sjb - response to mn lawsuit

8/6/2019 SJB - Response to Mn Lawsuit

1/11

CASE 0:09-cv-00907 -DSD-JJG Document 17 Filed 06/15/09 Page 1 of 15

UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA

OPPORTUNITY BRIDGE FUNDING,LLC, a Delaware limited liabilitycompany, and THE GERMAINETOMLINSON INSURANCE TRUST, aDelaware trust,

Plaintiffs,v.SJB INVESTMENTS, LLC, a Nevadalimited liability company, and JAMES C.BURCHARD, individually and asmanaging partner of SJB Investments,LLC,

Defendants.

)) Civil File No. 09-907 (DSD/JJG )))))))) REPLY MEMORANDUM OF LAW IN) SUPPORT OF DEFENDANTS') MOTION TO DISMISS))))))))

INTRODUCTIONPlaintiffs Opportunity Bridge Funding, LLC's ("OBF") and The Germaine

Tomlinson Insurance Trust's ("Trust") response does several things: it repeats, oftenverbatim, lengthy portions of the allegations contained in the Complaint; it provides longrecitations of boilerplate law that may not even apply in this case; it treats the twoplaintiffs as indistinguishable when it is legally critical to recognize each plaintiffsseparate and distinct contacts with Defendant SJB Investments,LLC ("SJB")l; and itargues for the improper application of law to the facts as alleged.

1 Plaintiffs confirm that Defendant James Burchard acted at all relevant times in hiscapacity as employee of SJB. (PIs.' Mem. at 34.) Accordingly, Defendants willcollectively be referred to as "SJB."


2/11

CASE 0:09-cv-00907 -DSD-JJG Document 17 Filed 06/15/09 Page 2 of 15

Perhaps even more telling than what Plaintiffs have done in their response, is whatthey have not. Plaintiffs have not meaningfully addressed the fatal legal deficienciesidentified in the motion to dismiss, have not cited any authority establishing the existenceof affirmative duties (fiduciary or otherwise) in this context involving arm's-lengthcommercial dealings between sophisticated parties, and have not explained why theyrefuse to accept, or even directly respond to, SJB' s outstanding offer to accept the samesubordinated security interest in the Policy that they seek as relief in this Court.

Indeed, the most revealing part of Plaintiffs' opposition brief may be theiradmission, in footnote 2, that they entered into a Forbearance Agreement with oneanother on February 11,2009, and that OBF filed a Confession of Judgment signed bythe Trust in Hennepin County District Court on March 18,2009.2 Under the ForbearanceAgreement, the Trust agrees, in part, to (i) pay a $3,000,000 "forbearance fee" to OBF( 7(c)); (ii) cooperate with OBF in the prosecution of this action against Defendants( 9(d)); and (iii) pay OBF 50 percent of its recovery against Defendants in this action( 7(c)). In return, OBF agrees, in part, to (i) forbear from enforcing its remedies againstthe Trust and the guarantors of the Trust's obligation to OBF ( 7(a)); and (ii) advancethe attorneys' fees and costs necessary to prosecute this action against Defendants( 3(b)). This "deal" now makes it clear how these two adverse parties came to

2 Although Plaintiffs failed to provide copies of the agreements they referenced, the Courtmay take judicial notice of those agreements. Great Plains Trust Co. v. Union Pac. R.R.Co., 492 F.3d 986,995-96 (8th Cir. 2007). A Copy of the Confession of Judgment isattached for the Court's convenience as Exhibit 5. The March 18, 2009 Affidavit ofSteve Sabes, which is attached as Exhibit 6 and was also filed in Hennepin County,attaches the Forbearance Agreement as Exhibit C.

-2-


3/11

CASE 0:09-cv-00907-DSD-JJG Document 17 Filed 06/15/09 Page 3 of 15

collaborate on their claims against Defendants. But despite such creative collaboration,Plaintiffs have still been unable to muster a legally sufficient claim.

