Doral Money, Inc. v. HNC Properties, LLC
Filing
29
Opinion and Order: The Court GRANTS Plaintiffs Motion 15 to Dismiss Counterclaims and DENIES as moot Plaintiffs Request 21 for Judicial Notice. The Court, however, GRANTS Defendant leave to amend its Answer no later than August 13, 2014, to cure the deficiencies set out in this Opinion and Order. Signed on 07/10/2014 by Judge Anna J. Brown. See attached 24 page Opinion and Order for full text. (bb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
DORAL MONEY, INC., d/b/a
DORAL HEALTHCARE FINANCE, a
Delaware corporation,
Plaintiff,
v.
HNC PROPERTIES, LLC, a
Minnesota limited liability
company,
Defendant.
ANNA M. HELTON
DAVID ARDEN ANDERSON
Schwabe Williamson & Wyatt, PC
1211 S.W. Fifth Avenue, Ste. 1800
Portland, OR 97204
(503) 796-3763
Attorneys for Plaintiff
LESLIE S. JOHNSON
CHRISTOPHER H. KENT
Kent & Johnson, LLP
1500 S.W. Taylor Street
Portland, OR 97205
(503) 220-0717
1 - OPINION AND ORDER
3:14-CV-00545-BR
OPINION AND ORDER
TREVOR R. WALSTEN
DANIELLE K. NELLIS
Walsten & Te Slaa, P.A.
7900 Xerxes Avenue South, Suite 2000
Bloomington, MN 55431
(952) 896-5100
Attorneys for Defendant
BROWN, Judge.
This matter comes before the Court on Plaintiff’s Motion
(#15) to Dismiss Counterclaims and Plaintiff’s Request (#21) for
Judicial Notice.
For the reasons that follow, the Court GRANTS
Plaintiff’s Motion to Dismiss Counterclaims and DENIES
Plaintiff’s Request for Judicial Notice.
BACKGROUND
The following facts are taken from Plaintiff’s Complaint and
Defendant’s Answer:
On April 30, 2012, Plaintiff Doral Money, Inc., entered into
a Loan and Security Agreement with Crystal Care Home Health
Services, Inc.; Crystal Care PCA, Inc.; and Premier Healthcare
Services, Inc. (referred to collectively as Borrowers).1
Under
the Loan and Security Agreement Plaintiff provided Borrowers with
1
Plaintiff alleges Defendant HNC Properties, LLC,
majority interest in Borrowers and is also the landlord
one or more of the entities that comprise Borrower[s].
landlord, [Defendant] collects rent . . . on at least a
basis.” Compl. at ¶ 3.
2 - OPINION AND ORDER
owns a
“for any
As a
monthly
“certain credit facilities . . . in the amount of $2,500,000.”
Compl. at ¶ 1; Answer at ¶ 59.
Pursuant to the Loan Plaintiff
agreed to extend to Borrowers a revolving line of credit up to
2,500,000
provided, among other things, [that] Borrower[s
were] in compliance with the terms of the Loan
Agreement, including . . . maintaining a specified
net worth as calculated in accordance with the
Loan Agreement (the “Net Worth Covenant”), and
maintaining [their] “borrowing base,” as
calculated in accordance with the Loan Agreement
(the “Borrowing Base”), such that the aggregate
outstanding principal balance under the Loan
agreement [sic] would not exceed the Borrowing
Base.
Answer at ¶ 59.
Also on April 30, 2012, Plaintiff, Defendant, and Borrowers
executed a Landlord Subordination Agreement in which Defendant
agreed, among other things, that if Borrowers defaulted on the
Loan Agreement, Defendant would “(a) subordinate [Defendant’s]
right to payments from Borrower[s] to [Plaintiff’s] right to
payments under the Loan Agreement; (b) hold in trust all payments
received from Borrower[s]; and (3) [sic] promptly pay to
[Plaintiff] any payments received from Borrower[s].”
Compl. at
¶ 6.
