Mark Neubauer v. FedEx Corporation

United States Court of Appeals

For the Eighth Circuit

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No. 15-3694

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Mark Neubauer, an individual in North Dakota; Marken, Inc., a North Dakota corporation

lllllllllllllllllllll Plaintiffs - Appellants

v.

FedEx Corporation, a Delaware corporation; FedEx Ground Package System, Inc.,

a Delaware corporation; David F. Rebholz; Rodger G. Marticke; Clifford P. Johnson

lllllllllllllllllllll Defendants - Appellees

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Appeal from United States District Court

for the District of North Dakota - Fargo

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Submitted: November 14, 2016

Filed: February 17, 2017

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Before COLLOTON, BEAM, and GRUENDER, Circuit Judges.

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GRUENDER, Circuit Judge.

Mark Neubauer and his corporate entity, Marken, Inc., allege that FedEx

Corporation; FedEx Ground Package System, Inc.; David Rebholz; Rodger Marticke;

and Clifford Johnson (collectively “FedEx”) breached contractual duties, engaged in

fraud, and violated North Dakota’s Franchise Investment Law and Racketeer

Influenced and Corrupt Organizations (RICO) Act. Because Neubauer failed to state

a claim upon which relief can be granted, we affirm the district court’s1 dismissal of

his amended complaint.

I. BACKGROUND

We proceed based on the facts as described in Neubauer’s amended complaint.

See Topchian v. JPMorgan Chase Bank, N.A., 760 F.3d 843, 846 (8th Cir. 2014)

(“[A]n amended complaint supercedes an original complaint and renders the original

complaint without legal effect.” (quotation and citation omitted)). We also look to

the Standard Operating Agreement (“SOA”), the Independent Service Provider

(“ISP”) Agreement, and two releases (“Releases”)—all documents embraced by the

pleadings or attached to the complaint as exhibits. See Mattes v. ABC Plastics, Inc.,

323 F.3d 695, 697 n.4 (8th Cir. 2003) (“[I]n considering a motion to dismiss, the

district court may sometimes consider materials outside the pleadings, such as

materials that are necessarily embraced by the pleadings and exhibits attached to the

complaint.”); see also Gorog v. Best Buy Co., 760 F.3d 787, 790-92 (8th Cir. 2014)

(finding the district court properly relied upon contracts attached to the defendant’s

motion to dismiss because the plaintiff’s claim rested upon these contracts).

On April 5, 2004, Neubauer and FedEx entered into the SOA, whereby

Neubauer would pick up and deliver FedEx packages in return for weekly payments

based on stops made and packages handled. The SOA provided that it would be

“governed by and construed in accordance with the laws of . . . Pennsylvania.” It also

stipulated that Neubauer “will provide these services strictly as an independent

contractor, and not as [a FedEx] employee” and that “no officer or employee of

FedEx Ground shall have the authority to impose any term or condition on Contractor

or on Contractor’s continued operation which is contrary to this understanding.”

1

The Honorable Ralph R. Erickson, United States District Judge for the District

of North Dakota.

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Furthermore, under the SOA, independent contractors like Neubauer held a

“proprietary interest” in serving FedEx customers within a specific geographic area,

known as a Primary Service Area (“PSA”). If a contractor no longer desired to

provide services to FedEx during the term of the SOA, the contractor had “the right

to assign his/her rights and obligations [under the SOA] to a replacement contractor.”

The Assignment Provision stated that FedEx had to approve the replacement

contractor “as being qualified to provide [services],” but once it did, FedEx would

“enter into a new agreement with Replacement Contractor on substantially the same

terms and conditions” as those for the outgoing contractor. Regarding the agreement

between an outgoing and replacement contractor, the Assignment Provision expressly

noted that “[a]ny consideration to be paid by Replacement Contractor on account of

such assignment shall be strictly a matter of agreement between Contractor . . . and

Replacement Contractor.” FedEx would not be party to that transaction and “[had]

no other obligations whatsoever either to secure a Replacement Contractor for the

benefit of Contractor, or to assure any payment to Contractor on account of

Contractor’s assignment.”

In 2004, pursuant to the Assignment Provision, FedEx approved Neubauer as

a replacement contractor, and Neubauer paid an outgoing contractor $75,000 to

assume the outgoing contractor’s rights to service its PSA. Neubauer then executed

the SOA with FedEx and elected to have the initial term of the SOA last until 2007,

with automatic renewals for successive one-year terms unless either party provided

written notice of termination within thirty days prior to the expiration of the existing

term. Over the next few years, Neubauer also negotiated assignments from two more

contractors, paying them $182,542 for the right to service PSAs and $5,000 for a

truck. On both occasions, FedEx approved of Neubauer as a replacement contractor.2

2

During this time, Neubauer also transferred his rights to Marken, his corporate

entity. Hereafter, we refer to the plaintiffs collectively as “Neubauer.”

