Zimmerschied v. JP Morgan Chase Bank, N.A. et al
Filing
35
MEMORANDUM OPINION AND ORDER granting in part and denying in part defendant's 15 Motion to Dismiss. 1. Motion is GRANTED with respect to Plaintiff's claims for violation of Minn. Stat. § 47.59 (Count I), Minn. Stat. §§ 47.20 and 47.59 (Count II), Minn. Stat. § 58.13 (Count III), and Minn. Stat. § 58.14 (Count IV), negligent misrepresentation (Count VII), and unjust enrichment (Count IX). Those claims are DISMISSED with prejud ice. 2. Motion is GRANTED with respect to Plaintiff's claims for fraud (Count V) and fraudulent nondisclosure (Count VI). Those claims are DISMISSED without prejudice. Within twenty-one (21) days from the date of this Order, Plaintiff may file an amended complaint with respect to these claims. 3. Motion is DENIED with respect to Plaintiff's claim for breach of contract (Count VIII).(Written Opinion). Signed by Judge John R. Tunheim on September 23, 2014. (DML)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
KATHLEEN ZIMMERSCHIED,
Civil No. 13-3431 (JRT/JJK)
Plaintiff,
v.
JP MORGAN CHASE BANK, N.A., as
successor by merger to Chase Home
Finance, L.L.C.,
MEMORANDUM OPINION AND
ORDER ON DEFENDANT’S
MOTION TO DISMISS
Defendant.
Patrick M. Sutton, THE LAW OFFICE OF PATRICK M. SUTTON,
6200 Excelsior Boulevard, Suite 103, St. Louis Park, MN 55416, for
plaintiff.
Marc D. Simpson and Calvin P. Hoffman, STINSON LEONARD
STREET LLP, 150 South Fifth Street, Suite 2300, Minneapolis, MN
55402, for defendant.
This case arises out of a mortgage agreement entered into by Plaintiff Kathleen
Zimmerschied that was serviced by Defendant JP Morgan Chase Bank, N.A., as
successor by merger to Chase Home Finance LLC (“Chase”). In an amended complaint
Zimmerschied brings various statutory and common law claims arising out of her
allegation that beginning in 2006 Chase consistently withdrew multiple mortgage
payments each month from her personal bank account and line of credit but failed to
properly apply these payments to her mortgage account balance and charged her
27
unnecessary fees and interest, ultimately referring her home for foreclosure, based on
these failures.1
Chase moves to dismiss Zimmerschied’s claims against it.
In response,
Zimmerschied concedes that six of her claims are “overreach[ing].” (Pl.’s Mem. in
Opp’n to Mot. to Dismiss at 1, Mar. 3, 2014, Docket No. 25.) Because Zimmerschied
has made no argument in opposition to Chase’s motion with respect to these claims, the
Court will grant the motion and dismiss these six claims with prejudice. The Court will
also grant Chase’s motion to dismiss Zimmerschied’s claims for fraud and fraudulent
disclosure for failure to comply with the pleading requirements of Federal Rule of Civil
Procedure 9(b), but will dismiss the claims without prejudice and allow Zimmerschied a
final opportunity to amend these claims. Finally, the Court will deny Chase’s motion
with respect to Zimmerschied’s breach of contract claim, as Zimmerschied’s allegations,
although they present a close question for purposes of Federal Rule of Civil Procedure
12(b)(6), are ultimately sufficient to state a plausible claim for relief under the liberal
pleading standards of the Federal Rules.
1
Zimmerschied initially brought the same claims based on almost identical allegations
against CitiMortgage, Inc., arising out of a separate mortgage on the same property that was
serviced by CitiMortgage. After the present motion to dismiss was jointly filed by Chase and
CitiMortgage, Zimmerschied and CitiMortgage stipulated to the dismissal of Zimmerschied’s
claims against CitiMortgage. (Stipulation of Dismissal, June 20, 2014, Docket No. 3.) Pursuant
to this stipulation, the Court entered an order dismissing all claims against CitiMortgage with
prejudice. (Order, June 24, 2014, Docket No. 34.) Accordingly, the Court will discuss
Zimmerschied’s allegations and the present motion to dismiss only to the extent they relate to the
claims against Chase.
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BACKGROUND
I.
THE MORTGAGES
On June 28, 2002, Zimmerschied executed a promissory note in favor of Highland
Bank (“Highland”) for a $100,000 revolving line of credit. (Decl. of Kendall Bader,
Ex. 1, Feb. 10, 2014, Docket No. 18.)2 As security for the line of credit, Zimmerschied
granted Highland a mortgage on property located at 5417 84th Avenue North, Brooklyn
Park, Minnesota (“the Property”). (Id., Ex. 1 at 2.)3 This mortgage was recorded on
October 28, 2002. (Id.)
On August 28, 2002, Zimmerschied entered into a Hennepin County
Rehabilitation Loan Program Deferred Loan Repayment Agreement and Mortgage. (Id.,
Ex. 2 at 8-11.) Under the agreement, the City of Brooklyn Park provided Zimmerschied
2
In support of its motion to dismiss, Chase submitted the Bader Declaration, which
includes as exhibits four mortgages executed by Zimmerschied on the real property at issue in
Zimmershied’s amended complaint. Generally a motion to dismiss under Rule 12(b)(6) must be
treated as a motion for summary judgment if “matters outside the pleadings are presented to and
not excluded by the court.” Fed. R. Civ. P. 12(d). Although “matters outside the pleading may
not be considered in deciding a Rule 12 motion to dismiss, documents necessarily embraced by
the complaint are not matters outside the pleading.” Enervations, Inc. v. Minn. Mining & Mfg.
