Kozlowski et al v. Palmquist et al

Filing 29

ORDER granting in part and denying in part 17 Motion to Dismiss; denying 17 Motion to Change Venue; granting 21 Motion to Amend/Correct. Signed by U.S. District Judge Karen E. Schreier on 8/28/2013. (KC)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
JAMES KOZLOWSKI, an individual;
and PERRY KOZLOWSKI, an
individual,
Plaintiffs,
vs.
GREGORY J. PALMQUIST, an
individual;
NORTH AMERICAN NATIONAL
MARKETING, LLC, a Colorado limited
liability company;
NANM, LLC, a Colorado limited
liability company;
GARDINER LIMITED PARTNERSHIP
ACQUISITIONS, LLC, a Colorado
limited liability company;
AVANZAR FINANCIAL GROUP, LLC, a
Colorado limited liability company;
and JOHN DOE DEFENDANTS 1-5,
being any other related person or
entity,
Defendants.

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Civ. 12-4174-KES

ORDER GRANTING PLAINTIFFS’
MOTION TO AMEND COMPLAINT
AND GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTION TO DISMISS OR IN THE
ALTERNATIVE TRANSFER VENUE

Plaintiffs, James Kozlowski and Perry Kozlowski, brought claims against
defendants alleging causes of action for accounting, breach of contract, fraud
and deceit, and tortious interference with a business/contractual relationship.
Defendants, Gregory Palmquist, North American National Marketing, LLC,
NANM, LLC, Gardiner Limited Partnership Acquisitions, LLC, and Avanzar
Financial Group, LLC, move to dismiss plaintiffs’ complaint for lack of subject
matter jurisdiction, lack of personal jurisdiction, improper venue, and/or

failure to state a claim. In the alternative, defendants move the court to
transfer this case to the United States District Court for the District of
Colorado. Plaintiffs resist the motion and also move to amend the complaint.
For the following reasons, the complaint will be amended and defendants’
motion is granted in part and denied in part.
BACKGROUND
The pertinent facts, according to the amended complaint (Docket 21-1),
are as follows:
Plaintiff James Kozlowski is a resident of South Dakota, and plaintiff
Perry Kozlowski is a resident of North Dakota. Defendant Gregory Palmquist is
a resident of Colorado, and the four defendant companies are Colorado limited
liability companies.
Defendants are in the business of brokering and selling life settlement
policies. Fox Financial, a nonparty company, is in the business of purchasing
life settlement policies. Plaintiffs are in the business of introducing prospective
purchasers of life settlement policies to prospective sellers.
A business relationship existed between plaintiffs and Fox Financial in
which plaintiffs would locate life settlement policies for Fox Financial to
purchase, and in turn, plaintiffs would be compensated for each successful
transaction. This relationship included non-circumvent and non-compete
agreements between the parties to ensure plaintiffs profited from successful
transactions.

2

At a time unknown to the court, plaintiffs introduced Fox Financial to
defendants for the purpose of facilitating the selling and purchasing of life
settlement policies. Following this introduction, Fox Financial set up a South
Dakota limited liability company, Morningstar Settlements, LLC, which was the
entity that would purchase the policies sold by defendants. Plaintiffs were to be
compensated on each transaction between Fox Financial/Morningstar and
defendants. The parties agreed that defendants would be responsible for paying
plaintiffs two fees: (1) a share of the typical broker’s fee, and (2) 20 percent of
the “product fees.”1
Several transactions took place in 2008 and 2009. Upon successful
completion of these transactions, defendant Avanzar paid plaintiffs the broker’s
fees, and defendant Gardiner paid the 20 percent of the product fees.
On January 27, 2011, plaintiffs learned that defendants had secretly
sold life settlement policies to Fox Financial/Morningstar in July of 2010 and
that another deal was pending. Plaintiffs were not compensated for these
transactions because, according to defendants, the business model had
changed and defendants were now dealing directly with Fox Financial/
Morningstar. These secret deals impaired plaintiffs’ business relations with Fox
Financial and precluded further business dealings between plaintiffs and Fox
Financial.

