CHAPTER 11
ORDER GRANTING IN PART AND DENYING IN PART GECC’S MOTION TO DISMISS (ECF NO. 32)
THIS MATTER came before the Court upon the Motion to Dismiss (thе “Motion to Dismiss”) (ECF No. 32) filed by General Electric Capital Corporation (“GECC”). The Motion to Dismiss seeks dismissal of the Amended Complaint (ECF No. 26)
COMPLAINT ALLEGATIONS AND PROCEDURAL BACKGROUND
The following is a summary of the relevant allegations contained in the Amended Complaint. Thomas Petters (“Petters”) and his co-conspirators conspired to commit and actually did commit the third-largest financial fraud in U.S. history (the “Petters Ponzi Scheme”). GECC is one of the most sophisticated commercial lenders in the word, who at all material times through July 2, 2001, was chartered under the New York State Banking Law and subject to supervision by the State of New York banking authority. Palm Beach Finance Partners, L.P. (“PBF I”) and Palm Beach Finance II, L.P. (“PBF II” and together with PBF I, the “Palm Beach Funds”) were Delaware limited partnerships which were formed in 2002 and 2004, respectively, to provide financing to Pet-ters and his affiliates. In order to facilitate these financing activities, the Palm Beach Funds formed PBFP Holdings, LLC (“PBFP Holdings”).
By 1995, Petters began soliciting “investments” for his scheme. In soliciting investments, Petters represented to investors that the funds invested would be used to finance consumer electronic merchandise transactions. Petters claimed he would arrange for the sale and delivery of the consumer electronic merchandise from suppliers to “big box” retailers, such as Costco and Sam’s Club. The financing would allow Petters to pay the suppliers while he awaited payment from retailers. However, unbeknownst to his investors, Petters’ operation was nothing more than a Ponzi scheme — there were no true retailers, there was virtually no merchandise, the suppliers were co-conspirators, and the lenders were repaid from monies sourcеd from other defrauded lenders.
In 1997, Petters began to communicate with GECC about providing financing for his purchase financing operation. By 1998, GECC and Petters agreed that Pet-ters Capital (a special purpose entity or “SPE”) would be formed to borrow $50 million on a revolving basis from GECC. According to the terms of the loan agreement, (1) the funds advanced would be used to purchase the consumer electronic merchandise, (2) GECC would be repaid from the sale of the merchandise, (3) retailers would be required to make their payments directly to a GECC-controlled lockbox, and (4) GECC would receive various forms of compensation, including interest and profit sharing “success fees.” On March 10, 1998, GECC filed a UCC-1 financing statement (“GECC Financing Statement”) with the Minnesota Secretary of State in order to perfect its security interest in the assets of Petters Capital. In 1999, GECC provided another line of credit to a Petters-controlled entity — a $ 55 million line of credit to RedtagBiz, Inc., £/k/a Redtagoutlet.com, Inc. (“Red-tag”).
Over time, GECC and Petters developed an unusually close relationship, evidenced in part by (1) the profit sharing “success fees” arrangement, (2) the issuance on January 4, 2000, of GECC’s recommendation letter praising Petters in his personal and business capacities (the “Recommendation Letter”), (3) GECC’s overlooking of Petters’ noncompliance with the terms of the loan agreement, (4) GECC’s deviation from its standard procedures, and (5) the
In late 2000, GECC uncovered the fraudulent nature of the Petters Ponzi Scheme, including that Petters and his co-conspirators were engaged in a conspiracy to defraud their lenders. This discovery resulted in part from GECC’s direct communication with Costco, one of Petters’ supposed retailers, during which Costco stated that it had not entered into any purchase orders with Petters as Petters had represented. Upon making this discovery, GECC agreed to keep silent and not disclose its knowledge of the Petters Ponzi Scheme to anyone outside of GECC. Instead, GECC elected to accept a payoff from Petters of the revolving credit line, including payment of the “success fees,” and to otherwise join, encourage, aid, abet, facilitate, and substantially assist Petters’ conspiracy.
In 2002, the Palm Beach Funds became involved with Petters through Frank Ven-nes (‘Vennes”). Petters, acting through Vennes, used his former relationship with GECC as a selling point to entice the Palm Beach Funds to become lenders/investors in Petters’ purchase financing operations. Additionally, Vennes, who was familiar with and influenced by GECC’s Recommendation Letter, gave his own positive recommendation of Petters to the Palm Beach Funds. The Palm Beach Funds eventually agreed to become lenders to Petters and filed a UCC-1 financing statement in the Minnesota public records to ensure its position as first lienholder in the collateral it financed. Upon inspection of the public records, the Palm Beach Funds discovered that the GECC Financing Statement was still in effect. Accordingly, the Palm Beach Funds requested the GECC Financing Statement be terminated. Petters, in turn, asked GECC to terminate its Financing Statement. GECC agreed and appointed Petters Capital as its agent to terminate the GECC Financing Statement. Petters, through Petters Capital, filed a UCC-3 financing statement termination (“GECC Termination Statement”) on March 5, 2003. The Palm Beach Funds then went ahead with its loans to Petters.
Upon the implosion of the Petters Ponzi Scheme in September 2008, the Palm Beach Funds suffered damages in excess of $1 billion and eventually filed for chapter 11 bankruptcy protection on November 30, 2009. On September 3, 2010, the Plaintiff, as the Palm Beach Funds’ Chapter 11 Trustee, filed a Second Amended Joint Plan of Liquidation
CONCLUSIONS OF LAW
I. Motion to dismiss standard
A. General pleading standard — Rules 8(a) and 12(b)(6)
In order to state a claim for relief under Federal Rule of Civil Procedure 8(a)
B. Pleading special matters — Rule 9(b)
When a plaintiff asserts claims based upon fraud or mistake, simply meeting the pleading requirements of Rule 8(a) is insufficient to survive a Rule 12(b)(6) motion to dismiss. In addition, Federal Rule of Civil Procedure 9(b)
Rule 9(b) is satisfied if the complaint sets forth “(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) same, and (3) the content of such statements and the man*322 ner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud.”
