Krohne Fund v. Simonsen et al

Filing 152

ORDER GRANTING 136 Motion for Summary Judgment. Simonsen is entitled to judgment on Plaintiff's claims of fraud, constructivefraud, and negligent misrepresentation. Signed by Judge Sam E Haddon on 7/20/2017. (AMC)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA

FILED

BILLINGS DIVISION

JUL 2 0 2017
Clerk, U.S. District Court
District Of Montana
Helena

KROHNE FUND, LP,
Plaintiff,

No. CV-12-04-BLG-SEH
vs.
ORDER
STUART M. SIMONSEN, and
KAPIDYIA CAPITAL PARTNERS,
LLC,
Defendants.
Background

The Final Pretrial Order filed on December 13, 2013, describes this action
as "a contract, fraud and misrepresentation case that arises out of a relationship
between Plaintiff and Defendants that involved trading commodity securities in a
trading system, Xynaquant, developed by Defendant Simonsen and made available
to public clients through Defendant Kapidyia." 1 Pending before the Court is
Defendant Simonsen's Motion for Summary Judgment. 2

1

Doc. 69 at 2.

2

Doc. 136.

A bench trial was commenced on June 30, 2014. On July 14, 2014, the
Court issued its Findings of Fact and Conclusions of Law and Judgment that
Defendants were "entitled to dismissal of all claims." 3 Plaintiff appealed; 4
Defendants cross-appealed. 5 On March 9, 2017, the United States Court of
Appeals for the Ninth Circuit vacated in part and affirmed in part this Court's
decision and remanded for further proceedings. 6 Mandate issued March 31, 2017. 7
The Ninth Circuit concluded, in part, "the MAA [Managed Account
Agreement] requires that the trades made by the Investment Manager be made
exclusively through the XynaQuant software using the Optimus SLR protocol
unless Krohne Fund agreed otherwise." 8 The remand directed this Court, inter
alia, "to assess Krohne Fund's breach of contract claim in light of [the Ninth

Circuit's] contractual interpretation, including whether Krohne Fund authorized
the manual trades that occurred on its account." 9 Judgment for Defendants on the

3

Doc. IOI at 14.

4

Doc.105.

5

Doc. 113.

6

Doc. 121.

7

Doc.123.

'Doc.121 at4.
9

Doc. 121 at 5.
2

negligent misrepresentation, fraud, and constructive fraud claims "arising from
Simonsen or Kapidyia's alleged material omissions" was vacated and remanded
for further proceedings in light of the Ninth Circuit's contractual interpretation
conclusion. 10
A status conference to consider disposition of issues on remand and to set a
revised pretrial schedule was conducted on April 25, 2017. An Order establishing
a briefing schedule for a dispositive summary judgment motion by Defendant
Simonsen was entered. 11 Briefing followed. A hearing on the motion was held on
July 19, 2017. The matter is ripe for resolution.
Claims Against Defendant Simonsen

The Ninth Circuit's Memorandum refers to the claims for negligent
misrepresentation, fraud, and constructive fraud collectively as "deceit claims." 12
The parties also refer broadly to "deceit claims" in briefing the summary judgment
issue. 13 Deceit, however, was not among the claims pleaded in the First Amended
Complaint or addressed as an issue for trial in the Final Pretrial Order. 14
10

Doc. 121 at 5.

11

Doc. 131.

12

Doc. 121 at 5.

13

See Docs. 137 at 2, 141at2.

14

See Docs. 6, 69; the Final Pretrial Order supersedes the pleadings.

3

While "[ d]eceit is essentially grounded in fraud," it can be an independent
claim brought under Mont. Code Ann.§ 27-1-712 and is often asserted in addition
to a claim for fraud. 15 "Under Montana law, deceit may be proven if ' [o]ne ...
willfully deceives another with [the] intent to induce that person to alter the
person's position to [his] injury or risk.'" 16 Deceit may also refer to the mental
state requirement central to a claim for fraud. 17 On the other hand, deceit is
irrelevant as an element of a claim for negligent misrepresentation, which
"requires a showing of a failure to use reasonable care or competence in obtaining
or communicating ... information." 18
As set forth in the Final Pretrial Order, the only remaining claims against
Simonsen are: (1) Count IV, Fraud and Constructive Fraud; and (2) Count V,
Negligent Misrepresentation. 19 No separate claim for deceit was asserted. The

15

Pfau v. Mortenson, 858 F. Supp. 2d 1150, 1158 (D. Mont. 2012); see also Mont.
Merch., Inc. v. Dave's Killer Bread, Inc., CV 17-26-GF-BMM, 2017 WL 2536363, at *2-3 (D.
Mont. June 9, 2017).
16

Pfau, 858 F. Supp. 2d at 1158 (quoting Mont. Code Ann.§ 27-1-712).

