargo alleges Allbritton also admitted the company had been doing so since at least December of 2011, very shortly after the parties signed the GDA. Id. This constitutes a material breach of the GDA, the bank contends, and it seeks actual and compensatory money damages in excess of $7,000,000.
According to Wells Fargo, this breach of contract also constitutes actionable fraud. Wells Fargo contends that Windows USA's conduct since the inception of the parties’ business relationship demonstrates Windows USA never had any intention to honor the bank's right of first refusal or perform its duty to refrain from presenting consumer credit applications to competing financing companies under the amended GDA. Id. ¶ 19. It also claims the company took active steps to conceal its non-performance by "rebuffing [Wells Fargo]’s questions around whether Windows USA was violating the right of first refusal" and falsely representing its compliance by executing three additional amendments to the GDA. See id. ¶¶ 20–22.
C. Windows USA's Allegations
For its part, Windows USA charges Wells Fargo with using its superior position under the GDA to unjustly enrich itself at the home improvement company's expense. Windows USA alleges Wells Fargo drastically increased the "discount rate" charged for its financing services and obliquely enhanced the credit standards for customer-applicants to increase the bank's profit margin and avoid paying Windows USA "growth rebates" and "volume bonuses" available under the second and third amendments to the GDA. [ECF No. 36 ¶¶ 18–23]; see also [ECF Nos. 36-3 ¶¶ 5–6; 36-4 ¶¶ 4–5]. Windows USA also claims Wells Fargo violated the GDA by failing to disburse any "program funds"—a pool of $50,000 set aside for participants in the Wells Fargo Home Projects Program to support and promote the program's financing initiative—to Windows USA. [ECF No. 36 ¶¶ 24-25]. When Windows USA objected to the increased discount rates, the company claims, Wells Fargo immediately terminated the GDA and withheld payments on outstanding invoices totaling $206,000, without any detailed accounting. See id. ¶ 27–29. Windows USA claims Wells Fargo has refused to disburse those funds within one year of ending the agreement as required by the GDA. See id. ; see also [ECF No. 36-1 ¶ 28].
Windows USA counter-sued Wells Fargo after the initiation of this lawsuit. Windows USA seeks to have the right of first refusal provision in the GDA declared invalid and unenforceable, contending Wells Fargo did not offer additional consideration for amending the GDA to support the bank's right of first refusal. Id. ¶¶ 40, 42. The company also sues for breach of contract pertaining to Wells Fargo's refusal to return funds held in the reserve account upon the termination of the GDA, see id. ¶¶ 46–50, and claims the bank unjustly enriched itself by failing to return the balance of that account, id. ¶¶ 52–57. In addition, Windows USA contends Wells Fargo breached the implied covenant of good faith and fair dealing by arbitrarily increasing the applicable discount rate and failing to evaluate the credit applications of the company's customers in good faith. Id. ¶¶ 61-65. Finally, Windows USA alleges Wells Fargo tortiously interfered with its prospective business advantage by denying applications for credit submitted by prospective customers in need of financing, causing Windows USA to lose sales. See id. ¶¶ 67–69.
D. Cross-Motions to Dismiss
Presently, both parties seek dismissal of one or more claims contained in the other's pleadings. Wells Fargo moves to dismiss Windows USA's claim for declaratory judgment on the right of first refusal and its claim for tortious interference with prospective business advantage. See [ECF No. 42]. According to Wells Fargo, Windows USA's position that the right of first refusal in the First Amendment to the GDA lacked consideration ignores the modification of the legal relationship between the two entities by restricting Wells Fargo's ability to terminate the GDA. Moreover, the bank points out that the GDA did not grant Windows USA the freedom or discretion to decide whether or not to perform its obligations under the right of first refusal provision of that agreement, and is therefore not illusory or otherwise unenforceable. Wells Fargo also contends Windows USA's claim for tortious interference with prospective business advantage relates to and arises out of the GDA, so Windows USA is not permitted to bring a tort claim for one that sounds in contract. Windows USA fails to allege any prospective contractual relationship necessary to sustain such a claim, the bank continues, and fails to state a claim as a matter of law because the company's allegations imply Wells Fargo interfered with its own contracts—a result not permitted under applicable law.
Windows USA moves to dismiss Wells Fargo's accusation of fraud. See [ECF No. 62]. It argues Wells Fargo has merely re-pleaded its breach of contract claim as one for fraud and has otherwise failed to allege facts demonstrating fraud with the requisite degree of specificity. Windows USA claims any allegations of fraud, even if cognizable, are untimely and barred by the statute of limitations.