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The SOA was renewed and remained in place until 2011. On or about March

17, 2011—more than thirty days before the April 29, 2011 expiration of the

SOA—FedEx advised Neubauer and all North Dakota independent contractors that

it was transitioning to a different business model and would not renew existing SOAs.

Instead, contractors who desired to transition into FedEx’s new business model could

enter into the new ISP Agreement. The terms of the ISP Agreement diverged from

the terms of the SOA. Most importantly, under the SOA, FedEx would enter into a

new SOA for a full term with a replacement contractor, but the ISP Agreement only

allowed a replacement contractor to provide services for the remaining term of the

original ISP Agreement. Neubauer nonetheless agreed to transition to the new ISP

model on November 5, 2011, claiming that he did so in order to “mitigate . . .

damages and avoid the complete loss of [his] investment in FedEx Ground’s business

and customer accounts.” FedEx paid Neubauer $10,000 to execute the Releases,

whereby Neubauer agreed not to sue or demand arbitration from FedEx in regards to

the transition from the SOA to the ISP Agreement.

The ISP governed FedEx and Neubauer’s relationship until 2014, when FedEx

terminated its relationship with Neubauer due to purported breaches of the ISP

Agreement. Neubauer assigned his rights under the ISP Agreement to a replacement

contractor, hoping FedEx would enter into a new agreement with his replacement

contractor for a full term. However, he was only able to assign his rights for the

remaining term of his ISP Agreement. After FedEx refused to reimburse him for

alleged damages, Neubauer brought suit in North Dakota state court, which FedEx

removed to federal court. Neubauer filed a 181-paragraph amended complaint with

multiple causes of action: (1) breach of contract, (2) fraud, (3) constructive fraud, (4)

fraudulent inducement, (5) violations of North Dakota’s Franchise Investment Law,

and (6) violations of North Dakota’s RICO Act. FedEx moved to dismiss all the

claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the district court

granted the motion in full, and Neubauer now appeals.

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II. DISCUSSION

Neubauer contends that all of his causes of action should survive the motion

to dismiss. “We review de novo the district court’s grant of a motion to dismiss,

accepting as true all factual allegations in the complaint and drawing all reasonable

inferences in favor of the nonmoving party.” Richter v. Advance Auto Parts, Inc., 686

F.3d 847, 850 (8th Cir. 2012). To survive a motion to dismiss, an amended complaint

“must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that

is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “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 assertions devoid of further

factual enhancement.” Id. (citations and quotations omitted). Furthermore, “we will

not mine a [lengthy] complaint searching for nuggets that might refute obvious

pleading deficiencies.” Quintero Cmty. Ass’n Inc. v. F.D.I.C., 792 F.3d 1002, 1009

(8th Cir. 2015).

A. Breach of Contract Claims

Pennsylvania law governs the construction of the SOA. Under Pennsylvania

law, a plaintiff asserting breach of contract must allege “(1) the existence of a

contract, including its essential terms[;] (2) a breach of a duty imposed by the

contract[;] and (3) resultant damages.” Ware v. Rodale Press, Inc., 322 F.3d 218, 225

(3d Cir. 2003) (quotation omitted) (applying Pennsylvania law). “It is well

established that . . . when the words [of a contract] are clear and unambiguous the

intent is to be discovered only from the express language of the agreement.” Steuart

v. McChesney, 444 A.2d 659, 661 (Pa. 1982) (citation omitted). Additionally,

Pennsylvania courts do not interpret contracts in a way that leads to absurd results.

Clairton Slag, Inc. v. Dep’t of Gen. Servs., 2 A.3d 765, 773 (Pa. Commw. Ct. 2010)

(citing Stamerro v. Stamerro, 889 A.2d 1251, 1259 (Pa. Super. 2005)). “Where, as

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here, the claims relate to a written contract that is part of the record in the case, we

consider the language of the contract when reviewing the sufficiency of the

complaint.” M.M. Silta, Inc. v. Cleveland Cliffs, Inc., 616 F.3d 872, 876 (8th Cir.

2010). If an amended complaint’s breach-of-contract claim conflicts with the plain

language of the contract, the contractual language controls. Gorog, 760 F.3d at 793

(affirming dismissal of an amended complaint because the “breach-of-contract claim

is foreclosed by the plain language of the [contract].”).

The amended complaint claimed that FedEx breached the SOA in two ways.