Co., 380 F.3d 1066, 1069 (8th Cir. 2004) (internal quotation marks omitted). Documents
embraced by the pleadings include those “whose contents are alleged in a complaint and whose
authenticity no party questions, but which are not physically attached to the pleading.” Kushner
v. Beverly Enters., Inc., 317 F.3d 820, 831 (8th Cir. 2003). Additionally, the court may consider
“exhibits attached to the pleadings, and matters of public record.” Illig v. Union Elec. Co., 652
F.3d 971, 976 (8th Cir. 2011). Although the mortgage documents produced by Chase are not
attached as exhibits to Zimmerschied’s amended complaint, the amended complaint alleges the
existence of the documents and courts frequently consider mortgage documents in cases like the
present one where plaintiff challenges the foreclosure of her property and defendants’
compliance with the terms of the mortgage documents. See, e.g., Welk v. GMAC Mortg., LLC,
850 F. Supp. 2d 976, 990 (D. Minn. 2012) (considering mortgage documents produced by
defendants in support of a motion to dismiss). Accordingly, the Court’s recitation of the facts
includes, and the Court has considered in ruling on the present motion, the four mortgage
documents produced by Chase.
3
All references to page numbers refer to the CMECF pagination.
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with a $20,000 interest-free loan “for rehabilitation work” on Zimmerschied’s residential
home located on the Property.
(Id., Ex. 2 at 8.)
In connection with this loan
Zimmerschied granted the City of Brooklyn Park a mortgage on the Property, which was
recorded on May 12, 2004. (Id., Ex. 2 at 8-9.)
On September 12, 2002, Zimmerschied refinanced one of the previous mortgages
on the Property by executing a promissory note in favor of Frontline Finance, LLC
(“Frontline”) in the principal amount of $143,200. (Am. Compl. ¶¶ 11-12, Jan. 20, 2014,
Docket No. 11; Bader Decl., Ex. 3 at 13-21.) In connection with the loan, Zimmerschied
granted a mortgage (“the Mortgage”) on the Property to Mortgage Electronic Registration
Systems, Inc. as nominee for Frontline, which was recorded on October 18, 2002. (Bader
Decl., Ex. 3 at 13-14.) Servicing of the Mortgage was transferred to Chase Home
Finance, L.L.C., on March 5, 2003. (Am. Compl. ¶ 19.) Chase Home Finance, L.L.C.
later merged with Defendant Chase, who became Chase Home Finance’s successor of
interest. (Id.)
On October 23, 2002, Plaintiff executed another promissory note in the principal
amount of $143,000 in favor of ABN Amro Mortgage Group, Inc. (“ABN”). (Id. ¶¶ 5354; Bader Decl., Ex. 4 at 23.) Zimmerschied granted ABN a mortgage on the Property,
which was recorded in Hennepin County on November 26, 2002. (Bader Decl., Ex. 4 at
23-30.) ABN declared bankruptcy in 2007 and CitiMortgage became the successor in
interest of ABN by merger. (Am. Compl. ¶ 57.)
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II.
SERVICING ISSUES
Zimmerschied alleges that she made her payments on the Mortgage using personal
checks written from her TCF Bank (“TCF”) checking account. (Id. ¶ 20.) Zimmerschied
alleges that in June 2006
Chase began postponing payments or losing the payments until after the
due dates of the payments for reasons unknown to Ms. Zimmerschied.
Ms. Zimmerschied realized that the “received” dates were much later than
the cleared dates, if they cleared at all, on her bank statements. In other
words, Ms. Zimmerschied was sometimes given credit on her mortgage
account but Chase did not give that credit for a payment until months later.
In the meantime, Chase charged late fees for Plaintiff not paying her
mortgage.
(Id. ¶ 21.) In August 2006, Chase notified Zimmerschied that she was delinquent on her
mortgage payments. (Id. ¶ 22.) A month later Zimmerschied first noticed that Chase
processed one of her payments twice – first as a paper check, and then as an Automatic
Clearing House (“ACH”) debit – resulting in two separate debits to her bank account.
(Id. ¶ 23 & n.2.) Zimmerschied alleges that throughout the next year Chase continued to
process payments multiple times, once even processing a single check ten times, but “did
not apply Ms. Zimmerschied’s payments to pay down her mortgage balance” and
“continually assessed late fees to Ms. Zimmerschied’s account.” (Id. ¶¶ 24-25, 27-28.)
During this period of time Chase’s actions of processing single checks multiple times
caused Zimmerschied’s TCF account to be “overdrawn on innumerable occasions.” (Id.
¶ 29.)
Zimmerschied alleges that when she contacted Chase to ask why her payments
were being processed multiple times, she would either be asked for copies of the original
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checks, provided with a single posting date even if the payment had been submitted
multiple times, the Chase representative would deny wrongdoing, or the representative
would state that TCF should have reversed duplicate items. (Id. ¶ 30.) The situation of
Chase processing single checks multiple times while simultaneously not crediting her
mortgage account for those payments persisted when Zimmerschied switched to making
payments using official bank checks, rather than personal checks. (Id. ¶¶ 31-33.) During
this period of time Zimmerschied brought her concerns about Chase’s practices to the
Federal Trade Commission and the Office of Minnesota’s Attorney General but “the
investigations withered away” when Chase denied wrongdoing. (Id. ¶ 33 n.7.)
In an effort to move away from the problematic check payment system,
Zimmerschied set up a line of credit at TCF on April 18, 2007, with an original credit
limit of $205,000 which was later increased to $220,000. (Id. ¶ 35.) On May 15, 2007,
Zimmerschied authorized an automatic monthly payment of $893.38 to Chase from the
line of credit. (Id. ¶ 36.) Zimmerschied contends that she did not receive a welcome
letter from Chase regarding these automatic payments until October 14, 2009. (Id. ¶ 36,
Ex. 5 at 47.)4 In the letter Chase indicated that it would debit $893.38 as the “total
monthly payment amount” from Zimmerschied’s account.
(Id., Ex. 5 at 47.)
Zimmerschied alleges that Chase in fact took two payments from her account each
month, and starting in February 2012 began taking four payments each month. (Id. ¶ 36.)
Bank records from TCF indicate that Chase at least attempted to make multiple
withdrawals in a single month as alleged by Zimmerschied. (See, e.g., id., Ex. 2 at 22
4
The exhibits to the amended complaint were filed at Docket Number 12.
