Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_15-cv-01740/USCOURTS-caed-2_15-cv-01740-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

COUNTRY VISIONS, INC.,

Plaintiff,

v.

MIDSOUTH LLC,

Defendant.

No. 2:15-cv-01740-TLN-CKD

ORDER DENYING IN PART AND 

GRANTING IN PART COUNTERDEFENDANTS’ MOTION TO DISMISS

MIDSOUTH LLC,

Counter Claimant,

v.

COUNTRY VISIONS, INC.; and 

KENNETH PETERSON, CEO, Country 

Visions, Inc.,

Counter Defendants.

This matter is before the Court pursuant to Country Visions, Inc. (“CVI”) and 

Kenneth Petersen’s1(collectively, “Counter-Defendants”) motion seeking dismissal of certain 

counterclaims alleged by Defendant MidSouth LLC (“MidSouth”), under Federal Rule of Civil 

Procedure (“Rule”) 12(b)(6). (Counter-Defs.’ Mot. to Dismiss Countercl. Pursuant to FRCP 

12(b)(6) 2:2–4, ECF No. 19-1.) Plaintiff argues these counterclaims should be dismissed without 

leave to amend. (Id. at 4:4–5.) For the reasons stated below, Counter-Defendants’ motion is 

denied in part, and granted in part.

 

1 MidSouth incorrectly names Petersen as “Peterson.” 

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I. FACTUAL ALLEGATIONS

The following factual allegations in the Counterclaim concern the motion: “MidSouth is a 

limited liability company,” comprised of members Rod Dixon (Illinois citizen); Renee Dixon

(Illinois citizen); and CC Young & Associates, LLC (“Young”), whose members are Craig and 

Cathy Young (Texas citizens). (Countercl., ECF No. 10 at ¶ 1.)

Before “2014[,] [CVI] was unable to provide a functioning website for its Apricot Lane 

franchisees to sell products in connection with the operation of their businesses.” (ECF No. 10 at 

¶ 7.) “As a result, both [Third Party Plaintiff North Beach, Inc. (“North Beach”), a CVI 

franchisee associated with Rod and Renee Dixon,] and Young created individual e-commerce 

websites for their respective businesses . . . .” (ECF No. 10 at ¶ 7.) CVI “attempted to launch 

and operate a website, but it was ultimately unsuccessful.” (ECF No. 10 at ¶ 8.)

Thereafter, CVI “approached both North Beach and Young to propose that they operate an 

Apricot Lane website that would sell product for all franchisees in the system.” (ECF No. 10 at

¶ 9.) “In an email dated August 28, 2013, [CVI], through its President, . . . Peters[e]n, sent to 

Rod Dixon and Craig Young a spreadsheet, which it called the ‘E-Commerce Model.’” (ECF No. 

10 at ¶ 11.) “The E-Commerce Model was in the form of a pro forma profit and loss statement 

that was intended to demonstrate the revenues and profits that Young and North Beach would 

make if they operated [CVI]’[s] website.” (ECF No. 10 at ¶ 12.)

“Craig Young and Rod Dixon created MidSouth on or around February 5, 2014 . . . .” 

(ECF No. 10 at ¶ 14.) CVI “and MidSouth . . . entered into an agreement on February 6, 2014” 

(the “Agreement”). (ECF No. 10 at ¶ 15.)

“Since beginning its operations, MidSouth has discovered that the business model of the 

E-Commerce site is untenable. MidSouth lost money each month that it operated under 

the . . . Agreement . . . .” (ECF No. 10 at ¶ 20.) On May 20, 2015, “MidSouth sent a letter . . . 

rescinding the . . . Agreement.” (ECF No. 10 at ¶ 23.)

II. LEGAL STANDARD

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, 

accepted as true, to state a claim to relief that is plausible on its face.” Caviness v. Horizon Cmty. 

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Learning Ctr., Inc., 590 F.3d 806, 812 (9th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662 

(2009)). “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.” 

Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). 

“Determining whether a complaint states a plausible claim for relief . . . [is] a context-specific 

task that requires the . . . court to draw on its judicial experience and common sense.” Id. at 679. 

“For purposes of a motion to dismiss, we accept all well-pleaded allegations of material 

fact as true and construe them in the light most favorable to the nonmoving party.” Sateriale v. 

R.J. Reynolds Tobacco Co., 697 F.3d 777, 783 (9th Cir. 2012).

[Further,] the court need not accept as true conclusory allegations, 

nor make unwarranted deductions or unreasonable inferences. But 

so long as the plaintiff alleges facts to support a theory that is not 

facially implausible, the court’s skepticism is best reserved for later 

stages of the proceedings when the plaintiff’s case can be 

[evaluated] on evidentiary grounds. 

In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1057 (9th Cir. 2008) (citation omitted).

A party asserting claims for fraud must also meet the heightened pleadings standard set 

forth in Rule 9(b), which provides that, “[i]n alleging fraud or mistake, a party must state with 

particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other 

conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b).

III. ANALYSIS

A. Applicable Law

The parties dispute whether Illinois or California law controls MidSouth’s fraud and 

negligent misrepresentation claims. The Agreement contains a choice-of-law clause stating: 

Governing Law. This Agreement will be governed and construed in 

all respects in accordance with the laws of the State of California 

without giving effect to principles of conflict of laws. Both parties 

agree to submit to exclusive jurisdiction in California and further

agree that any cause of action arising under this Agreement shall be 

brought in an appropriate federal or state court located in 

California.

(Ex. A ¶ 12.1, ECF No. 1.)2 CVI argues “the narrow choice-of-law provision does not encompass 

 

2

Plaintiff CVI attached the Agreement to its Complaint. (ECF No. 1.) The Agreement is properly considered 

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MidSouth’s tort claims.” (Counter-Defs.’ Mem. ISO Mot. to Dismiss Countercl., ECF No. 19-2 

at 7:7–8.) It explains: 

MidSouth’s fraud claims are premised entirely on its assertion 

that . . . Petersen induced MidSouth’s principals to create MidSouth 

by misrepresenting the amount of purchases the website would 

generate after it was developed. These alleged representations were 

made six months before the Agreement was even executed. 

Further, far from relying on the Agreement, MidSouth apparently 

seeks to nullify it.

(ECF No. 19-2 at 6:24, 7:1–4.) Counter-Defendants apply the analysis set forth in Washington 

Mutual Bank, FA v. Superior Court, 24 Cal. 4th 906 (2001). (Mot. 7–10.) This analysis set forth 

in Washington Mutual Bank, FA applies “when there is no advance agreement on applicable law, 

but the action involves the claims of residents from outside California.” Id., at 915. In 

opposition, MidSouth argues that California law governs its fraud and negligent 

misrepresentation claims. (Counter-Claimant’s Mem. of Law in Opp’n to Mot., ECF No. 26 at 

3:26–28.) For the reasons stated below, the Court finds that California law applies.

“Federal courts sitting in diversity must apply the forum state’s”—here, California’s—

“choice of law rules to determine the controlling substantive law.” Fields v. Legacy Health Sys., 

413 F.3d 943, 950 (9th Cir. 2005) (citation and internal quotation marks omitted). The Ninth 

Circuit has held: 

California’s choice of law framework is set forth in Restatement 

§ 187(2) and in Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 

459 (1992). “California courts apply the parties’ choice of law 

unless the analytical approach articulated in § 187(2) of the 

Restatement (Second) of Conflict of Laws ([‘]187(2)[’]) dictates a 

different result.” Hoffman v. Citibank (S.D.), N.A., 546 F.3d 1078, 

1082 (9th Cir. 2008) (citation omitted). 

Ruiz v. Affinity Logistics Corp., 667 F.3d 1318, 1323 (9th Cir. 2012).