1

The product fees appear to be fees associated with defendants’ reengineering of life insurance policies.
3

AMENDING COMPLAINT
Plaintiffs move to amend the complaint by adding allegations regarding
the amount of damages they are seeking. The proposed language alleges that
the amount in controversy with respect to plaintiffs’ claims is in excess of
$75,000. The purpose of the proposed amendment is to establish subject
matter jurisdiction through diversity jurisdiction.
Under Federal Rule of Civil Procedure 15(a)(2), a party may amend its
pleading with the court’s leave, and the “court should freely give leave when
justice so requires.” The court may withhold its permission to amend if
plaintiffs are “guilty of undue delay, bad faith, dilatory motive, or if permission
to amend would unduly prejudice the opposing party.” Williams v. Little Rock
Mun. Water Works, 21 F.3d 218, 224 (8th Cir. 1994). Here, there is no evidence
of bad faith or dilatory motives nor is plaintiffs’ request an undue delay
because a scheduling order has not been entered in this litigation. Further,
defendants would not be unduly prejudiced because the amendment does not
advance a particular claim; it merely provides clarity on the amount of
damages plaintiffs are seeking. It seems plaintiffs’ failure to allege the amount
in controversy was inadvertent. Docket 23 at 1. Therefore, the court finds that
justice requires leave to be given, and the complaint is amended as shown in
the attachment to Docket 21.
Because the amended complaint includes an allegation that the amount
in controversy here exceeds $75,000, defendants’ argument that diversity

4

jurisdiction does not exist because there is no mention in the complaint about
the amount in controversy no longer holds weight.
PERSONAL JURISDICTION
I.

Legal Standard
An action can be dismissed, following a motion by defendants, for lack of

personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). “To survive
a motion to dismiss for lack of personal jurisdiction, a plaintiff must state
sufficient facts in the complaint to support a reasonable inference that [the
defendants] can be subjected to jurisdiction within the state.” Dever v. Hentzen
Coatings, Inc., 380 F.3d 1070, 1072 (8th Cir. 2004) (internal quotations
omitted). If personal jurisdiction is contested, “the plaintiff has the burden of
proving facts supporting personal jurisdiction.” Miller v. Nippon Carbon Co., 528
F.3d 1087, 1090 (8th Cir. 2008). The plaintiff “need[] only make a prima facie
showing of jurisdiction.” Id. In determining whether personal jurisdiction
exists, the court may rely on the pleadings as well as the “affidavits and
exhibits presented with the motions and opposition thereto.” Id. The court also
must “view the evidence in the light most favorable to the plaintiff and resolve
all factual conflicts in its favor in deciding whether the plaintiff made the
requisite showing.” K-V Pharm. Co. v. J. Uriach & CIA, S.A., 648 F.3d 588, 592
(8th Cir. 2011).
II.

Discussion
“A federal court may exercise jurisdiction over a foreign defendant only to

the extent permitted by the forum state’s long-arm statute and by the Due

5

Process Clause of the Constitution.” Miller, 528 F.3d at 1090. The South
Dakota long-arm statute confers jurisdiction to the fullest extent permissible
under due process, and thus, the court’s inquiry is whether exercise of
personal jurisdiction over these defendants comports with due process. Bell
Paper Box, Inc. v. Trans W. Polymers, Inc., 53 F.3d 920, 921 (8th Cir. 1995).
Due process requires “minimum contacts” to exist between the defendant
and the forum state before the court can exercise jurisdiction over the
defendant. Miller, 528 F.3d at 1090. “Contacts with the forum state must be
sufficient that requiring a party to defend an action would not offend
traditional notions of fair play and substantial justice.” Myers v. Casino Queen,
Inc., 689 F.3d 904, 911 (8th Cir. 2012). The connection “between the defendant
and the forum State necessary for a finding of minimum contacts must come
about by an action of the defendant purposefully directed toward the forum
State.” Id.
The Eighth Circuit Court of Appeals has instructed this court to apply a
five-factor test to evaluate whether a defendant’s actions are sufficient to
support personal jurisdiction: (1) the nature and quality of the contacts with
the forum state; (2) the quantity of those contacts; (3) the relationship of those
contacts with the cause of action; (4) the forum state’s interest in providing a
forum for its residents; and (5) the convenience or inconvenience to the parties.
Id. Although the first three factors are given the most weight, the court must
“look at all of the factors in the aggregate and examine the totality of the