Mizzaro v. Home Depot, Inc.,
“In construing allegations of actual fraud in an action brought by a bankruptcy trustee, the ‘particularity’ standard of ... Rule 9(b) is somewhat relaxed.” Cox v. Grube (In re Grube), Adv. No. 10-8055,
“Such flexibility afforded to trustees in bankruptcy with respect to the pleading requirements is [usually] appropriate ‘[g]iven the inevitable lack of knowledge concerning the acts of fraud previously committed against the debtor, a third party.’ ” In re Arizen Homes,
Here, the following claims asserted by the Plaintiff are subject to the pleading requirements of Rule 9(b): (1) civil conspiracy to commit fraud, (2) aiding and abetting fraud, (3) fraud by omission, (4) fraudulent misrepresentation, (5) fraudulent concealment, (6) conspiracy to commit fraudulent concealment, (7) negligent misrepresentation,
II. Statute of limitations
GECC contends that the Plaintiffs claims are untimely because the very last GECC act alleged in the Amended Complaint as a basis for the Plaintiffs claims is the March 2003 filing of the GECC Termination Statement. Thus, according to GECC, the statute of limitations on the Plaintiffs claims expired at the latest in March 2007 (using Florida’s four-year statute of limitations)
To begin with, the statute of limitations defense is an affirmative defense upon which GECC, as the defendant, bears the burden of pleading and proving. La Grasta v. First Union Sec., Inc.,
The Plaintiff asserts that under either Illinois or Minnesota law,
On a Motion to Dismiss, the Court takes the Plaintiffs allegations at face value in assessing whether the Plaintiff plausibly states a claim for relief. Here, the Plaintiff alleges that (1) the Palm Beach Funds did not know of Petters’ fraudulent conduct until September 2008, (2) the Palm Beach Funds did not discover Petters’ fraud through their own diligence, and (3) the Palm Beach Funds could not have discovered Petters’ fraud sooner through reasonable diligence. Am. Compl. ¶¶ 151— 156. Furthermore, the Plaintiff alleges
Therefore, because the statute of limitations defense is an affirmative defense and because the Plaintiff plausibly alleges that his causes of action did not accrue until at least 2008 when the Palm Beach Funds discovered Petters’ fraud, the Court finds that it would be inappropriatе to determine at this stage that the Plaintiffs claims are barred by the statute of limitations. As a result, the Court will deny GECC’s Motion to Dismiss on this basis.
III. Count 9 — Negligence
A. Duty
The threshold question in any claim of negligence is the existence of a duty of care owed by the defendant to the plaintiff. GECC contends that Count 9 must be dismissed because the Plaintiff fails to properly allege a duty owed by GECC to the Palm Beach Funds. The Court agrees.
In its Amended Complaint, the Plaintiff alleges that: (1) GECC had a special relationship with Petters and Petters Capital; (2) GECC had a duty to disclose the truth to the Palm Beach Funds; (3) GECC knew that the Palm Beach Funds were to be defrauded or that the Palm Beach Funds were within a class of persons GECC knew were to be defrauded; and (4) GECC owed a duty of care to protect the Palm Beach Funds from being defrauded and victimized by Petters and Petters Capital. In his Response in Opposition to the Motion to Dismiss (ECF No. 42), the Plaintiff goes to great lengths to explain why based upon these factual allegations, GECC owed a duty of care to the Palm Beach Funds, asserting that:
1. Duty, which is a flexible concept, arises where action creates the risk of foreseeable harm, and GECC’s actions created a risk of foreseeable harm;
2. Once GECC “spoke,” it had a duty to make a full and fair disclosure and to speak completely and fully so that its words did not mislead the Palm Beach Funds;
3. GECC had special knowledge of material facts to which the Palm Beach Funds had no access, and thus, GECC had a duty to disclose those facts to the Palm Beach Funds; and
4. GECC and Petters had a special relationship which gave rise to GECC’s duty of care to the Palm Beach Funds.
i. Judicial estoppel
To begin with, the Court finds that GECC is not judicially estopped from arguing that it did not owe a duty to the Palm Beach Funds. “Judicial estoppel is an equitable doctrine invoked at a court’s discretion.” Burnes v. Pemco Aeroplex, Inc.,
Courts typically consider: (1) whether the present position is “clearly inconsistent” with the earlier position; (2) whether the party succeeded in persuading a tribunal to accept the earlier position, so that judicial acceptance of the inconsistent position in a later proceeding creates the perception that either court was misled; and (3) whether the party advancing the inconsistent position would derive an unfair advantage on the opposing party.
Id. (citing New Hampshire v. Maine,
In the Professional Recovery Services proceeding,
Accordingly, the Court refuses to exercise its discretion and invoke judicial es-toppel as the Court finds that the position taken by GECC in the Professional Recovery Services proceeding is not clearly inconsistent with the position taken by GECC in proceeding currently before this Court.
ii. Duty arising from creation of risk of foreseeable harm
The Plaintiff makes a brief argument that Florida, like other jurisdictions, recognizes that a legal duty will arise whenever a human endeavor creates a generalized and foreseeable risk of harming others. In so arguing, the Plaintiff contends that the facts and public policy concerns of this case “demand the imposition of a duty.” However, in the same case cited by the Plaintiff for the above proposition, Langbehn v. Public Health Trust of Miami-Dade County, the U.S. District Court for the Southern District of Florida noted that “the Florida Supreme Court has recently cautioned that ‘abstract notions of sound public policy are not proper judicial considerations’ in determining whether a duty exists.”
Furthermore, when courts impose a duty based upon the creation of a risk of foreseeable harm, they generally do so only when the defendant has engaged in some affirmative conduct which has directly placed the plaintiff in harm’s way. Otherwise, “[generally, no duty is imposed on an individual to protect another from harm,” even when his failure to do so may increase the risk of foreseeable harm to that person. Domagala v. Rolland,
Here, the duty alleged by the Plaintiff is that GECC had a duty to warn the Palm Beach Funds, a party with which GECC indisputably had no direct contact or relationship, that Petters was perpetrating a fraud. Accordingly, without more, public policy considerations and the alleged creation of a risk of harm as a result of GECC’s failure to act do not give rise to a duty of care owed by GECC to the Palm Beach Funds.
iii. Duty to make a full and fair disclosure
The Plaintiff also asserts that GECC spoke to the Palm Beach Funds through the Recommendation Letter and the GECC Termination Statement and that once GECC spoke, GECC had a duty to make a full and fair disclosure, which included a duty to correct the Recommenda
To begin with, the Plaintiffs assertion that GECC spoke to the Palm Beach Funds through the Recommendation Letter and the GECC Termination Statement is questionable.
Though one may be under no duty to speak as to a matter, if he undertakes to do so, either voluntarily or in response to inquiries, he is bound not only to state truly what he tells, but also not to suppress or conceal any facts within his knowledge which materially qualify those stated. If he speaks at all, he must make a full and fair disclosure.
The Plaintiff also cites to Rudolph v. Arthur Andersen & Company,
Standing idly by while knowing one’s good name is being used to perpetrate a*329 fraud is inherently misleading. An investor might reasonably assume that an accounting firm would not permit inclusion of an audit report it prepared in a placement memo for an offering the firm knew to be fraudulent, and that such a firm would let it be known if it discovered to be fraudulent an offering with which it was associated. It is not unreasonable to expect an accountant, who stands in a “special relationship of trust vis-a-vis the public,” and whose “duty is to safeguard the public interest,” to disclose fraud in this type of circumstance, where the accountant’s information is obviously superior to that of the investor, the cost to the accountant of revealing the information minimal, and the cost to investors of the information remaining secret potentially enormous.
In W.W. Vincent and Company v. First Colony Life Insurance Company, another case cited by the Plaintiff, the court сonsidered whether the defendant had a duty to speak in the context of a fraudulent concealment claim, not a negligence claim.