Moreover, “the contract containing the choice-of-law provision must govern the claim that 

is alleged to arise from it.” Wehlage v. EmpRes Healthcare Inc., 821 F. Supp. 2d 1122, 1127 

(N.D. Cal. 2011) (citing Nedlloyd, 3 Cal. 4th at 469). Under California’s choice-of-law 

 

since “[a] court may . . . consider certain materials—[including] documents attached to the complaint . . .—without 

converting the motion to dismiss into a motion for summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 

(9th Cir. 2003).

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framework, “a valid choice-of-law clause, which provides that a specified body of law ‘governs’ 

the ‘agreement’ between the parties, encompasses all causes of action arising from or related to 

that agreement, regardless of how they are characterized, including tortious breaches of duties 

emanating from the agreement or the legal relationships it creates.” Nedlloyd, 3 Cal. 4th at 470.

Nedlloyd involved the following choice-of-law provision in a shareholder’s agreement: 

“This agreement shall be governed by and construed in accordance with Hong Kong law and each 

party hereby irrevocably submits to the non-exclusive jurisdiction and service of process of the 

Hong Kong courts.” Id. at 463. The Nedlloyd plaintiff argued this choice-of-law provision did 

not govern its fiduciary duty cause of action since the cause of action was independent of the 

shareholders’ agreement and outside the choice-of-law provision’s intended scope. Id. at 468. 

The California Supreme Court rejected this argument, explaining that “[w]hen two sophisticated, 

commercial entities agree to a choice-of-law clause . . ., the most reasonable interpretation of their 

actions is that they intended for the clause to apply to all causes of action arising from or related 

to their contract.” Id. The court further explained: “Nedlloyd’s fiduciary duties, if any, arise 

from—and can exist only because of—the shareholders’ agreement pursuant to which [plaintiff]’s 

stock was purchased by Nedlloyd.” Id. at 469; see also Cal-State Bus. Prods. & Servs., Inc. v. 

Ricoh, 12 Cal. App. 4th 1666, 1677 (1993), as modified (Feb. 4, 1993) (“The entire gist of the 

complaint in the present action relates to allegedly false promises made in the course of the 

negotiations (that culminated in contracts with integration clauses) and the subsequent conduct of 

the relationship between the parties created by the contracts. All the causes of action are 

consequently within the scope of the forum-selection clauses.” (footnotes omitted)).

Here, even if the alleged misrepresentations were made before the Agreement was a live 

document, MidSouth’s counterclaims arose during the course of its commercial relationship with 

CVI when those representations, allegedly, were not satisfied. See Dos Beaches, LLC v. Mail 

Boxes Etc., Inc., No. 09CV2401-LAB RBB, 2012 WL 506072, at *19 (S.D. Cal. Feb. 15, 2012)

(finding that a plaintiff’s claim challenging defendants’ conduct that led plaintiff to execute a 

Franchise Agreement falls within the scope of the choice-of-law provision in the Franchise 

Agreement). Therefore, MidSouth’s counterclaims fall within the Agreement’s choice-of-law 

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provision. Thus, the Court turns to the enforceability of the choice of law provision.

“As a threshold matter, a court must determine ‘whether the chosen state has a substantial 

relationship to the parties or their transaction, or . . . whether there is any other reasonable basis 

for the parties’ choice of law.’” Ruiz, 667 F.3d at 1323 (quoting Nedlloyd, 3 Cal. 4th at 466). “A 

substantial relationship exists where one of the parties is domiciled or incorporated in the chosen 

state.” ABF Capital Corp., a Del. Corp. v. Osley, 414 F.3d 1061, 1065 (9th Cir. 2005) (quoting 

Nedlloyd, 3 Cal. 4th at 467). MidSouth alleges in its Counterclaim that CVI “is a corporation 

organized and existing under the laws of the State of California, with its principal place of 

business in Vacaville, California.” (ECF No. 10 at ¶ 2.) It further alleges that “Peters[e]n is the 

CEO of [CVI] and, on information and belief, is a citizen and resident of California.” (ECF No. 

