Hillcrest Bank v. Cordsen et al

Filing 107

ORDER GRANTING IN PART INDIVIDUAL MOTIONS TO DISMISS re documents 25 27 43 48 68 . Counterclaim Count I is dismissed without prejudice against Rice; Counterclaim Counts XII and XIII are dismissed without prejudice against Defendants Hillc rest, Rice, Forgey, and Wheeler; Counterclaim Count XIV is dismissed without prejudice against Forgey and Wheeler only; Counterclaim Counts XVII and XVIII are dismissed without prejudice against all of the Counterclaim Defendants except Hillcrest; and all fraud allegations in Counterclaim Counts VIII, IX, X, and XI must be re-plead with particularity. Signed on 6/1/11 by District Judge Greg Kays. (Francis, Alexandra)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
HILLCREST BANK, N.A.,
Plaintiff,
v.
JACK H. CORDSEN, et al.,
Defendants,
v.
DONNA RICE, et al.,

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No. 10-00967-CV-W-DGK

Counterclaim-Defendants.
ORDER GRANTING IN PART INDIVIDUAL MOTIONS TO DISMISS
This lawsuit arises out of a series of loans Hillcrest Bank made on two construction
projects to Defendant developer Jack Cordsen and various entities controlled by him. Plaintiff
Hillcrest Bank, N.A., (“Hillcrest, N.A.”) the successor to Counterclaim Defendant Hillcrest Bank
(“Hillcrest”),1 alleges the Defendants have failed to repay the loans and make good on their loan
guarantees. Defendants have counterclaimed against Hillcrest, various bank officers, and the
board of directors alleging fraud, breach of fiduciary duty, and other financial torts.
Now before the Court are the individual Counterclaim Defendants’ motions to dismiss.
Specifically these motions are Donna Rice’s Motion to Dismiss Counterclaim (doc. 25), Jon
Forgey’s Motion to Dismiss Counterclaim (doc. 27), Jeffrey Wheeler, Thomas Dryer, Paul
Fingersh, George Lieberman, and Jerry White’s joint Motion to Dismiss Counterclaim (doc. 43),
Jack Fingersh’s Motion to Dismiss Counterclaim (doc. 48), and Scott Asner’s Motion to Dismiss
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Hillcrest Bank initiated this lawsuit on October 4, 2010. On October 22, 2010, banking regulators closed Hillcrest,
the FDIC was appointed as receiver of Hillcrest’s assets, and then the FDIC sold some of these assets to Hillcrest
Bank, N.A., which has been substituted as the Plaintiff for Hillcrest.

Counterclaims (doc. 68).2 Defendants argue3 that various counterclaims against them should be
dismissed or repled with particularity. Finding that various counts in the Counterclaim fail to
state a claim or do not plead fraud with sufficient particularity, the motions are GRANTED IN
PART.
Standard of Review
A complaint “must contain . . . a short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a). To avoid dismissal, a complaint must include
“enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (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.”

Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).

“While a

complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires
more than labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do.” Benton v. Merrill Lynch & Co., Inc., 524 F.3d 866, 870 (8th Cir. 2008). In
reviewing a motion to dismiss, the court assumes the facts alleged in the complaint are true and
draws all reasonable inferences from those facts in the plaintiff’s favor. Monson v. Drug
Enforcement Admin., 589 F.3d 952, 961 (8th Cir. 2009).
Rule 9(b) requires that allegations of fraud be pled with particularity. In practice, this
typically requires the party alleging fraud “to identify the ‘who, what, where, when, and how’ of
2

Plaintiff Hillcrest Bank, N.A., the successor to Hillcrest Bank, has filed a motion to dismiss (doc. 61) which the
Court considers in a separate order.
3
At the time the various motions to dismiss were filed, the individual Counterclaim Defendants were represented by
different counsel. They are now all represented by the firm of Lewis, Rice & Fingersh, L.C., which filed a single
reply brief on behalf of all the remaining individual Counterclaim Defendants. Hillcrest continues to be represented
by Stinson Morrison Hecker. Counterclaim Defendant Adam LaBoda was dismissed from the lawsuit on March 14,
2011, and Counterclaim Defendant Irwin Blitt was never served in this case and formally dismissed from the
litigation on May 23, 2011. The Court will not address the claims brought against them.