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(showing withdrawals of $893.38 by Chase on January 5, 2010, January 13, 2010,
January 15, 2010, January 21, 2010, February 1, 2010, and February 15, 2010).)
Zimmerschied alleges that since February 2012 Chase has withdrawn $108,890.67 from
her TCF line of credit and “has never applied any of [its] TCF line of credit withdrawals
to Ms. Zimmerschied’s mortgage balance.” (Id. ¶¶ 36-37.)
When she attempted to stop the withdrawals, Zimmerschied alleges that she was
unsuccessful as “[b]oth Chase and TCF National Bank denied liability for the
withdrawals continuing to occur and also denied the ability to stop the withdrawals from
occurring.” (Id. ¶ 39.) When Zimmerschied spoke with a Chase representative, the
representative explained that each repeat withdrawal was actually a refusal by TCF to pay
Chase the requested amount. (Id. ¶ 41.)
Zimmerschied was served with a notice of a foreclosure sale on December 10,
2012. (Id. ¶ 43.) Zimmerschied was served with another notice on February 21, 2013,
scheduling that sale for April 20, 2013. (Id. ¶ 45; id., Ex. 6.) The sale was postponed
after Zimmerschied filed a postponement affidavit, and the rescheduled sale for
September 20, 2013 was also postponed “in preparation of this civil action.” (Id. ¶ 45.)
Zimmerschied alleges that between April 18, 2007 and October 15, 2013, Chase has
automatically withdrawn $216,096.27 from her line of credit. (Id. ¶ 47.) Zimmerschied
also alleges that “Chase is still automatically withdrawing funds from the TCF line of
credit account at the time of filing this Complaint.” (Id. ¶ 50.)
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ANALYSIS
I.
STANDARD OF REVIEW
In reviewing a motion to dismiss brought under Federal Rule of Civil Procedure
12(b)(6), the Court considers all facts alleged in the complaint as true to determine if the
complaint states a “‘claim to relief that is plausible on its face.’” Gomez v. Wells Fargo
Bank, N.A., 676 F.3d 655, 660 (8th Cir. 2012) (quoting Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009)). To survive a motion to dismiss, a complaint must provide more than
“‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action.’”
Ashcroft, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
“A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.”
Id.
“Where a complaint pleads facts that are merely consistent with a
defendant’s liability, it stops short of the line between possibility and plausibility,” and
therefore must be dismissed.
Id. (internal quotation marks omitted). Finally, Rule
12(b)(6) “authorizes a court to dismiss a claim on the basis of a dispositive issue of law.”
Neitzke v. Williams, 490 U.S. 319, 326 (1989).
II.
FAILURE TO OPPOSE DISMISSAL
Chase moved for dismissal of Zimmerschied’s amended complaint in its entirety.
In response to the motion to dismiss, Zimmerschied “concedes that she may have
overreached in some of her claims against Defendants,” but that her “claims of breach of
contract, fraud, and fraudulent nondisclosure have been properly put forth as claims.”
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(Pl.’s Mem. in Opp’n to Mot. to Dismiss at 1.) Accordingly, Zimmerschied did not
respond to any of Chase’s arguments seeking dismissal of her claims for violations of
Minn. Stat. § 47.59 (Count I), Minn. Stat. §§ 47.20 and 47.59 (Count II), Minn. Stat.
§ 58.13 (Count III), and Minn. Stat. § 58.14 (Count IV), as well as negligent
misrepresentation (Count VII) and unjust enrichment (Count IX), and made arguments
only with respect to her breach of contract, fraud, and fraudulent inducement claims.
(See generally id.) The Court interprets Zimmerschied’s concession that six of her claims
are overreaching, accompanied by her failure to respond to the motion to dismiss with
respect to those claims, as a voluntary abandonment.
See Ursery v. Fed. Drug
Enforcement Admin., Civ. No. 12-1911, 2014 WL 117627, at *2 (E.D. Mo. Jan. 13, 2014)
(“Plaintiff has utterly failed to address Defendant’s arguments in support of its Motion to
Dismiss. The Court construes such failure as an abandonment of Plaintiff’s claims.”);
Figueroa v. U.S. Postal Serv., 422 F. Supp. 2d 866, 879 (N.D. Ohio 2006) (dismissing
with prejudice a cause of action interpreting “Plaintiff’s failure to respond to the
arguments of the Postal Service to be a concession that her Seventh Cause of Action fails
to state a[] claim”). Accordingly, the Court will dismiss Counts I through IV and Counts
VII and IX of Zimmerschied’s amended complaint with prejudice.
III.
FRAUD (COUNT V)
To state a claim for fraud under Minnesota law, Zimmerschied must allege: (1) a
false representation by Chase of a past or existing material fact susceptible of knowledge;
(2) made with knowledge of the falsity of the representation or made without knowing
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whether it was true or false; (3) with the intention to induce Zimmerschied to act in
reliance thereon; (4) that the representation caused Zimmerschied to act in reliance
thereon; and (5) that Zimmerschied suffered pecuniary damages as a result of the
reliance. See Valspar Refinish, Inc. v. Gaylord’s Inc., 764 N.W.2d 359, 368 (Minn.
2009).
Zimmerschied’s fraud claim is based on her allegation that
Defendants have made claims to Ms. Zimmerschied that payments were not
made or if Defendants did receive the payment, it was made late.
Defendants have made claims to Ms. Zimmerschied that payments were not
processed multiple times. Defendants are currently claiming that they are
not withdrawing any funds from Ms. Zimmershied’s TCF line of credit and
that those funds are not being received into Defendants’ accounts.
