Lindwood Group, LLC, The v. LP Linwood Village Apartments, LLC et al
Filing
29
MEMORANDUM AND ORDER denying 12 Motion for Judgment. Signed by District Judge Monti L. Belot on 8/15/2011. (alm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
THE LINWOOD GROUP, LLC,
Plaintiff,
v.
LP LINWOOD VILLAGE APARTMENTS,
LLC, MACCO PROPERTIES, INC., and
LEW S. MCGINNIS,
Defendants.
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CIVIL ACTION
No.
10-1297-MLB-KMH
MEMORANDUM AND ORDER
This case comes before the court on defendants’1 motion for
judgment on the pleadings against plaintiff’s first through fourth
causes of action.
(Doc. 12).
is ripe for decision.
The matter has been fully briefed and
(Docs. 13, 18, 24).
For the reasons stated
herein, defendants’ motion is denied, without prejudice.
I.
INTRODUCTION
On August 3, 2010, plaintiff filed its first amended petition
in the Eighteenth Judicial District, District Court, Sedgwick County,
Kansas.
On September 3, 2010, the matter was removed to this court.
In Counts 1 through 3, plaintiff alleges fraud, fraudulent
concealment, and conspiracy to defraud. In Count 4, plaintiff alleges
breach of fiduciary duty.
Defendants contend that plaintiff’s first
amended petition fails to meet the particularity requirement under
1
Defendant Macco Properties, Inc. is a debtor before the United
States Bankruptcy Court for the Western District of Oklahoma, Case No.
10-16682.
On August 1, 2011, plaintiff filed a notice that the
bankruptcy court granted its relief from stay on June 30, 2011. (Doc.
28).
Federal Rule of Civil Procedure 9(b) for the fraud counts. Defendants
also contend that plaintiff’s fiduciary duty claim fails to state a
claim upon which relief can be granted because defendants owed no
fiduciary duty to plaintiff.
Plaintiff
opposes
defendants’
motion
for
judgment
on
the
pleadings and argues that its first amended petition is sufficient
under 9(b).
Alternatively, plaintiff requests leave from the court
to file the proposed amended complaint that is attached to its
response.
(Doc. 18-1).
Plaintiff also responds that entering
judgment in favor of defendants on the fiduciary duty claim is
inappropriate at this time because of the facts.
II.
STANDARDS
Defendants’ motion is made pursuant to Federal Rule of Civil
Procedure 12(h)(2)(A) and (B), which preserves 12(b)(6) motions from
waiver and untimeliness until the end of trial.2 Weatherhead v. Globe
Intern., Inc., 832 F.2d 1226, 1228 (10th Cir. 1987) (“Pursuant to Fed.
R. Civ. P. 12(h)(2), a motion to dismiss may be ‘made in any pleading
permitted or ordered under Rule 7(a), or by motion for judgment on the
pleadings, or at the trial on the merits.’”).
“Rule 12(h)(2) permits
the court to consider ‘[a] defense of failure to state a claim upon
which relief can be granted’ within a Rule 12(c) motion for judgment
on the pleadings[.]” Brocks v. Board of County Com'rs of Sedgwick
County, No. 08-1134-WEB, 2008 WL 5095997, *2 (D. Kan. Nov. 26, 2008).
2
“Technically, it is impermissible to file an answer and
thereafter file a Rule 12(b)(6) motion to dismiss.” Brocks v. Board
of County Com'rs of Sedgwick County, No. 08-1134-WEB, 2008 WL 5095997,
*2 (D. Kan. Nov. 26, 2008).
-2-
Because
the
distinction
between
12(b)(6)
and
12(c)
is
purely
procedural formality, the court applies the 12(b)(6) standards to
defendants’ 12(c) motion for judgment on the pleadings.
Id.
The standards this court must utilize upon a motion to dismiss
are well known. To withstand a motion to dismiss for failure to state
a claim, a complaint must contain enough allegations of fact to state
a claim to relief that is plausible on its face.