Similarly, in Jetpay Merchant Services, LLC v. Miller, the plaintiff alleged that the defendants, acting as directors or officers of USN Corporation, misrepresented the way in which USN Corporation shipped goods to its customers, thereby inducing the plaintiff to enter into an agreement it would otherwise have avoided, and further misrepresented that USN Corporation would reimburse the plaintiff for its losses, thereby stringing the plaintiff along and causing the plaintiff to incur additional losses. Civ. Action No. 3:07-CV-0950-G,
The cases cited by the Plaintiff, including specifically Rudolph, W.W. Vincent, Jetpay, and Rochester Methodist, are factually dissimilar from the case now before the Court and thus provide little support for the proposition that once GECC “spoke” to the Palm Beach Funds, a party with whom the GECC had no direct relationship, it owed some kind of negligence-based duty to the Palm Beach Funds to make a full and fair disclosure and to correct prior inaccurate disclosures. In the absence of any kind of alleged relationship between GECC and the Palm Beach Funds, the Court finds that the duty to make a full and fair disclosure after choosing to speak is not applicable here. Accordingly, the fact that GECC allegedly spoke to the Palm Beach Funds did not give rise to any kind of duty which required GECC to make a “full and fair disclosure” and to correct any and all prior misstatements.
iv. Duty arising from special knowledge
The Plaintiff also contends that GECC had a duty to disclose and warn the Palm Beach Funds of Petters’ fraud since it had “special knowledge” of material facts to which the Palm Beach Funds did not have access.
However, like the duty to make a full and fair disclosure upon speaking, the duty to disclose “special knowledge” of material facts arises only in the context of a business transaction to which both the plaintiff and the defendant are a party or where both parties had some kind of preexisting relationship. Stephenson v. Deutsche Bank AG,
Accordingly, the Court finds that the duty to disclose “special knowledge” of material facts to which another party did not have access is inapplicable in the case now before the Court and does not support the Plaintiffs allegation that GECC had a duty to disclose certain information to the Palm Beach Funds.
v. Duty arising from special relationship
Lastly, the Plaintiff contends, albeit briefly, that GECC had a duty to prevent the criminal actions of Petters because GECC had a special relationship with Pet-ters and had the ability to control Petters. For the reasons discussed below, the Court finds that the Plaintiff does not allege a plausible duty of care owed by GECC to the Palm Beach Funds based upon GECC’s alleged special relationship with Petters.
As a general rule, there is no duty to control the conduct of a third person so as to prevent him from causing physical harm to another unless: (a) a special relation exists between the actor and the third person which imposes a duty upon the actor to control the third person’s conduct, or (b) a special relation exists between the actor and the other which gives to the other a right to protection. Restatement (Second) of Torts § 315 (1965); Reider v. Dorsey,
To begin with, the types of “special relationships” which give rise to negligence-based duties of care typically fall into the following five categories:
1. Duty of parent to control conduct of child;
2. Duty of master to control conduct of servant;
4. Duty of thоse in charge of persons who have dangerous propensities;
5. Duty of person having custody of another to control conduct of third persons.
Restatement (Second) of Torts §§ 315-20. Within these five categories, courts have recognized special relationships in a variety of contexts, including but not limited to: employer-employee, landlord-tenant, landowner-invitee, school-minor, university-adult student, car rental agency-customer, and innkeeper-guest. Janis v. Pratt & Whitney Can., Inc.,
Additionally, it is highly implausible that GECC could have controlled the criminal conduct of Petters, who by all accounts was a professional fraudster who orchestrated a multi-billion dollar Ponzi scheme, by refusing to authorize the filing of the GECC Financing Statement or by “correcting” the Recommendation Letter. See Am. Compl. ¶238, ¶240. Further, it is equally implausible and logically circular that (1) GECC’s duty of care to the Palm Beach Funds arose from its ability to control Petters by means of exposing Petters’ fraudulent conduct; (2) the only way GECC could have fulfilled its duty of care would have been to expose Petters’ fraudulent conduct; and (3) GECC breached its duty of care to the Palm Beach Funds by failing to expose Petters’ fraudulent conduct. This kind of circular logic flies in the face of the well-established law of negligence.
For these reasons, the Court finds that the Plaintiffs contention thаt he properly alleges that GECC had a duty to disclose Petters’ fraud because of GECC’s special relationship with Petters is unpersuasive.
vi. The Plaintiff fails to plausibly allege a duty
Although the Plaintiff need not meet the heightened Rule 9(b) standards when pleading a claim for negligence, the Plaintiff must still allege a “plausible”
In Count 9, the Plaintiff makes the following allegations regarding the duty of care owed by GECC to the Palm Beach Funds:
283. GECC had a special relationship with Petters and Petters Capital.
234. GECC had a duty to disclose the truth to the Palm Beach Funds.
235. GECC knew that the new lender to Petters Capital, the Palm Beach Funds, was to be defrauded. Alternatively, the Palm Beach Funds were within a class of persons GECC knew were to be defrauded, ie., lenders to Petters Capital.
236. GECC owed a duty of care to protect the Palm Beach Funds from being defrauded and victimized by Petters and Petters capital.
237. GECC breached this duty by knowingly placing its agent (Petters Capital) in a position to commit fraud upon the Palm Beach Funds (via the GECC Financing Statement Termination) and its agent did so while acting within the granted scope of authority.
238. GECC had the ability to control Petters Capital and thwart its efforts to defraud the Palm Beach Funds by refusing to appoint Petters Capital as its agent to terminate the GECC Financing Statement.
239. GECC further had the continuing ability to control Petters and Petters Capital by disclosing to law enforcement, regulators, the public, Petters Capital’s or Costco’s banks, or the Palm Beach Funds GECC’s knowledge of the fraud.
240. GECC had the continuing ability to control Petters and Petters Capital by correcting the Recommendation Letter.
Am. Compl. ¶¶ 233-40. Accepting these allegations as true for the purposes of the Motion to Dismiss, the Plaintiff still fails to allege a plausible duty of care. The con-elusory statement that GECC “owed a duty of care” is insufficient. The Plaintiff must allege sufficient facts which plausibly establish that GECC owed a duty of care to the Palm Beach Funds. The Plaintiff fails to do so. As discussed above, not one of the theories advanced by the Plaintiff is applicable here such that the Court can find that the factual allegations contained in the Amended Complaint plausibly establish a duty of care.
Additionally, “[a] bank has no duty to third parties to disclose information about a [bank] customer’s account.” Kesselman v. Nat’l Bank of Ariz.,
Based upon the Plaintiffs allegations and for the additional reasons just discussed, the Court finds that the Plaintiff fails to plausibly allege a duty of care.
B. Breach
In addition to the Plaintiffs failure to allege a duty of care, Count 9 also fails to state a claim on the basis that the Plaintiff does not adequately allege how GECC breached its alleged duty of care. The only allegation pertaining to GECC’s breach is the following: “GECC breached [its] duty by knowingly placing its agent (Petters Capital) in a position to commit fraud upon the Palm Beach Funds (via the GECC [Termination Statement]) and its agent did so while acting within the granted scope of authority.” Am. Compl. § 237. Accepting this allegation at face value, it appears that the Plaintiff alleges that GECC had an overarching duty to protect the Palm Beach Funds from all aspects of Petters’ fraudulent conduct and breached this general duty of protection by “knowingly” allowing Petters Capital, as its аgent, to defraud the Palm Beach Funds by filing the GECC Termination Statement. Not only is the statement that GECC acted “knowingly” confusing in the context of a negligence claim, but it is entirely implausible that GECC breached whatever alleged duty of care it owed to the Palm Beach Funds simply by authorizing GECC to file a UCC termination statement. Accordingly, the Court finds that the Plaintiff fails to plausibly allege the element of breach.