II. STANDARD OF REVIEW
The Federal Rules of Civil Procedure require a complaint to present "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Conversely, a complaint is subject to dismissal when it "fail[s] to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To meet this standard, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Braden v. Wal-Mart Stores, Inc. , 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). All reasonable inferences must be drawn in the plaintiff's favor, Crooks v. Lynch , 557 F.3d 846, 848 (8th Cir. 2009), but "[t]he facts alleged in the complaint ‘must be enough to raise a right to relief above the speculative level,’ " Clemons v. Crawford , 585 F.3d 1119, 1124 (8th Cir. 2009) (quoting Drobnak v. Andersen Corp. , 561 F.3d 778, 783 (8th Cir. 2009) ).
Allegations of fraud are subject to a heightened pleading standard. "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). This requires the complaint to plead the "who, what, where, when, and how" of the alleged fraud. United States ex rel. Joshi v. St. Luke's Hosp., Inc. , 441 F.3d 552, 556 (8th Cir. 2006). In other words, the party alleging fraud in the making of a contract must articulate "such matters as the time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby." Ambassador Press, Inc. v. Durst Image Tech. U.S., LLC , 949 F.3d 417, 421 (8th Cir. 2020) (quoting Schaller Tel. Co. v. Golden Sky Sys. Inc. , 298 F.3d 736, 746 (8th Cir. 2002) ). Matters such as "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally," Fed. R. Civ. P. 9(b), though the complaint must still "set forth specific facts that make it reasonable to believe that defendant[s] knew that a statement was materially false or misleading," Asbury Square, L.L.C. v. Amoco Oil Co. , 221 F.R.D. 497, 501 (S.D. Iowa 2004) (quoting Lucia v. Prospect Street High Income Portfolio, Inc. , 36 F.3d 170, 174 (1st Cir. 1994) ); Brown v. N. Cent. F.S., Inc. , 987 F. Supp. 1150 (N.D. Iowa 1997) (Bennett, J.) (citation omitted); see also Commercial Prop. Invs., Inc. v. Quality Inns Int'l, Inc. , 61 F.3d 639, 644 (8th Cir. 1995) ("[C]onclusory allegations that a defendant's conduct was fraudulent and deceptive are not sufficient to satisfy the rule.").
III. ANALYSIS
A. Wells Fargo's Motion to Dismiss
Turning first to Wells Fargo's motion, the Court considers Windows USA's claim for declaratory judgment and whether the amended GDA's right of first refusal is valid and enforceable. The Court then considers the viability of Windows USA's claim for intentional interference with a prospective business relation and whether the cause of action is sufficiently distinct from the contract to stand alone as a tort.
1. Right of First Refusal
Wells Fargo first moves to dismiss Windows USA's counterclaim and third-party complaint for declaratory judgment. Under the Declaratory Judgment Act, "any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought" so long as there is an "actual controversy within its jurisdiction." 28 U.S.C. § 2201(a). "The test to determine whether there is an actual controversy within the meaning of the Declaratory Judgment Act is whether ‘there is a substantial controversy between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.’ " Marine Equip., Mgmt. Co. v. United States , 4 F.3d 643, 646 (8th Cir. 1993) (citation omitted). Wells Fargo contends Windows USA's substantive allegations do not establish a claim showing the company is entitled to the declaratory relief it seeks because the position that the GDA is invalid and unenforceable fails on the merits. See Fed. R. Civ. P. 12(b)(6). The Court agrees.
Federal pleading standards apply to claims for declaratory judgment, requiring the party seeking such relief to state factual allegations that comply with Rule 8(a). Karnatcheva v. JPMorgan Chase Bank, N.A. , 704 F.3d 545, 547 (8th Cir.) (citing Fed. R. Civ. P. 57 ); see also 10B Mary Kay Kane, Federal Practice & Procedure § 2768 (4th ed.). Thus, in seeking a declaratory judgment—as with any remedy—Windows USA must state a claim upon which relief can be granted. See Fed. R. Civ. P. 8(a).
The parties agree Nevada law governed the GDA during the time period in question and applies to the contractual dispute in the present case. [ECF No. 36-1 ¶ 45]. A valid contract requires "an offer and acceptance, meeting of the minds, and consideration." May v. Anderson , 121 Nev. 668, 119 P.3d 1254, 1257 (2005). Additional consideration is required to modify an existing contract. See Ins. Co. of the W. v. Gibson Tile Co. , 122 Nev. 455, 134 P.3d 698, 703 (2006) (en banc). "Consideration is the exchange of a promise or performance, bargained for by the parties." Jones v. SunTrust Mortg., Inc. , 128 Nev. 188, 274 P.3d 762, 764 (2012) (en banc).