ARGUMENTI. SJB'S OFFER TO TAKE A SUBORDINATED SECURITY INTEREST ISADMISSIBLE.

Plaintiffs first argue that the Court should strike any reference to SJB' s offer totake a subordinated security interest because it is inadmissible under Rule 408 of theFederal Rules of Evidence. 3 (PIs.' Mem. at 8-9.) But Rule 408 is not implicated here.Without admitting any wrongdoing, SJB has simply offered to allow OBF to take asecurity position ahead of its own. It merely states a present willingness to subordinateits legal interest in the Policy. Under these circumstances, Rule 408 does not apply. SeeFed. R. Evid. 408 (prohibiting use of "furnishing or offering or promising to fumish-oraccepting or offering or promising to accept-a valuable consideration in compromisingor attempting to compromise the claim ... "). Additionally, given that SJB is disclosingits own offer, it is doubtful whether Plaintiffs even have standing to challenge theadmissibility of that offer. See 23 Charles Alan Wright and Kenneth W. Graham, FederalPractice & Procedure 5308 at243 (1980) (suggesting that "the opponent lacks standingto object to the introduction of evidence of another person's offer of compromise").

3 This is just one example of Plaintiffs' failure to distinguish between themselves when itis legally necessary to do so. SJB's offer to subordinate its security interest to that ofOBF's is a matter solely between SJB and OBF. Therefore, even ifOBF has standing toraise this argument, the Trust does not.

-3-


4/11

CASE 0:09-cv-00907-DSD-JJG Document 17 Filed 06 /15/09 Page 4 of 15

Moreover, it should be noted that although Plaintiffs claim the offer should bestricken from the motion, they then cite and rely upon the offer in opposing Defendants'motion. (See PIs.' Mem. at 16, 28.) Obviously, Plaintiffs cannot have it both ways.II. SJB OWED NODUTY TO EITHER PLAINTIFF AS A MATTER OF LAW.

Plaintiffs' principal claims-fraud, fraudulent inducement, breach of fiduciaryduty, and negligence-are all dependent on the existence of a legal duty owed by SJB tothe Trust and, separately, to OBF. As discussed at length in the opening brief, SJB owedno duty whatsoever to either the Trust or OBF. The transactions at issue were all arm'slength commercial transactions between sophisticated parties for which the law does notrecognize a duty.

Moreover, contrary to Plaintiffs' assertion, courts have repeatedly held that theexistence of a duty can be determined as a matter of law, and the Court should do so here.Under Minnesota law," although the existence of a fiduciary duty is generally consideredto be a question of fact, courts hold that a breach of fiduciary duty claim should beaddressed and dismissed under Rule l2(b)( 6) when the complaint fails to allege factssufficient to give rise to such a duty. In fact, this Court recently granted a Rule 12 motion

4 Without undertaking the well-established choice-of-law analysis applied by theMinnesota Federal District Court when sitting in diversity, see Allianz Ins. Co. of Can. v.Sanftleben, 454 F.3d 853, 855 (8th Cir. 2006), Plaintiffs simply state that Minnesota lawshould apply to the relationship between OBF and SJB and that Indiana law should applyto the relationship between the Trust and SJB. (PIs.' Mem. at 21:) Further, Plaintiffs failto recognize that the relationship between the Trust and SJB is actually governed byNevada law pursuant to the choice of law provision in the Service Agreement. (See Ex. 1at 5 (Court Docket No.8).) As demonstrated throughout this memorandum, the laws ofeach potentially applicable state are in accord for purposes of the relevant analyses.Therefore, SJB's motion should be granted irrespective of which state's law applies.