“During the term of the Loan agreement” Plaintiff hired
Breslin, Young and Slaughter, LLC (BY&S) to perform
certain auditing and accounting services,
including, but not limited to, asset based
examination and accounting functions, auditing
Borrower[s’] financial reports and statements,
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auditing Borrower[s’] assets, accounts receivable
and equipment, advising Borrower[s] concerning
financial, management and accounting issues to
assist [Plaintiff] in making evaluations and
decisions regarding the Loan Agreement, and
providing other related services (collectively the
“Debt/Equity Evaluation”).
Answer at ¶ 61.
On May 2, 2013, Defendant entered into a Promissory Note
(Loan 4A) with Borrowers to lend them the funds “necessary to
cure monetary defaults in the Loan Agreement.”
Answer at ¶ 63.
Defendant alleges in its Answer that it entered into the
Promissory Note “in reliance on” the Debt/Equity Evaluation
conducted by BY&S.
According to Plaintiff, Borrowers have been in breach of the
Loan Agreement since August 2013 “for a multitude of reasons,
including . . . failure to pay [Plaintiff] amounts owed when
due.”
Compl. at ¶ 8.
Plaintiff alleges Borrowers have made rent
payments to Defendant “since August 2013.”
In its Answer,
however, Defendant denies Borrowers made any rent payments to
Defendant after February 2014.
On September 11, 2013, Defendant made a loan (Loan 5) to
Borrowers in the amount of $30,000 “in reliance on [the]
Debt/Equity Evaluation” to provide Borrowers with the funds
“necessary to file for reorganization under the United States
Bankruptcy Code.”
Answer at ¶ 64.
According to Defendant, Borrowers at some point allowed
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Plaintiff to liquidate some of Borrowers’ assets, including
accounts receivable, “to maximize the return to [Plaintiff] on
the assets that supported the Loan Agreement.”
Answer at ¶ 81.
“In the process of liquidating the purported accounts receivable,
Plaintiff realized that the accounts receivable values had been
over inflated.”
Answer at ¶ 82.
“In August or September 2013" Plaintiff advised Defendant
that Borrowers’ accounts receivable “had been materially
overstated for more than one year in the Borrowing Base
certificates and financial statements.”
Answer at ¶ 83.
On January 28, 2014, Plaintiff sent a letter to Defendant in
which Plaintiff demanded under the terms of the Subordination
Agreement that Defendant “forward to [Plaintiff] . . . amounts
received from [Borrowers] for rent payments since August 2013 [as
well as] . . . any rent payments received from [Borrowers] in the
future until [Plaintiff] notifies [Defendant] that [Borrowers’]
obligations to [Plaintiff] have been paid in full.”
Compl.,
Ex. 2 at 2.
Defendant did not send Plaintiff the rent payments from
Borrowers as Plaintiff demanded.
On March 3, 2014, Plaintiff filed a complaint in Multnomah
County Circuit Court alleging claims against Defendant for breach
of contract, breach of the covenant of good faith and fair
dealing, and specific performance.
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Defendant removed the matter
to this Court on April 2, 2014, on the basis of diversity
jurisdiction.
On April 9, 2014, Defendant filed an Answer, Affirmative
Defenses, and Counterclaims in which Defendant asserted 23
Affirmative Defenses and four Counterclaims against Plaintiff for
breach of duty of care, negligent misrepresentation, fraudulent
misrepresentation, and promissory estoppel.
On May 2, 2014, Plaintiff filed a Motion to Dismiss
Counterclaims.
On June 5, 2014, Plaintiff filed a Request for Judicial
Notice.
The Court took Plaintiff’s Motion and Request under
advisement on June 5, 2014.
PLAINTIFF’S MOTION (#15) TO DISMISS COUNTERCLAIMS
Plaintiff moves to dismiss Defendant’s Counterclaims on the
grounds that (1) there is not any special relationship between
Plaintiff and Defendant, (2) Defendant failed to plead the right
to rely, and (3) promissory estoppel is an affirmative defense
rather than a counterclaim.2
I.
