United States District Court, D. North Dakota
ORDER GRANTING MOTIONS TO DISMISS
Charles S. Miller, Jr. United States Magistrate Judge.
the court are motions to dismiss filed by Merrick Bank
Corporation (“Merrick”) and HSBC Card Services,
Inc. (“HSBC”) (collectively the
“defendants”). For the reasons set forth below,
the motions are granted.
Borsheim Builders Supply, Inc. initiated this action by the
filing of its complaint on September 11, 2017. In this
action, plaintiff attempts to recover from defendants money
that one of plaintiff's employees, Daphney Harstad
(“Harstad”), fraudulently diverted and used to
pay off personal debts she owed on credit cards issued by
defendants. In relevant part, the complaint alleges:
1. Plaintiff, Borsheim Builders Supply, Inc., is a North
Dakota Corporation, with its principal place of business
located in Williston, North Dakota.
2. Upon information and belief, Defendant, Chase Cardholder
Services, Inc. (hereinafter “Chase”), is a
corporation organized in the state of Delaware, with its
principal place of business located in Wilmington, Delaware.
3. Upon information and belief, Defendant, Merrick Bank
Corporation (hereinafter “Merrick”), is a
corporation organized in the state of Utah, with its
principal place of business located in Jordan, Utah.
4. Upon information and belief, Defendant, HSBC Card
Services, Inc. (hereinafter “HSBC”), is a
corporation organized in the state of Delaware, with its
principal place of business located in Wilmington, Delaware.
5. Plaintiff Borsheim is a large crane company operating in
6. Borsheim employed an office manager, Georgene Baustad, who
was going to retire and planned to train a successor. Ms.
Baustad hired Daphney Harstad (hereinafter
“Harstad”) in 1997, and she was trained to
replace Ms. Baustad over the course of two years.
7. Between 1997 and 2010, Borsheim grew substantially and
maintained over 70 employees by 2010. Due to the length of
time Ms. Harstad was employed with the company and the
growing demands of her position, she was granted authority to
sign checks on behalf of the company like many accountants
8. On or around March of 2014, Borsheim discovered, through
various discrepancies and questionable practices, that
Harstad had been embezzling and otherwise misappropriating
Borsheim funds for personal use, including paying her
personal credit cards bills using Borsheim checks, and
referring to her personal accounts on the subject line of
9. This specific practice of using checks to pay
Harstad's credit card debts was done for several years
and were sent to each of the Defendants systematically over
long periods of time.
10. Defendants, each of them, accepted these checks and wired
said funds into their accounts so as to satisfy the personal
debts of Ms. Harstad that she had accrued through the use of
her credit cards and/or other financial services.
11. Upon information and belief, not one of the Defendants
ever questioned or investigated the payment method or that
the checks were coming from Borsheim Crane rather than
12. The practice of sending the checks as payment to the
various Defendants continued for years with no inquiry or
investigation into her practices and failed to implement any
safeguards that would prevent such fraud.
13. In or around July of 2014, the embezzlement and other
fraudulent activities were investigated by authorities,
including the FBI, and Ms. Harstad was subsequently
prosecuted on federal charges.
14. Since the embezzlement and fraudulent payments were
discovered, no payments have been returned by any of the
15. The exact amount each Defendant has received, including
date, is as follows:
Chase Card Services -
$1, 422, 889.71
Card Services -
Merrick Bank -
(Doc. No. 1) (emphasis in bold eliminated). In seeking to
recover the embezzled money, plaintiff asserts claims for
conversion, negligence, aiding and abetting fraud, and money
had and received.
motions to dismiss now before the court, defendants argue
that plaintiff's claims must be dismissed pursuant to
Fed.R.Civ.P. 12(b)(6) for failure state a claim upon which
relief can be granted. More particularly, defendants argue
that the claims are not legally cognizable for various
reasons. They also argue the claims are time-barred. Finally,
defendants contend that the aiding and abetting fraud claim
must be dismissed because of the failure to plead it with the
particularity required by Fed.R.Civ.P. 9(b).
Whether plaintiff has sufficiently pled its fraud
argue that plaintiff has failed to plead its claim of aiding
and abetting Harstad's fraudulent conduct with the
particularity required by Fed. R. Civ. 9. According to the
[a]bsent from the claim are any particular references to (1)
the bank employees or representatives who had knowledge of
and provided substantial assistance to Harstad in carrying
out her fraudulent scheme; (2) the specific checks used to
perpetuate the fraudulent scheme; (3) when the alleged
fraudulent scheme was agreed upon; (4) how the fraudulent
scheme was carried out. Simply put, the claim fails to
identify specifically the “who, what, where, when, and
how” of the alleged fraud and should be dismissed.
(Doc. No. 8, p. 13). Defendants argue that because of these
deficiencies plaintiff's fraud claim should be dismissed.
Civ. P. 12(b)(6) requires dismissal of an action if there has
been a failure to state a claim upon which relief can be
granted. To state a cognizable claim, the complaint need only
meet the requirement of Rule 8(a)(2) that it contain “a
short and plain statement of the claim showing that the
pleader is entitled to relief.” Erickson v.
Pardus, 551 U.S. 89, 93 (2007). The exceptions are those
claims covered by Rule 9(b), which will be addressed
the pleading requirements of Rule 8(a)(2) are not onerous,
more is required than simply expressing a desire for relief
and declaring an entitlement to it. See Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 556 n.3 (2007)
(“Twombly”). The complaint must state
enough to “give the defendant fair notice of what the .
. . claim is and the grounds upon which it rests.”