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circumstances in making a personal-jurisdiction determination.” Johnson v.
Arden, 614 F.3d 785, 794 (8th Cir. 2010).
The third factor distinguishes between specific and general jurisdiction.
Myers, 689 F.3d at 911. “Specific personal jurisdiction, unlike general
jurisdiction, requires a relationship between the forum, the cause of action,
and the defendant.” Id. at 912. General jurisdiction, on the other hand, exists
when a defendant has continuous and systematic contacts with the forum
state, even if the contacts do not specifically relate to the cause of action.
Dever, 380 F.3d at 1073. A plaintiff can establish personal jurisdiction by
showing the existence of either general or specific jurisdiction. Id.
Here, plaintiffs focus almost exclusively on arguing specific jurisdiction
exists. Plaintiffs’ sole argument with respect to general jurisdiction is that
“there is evidence that an agent of one of the Defendants’ affiliates is licensed
in South Dakota to conduct insurance activities. If so, the Court might have
general jurisdiction over these Defendants.” Docket 23 at 8. But plaintiffs do
not explain what the evidence is or even identify which defendant allegedly has
an agent in South Dakota. This is not enough to make a prima facie showing
that general jurisdiction exists with any one defendant, let alone all five. Thus,
the court will focus its analysis on the issue of whether specific personal
jurisdiction exists with respect to each defendant.2
2

Plaintiffs bear the burden of establishing personal jurisdiction with
respect to each defendant. Calder v. Jones, 465 U.S. 783, 790 (1984) (“Each
defendant’s contacts with the forum State must be assessed individually.”).
Therefore, general statements referring to the “defendants” in the aggregate are
not particularly useful in establishing personal jurisdiction for each defendant
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A.

Gregory Palmquist

Defendant Palmquist is a resident of Colorado. In May 2008, Palmquist
made a trip to South Dakota and met with plaintiffs to further their business
relationship and to promote life insurance opportunities. Docket 26 at 1.
During this trip, Palmquist attended business meetings with executives at four
different companies and at four different locations in South Dakota. Also
during this trip, Palmquist encouraged plaintiffs to seek out buyers and sellers
for insurance policies and proposed compensating them for successfully doing
so. After an agreement apparently was reached among the parties, including
Palmquist, the payments made to plaintiffs in accordance with said agreement
were made to a South Dakota bank.
The court analyzes these facts under the five-factor test noted above to
determine whether plaintiffs made a prima facie showing that the court has
specific personal jurisdiction over Palmquist. Palmquist traveled to South
Dakota and targeted South Dakota residents when promoting certain life
insurance opportunities. Negotiations for an agreement between Palmquist and
plaintiffs, in which Palmquist would compensate plaintiffs for finding buyers
and sellers of insurance policies, also took place in South Dakota. Plaintiffs’
breach of contract action may very well arise out of these activities, and at the
very least the cause of action seems related to these activities. See Myers, 689
F.3d at 913 (finding that when a cause of action “relates to” defendant’s
activities directed at the forum state, exercising specific jurisdiction does not

individually.
8

offend traditional notions of fair play and substantial justice). Therefore, the
first and third factors—the nature/quality of the contacts and the relationship
of those contacts with the forum state—weigh in favor of exercising personal
jurisdiction.
The second factor—the quantity of contacts—is not of much help in
determining whether personal jurisdiction exists. While Palmquist’s activities
did not reach a large number of people, the business of selling life insurance
policies does not lend itself to a large market. As the plaintiffs note in their
brief, the quantity of contacts here is not insignificant. See Aftanase v.
Economy Baler Co., 343 F.2d 187, 197 (8th Cir. 1965) (noting that when a
small market exists for a product, minimal contacts may support exercising
jurisdiction).
The fourth factor—South Dakota’s interest in providing a forum—weighs
in favor of exercising jurisdiction because James Kozlowski is a South Dakota
resident who was allegedly injured by Palmquist’s actions. See K-V Pharm. Co.,
648 F.3d at 595 (“[The forum state] obviously has an interest in providing a
forum for [its] resident.”). The fifth factor—the convenience to the parties—does
not weigh in either plaintiffs’ or Palmquist’s favor. Because the parties are
citizens of different states, there will be some inconvenience regardless of where
the litigation takes place. Palmquist will be inconvenienced if the litigation
takes place in South Dakota, and plaintiffs will be inconvenienced if the
litigation takes place in Colorado, as defendants propose.

