Ritchie Special Credit Invs., Ltd. v. JPMorgan Chase & Co.
| Decision Date | 30 June 2021 |
| Docket Number | Civil No. 14-4786 (DWF/FLN) |
| Parties | Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; and Ritchie Capital Management SEZC, Ltd., Plaintiffs, v. JPMorgan Chase & Co.; JPMorgan Chase Bank, N.A.; J.P. Morgan Private Bank; Richter Consulting, Inc.; and J.P. Morgan Europe Ltd., Defendants. |
| Court | U.S. District Court — District of Minnesota |
James W. Halter, Esq., Rasco Klock Perez & Nieto, LLC; Kelly A. Lelo, Esq., and Patrick H. O'Neill, Jr., Esq., Larson King, LLP, counsel for Plaintiffs.
Alan Craig Turner, Esq., Isaac Martin Rethy, Esq., and Joshua C. Polster, Esq., Simpson Thacher & Bartlett LLP; and John R. McDonald, Esq., Taft Stettinius & Hollister, LLP, counsel for Defendants JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A.
Allen P. Pegg, Esq., John F. O'Sullivan, Esq., and Joshua Fordin, Esq., Hogan Lovells US LLP; and Timothy P. Griffin, Esq., and Robert T. Kugler, Esq., Stinson LLP; counsel for Richter Consulting, Inc.
Alan Craig Turner, Esq., and Joshua C. Polster, Esq., Simpson Thacher & Bartlett LLP; and John R. McDonald, Esq., Taft Stettinius & Hollister, LLP, counsel for Defendant J.P. Morgan Europe, Ltd.
This matter is before the Court on the following motions: (1) Defendant JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A.'s (together "JPMC") Motion to Dismiss Third Amended Complaint ("TAC") (Doc. No. 221); (2) Defendant Richter Consulting, Inc.'s ("Richter") Renewed Motion to Dismiss the TAC (Doc. No. 231); and (3) Defendant JP Morgan Europe Ltd.'s ("JPME") Motion to Dismiss the TAC (Doc. No. 226). For the reasons set forth below, the Court grants the motions.1
As outlined in prior orders, Petters's fraud is well known. In short, convicted fraudster Thomas Petters ("Petters") operated a Ponzi scheme whereby he would fabricate purchase orders from wholesalers and get financiers to lend money to fund the purchase orders. The Ponzi scheme was operated through Petters Company, Inc. ("PCI"). Petters also owned a number of legitimate businesses under a parent company, Petters Group Worldwide, LLC ("PGW"). According to Plaintiffs2, Defendants JPMC, JPME and Richter (collectively, "Defendants") were aware of Petters's Ponzi scheme, but for their own financial benefit encouraged Plaintiffs to loan hundreds of millions of dollars to Petters and his related entities. Defendants deny liability and contend instead that Ritchie pursued outsized returns on risky loans to Petters's businesses and now seeks to shift the losses to Defendants.
The primary fraud in this case involved Polaroid Corporation ("Polaroid"). (Doc. No. 214, ("TAC") ¶ 1.) Ritchie alleges that in 2005, JPMC orchestrated the sale of Polaroid to Petters for approximately $426 million. (Id.) The deal was complex, and as a result, Polaroid became a subsidiary of PGW. JPMC loaned $125 million to Polaroid Corporation and other Syndicated Lenders loaned another $250 million as a revolving-credit agreement. Polaroid was unable to repay the loan. And in February 2007, Ritchie alleges that instead of foreclosing on the loans, JPMC entered into a number of forbearance agreements and extensions and assisted Petters in finding sources to repay the loans, including loans from Ritchie.
Also in February 2007, Polaroid allegedly hired Richter, a financial advisory and consulting firm, as a condition to JPMC's first loan extension, giving Richter complete access to Polaroid's books and records. (Id. ¶ 143.) During the spring and summer of 2007, Richter prepared reports for JPMC and other lenders about Polaroid's financial condition. (Id. ¶¶ 143, 146.) Ritchie does not allege that it employed Richter. Nor does Ritchie allege that Richter knew that PCI or Petters was engaged in fraud or that Richter reviewed or had access to the Petters's or PCI's books or records. (TAC ¶ 200.) In December 2007, Polaroid allegedly expanded the scope of Richter's services to include assistance in securing financing for Polaroid. (Id. ¶ 164.)
In January 2008, JPMC allegedly learned of PCI's Ponzi scheme and refused additional loan extensions. On January 31, 2008, Petters reached out to Thane Ritchie, principal of Ritchie, to solicit a loan. (Id. ¶ 175.) Beginning the next day and over the next few weeks, Ritchie transferred over $180 million, in a number of transactions, toPetters. The loans were retroactively documented as "promissory notes" issued by PCI and PGW and with Petters as the co-signatory and guarantor. Ultimately, the loans from Ritchie went to PCI primarily to pay off investors in the Ponzi scheme.