(Am. Compl. ¶ 130.) Zimmerschied further alleges that she “not being an investment
banker, securities dealer, mortgage lender, or mortgage broker, reasonably relied upon
the representations of the Defendants as she has sent in numerous paper checks in
addition to the TCF line of credit withdrawals as Defendants claimed they were not
receiving the line of credit withdrawal funds. Defendants ended up processing both
forms of payment.” (Id. ¶ 134.) With respect to reliance, Zimmerschied alleges that had
she “known of the falsity of Defendants’ representations, Ms. Zimmerschied would not
have mailed in any subsequent payments to Defendants.” (Id. ¶ 135.)
Chase argues that Zimmerschied’s fraud claim must be dismissed because her
claims fail to comply with the particularity requirement of Federal Rule of Civil
Procedure 9, demonstrate no reasonable reliance as a matter of law, and are barred by the
statute of limitations. The Court will address each of these arguments in turn.
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A.
Particularity
To adequately plead a claim for fraud “a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). “To satisfy the
particularity requirement of Rule 9(b), the complaint must plead such facts as the time,
place, and content of the defendant’s false representations, as well as the details of the
defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and
what was obtained as a result.” United States ex rel. Raynor v. Nat’l Rural Utilities
Coop. Fin., Corp., 690 F.3d 951, 955 (8th Cir. 2012) (internal quotation marks omitted).
“In other words, Rule 9(b) requires plaintiffs to plead the who, what, when, where, and
how: the first paragraph of any newspaper story.” Freitas v. Wells Fargo Home Mortg.,
Inc., 703 F.3d 436, 439 (8th Cir. 2013) (internal quotation marks omitted). Because the
purpose of Rule 9(b) is to give defendants an opportunity to respond quickly and
accurately to damaging fraud allegations, “[c]onclusory 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) (internal quotation marks
omitted). “But Rule 9(b) does not require that the exact particulars of every instance of
fraud be alleged, so long as the complaint includes enough detail to inform the defendant
of the core factual basis for the fraud claims.” Ransom v. VFS, Inc., 918 F. Supp. 2d 888,
898 (D. Minn. 2013) (internal quotation marks omitted). Ultimately, “[t]he level of
particularity required depends on the nature of a case.” E-Shops Corp. v. U.S. Bank Nat’l
Ass’n, 678 F.3d 659, 663 (8th Cir. 2012).
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The Court concludes that Zimmerschied’s allegations fail to meet the requirements
of Rule 9(b) because they do not specify the who, what, when, where, and how of her
fraud claim. In particular, Zimmerschied’s fraud claim is missing allegations regarding
who made the statements, when the statements were made, the exact nature of the
misrepresentations, and where they were made.
With respect to who, the amended
complaint alleges generally that “Defendants” – including now dismissed CitiMortgage –
“made claims” to her regarding her mortgage payments. (Am. Compl. ¶ 130.) But
“Rule 9(b) is not satisfied when the complaint vaguely attributes the alleged fraudulent
statements to ‘defendants.’” Moua v. Jani-King of Minn., Inc., 613 F. Supp. 2d 1103,
1111 (D. Minn. 2009) (internal quotation marks omitted). Such pleadings require a
defendant “to guess which allegations in the complaint were pleaded against it, rendering
it difficult (if not impossible) to adequately frame a response, which is precisely the
problem that Rule 9(b) was designed to remedy.” Id. (internal quotation marks omitted).
Zimmerschied’s allegations are insufficient to specify who made which of the several
misrepresentations alleged, and therefore fail to provide Chase with an adequate
opportunity to respond to the allegations in violation of Rule 9(b). See Petersen v.
England, Civ. No. 09-2850, 2010 WL 3893797, at *10 (D. Minn. Sept. 30, 2010)
(“Rule 9(b) does not allow a complaint to merely lump multiple defendants together but
require[s] plaintiffs to differentiate their allegations when suing more than one defendant
. . . and inform each defendant separately of the allegations surrounding his alleged
participation in the fraud.” (alterations in original) (internal quotation marks omitted)).
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As for when the fraud occurred, Zimmerschied’s fraud allegations apparently arise
out of a relationship with Chase that has existed since March 2003 when the servicing of
the Mortgage was transferred to Chase, yet contain no indication of when the
misrepresentations occurred.
This is insufficient to meet Rule 9(b)’s particularity
requirement. See Superior Edge, Inc. v. Monsanto Co., Civ. No. 12-2672, 2013 WL
6405362, at *4 (D. Minn. Dec. 6, 2013) (dismissing a fraud claim under Rule 9 where
“SEI’s complaint fails to allege with sufficient specificity when the allegedly misleading
statements were made. SEI alleges that the statements were made before May 2011, but
this fails to provide SST with adequate notice of the conduct for which it may be liable.
SST had a relationship with Monsanto for at least two years prior to May 2011, but SEI’s
complaint does not identify any particular time during the course of this relationship that
the statements were made.”).
Additionally, Zimmerschied has not identified with any particularity what specific
misrepresentations she bases her claim on or where these statements were made.5 For
example, Zimmerschied has not alleged any particular phone calls, mortgage statements,
or letters that contained the allegedly misrepresentative material.
5
See Ransom,
Zimmerschied’s response to Chase’s motion to dismiss with respect to Rule 9(b)
reflects a fundamental misunderstanding of the “who, what, when, where and how” pleading
requirement for fraud claims. Specifically, Zimmerschied states that she “will concede that
‘where’ the money goes after Chase . . . withdrew it from her TCF line of credit is of grave
concern. Plaintiff’s First Amended Complaint states that Defendant Chase withdraws the funds
and it goes to account [sic] owned by Chase Home Mortgage. . . . Further discovery is necessary
to assess that account to discern what funds are in that account and why those funds are not being
applied to Plaintiff’s mortgage.” (Pl.’s Mem. in Opp’n to Mot. to Dismiss at 6.) But the
“where” in Rule 9(b) refers to where the alleged misrepresentations occurred, not where the
funds from Zimmerschied’s line of credit went. Because Zimmerschied was the recipient of the
alleged misrepresentations she should be able to allege where – in what documents, telephone
calls, or other communications – the misrepresentations were made.