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After analyzing the facts put forth by plaintiffs under the Eighth Circuit’s
five-factor test, the court finds that these facts, taken as true, are enough for
plaintiffs to make their prima facie showing that the court has specific personal
jurisdiction over Palmquist.
B.

Other Four Defendants

NA National Marketing, NANM, and Gardiner are Colorado limited
liability companies, and Palmquist is their registered agent. Avanzar is a
Colorado limited liability company, and Daniel Davies is its registered agent.
Plaintiffs claim that Palmquist is connected to all four defendant companies
and, in fact, is partially in control of them. Plaintiffs also claim that the four
defendant companies “may function as [Palmquist’s] alter ego.” Docket 26 at 2.
The rest of plaintiffs’ allegations aimed at establishing personal
jurisdiction are all too generalized to be of any assistance in determining
whether specific personal jurisdiction exists with respect to each individual
defendant company. In asserting the various actions that form the basis for
personal jurisdiction, plaintiffs continuously use the word “defendants” in the
aggregate. For example, plaintiffs state that “Defendants sent numerous emails
and placed numerous phone calls to James Kozlowski in South Dakota” and
“Defendants sent various payments via wire transfer from a bank in Colorado
to James Kozlowski’s bank in South Dakota.” Docket 26 at 2. Without knowing
the actions of each specific defendant, the court cannot make the necessary
individualized assessment.

10

It may be the case, as plaintiffs seem to imply, that Palmquist was acting
on behalf of all four defendant companies when he visited South Dakota. If
Palmquist was acting on behalf of all four defendant companies, then there
may be enough minimum contacts to exercise jurisdiction over the companies
consistent with the court’s determination regarding Palmquist in his individual
capacity.3 But there is not sufficient evidence before the court at this point to
make such a determination. Therefore, the court will allow plaintiffs
jurisdictional discovery to establish whether each defendant company has
contacts with South Dakota as to warrant personal jurisdiction over them.
Defendants’ motion to dismiss is denied at this time without prejudice. See
Steinbuch v. Cutler, 518 F.3d 580, 588-89 (8th Cir. 2008) (allowing
jurisdictional discovery when the evidence on the record did not allow for a
conclusive determination on the issue of personal jurisdiction); 5B Charles
Alan Wright et al., Federal Practice and Procedure § 1351 (3d ed. 2012) (“When
a federal court is considering a challenge to its jurisdiction over a defendant or
over some form of property, the district judge has considerable procedural
leeway in choosing a methodology for deciding the motion.”). Following
jurisdictional discovery, the corporate defendants may again move for dismissal
for lack of personal jurisdiction if they believe the court does not have personal
jurisdiction over them.

3

The parties did not brief the issue of whether Palmquist’s actions were
enough to justify exercising personal jurisdiction over the four defendant
companies, and thus, the court will not make such a determination at this
point during the litigation.
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VENUE
Defendants argue plaintiffs’ complaint should be dismissed because
venue in the District of South Dakota is improper. A civil action may be
brought in “a judicial district in which a substantial part of the events or
omissions giving rise to the claim occurred[.]” 28 U.S.C. § 1391(b)(2). Section
1391(b)(2) “does not posit a single appropriate district for venue; venue may be
proper in any of a number of districts, provided only that a substantial part of
the events giving rise to the claim occurred there.” Woodke v. Dahm, 70 F.3d
983, 985 (8th Cir. 1995). Because the court has already found that plaintiffs’
causes of action relate to, and may even arise out of, defendant Palmquist’s
contacts with South Dakota, the court finds that the District of South Dakota
is an appropriate venue. Indeed, plaintiffs allege that Palmquist negotiated
agreements within South Dakota and also performed in accordance with an
agreement by sending money to a bank in South Dakota. Based on the
evidence in the record, the court cannot say that South Dakota is an improper
venue.
Moreover, defendants have not made a sufficient showing that a transfer
to a Colorado federal court would serve the interests of justice as required
under 28 U.S.C. § 1404(a). Thus, defendants’ motion to dismiss, or in the
alternative to transfer venue, is denied.