Standards
2
Plaintiff also asserts in its Motion that Defendant’s
Counterclaims should be dismissed because Defendant fails to
allege an agency relationship between BY&S and Plaintiff.
Plaintiff, however, appears to abandon that ground in its Reply.
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To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as
true, to “state a claim to relief that is
plausible on its face.” [Bell Atlantic v.
Twombly, 550 U.S. 554,] 570, 127 S. Ct. 1955. 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. at 556.
. . . The plausibility standard is not akin to a
“probability requirement,” but it asks for more
than a sheer possibility that a defendant has
acted unlawfully. Ibid. Where a complaint pleads
facts that are “merely consistent with” a
defendant's liability, it “stops short of the line
between possibility and plausibility of
‘entitlement to relief.’” Id. at 557, 127 S. Ct.
1955 (brackets omitted).
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
Atlantic, 550 U.S. at 555-56.
See also Bell
The court must accept as true the
allegations in the complaint and construe them in favor of the
plaintiff.
Din v. Kerry, 718 F.3d 856, 859 (9th Cir. 2013).
The pleading standard under Federal Rule of Civil Procedure
8 “does not require ‘detailed factual allegations,’ but it
demands more than an unadorned, the-defendant-unlawfully-harmedme accusation.”
U.S. at 555).
Iqbal, 556 U.S. at 678 (quoting Twombly, 550
See also Fed. R. Civ. P. 8(a)(2).
“A pleading
that offers ‘labels and conclusions’ or ‘a formulaic recitation
of the elements of a cause of action will not do.’”
Twombly, 550 U.S. at 555).
Id. (citing
A complaint also does not suffice if
it tenders “naked assertion[s]” devoid of “further factual
enhancement.”
Id. at 557.
"In ruling on a 12(b)(6) motion, a court may generally
7 - OPINION AND ORDER
consider only allegations contained in the pleadings, exhibits
attached to the complaint, and matters properly subject to
judicial notice."
Akhtar v. Mesa, 698 F.3d 1202, 1212 (9th Cir.
2012)(citation omitted).
A court, however, "may consider a
writing referenced in a complaint but not explicitly incorporated
therein if the complaint relies on the document and its
authenticity is unquestioned."
Swartz v. KPMG LLP, 476 F.3d 756,
763 (9th Cir. 2007)(citation omitted).
II.
Oregon Law Applies
Defendant states in its Response that Plaintiff has not
made a “showing that Oregon law applies to the tort claims.”
Resp. at 13.
Defendant asserts Plaintiff “also has failed to
demonstrate there is no conflict among Minnesota and Oregon law”
and “Minnesota precedent does not rely on, and may be distinct
from, Oregon law.”
Resp. at 14 (emphasis added).
“When a federal court sits in diversity to hear state law
claims, the conflicts laws of the forum state - here [Oregon] —
are used to determine which state's substantive law applies.”
CRS Recovery, Inc. v. Laxton, 600 F.3d 1138, 1141 (9th Cir. 2010)
(citing 389 Orange St. Partners v. Arnold, 179 F.3d 656, 661 (9th
Cir. 1999)).
Under Oregon conflict-of-law rules, the Court must
determine as a threshold issue whether there is a material
difference between Oregon substantive law and the law of the
other forum.
CACV of Colorado, LLC v. Stevens, 248 Or. App. 624,
8 - OPINION AND ORDER
641 (2012)(citation omitted).
“If there is a material
difference, the Court must determine whether both states have
substantial interests in having their laws applied.”
United
States ex rel. TBH & Assoc., LLC v. Wilson Const. Co., 965 F.
Supp. 2d 1215, 1219 (D. Or. 2013)(citing Pulido v. United States
Parcel Serv. Gen. Servs. Co., 31 F. Supp. 2d 809, 813 (D. Or.
1998)).
Finally, if "both states have substantial interests, the
Oregon Supreme Court has adopted the 'most significant
relationship' approach of the Restatement (Second) Conflict of
Laws."
Id. (citation omitted).