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918 F. Supp. 2d at 899 (concluding that a fraud claim was not pled with particularity
where it did not specify “in what writings or oral communications these
misrepresentations were made”).
Nor has Zimmerschied identified, other than very
generally, what Chase told her about her mortgage payments that misled her. See Nelson
v. Frana Cos., Civ. No. 13-2219, 2013 WL 6500165, at *3 (D. Minn. Dec. 11, 2013)
(finding that a complaint did not satisfy Rule 9(b) where “[a]lthough the Funds allege
generally that Diamond mailed false fringe-benefit-fund reports and checks for
underpayments, the Funds do not identify with specificity the date or contents of any of
these reports or checks”); In re Mirapex Prods. Liab. Litig., 246 F.R.D. 668, 672
(D. Minn. 2007) (dismissing a fraud claim as deficient which merely alleged that
defendant made “false representations denying any link between [defendant’s product]
and compulsive gambling,” because the complaint did not cite “[s]pecific statements or
omissions”). Although Zimmerschied is not required to “plead every detail of the alleged
fraud, the allegations must be sufficient to allow Defendants to respond.” Ransom,
918 F. Supp. 2d at 900. In light of the general nature of Zimmerschied’s allegations, the
Court concludes that her amended complaint does not satisfy the requirements of
Rule 9(b) and will therefore grant Chase’s motion to dismiss on this basis. Because it is
not clear that Zimmerschied would be unable to allege a viable fraud claim under
Rule 9(b) if provided with an opportunity to amend her complaint, the Court will dismiss
the claim without prejudice, and allow Zimmerschied a final opportunity to amend this
claim.
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That Rule 9(b)’s requirements have not been satisfied is further highlighted by
Chase’s arguments regarding dismissal on the basis of reliance and the statute of
limitations. It is almost impossible to discern whether Zimmerschied’s allegations are
supported by the necessary reliance element or occurred within the statute of limitations
because the allegations are devoid of any specificity regarding the statements or when the
statements were made. Dismissing on the basis of Rule 9(b) is more than a mere
technicality in this case. In other words, as discussed below, Zimmerschied’s vague and
general fraud claim – as currently alleged – would likely entitle her to no relief on a
variety of other grounds. Although the Court dismisses on the basis of Rule 9(b) it goes
on to consider Chase’s other arguments for dismissal to highlight the deficiencies that
any amended fraud claim must also cure.
B.
Reliance
A plaintiff’s “[d]etrimental reliance is an essential element of a common law fraud
claim.” Popp Telecom, Inc. v. Am. Sharecom, Inc., 361 F.3d 482, 491 (8th Cir. 2004); see
also Nilsen v. Farmers’ State Bank of Van Hook, N.D., 228 N.W. 152, 153 (Minn. 1929).
Actual reliance “means that the plaintiff took action, resulting in some detriment, that he
would not have taken” if the defendant had not made a misrepresentation, or that the
plaintiff “failed, to his detriment, to take action that he would have taken” had the
defendant been truthful. Greeley v. Fairview Health Servs., 479 F.3d 612, 614 (8th Cir.
2007). Additionally, to establish reliance, a plaintiff must show that he believed the
alleged misrepresentation to be true. The listener “may rely on the representation so long
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as it is not known by the listener to be false and is not obviously false.” Hoyt Props., Inc.
v. Prod. Res. Grp., L.L.C., 736 N.W.2d 313, 321 (Minn. 2007).
Here, analyzing Zimmerschied’s allegations at their current level of generality, it
appears that they fail to plausibly allege the reliance element of her fraud claim. For
example, Zimmerschied alleges generally that Defendants claimed that her mortgage
payments were “not made” or “made late.” (Am. Compl. ¶ 130.) But the basis of
Zimmerschied’s entire case is that she did make timely payments, but Chase failed to
properly credit those payments. Therefore, Zimmerschied has not explained how she
could have reasonably relied upon this alleged misrepresentation if she knew that she had
submitted timely payments. Similarly, Zimmerschied contends that “Defendants are
currently claiming that they are not withdrawing any funds from Ms. Zimmerschied’s
TCF line of credit.” (Id.) But Zimmerschied’s allegations are based in large part on her
claim that she knows that Chase is, in fact, withdrawing funds from her line of credit, and
has documentary evidence from her bank records to prove it. Therefore, even if she did
rely on Chase’s alleged current statements that they are not withdrawing funds, this
would not be reasonable reliance because she knows these representations are false.
Finally, Zimmerschied claims that Defendants misrepresented that they were not
processing her payments multiple times. Although initially Zimmerschied may have
relied on this statement, her amended complaint is filled with examples of instances
where she discovered that Chase was, in fact, processing her payments multiple times.
(See, e.g., Am. Compl. ¶¶ 23-27, 30-33.) After she discovered the multiple processing
problem – which Zimmerschied alleges was as early as September 2006 (id. ¶ 23 n.2) it
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would no longer have been reasonable for her to rely on such representations. Although
it is possible that Zimmerschied relied on some statements made by Chase at certain
points in time, Zimmerschied’s current allegations suffer from at least two problems.
First, they lack the specificity required to plead fraud under Rule 9. Second, even with
such specificity, the Court is doubtful that at least some of the allegations would support
an inference of reasonable reliance, given that Zimmerschied appears not to have
believed many of the statements forming the basis of her fraud claim at the time they
were made.
Accordingly, the Court notes that any amendment of Zimmerschied’s
amended complaint to address the Rule 9(b) deficiencies must also plausibly allege
reliance in order to state a claim for fraud.6
C.
Statute of Limitations
Finally, Chase argues that Zimmerschied’s fraud claim is barred by the statute of
limitations, which requires fraud claims to be commenced within six years of “the
discovery by the aggrieved party of the facts constituting the fraud.”
Minn. Stat.
§ 541.05, subd. 1(6). Chase argues that, based upon the allegations in the amended
complaint, Zimmerschied discovered Chase’s alleged fraud in June 2006 when
6
In response to the motion to dismiss Zimmerschied has offered no explanation of how
her amended complaint plausibly alleges that she relied on the alleged misrepresentations.