12

FAILURE TO STATE A CLAIM
Defendants also argue plaintiffs’ complaint fails to state a claim for which
relief can be granted and should be dismissed under Federal Rule of Civil
Procedure 12(b)(6).
I.

Legal Standard
When reviewing a motion to dismiss under Federal Rule of Civil

Procedure 12(b)(6), the court assumes that all facts in the complaint are true
and construes any reasonable inferences from those facts in the light most
favorable to the nonmoving party. Schaaf v. Residential Funding Corp., 517 F.3d
544, 549 (8th Cir. 2008). To decide the motion to dismiss, the court may
consider the complaint, some materials that are part of the public record, and
materials embraced by the complaint. Porous Media Corp. v. Pall Corp., 186
F.3d 1077, 1079 (8th Cir. 1999). The complaint must contain “enough facts to
state a claim to relief that is plausible on its face” to survive a motion to
dismiss. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The factual
content in the complaint must “allow the court to draw a reasonable inference
that the defendant is liable for the misconduct alleged.” Braden v. Wal-Mart
Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009).

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II.

Discussion
A.

Accounting

Defendants argue that a cause of action for an accounting is not
recognized under South Dakota law.4 Defendants cite to American Prairie
Construction, Co. v. Tri-State Financial, LLC, 369 F. Supp. 2d 1112, 1115
(D.S.D. 2005), to support their argument. But American Prairie does not
support defendants’ proposition. Id. Instead, United States District Judge
Kornmann found that an accounting cause of action was not sustainable under
the facts in that case. See id. at 1115 (“[Plaintiff] would be entitled to an
“accounting” only if the funds were still held by the law firm when this action
was commenced. With the refunds having been made, there is no asset to be
subjected to an accounting.”). Thus, American Prairie does not support
defendants’ theory.
After reviewing the relevant case law, it is obvious that a cause of action
for an accounting exists under South Dakota law. For example, in Bill v. Hyde
the Supreme Court of South Dakota stated that it was “satisfied that the
complaint states a cause of action for an accounting.” 205 N.W. 708, 709 (S.D.
1925). See also Aaron v. Sec. Inv. Co., 211 N.W. 965, 967 (S.D. 1927) (“With the
receiver as plaintiff, the action is for a general round-up and collection of the
assets of the insolvent corporation and constitutes but one cause of action in
equity in the nature of a creditor’s bill for an accounting[.]”); Hale v. Hale, 14

4

The parties appear to agree South Dakota law applies in this diversity

action.
14

N.W. 644, 651 (S.D. 1901) (recognizing the existence of an action for an
accounting). Thus, defendants’ argument that South Dakota law does not
recognize an accounting cause of action lacks merit.
B.

Breach of Contract

To establish breach of contract under South Dakota law, plaintiffs must
show: (1) an enforceable promise, (2) breach of the promise, and (3) resulting
damages. Weitzel v. Sioux Valley Heart Partners, 714 N.W.2d 884, 894 (S.D.
2006). Defendants specifically argue the amended complaint does not
sufficiently allege a claim for breach of contract because there is no alleged
breach.
The amended complaint alleges there were “agreements between all the
parties” in which defendants agreed to compensate plaintiffs “on each new deal
that was consummated between Fox Financial/Morningstar and Defendants.”
Docket 21-1 at ¶¶ 17-20. The amended complaint asserts that “compensation
was to paid by the Defendants.” Id. at ¶ 19. It goes on to allege that
“Defendants secretly sold life settlement policies to Fox Financial/ Morningstar,
[and] Defendants had not compensated Plaintiffs.” Id. at ¶¶ 22-23. Based on
these statements, the court finds plaintiffs sufficiently stated a claim for breach
of contract. The breach allegedly occurred when defendants secretly sold life
settlement policies to Fox Financial/Morningstar without compensating
plaintiffs for the same in accordance with their agreement to do so.
Defendants take issue with plaintiffs’ use of “defendants” in the
aggregate, suggesting plaintiffs should be required to use the name of the

15

specific defendant in each allegation. The court is unaware of such a
requirement under the current notice pleading system under Federal Rule of
Civil Procedure 8(a), and defendants do not cite to any caselaw that imposes
such a burden. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“[T]he pleading
standard Rule 8 announces does not require detailed factual allegations[.]”)
(internal quotations omitted). By using “defendants” in the aggregate, the
inference, which is required to be drawn in plaintiffs’ favor, is that all of the
defendants entered into an agreement or agreements to compensate the
plaintiffs for the transactions between defendants and Fox Financial/
Morningstar, and when plaintiffs were not compensated following a
transaction, all of the defendants allegedly breached their respective
agreements. Therefore, plaintiffs’ amended complaint sufficiently sets forth a
breach of contract action against all of the defendants.
C.