In actions for declaratory judgment before a court sitting in diversity jurisdiction, federal law governs the issuance of a declaratory judgment while state law determines the substantive rights of the parties and the merits of the dispute. Modern Equip. Co. v. Continental W. Ins. Co., Inc. , 146 F. Supp. 2d 987, 990 (S.D. Iowa 2001) (citing Federal Kemper Ins. Co. v. Rauscher , 807 F.2d 345, 352 (3d Cir. 1986) ); see also Aetna Life Ins. Co. v. Haworth , 300 U.S. 227, 240, 57 S.Ct. 461, 81 L.Ed. 617 (1937) (stating the Declaratory Judgment Act is procedural in nature).
Here, Windows USA states the following allegations supporting the company's claim for a declaratory judgment in its favor: Windows USA and Wells Fargo entered into the GDA and First Amendment on November 21, 2011, [ECF No. 36 ¶¶ 10, 12, 38]; the First Amendment granted Wells Fargo a right of first refusal, restricting its access to third-party financing, id. ¶ 39; Wells Fargo "did not offer additional consideration" in exchange for the right of first refusal, id. ¶ 40; and the right of first refusal "is entirely optional on the part of Wells Fargo" and is therefore illusory, id. ¶ 41. These cursory statements are legal conclusions that are not entitled to the presumption of truth. They further ignore the substantive changes made to the parties’ agreement in the First Amendment. By the express terms of the First Amendment, Wells Fargo gave up its right to terminate the agreement upon written notice at any time and agreed to provide at least thirty days written notice prior to the end of the contract term; Wells Fargo gave up its right to unilaterally terminate the agreement without notice if Windows USA failed to submit invoices or applications during any consecutive six-month period; and Wells Fargo promised to provide written notice to Windows USA if the bank sought to terminate the agreement by reason of any other specifically-enumerated condition. Compare [ECF No. 36-1 ¶ 26(a)] with [ECF No. 36-2 ¶ 2(a)–(b)]. Thus, in entering into the First Amendment, Wells Fargo modified the legal relationship between itself and Windows USA to its detriment as consideration for the right of first refusal in its favor. See Restatement (Second) of Contracts § 71(3)(c) (Am. Law Inst. 1981) (stating consideration may consist of "the creation, modification, or destruction of a legal relation"); id. § 80 ("Since consideration is not required to be adequate in value ... two or more promises may be binding even though made for the price of one."); cf. Dayside Inc. v. First Judicial Dist. Court of State of Nev., in & for Carson City , 119 Nev. 404, 75 P.3d 384, 387 (2003) (holding waiver provision at issue was supported by same consideration of mutual promises that supported entire contract), overruled on other grounds by Lehrer McGovern Bovis, Inc. v. Bullock Insulation, Inc. , 124 Nev. 1102, 197 P.3d 1032 (2008).
Generally, the Court does not consider matters outside the pleadings in deciding a motion to dismiss under Rule 12. But "documents ‘necessarily embraced by the complaint’ are not matters outside the pleading." Enervations, Inc. v Minn. Mining & Mfg. Co. , 380 F.3d 1066, 1069 (8th Cir. 2004) (citations omitted). And documents incorporated by reference, items necessarily "integral to the claim," and matters "subject to judicial notice" or of public record may properly be considered in evaluating whether a complaint states a claim for which relief may be granted. 5B Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (3d ed.) ; see also Fed. R. Civ. P. 10(c) ("A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes."). The GDA and its subsequent amendments are attached to Windows USA's pleadings and embraced by Wells Fargo's Complaint, and therefore are not matters "outside the pleadings."
Windows USA does not contest the alterations to the parties’ legal relationship enacted through the First Amendment but obliquely implies they are inadequate consideration for the modification and the First Amendment was therefore not a bargained-for exchange. Contract formation requires "mutuality of obligation" only to the extent that there be an actual exchange of promises or performance binding both parties, however, and Windows USA offers no reason to inquire into the adequacy or value of the exchange. See Oh v. Wilson , 112 Nev. 38, 910 P.2d 276, 279 (1996) (per curiam) (citing Restatement (Second) of Contracts § 79 ) (stating "courts may inquire into the adequacy of consideration when it is relevant to ascertaining whether fraud, lack of capacity, mistake, duress or undue influence exist," but "inadequacy of consideration standing alone does not justify rescission of a contract or release"). Windows USA's passing charge that the GDA, prior to any amendment, was otherwise unenforceable lacks any explanation or substance and is not alleged in its pleadings.
