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Newpaper, LLC v. Party City Corporation

United States District Court, Eighth Circuit

September 25, 2013

Newpaper, LLC, Plaintiff,
v.
Party City Corporation and Amscan Holdings, Inc., Defendants.

Stanford P. Hill, Esq., and Steven P. Aggergaard, Esq., Bassford Remele, PA, Minneapolis, MN, and James M. Njus, Esq., Meyer & Njus, PA, Minneapolis, MN, on behalf of Plaintiff.

Eric L. Yaffe, Esq., and Ashley M. Bennett Ewald, Esq., Gray, Plant, Mooty, Mooty & Bennett, PA, Washington, DC, and Minneapolis, MN, on behalf of Defendants.

MEMORANDUM OPINION AND ORDER

ANN D. MONTGOMERY, District Judge.

I. INTRODUCTION

On August 26, 2013, the undersigned United States District Judge heard oral argument on Defendants Party City Corporation's and Amscan Holdings, Inc.'s (collectively, "Party City") Joint Motion to Dismiss Plaintiff's Complaint [Docket No. 4], as well as Defendants' Joint Motion to Strike [Docket No. 16]. Plaintiff Newpaper, LLC ("Newpaper") opposes both motions. For the reasons set forth below, the motion to dismiss is granted in part and denied in part, and the motion to strike is denied.

II. BACKGROUND

Defendant Amscan Holdings, Inc. ("Amscan") designs, manufactures, and distributes party supply products. Not. of Removal [Docket No. 1] Ex. 1 (Complaint) ¶ 8. In December 2005, Amscan purchased Party City Corporation, a large party supply retail chain and one of Amscan's larger customers. Id . In 2006, Amscan also purchased Party America Corporation ("Party America"), another large party supply retailer. Id . ¶ 9. At the time, Plaintiff Newpaper and its affiliates were Party America's largest franchisee, with 25 retail stores in Minnesota, Wisconsin, Iowa, North Dakota, and Texas.

On September 24, 2007, Newpaper and its affiliates entered into a general agreement (the "Agreement") with Party City Corporation and PA Acquisition Corporation, which Amscan guaranteed.[1] Compl. Ex. A (Agreement), Ex. B (Guaranty). As part of the Agreement, Newpaper agreed to convert all of its existing Party America retail locations into Party City stores. Agreement § D. Accordingly, Newpaper agreed to terminate all of its Party America franchise agreements and execute new Party City franchise agreements corresponding to each of its stores. Id . To the extent the Agreement conflicted with the new franchise agreements, the parties agreed the Agreement would control. Id.

The Agreement conferred Newpaper the exclusive right to operate franchised stores in its region. Specifically, Party City granted "the exclusive right to execute Party City's then-current franchise agreement for the establishment and operation of franchised Party City retail party goods stores in the states of Minnesota, Iowa, North Dakota, South Dakota, " and twelve Wisconsin counties bordering Minnesota and Iowa. Id . § E.1. The Agreement refers to this region as the "Territory." Id . Party City agreed it would not authorize any other person or entity to operate franchised stores in the Territory, except for those stores already in operation at the time of the Agreement. As a result, three non-Newpaper Party America stores located in Bismarck, North Dakota; Duluth, Minnesota; and Sioux Falls, South Dakota continued operating. Compl. ¶¶ 34-39.

In the Agreement, Party City reserved the right to sell its products through other channels-including the same products sold by Newpaper-through any channel of distribution, including the internet. Agreement § E.2. In August 2009, about two years after it reserved this right, Party City launched an internet store for the same products sold at its retail locations. Party City had previously used its website only for marketing and communication purposes, and the change in distribution scheme caused a backlash among its franchisees. Compl. ¶¶ 23-24. In November 2009, several franchisees sent a demand for mediation letter to Party City regarding its internet sales. In response, Party City filed suit against the franchisees, including Newpaper, alleging tortious interference. Id . ¶ 26.