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the alleged fraud.” BJC Health System v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007)
(quoting United States ex rel. Costner v. URS Consultants, Inc., 317 F.3d 883, 888 (8th Cir.
2003)).
Discussion
A.

Count I is dismissed against Rice.
Count I of the Counterclaim is a breach of contract claim brought against Hillcrest and

Rice. It alleges that Hillcrest entered into agreements with Defendant Winterberry, but does not
allege that Rice entered into any contracts with Winterberry or the other Defendants. Rice
contends this is fatal to the counterclaim, because the existence of a contract between the parties
is an element of a breach of contract claim. Defendants argue that a person can be liable for
breaching a contract even when they are not privy to the contract under a civil conspiracy theory,
which is alleged in Count XVII.
The existence of a contract between the parties is an element of a breach of contract
claim. Lafarge N. Am. v. Discovery Group L.L.C., 574 F.3d 973, 979 (8th Cir. 2009) (citing
Evans v. Werle, 31 S.W.3d 489, 493 (Mo. App. W.D. 2000)). The Counterclaim fails to allege
this element against Rice, thus it fails to state a claim. Although conspiracy to breach a contract
can be a plausible civil conspiracy claim under Missouri law, Envirotech, Inc. v. Thomas, 359
S.W.3d 577, 587 (Mo. Ct. App. 2008), to properly plead such a claim a litigant must plead both
the civil conspiracy and the underlying unlawful act.

Id.

Count I says nothing about a

conspiracy, and even if the Court looked beyond Count I to Count XVII for the conspiracy
allegation, Count XVII does not make any detailed allegations about Rice’s role in any alleged
conspiracy to breach the Winterberry/Hillcrest agreement. Accordingly, Count I is dismissed
without prejudice with respect to Rice.

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B.

The fraud allegations in Count VIII should be re-pled with particularity.
1.

The allegations against Rice as a corporate officer are sufficient to survive a

motion to dismiss.
Counterclaim Count VIII alleges fraudulent inducement against Rice and Hillcrest. An
element of such a claim is a misrepresentation by the defendant. Rice alleges that this count
should be dismissed against her because it fails to allege that she performed any act or omission,
only that Hillcrest through her performed certain acts, and that she cannot be subject to personal
liability for any misdeeds by the corporation.
Under Missouri law, “corporate officers may be held individually liable for the tortious
corporate conduct if they have actual or constructive knowledge of, and participated in, an
actionable wrong.” Zipper v. Health Midwest, 978 S.W.2d 398 (Mo. Ct. App. 1998). Assuming
as the Court must that the factual allegations in the Complaint are true and giving Defendants the
benefit of all reasonable inferences, the Court holds Rice had actual knowledge of false
statements that she herself, acting as an officer of the bank, made to Cordsen. These are
statements such as, “Jack, the bank doesn’t want your house,” when Rice had full knowledge of
Hillcrest’s true intent, which allegedly was to effectively terminate Cordsen’s loans with
Hillcrest by intentionally underfunding the development of Winterberry’s infrastructure,
inducing Cordsen to sign over his homes as additional collateral, misapplying proceeds from the
sale of the Lake Home, and foreclosing on different properties. This is sufficient to survive a
12(b)(6) motion to dismiss.
2.

The fraud allegations are not pled with particularity.

