Ritchie Capital Management, L.L.C. v. JP Morgan Chase & Co., 060320 FED8, 18-1130

Docket Nº:18-1130
Opinion Judge:GRASZ, Circuit Judge
Party Name:Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investment I, L.L.C.; Ritchie Capital Management, SEZC, Ltd. v. JP Morgan Chase & Co.; JP Morgan Chase Bank, N.A.Defendants - Appellees Plaintiffs - Appellants J.P. Morgan Private Bank Defendant Wells Fargo & Co., as successor by...
Judge Panel:Before SHEPHERD, GRASZ, and KOBES, Circuit Judges. SHEPHERD, Circuit Judge, concurring. KOBES, Circuit Judge, concurring in part and dissenting in part.
Case Date:June 03, 2020
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investment I, L.L.C.; Ritchie Capital Management, SEZC, Ltd.

Plaintiffs - Appellants


JP Morgan Chase & Co.; JP Morgan Chase Bank, N.A.Defendants - Appellees

J.P. Morgan Private Bank Defendant

Wells Fargo & Co., as successor by merger to Wachovia Capital Finance (Central);Wells Fargo Bank N.A.; Wachovia Capital Finance Corporation (Central); UBS Loan Finance, L.L.C.; UBS AG; UBS AG Stamford Branch; Merrill Lynch Business Financial Services, Inc.; Lasalle Business Credit, L.L.C.; Bank of America Business Capital; Bank of America Corporation; The CIT Group Inc.; The CITGroup/Business Credit, Inc.; PNC Bank, N.A.; Fifth Third Bank; Webster Business Credit Corporation; Associated Commercial Finance, Inc.; Chase Lincoln First Commercial Corporation; Richter Consulting, Inc.; J.P. Morgan Europe Ltd. Defendants - Appellees

Douglas A. Kelley, Trustee of the PCI Liquidating Trust; Randall L. Seaver, Trustee of Petters Capital, LLC; John R. Stoebner, Trustee of Polaroid Corp, et al. Intervenors Below - Appellees

No. 18-1130

United States Court of Appeals, Eighth Circuit

June 3, 2020

Submitted: November 12, 2019

Appeal from United States District Court for the District of Minnesota

Before SHEPHERD, GRASZ, and KOBES, Circuit Judges.

GRASZ, Circuit Judge

The appellants - Ritchie Capital Management, L.L.C., Ritchie Special Credit Investments, Ltd., Rhone Holdings II, Ltd., Yorkville Investment I L.L.C., and Ritchie Capital Management, SEZC, Ltd. (collectively, the "Ritchie entities") - sued a collection of mostly banking institutions from which the Ritchie entities sought to recover millions of dollars they loaned Tom Petters, a convicted fraudster, and two of his companies. According to the Ritchie entities, the defendants helped conceal the fraud so that they could recover millions they had tied up with Petters's companies. The Ritchie lawsuit meandered through various courts before the district court dismissed the claims as time-barred under Fed.R.Civ.P. 12(b)(6). On appeal, the Ritchie entities launch numerous attacks on the district court's opinion. While most fall short, we agree that dismissing the claims brought by three Ritchie entities was premature. We therefore reverse in part.

I. Background

We are called once again to weigh in on a case involving the multibillion dollar Ponzi scheme perpetrated by Tom Petters, a Minnesota businessman. See United States v. Petters, 663 F.3d 375, 379 (8th Cir. 2011) (describing Petters's criminal scheme).1 Petters owned and/or controlled numerous businesses, including Petters Company, Inc. ("PCI"); Petters Group Worldwide, LLC ("PGW"); and Polaroid Corporation ("Polaroid Corp."). Id. at 379. Petters used PCI as the primary vehicle through which he swindled investors with empty promises of buying electronics and selling them to big-box stores at a profit. In 2008, government officials investigated and arrested Petters. A federal jury ultimately convicted him of twenty crimes, including wire fraud, mail fraud, and money laundering.

In January of 2008, before Petters was arrested and his Ponzi scheme fell apart, he sought out Thane Ritchie and solicited loans from the Ritchie entities. Between February 1 and May 9, the Ritchie entities loaned Petters, PCI, and PGW approximately $189 million. Most of these loans - ten loans for roughly $146 million - were made to Petters and PGW in February 2008. Two loans totaling $31 million were made to Petters and PCI in March 2008. And two final loans totaling $12 million were made to Petters, PGW, and PCI in May 2008. The Ritchie entities only recovered a small fraction of the amount loaned and claim they suffered damages in excess of $150 million.

In this lawsuit, the Ritchie entities seek to recover their damages from various entities, which can be separated into the following four groups: (1) JP Morgan Chase & Co. and JP Morgan Chase Bank, N.A. (collectively, "JP Morgan"); (2) JP Morgan Europe Ltd. ("JP Morgan Europe"); (3) a collection of banks and lending institutions2(collectively, the "Syndicate Lenders"); and (4) Richter Consulting, Inc. ("Richter Consulting"). Greatly summarized, the Ritchie entities allege the defendants, led by JP Morgan, were aware of Petters's Ponzi scheme, but for their own financial benefit wrongfully allowed and encouraged the Ritchie entities to loan money to PCI.