C. Count 9 shall be dismissed for failure to state a claim
For the reasons just discussed, the Court finds that Count 9 must be dismissed as the Plaintiff fails to plausibly allege a duty of care or a breach of that duty and thus, fails to state a claim for negligence.
IV. Fraud claims — Counts 3, 4, 5, 7, and 8
The Plaintiff institutes various fraud claims — five in total — which at their core, all generally seek to remedy the same alleged wrongdoing: GECC’s failure to alert the Palm Beach Funds to Petters’ fraudulent conduct after GECC allegedly discovered this fraudulent conduct. For the reasons discussed below, the Court finds that all five counts fail to state claims for relief which are facially plausible.
A. Counts 3 and 5 — Fraud by omission and fraudulent concealment
In Count 3 of the Amended Complaint, the Plaintiff asserts a cause of action against GECC for fraud by omission. In Count 5 of the Amended Complaint, the Plaintiff asserts a cause of action against GECC for fraudulent concealment. Fraud by omission and fraudulent concealment are very similar forms of common law fraud. Fraud by
1. The defendant concealed or failed to disclose a material fact;
2. The defendant knew or should have known that the material fact should be disclosed or not concealed;
3. The defendant acted in bad faith;
4. The defendant knew that by concealing or failing to disclose the material fact, the plaintiff would be induced to act;
5. The plaintiff suffered damages as a result of the concealment or failure to disclose; and
6. The defendant had a duty to speak.
R.J. Reynolds Tobacco Co. v. Martin,
As discussed in Section III, supra,
Because Counts 3 and 5, which seek damages on account of GECC’s alleged fraudulent concealment or fraud by omission, fail to plausibly allege that GECC had a duty to speak, the Court will dismiss Counts 3 and 5 for failure to state a claim.
B. Counts 4 and 8 — Fraudulent misrepresentation and fraud
In Count 4, the Plaintiff asserts a claim for fraudulent misrepresentation. In Count 8, the Plaintiff asserts a claim for fraud. Fraud and fraudulent misrepresentation refer to the same cause of action — common law fraud.
i. Count b — Fraudulent misrepresentation
In Count 4, the Plaintiff re-alleges paragraphs 1 through 165 and includes the following additional allegations:
193. Given that there was no “excellent” customer status at GECC, GECC knew that the Recommendation Letter was false.
194. Given the content of the Kroll Re*337 port25 as well as Midkiff s fervent view that Petters lacked personal integrity,26 GECC knew that the Recommendation Letter was false.
195. Given the discovery of the Petters conspiracy, GECC knew that the Recommendation Letter was false.
196. GECC intended that the Recommendation Letter reach and influence a class of persons of which the Palm Beach Funds were members.
197. The Palm Beach Funds, through their agent, justifiably relied upon the Recommendation Letter to their dеtriment and as a result, were damaged.
198. As a result, the Palm Beach Funds suffered over $1 billion in damages.
Am. Compl. ¶¶ 193-198. These allegations are insufficient. To begin with, the Plaintiffs fraudulent misrepresentation claim must be dismissed because it fails to identify a single false statement of material fact. The alleged falsity of the Recommendation Letter does not qualify as the identification of a false statement of material fact. The Recommendation Letter is a letter, not a fact, and it contains several different statements of fact. In order to state a claim for fraudulent misrepresentation, the Plaintiff must identify the false statement or statements of material fact which form the basis of the Plaintiffs fraudulent misrepresentation claim. It must not be left to GECC, as the defendant, or the Court to guess which statements in the Recommendation Letter are the allegedly false ones.
Furthermore, when pleading fraud, Rule 9(b) of the Federal Rules of Civil Procedure requires that the plaintiff must state with particularity the circumstances constituting the fraud. “Circumstances” constituting fraud which must be pled with particularity include such matters as “time, place, and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.” Moua v. Jani-King of Minn., Inc.,
Even if the Court assumed that it was sufficient for the Plaintiff to allege that the Recommendation Letter was false, the Plaintiff also fails to plausibly allege that
The Plaintiff also alleges that the “[t]he Palm Beach Funds, through their agent, justifiably relied upon the Recommendation Letter.” Am. Compl. ¶ 197. However, the Plaintiff, earlier in the Amended Complaint, also alleges the following:
The Recommendation Letter was shared by Petters with Vennes. Vennes in turn waxed poetic about the successful Pet-ters-GECC relationship as a part of his efforts to convince the Palm Beach Funds to lend to Petters. Vennes’ representations to the Palm Beach Funds in regards to Petters’ “excellent” relationship with GECC were influenced by the Recommendation Letter. The Palm Beach Funds, through its agent, justifiably relied upon these representations.
Am. Compl. ¶ 127 (emphasis in original). This earlier and more specific allegation indicates that the Palm Beach Funds never actually saw the Recommendation Letter. Instead, the Palm Beach Funds аllegedly relied on the representations of Vennes — not GECC — who was “influenced” by the Recommendation Letter.
It is true that “false representations need not be made directly to the party claiming to have relied on them, but may instead be indirect, “where a party makes false representations to another with the intent or knowledge that they be exhibited or repeated to a third party for the purpose of deceiving him.’ ” Amerigas Propane, L.P. v. BP Am., Inc.,
For the reasons discussed above, the Court finds that the Plaintiff fails to state a cause of action for fraudulent misrepresentation based upon the Plaintiffs failure to sufficiently allege pursuant to Rule 9(b): (1) A false statement of material fact; (2) GECC’s intent that the statement induce the Palm Beach Funds to act; and (3) the Palm Beach Funds’ reliance on the state
ii. Count 8 — Fraud
Count 8 is simply titled “fraud,” which the Court assumes to mean “common law fraud.”
As discussed above, the elements of common law fraud are as follows: (1) a false statement of material fact; (2) defendant’s knowledge that the statement was false; (3) defendant’s intent that the statement inducе plaintiff to act; (4) plaintiffs reliance upon the truth of the statement; and (5) plaintiffs damages resulting from reliance on the statement. Wernikoff,
223. The Plaintiff re-alleges paragraphs 1 through 165.
224. GECC had a duty to disclose “the truth” to the Palm Beach Funds.
225. GECC knew that the GECC Termination Statement would serve to further the Petters’ conspiracy.
226. GECC knew that the GECC Termination Statement would be utilized to defraud future lenders to Petters.
227. GECC knew that the new lender to Petters, the Palm Beach Funds, was to be defrauded. Alternatively, the Palm Beach Funds were within a class of persons GECC knew were to be defrauded.
228. GECC appointed Petters Capital as its agent to terminate the GECC Financing Statement.
229. GECC knowingly placed its agent, Petters Capital, in a position to commit fraud upon the Palm Beach Funds, and its agent did so while acting within the granted scope of authority. Accordingly, GECC is liable for the acts done pursuant to that agency.
230. GECC had the ability to control Petters Capital and thwart its efforts to defraud the Palm Beach Funds by refusing to appoint Petters Capital as its agent to terminate the GECC Financing Statement.