10 at ¶ 3.) Therefore, a substantial relationship exists between the parties and the state of 

California. 

“[T]he court must next determine whether the chosen state’s law is contrary to a 

fundamental policy of California.” Nedlloyd, 3 Cal. 4th at 466 (footnote omitted). Clearly 

applying California law would not be contrary to a fundamental policy of California. Therefore, 

California law applies. 

B. Fraud and Negligent Misrepresentation Claims

Counter-Defendants have mostly briefed their motion for dismissal on MidSouth’s fraud 

and negligent misrepresentation claims using Illinois law.3 However, the portion of their motion 

that sets forth California law is discussed below.4

Counter-Defendants argue in pertinent part that the alleged false written 

 

3 Counter-Defendants brief California law in their reply brief. However, “[t]he district court need not 

consider arguments raised for the first time in a reply brief.” Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007). 

4 Counter-Defendants also argue: “it is doubtful that MidSouth has standing to raise these claims. As the 

Counterclaim acknowledges, MidSouth was not formed until February 5, 2014, which is about 6 months after the 

alleged misrepresentations were made. A party that did not exist could not have been the recipient of any allegedly 

false statements.” (ECF No. 19 n.6.)

“At the pleading stage, general factual allegations of injury resulting from the defendant’s conduct may 

suffice, for on a motion to dismiss we ‘presum[e] that general allegations embrace those specific facts that are 

necessary to support the claim.’” Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992) (alteration in original) 

(quoting Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 889 (1990)). MidSouth alleges Counter-Defendants “made 

false written representations to MidSouth, as explained herein and in the form of the E-Commerce Model 

spreadsheet.” (ECF No. 10 at ¶ 38; id. ¶ 44.) Thus, MidSouth alleges it received the allegedly false statements, and 

therefore, it does not lack standing on this ground at the pleading stage. 

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representation—“in the form of the E-Commerce Model spreadsheet” (ECF No. 10 at ¶¶ 38, 

44)—is a non-actionable statement of opinion under California law. (ECF No. 19 n.7.) The 

parties agree that “speculative statements about possible profits are non-actionable opinions 

(‘puffing’) and a party is not entitled to rely upon them.” Glen Holly Entm’t, Inc. v. Tektronix, 

Inc., 100 F. Supp. 2d 1086, 1093 (C.D. Cal. 1999). (ECF No. 19 12 n.7; Opp’n, ECF No. 26 at

16–17.) The parties further agree that California recognizes an exception to this general rule, “in 

that misrepresentations of opinion may be ‘actionable when the declarant holds himself out to be 

specially qualified.’” (ECF No. 19 at 8:14–15 (quoting Harazim v. Lynam, 267 Cal. App. 2d 127, 

131 (1968)); ECF No. 26 at 7:16–18.) However, Counter-Defendants argue that: “MidSouth has 

not attempted . . . to fall within this exception given its assertions about CVI’s prior inability to 

operate a website . . . .” (ECF No. 19 at 8:17–19.) In their reply, Counter-Defendants reiterate

that MidSouth fails to “allege[] that CVI had, or held itself out as having, special knowledge or 

expertise regarding online sales.” (Reply, ECF No. 27 at 3:22–24.)

MidSouth opposes, arguing:

CVI, as franchisor, had knowledge of all of the franchisees in the 

Apricot Lane system and that CVI had attempted the operation of a 

website, whereas the Franchisees had no knowledge of other 

franchisees or of a national website. Thus, the counterclaim alleges 

that CVI and Peterson had specialized knowledge of the CVI 

system and other franchisees, and were in a position to know and 

make representations about the revenues that a website would 

generate—whereas the Franchisees were not. 

(ECF No. 26 at 8:13–19 (emphasis added).) MidSouth further asserts that given this specialized 

knowledge, Counter-Defendants’ statements about anticipated sales are actionable under the 

exception to the general rule. (ECF No. 26 at 8:22–25.)

