Case Information
*1 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA
B. RILEY FBR, INC. f/k/a B. RILEY & Case CV (NEB/BRT) CO., LLC,
Plaintiff,
ORDER ON MOTION TO DISMISS AMENDED COMPLAINT THOMAS M. CLARKE,
Defendant. This case presents dispute over contract between B. Riley, Thomas Clarke, various entities, where B. Riley agreed provide advisory services, allegedly provided those services, never paid. B. Riley has sued other entities separate lawsuit. In suit, B. Riley negotiated behalf entities, fraudulently induced into contract, knew all along paid. has thus brought several fraud claims negligent misrepresentation against Clarke, moved dismiss. Court concludes failed plead duty disclose thus dismisses negligent claim. concludes successfully pleaded particularity denies motions fraud claims.
BACKGROUND
The accepts following factual allegations Amended as true, must on motion to dismiss. Aten Scottsdale Ins. Co. 818, 820–21 The Plaintiff B. Riley provides investment services to clients. [ECF No. ¶ 3.] In February 2017, B. Riley began negotiations provide financial advisory services to ERP Iron Ore, LLC (“ERPI”). (“Complaint” “Am. Compl.”) ¶ These and additional negotiations ultimately led three contracts (the “Agreements”) for provide services ERPI, Capital Partners, LLC, and Metallics Company, LLC.
The first agreement February Engagement Agreement between ERPI. (Am. Ex. A.) The Defendant Thomas sole negotiator on behalf ERPI, ultimately signed document CEO ERPI. Comp. ¶¶ 16.) During negotiations, “Mr. represented affirmed he had authority act behalf [ERPI] negotiated terms Engagement Agreement signed behalf company.” ( Id. 17.) second agreement, called First Amendment, came month later. It called provide enhanced receive additional fees. ( Id. ¶¶ 22.) First Amendment between ERPI, again negotiated signed solely ERPI. ( Id . 23.) “represented affirmed” act behalf ERPI these negotiations too. third agreement, called Second Amendment, came end of 2017. It added Mesabi, wholly ‐ owned subsidiary of Chippewa. ( Id. ¶¶ 26–27.) Clarke negotiated signed Second Amendment behalf ERPI [1] and Chippewa CEO both companies. ( Id. ¶¶ 28–28, 32) [2] “never made any representation B. Riley that he not an authorized signatory behalf ERPI Chippewa.” ( Id. ¶ 32.) And, during those negotiations, “knowingly intentionally material representations that he Mesabi honor Second Amendment that he Mesabi intended compensate B. Riley under Agreements.” ( Id. 28.)
Throughout negotiations, affirmatively told B. Riley he act behalf entities, entities intended pay B. Riley for provided Agreements. ¶¶ 17, 25, 28, 34, 36, 42, 46, 49, 50.) Conversely, alleges, omitted opposite information: did inform not an authorized signatory entities they were unwilling pay. ( Id. ¶¶ 43, 47, 48,
*4 B. Riley held up its end bargain, performing
Agreements through spring Indeed, in June year, Mesabi closed debt equity funding for $900 million new capital, including $650 million debt financing. (Am. 47.) B. Riley calculates for its role helping to obtain financing, owes $16,875,000. ( Id. 57–60.) But B. Riley requested payment, refused, stating did have authority to bind to Agreements.
B. sued, claiming fraudulently induced B. Riley enter into these three contracts. According B. Riley, two misrepresentations: (1) misrepresented his act behalf entities (2) misrepresented their intention pay B. for its work. original claims included fraudulent inducement, fraudulent
misrepresentation, negligent misrepresentation. [ECF No. 1.] About month after filing suit, sought temporary restraining order preliminary injunction [ECF No. 11.] Court denied motion [ECF No. 46.] later amended complaint include for fraudulent omission. Compl.¶¶ 95–105.) then moved dismiss. No.