231. As a result, the Palm Beach Funds suffered over $1 billion in damages.
Am. Compl. ¶¶ 223-31.
As indicated by the recitation of the allegations contained in Count 8, the Plaintiff fails to allege any elements of common
For these reasons, Count 8 fails to state a claim for fraud which is plausible on its face and will be dismissed.
C. Count 7 — Negligent misrepresentation
In Count 7 of the Amended Complaint, the Plaintiff asserts a cause of action for negligent misrepresentation. GECC contends that Count 7 must be dismissed for failure to state a claim for the same general reasons that the fraudulent misrepresentation and fraud claims are deficient. The Court agrees.
The tort of negligent misrepresentation has been applied in narrow circumstances,
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
Gilchrist Timber Co. v. ITT Rayonier, Inc.,
Based upon the above definition, the Plaintiff must allege the following elements in order to state a claim for negligent misrepresentation: (1) a misrepresentation of material fact in the course of the defendant’s business, profession, or employment, or in any other transaction in which he has a pecuniary interest; (2) the defendant either knew of the misrepresentation, made the misrepresentation without knowledge of its truth or falsity, or should have known the representation was false; (3) the defendant intended to induce another to act on the misrepresentation; and (4) injury resulted to a party acting in justifiable reliance upon the misrepresentation. Smith v. Questar Capital Corp., No. 12-cv-2669 (SRN/TNL),
Here, the basis of Count 7, just like the basis of Count 4, is the alleged falsity of the Recommendation Letter. Accordingly, in addition to re-alleging paragraphs 1 through 165, the Plaintiff makes the following allegations:
214.GECC intended that the Recommendation Letter reach and influence a class of persons of which the Palm Beach Funds were members.
215. Given that there was no “excellent” customer status at GECC, GECC knew that the Recommendation Letter was false, should have known it was false, or was without knowledge of its truth or falsity.
216. Given the content of the Kroll Report as well as Midkiffs fervent view that Petters lacked personal integrity, GECC knew that the Recommendation Letter was false, should have known it was false, or was without knowledge of its truth or falsity.
217. Given the discovery of Petters’ fraud, GECC knew that the Recommendation Letter was false, should have known it was false, or was without knowledge of its truth or falsity.
218. GECC was negligent in issuing the Recommendation Letter.
219. GECC was negligent in not correcting the Recommendation Letter.
220. GECC intended to induce reliance by recipients of the Recommendation Letter, which was issued “To whom it may concern.”
221. The Palm Beach Funds, through their agent, justifiably relied upon the Recommendation Letter to their detriment and as a result, were damaged.
222. As a result, the Palm Beach Funds suffered over $1 billion in damages.
Am. Compl. ¶¶ 213-222. Again, as with Count 4, the Plaintiff fails to identify a single false statement of material fact. Alleging that the Recommendation Letter is false does not qualify as an identification of a false statement of material fact. The Recommendation Letter contains numerous statements of fact. In order to state a claim for negligent misrepresentation, the Plaintiff must identify the particular false
Additionally, and equally as importantly, the Plaintiff fails to allege that GECC had a pecuniary interest in supplying the alleged misinformation. Unless the defendant has a public duty to supply the information at issue, a plaintiff may state a claim for negligent misrepresentation “only when the defendant has a pecuniary interest in the transaction in which the information is given. If he has no pecuniary interest and the information is given purely gratuitously, he is under no duty to exercise reasonable care and competence in giving it.” Blumstein v. Sports Immortals, Inc.,
Here, as discussed extensively in Section 111(A), supra, the Plaintiff fails to allege that GECC had a public duty to provide the information at issue. Accordingly, the Plaintiff must allege that GECC had some kind of pecuniary interest in the transac
V. Counts 1 and 6 — Conspiracy to commit fraud and conspiracy to commit fraudulent concealment
In order to state a claim for civil conspiracy, the Plaintiff must allege the following: “(1) an agreement between two or more parties; (2) to perform an unlawful act; (3) the doing of some overt act in pursuance of the conspiracy, and (4) damage to plaintiff as a result of the acts done under the conspiracy.” Bray & Gillespie Mgmt. LLC v. Lexington Ins. Co.,
i. Count 1 — Conspiracy to commit fraud
Count 1 of the Amended Complaint asserts a claim for civil conspiracy to commit fraud. The crux of the cause of action is that GECC conspired with Pet-ters and Petters Capital to commit fraud upon the Palm Beach Funds. Thus, common law fraud is the underlying tort.
The Plaintiff sufficiently alleges the first, second, and fourth elements of a civil conspiracy. As to the first and second element — an agreement between two or more parties to perform an unlawful act— the Plaintiff alleges:
169. On or about October 24, 2000, GECC obtained actual knowledge of the Conspiracy and Conspiratorial Objective. Shortly thereafter, GECC entered into an agreement with Petters and Pet-ters Capital, tacit if not explicit, for GECC to join and further the Conspiracy and the Conspiratorial Objective.
170. GECC would remain silent about it discovery of the Conspiracy and assist in its continued fraudulent concealment. Petters would cause GECC to be paid from new, defrauded lenders rather than from the proceeds of legitimate operations. GECC would receive not only the monies which were owed to it (ie., principal, interest and certain fees), but also additional monies which were not: the unearned Final Success Fee.
171. GECC knowingly assisted, furthered, encouraged and concealed the Conspiracy, by, among other things:
a) Failing to retract or correct the Recommendation Letter;
b) Knowingly permitting its name to be used in furtherance of the Conspiracy;
c) Demanding and accepting the entire Final Payment in an atypical and improper manner;
d) Retaining all unearned Success Fees, including the Final Success Fee;
e) Failing to disclose the Conspiracy to anyone, including but not limited to the First Investors, the Second Investors, law enforcement or Costco;
f) Failing to take legal or other public action against Petters or Petters Capital;
g) Deferring any actions based on Petters and Petters Capital’s representations that GECC would get paid the Final Payment;
h) Releasing the Petters Capital stock pledge;
i) Failing to advise anyone, including law enforcement, Costco, the payor bank for the Fraudulent Checks or other lenders about the Fraudulent Checks;
j) Communicating the January 30th Audit Letter Response;
k) Concealing the Fraudulent Checks from Ernst & Young;
l) Knowingly paving the way for the Palm Beach Funds to use the same SPE that GECC had used in its dealings with Petters (a known vehicle of fraud);
m) Causing the termination of the GECC Financing Statement in 2003;
n) Authorizing Petters Capital to act as its agent for purposes of terminating the GECC Financing Statement;
o) Failing to makе disclosures to applicable regulators; and
*345 p) Violating its Integrity Policies, Internal Policies and industry standards,
172. GECC joined the Conspiracy so it could get paid and then retain what it received. GECC had an extraordinary economic motivation for this: in excess of $45 million.
Am. Compl. ¶¶ 169-72. These allegations are sufficient to allege a tacit agreement between GECC and Petters, and as discussed above, the Plaintiff sufficiently alleges the elements of common law fraud, which is the underlying tort or “unlawful act.” The Plaintiff also properly alleges the fourth element of civil conspiracy— damage to plaintiff as a result of the acts done under the conspiracy. The Plaintiff alleges that “[a]s a result of the Conspiracy, and GECC’s joinder thereof, and the actions and inactions committed by Petters and Petters Capital ... and GECC ... in furtherance of the Conspiracy, the Palm Beach Funds were damaged in excess of $1 Billion.” Am. Compl. ¶ 173.
