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Homewatch International, Inc. v. Navin

United States District Court, D. Colorado

September 20, 2017

HOMEWATCH INTERNATIONAL, INC., a Colorado corporation, Plaintiff,
SUZANNE NAVIN, an individual, Defendant.


          Kristen L. Mix, United States Magistrate Judge

         This matter is before the Court on Defendant's Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim [#10][1] (the “Motion”). Plaintiff filed a Response [#13] in opposition to the Motion, and Defendant filed a Reply [#19]. The Court has reviewed the briefing on the Motion, the case file, and the applicable law, and is sufficiently advised in the premises. For the reasons set forth below, the Motion [#10] is DENIED.

         I. Background[2]

         This action arises from a franchise agreement (“Franchise Agreement”) and nondisclosure/noncompetition agreement (“NDA”) entered into on June 8, 2006, between Plaintiff Homewatch International, Inc. (“Plaintiff”) and Prominent Home Care, Inc. (“Prominent”).[3] Compl. [#3] at 1. Defendant Suzanne Navin (“Defendant”), who is the sole shareholder and officer of Prominent, signed the Franchise Agreement and NDA (collectively, the “Agreements”). Id. Plaintiff alleges that Defendant breached the Agreements by wrongfully operating a business in direct competition with Plaintiff. Id.

         Plaintiff alleges that the Franchise Agreement granted Prominent the rights to use Plaintiff's “licensed operation methods and exclusive trademarks, service marks, logotypes, commercial symbols, and trade names.” Id. at 2. In exchange, Prominent agreed to be bound by the restrictive covenants contained in the Agreements, including the “Post-Termination Covenant Not to Compete” contained in the Franchise Agreement. Id. The Franchise Agreement expired on June 30, 2016. Id. at 3. On July 1, 2016, Defendant started a company that directly competes with Plaintiff, which Plaintiff contends is a breach of the Agreements. Id.

         Plaintiff filed the Complaint in state court, and Defendant removed the action to this Court on August 24, 2016. Notice of Removal [#1]. The Complaint raises three claims for relief: (1) Breach of Contract, (2) Unjust Enrichment, in the alternative, and (3) Injunctive Relief. See Compl. [#3] at 3-4. Defendant now moves to dismiss all claims. See Motion [#10]. Defendant argues that the Agreements are not binding on her as an individual because she signed them in her official capacity only, and that the noncompetition covenants in the Agreements are void pursuant to Colo. Rev. Stat. § 8-2-113(2). Id. at 6, 15. Defendant also argues that the unjust enrichment claim must fail because it is based on the same unenforceable noncompetition provisions. Id. at 23.

         II. Legal Standard

         The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test “the sufficiency of the allegations within the four corners of the complaint after taking those allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994); Fed.R.Civ.P. 12(b)(6) (stating that a complaint may be dismissed for “failure to state a claim upon which relief can be granted”). “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999) (citation omitted). To withstand a motion to dismiss pursuant to Rule 12(b)(6), “a complaint must contain enough allegations of fact ‘to state a claim to relief that is plausible on its face.'” Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Shero v. City of Grove, Okla., 510 F.3d 1196, 1200 (10th Cir. 2007) (“The complaint must plead sufficient facts, taken as true, to provide ‘plausible grounds' that discovery will reveal evidence to support the plaintiff's allegations.” (quoting Twombly, 550 U.S. at 570)).

         “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement.” Id. (brackets in original; internal quotation marks omitted).

         To survive a motion to dismiss pursuant to Rule 12(b)(6), the factual allegations in the complaint “must be enough to raise a right to relief above the speculative level.” Christy Sports, LLC v. Deer Valley Resort Co., 555 F.3d 1188, 1191 (10th Cir. 2009). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, ” a factual allegation has been stated, “but it has not show[n] that the pleader is entitled to relief, ” as required by Rule 8(a). Iqbal, 552 U.S. at 679 (second brackets added; citation and internal quotation marks omitted).

         III. Analysis

         Interpretation of a contract is a matter of state law. DIRECTV, Inc. v. Imburgia, 136 U.S. 463 (2015). The Franchise Agreement also provides that the “Agreement will be interpreted under the laws of the State of Colorado, and any dispute between the parties will be governed by and determined in accordance with the substantive internal laws of the State of Colorado . . . .” [#3] at 34. Additionally, when a federal court sits in diversity, it is required to apply the most recent applicable substantive state law pronounced by the state's highest court. Mincin v. Vail Holdings, Inc., 308 F.3d 1105, 1108 (10th Cir. 2002). For these reasons, the Court applies Colorado law here.

         The primary goal of contract interpretation is to give effect to the written expression of the parties' intent. Ad Two, Inc. v. City & Cty. of Denver, 9 P.3d 373, 376 (Colo. 2000). Where the words of a written contract are clear and unambiguous, its meaning is to be ascertained in accordance with its plainly expressed intent. M & G Polymers USA, LLC v. Tackett, 135 S.Ct. 926, 933 (2015). Interpretation of a contract is a question of law where the contract's construction does not depend on extrinsic evidence and where the language is susceptible to only one reasonable interpretation. Zink v. Merrill Lynch Pierce Fenner & Smith, Inc., 13 F.3d 330, 332 (10th Cir. 1993); see also Stegall v. Little Johnson Assoc., Ltd., 996 F.2d 1043, 1048 (10th Cir. 1993) (applying Colorado law); Evensen v. Pubco Petroleum Corp., 274 F.2d 866, 872 (10th Cir. 1960). Interpretation of a contract is a question of fact only when a contract term is found to be ambiguous. Dorman v. Petrol Aspen, Inc., 914 P.2d 909 (Colo. 1996). The provisions of a contract are ambiguous when they are subject to more than one reasonable interpretation. Union Ins. Co. v. Houtz, 883 P.2d 1057 (Colo. 1994).

         A. Whether the Noncompetition Covenants Are Binding on Defendant

         First, the Court will address Defendant's argument that she is not personally bound by the noncompetition covenants because she signed the Agreements in her official capacity only. Motion [#10] at 1. The Franchise Agreement provides the following in ...

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