Ashcroft v. Iqbal,
129 S.Ct. 1937, 1953 (2009) (expanding Atl. Corp. v. Twombly, 550 U.S.
544, (2007) to discrimination suits); Robbins v. Oklahoma, 519 F.3d
1242,
1247
(10th
Cir.
2008).
All
well-pleaded
facts
and
the
reasonable inferences derived from those facts are viewed in the light
most favorable to the plaintiff.
1283 (10th Cir. 2008).
Archuleta v. Wagner, 523 F.3d 1278,
Conclusory allegations, however, have no
bearing upon this court’s consideration.
Shero v. City of Grove,
Okla., 510 F.3d 1196, 1200 (10th Cir. 2007).
In the end, the issue
is not whether the plaintiff will ultimately prevail, but whether he
or she is entitled to offer evidence to support the claims.
Beedle
v. Wilson, 422 F.3d 1059, 1063 (10th Cir. 2005).
III.
ANALYSIS
Fraud Counts 1-3
Defendants claim that plaintiff failed to plead its fraud claims
with particularity in accordance with Fed. R. Civ. P. 9(b).
All
claims for fraud or mistake must be pleaded with particularity.
Fed.
R. Civ. P. 9(b); Koch v. Koch Industries, Inc., 203 F.3d 1202, 1236
(10th Cir. 2000).
averred generally.
However, malice, intent, and knowledge may be
Id.
The requirements of 9(b) provide defendants
with fair notice of plaintiff’s claims and the factual circumstances
-3-
supporting those claims.
The Tenth Circuit “requires a complaint
alleging fraud to ‘set forth the time, place and contents of the false
representation, the identity of the party making the false statements
and the consequences thereof.’”
Id.
“‘In other words, the plaintiff
must set out the who, what, where, and when of the alleged fraud.’”
Jamieson v. Vatterott Educational Center, Inc., 473 F. Supp. 2d 1153,
1156 (D. Kan. 2007) (quoting Plastic Packaging Corp. v. Sun Chem.
Corp., 136 F. Supp. 2d 1201, 1203 (D. Kan. 2001)).
The court agrees with defendants that plaintiff’s first amended
petition does not meet the particularity requirement under Rule 9(b)
because it does not include specific dates (when) or the identity of
the person making the material misrepresentations.
Nor does the
petition identify who fraudulently concealed material facts related
to the rent rolls detailed in paragraph 9(A).
In the alternative, plaintiff has requested leave to file an
amended complaint and has attached it to its response.
In their
reply, defendants claim that plaintiff’s proposed amended complaint
is also insufficient under Rule 9(b).
Specifically, defendants focus
on paragraph 16 and ask that it be stricken in the event plaintiff is
granted leave to amend.
Defendants claim that paragraph 16 of plaintiff’s proposed
amended complaint is insufficient “insofar as it is based upon
allegedly false ‘rent rolls.’” (Doc. 24 at 2).
Defendants claim that
the rent rolls are at the heart of plaintiff’s allegations and as a
result, plaintiff “should be required to identify the offending
documents with specificity.”
(Doc. 24 at 2).
Paragraph 16 provides the subject of the concealed fraud (rent
-4-
rolls) and the nature of the fraud (rent rolls were falsified by
listing non-paying tenants as rent-paying tenants or not accurately
documenting abandoned apartments).
However, plaintiff does not
include specific dates or specify which documents were falsified.
In paragraphs 9-15, plaintiff alleges facts dating from December
31, 2006, to June 3, 2008.
Presumably, the rent rolls plaintiff
refers to in paragraph 16 reflect this time period, but perhaps not.
Failing to identify a specific time period will not suffice under Rule
See, e.g., Koch, 203 F.3d at 1237; Jamieson, 473 F. Supp. 2d
9(b).
at 1157.
Nor does plaintiff identify which rent rolls3 contained the
alleged falsities.
Presumably, not every rent roll contains false
statements or omissions and plaintiff should identify which specific
rent rolls contain the alleged falsities.
See Shaffer v. Eden, 209
F.R.D. 460, 463 (D. Kan. 2002) (stating that the plaintiff should
identify documents or other communications which may contain the false
statements).