Instead, Zimmerschied contends that “[o]n multiple occasions, as Plaintiff has already alleged in
her First Amended Complaint, that [sic] Chase . . . would promise to look into and find
resolution but never did. Had Plaintiff known Defendants were not going to take her inquiries
seriously, she would not have relied on those representations and filed suit far sooner.” (Pl.’s
Mem. in Opp’n to Mot. to Dismiss at 6-7.) This fraud claim – that Chase misrepresented its
intent to investigate Zimmerschied’s inquiries – is not, however, alleged in the amended
complaint, and therefore does not alter the Court’s conclusion that, as currently pled,
Zimmerschied’s fraud claim fails in many respects to plausibly allege reliance as a result of the
lack of detail in the allegations.
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Zimmerschied “realized” that “Chase began postponing payments or losing the payments
until after the due dates of the payments,” (Am. Compl. ¶ 21), but Zimmerschied did not
file a complaint until November 2013 – more than six years after this discovery (see
Notice of Removal, Ex. 1, Dec. 12, 2013, Docket No. 1). In response, Zimmerschied
contends that “[t]he fraud began when Chase unilaterally decided to start taking out more
than one payment per month [from Zimmerschied’s line of credit]. That, was discovered
in 2009 and therefore that claim of fraud is timely.” (Pl.’s Mem. in Opp’n to Mot. to
Dismiss at 7.) But this fraud allegation – based on misrepresentations about the number
of payments to be withdrawn from Zimmerschied’s line of credit – is not contained in
Zimmerschied’s current fraud claim. (See Am. Compl. ¶ 130.) Furthermore, although it
appears that Zimmerschied is attempting to limit her fraud claim to those instances of
misrepresentations within the statute of limitations, as currently pled her fraud claim –
without any specifics about when particular misrepresentations were made – appears to
include conduct occurring outside the limitations period. Because it is possible that
amendment to bring the fraud claim into compliance with Rule 9(b) could cure the
existing statute of limitations deficiencies, the Court finds that dismissal without
prejudice is appropriate. The Court cautions Zimmerschied that it will provide no further
opportunities to amend this claim.
IV.
FRAUDULENT NONDISCLOSURE (COUNT VI)
To establish a claim for fraudulent nondisclosure, a plaintiff must demonstrate that
the defendant had “‘a legal or equitable obligation’ to communicate facts to a particular
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person and that person is entitled to the information.” Heidbreder v. Carton, 645 N.W.2d
355, 367 (Minn. 2002) (quoting L & H Airco, Inc. v. Rapistan Corp., 446 N.W.2d 372,
380 (Minn. 1989)); see also Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179,
190 (Minn. 1999).
As a general rule, one party to a transaction has no duty to disclose material
facts to the other. However, [s]pecial circumstances may dictate otherwise.
For example: (a) One who speaks must say enough to prevent his words
from misleading the other party[;] (b) One who has special knowledge of
material facts to which the other party does not have access may have a
duty to disclose these facts to the other party[;] (c) One who stands in a
confidential or [f]iduciary relation to the other party to a transaction must
disclose material facts.
Richfield Bank & Trust Co. v. Sjogren, 244 N.W.2d 648, 650 (Minn. 1976) (citations and
internal quotation marks omitted). In addition to alleging a duty to disclose, to state a
claim for fraudulent nondisclosure, a plaintiff must also allege the other elements of an
ordinary fraud claim. See Damon v. Groteboer, 937 F. Supp. 2d 1048, 1074 (D. Minn.
2013).
Zimmerschied’s fraudulent nondisclosure allegations state, in full:
Defendants Chase and CitiMortgage have concealed material facts. The
facts are within the Defendants’ knowledge. Defendants[] know that
Ms. Zimmerschied will rely on the nondisclosure on the presumption that
the facts do not exist. Defendants have a legal and equitable duty to
communicate the facts to Ms. Zimmerschied. The duty of disclosure exists
because a confidential and/or fiduciary relationship exists between
Ms. Zimmerschied and Defendants. Disclosure is also necessary to clarify
misleading information already disclosed and because Defendants are the
ones with the special knowledge of the material facts to which
Ms. Zimmerschied does not have access.
(Am. Compl. ¶ 140.) Chase moves to dismiss this claim because it fails to comply with
the particularity requirements of Rule 9(b), Chase did not owe Zimmerschied a duty to
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disclose material facts, and the claim is barred by the independent duty rule, as the duties
it alleges arise out of the Mortgage.
A.
Particularity
As with fraud claims, claims for fraudulent disclosure in Minnesota must be pled
with particularity and comply with the requirements of Federal Rule of Civil Procedure
9(b). See Cox v. Mortg. Elec. Registration Sys., Inc., 685 F.3d 663, 672-73 (8th Cir.
2012). To satisfy the particularity requirement with respect to fraudulent nondisclosure
claims, plaintiffs are generally required to allege:
(1) the relationship or situation giving rise to the duty to speak, (2) the
event or events triggering the duty to speak, and/or the general time period
over which the relationship arose and the fraudulent conduct occurred,
(3) the general content of the information that was withheld and the reason
for its materiality, (4) the identity of those under a duty who failed to make
such disclosures, (5) what those defendant(s) gained by withholding
information, (6) why plaintiff’s reliance on the omission was both
reasonable and detrimental, and (7) the damages proximately flowing from
such reliance.
Remmes v. Int’l Flavors & Fragrances, Inc., 453 F. Supp. 2d 1058, 1072 (N.D. Iowa
2006) (internal quotation marks omitted).
Zimmerschied’s fraudulent nondisclosure claim contains even less specificity than
her fraud claim, and merely recites the elements of the cause of action without providing
any factual detail about the basis of her claims.