Finally, Windows USA argues that the right of first refusal is illusory, but the company's position rests on a misunderstanding of that doctrine. "A contract or promise is illusory if there is ‘a promise merely in form, [that] in actuality [does] not promis[e] anything.’ " Hillgen-Ruiz v. TLC Casino Enters., Inc. , No. 2:14-cv-0437-APG-VCF, 2014 WL 5341676, at *7 (D. Nev. Oct. 20, 2014) (alterations in original) (quoting 3 Williston on Contracts § 7:7 (4th ed.) ); accord Restatement (Second) of Contracts § 77 ("Words of promise which by their terms make performance entirely optional with the ‘promisor’ do not constitute a promise."). Here, the right of first refusal is Windows USA's promise, not Wells Fargo's. Nothing about it is optional on the part of Windows USA. See [ECF No. 36-2 ¶ 3]. That Wells Fargo may choose to waive a violation of that obligation is a non-issue. See [ECF No. 36-1 ¶ 32] ("[Wells Fargo's] failure at any time to insist upon the performance of any provision of this Agreement will not operate as a waiver of any right or remedy [the bank] ha[s] under this Agreement.").
In sum, the allegations underlying Windows USA's claim for declaratory relief merely recite unsupported legal conclusions and fail to plead facts that state a claim for which relief is available. As such, Count I of Windows USA's Counterclaim and Third-Party Complaint is dismissed.
2. Tortious Interference with Prospective Business Advantage
Wells Fargo also moves to dismiss Windows USA's claim for tortious interference with prospective business advantage. Windows USA alleges Wells Fargo intentionally interfered with Windows USA's business relationship with its customers "by denying applications for credit to avoid paying growth rebates or volume incentives, even though these customers were otherwise creditworthy and qualified for Wells Fargo Financial financing." [ECF No. 36 ¶ 68]. Wells Fargo contends this claim is not actionable because the conduct upon which the tort is founded arises from the GDA and the cause of action necessarily sounds in contract, not tort.
As a preliminary matter, the parties dispute what substantive law applies to Windows USA's tort claim. Wells Fargo urges the factors laid out in Terra Int'l Inc. v. Miss. Chem. Corp. , 119 F.3d 688, 695 (8th Cir. 1997), determining whether a tort claim is governed by a contractual forum selection clause to support transfer of venue under 28 U.S.C. § 1404, weigh in favor of applying Nevada law. See also High Plains Const., Inc. v. Gay , 831 F. Supp. 2d 1089, 1100–01 (S.D. Iowa 2011). Windows USA, without citation, asserts Iowa law somehow applies. "[B]efore entangling itself in messy issues of conflict of laws," however, "a court ought to satisfy itself that there actually is a difference between the relevant laws of the different states." Phillips v. Marist Soc'y of Washington Province , 80 F.3d 274, 276 (8th Cir. 1996) (quoting Barron v. Ford Motor Co. of Canada, Ltd. , 965 F.2d 195, 197 (7th Cir. 1992) ) (Posner, J.). Under both Nevada and Iowa law, the elements of the tort of intentional interference with a prospective business advantage Windows USA must plead to state a claim are essentially the same: the existence of a prospective business advantage between Windows USA and its customers, known by Wells Fargo, with which the bank intentionally, improperly, and unjustifiably interfered, causing actual harm. And as the discussion below shows, the law of both states provides that conduct in breach of a contract may give rise to an action in tort only when a relationship exists between the parties sufficient to impose a distinct duty independent of the contract itself. "[T]he Court may thus vault the choice-of-law analysis." Taylor v. Midland Nat'l Life Ins. Co. , Case No. 4:16-cv-00140-SMR-HCA, 2016 WL 9454075, at *3 (S.D. Iowa July 29, 2016) (Rose, J.).
Sitting in diversity jurisdiction, federal courts follow the forum state's choice-of-law principles on issues of substantive law. Best Buy Stores, L.P. v. Developers Diversified Realty Corp. , 715 F. Supp. 2d 871, 875 (D. Minn. 2010) ; see also Schwan's Sales Enters., Inc. v. SIG Pack, Inc. , 476 F.3d 594, 595–96 (8th Cir. 2007) (citing Erie R.R. Co. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ). Iowa follows the Restatement (Second) of Conflict of Laws, applying the "most significant relationship test." Veasley v. CRST Int'l, Inc. , 553 N.W.2d 896, 897–98 (Iowa 1996).