Misrepresentations of opinion are actionable 

when one of the parties possesses, or assumes to possess, superior 

knowledge or special information regarding the subject-matter of 

the representation, and the other party is so situated that he may 

reasonably rely upon such supposed superior knowledge or special 

information, a representation made by the party possessing or 

assuming to possess such knowledge or information, though it 

might be regarded as but the expression of an opinion if made by 

any other person, is not excused if it be false.

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Haserot v. Keller, 67 Cal. App. 659, 670–71 (1924); see also Cal. Pub. Emps.’ Ret. Sys. v. 

Moody’s Inv’rs Serv., Inc., 226 Cal. App. 4th 643, 662 (2014), review denied (Sept. 10, 2014) 

(discussing the exception in a negligent misrepresentation action).

Here, MidSouth alleges in its Counterclaim that franchisor CVI “had knowledge of all of 

the franchisees, and had attempted operation of a website. Young and North Beach had no 

knowledge of other franchisees, or of a national website.” (ECF No. 10 at ¶ 12.) MidSouth

further alleges CVI acted through its President, Petersen. (ECF No. 10 at. ¶ 11.) Thus, MidSouth 

alleges CVI had specialized knowledge concerning CVI’s franchisees, and, correspondingly, sales

revenue generated by those franchisees, (see ECF No. 10 at ¶ 12), while CVI did not have 

specialized knowledge concerning a website’s successful operation. (see ECF No. 10 at ¶¶ 8–9)

Given these allegations, the Court finds that Counter-Defendants have not shown the exception’s 

inapplicability under California law, and therefore, their motion to dismiss MidSouth’s fraud and 

negligent misrepresentation claims is denied.

C. Fraud Claim Pursuant to the Illinois Franchise Disclosure Act

Counter-Defendants briefed their motion for dismissal of MidSouth’s Illinois Franchise 

Act claim using Illinois law and MidSouth followed suit. The parties, however, have not 

explained how MidSouth can maintain such a claim in light of the Agreement’s choice-of-law 

provision. Accordingly, this portion of the motion is denied.

D. Unjust Enrichment

Counter-Defendants seek dismissal of MidSouth’s unjust enrichment claim, arguing that 

“under California law, a cause of action for unjust enrichment is not cognizable.” (ECF No. 19 at

17:21–22 (quoting In re ConAgra Foods Inc., 908 F. Supp. 2d 1090, 1114 (C.D. Cal. 2012)). 

MidSouth responds that “CVI’s argument . . . fails to recognize that there is a split of authority in 

California law as to whether unjust enrichment is a separate cause of action.” (ECF No. 26 at

13:3–5.) 

The Ninth Circuit has held: 

[I]n California, there is not a standalone cause of action for “unjust 

enrichment,” which is synonymous with “restitution.” Durell v. 

Sharp Healthcare, 183 Cal. App. 4th 1350, 1370 (2010); Jogani v. 

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Superior Court, 165 Cal. App. 4th 901, 911 (2008). However, 

unjust enrichment and restitution are not irrelevant in California 

law. Rather, they describe the theory underlying a claim that a 

defendant has been unjustly conferred a benefit “through mistake, 

fraud, coercion, or request.” 55 Cal. Jur. 3d Restitution § 2.

Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th Cir. 2015). “When a plaintiff alleges 

unjust enrichment, a court may ‘construe the cause of action as a quasi-contract claim seeking 

restitution.’” Id. (quoting Rutherford Holdings, LLC v. Plaza Del Rey, 223 Cal. App. 4th 221,

231 (2014)). The Ninth Circuit in Astiana held that the plaintiff “state[d] a quasi-contract cause 

of action” since she alleged defendant “had ‘entic[ed]’ plaintiffs to purchase their products 

through ‘false and misleading’ labeling, and that [defendant] was ‘unjustly enriched’ as a result.” 

Id. (second alteration in original).

