Free Spirit Publishing Inc. v. Dworsky

Background

Free Spirit Publishing Inc. alleged that it entered agreements in 2008 to acquire business assets from Deborah Jiang-Stein and Attitude Matters, Inc. The agreements included royalty provisions. Free Spirit alleged that the parties intended the total purchase price to be $300,000, but that amount was accidentally omitted from the later written purchase agreement. Free Spirit also alleged that the parties intended a 19 percent royalty for existing products and a 3 percent royalty for new products.

The Dworskys later obtained state-court orders directing that certain royalty payments be made to them after they sued Jiang-Stein and Attitude Matters over debts. Free Spirit alleged that, from 2010 through January 2021, it mistakenly treated 27 substantially changed products as existing products and paid the Dworskys royalties at 19 percent instead of 3 percent. Free Spirit claimed that this caused $143,468.31 in overpayments. After Free Spirit requested repayment and stopped further payments while the dispute was unresolved, the Dworskys refused to return the alleged overpayments and refused to accept the 3 percent royalty rate.

Claims and arguments

Free Spirit asserted claims for breach of contract, unjust enrichment, conversion, declaratory judgment, and reformation. Reformation is a court-ordered change to a written contract to reflect the parties’ actual agreement. The Dworskys moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), arguing that the amended complaint did not state a legally sufficient claim.

The court explained that, at this stage, it generally accepts the complaint’s factual allegations as true and asks whether they plausibly support relief. The court does not decide which side’s evidence is ultimately stronger on a motion to dismiss.

Court’s analysis

For the breach-of-contract claim, the court rejected the statute-of-limitations argument because Free Spirit alleged that the breach occurred in March 2021, when the Dworskys refused to return the overpayments. The court also concluded that Free Spirit alleged enough facts to support its position that the missing $300,000 purchase price resulted from a mutual mistake and that the purchase price was an intended contract term.

The court declined to dismiss the unjust-enrichment claim merely because the parties also had written agreements. Federal rules allow alternative or inconsistent claims, so Free Spirit could plead unjust enrichment as an alternative to its contract claim.

The court also found sufficient allegations for conversion, which involves intentionally interfering with another person’s property. Free Spirit alleged that it had a property interest in the overpaid money and that the Dworskys deprived it of that money by refusing to return it.

The court found a justiciable controversy—a real dispute appropriate for judicial resolution—supporting Free Spirit’s declaratory-judgment claim. It also concluded that Free Spirit alleged the elements of reformation: an agreement reflecting the parties’ actual intentions, a written instrument that failed to express those intentions, and a mutual mistake causing the omission of the purchase price. The court rejected the Dworskys’ argument that reformation was barred because it could prejudice third parties, explaining that the authorities they cited involved different circumstances.

Disposition

The court denied the Dworskys’ motion to dismiss Free Spirit’s amended complaint. The order therefore did not resolve whether Free Spirit was entitled to recover money or obtain the requested contract-related relief; it ruled only that the claims could not be dismissed at the pleading stage. The opinion contains inconsistent count references in some sections, but the final order denies the motion as to the amended complaint.