“It is incumbent on the parties to identify material
differences between the laws of Oregon and [Minnesota] that
govern when determining whether a binding contract has been
entered into by the parties.”
Home Poker Unlimited, Inc. v.
Cooper, No. 09-CV-460-BR, 2009 WL 5066653, at *4 (D. Or. Dec. 15,
2009)(citing Waller v. Auto-Owners Ins. Co., 174 Or. App. 471,
475 (2001)).
"’[I]t is not [the Court's] obligation to cast
around the law of [Minnesota and Oregon] in quest of possible
material differences.
Because [the parties] have not demonstrated any material
distinctions between the Oregon and [Minnesota] substantive law"
related to the torts asserted in Defendant’s Counterclaims, the
Court applies Oregon law.
Id. (quoting Angelini v. Delaney, 156
Or. App. 293, 300-01 (1998)).
9 - OPINION AND ORDER
III. Defendant’s Counterclaims for Breach of a Heightened Duty of
Care and Negligent Misrepresentation
Plaintiff asserts the Court should dismiss Defendant’s First
Counterclaim for breach of a heightened duty of care and Second
Counterclaim for negligent misrepresentation because Defendant
did not allege facts sufficient to show a special relationship
existed between Plaintiff and Defendant that gave rise to such
causes of action.
The Oregon Supreme Court has held claims for negligent
misrepresentation and breach of a heightened duty of care “must
be predicated on some duty of the negligent actor to the injured
party beyond the common law duty to exercise reasonable care to
prevent foreseeable harm.”
Onita Pac. Corp. v. Trs. of Bronson,
315 Or. 149, 159 (1992)(emphasis added).
“In other words, for
the duty to avoid making negligent misrepresentations to arise,
the parties must be in a ‘special relationship,’ in which the
party sought to be held liable had some obligation to pursue the
interests of the other party.”
231, 237 (1996).
Conway v. Pac. Univ., 324 Or.
See also Abraham v. T. Henry Const., Inc., 350
Or. 29, 40 (2011)(“[T]his court's case law [with respect to a
breach of a heightened duty of care] is clear that economic
losses . . . are recoverable in negligence only if the defendant
is subject to a heightened standard of care, such as one arising
out of a special relationship.”).
Courts in Oregon have
concluded such special relationships may arise, for example, with
10 - OPINION AND ORDER
attorneys, physicians, principals in an agent relationship,
trustees, “pledgees,” and liability insurers “who undertake[] a
duty to defend.”
Id. at 239-40.
In addition, an individual may
be in a special relationship with the engineers and architects
with whom they enter into a contract when the individual
“authorize[s] [the engineer or architect] to exercise independent
judgment in the [individual’s] behalf and in the [individual’s]
interests,” and the individual has the right to rely on the
engineer or architect “to achieve a desired outcome or
resolution.”
Id. at 239-40.
Oregon courts, however, have made clear that a special
relationship does not exist in a business transaction in which
“adversarial parties negotiat[e] at arm's length to further their
own economic interests.”
the Onita court concluded:
Onita, 315 Or. at 161.
Accordingly,
“[I]n arm’s-length negotiations,
economic losses arising from a negligent misrepresentation are
not actionable.”
Id.
Here Defendant alleges in its Counterclaims for breach of a
heightened duty of care and negligent misrepresentation that
Plaintiff
failed to comply with a heightened duty of care,
including the duty to exercise independent
judgment on [Defendant’s] behalf and in
[Defendant’s] interests by, among other things:
a. failing to use reasonable care to properly
compute and represent Borrower[s’] accounts
receivable values and to conduct an audit in
11 - OPINION AND ORDER
conformance with GAAS as of the year ended
December 31, 2011 and thereafter;
b. failing to obtain sufficient relevant data
regarding the nature and the value of accounts
receivable as reported in Borrower[s’] financial
statements and Borrowing Base certificates;
c. failing to conduct its audit of
Borrower[s’] financial statements in conformance
with GAAS;
d. failing to take action to timely disclose
the overstatement of accounts receivable value;
e. directing or permitting misleading entries
in Borrower[s’] accounting records and, thereby.