It
is
worth
mentioning
that
paragraph
16
and
subparagraph A are almost identical to plaintiff’s first amended
petition, which is insufficient under Rule 9(b).
The court finds that plaintiff’s proposed amended complaint, with
the
exception
of
paragraph
16,
comports
with
the
particularity
requirements under Rule 9(b) as to Counts 1-3. Plaintiff provides the
subject and nature of the fraud as well as specific dates and
identities of the persons making the alleged misrepresentations.
3
Defendants define a rent roll as “a specific document that
contains specific information, namely, occupancy and rental-rate data
for specific properties for specific periods of time.” (Doc. 24 at
2).
-5-
Plaintiff may move to amend its complaint again to revise paragraph
16 and its subsections provided that it meets the requirements under
Rule 9(b).
See Fed. R. Civ. P. 15(a)(2) (“The court should freely
give leave when justice so requires”).
Fiduciary Duty Count 4
The
Tenth
Circuit
has
highlighted
two
types
of
fiduciary
relationships under Kansas law:
(1) those specifically created by contract such as
principal and agent, attorney and client, and trustee
cestui que trust, for example, and those created by formal
legal proceedings such as guardian and/or conservator and
ward, and executor and administrator of an estate, among
others, and (2) those implied in law due to the factual
situation surrounding the involved transactions and the
relationship of the parties to each other and to the
questioned transactions.
Rajala v. Allied Corp., 919 F.2d 610, 614 (10th Cir. 1990) (quoting
Denison State Bank v. Madeira, 230 Kan. 684, 691, 640 P.2d 1235, 1241
(1982)).
In this case, plaintiff alleges that the second type of
fiduciary relationship exists between the parties because defendants
had superior knowledge regarding the apartment tenant capacity and
financial viability which could not be discovered through reasonable
diligence by plaintiff.
The existence of the second type of fiduciary relationship is
heavily dependent on the facts and circumstances of this case.
Rajala, 919 F.2d at 614. In Rajala, the Tenth Circuit examined Kansas
law as to what “broad principles ... should be considered in making
the determination of whether a fiduciary relationship exists in any
particular factual situation:”
A fiduciary relationship imparts a position
of peculiar confidence placed by one individual
in another. A fiduciary is a person with a duty
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to act primarily for the benefit of another. A
fiduciary is in a position to have and exercise,
and does have and exercise influence over
another. A fiduciary relationship implies a
condition of superiority of one of the parties
over the other. Generally, in a fiduciary
relationship, the property, interest or authority
of the other is placed in the charge of the
fiduciary.
*
*
*
The court in Denison made clear that each of the
general considerations listed above need not be present in
every case in which a fiduciary relationship is alleged.
However,
the
court
emphasized
that
an
overriding
consideration in the law of fiduciary relationships was
that “one may not abandon all caution and responsibility
for his own protection and unilaterally impose a fiduciary
relationship on another without a conscious assumption of
such duties by the one sought to be held liable as a
fiduciary. ” Denison, 230 Kan. at 696, 640 P.2d at 1243-44
.... The court went on to state that “[t]his is
particularly true when one ... is fully competent and able
to protect his own interests.” Id.
A fiduciary relationship whereby both parties assume
fiduciary obligations to each other or to a common entity
similarly requires a conscious assumption of fiduciary
obligations by the parties. For example, in Paul v. North,
191 Kan. 163, 380 P.2d 421 (1963), the Supreme Court of
Kansas stated that fiduciary relationships
“may arise out of conduct of the parties
evidencing an agreement to engage in a joint
enterprise for the mutual benefit of the
parties.... But they necessarily spring from an
attitude of trust and confidence and are based
upon some form of agreement, either expressed or
implied, from which it can be said that the minds
have
met
in
a
manner
to
create
mutual
obligations.”
Id. 191 Kan. at 170, 380 P.2d at 426 .... Although a
fiduciary relationship may arise out of an agreement to act
together for the mutual benefit of the parties, such a
relationship cannot be established by accident or
inadvertence.
-7-
“Mere concert of action without more, does not
establish
a
fiduciary
relationship
....