On April 30, 2010, apparently in an effort to resolve their dispute, Newpaper and other franchisees executed an addendum to their franchise agreements that affirmed Party City's right to sell products online.[2] Id . ¶ 27. Exs. Supp. Mot. to Dismiss [Docket No. 8] ("Defs.' Exs.") Ex. 2 (the "Internet Addendum"). In exchange, Newpaper (and the other franchisees) would receive a share of revenue from internet sales based on the customer's location. Internet Addendum § 2. Newpaper also agreed to accept in-store returns for sales made online. Id . § 5. Internet sales have steadily grown since 2009, and Newpaper alleges Party City has begun focusing its marketing and other efforts on these sales at the cost of its retail franchisees' business.[3]

On or about June 13, 2013, Newpaper filed this action against Party City in Hennepin County District Court. Newpaper states four claims, alleging Party City: (1) breached the exclusivity clause of the Agreement by conducting online sales; (2) breached the Agreement by establishing "new legal relationships" with the three retail stores in Bismarck, Duluth, and Sioux Falls; (3) breached the covenant of good faith and fair dealing; and (4) converted Newpaper's property interest in the Territory by selling Party City products online. Compl. ¶¶ 40-54. Party City removed the Complaint to federal court on July 3, 2013, and moved to dismiss one week later. As briefing on the motion proceeded, Party City also moved to strike several pleadings Newpaper filed in opposition to the motion.

III. DISCUSSION

A. Motion to Strike

With its opposition to the motion to dismiss, Newpaper filed two affidavits with exhibits attached to each affidavit. Several of these exhibits, and portions of the affidavits, reflect Newpaper's purported understanding of the Agreement and Internet Addendum. Other documents evidence negotiations between the parties before the execution of these contracts. See, e.g., Aff. of Michael Yaggie [Docket No. 14] Ex. 2 (emails discussing Internet Addendum terms), Ex. 3 (letter negotiating Agreement terms).

Party City moves the Court to strike these materials because they are not embraced by the Complaint. As Party City notes, Newpaper explicitly offers these documents to prove its allegations, a purpose not allowed by Rule 12(b)(6). See Pl.'s Opp'n [Docket No. 20] ("Newpaper has provided affidavit testimony and a document evincing the basis for the claim."); see also Riley v. St. Louis Cnty. , 153 F.3d 627, 629 (8th Cir. 1998) ("When reviewing a Rule 12(b)(6) dismissal for failure to state a claim, we look only to the facts alleged in the complaint and construe those facts in the light most favorable to the plaintiff."). In addition, Party City argues the parol evidence rule precludes Newpaper's evidence, as Newpaper intends to use this evidence to vary the terms of unambiguous contracts. See Hruska v. Chandler Assocs., Inc. , 372 N.W.2d 709, 713 (Minn. 1985). At oral argument, Newpaper stated that it did not want the Court to convert the motion to dismiss into a motion for summary judgment. Instead, Newpaper argued the Court had discretion to determine which pleadings were embraced by the Complaint, and that Newpaper's offered exhibits and affidavits were so embraced.

Party City's motion to strike will be denied. This Court has held in analogous contexts that motions to strike are not appropriate vehicles for targeting memoranda and affidavits. See, e.g., Smith v. United HealthCare Servs., Inc., No. 00-1163 , 2003 WL 22047861, at *3 n.7 (D. Minn. Aug. 28, 2003); Zellner-Dion v. Wilmington Fin., Inc., No. 10-CV-2587, 2012 WL 2952251, at *1 n.1 (D. Minn. July 19, 2012) ("Moreover, given that a party can always, in its brief on the merits, simply ask the Court to disregard a document filed by the party's opponent, formal motions to strike' serve no purpose other than to crowd the docket and circumvent court rules limiting the number and length of memoranda.") (emphasis original).

However, Newpaper's offered materials will not be considered. The offered information is not part of the "public record" or "undisputedly authentic" in the way that a contract or prospectus filing might be. See Stahl v. U.S. Dep't of Agric. , 327 F.3d 697, 700 (8th Cir. 2003); Parnes v. Gateway 2000, Inc., 122 F.3d 539, 546 n.9 (8th Cir. 1997). Nor is this material embraced by the Complaint so much as it is an attempt to prove the averments made in the materials themselves. Additionally, as discussed below, the Court has identified no relevant ambiguity which might allow for evidence external to the Agreement, Internet Addendum, or franchise agreements to be considered in determining the intent of the parties. As such, the parol evidence rule also precludes consideration of the submitted materials. See Wessels, Arnold & Henderson v. Nat'l Med. Waste, Inc. , 65 F.3d 1427, 1435 (8th Cir. 1995) ...


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