Rice also alleges that this count fails to allege fraud with particularity. Although the
Counterclaim occasionally alleges who said what, it fails to sufficiently allege the where, when,

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and how of the alleged fraud. For example, although paragraph 76 alleges that Rice told
Cordsen, “Jack, the bank doesn’t want your house,” and that Rice asked Cordsen to “help us out”
because Hillcrest was having problems with an Arizona golf course development, it does not
allege where or when this conversation took place, or supply any other relevant details. Other
paragraphs in the Counterclaim fail to supply even this much information. Paragraphs 63 and 64
generically allege that “Hillcrest, through Rice, unabashedly told Cordsen that Hillcrest believed
it had a fiduciary relationship with Cordsen as one of the bank’s key customers and as part of the
bank’s Ethics Policy,” and that “Hillcrest continued to affirm this special relationship with
Cordsen from 2004 to 2009.” But they do not supply the what, where, when, or how. This is not
pleading with particularity.
Accordingly, Defendant shall file an amended counterclaim Count VIII setting forth all
fraud allegations with particularity.
3.

The alleged misrepresentations are sufficient to support an inducement claim

at this stage in the litigation.
Rice also argues that the purported misrepresentations she allegedly made to Cordsen
cannot support a claim for fraudulent inducement, because the statements relate only to
predictions of future events. Although there is an exception to this rule concerning promises to
take future action with the present intent not to perform, see Trotter’s Corp. v. Ringleader Rest.,
Inc., 929 S.W.2d 935, 940 (Mo. Ct. App. 1996) (noting exception), Rice contends this exception
does not apply here.
There is no merit to this argument. The Counterclaim sufficiently alleges that Hillcrest
and Rice made these representations with the requisite present intent not to perform that the

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statements fall under the exception. That said, the allegations are still not pled with sufficient
particularity.
4.

Whether reliance on any misrepresentation was justifiable will be

determined at the summary judgment stage of the litigation.
Finally, Rice alleges that any misrepresentation by her cannot be actionable as a matter of
law because a misrepresentation claim requires justifiable reliance by the claimant. Lafarge N.
Am., Inc. v. Discovery Group L.L.C., 574 F.3d 973, 981 (8th Cir. 2009). Rice contends that
because the loan documents signed by Defendants expressly state that they contain all of the
agreements between the parties and can only be amended in writing, this precludes a finding that
Defendants justifiably relied on any misrepresentations. Defendants argue that the provision in
Missouri’s Credit Agreement Statute of Frauds restricting a debtor from maintaining an action
against a creditor based on that creditor’s oral representations contains an exception to prevent
fraud or gross injustice, and that this exception applies here. Rice does not address this argument
in her reply.
The Court holds that whether any misrepresentation by Rice can be actionable in light of
the express terms of the loan agreements is a question that should be answered at the summary
judgment stage of the litigation.
C.

Count IX should be re-plead with particularity.
Count IX alleges fraud against Hillcrest, Rice, Jon Forgey, and Jeffrey Wheeler. The

claim incorporates by reference the other fraud allegations in the Counterclaim. Rice, Forgey
and Wheeler argue that these allegations are not pled with the requisite particularity.

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Given that these allegations incorporate the previous fraud allegations which were
insufficient, the Court holds the fraud allegations in Count IX are also insufficient. Defendant
shall file an amended counterclaim setting forth all fraud allegations with particularity.
D.

Count X should be re-pled with particularity.
Count X alleges fraudulent nondisclosure against Hillcrest, Hillcrest’s Directors (Scott

Asner, Thomas Dreyer, Jack Fingersh, Paul Fingersh, George Lieberman, Jerry White, and
Jeffrey Wheeler),4 and Rice.5

Fraudulent nondisclosure is very similar to fraudulent

misrepresentation, except that it substitutes silence for overt misrepresentation and alleges that
the defendant had a duty to speak.
1.