[sic] in its financial statements;
f. concealing the material accounts
receivable value overstatements and/or the extent
of the overstatements in 2013 after obtaining
actual or constructive knowledge of the
overstatements;
g. failing to notify [Defendant] of the
material overstatements of accounts receivable
value and earnings in a timely manner; and
h. continuing to provide incorrect and
misleading information to [Defendant] during 2012
and 2013.
Answer at ¶ 90.
Defendant, however, does not allege facts that establish
Plaintiff and Defendant had the kind of special relationship that
Oregon courts have determined may give rise to a claim for breach
of heightened duty or negligent misrepresentation.
In fact, both
the Complaint and the Answer reflect Defendant entered into
arm’s-length business transactions:
the Landlord Subordination
Agreement between Plaintiff, Defendant, and Borrowers and Loans
12 - OPINION AND ORDER
4A and 5 between Defendant and Borrowers.
The Complaint and
Answer reflect Plaintiff as Borrowers’ lender and Defendant as
Borrowers’ landlord had competing claims to Borrowers’ funds.
Accordingly, the Lease Subordination Agreement was an ordinary
financial transaction in which Defendant and Plaintiff were
“adversarial parties” who bore the burden of protecting their own
financial interests rather than a transaction in which Plaintiff
had any obligation to pursue or to protect the financial
interests of Defendant.
In addition, although Defendant asserts in its Answer and in
its Response that it relied on the financial evaluations
conducted by BY&S when it entered into Loans 4A and 5, there is
not any indication that Defendant could not have and should not
have conducted its own due diligence before entering into Loans
4A and 5.
Even if Defendant elected to relinquish its due-
diligence responsibilities to Plaintiff and relied solely on the
reports of BY&S before entering into Loans 4A and 5, Oregon
courts have made clear that one party’s decision to relinquish
financial control to another party is insufficient to establish a
special relationship when the parties’ relationship is not the
type that “by its nature allows one party to exercise judgment on
the other party’s behalf.”
332 Or. 138, 161 (2001).
Bennett v. Farmers Ins. Co. of Or.,
As the court explained in Bennett:
The focus is not on the subject matter of the
relationship, such as one party's financial
13 - OPINION AND ORDER
future; nor is it on whether one party, in fact,
relinquished control to the other. The focus
instead is on whether the nature of the parties'
relationship itself allowed one party to exercise
control in the first party's best interests. In
other words, the law does not imply a tort duty
simply because one party to a business
relationship begins to dominate and to control the
other party's financial future. Rather, the law
implies a tort duty only when that relationship is
of the type that, by its nature, allows one party
to exercise judgment on the other party's behalf.
Id. at 161-62 (emphasis in original).
Here the relationship
between Plaintiff and Defendant is not akin to the special
relationships that Oregon courts have concluded may give rise to
claims for negligent misrepresentation or breach of a heightened
duty of care such as relationships involving attorneys,
physicians, principals in an agent relationship, or trustees.
In
fact, Plaintiff and Defendant were “adversarial parties” who
“negotiat[ed] [transactions] at arm's length to further their own
economic interests.”
Onita, 315 Or. at 161.
In addition, to the extent that Defendant asserts Plaintiff
is liable for negligent misrepresentation or breach of a
heightened duty because Plaintiff was a “nongratuitous supplier
of information” and, therefore, owed Defendant a duty to avoid
making negligent misrepresentations related to Borrowers’
financial status, the Court finds such an assertion to be
unpersuasive.
In Onita the Oregon Supreme Court noted some legal
scholars “distinguish[] between misrepresentations made by an
adversary in a sales transaction and by one who holds out to the
14 - OPINION AND ORDER
general public that he or she supplies information.”
The court
suggested the latter may have a duty to avoid making negligent
misrepresentations.
315 Or. at 162.
In Conway, however, the
court explained a nongratuitous supplier of information who may
have a duty to avoid making negligent misrepresentations “is
someone in the business of supplying information for a fee.”