Undoubtedly, parties may deal at arm's length for
their mutual profit. It is only when, by their
concerted action, they willingly and knowingly
act for one another in a manner to impose mutual
trust
and
confidence
that
a
fiduciary
relationship arises.”
This court has also recognized that conscious
assumption of the alleged fiduciary duty is a mandatory
element under Kansas law. ...
Although the courts of Kansas have suggested that a
somewhat more protective approach may be used when one
party is under a disability or disadvantage, ... this more
protective approach will ordinarily not be utilized as
between two or more business people or business entities
who each possess the capacity to protect themselves. ...
The Supreme Court of Kansas has cautioned against an
approach which would unfairly “convert ordinary day-to-day
business transactions into fiduciary relationships where
none were intended or anticipated.”
Id. at 614-15.
Plaintiff cites Wolf v. Brungardt, 215 Kan. 272, 524 P.2d 726
(1974) in support of its position.
In Wolf, the appellees sought to
recover damages against the appellants for fraud and breach of
contract.
The Kansas Supreme Court held that one of the appellants
(the original owner of a dealership) owed a fiduciary duty to the
appellee (the buyer and partner of the dealership). Because there was
a fiduciary duty between the parties, the buyer’s responsibility of
due diligence to discover the fraud was reduced.
Wolf, 215 Kan. at
284, 524 P.2d at 736.
The court finds that Wolf is not factually similar. In Wolf, the
new partner was a nineteen-year-old kid with limited business and
book-keeping knowledge. Both the owner and the defendant bank assured
the kid and his mother that buying into the dealership was a good
investment.
-8-
Here, the parties are companies presumably doing business at arms
length.
While plaintiff alleges that it relied on defendants’
representations
and
had
unequal
access
to
the
truth
regarding
apartment’s capacity and financial viability, the court finds that
this alone is insufficient to establish a fiduciary relationship under
the facts of this case.
Plaintiff has not alleged that defendants acted for plaintiff’s
benefit.
Nor does the court find that defendants directly or
indirectly assumed some fiduciary duty on plaintiff’s behalf, a
mandatory element under Kansas law.
Rajala, 919 F.2d at 614.
It is obvious that the owner/seller of an apartment complex will
have superior knowledge as to the apartment’s financial viability than
the buyer, but this alone is not reason to impute a fiduciary
relationship between the buyer and seller.
See Ritchie Enterprises
v. Honeywell Bull, Inc., 730 F. Supp. 1041, 1054 (D. Kan. 1990)
(“Since it almost goes without saying that the seller of a product
will likely know more about its features and capabilities than would
the buyer, this superior knowledge is hardly a basis for grounding a
fiduciary relationship.”).
Plaintiff may amend its complaint to
allege facts showing the existence of a fiduciary relationship under
Kansas law.
IV.
CONCLUSION
Defendants’ motion for judgment on the pleadings (Doc. 12) is
denied, without prejudice.
Plaintiff’s request for leave to file its amended complaint (Doc.
18) is granted. The amended complaint must be filed on or before
September 2, 2011. Any motion directed to the amended complaint shall
-9-
be filed no later than September 16, 2011.
A motion for reconsideration of this order is not encouraged.
The standards governing motions to reconsider are well established.
A motion to reconsider is appropriate where the court has obviously
misapprehended a party's position or the facts or applicable law, or
where the party produces new evidence that could not have been
obtained through the exercise of reasonable diligence. Revisiting the
issues already addressed is not the purpose of a motion to reconsider
and advancing new arguments or supporting facts which were otherwise
available for presentation when the original motion was briefed or
argued is inappropriate.
1992).
Comeau v. Rupp, 810 F. Supp. 1172 (D. Kan.
Any such motion shall not exceed three pages and shall
strictly comply with the standards enunciated by this court in Comeau
v. Rupp.
The response to any motion for reconsideration shall not
exceed three pages.
No reply shall be filed.
IT IS SO ORDERED.
Dated this
15th
day of August 2011, at Wichita, Kansas.
s/ Monti Belot
Monti L. Belot
UNITED STATES DISTRICT JUDGE
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