*5 ANALYSIS
I. Standard of Review moved for dismissal under both Federal Rule Civil Procedure 12(b)(6) for failure state a claim Federal Rule Civil Procedure 9(b) for failure plead fraud with particularity. When reviewing a motion dismiss failure state a claim Federal Rule Civil Procedure 12(b)(6), a court must accept true all factual allegations complaint draw all reasonable inferences plaintiff’s favor . Aten v. Scottsdale Ins. Co ., 820–21 factual allegations complaint “must be enough raise a right relief above speculative level” complaint must “state claim relief plausible its face.” Bell Atl. Corp. Twombly U.S. (2007). Generally, complaint must contain “a short plain statement showing pleader entitled relief . . . .” Fed. R. Civ. P. 8(a)(2). When complaint fraud, however, “a party must state with particularity circumstances constituting fraud or mistake” but “[m]alice, intent, knowledge, other conditions person’s mind may generally.” Fed. R. Civ. P. 9(b).
II. Fraud Claims brings claims fraudulent inducement, fraudulent misrepresentation, fraudulent omission. To succeed claims, must prove: (1) false representation [Clarke] past existing material fact susceptible knowledge; (2) *6 knowledge falsity the representation or without knowing whether was true or false; (3) with intention induce [B. Riley] act reliance thereon; (4) representation caused [B. Riley] act reliance thereon; (5) [B. Riley] suffered pecuniary damages as result reliance.
Valspar Refinish, Inc. v. Gaylord ʹ s, Inc. , 764 N.W.2d 359, 368 (Minn. 2009) (citing Hoyt Properties, Inc. v. Prod. Res. Grp., L.L.C., 736 N.W.2d 313, 318 (Minn. 2007)). “While party transaction generally no duty disclose material facts other, ‘[o]ne who speaks must say enough prevent his words from misleading other party.’” Sorchaga v. Ride Auto, LLC , 893 N.W.2d 360, 369 (Minn. Ct. App. 2017), review granted part (June 20, 2017), aff ʹ d , 909 N.W.2d 550 (Minn. 2018), reh ʹ g denied (May 3, 2018) (quoting Klein v. First Edina Nat ʹ l Bank , 421, 196 N.W.2d 619, 622 (Minn. 1972)).
A. Pleading Fraud with Particularity argues fails plead particularity Rule 9(b). To satisfy rule, “the complaint must ‘allege such matters as time, place, contents false representations, well identity person making what obtained given up thereby.’” Drobnak v. Andersen Corp., F.3d 778, (8th Cir. 2009) (quoting Schaller Tel. Co. v. Golden Sky Sys., F.3d (8th Cir. 2002)). In other words, complaint must allege “who, what, when, where, how” fraud. Parnes Gateway Inc ., As result, “conclusory allegations defendant ʹ s conduct *7 fraudulent and deceptive are sufficient satisfy the rule.” Commercial Prop. Invs., Quality Inns Int’l, Inc., 639,
Complaint includes the requisite “who, what, when, where, and how” the fraud. As one example:
A meeting was held on December 21, 2017, in New York, New
York, Mr. Clarke and Mr. Rosen, well as members the board directors Mesabi, during which Mr.
knowingly and intentionally made material representations
that he and Mesabi honor the Second Amendment and Mesabi intended compensate under Agreements.