Or. at 243.
324
Although BY&S may be in the business of supplying
information for a fee, BY&S was hired by Plaintiff to evaluate
Borrowers’ financial condition.
At best, BY&S owed Plaintiff a
duty to avoid making negligent misrepresentations as to
Borrowers’ financial status.
As noted, however, Defendant had a
duty to conduct its own due diligence regarding Borrowers’
financial status before entering into Loans 4A and 5 and before
entering into the Lease Subordination Agreement.
Defendant may
have chosen to relinquish its duty to Plaintiff by relying on
BY&S’s statements of Borrowers’ financial viability, but, as
noted, Defendant’s choice to relinquish its duty does not give
rise to a claim for negligent misrepresentation or breach of
heightened duty.
Accordingly, the Court grants Plaintiff’s Motion to Dismiss
Defendant’s Counterclaims for breach of duty of care and
negligent misrepresentation.
IV.
Defendant’s Counterclaim for Fraud
Plaintiff moves to dismiss Defendant’s Counterclaim for
15 - OPINION AND ORDER
fraud on the ground that Defendant fails to plead the right-torely element of fraud.
A.
Pleading Standard
Federal Rule of Civil Procedure 8(a) provides:
A
pleading that sets forth a claim must contain "a short and plain
statement of the claim showing the pleader is entitled to
relief."
"Rule 8's liberal notice pleading standard . . .
requires that the allegations” provide the opposing party with
“fair notice of what the . . . claim is and the grounds upon
which it rests."
Tribble v. Raytheon Co., No. 09-56669, 2011 WL
490992, at *1 (9th Cir. Feb. 14, 2011).
With respect to allegations of fraud, however, Federal
Rule of Civil Procedure 9(b) requires all allegations of fraud to
be stated "with particularity."
In order to satisfy the
additional burdens imposed by Rule 9(b), the party must allege,
at a minimum, "the time, place and nature of the alleged
fraudulent activities."
Tok Cha Kim v. CB Richard Ellis Haw.,
Inc., 288 F. App'x 312, 315 (9th Cir. 2008)(citation omitted).
"Rule 9(b) demands that the circumstances constituting the
alleged fraud 'be specific enough to give [the opposing party]
notice of the particular misconduct . . . so that [it] can defend
against the charge and not just deny that [it has] done anything
wrong.'"
Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir.
2009)(quoting Bly-Magee v. Cal., 236 F.3d 1014, 1019 (9th Cir.
16 - OPINION AND ORDER
2001)).
"Averments of fraud must be accompanied by ‘the who,
what, when, where, and how’ of the misconduct charged.”
Id.
(quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th
Cir. 2003)).
"A party alleging fraud must set forth more than
the neutral facts necessary to identify the transaction.”
Id.
(quotation omitted).
B.
Fraud Standard
To state a claim for fraud under Oregon common law a
party must allege:
“(1) a representation; (2) its falsity; (3) its
materiality; (4) the speaker's knowledge of its
falsity or ignorance of its truth; (5) his intent
that it should be acted on by the person and in
the manner reasonably contemplated; (6) the
hearer's ignorance of its falsity; (7) his
reliance on its truth; (8) his right to rely
thereon; and (9) his consequent and proximate
injury.”
Burgdorf v. Weston, 259 Or. App. 755, 771 (2013)(quoting Webb v.
Clark, 274 Or. 387, 391 (1976)).
C.
Analysis
In its fraud Counterclaim Defendant incorporates by
reference the allegations contained in its Counterclaims for
breach of duty of care and negligent misrepresentation.
Defendant asserts:
“In the alternative, [Plaintiff] knowingly
and/or recklessly made the material misrepresentations and
omissions referenced in the preceding count [of negligent
misrepresentation].”
Answer at ¶ 99.
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Specifically, Defendant
alleges Plaintiff (acting through BY&S) knowingly or recklessly
misrepresented Borrowers’ financial state causing Defendant to
enter into the Lease Subordination Agreement with Defendant and
Borrowers and into Loans 4A and 5 with Borrowers.