Count X successfully pleads fraudulent nondisclosure against Rice, but not

against the other individual Counterclaim Defendants.
Rice first argues this claim must fail against her because there was no legal duty for her
to speak. Under Missouri law a duty to speak arises “(1) where there is a fiduciary relationship
between the parties or a relationship of confidence; (2) where there is an inequality of condition
between the parties; and (3) where one party has superior knowledge not within the fair and
reasonable reach of the other party.” Slater v. KFC Corp., 621 F.2d 932, 936 (8th Cir. 1980).
The Court finds the Counterclaim alleges, albeit not with particularity, facts that satisfy all of
these conditions with respect to Rice. With respect to the Directors, the Court finds this count
fails to make a single non-cursory factual allegation against them, thus it fails to state a claim and
is dismissed without prejudice with respect to them.

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There is some discrepancy in the parties’ filings concerning how the individual Counterclaim Defendants’ were
employed by Hillcrest. As best the Court can determine remaining Defendants Scott Asner, Thomas Dreyer, Jack
Fingersh, Paul Fingersh, George Lieberman, Jerry White, and Jeffrey Wheeler were all members of Hillcrest’s board
of directors.
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The allegations in the body of Count X name Rice, and the prayer for relief seeks recovery from Rice, but the
caption does not name her. This appears to be a clerical error and she is named in this count.

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2.

The fraud allegations should be re-pled with particularity.

Because these allegations incorporate the previous ones which were pled with insufficient
particularity, they do not comply with Rule 9(b). Defendant shall file an amended counterclaim
setting forth all fraud allegations with particularity.
E.

Count XI should be re-pled with particularity and clarify whether it is stating a

claim for relief against Rice and Forgey.
The caption for Count XI asserts a claim for negligent misrepresentation against
Hillcrest, Rice, Forgey, and Wheeler. With respect to the claims against Forgey and Wheeler,
the Court finds that this count fails to make a single non-cursory factual allegation against them,
thus it should be dismissed without prejudice against them for failure to state a claim.
Additionally, the Court notes that although the caption and the body of the allegation
states that it is brought against Rice and Forgey, the prayer for relief does not explicitly seek any
relief from either of them. Because the text of Rule 8(a)(3) provides that, “A pleading . . . must
contain . . . (3) a demand for the relief sought, which may include relief in the alternative or
different types of relief,” Defendants must re-pled this count to make clear whether relief against
Rice is sought, and if so, what relief. If Defendants seek to re-file this claim against Forgey, they
must make clear what relief they seek against him.
Additionally, because these allegations incorporate previous ones which were pled with
insufficient particularity, they do not comply with Rule 9(b). Defendant shall file an amended
counterclaim setting forth all fraud allegations with particularity.
F.

Count XII and XIII are dismissed without prejudice.
Count XII asserts a claim for a breach of good faith and fair dealing, and Count XIII

asserts a claim for the tort of breach of good faith and fair dealing, a tort which is independent of

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Chapter 400 of Missouri’s statutory code (the Uniform Commercial Code). Killion v. Bank
Midwest, N.A., 987 S.W.2d 801, 813 (Mo. Ct. App. 1998). Both claims are brought against
Hillcrest, Rice, Forgey, and Wheeler.
They move to dismiss Count XII on the grounds that there was no contractual
relationship between them and Defendants. Defendants contend the contractual liability was
created when they allegedly participated in the civil conspiracy with Hillcrest to violate the loan
agreement. In dismissing Count I against Rice the Court has already held that the Counterclaim
fails to allege the existence of any contractual relationship between Rice and Defendants, thus
Count XII should be also dismissed without prejudice against Rice. The Court now also finds
that the Counterclaim fails to allege any contract between the Defendants and Forgey and
Wheeler, thus Count XII should be dismissed without prejudice against Forgey and Wheeler as
well.
With respect to Count XIII, the Court notes Missouri recognizes the tort of breach of
good faith and fair dealing only where there is a contract between the parties and “the contract
places the contractors in a special relationship or status which the law protects.” Killion v. Bank
Midwest, N.A., 987 S.W.2d 801, 813 (Mo. Ct. App. 1998). Because Defendants have failed to
allege the existence of any contractual relationship between themselves and the individual
Counterclaim Defendants, this claim must also dismissed without prejudice against them.
G.