Ritchie alleges that in the afternoon on February 1, 2008, an officer of PGW emailed Ritchie purported Polaroid "due diligence" materials allegedly containing false and misleading statements and omitted facts, such as the existence of Petters's and PCI's fraud. (Id. ¶¶ 183, 187-88.) Ritchie also alleges that Richter "ratified" these documents. However, there are no factual allegations that Richter possessed the alleged due diligence materials, that Richter's name appeared on any of the materials, or that Richter was a direct recipient of, or copied on, the transmission of the materials to Ritchie. There is also no allegation that Richter prepared the due diligence materials or sent the materials to Ritchie. (Id. ¶ 183.)
Ritchie alleges that Defendants aided and abetted Petters in fraudulently inducing Ritchie to extend loans to Petters. For example, Ritchie asserts that JPMC knew or consciously avoided confirming that Petters was engaging in a fraudulent purchase order financing scheme at PCI but proceeded with the deal so Petters could repay JPMC. According to Ritchie, JPMC acted to ensure it could get repaid before the fraud was fully exposed to others affected by it. Ritchie maintains that JPMC was aware of a number of "red flags" associated with Petters and his businesses and knew that Ritchie's transfers to PCI passed through numerous Petters-related accounts before being paid to JPMC.
After the Ponzi scheme collapsed, Petters and his companies were placed into receivership and a number of Petters's companies declared bankruptcy. In particular, inOctober 2008, PCI and PGW filed for bankruptcy protection in this District. See In re Petters Co., Inc., No. 08-45257 (Bankr. D. Minn. Oct. 11, 2008). PCI, PGW, and other Petters-related debtors were consolidated into an omnibus proceeding. See generally id. The Debtors' bankruptcy trustees (the "Trustees") and Petters's Receiver filed hundreds of adversary proceedings seeking to recover the allegedly fraudulent transfers and damages, including proceedings against certain JPMC Defendants. See, e.g., Kelley v. JPMorgan Chase & Co., No. 10-04443 (Bankr. D. Minn.), Doc. No. 79 (Am. Compl.) ¶ 1, 305-10; In re Petters Co., Inc., et al., No. 08-45257 (Bankr. D. Minn.), Doc. No. 4019 at 6-7; United States v. Petters, Civ. No. 08-5348 (D. Minn.), Doc. No. 2990 at 4-5.
In May 2018, JPMC Bank and JPMC & Co. settled the adversary proceedings with both the Trustees and the Receiver. The court approved the settlements and, in connection with the approvals, the court entered bar orders permanently enjoining Petters's creditors from asserting any claims that belonged to the Trustees or Receiver or claims that are derivative of any such claims, whether denominated in tort, unjust enrichment, or otherwise, and including but not limited to claims for fraudulent transfer. See In re Petters Co., Inc., et al., No. 08-45257 (Bankr. D. Minn.), Doc. No. 4019 at 6-7; see, e.g., United States v. Petters, Civ. No. 08-5348 (D. Minn.), Doc. No. 2990, at 4-5.3
This lawsuit is one of many filed by Ritchie.4 In an order dated December 14, 2017, the Court dismissed Ritchie's Second Amended Complaint, holding that all of Ritchie's claims were time-barred under Illinois's five-year statute of limitations. See Ritchie Cap. Mgmt., L.L.C. v. JPMorgan Chase & Co., Civ. No. 14-4786, 2017 WL 6403096, at *8-9 (D. Minn. Dec. 14, 2017) (Ritchie I). The Court declined to consider Defendants' alternative grounds for dismissal. (Id. at *6 n.11.) On appeal, the Eighth Circuit Court of Appeals affirmed the Court's dismissal of claims made by Ritchie Capital Management, L.L.C. and Yorkville Investment I, L.L.C. as time-barred, but reversed and remanded as to three remaining plaintiffs (Ritchie Special Credit Investments, Ltd., Rhone Holdings II, Ltd., and Ritchie Capital Management SEZC, Ltd. (f/k/a/ Ritchie Capital Management, Ltd.)). See Ritchie Capital Mgmt., L.L.C. v. J.P. Morgan Chase & Co., 960 F.3d 1037, 1048-51 (8th Cir. 2020) ("Ritchie II"). These entities (the current and remaining Plaintiffs) are all Cayman Island exempt companies and the panel majority held that the Court could not yet find that the claims of the exempt companies accrued in Illinois and were therefore barred by the Illinois statute of limitations. Id. at 1050-51. The Eighth Circuit remanded the case, including for the consideration of Defendants' alternative grounds for dismissal. Id. at 1055.
Ritchie (now consisting of the Cayman Island exempt entities) amended its complaint and filed its TAC. (See TAC.) Ritchie asserts eight causes of action: (1) Aiding and Abetting Fraud (against JPMC); (2) Aiding and Abetting Fraud (against Richter Consulting and vicariously against JPMC); (3) Aiding and Abetting Conversion-the March Loan (against JPMC); (4) Negligence (against JPMC and Richter Consulting); (5) Breach of Fiduciary Duty (against JPMC); (6) Unjust Enrichment (against all defendants); (7) Constructive Fraudulent Conveyance—repayment to JPMC of the $6.5 million in March 2008 and Petters's security interest (against JPMC); and (8) Knowing Fraudulent Conveyance - repayment of the $6.5 million in March 2008 and Petters's security interest (against JPMC). Defendants move to dismiss Ritchie's claims.
In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in the complaint to be...
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