SUMMARY: Plaintiffs alleged claims for, inter alia, breach of certain oral contracts and unjust enrichment. Defendants responded with a motion to dismiss, arguing the former claims are barred by North Dakota's statute of frauds, and the latter must be dismissed for failure to state a claim. Court denies the motion, holding that defendants have not established beyond doubt that plaintiffs can prove no set of facts which would entitle them to relief.

Case Name: Direct Marketing v. Swanson Health Products
Case Number: A3-00-09
Docket Number: 23
Date Filed: 6/21/00
Nature of Suit: 370

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
SOUTHEASTERN DIVISION

ORDER

Before the court is defendants' Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted (doc. #8). Plaintiffs oppose the motion. The matter came on for hearing on June 13, 2000 in Fargo, North Dakota, and was thereafter taken under advisement.

Plaintiff Direct Marketing Advertising Distributors (DMAD) is a New York corporation which provides database, marketing and advertising services to direct marketing companies. Plaintiff Barry Wolf is a resident of New York and President of DMAD. Plaintiff Andrew Goldstein is a resident of New Hampshire and Vice President of DMAD. Defendant Swanson Health Products, Inc. (SHP) is a North Dakota corporation which sells vitamins, minerals and natural supplements via direct mail to customers within and without the United States. Defendant Leland Swanson is a North Dakota resident and Chairman of the Board of Directors of SHP; he purportedly owns 47.37% of its outstanding common stock. Swanson is also personal representative of the estate of his brother, Jay, owner of 47.37% of SHPs stock, as well.

Briefly stated, plaintiffs filed this action on January 21, 2000, seeking recompense via 13 legal and equitable claims for, inter alia, defendants' breach of certain oral agreements to pay plaintiffs royalties (the "New Customer Agreement") and sell plaintiffs a controlling interest in SHP (the "Stock Purchase Agreement"), and failure to repay certain loan obligations. Basically, plaintiffs allege that defendants entered the aforesaid agreements to induce plaintiffs to make loans, execute personal guarantees, and otherwise invest themselves in reviving SHP's business, only to breach the agreements after reaping the benefits of plaintiffs' efforts. Plaintiffs have since agreed to cull their complaint somewhat; ⁽¹⁾ currently pending are claims for breach of contract (the aforesaid oral agreements); "account stated"; "conversion"; "declaratory judgment"; "unjust enrichment"; "promissory/equitable estoppel"; and "promissory note".

Defendants respond with the instant motion, challenging the entire complaint while primarily urging the court to "pare" it by dismissing the breach of contract and unjust enrichment claims. Defendants contend the former claims are barred by North Dakota's statute of frauds, since the alleged agreements were neither evidenced by a signed writing nor capable of being performed within one year. The unjust enrichment claim must be dismissed, defendants argue, because plaintiffs' expenditures were made for their own benefit in pursuit of hoped-for business opportunity.

Plaintiffs respond that at least one of the agreements, the "Stock Purchase Agreement," was in fact capable of being performed within one year; and in any event both agreements are removed from the statute of frauds via the "part performance" or "promissory/equitable estoppel" exceptions thereto. Plaintiffs further contend their remaining claims suffice for purposes of a Rule 12(b)(6) motion.

The court declines defendants' invitation to pare plaintiffs' complaint further as suggested, or dismiss any other claims, at this early stage. In reviewing a motion to dismiss under Rule 12(b)(6), the court is "constrained by a stringent standard." Parnes v. Gateway 2000, Inc., 122 F.3d 539, 545-46 (8^th Cir. 1997). A Rule 12(b)(6) motion to dismiss a complaint should not be granted unless it appears beyond doubt that plaintiffs can prove no set of facts which would entitle them to relief. Nor should a complaint be dismissed merely because it does not state with precision all elements that give rise to a legal basis for recovery. Thus, as a practical matter, a dismissal under Rule 12(b)(6) should be granted only in the unusual case in which plaintiffs include allegations that show on the face of the complaint that there is some "insuperable bar" to relief. Schmedding v. Tnemec Co., Inc., 187 F.3d 862, 864 (8^th Cir. 1999). In making this determination, the court assumes all facts alleged in the complaint are true, and construes them liberally in plaintiffs' favor. Id.

Here, defendants have not convinced the court beyond doubt that plaintiffs can prove no set of facts which would entitle them to relief. To be sure, under North Dakota's statute of frauds an agreement which cannot be performed within one year is invalid unless in writing and subscribed by the party to be charged. See N.D. Cent. Code § 9-06-04(1). But North Dakota courts construe this "one year provision" narrowly, see

Delzer v. United Bank of Bismarck, 459 N.W.2d 752, 754 (N.D. 1990)(citing Bergquist-Walker Real Estate v. William Clairmont, 333 N.W.2d 414, 418 (N.D. 1983)), and have clearly held "part performance of an oral contract,⁽²⁾ promissory estoppel, or equitable estoppel may bar the assertion of the statute of frauds if, in fact, there is an oral agreement." Cooke v. Blood Sys., Inc., 320 N.W.2d 124, 127 (N.D. 1982). Taking plaintiffs' allegations as true and giving them the benefit of all favorable inferences, the court finds they have alleged facts sufficient to raise questions as to whether complete performance of one of the agreements was capable within a year, as well as facts indicative of a partial performance and/or estoppel, sufficient to withstand defendants' motion based upon the statute of frauds.

The court further finds that plaintiffs have alleged facts which, taken as true, suffice to support their "alternative" unjust enrichment claim. See Apache Corp. v. MDU Resources Group, Inc., 603 N.W.2d 891, 894-95 (N.D. 1999)("There are five elements necessary to proving unjust enrichment: '1. An enrichment; 2. An impoverishment; 3. A connection between the enrichment and the impoverishment; 4. Absence of a justification for the enrichment and impoverishment; and 5. An absence of a remedy provided by law.'"); Fed. R. Civ. P. 8(a).

In sum, the court has thoroughly reviewed the authorities cited by defendants, and is mindful of the legal arguments they advance. As previously mentioned, however, the court is not convinced beyond doubt that plaintiffs can prove no set of facts which would entitle them to relief in this case. Accordingly, defendants' motion to dismiss (doc. #8) must be and hereby is DENIED.

IT IS SO ORDERED.

Dated this _____ day of June, 2000.

RODNEY S. WEBB, CHIEF JUDGE
UNITED STATES DISTRICT COURT

1. Specifically, plaintiffs have agreed to dismiss claims for "equitable accounting"; "injunctive relief"; "common law fraud"; "negligent misrepresentation"; as well as all claims against Leland Swanson in his capacity as personal representative of the Estate of Jay Swanson.

2. Of course, the North Dakota Supreme Court has parenthetically recognized that contracts which cannot be performed within one year are "generally" not removed from the statute of frauds by part performance. See Thompson v. North Dakota Workers' Compensation Bureau, 490 N.W.2d 248, 252 (N.D. 1992). The court is not yet convinced, however, that it must apply this rule blindly where equity demands the opposite result. See Mellon v. Norwest Bank of Mandan, North Dakota, N.A., 493 N.W.2d 700, 704 (N.D. 1992)(statute of frauds is intended to prevent fraud and perjury and should not be used as an instrument to accomplish the same); Farmers Coop. Ass'n of Churchs Ferry v. Cole, 239 N.W.2d 808, 814-15 (N.D. 1976)(each case must be evaluated by its circumstances when determining whether injustices are prevented or allowed by applying the statute of frauds).