As noted, Plaintiff moves to dismiss Defendant’s
Counterclaim for fraud on the ground that Defendant fails to
allege facts sufficient to establish it had a right to rely on
Plaintiff’s alleged misrepresentations.
See Vasquez-Lopez v.
Beneficial Or., Inc., 210 Or. App. 553, 580 (2007)(“Under Oregon
law, a party asserting fraud must prove by clear and convincing
evidence not only that it relied on the other party's
misrepresentation, but that the reliance was reasonable under the
circumstances.”).
In particular, Plaintiff asserts a
sophisticated business such as Defendant cannot “stick its head
in the sand,” fail to conduct due diligence before entering into
an arm’s-length business transaction, and then bring a claim for
fraud against the other party to the transaction for allegedly
misrepresenting facts that the sophisticated business could and
should have discovered on its own.
For example, in Vasquez-Lopez the Oregon Court of
Appeals held the trial court did not err when it granted the
plaintiff’s motion for a directed verdict on the defendant’s
affirmative defense of fraud on the ground that “no reasonable
juror could find by clear and convincing evidence that
18 - OPINION AND ORDER
defendant's reliance was reasonable.”
Id. at 581.
The Oregon
Court of Appeals further noted
defendant presented no evidence that it had a
right to rely on plaintiffs' allegedly false [tax]
returns. Under Oregon law, a party asserting
fraud must prove by clear and convincing evidence
not only that it relied on the other party's
misrepresentation, but that the reliance was
reasonable under the circumstances. OPERB, 191 Or.
App. at 428, 83 P.3d 350. One of the
circumstances to be taken into consideration is
the sophistication of the party asserting fraud.
“[I]f a party is a large and sophisticated
organization that has at its disposal a small
army of attorneys, accountants and hired
experts to evaluate a business deal, that
party . . . probably ‘ha[s] or can obtain
equal means of information and [is] equally
qualified to judge’ the merits of a business
proposition, thus making reliance on
misstatements by another party unjustified.
Coy [v. Starling, 53 Or.App. 76, 81–82, 630
P.2d 1323, rev. den., 291 Or. 662, 639 P.2d
1280 (1981)].”
OPERB, 191 Or. App. at 428, 83 P.3d 350. Here,
the evidence demonstrates that defendant is a
sophisticated organization that employs
underwriters whose job includes reviewing loan
applications for misrepresentation.
* * *
The trial court [concluded:]
* * *
“[I]t is clear that [defendant] had
sufficient resources at its disposal to
detect any existing liabilities plaintiffs
had not disclosed either in their loan
application or in their conversations with
19 - OPINION AND ORDER
[defendant's] representative.
* * *
We agree.
Id. at 580-81.
Here there is not any allegation in Plaintiff’s
Complaint or Defendant’s Answer that Defendant is anything other
than a sophisticated organization that had the ability and acumen
to reasonably evaluate Borrowers’ finances before entering into
the Lease Subordination Agreement in which it agreed to subrogate
rental payments that Borrowers owed to Plaintiff or before
loaning a significant amount of funds to Borrowers nor have the
parties alleged any facts from which the Court can infer such a
lack of sophistication.
Defendant, nevertheless, asserts in its Response that
its Answer included allegations that it reasonably relied on
Plaintiff’s Debt/Equity Evaluation of Borrowers when it entered
into the Lease Subordination Agreement and Loans 4A and 5 with
Borrowers, and, therefore, the Court could reasonably infer
Defendant “did not have access to Borrower[s’] books and records,
accounts receivable, audit reports, and other documents.”
Resp.
at 12.
The Court disagrees.
Defendant’s allegation that it
reasonably relied on Plaintiff’s Debt/Equity Evaluation of
Borrowers is a legal conclusion unsupported by any factual
allegations.
Moreover, Plaintiff alleges in its Complaint, and
20 - OPINION AND ORDER
Defendant does not deny, that Defendant was Borrowers’ landlord,
and, therefore, the Court could infer it is equally possible that
Defendant could have had access to Borrowers’ financial
information.