Finally, the Plaintiff sufficiently alleges the third element of conspiracy — the doing of some overt act in pursuance of the conspiracy. The Plaintiff alleges that GECC knowingly assisted, furthered, encouraged and concealed Petters’ fraud by, among other things:
(a) Failing to retract or correct the Recommendation Letter;
(b) Knowingly permitting its name to be used in furtherance of the Conspiracy;
(c) Demanding and accepting the entire Final Payment in an atypical and improper manner;
(d) Retaining all unearned Success Fees, including the Final Success Fee;
(e) Failing to disclose the Conspiracy to anyone, including but not limited to Pet-ters’ investors, law enforcement, or Costco;
(f) Failing to take legal or other public action against Petters or Petters Capital;
(g) Deferring any actions based on Pet-ters and Petters Capitals’ representations that GECC would get paid the Final Payment;
(h) Releasing the Petters Capital stock pledge;
(i) Failing to advise anyone about the Fraudulent Checks;
(j) Communicating the January 30th Audit Letter Response;
(k) Concealing the Fraudulent Checks from Ernst & Young;
(l) Knowingly paving the way for the Palm Beach Funds to use the same SPE that GECC hаd used in its dealing with Petters;
(m) Causing the termination of the GECC Financing Statement in 2003;
(n) Authorizing Petters Capital to act as its agent for purposes of .terminating the GECC Financing Statement;
(o) Failing to make disclosures to applicable regulators; and
(p) Violating its Integrity Policies, Internal Policies, and industry standards.
Am. Compl. ¶ 171. Some of these allegations, as discussed in Section V(B), infra, amount to little more than failing to blow the whistle on Petters’ fraud. The Court has already found that GECC had no duty to the Palm Beach Funds to disclose Pet-ters’ fraud, and mere inaction may not be enough to constitute an “overt act.” However, the remaining allegations, when considered in the context of the detailed allegations in paragraphs 1 through 165, plausibly amount to at least one affirmative overt act which furthered the Petters’ conspiracy. Accordingly, the Court finds that these allegations are sufficient to establish at this stage in the proceedings that GECC committed an overt act in fur-
For the reasons just discussed, the Court finds that the Plaintiff states a claim for conspiracy to commit fraud.
ii. Count 6 — Conspiracy to commit fraudulent concealment
In Count 6 of the Amended Complaint, the Plaintiff asserts a claim for conspiracy to commit fraudulent concealment. The crux of this cause of action is that GECC conspired with Petters and Petters Capital to commit fraud concealment with respect to the Palm Beach Funds. Thus, fraudulent concealment is the underlying tort. As with the claim for conspiracy to commit fraud, the Plaintiff must allege the elements of civil conspiracy along with the elements of fraudulent concealment in order to properly state a claim for conspiracy to commit fraudulent concealment. For the reasons discussed below, the Court finds that the Plaintiff fails to do so.
Although Count 6 contains allegations which would be sufficient to establish a claim for fraudulent concealment against Petters, Count 6 contains virtually no allegations relating to GECC’s allegеd participation in a conspiracy to commit fraudulent concealment. There is no allegation that GECC and Petters had an agreement, either tacit or explicit, to commit fraudulent concealment. There is no allegation that GECC did any overt act in pursuance of an alleged conspiracy. In fact, the only allegation in Count 6 that even mentions GECC is the following: “GECC had actual knowledge of the Conspiracy.” Am. Compl. ¶ 207. Accordingly, Count 6 fails to state a claim for conspiracy to commit fraudulent concealment and will be dismissed.
VI. Count II — Aiding and abetting fraud
In Count II of the Amended Complaint, the Plaintiff asserts a claim for aiding and abetting fraud. Liability for aiding or abetting fraud requires a showing that an underlying fraud existed, the defendant had actual knowledge of the fraud, and the defendant substantially assisted the commission of the fraud. ZP No. 54 Ltd. P’ship v. Fid. & Deposit Co.,
Here, the Plaintiff fails to sufficiently allege the existence of an underlying fraud. As previously noted by the Court, fraud is not simply a generic term for wrongdoing. Rather, it is a specific tort, the elements of which must be alleged with particularity under Rule 9(b). It is true that the hallmark of a Ponzi scheme, which is inherently fraudulent in nature, is “that the entity gives the false appearance of profitability by seeking investments from new sources rather than earning profits from assets already invested.” Carney v. Lopez, No. 3:12-cv-00182 (SRU),
Further confusing the issue is the fact that the Plaintiff asserts four allegedly separate and distinct fraud claims against GECC (fraud by omission, fraudulent misrepresentation, fraudulent concealment, and fraud) in addition to two other conspiracy claims (conspiracy to commit fraud and conspiracy to commit fraudulent concealment). The Plaintiff undoubtedly understands that fraud comes in many forms and that any one of these forms could potentially serve as the basis for the Plaintiffs aiding and abetting claim. Without any specific allegations as to the underlying fraud in Count 2, it is impossible to know which form of fraud the Plaintiff is referring to when, for example, the Plaintiff alleges:
176. GECC knew that Petters and Pet-ters Capital were seeking to defraud the new lenders, the Palm Beach Funds.
177. GECC knew that the new lender to Petters Capital, the Palm Beach Funds, was to be defrauded. Alternatively, the Palm Beach Funds were within a class of persons GECC knew would be defrauded.
178. GECC had an extraordinary economic motivation to substantially assist the fraud.
179. GECC substantially assisted, aided, abetted, encouraged, concealed, and facilitated the fraud upon the Palm Beach Funds.
180. GECC’s substantial assistance was intended to, and did, aid the primary fraud.
181. GECC’s silence and inaction was consciously and purposely intended to aid and further the primary fraud.
182. GECC had a duty to disclose the truth to the Palm Beach Funds.
183. GECC’s substantial assistance was a substantial factor in furthering the fraud upon the Palm Beach Funds.
Am. Compl. ¶¶ 176-183. Accordingly, the Plaintiff fails to allege with the requisite specificity required by Rule 9(b) the underlying fraud upon which Count 2 is based.
Furthermore, the Plaintiff fails to allege that GECC provided “substantial assistance” to Petters’ fraud. As to this element, the Plaintiff alleges that GECC knowingly assisted, furthered, encouraged and concealed Petters’ fraud by, among other things:
(a) Failing to retract or correct the Recommendation Letter;
(b) Knowingly permitting its name to be used in furtherance of the Conspiracy;
*348 (c) Demanding and accepting the entire Final Payment in an atypical and improper manner;
(d) Retaining all unearned Success Fеes, including the Final Success Fee;
(e) Failing to disclose the Conspiracy to anyone, including but not limited to Pet-ters’ investors, law enforcement, or Costco;
(f) Failing to take legal or other public action against Petters or Petters Capital;
(g) Deferring any actions based on Pet-ters and Petters Capitals’ representations that GECC would get paid the Final Payment;
(h) Releasing the Petters Capital stock pledge;
(i) Failing to advise anyone about the Fraudulent Checks;
(j) Communicating the January 30th Audit Letter Response;
(k) Concealing the Fraudulent Checks from Ernst & Young;
(l) Knowingly paving the way for the Palm Beach Funds to use the same SPE that GECC had used in its dealing with Petters;
(m) Causing the termination of the GECC Financing Statement in 2003;
(n) Authorizing Petters Capital to act as its agent for purposes of terminating the GECC Financing Statement;
(o) Failing to make disclosures to applicable regulators; and
(p) Violating its Integrity Policies, Internal Policies and industry standards.