Although the details of the Ritchie entities' theory of the case are not necessary to resolve this appeal, a basic understanding of the theory is helpful. In July 2004, JP Morgan became the indirect, majority owner of Polaroid Corp. PCI had a license agreement that allowed it to use Polaroid's brand name on electronic equipment. After PCI fell behind in its royalty payments and went into default, JP Morgan purportedly used this leverage to force PCI to purchase Polaroid Corp. In April 2005, through a series of complex deals, PGW became the owner of Polaroid Holding Company, which in turn owned Polaroid Corp. JP Morgan loaned $125 million to the Polaroid companies as a term loan, and the Syndicate Lenders loaned $250 million to the Polaroid companies as a revolving-credit agreement. JP Morgan served as the administrative agent for the U.S.-based Syndicate Lenders and JP Morgan Europe served in the same role for the Europe-based Syndicate Lenders.

Pursuant to its loan agreements, the Polaroid companies were required to provide audited financial statements to JP Morgan. Although the Polaroid companies failed to provide such statements, JP Morgan initially did not strictly enforce the requirement. This changed, however, in 2007, when JP Morgan declared a default and forced Polaroid Corp. and related companies to hire Richter Consulting as a consultant, which would make reports to JP Morgan about Polaroid Corp.'s financial situation. The Ritchie entities allege that JP Morgan definitively learned in January 2008 that Petters was perpetrating a fraudulent-transfer scheme. Worried Petters would get caught and become unable to repay the money owed to the Syndicate Lenders and itself, JP Morgan demanded immediate payment.

This allegedly caused Petters to seek out Thane Ritchie and criminally defraud the Ritchie entities into loaning money in order to pay back JP Morgan and the Syndicate Lenders. The Ritchie entities allege JP Morgan and Richter Consulting enabled Petters to facilitate this fraud. For example, the Ritchie entities claim Richter Consulting and JP Morgan knew that due diligence materials sent to the Ritchie entities were inaccurate. The Ritchie entities also claim Petters, again with the knowledge of JP Morgan, then laundered the proceeds of these loans through circuitous international accounts, including JP Morgan Europe's London branch, in order to obscure the source of the funds. Petters thereby satisfied the debts owed to JP Morgan and the Syndicate Lenders with the money lent by the Ritchie entities.

After the Ponzi scheme collapsed and Petters was indicted, a number of his companies declared bankruptcy, including Polaroid Corp., PCI, and Petters Capital, LLC. Trustees were appointed to administer these estates (the "Trustees.").

In January 2014, the Ritchie entities brought suit against all of the defendants except JP Morgan Europe in the New York Supreme Court for the County of New York, New York.

A subset of the defendants removed the matter to the United States District Court for the Southern District of New York. The Ritchie entities moved to remand the case to state court, arguing the federal court lacked jurisdiction. In November 2014, the district court denied the Ritchie entities' motion to remand, reasoning it had jurisdiction under the Edge Act, 12 U.S.C. § 632, and as a civil case related to Chapter 11 bankruptcy proceeding under 28 U.S.C. § 1334(b). Recognizing that the bankruptcy proceedings related to this action were in the District of Minnesota, the district court transferred the case there.

The United States District Court for the District of Minnesota referred the case to the bankruptcy court and permitted the Trustees to intervene. The Ritchie entities eventually filed a second amended complaint, asserting twenty-two causes of action against the various defendants, including aiding and abetting fraud, aiding and abetting wrongful diversion of funds, aiding and abetting conversion, commercial bad faith, aiding and abetting breach of fiduciary duties, negligence, breach of fiduciary duty, unjust enrichment, and knowing and constructive fraudulent conveyance.

The defendants filed motions to dismiss the second amended complaint. The bankruptcy court issued a report and recommendations ("R&R"), recommending abstention regarding some claims, finding the Ritchie entities lacked standing to assert their fraudulent transfer claims, and finding subject matter jurisdiction was lacking over other claims. The parties objected to different aspects of the R&R. After a hearing, the district court held all of the claims were untimely and that it lacked personal jurisdiction over JP Morgan Europe. The Ritchie entities filed a timely notice of appeal.

II. Analysis

On appeal, the Ritchie entities argue the district court lacked subject matter jurisdiction and therefore its judgment must be reversed and the case dismissed and remanded to the state court. The Ritchie entities also contend the district court was wrong to find their claims untimely. And even if the district court was correct to decide the claims were untimely as pled, the Ritchie entities argue the district court should have permitted them to again amend their complaint instead of dismissing the claims. They also urge us to reverse the...

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