Fraud and Deceit

Defendants argue plaintiffs failed to meet the heightened pleading
requirements to assert their claim for fraud and deceit. Federal Rule of Civil
Procedure 9(b) requires that when “alleging fraud or mistake, a party must
state with particularity the circumstances constituting fraud or mistake.
Malice, intent, knowledge, and other conditions of a person’s mind may be
alleged generally.” The plaintiff must plead “such matters as the time, place
and contents of false representations, as well as the identity of the person
making the misrepresentation and what was obtained or given up thereby.”
Freitas v. Wells Fargo Home Mortg., Inc., 703 F.3d 436, 439 (8th Cir. 2013)

16

(citing Abels v. Farmers Commodities Corp., 259 F.3d 910, 920 (8th Cir. 2001)).
This requirement of a higher degree of notice than that required by Rule 8 is to
“enable the defendant to respond specifically and quickly to the potentially
damaging allegations.” Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8th Cir.
2009).
Under South Dakota law, “[o]ne who willfully deceives another, with
intent to induce him to alter his position to his injury or risk, is liable for any
damage which he thereby suffers.” SDCL 20-10-1. Deceit is the “suppression of
a fact by one who is bound to disclose it[.]” SDCL 20-10-2(3). The essential
elements of fraud are: (1) that a representation was made as a statement of
fact, which was untrue and known to be untrue by the party making it; (2) that
it was made with intent to deceive and for the purpose of inducing the other
party to act upon it; and (3) that the other party did in fact rely on it and was
induced thereby to act to his injury or damage. N. Am. Truck & Trailer, Inc. v.
M.C.I. Commc’n Serv., Inc., 751 N.W.2d 710, 713 (S.D. 2008).
In their attempt to show they satisfied Rule 9(b)’s particularity
requirements, plaintiffs direct the court to three allegations in the amended
complaint:
22.

On January 27, 2011, Plaintiffs learned that Defendants had
secretly sold life settlement policies to Fox Financial/
Morningstar in July of 2010, and that another deal was
pending.

....
34.

. . . Defendants committed statutory deceit by Defendants’
willful acts of suppressing facts known to them which they
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were bound to disclose to Plaintiffs, including the existence
of transactions in 2010 and 2011 for which Plaintiffs were
entitled to compensation.
35.

The suppression of those facts was intended to hide
Defendants’ duty to pay Plaintiffs’ compensation, and
thereby avoid payment altogether.

Docket 21-1 at ¶¶ 22, 34, 35. Viewing these allegations together, as well as the
amended complaint as a whole, the court finds that plaintiffs failed to plead the
identity of the person(s) charged with the deceit. There are five named
defendants here—four business entities and an individual. It is not clear from
plaintiffs’ amended complaint which defendant: (1) suppressed the fact that
there existed transactions in 2010 and 2011 for which plaintiffs were entitled
to compensation and (2) was also bound to disclose such fact. Instead,
defendants are left to guess who was responsible for the alleged fraud and
deceit and are thus hindered in their ability to respond specifically and quickly
to the potentially damaging allegations. Therefore, the court finds that plaintiffs
failed to state with particularity the circumstances constituting the alleged
fraud and deceit. See Trooien v. Mansour, 608 F.3d 1020, 1030 (8th Cir. 2010)
(“It is not sufficient to attribute alleged false statements to “defendants”
generally.”) (citing Parnes v. Gateway 2000, Inc., 122 F.3d 539, 550 (8th Cir.
1997) (finding pleading insufficient under Rule 9(b) where defendants were “left
to guess” who was “responsible for the alleged fraud”)).5

5

Defendants also argue that if plaintiffs’ fraud claim fails, then so does
their request for punitive damages. This court has previously held that punitive
damages are a form of relief and not a “claim” subject to a Rule 12(b)(6) motion
to dismiss. Benedetto v. Delta Air Lines, Inc., 917 F. Supp. 2d 976, 984 (D.S.D.
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D.