17

See 37 C.J.S. Fraud§ 4 (2017) (stating "[a]ctual fraud implies deceit, artifice, and
design, and imports the active operation of the mind[.]")
18

Barrett v. Holland & Hart, 845 P.2d 714, 717 (Mont. 1992)(citing Batten v. Watts
Cycle and Marine, Inc., 783 P.2d 378, 381 (Mont. 1989)).
19

See Doc. 69.

4

remaining breach of contract claim upon remand was asserted only against
Kapidyia, not against Simonsen. 20
Montana law establishing elements of claims for fraud, constructive fraud,
and negligent misrepresentation is well-defined. In this case, all such claims are
subject to dismissal.
To establish a primafacie claim for actual fraud, the pleader must show:
(I) a representation; (2) the falsity of that representation;
(3) the materiality of the representation; (4) the speaker's
knowledge of the representation's falsity or ignorance of
its truth; (5) the speaker's intent that the representation
should be acted upon by the person and in the manner
reasonably contemplated; (6) the hearer's ignorance of
the representation's falsity; (7) the hearer's reliance upon
the truth of the representation; (8) the hearer's right to
rely upon the representation; and (9) the hearer's
consequent and proximate injury or damages caused by
their reliance on the representation. 21

A claim for constructive fraud under Mont. Code Ann. § 28-2-406 requires
elements similar to prima facie claims of actual fraud, except that "plaintiff 'need

20

See Doc. 6 at 9.

21

Town a/Geraldine v. Mont. Mun. Ins. Auth., 198 P.3d 796, 801(Mont.2008) (quoting
Jn re Estate of Kindsfather, I 08 P.3d 487, 490 (Mont. 2005)).
5

not prove the fifth element relating to intent to deceive or dishonesty of
purpose. "'22
Proof of negligent misrepresentation requires:
a) the defendant made a representation as to a past or
existing material fact;
b) the representation must have been untrue;
c) regardless of its actual belief, the defendant must have
made the representations without any reasonable ground
for believing it to be true;
d) the representation must have been made with the
intent to induce the plaintiff to rely on it;
e) the plaintiff must have been unaware of the falsity of
the representation; it must have acted in reliance upon
the truth of the representation and it must have been
justified in relying upon the representation;
f) the plaintiff, as a result of its reliance, must sustain

damage. 23
The fraud, constructive fraud, and negligent misrepresentation claims as
asserted against Simonsen all fail for lack of any actionable act or omission by
Simonsen. No evidence supports the assertion that Simonsen, who was not a party

22

Id. at 801 (quoting State ex rel. State Campen. Mut. Ins. Fund v. Berg, 927 P .2d 975,
983 (Mont. 1996)).
23

Morrow v. Bank ofAm., NA., 324 P.3d 1167, 1180 (Mont. 2014) (quoting Kitchen
Kraflers v. Eastside Bank, 789 P.2d 567, 573 (Mont. 1990), overruled in part, Busta v. Columbus
Hosp., 916 P.2d 122, 139 (Mont. 1996)).
6

to the MAA, affirmatively represented that trades would be made exclusively
through the XynaQuant software. Moreover, there is no actionable omission
arising from Simonsen's failure to inform Plaintiff that his account would be
subject to trading outside the Optimus SLR protocol. Evidence substantiating
Simonsen's obligation to disclose such information is entirely lacking. 24
Corporate Shield Doctrine

Plaintiff's claims against Simonsen for fraud, constructive fraud, and
negligent misrepresentation also are barred by the Montana corporate shield
doctrine. That doctrine, if applied, shields employees and agents of a corporation
"from personal liability for acts taken on behalf of the corporation." 25 Personal
liability is the narrow exception to this general rule. 26 "Actions that are 'motivated
and taken in the furtherance of corporate purposes, policies and interests' are