First, it alleged that FedEx’s unwillingness to allow Neubauer to assign his rights to

service PSAs under the SOA terms constituted a breach of the SOA. Second, it

asserted that the non-renewal of the SOA and the ISP transition imposed new terms

and conditions in violation of the Background Statement of the SOA. Both breach-

of-contract claims were properly dismissed.

Dismissal was proper as to the first breach-of-contract claim because the SOA

expired in 2011. Thus, in 2014, Neubauer’s relationship with FedEx was governed

by the ISP Agreement, and he was not entitled to assign his rights under the terms of

the SOA. Neubauer responds by asserting that the assignment agreements—the

contracts whereby he replaced existing contractors—also established valid and

enforceable contracts with FedEx. He thus argues that even if the SOA expired in

2011, FedEx still breached the assignment agreements when it refused to allow him

to assign his rights to service PSAs under the terms of the SOA. We disagree. The

SOA’s plain text proves fatal to Neubauer’s allegations, as it explicitly notes that

FedEx was not a party to any of the assignment agreements: “Any consideration to

be paid by Replacement Contractor on account of such assignment shall be strictly

a matter of agreement between Contractor . . . and Replacement Contractor.” FedEx

“[had] no other obligations whatsoever . . . to assure any payment to Contractor on

account of Contractor’s assignment.” Thus, the first “breach-of-contract claim is

foreclosed by the plain language of the [SOA].” See Gorog, 760 F.3d at 793.

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Neubauer’s second breach-of-contract claim was also properly dismissed.

Neubauer’s amended complaint alleged that FedEx’s non-renewal of the SOA and the

ISP transition violated the Background Statement of the SOA, which Neubauer

argues forbade FedEx from altering the SOA in any way. While the Background

Statement reads, “[N]o officer or employee of FedEx Ground shall have the authority

to impose any term or condition on Contractor,” Neubauer’s reading ignores the

context surrounding that phrase and would lead to an absurd result. In full, the

Background Statement reads:

Both FedEx Ground and Contractor intend that Contractor will provide

these services strictly as an independent contractor, and not as an

employee of FedEx Ground for any purpose. Therefore, this Agreement

will set forth the mutual business objectives of the two parties intended

to be served by this Agreement—which are the results the Contractor

agrees to seek to achieve—but the manner and means of reaching these

results are within the discretion of the Contractor, and no officer or

employee of FedEx Ground shall have the authority to impose any term

or condition on Contractor or on Contractor’s continued operation which

is contrary to this understanding.

(emphasis added). In context then, the language that Neubauer latches onto—“no

officer . . . of FedEx . . . shall have the authority to impose any term or

condition”—simply means that FedEx could not impose new terms to alter the

“understanding” that Neubauer “provide[d] these services strictly as an independent

contractor, and not as an employee of FedEx.” Neubauer’s interpretation would seize

one clause, rip it from its context, and apply it to the entirety of the SOA. The

Background Statement’s language and structure does not lend itself to such linguistic

acrobatics.

Indeed, Neubauer’s reading of the Background Statement cannot be correct

because it would lead to an absurd result. See Gorog, 760 F.3d at 794. Neubauer’s

construction would effectively forbid any modification of the SOA in perpetuity, even

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if the SOA expired and the parties agreed to a new contract with different terms. Not

only that, his interpretation would vitiate other terms of the SOA that allow non-

renewal as long as notice is given thirty days prior to the expiration of the term. We

thus find the district court did not err in dismissing the breach-of-contract claims.

B. Fraud Claims

Neubauer’s amended complaint also contained various fraud allegations. In

effect, the amended complaint claimed that FedEx made knowing misrepresentations

to fraudulently induce Neubauer to enter into the SOA and the ISP Agreement and

execute the Releases. As these claims involve fraud, Rule 9(b) of the Federal Rules

of Civil Procedure requires Neubauer to “state with particularity the circumstances

constituting fraud.” In other words, “the complaint must plead such facts as the time,

place, and content of the defendant’s false representations, as well as the details of

the defendant’s fraudulent acts, including when the acts occurred, who engaged in

them, and what was obtained as a result.” U.S. ex rel. Joshi v. St. Luke’s Hosp., Inc.,

441 F.3d 552, 556 (8th Cir. 2006).

All of Neubauer’s fraud claims were properly dismissed because he failed to

plead fraud with the specificity required by Rule 9(b). Neubauer’s amended

complaint is replete with general statements and conclusory allegations. For example,

the amended complaint alleged that when entering into the SOA, Neubauer relied on

“vague and misleading” statements with respect to how much control FedEx would

exercise over contractors. However, the amended complaint never detailed the

content of these statements. Elsewhere, the amended complaint asserted that FedEx

made “knowing misrepresentations and omissions of material fact” to induce

Neubauer to “purchase PSAs” and “deceive[d]” Neubauer into signing the Releases

and the ISP Agreement. These broad claims are just the type of “shotgun-style

allegations” we have dismissed for failure to plead with specificity. See Quintero,

792 F.3d at 1010-11. Therefore, because Neubauer’s amended complaint does not

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come close to pleading the “‘who, what, where, when, and how’ of the alleged fraud,”

see Joshi, 441 F.3d at 556 (citation omitted), we affirm the district court’s dismissal

of Neubauer’s fraud claims.