Count XIV fails to state a claim against Forgey and Wheeler.
Count XIV alleges that Hillcrest, Rice, Forgey, and Wheeler established a fiduciary

relationship with Defendants by telling Cordsen that Hillcrest was a bank in which he could
place his trust and confidence. Rice, Forgey, and Wheeler allege that as a matter of law this is
insufficient to establish a fiduciary relationship giving rise to a fiduciary duty on their part.

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A bank does not have a fiduciary relationship with its customers “‘unless special
circumstances exist, such as where the bank knows or has reason to know that the customer is
placing his trust and confidence in the bank and is relying on the bank so to counsel and inform
him.’” Pigg v. Robertson, 549 S.W.2d 597, 600 (Mo. Ct. App. 1977) (quoting Klein v. First
Edina Nat’l Bank, 196 N.W.2d 619, 623 (Minn. 1972). Defendants allege that because of the
statements Rice, Forgey, and Wheeler allegedly made to Cordsen, they knew, or had reason to
know, that Defendants were placing their trust in the them and were relying on them to inform
them. Given the factual allegations made elsewhere in the Complaint and incorporated in this
count, the Court holds the allegations against Rice are sufficient to survive a 12(b)(6) motion to
dismiss, but do not state a plausible claim for relief against Forgey and Wheeler. Consequently,
Count XIV is dismissed without prejudice against Forgey and Wheeler only.
H.

The motion is denied with respect to Count XVI.
Count XVI alleges that Hillcrest and the Directors negligently failed to supervise Rice,

Forgey, and Wheeler. The Directors argue this claim should be dismissed because (1) they may
only be held liable for failure to control an employee who is acting outside the scope of the
employee’s employment, and the allegations throughout the Counterclaim are that the employees
were always acting within the scope of their employment; (2) under Missouri law only an
employer, not an individual board member, may be liable for failure to supervise; and (3) this
count fails to allege facts which would allow the Court to infer that the directors had knowledge
of, or participated in, any underlying tort. With respect to the first two arguments, the Directors
have failed to supply the Court with any convincing authority supporting their position. The sole
citation supplied by the Directors, Gibson v. Brewer, 952 S.W.2d 239, 247 (Mo. 1997), is not
particularly analogous or on point, and so the Directors have not carried their burden. With

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respect to the third argument, the Court finds the Counterclaim alleges facts from which one
could infer that the Directors negligently failed to supervise Rice, Forgey, and Wheeler.
The motion is denied with respect to Count XVI.
I.

Count XVII is dismissed for failure to state a claim because the allegations are

insufficiently specific and the cannot be brought against employees.
Count XVII alleges that all of the Counterclaim Defendants engaged in a civil conspiracy
against Defendants “with an object to be accomplished to among other things commit fraud,
negligent misrepresentation, negligently and maliciously breaching [sic] agreements with
Defendants, breaching [sic] fiduciary duties to the Defendants, and failing to supervise
employees and agents of Hillcrest among other things.”

The individual Counterclaim

Defendants argue this claim should be dismissed against them because (1) it fails to allege
specific facts; (2) is inapplicable to them because they are all agents, and a principal cannot
conspire with its own agent; and (3) fails to plausibly allege any underlying tort.
A civil conspiracy claim under Missouri law must allege that two or more persons with
an unlawful objective after a meeting of the minds committed at least one act in furtherance of
the conspiracy, and that the plaintiff was thereby injured.

Moses.com Securities, Inc. v.