Tortious Interference with Business/Contractual Relationship

Defendants also argue the complaint falls short of pleading a sufficient
tortious interference claim. The elements for this cause of action are: (1) the
existence of a valid business relationship; (2) knowledge by the interferer of the
relationship; (3) an intentional and unjustified act of interference; (4) proof that
the interference caused harm; and (5) damage to the party whose relationship
was disrupted. Setliff v. Akins, 616 N.W.2d 878, 889 (S.D. 2000). “One is liable
for commission of this tort if he interferes with business relations of another,
both existing and prospective, by inducing a third person not to enter into or
continue a business relation with another or by preventing a third person from
continuing a business relation with another.” Id. at 889 (internal quotations
omitted).
After reviewing the amended complaint, the court finds plaintiffs stated a
claim for tortious interference. Plaintiffs allege they had a business relationship
with Fox Financial in which plaintiffs would locate life settlement policies for
Fox Financial to purchase. Docket 21-1 at ¶ 10. Further, plaintiffs and Fox
Financial had entered into non-circumvent and non-compete agreements so
that plaintiffs were guaranteed to profit when Fox Financial was introduced to
new business leads. Id. at ¶ 11. Plaintiffs also allege defendants, knowing of
this relationship, unjustifiably interfered with it by secretly selling life

2013) (citing Sec. Nat’l Bank of Sioux City, Iowa v. Abbott Lab., Civ. No. 114017, 2012 WL 327863, at *21 (N.D. Iowa Feb. 1, 2012)). Therefore, because
plaintiffs have remaining claims, the court will not address the issue of
punitive damages here.
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settlement policies directly to Fox Financial/Morningstar in such a manner
that prevented plaintiffs from receiving compensation that was owed to them.
Id. at ¶¶ 39-40. This interference not only impaired plaintiffs’ current business
relations with Fox Financial, but also precluded further business dealings and
resulted in various damages to plaintiffs including lost profits. Id. at ¶ 36, 41.
In sum, plaintiffs have alleged sufficient facts to support their claim for tortious
interference with a business relationship.
CONCLUSION
Following amendment to their complaint, plaintiffs established this court
has diversity jurisdiction over this case. With regard to establishing personal
jurisdiction over the defendants, plaintiffs made a prima facie showing that the
court has specific personal jurisdiction over defendant Palmquist. While there
is not sufficient evidence before the court to make a similar determination with
respect to the defendant companies, the court will allow plaintiffs jurisdictional
discovery to establish whether each defendant company has sufficient contacts
with South Dakota. Moreover, the District of South Dakota is an appropriate
venue for this action because plaintiffs’ claims relate to, and perhaps arise out
of, defendant Palmquist’s contacts with South Dakota.
Separately, plaintiffs sufficiently pleaded claims for accounting, breach of
contract, and tortious interference with a business relationship. But plaintiffs
failed to plead with particularity the circumstances surrounding their claim for
fraud and deceit. Accordingly, it is

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ORDERED that plaintiffs’ motion to amend complaint (Docket 21) is
granted. Plaintiffs will file their amended complaint by September 4, 2013.
IT IS FURTHER ORDERED that defendants’ motion to dismiss for lack of
subject matter jurisdiction (Docket 17) is denied.
IT IS FURTHER ORDERED that defendants’ motion to dismiss for lack of
personal jurisdiction (Docket 17) is denied without prejudice. Plaintiffs have
120 days to complete jurisdictional discovery, after which the corporate
defendants will have 30 days to move for dismissal for lack of personal
jurisdiction.
IT IS FURTHER ORDERED that defendants’ motion to dismiss, or in the
alternative transfer venue, for improper venue (Docket 17) is denied.
IT IS FURTHER ORDERED that defendants’ motion to dismiss plaintiffs’
claims for accounting, breach of contract, and tortious interference with a
business relationship (Docket 17) is denied.
IT IS FURTHER ORDERED that defendants’ motion to dismiss plaintiffs’
claim for fraud and deceit (Docket 17) is granted, without prejudice.
Dated August 28, 2013.
BY THE COURT:

/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE

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