Am. Compl. ¶ 171. Out of these sixteen specific instances, at least eight ((a), (b), (d), (e), (f), (g), (i), and (o)) consist of nothing more than a failure to act. Under limited circumstances, courts have held that inaction can form the basis of aiding and abetting liability if it rises to the level of providing substantial assistance. Matthews v. Eichorn Motors, Inc.,
The remaining allegations, even when taken together, do not amount to “substantial assistance.” Substantial assistance requires an affirmative step on the part of the aider-and-abettor that is a “substantial factor” in causing the breach of duty. Varga v. U.S. Bank. Nat’l Ass’n,
Assuming it were true that GECC did every one of the things alleged in para
For the reasons just discussed, the Court will dismiss Count 2 for failure to state a claim for aiding and abetting fraud which is plausible on its face.
VII. Conclusion
The crux of the Plaintiffs Amended Complaint is that GECC discovered Pet-ters’ fraud and arranged not to be among his victims, but did not alert anyone else, which meant that Petters was able to continue to perpetrate his Ponzi scheme. “On the one hand, this seems repugnant; on the other hand, ... [the] discovery that [Petters] was rife with fraud was an asset of [GECC], and [GECC] had a fiduciary duty to use that asset to protect its own shareholders^]” In re Sharp Int’l Corp.,
That being said, for the reasons discussed in the preceding sections, the Court grants GECC’s Motion to Dismiss in part and will dismiss without prejudice Counts 2 through 9 of the Plaintiffs Amended Complaint for failure to state a claim upon which relief can be granted. With regard to Counts 2 through 8, the Plaintiff fails to meet the pleading requirements articulated in Federal Rule of Civil Procedure 9(b). With regard to Count 9, the Plaintiff fails to meet the pleading requirements articulated in Federal Rule of Civil Procedure 8(a). Finally, the Court denies GECC’s Motion to Dismiss as to Count 1, as the Court finds that the Plaintiff sufficiently alleges the elements of a claim for civil conspiracy to commit fraud.
In the event the Plaintiff elects to file a second amended complaint and GECC files a motion to dismiss that complaint, the Court shall not consider any new arguments which could have been raised in a previous motion to dismiss but were not. Finally, should the Plaintiff file a second amended complaint which fails to comply
ORDER
The Court, being fully advised in the premises and for the reasons discussed above, hereby ORDERS AND ADJUDGES that:
1. GECC’s Motion to Dismiss (ECF No. 32) is GRANTED IN PART and DENIED IN PART.
2. Thе Motion to Dismiss is granted to the extent it requests dismissal of Counts 2 through 9 and denied to the extent it requests dismissal of Count 1.
3. Counts 2 through 9 of the Amended Complaint (ECF No. 26) are DISMISSED WITHOUT PREJUDICE to the Plaintiff filing a second amended complaint within twenty-one (21) days of the entry of this Order.
Notes
. The Plan of Liquidation can be found at ECF No. 245 in Case No. 09-36379-PGH.
. The Confirmation Order can be found at ECF No. 444 in Case No. 09-36379-PGH.
. Federal Rule of Civil Procedure 8(a) is made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7008.
. Federal Rule of Civil Procedure 12(b)(6) is made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7012.
.Federal Rule of Civil Procedure 9(b) is made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7009
. "Courts ... have reached varying conclusions regarding whether Rule 9(b) applies to negligent misrepresentation claims.” Pruco Life Ins. Co. v. Brasner, No. 10-80804-CIV,
. Under Florida law, actions founded upon fraud or negligence are subject to a four-year statute of limitations. Fla. Stat. § 95.11(3)(a) and (j).
. Under Illinois law, actions for fraud and negligence are inсluded within the phrase “all actions not otherwise provided for,” to which the five-year limitations period applies. 735 Ill. Comp. Stat. 5/13-205 (West 2008).
. As the Court has previously determined, see, e.g. Mukamal v. Cosmos, Inc. (In re Palm Beach Finance Partners, P.P.), No. 11-02970-BKC-PGH-A (Bankr.S.D.Fla. July 30, 2013), the diversity jurisdiction approach is the proper choice of law approach for bankruptcy courts to apply. The diversity jurisdiction approach requires bankruptcy courts to follow the choice of law rules of the state in which the bankruptcy court sits. Dzikowski v. Friedlander (In re Friedlander Capital Mgmt. Corp.),
. The Plaintiff asserts that GECC ignores that the applicability of Minnesota law is strongly implicated by the facts of the case. Primarily, the Plaintiff takes issue with GECC’s statement that "all of GECC’s alleged conduct took place in its Chicago, Illinois office.” Pl.'s Resp. (ECF No. 42) at 3 (citing GECC's Mot. to Dismiss at 10 n. 6). The Plaintiff contends that this statement is false, pointing out that (1) the GECC-Petters revolving credit line was originated by a Minnesota-based GECC Vice President to a Minnesota borrower with a Minnesota guarantor; (2) GECC issued the Recommendation Letters to Petters in Minnesota for his use and dissemination in his Minnesota-based business; (3) GECC communicated with Petters in Minnesota; and (4) GECC appointed Petters as its agent to file the GECC Termination Statement in Minnesota. Id. at 3-4. Not only do the Plaintiff's contentions indicate that Minnesota law potentially governs the Plaintiff's claims, but they also indicate that there are significant fаctual disputes which prevent the Court from conducting a choice of law analysis at this stage in the proceedings.
. "The question of whether [plaintiffs] knew or should have known of their claims against [defendant] is a question of fact.” United Labs., Inc. v. Savaiano, No. 06 C 1442,
. The Plaintiff filed copies of five documents from the Professional Recovery Services proceeding: (1) Notice of GECC’s Motion for Summary Judgment; (2) GECC’s Statement of Material Undisputed Facts; (3) GECC’s Brief in Support of its Motion for Summary Judgment; (4) Exhibit to Statement of Undisputed Facts; and (5) Opinion. See Notice of Filing (ECF No. 43). GECC did not object to the authenticity of these documents and cites to them without objection in its Reply in Support of Motion to Dismiss (ECF No. 53).
. At the very least, it is undeniable that based upon the allegations, GECC did not speak directly to the Palm Beach Funds through the Recommendation Letter and the GECC Termination Statement. Any alleged statements made by GECC to the Palm Beach Funds were made indirectly, at best.