Zimmerschied states only that
Defendants have concealed “material facts” but fails to provide any information about,
among other things, what events occurred triggering a duty to disclose, the content of the
information that was withheld and why it was material, or how Zimmerschied relied on
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any of Defendants’ omissions. Cf. Remmes, 453 F. Supp. 2d at 1073-77 (finding that
plaintiff had identified with particularity “the general content of the information that was
withheld” where he listed the specific facts which defendants withheld including the
specific adverse health consequences of defendants’ products). Accordingly, the Court
will grant Chase’s motion to dismiss Zimmerschied’s claim for fraudulent nondisclosure.
However, as with the fraud claim the Court will provide Zimmerschied with a final
chance to amend her complaint to state a claim for fraudulent nondisclosure, because it is
possible that amendment of the complaint to cure the Rule 9(b) deficiencies will also cure
the other potential deficiencies identified by Chase.
B.
Duty to Disclose
Chase also argues that Zimmerschied’s fraudulent nondisclosure claim must be
dismissed because Zimmerschied has failed to allege any special circumstances giving
rise to a fiduciary relationship between herself and Chase, and therefore has not alleged a
duty to disclose. As explained above, a duty to disclose material facts can arise not only
in situations involving a fiduciary relationship, but also where disclosure is necessary to
make a previous statement not misleading or where one party has special knowledge of
material facts. See Richfield Bank & Trust, 244 N.W.2d at 650. Given the lack of
specificity in the pleadings, it is almost impossible to assess at this stage whether the
exceptions to the general rule that there is no duty to disclose that do not rely upon the
existence of a fiduciary duty, could apply to these facts. In other words, in the absence of
any allegations regarding what material Chase failed to disclose, the Court cannot
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determine whether disclosure of that material was required based upon a previous
statement or because Chase had special knowledge of those facts. Although it is apparent
that Zimmerschied has failed to plead the existence of special circumstances giving rise
to a fiduciary duty, only if her fraudulent nondisclosure claim is amended to bring it into
compliance with Rule 9(b) can the Court accurately assess whether a duty to disclose
existed.
Accordingly, the Court will allow Zimmerschied to amend her fraudulent
nondisclosure claim, but cautions that it must also adequately allege the existence of one
of the exceptions to the general rule that one party to a transaction owes no duty to
disclose material facts.
C.
Independent Duty Rule
The independent duty rule provides that a plaintiff cannot recover damages in tort
for an alleged breach of contract except in “exceptional cases where the defendant’s
breach of contract constitutes or is accompanied by an independent tort.” Wild v. Rarig,
234 N.W.2d 775, 789 (Minn. 1975); see also Hanks v. Hubbard Broad., Inc., 493
N.W.2d 302, 308 (Minn. Ct. App. 1992). But the mere existence of a governing contract
between the parties does not preempt or eliminate the possibility of a tort claim. AKA
Distrib. Co. v. Whirlpool Corp., 137 F.3d 1083, 1086 (8th Cir. 1998). If a tort claim is
based on a breach of duty that “is indistinguishable from the breach of contract,” the tort
claim will fail, but if “a relationship would exist which would give rise to the legal duty
without enforcement of the contract promise itself,” the tort claim is viable. Hanks, 493
N.W.2d at 308 (internal quotation marks omitted). Put differently, “[a] fraud claim
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independent of the contract is actionable, but must be based upon a misrepresentation that
was outside of or collateral to the contract.” AKA Distrib. Co., 137 F.3d at 1086; see also
Marvin Lumber & Cedar Co. v. PPG Indus., Inc., 223 F.3d 873, 887 (8th Cir. 2000)
(“[A]n independent fraudulent concealment claim will not lie where the fraudulent
concealment relates to a promisor’s duties under the contract.”).
Chase argues that the fraudulent nondisclosure claim is barred under this doctrine
because “Plaintiff’s fraudulent nondisclosure claim likewise relates solely to the . . .
Mortgage . . . – i.e., whether [Chase] ha[s] properly accepted and credited the payments
required under the . . . agreement[].” (Defs.’ Mem. in Supp. of Mot. to Dismiss at 24,
Feb. 10, 2014, Docket No. 17 (formatting omitted).) But Chase’s argument reflects a
more nuanced understanding of Zimmerschied’s claim than what is actually alleged in the
amended complaint.
The amended complaint states only that Defendants concealed
material facts from her – and says nothing about properly accepting or crediting
payments under the Mortgage. Therefore, at this stage – in the absence of compliance
with Rule 9 – it is impossible to assess whether the independent duty rule would bar
Zimmerschied’s claims, as it is unclear to what extent they relate to Chase’s duties under
the Mortgage. Accordingly, although the Court declines to dismiss on the basis of the
independent duty rule, it notes that any amendment of Zimmerschied’s fraudulent
nondisclosure claim must also establish a duty on the part of Chase to disclose certain
facts to her that is independent of its duties under the Mortgage in order to present a
viable claim.
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V.
BREACH OF CONTRACT (COUNT VIII)
To state a claim for breach of contract under Minnesota law, a “plaintiff must
show (1) formation of a contract, (2) performance by plaintiff of any conditions precedent
to his right to demand performance by the defendant, and (3) breach of the contract by
defendant.” Park Nicollet Clinic v. Hamann, 808 N.W.2d 828, 833 (Minn. 2011).
Zimmerschied’s breach of contract claim is based upon her allegation that she has
been making payments on the Mortgage “on-time since May 2007.” (Am. Compl.
¶ 146.)
Although Chase has accepted those payments into its bank account, it has
breached the terms of the Mortgage by “refus[ing] to acknowledge those payments into
[its] bank accounts and furthermore ha[s] refused to apply those payments to
Ms. Zimmerschied’s mortgage balance.” (Id.)