C. North Dakota Franchise Investment Law Claim

Neubauer’s amended complaint next alleged that FedEx offered and sold him

an unregistered franchise in violation of North Dakota’s Franchise Investment Law.

For this claim to survive, Neubauer had to plead, amongst other things, sufficient

facts to plausibly allege that he was a franchisee, meaning: (1) he was “granted the

right to engage in the business of offering, selling, or distributing goods or services

under a marketing plan or system prescribed in substantial part by a franchisor”; (2)

“[t]he operation of [his] business pursuant to such [a] plan . . . [was] substantially

associated with [FedEx’s] trademark, service mark, trade name, logotype, advertising,

or other commercial symbol designating the franchisor or its affiliate”; and (3) he was

“required to pay, directly or indirectly, a franchise fee.” See N.D.C.C. § 51-19-

02(5)(a). This claim was properly dismissed because Neubauer failed to plead

sufficient facts to plausibly state that he was granted the right to engage in the

business of offering, selling, or distributing services under a FedEx marketing plan.

FedEx’s business is package delivery, which it markets and sells directly to

customers. Neubauer delivered and picked up FedEx packages, but his amended

complaint did not allege facts that he had the right to offer, sell, or distribute his

services to individual customers. See, e.g., Roberts v. C.R. England, Inc., 848 F.

Supp. 2d 1087, 1089-90 (N.D. Cal. 2012) (applying a California franchise-investment

statute with language nearly identical to North Dakota’s Franchise Investment Law

and concluding that plaintiffs who contracted to deliver packages failed to allege a

franchise because they were not granted a right to offer or distribute services or goods

to customers). In fact, we note that the SOA—the basis of this claim—explicitly

stated that Neubauer was an independent contractor providing transportation services

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to FedEx and that Neubauer received his payments not from customers, but from

FedEx through a weekly settlement check. Thus, the amended complaint failed to

plausibly claim that Neubauer was granted the right to offer or distribute services to

customers. As a result, we affirm the district court’s dismissal of this claim.

D. North Dakota RICO Claim

Neubauer’s final claim alleged that FedEx’s purported violations of North

Dakota’s Franchise Investment Law, fraudulent activity, and acts of felony theft

established a cause of action under North Dakota’s RICO Act. North Dakota’s RICO

Act creates a civil right of action for “a person who sustains injury to person,

business, or property by a pattern of racketeering activity.” N.D.C.C. § 12.1-06.1-05.

“A pattern of racketeering” is at least two acts of racketeering activity—or acts

“committed for financial gain, which [are] chargeable or indictable under the laws of

the state in which the act[s] occurred.” McColl Farms, LLC v. Pflaum, 837 N.W.2d

359, 369 (N.D. 2013). Furthermore, “[a]n element of criminal activity is necessary

to every racketeering claim[,] [p]roof of two related predicate criminal acts is

required[,] [and] [i]t is necessary that either a prior conviction or probable cause be

alleged with reference to the predicate acts.” Id. (citations omitted). “[T]he acts

alleged must be criminal acts and stating an act is criminal is not enough to make it

true.” Id. Finally, “[a] RICO claim must be pleaded with particularity under Rule

9(b).” Crest Const. II, Inc. v. Doe, 660 F.3d 346, 353 (8th Cir. 2011); see also Rolin

Mfg., Inc. v. Mosbrucker, 544 N.W.2d 132, 138 (N.D. 1996) (“A RICO claim must

be pled with the same particularity that is required in the pleading of fraud.”

(quotation omitted)).

Neubauer’s RICO claim was properly dismissed because as we previously

concluded, Neubauer failed to sufficiently plead facts for his fraud claims and

Franchise Investment Law claim. Thus, the amended complaint did not plead facts

sufficient to allege two acts of racketeering activity and fell short of stating a RICO

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claim that was plausible on its face. We therefore affirm the dismissal of the North

Dakota RICO claim.

III. CONCLUSION

For the foregoing reasons, we affirm the district court’s dismissal of

Neubauer’s amended complaint.

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