24

Defendant Simonsen asserts, inter alia, that "[t]here is no evidence showing that
Krohne ever asked Simonsen directly whether Krohne Fund's account was being traded manually
when it should have been trading algorithmically" (Doc. 138 at if 2). Paragraphs 3, 6, 8, and 9 of
Simonsen's Statement of Undisputed Facts (Doc. 138) substantiate that conclusion. Plaintiffs
dispute, without support, of paragraph 2 in Plaintiff's Statement of Disputed Facts (Doc. 142) is
insufficient to raise a genuine issue of material fact. See Nissan Fire & Marine Ins. Co. v. Fritz
Cos., 210 F.3d 1099, 1102-03 (9th Cir. 2000); see also Fed. R. Civ. P. 56(e).
25

Sherner v. Nat'! Loss Control Servs. Corp., 124 P.3d 150, 155 (Mont. 2005) (citing
Phillips v. Mont. Educ. Ass'n, 610 P.2d 154, 157-58 (Mont. 1980)).
26

Id (quoting Crystal Springs Trout Co. v. First State Bank ofFroid, 732 P .2d 819, 823
(Mont. 1987)).
7

usually protected by the corporate shield doctrine." 27 A corporate agent is
personally liable only if the court finds "'the agent was personally negligent'" or
"'the agent's actions were tortious in nature.'" 28
The relationship between Simonsen and Kapidyia Capital Partners, an
LLC, 29 is described as:
Through an employment or other business
relationship, Simonsen markets his black box and
manages futures trading investments through it via
Kapidyia. 30
The Court's undisputed record at trial established: "Business activities ofKapidya
were conducted by Simonsen, JoAnne Beringer ... and Anthony Birbilis." 31 The

27

Nelson v. Hartford Ins. Co. of the Midwest, No. CV 11-162-M-DWM, 2012 WL
933214, at *3 (D. Mont. March 20, 2012) (quoting Phillips, 610 P.2d at 158).
28

Sherner, 124 P.3d at 155 (quoting Crystal Springs Trout Co., 732 P.2d at 823); see also
Mont. Code Ann. § 28-10-702: "A person who assumes to act as an agent is responsible to third
persons as a principal for acts in the course of the agency ... : (3) when the agent's acts are
wrongful in their nature."
29

See Doc. 6 at 2. The Montana Supreme Court has recognized that "LLCs provide their
members and managers with 'a corporate-styled liability shield ... .' White, if 34 (citing§ 35-8-101,
MCA, Official Comments). However, this liability shield is not absolute and does not provide
immunity to a member for his own wrongful conduct." Weaver v. Tri-County Implement, Inc.,
311 P.3d 808, 811 (Mont. 2013) (quoting White v. Longley, 244 P.3d 753, 760-61 (Mont. 2010)).
30

Doc. 6 at 3.

31

Doc. 101 at 3.
8

Ninth Circuit similarly concluded: "Kapidyia Capital Partners, LLC ... marketed
XynaQuant. " 32
The remaining claims against Simonsen are premised solely on Simonsen's
conduct as the developer of the XynaQuant software and Optimus SLR protocol.
That technology was central to Plaintiff's investment account which was managed
by Kapidyia under the terms of the MAA.
The fraud, constructive fraud, and negligent misrepresentation claims all
arise from asserted "specific representations about Optimus, including that
Krohne's account would be traded only on its existing instructions and about its
past results for investors." 33 However, any representation made by Simonsen
would have been within the scope of his agency or employment relationship with
Kapidyia as the entity marketing the Optimus technology and designated as the
Investment Manager34 for Plaintiffs account and for a corporate purpose. The
record is void of evidence or argument that Simonsen was personally negligent or
otherwise acted tortiously.

32

Doc. 121at2.

33

Doc. 6 at 10-11; see also Doc. 6 at 12.

34

SeeDoc. 1-1 at2.
9

Conclusion

Simonsen is entitled to judgment on Plaintiff's claims of fraud, constructive
fraud, and negligent misrepresentation.
ORDERED:
Stuart M. Simons~ Motion for Summary Judgment35 is GRANTED.
DATED this

_Ji[;f;;, of July, 2017.

United States District Judge

35

Doc. 136.
10