. Indeed, 9 C.J.S. Banlcs and Banking § 250 (2013) lays out the “special circumstances” under which a bank may have a duty of disclosure. Included in this group of circumstances is the following: "[o]ne who speaks must say enough to prevent the words from misleading the other party.” However, the C.J.S. discussion, like all the cases it cites and all the case cited by the Plaintiff, assumes the existence of some kind of business transaction or preexisting relationship between the plaintiff and the defendant-bank.
. The case of Trustees of the Northwest Laundry & Dry Cleaners Health & Welfare Trust Fund v. Burzynski dealt with a fraud claim brought by an ERISA health insurance fund
. The Plaintiff cites to the Stephenson case to support his argument that GECC had a duly to the Palm Beach Funds based on "special knowledge” of material facts to which another party did not have access. However, the Stephenson case makes clear that such a duty only arises between two parties to a transaction: “[I]f a party conceals a fact material to the transaction, and peculiarly within his own knowledge, knowing that the other party acts on the presumption that no such fact exists, it is as much a fraud as if the existence of such fact were expressly denied, or the reverse of it expressly stated.”
. A master is under a duty to exercise reasonable care so to control his servant while acting outside the scope of his employment as to prevent him from intentionally harming others or from so conducting himself as to create an unreasonable risk of bodily harm to them, if:
(a) the servant
(i) is upon the premises in possession of the master or upon which the servant is privileged to enter only as his servant, or
(ii) is using a chattel of the master, and (b) the master
(i) knows or has reason to know that he has the ability to control his servant, and
Restatement (Second) of Torts § 317.
. One who takes charge of a third person whom he knows or should know to be likely to cause bodily harm to others if not controlled is under a duty to exercise reasonable care to control the third person to prevent him from doing such harm. Restatement (Second) of Torts § 319.
. One who is required by law to take or who voluntarily takes the custody of another under circumstances such as to deprive the other of his normal power of self-protection or to subject him to association with persons likely to harm him, is under a duty to exercise reasonable care so to control the conduct of third persons as to prevent them from intentionally harming the other or so conducting themselves as to create an unreasonable risk of harm to him, if the actor: (a) knows or has reason to know that he has the ability to control the conduct of the third persons, and (b) knows or should know of the necessity and opportunity for exercising such control. Restatement (Second) of Torts § 320.
. A multitude of other cases arising in various circumstances unequivocally state that banks generally owe no duties to third parties in the absence of some kind of preexisting relationship. Mose v. Keybank Nat’l Ass’n,
. The elements of fraudulent concealment or fraud by omission are largely identical under the laws of Florida, Illinois, and Minnesota. Weidner v. Karlin,
. The Court discussed the first two scenarios which may give rise to a duty to speak in relation to the duty element of the Plaintiff’s negligence claim. The third scenario, which arises when one party stands in a confidential or fiduciary relation to the other party, has no applicability here as it is undisputed that the Palm Beach Funds and GECC had no fiduciary or confidential relationship with each other.
. Fraudulent misrepresentation is simply one form of common law fraud. See, e.g., Schrager v. N. Cnty, Bank,
. As with fraudulent concealment, the elements of fraudulent misreрresentation under tire laws of Florida, Illinois, and Minnesota differ, if at all, only in the level of reliance required. Under Florida law, "justifiable reliance is not a necessary element of fraudulent misrepresentation.” Butler v. Yusem,
. According to the allegations of the Amended Complaint, prior to entering into a loan transaction with Petters, GECC hired a national investigatory firm, Kroll, to investigate Petters and prepare a report (the "Kroll Report"). Am. Compl. ¶ 33. The Kroll report allegedly revealed that Petters had a history of criminal and civil problems, including (1) arrest warrants for forgery and bad checks, and (2) “lying to a court and being found to have acted in 'bad faith.' " Am. Compl. ¶ 34.
. According to the allegations of the Amended Complaint, Catharine Midkiff, then GECC’s Senior Vice President of Risk and Underwriting, stated after meeting with Pet-ters that she "clearly and on the record ... does not support this transaction. [She] believe[s] that the additional controls will largely prevent the opportunity for [GECC's] money to be used improperly but [she does] not approve of being in business with a person who has previously demonstrated a lack of integrity.” Am. Compl. ¶ 36.
. "The term 'fraud' is a generic one which embraces all the multifarious means resorted to by one individual to gain advantage over another by false suggestions or by suppression of the truth. 'Fraud,' a peculiar species of falsity, is the intentional misrepresentation of a material fact made for the purpose of inducing another to rely, and on which the other reasonably relies to his or her detriment.” 37 Am Jur.2d Fraud and Deceit § 1 (internal citations omitted). Although there can be no all-encompassing definition of “fraud,” fraud always "involves a misrepresentаtion or suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other.” Id. (internal citation omitted); see also, Douglas v. Ogle,
. The liability imposed for negligent misrepresentation is "more restricted than that for fraudulent misrepresentation.... The reason a narrower scope of liability is fixed for negligent misrepresentation than for deceit is to be found in the difference between the obligations of honesty and of care, and in the significance of this difference to the reasonable expectations of the users of information that is supplied in connection with commercial transactions.” Gilchrist Timber Co. v. ITT Rayonier, Inc.,
. The comments to the Second Restatement explain:
The defendant's pecuniary interest in supplying the information will normally lie in a consideration paid to him for it or paid in a transaction in the course of and as a part of which it is supplied. It may, however, be of a more indirect character. Thus the officers of a corporation, although they receive no personal consideration for giving information concerning its affairs, may have a pecuniary interest in its transactions, since they stand to profit indirectly from them, and an agent who expects to receive a commission on a sale may have such an interest in it although he sells nothing.
The fact that the information is given in the course of the defendant's business, profession or employment is a sufficient indication that he has a pecuniary interest in it, even though he receives no consideration for it at the time. It is not, however, conclusive. But when one who is engaged in a business or profession steps entirely outside of it, as when an attorney gives a casual and offhand opinion on a pоint of law to a friend whom he meets on the street, or what is commonly called a "curbstone opinion,” it is not to be regarded as given in the course of his business or profession; and since he has no other interest in it, it is considered purely gratuitous. The recipient of the information is not justified in expecting that his informant will exercise the care and skill that is necessary to insure a correct opinion and is only justified in expecting that the opinion will be an honest one.
Restatement (Second) of Torts § 552 cmt. d (emphasis added); see also, Sports Immortals, Inc.,
. As discussed in Section IV(B)(ii), supra, when the Plaintiff uses the generic term "fraud,” the Court assumes it to mean "common law fraud.”
. The elements of common law fraud are: (1) a false statement of material fact; (2) defendant's knowledge that the statement was false; (3) defendant’s intent that the statement induce plaintiff to act; (4) plaintiff’s reliance upon the truth of the statement; and (5) plaintiff’s damages resulting from reliance on the statement. Wernikoff,
.It can be assumed from the very nature of a Ponzi scheme that the perpetrator of the Ponzi scheme made false representations to lenders/investors as to the profitability and legality of the fraudulent enterprise.
. The Plaintiff’s Amended Complaint is a classic "shotgun pleading.” "Shotgun pleadings” do not comply with Rule 8(a)’s requirement for a "short and plain statement” and thus make " ‘it is virtually impossible to know which allegations of fact are intended to support which claim(s) for relief" Peavey v. Black,