(Am. Compl.¶ 28.) And another:
During negotiations beginning February 2017, through signing Second Amendment about December 22, thereafter, person New York, New York also by phone, Mr. knowingly intentionally material false representations, referenced above, Chippewa Mesabi intended pay compensation due Agreements. 75.) Complaint alleges several points, including meeting New
York phone many occasions, assured execute Agreements. (Am. Compl. 65.) Finally, Complaint alleges “[u]pon information belief, time Agreements were signed, *8 and were unwilling to pay the fees properly owed the Agreements and Mr. Clarke aware this unwillingness the time made the aforementioned representations Riley.” These statements, among others, articulate “who, what, when, where, how” alleged fraud. They include who speaking (Clarke), where made misrepresentations omissions (New York on phone, several times 2017), well as content (that Clarke bind companies honor contract when, fact, Clarke knew they would not do so). statements are not conclusory; they are specific about both content timing. They also satisfy purpose Rule 9(b)—to facilitate defendant’s ability respond prepare defense charges fraud. Commercial Prop. Invs., Thus, detail satisfies Rule 9(b)’s particularity requirement, motion this ground denied. Intent Defraud
argues fraud claims fail because only representations about future performance, which may not sustain fraud. To advance argument, relies “well settled rule representation or expectation future acts sufficient basis support an action fraud merely because represented act event did take place.” Vandeputte Soderholm N.W.2d (Minn. And so, argues, “all claims predicated *9 theory the companies had no intention paying is liable representing to the contrary should be dismissed.” No. 64 at This argument misses mark, because theory is more nuanced than that. This suit is not the typical “broken promises” fraud based a defendant’s promise failure perform. See, e.g., EAS Grp., Inc. v. FiberPop Sols., Inc ., MC 0020 (PJS/TNL), 2015 WL *4 (D. Minn. June 2015). here sues Clarke, not other entities. And Complaint misrepresentations Clarke, including had authority he did have, he knew would pay fact had no such knowledge. This case different from cases requiring “’affirmative evidence’ promisor had no intention perform.” Int’l Travel Arrangers NWA, , F.2d difference lies actors: promisor (Clarke) different from performer (Mesabi other entities). pled affirmative misrepresentations, well material omissions, designed lure into signing contract where allegedly performed benefitting Clarke. Clarke’s intent, pled generally, meets standard Rule 9(b). Fed. R. Civ. P. 9(b).
*10 C. Reasonable Reliance
The Complaint must also allege both that actually relied Clarke’s fraudulent statements that reliance reasonable. Hoyt Properties, Inc. , N.W.2d at 320. “Reliance cases is generally evaluated context aggrieved party ʹ s intelligence, experience, opportunity investigate facts at issue.” Valspar Refinish, Inc. , N.W.2d The Complaint pleads actual reliance. It alleges that “B. performed financial advisory services, including investment banking services, under Agreements through spring direct reliance upon representations Mr. . . . .”and that “B. has not been compensated financial advisory it provided under Agreements but Mr. knowing intentional false representations, not have performed such advisory services.”
Complaint pleads Riley’s reliance reasonable. The Supreme Minnesota held “that party can reasonably rely representation unless falsity representation is known obvious listener.” Hoyt Properties, N.W.2d (citing Spiess Brandt, Minn. (Minn. 1950)). “The listener is not an obligation conduct an investigation thus may rely representation so long known listener false obviously false.” told representatives both bind Chippewa intended *11 honor the agreement. ¶ B. Riley does not allege that it knew those facts were false or that it any reason believe they would false. And the Complaint facts supporting notion that B. reliance reasonable, including: (1) that Chippewa’s counsel never notified B. Riley that Clarke not authorized bind or ( Id. 35); (2) that issued press release identifying as “Chippewa principal, Mesabi’s new Chief Executive Officer” ( Id. 37); (3) that continually signed accepted work on behalf of companies 40– At this stage litigation, B. Riley has put forth enough facts that it reasonably relied representations.
D. Damages must plead that suffered damages result reasonable reliance. “In Minnesota, damages are limited actual out ‐ pocket loss sustained by plaintiff proximate result defendant ʹ s purchaser ʹ s reliance thereon.” Strouth Wilkison N.W.2d (Minn. 1974) (citation omitted). Here, clearly states that provided *12 advisory services. 53.) And provided those services based assurances from honor agreement. ( Id. been compensated for those services. ) The out ‐ ‐ pocket loss associated with unpaid advisory can be easily quantified. The Court thus concludes Complaint adequately pleads damages for fraud claims. Because each element a is alleged with particularly, motion dismiss with respect these claims is denied.