-4-


5/11


to dismiss a plaintiff's breach of fiduciary duty claim after concluding that the plaintiff'sallegations were "legally insufficient to establish a fiduciary relationship between theparties." Northstar Indus., Inc. v. Merrill Lynch & Co., Inc., 558 F. Supp. 2d 944,947-48(D. Minn. 2008) (Doty, J.); see also Soomekh Oriental Rugs v. Target Corp., No. 00-2570 ADM/AJB, 2001WL 1619453, at *3 (D. Minn. ApI. 27, 2001) (finding no duty asa matter of law on a motion to dismiss).

A. SJB Owed No Fiduciary Duty To Either Plaintiff As AMatter Of Law.Here, dismissal under Rule 12(b)( 6) is appropriate, because Plaintiffs have not

alleged facts which, even if true, would give rise to a fiduciary duty. This case, in fact,bears a striking similarity to this Court's recent decision in Northstar. 558 F. Supp. 2d at947-48. There, Northstar Industries was an alleged finder of acquisition targets for aprivate equity firm, Merrill Lynch Global Private Equity. Id. at 946. After Northstarlocated an acquisition target, Merrill Lynch negotiated a lower finder's fee, claiming thatthe underlying deal would not be consummated if the fee remained at its original amount.Id. at 947. After the deal closed, Northstar learned that other companies involved in theacquisition had not similarly reduced their fees. Id. Northstar then sued Merrill Lynchalleging fraud and breach of fiduciary duty. Id. In granting a motion to dismiss thefiduciary duty claim, this Court held that "the arm's-length negotiation of a contract doesnot give rise to a fiduciary relationship," explaining that "[rJelationships that involvecompeting interests and 'often generate litigation' are 'not compatible with the concept ofa fiduciary.'" Id. at 948 (citations omitted). This Court further reasoned that any relianceon statements made by one party to the other did not create a fiduciary duty, particularly

-5-


6/11


because, despite both parties' "mutual desire" in completing the deal, each had"competing interests at play." Id.

As this Court did in Northstar, other courts have likewise held that the arm's-length negotiation of a contract does not give rise to a fiduciary relationship. Nat'lMinority Supplier Dev. Counsel Bus. Consortium Fund, Inc. v. Hessian &McKasy, P.A.,No. 04-1670 DWF/AJB, 2005 WL 3526587, at *6 (D. Minn. Dec. 22, 2005); Shema v.Thorpe Bros., 62 N.W.2d 86,91 (Minn. 1953); Soomekh Oriental Rugs, 2001 WL1619453, at *3; Comfax Corp. v. North Am. Van Lines, 587 N.E.2d 118,.125-26 (Ind. Ct.App. 1992) (holding that when the parties involved are in an arm's length transaction, therequisite fiduciary relationship may not be predicated on such an arrangement); Wilson v.Lincoln Fed. Sav. Bank, 790 N.E.2d 1042, 1046-47 (Ind. Ct. App. 2003) ("[A] businessor 'arm's length' contractual relationship does not give rise to a fiduciary relationship ..."); Cascade Invs., Inc. v. Bank of Am., NA., S.A., No. CV-N-99-559-ECR (RAM), 2000WL 1842945, at *2 (D. Nev. Sept. 29,2000) (holding that no fiduciary duty existedbecause the parties were "of equal bargaining stature," were "sophisticated businessentities," and plaintiffs failed to establish that "the defendant had any superior knowledgeor control in the negotiations").

Far from alleging facts which, if true, would support the existence of a fiduciaryduty, Plaintiffs have done little more than declare that a fiduciary relationship existed.(PIs.' Mem. at 24-25; Compl.Y 51-53).) There is no dispute that the transactions atissue here were arm's-length commercial transactions between sophisticated parties, andPlaintiffs have not alleged facts to the contrary. Nor have Plaintiffs alleged facts that

-6-


7/11


would otherwise support the finding of a fiduciary relationship. As Northstar itselfmakes clear, there is nothing unusual about a "finder" relationship that would in itselfgive rise to a fiduciary duty: Northstar Indus., Inc., 558 F. Supp. 2d at 948. Indeed,Plaintiffs have not cited to a single case in which a court has imposed a fiduciary duty ona finder who attempts to find financing for another party. As discussed at length in theopening brief, SJB served as a finder for a bridge loan for the Trust and later as a conduitfor the Trust's communications with OBF. (Defs.' Mem. at 2-4; 18-19.) As to OBF, SJBacted only as a conduit and nothing more. Such facts do not, as a matter of law, give riseto a fiduciary duty.'