Id. at 555. Also, the complaint must state enough to
satisfy the “plausibility standard” for stating a
cognizable claim as established in Twombly and
further amplified by the Supreme Court in Ashcroft v.
Iqbal, 556 U.S. 662, 678-84 (2009)
the Iqbal/Twombly plausibility standard,
the complaint must state enough factual matter, which if
accepted as true, states a claim that is plausible on the
face of the allegations. See id. A claim crosses the
threshold of being plausible when the factual allegations do
more than merely create a suspicion of a legally cognizable
action and “raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555.
Complaints that offer nothing more than labels and
conclusions or a formulaic recitation of the elements are not
sufficient. Twombly, 550 U.S. at 555;
Iqbal, 556 U.S. at 680-81.
whether a complaint states a plausible claim is “a
context specific task” that requires the court
“to draw on its judicial experience and common
sense.” Iqbal, 556 U.S. at 679. “A
well-pleaded complaint may proceed even if it strikes a savvy
judge that actual proof of the facts alleged is improbable,
and ‘that a recovery is very remote and
unlikely.'” Twombly, 550 U.S. at 556
(quoting Scheuer v. Rhodes, 416 U.S. 232, 236
claims must comply with the heightened pleading standards of
Rule 9(b), which require plaintiffs to plead “the
circumstances constituting fraud . . . with
particularity.” Fed.R.Civ.P. 9(b). “Under Rule
9(b), a plaintiff must plead ‘such matters as the 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.'” Abels v.
Farmers Commodities Corp., 259 F.3d 910, 920 (8th Cir.
2001). “Therefore, the party must typically identify
the ‘who, what, where, when, and how' of the
alleged fraud.” United States ex rel. Costner v.
URS Consultants, Inc., 317 F.3d 883, 888 (8th Cir.
2003). “This requirement is designed to enable
defendants to respond ‘specifically, at an early stage
of the case, to potentially damaging allegations of immoral
and criminal conduct.'” Abels, at 920.
“Conclusory allegations that a defendant's conduct
was fraudulent and deceptive are not sufficient to satisfy
the rule.” BJC Health Sys. v. Columbia Cas.
Co., 478 F.3d 908, 917 (8th Cir. 2007) (quoting
Commercial Prop. Invs. v. Quality Inns Int'l
Inc., 61 F.3d 639, 644 (8th Cir. 1995)).
being said, “[a] Plaintiff need not show each factor to
plead fraud with sufficient particularity. Instead, a
Plaintiff must state enough so that the pleadings are not
merely conclusory.” Cunningham v. PFL Life Ins.
Co., 42 F.Supp.2d 872, 885 (N.D. Iowa 1999) (quoting
Roberts v. Francis, 128 F.3d 647, 651 n.5 (8th Cir.
1997)). “The level of particularity required depends
on, inter alia, the nature of the case and the relationship
between the parties.” Payne v. U.S., 247 F.2d
481, 486 (8th Cir. 1957). Further, under Rule 9(b) only the
circumstances of the fraud must be pled with particularity.
The Rule provides that: “Malice, intent, knowledge, and
other conditions of a person's mind may be alleged
Plaintiff has satisfied its pleading requirements
plaintiff has pled more than labels and conclusions.
Plaintiff outlined in detail Harstad's fraudulent
conduct. And, with respect to the defendants, plaintiff
alleged that the checks they took were in plaintiff's
name as the drawer and not Harstad's, that the checks
were presented to the defendants for satisfaction of
Harstad's personal credit card debts, and that defendants
applied the proceeds from the checks for that purpose.
Finally, plaintiffs pled the total amounts of the checks
involved for each of the defendants (the total amounts were
sizeable) and the time period during which the fraud
allegedly took place. This is sufficient to meet the
requirement of Rule 9(b) that the “circumstances”
of the fraud be pled with particularity.
defendants' purported knowledge, Rule 9(b) permits that
it can be pled generally. And, in this case, plaintiff went
beyond that by pleading facts, which if true, may be
circumstantial evidence that defendants had the requisite
knowledge of Harstad's defalcations.
if defendants' argument is that plaintiff has not pled
enough to make out a claim for aiding and abetting fraud that
satisfies the “plausibility” requirement of
Iqbal/Twombly, that too is rejected. While
there are a number of reasons why defendants may not have
been aware of the underlying fraud, it is not out of the
realm of possibility that defendants may have had actual
knowledge of the fraud. For example, defendants may have
detected the fraud as apart of a fraud detection program, but
decided to take the checks anyway in order to avoid losses
resulting from their having already paid the merchants or
other persons that Harstad presented her credit cards to.
While this appears to be on the lower end of probability, and
while the court is skeptical that plaintiff will be able to
prove defendants possessed the requisite knowledge for
plaintiff to prevail on a claim of aiding and abetting fraud,
this skepticism alone does not mean plaintiff has failed to
satisfy the “plausibility” requirement of
Iqbal/Twombly. See Apex IT v. Chase
Manhattan Bank USA, N.A., Civ. No. 04-2684, 2005 WL
612915 (D. Minn. Mar. 11, 2005) (denying defendant's
motion to dismiss even though the court expressed doubt
“that a financial institution the size of Chase could
have been aware of the ‘unusual' nature of the
payments at issue”).
Statute of limitations
1991, North Dakota adopted in substantial part the 1990
revisions to Articles 3 and 4 of the Uniform Commercial Code
(“UCC”). This included, for the first time, a
statute of limitations codified at § 41-03-18 (3-118).
See 2 White, Summers, & Hillman, Uniform
Commercial Code § 17:46 (6th ed. Nov. 2018 update)
(“White, Summers, & Hillman”). While
the limitations period relevant here is the ...