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Borsheim Builders Supply, Inc. v. Merrick Bank Corp.

United States District Court, D. North Dakota

June 3, 2019

Borsheim Builders Supply, Inc., Plaintiff,
Merrick Bank Corporation, a Utah Corporation, and HSBC Card Services, Inc., a Delaware Corporation, Defendants.


          Charles S. Miller, Jr. United States Magistrate Judge.

         Before 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.[1]

         I. BACKGROUND

         Plaintiff 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 North Dakota.
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 are.
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 said checks.
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 Harstad herself.
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 named Defendants.
15. The exact amount each Defendant has received, including date, is as follows:
Chase Card Services -
$1, 422, 889.71
Card Services -
$35, 089.96
Merrick Bank -
$343, 604.11
$111, 766.82

(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.

         In the 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).


         A. Whether plaintiff has sufficiently pled its fraud claim

         1. Introduction

         Defendants 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 defendants:

[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.

         2. Governing law

         Fed. R. 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 separately below.

         While 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) (“Iqbal”).

         Under 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.

         Determining 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 (1974)).

         Fraud 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)).

         That 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 generally.”

         3. Plaintiff has satisfied its pleading requirements

         Here, 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.[2]

         As for 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.

         Finally, 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”).

         B. Statute of limitations

         1. Introduction

         In 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 ...

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