MidSouth alleges it is entitled to relief since Counter-Defendants induced MidSouth to 

sign the Agreement through a false written representation—“in the form of the E-Commerce 

Model spreadsheet” (ECF No. 10 at ¶ 38)—and “they each have been unfairly and unjustly 

enriched” as a result. (ECF No. 10 at ¶ 49.) The Court finds that these allegations usher this 

cause of action under the quasi-contract umbrella and therefore, the captioned “unjust 

enrichment” cause of action is construed as a quasi-contract claim seeking restitution.

Accordingly, Counter-Defendants’ motion to dismiss on grounds there is no independent claim 

for unjust enrichment in California is denied.

E. Unfair Competition Law: Unfair Business Practices Claim

Counter-Defendants seek dismissal of MidSouth’s unfair business practices claim under 

California Business and Professions Code section 17200, arguing this code section “does not 

apply to this dispute because MidSouth is not a California resident.” (ECF No. 19 at 18:13.) 

However, Counter-Defendants, have not explained how the choice-of-law provision, which 

specifies California law, precludes this claim. Therefore, this portion of their motion is denied.

Counter-Defendants next argue, inter alia, “MidSouth is not entitled to the [injunctive] 

relief it seeks in its Counterclaim,” (ECF No. 19 at 18:25), since it has not alleged “threatened 

future harm or [a] continuing violation.” (ECF No. 19 at 19:7.) They explain that the:

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activities [upon which MidSouth bases its Counterclaim]

necessarily ended by February 6, 2014, which is when the parties’ 

signed the Agreement. Further, MidSouth admits in its Answer that 

it terminated the Agreement in May of 2015[, which is] months

before this action was commenced. Because there is no allegation 

that the conduct it complains of is continuing, there is no basis for 

the issuance of an injunction.

(ECF No. 19 at 19:6–19 (citation omitted).) 

MidSouth asserts that it has alleged a basis for injunctive relief and points to the following 

allegations: “MidSouth has been damaged and will continue to be damaged.” (ECF No. 26 at

13:28–14:2; ECF No. 10 at ¶ 54.) 

“Article III standing requires an injury that is actual or imminent, not conjectural or 

hypothetical. In the context of injunctive relief, the plaintiff must demonstrate a real or 

immediate threat of an irreparable injury.” Hangarter v. Provident Life & Accident Ins. Co., 

373 F.3d 998, 1021 (9th Cir. 2004); see also People v. Toomey, 157 Cal. App. 3d 1, 20 (1984) 

(holding that “a showing of threatened future harm or continuing violation is required” before a 

court can impose an injunction under California’s Business and Professions Code). MidSouth’s 

conclusory assertion that it “will continue to be damaged,” (ECF no. 10 ¶ 54), “fails to 

[sufficiently] allege that it has suffered any ongoing injury from [Counter-Defendant]s’ 

anticompetitive conduct.” In re Napster, Inc. Copyright Litig., 354 F. Supp. 2d 1113, 1127 (N.D. 

Cal. 2005) (“[T]he court holds that [the counter-claimant] has failed to allege any set of facts that 

would entitle it to . . . injunctive relief under California Business and Professions Code sections 

17200 and 17203.”). Therefore, Counter-Defendants’ motion to dismiss MidSouth’s unfair 

business practices claim seeking injunctive relief is granted. 

IV. CONCLUSION

For the stated reasons, Counter-Defendants’ motion is GRANTED IN PART and 

DENIED IN PART:

(1) CVI’s motion to dismiss MidSouth’s fraud and negligent misrepresentation claims is 

DENIED;

(2) CVI’s motion to dismiss MidSouth’s unjust enrichment claim is DENIED; and

(3) CVI’s motion to dismiss MidSouth’s injunctive relief claims is GRANTED.

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MidSouth has thirty (30) days from the date on which this Order is filed to file an amended 

complaint addressing the referenced deficiency in the dismissed claim. 

IT IS SO ORDERED.

Dated: April 21, 2016

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