Nevada law lists the following as elements of the tort:
(1) a prospective contractual relationship between the plaintiff and a third party; (2) the defendant's knowledge of this prospective relationship; (3) the intent to harm the plaintiff by preventing the relationship; (4) the absence of privilege or justification by the defendant; and, (5) actual harm to the plaintiff as a result of the defendant's conduct.
Consol. Generator-Nevada, Inc. v. Cummins Engine Co., Inc. , 114 Nev. 1304, 971 P.2d 1251, 1255 (1998) (quoting Leavitt v. Leisure Sports Inc. , 103 Nev. 81, 734 P.2d 1221, 1225 (1987) ).
Under Iowa law, the tort requires:
1. The plaintiff had a prospective contractual relationship with a third person. 2. The defendant knew of the prospective relationship. 3. The defendant intentionally and improperly interfered with the relationship in one or more particulars. 4. The interference caused either the third party not to enter into or to continue the relationship or that the interference prevented the plaintiff from entering into or continuing the relationship. 5. The amount of damage.
Tredrea v. Anesthesia & Analgesia, P.C. , 584 N.W.2d 276, 283 (Iowa 1998) (quoting Nesler v. Fisher & Co. , 452 N.W.2d 191, 198–99 (Iowa 1990) ).
Windows USA insists that its tort claim for intentional interference with prospective business advantage is protected by the separate legal right to be free from third-party interference with anticipated business relationships, distinct from the GDA. Although both states acknowledge torts can be committed by parties to a contract, Iowa and Nevada "have rejected the suggestion that every breach of contract gives rise to an action in tort." Preferred Mktg. Assocs. Co. v. Hawkeye Nat'l Life Ins. Co. , 452 N.W.2d 389, 397 (Iowa 1990) ; see Bernard v. Rockhill Dev. Co. , 103 Nev. 132, 734 P.2d 1238, 1240 (1987) (carefully distinguishing between actions arising in contract and those arising in tort). Under Iowa law,
Only where a duty recognized by the law of torts exists between the plaintiff and defendant distinct from a duty imposed by the contract will a tort action lie for conduct in breach of the contract. As Prosser stated:
[I]f a relation exists which would give rise to a legal duty without enforcing
the contract promise itself, the tort action will lie, otherwise not.
Preferred Mktg. , 452 N.W.2d at 397 (quoting W. Prosser, Handbook of the Law of Torts § 33, at 205 (1st ed. 1941)). Under Nevada law,
A breach of contract may be said to be a material failure of performance of a duty arising under or imposed by agreement. A tort, on the other hand, is a violation of a duty imposed by law, a wrong independent of contract. Torts can, of course, be committed by parties to a contract. The question to be determined here is whether the actions or omissions complained of constitute a violation of duties imposed by law, or of duties arising by virtue of the alleged express agreement between the parties.
Bernard , 734 P.2d at 1240 (quoting Malone v. Univ. of Kansas Med. Ctr. , 220 Kan. 371, 552 P.2d 885, 888 (1976) ). In short, the test in both states for determining whether conduct breaching a contract also sounds in tort hinges on the source of the duty: if imposed by law, independent of any written agreement, the tort claim may proceed; if the sole source of the grievance is the parties’ contract, it is barred.