Comprehensive Software Sys., Inc., 406 F.3d 1052, 1063 (8th Cir. 2005). While detailed facts
are not required, facts are required. See id. The allegations in Count XVII are little more than a
formulaic recitation of the elements, thus they do not state a claim to relief that is plausible on its
face.
Even if this claim was pled with the requisite specificity though, it would still fail against
the individual Counterclaim Defendants. As a matter of law, a principal cannot conspire with its
own agent, Wiles v. Capitol Indem. Corp., 280 F.3d 868, 871 (8th Cir. 2002), thus an employer

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cannot conspire with an employee. While there is an exception to this rule “if the agent acts out
of a self-interest which goes beyond the agency relationship,” Macke Laundry Serv. Ltd. P’ship
v. Jetz Serv. Co., Inc., 931 S.W.2d 166, 176 (Mo. Ct. App. 1996), there is no allegation here that
the individual Counterclaim Defendants were acting out of any self-interest beyond their
employment relationship with Hillcrest Bank. Accordingly, Count XVII is dismissed without
prejudice against the individual Counterclaim Defendants.
G.

Count XVIII is dismissed for failure to state a claim.
Defendants’ final counterclaim, Count XVIII, asserts a claim for prima facie tort against

all the Counterclaim Defendants. As the Eighth Circuit Court of Appeals has noted, “[a] claim
alleging a prima facie tort is disfavored under Missouri law, particularly when a party has
another remedy or other potentially submissible tort claims available.” Tamko Roofing Prods.,
Inc. v. Smith Eng’g Co., 450 F.3d 822, 830 (8th Cir. 2006) (quotation omitted). In fact, no
plaintiff’s verdict has ever been affirmed in Missouri on this tort. Riley v. Riley, 847 S.W.2d 86,
87 (Mo. Ct. App. 1992). It is a limited theory of recovery whose elements are (1) an intentional
unlawful act by a defendant; (2) defendant’s intent to injure the plaintiff; (3) injury to the
plaintiff; and (4) absence of or insufficient justification for defendant’s act. Tamko Roofing at
831.
The Court holds Count XVIII fail to establish two elements. First, it fails to establish the
first element that the individual Counterclaim Defendants engaged in an intentional lawful act,
rather it incorporates allegations from the preceding counts to allege that the Counterclaim
Defendants engaged in a series of unlawful actions for which they should be liable. Obviously,
these unlawful acts alleged in the preceding counts do not establish a lawful act that satisfies the
first element.

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There is also no plausible allegation of the fourth element, lack of justification. Although
the Counterclaim generically alleges “[t]here was no justification, or any purported by the
Conspiring Parties, was insufficient justification for their actions,” this does not allege a prima
facie case. Holdings in analogous cases establish that neither refusal to loan more funds, nor
foreclosure are enough to evidence the requisite intent to injury, Shaughnessy v. Mark Twain
State Bank, 715 S.W.2d 944, 948-49 (Mo. Ct. App. 1986), and that a bank’s demand for
additional collateral and refusal to renew loan with knowledge that borrower would be reduced
to bankruptcy cannot establish a viable prima facie tort claim. Rigby Corp. v. Boatman’s Bank &
Trust Co., 713 S.W.2d 517, 545 (Mo. Ct. App. 1986). Consequently the acts Defendants
complain about here are insufficient to state a claim. Consequently, Count XVIII is dismissed
without prejudice against all of the individual Counterclaim Defendants.
Conclusion
For the reasons outlined above the various motions to dismiss are GRANTED IN PART.
Counterclaim Count I is dismissed without prejudice against Rice; Counterclaim Counts XII and
XIII are dismissed without prejudice against Defendants Hillcrest, Rice, Forgey, and Wheeler;
Counterclaim Count XIV is dismissed without prejudice against Forgey and Wheeler only;
Counterclaim Counts XVII and XVIII are dismissed without prejudice against all of the
Counterclaim Defendants except Hillcrest; and all fraud allegations in Counterclaim Counts VIII,
IX, X, and XI must be re-plead with particularity.
IT IS SO ORDERED.
Date: June 1, 2011

/s/ Greg Kays
GREG KAYS, JUDGE
UNITED STATES DISTRICT COURT

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