Remarkably; Plaintiffs have undercut their fiduciary duty claim by arguing thatSJB owed a fiduciary duty both to the Trust and to OBF-parties that had, and still have,adverse and competing interests. (PIs.' Mem. at 20,25.) Simply put, Plaintiffs contendthat SJB owed the highest duty of loyalty and confidence to the opposite sides of atransaction to which SJB was not a party, but served essentially as a conduit ofinformation. It is legally untenable to suggest that anyone, let alone a party playing therole of a finder or information conduit, can be held to owe the highest duty recognized bylaw to two competing parties at the same time in the same transaction. Indeed, the

5 Notably, even if there were such a duty here, one of the primary cases cited by Plaintiffsin support of their fiduciary duty claim, TMF Tool Co. v. Siebengartner, 899 F.2d 584(7th Cir. 1990), does not even apply or stand for the proposition cited by Plaintiffs. (SeePIs.' Mem at 25.) First, TMF Tool Co. involves application of Illinois law. Id. at 588.Second, although cited for the proposition that failure to timely forward documents is abreach of fiduciary duty, the court in TMF Tool Co. actually found a breach of fiduciaryduty based on a failure to timely forward transaction proceeds to a distressed companyand the commingling ofthose funds in order to pay personal debts. Id. at 589.

-7-


8/11


claim as a matter of law. Plaintiffs have cited no law establishing that a party in this typeof commercial, arm's length relationship has an affirmative duty to disclose to anotherparty the steps it has taken to protect its own interest.

To the contrary, the Eighth Circuit recently affirmed the dismissal of fraud claimspremised on one party's alleged fraudulent failure "to timely inform [plaintiff] that[defendant] was foreclosing on its security interest," explaining that "[t]he default rule isthat one party to a transaction has no duty to disclose facts to another party" andconcluding that the plaintiff had not pled facts giving rise to a legal duty of disclosure.Noble Sys. Corp., 543 F.3d at 985-86 (citingL&H Airco., Inc., 446 N.W.2d at 380). Seealso Safeco Ins. Co. of Am. v. Dain Bosworth, Inc., 531 N.W.2d 867, 872 (Minn. Ct. App.1995) ("Because Dain was selling a deal to Safeco, and not supplying information for theguidance of Safeco, and because they were sophisticated equals negotiating a commercialtransaction, Dain did not owe Safeco a duty for purposes of a negligent misrepresentationtort threshold.").

Here, the alleged omissions cannot give rise to a duty by SJB to either OBF or theTrust. First, SJB and OBF are not contractual counterparties. SJB served merely as aconduit of information between OBF and the Trust after SJB located OBF as a bridgelender. There are no specific factual allegations that could support a finding that SJB had

an independent legal relationship with or duty to OBF. The Trust's position on this issueis similarly flawed. While SJB and the Trust are parties to the Service Agreement, theTrust cannot plausibly claim that it did not know it had agreed to convey a securityinterest to SJB because that interest was a term of the agreement between the two parties.

-9-


9/11


irrespective of what law is applied, Plaintiffs have failed to state a claim that can give riseto rescission of the Service Agreement. As discussed in detail in SJB' s opening brief,Plaintiffs have failed to plead facts that, even if true, would give rise to a fraudulentinducement claim. (Defs.' Mem. at 10-15.) Even if Plaintiffs' fraudulent inducementclaim could pass Rule 12(b)(6) and Rule 9(b) muster, however, rescission would still notbe an appropriate form of relief in this case.