As a general matter, Windows USA is certainly protected by the common law right to be free from third-party interference with prospective business relationships. The problem with Windows USA's argument in this case, however, is that its allegations relate solely to actions undertaken with respect to the parties’ relationship under the GDA. Relevant here is Wells Fargo's evaluation of consumer financing applications submitted by Windows USA's customers. The wrongfulness of that conduct—the manner in which Wells Fargo is alleged to have actually interfered with Windows USA's customer relations—cannot be meaningfully evaluated outside a construction of Wells Fargo's duties under the GDA. Without the GDA, Wells Fargo's denial of credit applications would not be independently wrongful because it would have no duty to approve such credit applications. See Harvey S. Perlman, Interference with Contractual and Other Economic Expectancies: A Clash of Tort and Contract Doctrine , 49 U. Chi. L. Rev. 61, 128 (1982) ("Where the defendant's act of interference is independently unlawful, tort objectives predominate; where the defendant's behavior is lawful except for the resulting interference, tort theory should reflect and remain consistent with contract policies."). Windows USA's claim boils down to the allegation that Wells Fargo did not evaluate such applications fairly and in accordance with the standards set forth under the GDA in order to avoid additional obligations under that written agreement, a claim that is adequately captured by its claim for breach of the implied covenant of good faith and fair dealing. Compare [ECF No. 36 ¶ 64] (alleging Wells Fargo violated the implied covenant of good faith and fair dealing by "intentionally den[ying] Windows USA's customers’ applications for credit" in an effort "to avoid paying Windows USA growth rebates or volume incentive") with id. ¶ 68 (alleging Wells Fargo committed tortious interference with Windows USA's prospective business "by denying applications for credit to avoid paying growth rebates or volume incentives"). In other words, "the actions ... complained of" by Windows USA arises out of the "express agreement between the parties," Bernard , 734 P.2d at 1240, and their relationship does not impose the legal duty advanced by Windows USA "without enforcing the contract promise itself," Preferred Mktg. , 452 N.W.2d at 397. Windows USA's grievance therefore sounds in contract, not tort, and must be dismissed. Separately, Windows USA's allegations amount to the claim that Wells Fargo intentionally performed its duties under the GDA in bad faith so as to avoid owing additional obligations to Windows USA under that agreement. Under the law of both Iowa and Nevada, however, the tort of interference with prospective business relationship requires showing that Wells Fargo's specific intent was to injure or destroy Windows USA's prospective business and its customers. J.J. Indus., LLC v. Bennett , 119 Nev. 269, 71 P.3d 1264, 1268 (2003) (adopting principle that intentional interference claim must prove "the defendant's ultimate purpose or the objective that he or she is seeking to advance" is "designed to disrupt" the relationship); Preferred Mktg. , 452 N.W.2d at 396 (holding party terminating at-will contract could not be liable for intentional interference with prospective contractual or business relationship because it "did no more than it was entitled to do under its contract" and there was no proof of "improper motive" or "predominant purpose ... to injure or destroy the plaintiff's business"). Assuming its factual allegations to be true, Windows USA fails to plead Wells Fargo's purpose in denying credit applications was to prevent the relationship between Windows USA and its customers, as opposed to reducing its own obligations under the GDA. Thus, Windows USA's claim for intentional interference with prospective business relation "has alleged—but it has not ‘show[n]’—that [Windows USA] is entitled to relief." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 (quoting Fed. R. Civ. P. 8(a)(2) ). For this additional reason, Count V of Windows USA's Counterclaim and Third-Party Complaint is dismissed.
B. Windows USA's Motion to Dismiss
Next, the Court considers Windows USA's motion to dismiss the bank's fraud allegations. Windows USA first contends Wells Fargo improperly re-pleads its breach of contract action as one for fraud. Under Iowa law, "[i]t is the general rule that broken promises are not actionable as fraud." Brown , 987 F. Supp. at 1156. At the same time, "a statement of intent to perform a future act is actionable if when made the speaker had an existing intention not to perform." Robinson v. Perpetual Servs. Corp. , 412 N.W.2d 562, 565–66 (Iowa 1987). Wells Fargo alleges not only that Windows USA breached the terms of the GDA by submitting credit applications to its competitors, see [ECF No. 50 ¶¶ 16, 18, 29–31], but that admissions by Allbritton, the company's CEO, that it had been doing so since the inception of the GDA generate the reasonable inference that Windows USA never had any intention to honor the bank's right of first refusal, see id. ¶¶ 17, 19, 35–46. This claim clearly goes beyond mere breach of contract. See, e.g., Asbury Square , 221 F.R.D. at 506-07.
Though Windows USA suggests in its reply brief some other law applies, see [ECF No. 76 at 5], both parties—including Windows USA—cite exclusively to Iowa law.
In its reply brief, Windows USA raises for the first time the argument that Wells Fargo fails to plead an injury that is separate from the harm suffered as a result of the company's alleged breach of contract. See [ECF No. 76 at 5]. The Court declines to consider this new argument because it was not timely raised and did not give Wells Fargo the opportunity to respond. See Smith v. United States , 256 F. App'x 850, 852 (8th Cir. 2007) ("[T]he district court did not err in dismissing claims raised for the first time in a ... reply brief."); Accurate Controls, Inc. v. Cerro Gordo Cty. Bd. Gordo Cty. Bd. of Supervisors , 627 F. Supp. 2d 976, 988 (N.D. Iowa 2009).