Chase argues that Zimmerschied’s breach of contract claim must be dismissed
because it “is implausible on its face under the Iqbal-Twombly standard.” (Defs.’ Mem.
in Supp. of Mot. to Dismiss at 25.) Specifically, Chase notes that Zimmerschied’s
allegations against it are almost identical to those originally brought against
CitiMortgage, and argues that it is implausible “that two unrelated financial institutions
made numerous, ongoing, and identical errors – over a period of more than six years –
processing and crediting her mortgage payments first from two separate checking
accounts and then from the same line of credit.” (Id. (emphasis in original).) Chase also
argues that Zimmerschied’s claim is not plausible because she alleges that she had a
$220,000 limit on her line of credit, but that Chase and CitiMortgage have collectively
withdrawn $335,641.69. (Id.) Chase explains, “[a]lthough Plaintiff does not account for
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this discrepancy, the only way that Defendants could have withdrawn that amount is if
Plaintiff actively, and aggressively, paid down the line of credit so that Defendants could
allegedly continue to withdraw funds.” (Id.)
Although the amended complaint does present an unusual set of allegations,
Rule 12(b)(6) “does not countenance dismissals based on a judge’s disbelief of a
complaint’s factual allegations.” Dahl v. Kanawha Inv. Holding Co., 161 F.R.D. 673,
682 (N.D. Iowa 1995) (citing Neitzke v. Williams, 490 U.S. 319, 327 (1989)). Here, the
Court concludes that based upon the allegations in the amended complaint, Zimmerschied
has stated a plausible claim for breach of contract.
Zimmerschied has alleged the
existence of a valid mortgage contract and has alleged that despite her prompt payment,
Chase withdrew excess money from her bank accounts and failed to apply those funds to
the Mortgage. These allegations, if true, would plausibly entitle Zimmerschied to relief.
None of Chase’s arguments render Zimmerschied’s allegations so implausible as
to warrant dismissal under Rule 12(b)(6). Although perhaps rare, it is not out of the
question that two separate loan servicers – especially when servicing mortgages on the
same property and dealing with the same borrower and the same line of credit – would
commit similar mistakes or breaches with respect to withdrawal of funds and application
of those funds to mortgage accounts.
The plausibility of Zimmerschied’s claim is
bolstered by the fact that she has documentary evidence showing that Chase at least
attempted multiple withdrawals in a single month. (Am. Compl., Ex. 2 at 22 (showing
withdrawals of $893.38 by Chase on January 5, 2010, January 13, 2010, January 15,
2010, January 21, 2010, February 1, 2010, and February 15, 2010).)
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Additionally,
although Zimmerschied’s claims about the amount of money withdrawn by Chase and
CitiMortgage would have required her to make substantial payments to TCF in order to
sustain sufficient available credit to make those withdrawals possible, there are numerous
reasons why a person might continue to pay on a line of credit, even after discovering
that her mortgage servicers were withdrawing sums in excess of her monthly payment.
For example, Zimmerschied alleges that she was unable to get TCF to stop payments to
Chase or correct the charges. Zimmerschied may well have continued to make payments
on her line of credit due to concerns about her credit score, concerns about her other
accounts at TCF, or because she hoped to be able to resolve the issue with the Mortgage
and assumed that the money she paid in to the line of credit would eventually be applied
to the mortgage payments. It is not implausible, for example, for a plaintiff to pay a bill
she knows she does not owe while at the same time contesting the validity of the bill.
Whether Chase or the Court views Zimmerschied’s continued payment as reasonable is
not a question to be resolved at the motion to dismiss stage. See Whitney v. The Guys,
Inc., 700 F.3d 1118, 1130 (8th Cir. 2012) (“We do not believe plausibility should be
measured with reference to what a particular attorney or judge deems to be subjectively
reasonable behavior.”).
It is certainly possible that discovery will reveal that
Zimmerschied was not making her payments on time, Chase did not actually withdraw
the alleged amounts, or the amounts withdrawn were actually applied to Zimmerschied’s
mortgage balance in compliance with the terms of the Mortgage. But at this stage,
accepting the allegations in the amended complaint as true, the Court concludes that
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Zimmerschied has stated a claim for breach of contract, and will therefore deny Chase’s
motion to dismiss with respect to this claim.7
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendant’s Motion to Dismiss [Docket No. 15] is
GRANTED in part and DENIED in part as follows:
1.
Defendant’s motion is GRANTED with respect to Plaintiff’s claims for
violation of Minn. Stat. § 47.59 (Count I), Minn. Stat. §§ 47.20 and 47.59 (Count II),
Minn. Stat. § 58.13 (Count III), and Minn. Stat. § 58.14 (Count IV), negligent
misrepresentation (Count VII), and unjust enrichment (Count IX). Those claims are
DISMISSED with prejudice.
2.
Defendant’s motion is GRANTED with respect to Plaintiff’s claims for
fraud (Count V) and fraudulent nondisclosure (Count VI).
Those claims are
DISMISSED without prejudice. Within twenty-one (21) days from the date of this
Order, Plaintiff may file an amended complaint with respect to these claims.
7
Because the Court concludes that Zimmerschied’s breach of contract claim, as pled,
meets the plausibility requirement of Rule 12(b)(6), it need not consider the new documents
produced by Zimmerschied in connection with her response to the present motion to dismiss. In
her response Zimmerschied argues that “[w]hile plausibility may have seemed in question at the
outset of this case, there can be no denial of [the] plausible nature of Plaintiff’s breach of
contract claim” in light of “[r]ecent developments.” (Pl.’s Mem. in Opp’n to Mot. to Dismiss at
3.) These recent developments include five exhibits filed in connection with Zimmerschied’s
responsive memo. (See Decl. of Patrick Sutton, Exs. A-E, Mar. 3, 2014, Docket Nos. 26-27.)
Even if consideration of these documents – many of which post-date the allegations in the
amended complaint – was appropriate at the motion to dismiss stage the documents all relate to
CitiMortgage, not Chase, and therefore would not alter the Court’s conclusion regarding
Zimmerschied’s breach of contract claim against Chase.
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3.
Defendants’ motion is DENIED with respect to Plaintiff’s claim for breach
of contract (Count VIII).
DATED: September 23, 2014
at Minneapolis, Minnesota.
___s/
_____
JOHN R. TUNHEIM
United States District Judge
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