Under each possibly applicable law-Minnesota, Nevada, or Indiana-rescissionis a remedy that is generally only available if the parties can be restored to the status quoante. See Cut Price Super Markets v. Kingpin Foods, Inc., 98 N.W.2d 257,267 (Minn.1959) ("[T]he general rule is that a party who wishes to rescind an agreement must placethe opposite party in statu quo .... As part of the rule requiring the placing of the otherparty in statu quo, it is held that a party cannot rescind and at the same time retain abenefit under the contract."); Strong v. Jackson, 777 N.E.2d 1141, 1151 (Ind. Ct. App.2002) ("The remedy of rescission only entitles a plaintiff to be returned to the status quo,which usually necessitates a return of money or other things received or paid under thecontract ... The rescinding party must also restore all benefits received under thecontract."); Scaffidi v. United Nissan, 425 F. Supp. 2d 1172, 1184 (D. Nev. 2005)(denying request for rescission when parties "could not be returned to the position they

occupied prior to executing the contract"). In other words, if both parties cannot beplaced in the position they were in prior to the execution of the contract, rescission is notan available remedy. Here, that is the case. The Trust has already received the benefit ofthe Service Agreement-the bridge loan that SJB located for the Trust. The bridge loan

-11-


10/11


Morfin v. Estate of Martinez, 831 N.E.2d 791, 803 (Ind. Ct. App. 2005) ("[W]e reiteratethat the law presumes constructive fraud once it is clear that a fiduciary or confidentialrelationship existed between two parties, and the dominant party gains an advantagethrough a transaction involving the weaker party."); Comfax Corp., 587 N.E.2d at 125-26(Ind. Ct. App. 1992) (holding that an arm's-length, contractual arrangement does notcreate a fiduciary relationship and does not provide basis for constructive fraud claim).As discussed above and in the opening brief, Plaintiffs' allegations are legally insufficient

to establish that SJB owed a fiduciary duty to either of them.V. PLAINTIFFS HAVE NOT SUFFERED DAMAGES.

The complete absence of any legally cognizable damages calls into questionwhether Plaintiffs have even presented a justiciable dispute to this Court. Perhapsrecognizing that they have not actually suffered any damages to date because theunderlying policy proceeds have not yet been paid, Plaintiffs argue that they havesuffered damages because they have incurred and will continue to incur attorneys' feesand costs. (PIs.' Mem. at 17.) This does not cure the Complaint's defects. The law isclear that a party is not entitled to attorneys' fees and costs unless provided for bycontract or by statute. See Lanoue v. Fireman's Fund Am. Ins. Cos., 278 N.W.2d 49,54(Minn. 1979) ("The general rule is that attorneys fees are allowed only when authorizedby statute or provided for in the contract."); Liberty Mut. Ins. Co. v. OSI Indus., Inc., 831N.E.2d 192,205 (Ind. Ct. App. 2005) ("[A]ttorneys' fees are not allowable in the absenceof a statute or some agreement or stipulation authorizing such an award."); Young v.Nevada Title Co., 744 P.2d 902,905 (Nev. 1987) ("It is well established in Nevada that

-13-


11/11


Dated: June 15,2009 FAEGRE &BENSON LLP

s/Jesseca R.F. CooksonJeffrey D. Hedlund (#175791)[email protected] R.F. Cockson (#294329)jcocksonuifaegre.com

2200 Wells Fargo Center90 South Seventh StreetMinneapolis, MN 55402-3901Tel.: (612) 766-7000Fax: (612) 766-1600Jesse B. SimpsonAdmitted pro hac viceLEWIS AND ROCA, LLP40 North Central AvenueSuite 1900Phoenix, AZ 85004Tel.: (602) 262-5387Fax: (602) 734-3741

Attorneys for DefendantsSJB Investments, LLC andJames C. Burchardfb.usAl16134.05

-15-

sjb - response to mn lawsuit

Documents