Windows USA argues Wells Fargo has failed to plead its fraud claim with sufficient specificity required under the heightened pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure. To show fraud in Iowa, Wells Fargo must establish the following elements: "(1) representation, (2) falsity, (3) materiality, (4) scienter, (5) intent to deceive, (6) reliance, and (7) resulting injury and damage." Robinson , 412 N.W.2d at 565 ; see also Schaller Tel. Co. , 298 F.3d at 745–46 (citing Gibson v. ITT Hartford Ins. Co. , 621 N.W.2d 388, 400 (Iowa 2001) ). Fraud may lie "when a party does not intend to perform a commitment at the time the promise is made." Asbury Square , 221 F.R.D. at 502 (citing City of McGregor v. Janett , 546 N.W.2d 616, 619 (Iowa 1996) ). But the broken promise, itself, "do[es] not generally give rise to any inference of fraudulent intent." Brown , 987 F. Supp. at 1157 (citing Magnusson Agency v. Pub. Entity Nat'l Co.–Midwest , 560 N.W.2d 20, 28–29 (Iowa 1997) ). The party pleading fraud must present "affirmative evidence" from which an inference may be drawn that the promising party had no existing intent to perform. Id. at 1157–58 (citation omitted). Crucially, "a person's statement of intent to perform a future act is actionable only if that person had an intent not to perform at the time the statement was made." Asbury Square , 221 F.R.D. at 501.
To satisfy Rule 9(b), a fraud claim must " ‘plead the who, what, when, where, and how: the first paragraph of any newspaper story.’ " Summerhill v. Terminix, Inc. , 637 F.3d 877, 880 (8th Cir. 2011) ; see also Asbury Square , 221 F.R.D. at 501 ("[A]llegations of fraud in a complaint must (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." (citation omitted)). Though state of mind may be pleaded in a conclusory fashion, "the complaint must provide a factual basis for allegations of scienter." In re K-tel Int'l, Inc. Sec. Litig. , 300 F.3d 881, 894 (8th Cir. 2002). One federal court has identified several factors that may support the inference that a promisor had an existing intention not to perform:
[A]t the time the promises were made, the defendant would have been unable to perform its promises or had already undertaken action that was inconsistent with its commitments, or that the defendant was insolvent, knew it could not perform the promises, repudiated the promises soon after they were made, with no intervening change in the situation, failed even to attempt any performance, or continued to offer assurances after it was clear that it would not perform as promised.
Brown , 987 F. Supp. at 1159 (citations omitted); accord Robinson , 412 N.W.2d at 565–66 (citing W. Prosser, The Law of Torts § 109 (4th ed. 1971)). "Thus, without some showing, through specific factual averments, of an intent not to perform at the time a promise is made, a pleading of fraud necessarily fails under Rule 9(b) for not meeting the particularity requirement." Asbury Square , 221 F.R.D. at 502.
Wells Fargo argues the totality of its allegations support the inference that Windows USA had already taken action inconsistent with its commitments under the right of first refusal and continued to offer assurances after it was clear the company would not perform under the GDA as promised. Wells Fargo points to its allegation that Windows USA's CEO, Allbritton, admitted to Wells Fargo representatives on November 30, 2017, that Windows USA was submitting credit applications to other financing providers before submitting them to Wells Fargo, and had been doing so since at least December 2011. [ECF No. 50 ¶¶ 17, 37]. But Wells Fargo's recitation of the alleged conversation does not establish that Windows USA had the intent not to perform at the time the promise was made —it merely demonstrates the company's intent several weeks after the agreement was consummated. See Asbury Square , 221 F.R.D. at 502. Despite the alleged breach's proximity in time to the formation of the GDA, this admission, alone, merely shows Windows USA breached the GDA shortly after signing it; it is insufficient to produce a reasonable inference Windows USA had already taken action inconsistent with its promise and had no intention of honoring Wells Fargo's right of first refusal at the time it signed the First Amendment on November 21, 2011.