III. Negligent Misrepresentation sued negligent misrepresentation. “An essential element negligent is misrepresenter owes duty care person whom they are providing information .” Smith v. Woodwind Homes, Inc. , 605 N.W.2d 418, 424 (Minn. Ct. App. 2000) (citation omitted). While duty care exists certain circumstances, such there is special relationship between parties, see Williams v. Smith , N.W.2d 807, (Minn. 2012), “where adversarial parties negotiate arm ʹ s length, there no duty imposed such party could liable negligent misrepresentations.” Safeco Ins. Co. Am. v. Dain Bosworth Inc. , N.W.2d 867, (Minn. Ct. App. 1995). agrees reveals no duty owed Riley. parties were “sophisticated equals negotiating business transaction.” La Parilla, Jones Lang LaSalle Americas, Inc. CV WL *10 (D. Minn. July There nothing pleadings suggesting and a special relationship. Indeed, agreements themselves suggest otherwise, emphasizing each party’s independence and sophistication: Company represents is a sophisticated business
enterprise retained limited purposes set forth in this Agreement, parties acknowledge agree their respective rights obligations are contractual nature. Each party disclaims any intention impose fiduciary obligations other by virtue of engagement contemplated this Agreement.
60–1 Without special relationship a corresponding duty of care, is impossible succeed negligent claim. As result, Court dismisses this claim prejudice.
CONCLUSION
Based foregoing all files, records, proceedings herein, IT IS HEREBY ORDERED THAT:
1. Riley’s Motion Dismiss 63] GRANTED IN PART AND DENIED IN PART discussed herein; negligent DISMISSED WITH
PREJUDICE. Dated: September BY THE COURT:
s/Nancy E. Brasel Nancy E. Brasel United States District Judge
[1] ERPI went into involuntary bankruptcy in May 2018. did sue ERPI in jurisdiction. plans initiate an adversary proceeding against ERPI in bankruptcy court. See FBR, f/k/a & Co., LLC Chippewa Capital Partners, LLC, Mesabi Metallics Company, LLC f/k/a Essar Steel Minnesota CV ‐ 2575 (NEB/BRT) [ECF No. n.1.]
[2] Mesabi is project company in Minnesota developing an iron ore pellet production facility. Mesabi filed Chapter bankruptcy July 2016. ( Id. ) Its plan reorganization conveyed ownership Chippewa December ( Id. ) special purpose entity formed acquire bankruptcy proceedings sole owner Mesabi. 6–7.)
[3] sued Chippewa Mesabi. See Riley, Chippewa Capital Partners, LLC et al. cv (NEB/BRT) (D. Minn.). Court denied Motion Temporary Restraining Order Preliminary Injunction case. later granted Mesabi’s Motion Dismiss because complaint asked only injunctive relief, parties agreed address merits case arbitration.
[4] This paragraph does mention Chippewa, but “[a]t time Second Amendment executed Mr. Riley, wholly ‐ owned subsidiary Chippewa. Upon information belief, still wholly ‐ owned subsidiary Chippewa.”
[5] Even if required meet standard “’affirmative evidence’ promisor no intention perform,” Court’s decision same. Int’l Travel Arrangers. includes facts supporting inference present intent defraud—namely, repeated misrepresentations about his Mesabi’s intention pay. This case does present circumstance where plaintiff pleads only because defendant failed perform.
[6] argues agreements “acknowledge[d] that no representations, inducements, agreements, orally or otherwise, have been made any party, or anyone acting behalf any party, which are not embodied herein, this Agreement . . . embodies entire agreement understanding between parties hereto.” (“Ex. A”) But arguing parties have an understanding outside four corners agreement. It arguing fundamental misrepresentations induced execute an agreement otherwise have signed—an assertion which clause agreement no bearing.
[7] argues New York law applies claim different rules surrounding duty special relationship apply here. “In diversity case, federal court applies choice law rules forum state.” Nw. Airlines, Inc. v. Astraea Aviation Servs., Inc. , This thus applies Minnesota choice ‐ law rules here. “The first step Minnesota is consider whether conflict actually exists between different states . . . .” There appears no conflict here. See Amusement Indus., Stern F. Supp. 2d (S.D.N.Y. 2011) (finding no duty care special relationship facts reveal “nothing more than an arms length business arrangement between sophisticated experienced parties” citing cases). Under application either law, there no duty care here because parties remained adversaries an arm’s length business negotiation dismissal proper.