Even if Defendant did not actually have access to
Borrowers’ financial information, neither the Complaint nor the
Answer contain any factual basis to suggest that Defendant could
not have demanded access to Borrowers’ pertinent financial
information from Borrowers before entering into the Lease
Subordination Agreement and/or Loans 4A and 5 in order to conduct
a proper due-diligence analysis.
Thus, the parties’ allegations
in the Complaint and/or the Answer do not give rise to any
inference as to Defendant’s ability to access Borrowers’
financial records.
In summary, the pleadings reflect Plaintiff and
Defendant were businesses engaged in an arm’s-length
relationship, and, in turn, Defendant had a duty to conduct its
own due diligence before entering into the Loan Subordination
Agreement and Loans 4A and 5, and Defendant has not alleged facts
from which the Court can conclude Defendant has sufficiently pled
the right to rely on Plaintiff’s statements.
Accordingly, the
Court grants Plaintiff’s Motion to Dismiss Defendant’s
Counterclaim for fraud.
IV.
Defendant’s Counterclaim for Promissory Estoppel
Plaintiff moves to dismiss Defendant’s Counterclaim for
21 - OPINION AND ORDER
promissory estoppel on the ground that it is more properly
brought as an affirmative defense.
Plaintiff notes in its Reply
that it does not oppose Defendant asserting promissory estoppel
as an affirmative defense.
Accordingly, the Court grants Plaintiff’s Motion to Dismiss
Defendant’s Counterclaim for promissory estoppel with leave for
Defendant to amend its Answer to assert promissory estoppel as an
affirmative defense.
V.
Amendment of Defendant’s Answer and Counterclaims
Plaintiff asserts in its Reply that Defendant should not be
allowed to amend its Answer to replead its Counterclaims for
breach of duty of care, negligent misrepresentation, and fraud
because “the type of relationship [Defendant and Plaintiff] share
is not special and no pleading can change that.”
Reply at 14.
The Court, however, cannot conclude with certainty that there is
not any set of facts that Defendant could plead to support its
Counterclaims for breach of duty of care, negligent misrepresentation, or fraud.
On this record, therefore, the Court grants Defendant leave
to amend its Answer and to replead those Counterclaims to the
extent that Defendant can cure the deficiencies set out in this
Opinion and Order.
22 - OPINION AND ORDER
PLAINTIFF’S REQUEST (#21) FOR JUDICIAL NOTICE
Plaintiff requests the Court take judicial notice of (1) the
transcript of selected testimony made in an evidentiary hearing
held on January 21, 2014, in consolidated cases before the United
States Bankruptcy Court for the District of Minnesota (In re
Premier Healthcare Services, Inc.; In re Crystal Care Home Health
Services, Inc., In re Crystal Care Support Services, Inc.; and In
re Crystal Care PICA, Inc.; Case Nos. 13-44501, 13-44503,
13-44505, and 13-44506 respectively) and (2) Proof of Claim filed
by HNC Properties, LLC, in the case of In re Premier Healthcare
Services, Inc., D. Minn. Bankr. Case No. 13-44501.
Defendant
objects to Plaintiff’s request.
When deciding Plaintiff’s Motion to Dismiss, the Court did
not rely on the documents nor the contents of the documents
submitted by Plaintiff with its Request.
Accordingly, the Court denies as moot Plaintiff’s Request
for Judicial Notice.
CONCLUSION
For these reasons, the Court GRANTS Plaintiff’s Motion (#15)
to Dismiss Counterclaims and DENIES as moot Plaintiff’s Request
(#21) for Judicial Notice.
The Court, however, GRANTS Defendant leave to amend its
Answer no later than August 13, 2014, to cure the deficiencies
23 - OPINION AND ORDER
set out in this Opinion and Order.
IT IS SO ORDERED.
DATED this 9th day of July, 2014.
/s/ Anna J. Brown
ANNA J. BROWN
United States District Judge
24 - OPINION AND ORDER
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