Wells Fargo also alleges that Windows USA continued to offer assurances it would abide by the terms of the amended GDA after it was clear it would not comply with the right of first refusal when (1) Allbritton informed Wells Fargo representatives in an October 10, 2014 email that the only credit applications Wells Fargo was not receiving from Windows USA were "partial approvals"-those applications sent to other financing companies after the bank only partially approved them; and (2) the company executed three additional amendments to the GDA that continued to manifest its assent to be bound by the terms of the written agreement, including the right of first refusal. See [ECF No. 50 ¶¶ 21, 45]. The bank's pleading of this "partial approvals" email provides little detail, if any, about the communication's contents that would permit an inference that it amounted to a false assurance to Wells Fargo that Windows USA intended to continue honoring the right of first refusal. But Windows USA's assent to three additional amendments to the GDA after agreeing to the right of first refusal in the First Amendment, together with Allbritton's alleged admission that the company had been submitting credit applications to other financing companies in violation of that provision since almost the inception of the agreement, is a closer question and provides a thin case from which the Court could infer an intention not to perform.
Though Wells Fargo's allegations are not particularly thorough, they are, taken as a whole, just sufficient to satisfy Rule 9(b) ’s standards for stating with particularity the "who, what, where, when, and how" of the alleged fraud. The First Amendment to the GDA identifies Allbritton as the Windows USA representative promising to grant Wells Fargo a right of first refusal (the "who"). See [ECF No. 36-2 at 2] (sealed). Through the right of first refusal provision of that agreement, Windows USA specifically promised it would not "participate in any other consumer financing programs" or "unique credit term plans" other than the Wells Fargo Home Projects Program unless it first submitted the credit application to Wells Fargo and Wells Fargo declined the application (the "what"). [ECF No. 50 ¶¶ 12–14]; see also [ECF No. 36-2 ¶ 3]. The First Amendment to the GDA, containing the right of first refusal, was executed on November 21, 2011 (the "where" and "when"). [ECF No. 50 ¶¶ 9–10]. Wells Fargo asserts Windows USA's representation can be inferred to have been false from the inception of the agreement because on November 30, 2017, Allbritton admitted that Windows USA had been submitting consumer credit applications to outside financing companies in violation of the First Amendment and had been doing so since December 2011-mere weeks after entering into the contract—but at the same time had appeared to assure Wells Fargo it intended to continue honoring the right of first refusal when manifesting assent to additional amendments on March 12, 2013, December 5, 2014, and April 10, 2015 (the "how"). Id. ¶¶ 9, 17, 22, 45. The timing of the representations, viewed in a light most favorable to Wells Fargo, suggests Windows USA failed to even attempt performance. Though the bank's pleading is not particularly thorough, the Court is unable to conclude that the allegations in Wells Fargo's Complaint fail to state a claim for fraud.
Though not specifically identified in Wells Fargo's Amended Complaint, Allbritton is readily identifiable as the individual setting forth such representation on behalf of Windows USA from the written agreement at issue. See Asbury Square , 221 F.R.D. at 507 n.9.
Finally, Windows USA argues any claim for fraud is nevertheless untimely. In Iowa, the limitations period for civil fraud actions is five years. Iowa Code § 614.1(4). The statute of limitations "begins to run when the injured [party] discovers or in the exercise of reasonable care should have discovered the allegedly wrongful act." Roth v. G.D. Searle & Co. , 27 F.3d 1303, 1306 (8th Cir. 1994) (citing Franzen v. Deere & Co. , 377 N.W.2d 660, 662 (Iowa 1985) ); accord Iowa Code § 614.4. The party seeking to avail itself of this "discovery rule" bears the burden of showing that it applies. Frideres v. Schiltz , 113 F.3d 897, 899 (8th Cir. 1997) (citing Borchard v. Anderson , 542 N.W.2d 247, 249 (Iowa 1996) ). Here, Wells Fargo claims it became aware of Windows USA's conduct only on November 2, 2017, when Allbritton allegedly admitted the company had been submitting credit applications to other financing companies in violation of the right of first refusal and on November 30, 2017, when he admitted it had been doing so since nearly the inception of the parties’ agreement. Windows USA does not address how Wells Fargo might have discovered its alleged fraud earlier except by arguing it did not conceal any conduct because the GDA generally permits Wells Fargo to audit its invoices and financial statements. See [ECF No. 36-1 ¶¶ 24–25]. Windows USA wholly fails to explain how this would have reasonably alerted Wells Fargo to Windows USA's alleged practice earlier. The Court concludes the discovery rule applies and thus tolls the statute of limitations; Wells Fargo's claim is timely, and Windows USA's motion to dismiss is denied.
IV. CONCLUSION
For the reasons discussed above, Wells Fargo's Partial Motion to Dismiss, [ECF Nos. 42; 55], is GRANTED. Windows USA's Motion to Dismiss, [ECF No. 62], is DENIED.
IT IS SO ORDERED.