Springfield Fin. & Mortg. Co. v. Lilley

• Decision Date: 11 August 2016
• Docket Number: Case No. 2:14-cv-00679-EJF
• Parties: SPRINGFIELD FINANCE & MORTGAGE COMPANY, LLC, a Utah Limited Liability Corporation, Plaintiff, v. BARBARA ANN LILLEY and John Doe Defendants 1 through 10, Defendants.
• Court: U.S. District Court — District of Utah

SPRINGFIELD FINANCE & MORTGAGE COMPANY, LLC,a Utah Limited Liability Corporation, Plaintiff, v. BARBARA ANN LILLEY and John Doe Defendants 1 through 10, Defendants.

Case No. 2:14-cv-00679-EJF

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

August 11, 2016

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS FIRST AMENDED COMPLAINT (ECF NO. 19)

Magistrate Judge Evelyn J. Furse

Defendant Barbara Ann Lilley ("Ms. Lilley") moves the Court¹ for an order dismissing Plaintiff Springfield Finance & Mortgage Company's (collectively, with its parent company ARDCO, "Springfield") First Amended Complaint under Rule 12(b)(6) for failure to state a claim. (Mot. to Dismiss First Am. Compl. ("Mot."), ECF No. 19.) Having considered the briefing on the motion,² the Court GRANTS Ms. Lilley's motion without prejudice with respect to the alter ego claim and DENIES Ms. Lilley's motion with respect to the remaining causes of action.

I. INTRODUCTION

In its First Amended Complaint, Springfield pleads six claims for relief against Ms. Lilley: breach of fiduciary duty; unjust enrichment; accounting; breach of contract; alter ego; and punitive damages. (1st Am. Compl. ¶¶ 66-105, ECF No. 18.)

After due consideration of the parties' memoranda and pleadings, the Court GRANTS Ms. Lilley's motion without prejudice as to the alter ego claim because Springfield does not state a plausible claim for alter ego liability. Because Springfield states plausible claims for breach of fiduciary duty, unjust enrichment, accounting, breach of contract, and punitive damages, the Court DENIES Ms. Lilley's motion with respect to those causes of action.

II. DISCUSSION

In deciding a Rule 12(b)(6) motion, courts must "accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff." Alvarado v. KOB-TV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007) (quoting David v. City & Cty. of Denver, 101 F.3d 1344, 1352 (10th Cir. 1996)). To withstand a motion to dismiss, a complaint must contain enough allegations of fact "to state a claim to relief that is plausible on its face." Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

A. Necessary and Indispensable Parties

Ms. Lilley asserts True Blue Ventures and Assured Capital, and possibly DAH Management, Jenifer Hoffman, and other absent investors, are necessary and indispensable parties to this litigation. (See Mot. 6-8, ECF No. 19.)

Courts apply a three-step process in deciding whether to require joinder of an absent party under Rule 19. "First, the court must determine whether the absent person is 'necessary.'"³ Citizen Potawatomi Nation v. Norton, 248 F.3d 993, 997 (10th Cir. 2001). "If the absent person is necessary, the court must then determine whether joinder is 'feasible.'" Id. "Finally, if joinder is not feasible, the court must decide whether the absent person is 'indispensable.'" Id. The movant bears the burden of demonstrating the necessity or the indispensability of the absent party. See Davis v. United States, 192 F.3d 951, 958 (10th Cir. 1999) (holding that "[the movants] bear the burden of demonstrating that the [absent party] has an interest relating to [non-movants'] ... claim and that the [absent party's] ability to protect that interest will be impaired or impeded by the disposition of the suit in its absence"); Rishell v. Jane Phillips Episcopal Mem'l Med. Ctr., 94 F.3d 1407, 1411 (10th Cir. 1996) (holding that under Rule 19 "[t]he moving party has the burden of persuasion in arguing for dismissal" (quoting Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir. 1990))). Generally, courts should apply Rule 19 in a practical, pragmatic, and equitable manner. Rishell, 94 F.3d at 1411.

The Court must require joinder of an absent party if:

(A) in that person's absence, the court cannot accord complete relief among existing parties; or

(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:

(i) as a practical matter impair or impede the person's ability to protect the interest; or(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

Fed. R. Civ. P. 19(a)(1).

Ms. Lilley fails to cite any case law in support of her position that the Court cannot accord complete relief among Springfield and Ms. Lilley or that Ms. Lilley cannot account for any funds she allegedly received from True Blue and/or Assured Capital in the absence of these parties. Utah law clearly allows apportionment of fault to nonparties. See Graves v. N. E. Servs., Inc., 2015 UT 28, ¶ 47, 345 P.3d 619, 629; Utah Code § 78B-5-821(4) (explaining process for allocating fault to a nonparty). As far as contractual liability, the contract governs and either Springfield will be able to prove Ms. Lilley owes it damages or it will not. This Court has subpoena power, and Ms. Lilley can attempt to add any party if she thinks she has a related claim. At this stage in the litigation and on this briefing, Ms. Lilley has not shown that the Court cannot accord the relief due between these parties. Similarly, Ms. Lilley has not shown that a non-party claims an interest in this litigation that it cannot protect or that will cause Ms. Lilley to suffer inconsistent obligations. That Ms. Lilley may not have enough money to pay various people to whom she owes money does not equate with the inconsistent obligations contemplated by the rule. See Delgado v. Plaza Las Americas, Inc., 139 F.3d 1, 3 (1st Cir. 1998) ("Inconsistent obligations occur when a party is unable to comply with one court's order without breaching another court's order concerning the same incident."); Begay v. Pub. Serv. Co., 710 F. Supp. 2d 1161, 1183-84 (D.N.M. 2010) ("While the Tenth Circuit has not devoted extended discussion to inconsistent obligations, it has given, as an example of inconsistent obligations, a hypothetical scenario in which a federal district court orders a defendant to transfer stock to the plaintiff while a state court orders the same defendant to transfer the same stock to a differentparty who is not involved in the federal litigation.") (citing Salt Lake Tribune Pub. Co., LLC v. AT & T Corp., 320 F.3d 1081, 1098 (10th Cir. 2003)). The Court concludes that Ms. Lilley has not shown that the absence of these parties requires dismissal.

B. Plausibility

1. Breach of Fiduciary Duty

Ms. Lilley argues that Springfield failed to state a plausible claim for breach of fiduciary duty because Springfield has not alleged facts sufficient to establish a special relationship between Springfield and Ms. Lilley. (Mot. 2-3, ECF No. 19.) Utah courts have recognized two types of fiduciary relationships: (1) those specifically created by contract or formal legal proceedings and (2) "[t]hose implied in law due to the factual situation surrounding the involved transactions and the relationship of the parties to each other and to the questioned transactions." See First Sec. Bank v. Banberry Dev. Corp., 786 P.2d 1326, 1332 (Utah 1990) (quoting Denison State Bank v. Madeira, 640 P.2d 1235, 1241 (Kan. 1982)). As the Court noted in its Order on Ms. Lilley's prior motion to dismiss, the parties agree that the fiduciary relationship here, if any, falls into the second category. (Order 8, ECF No. 17.) A fiduciary relationship arises when one party relies on the skill and integrity of another in the absence of a specific contractual duty. See First Sec. Bank, 786 P.2d at 1333. Generally, "there must exist a certain inequality, dependence, weakness of age, of mental strength, business intelligence, knowledge of the facts involved, or other conditions, giving to one advantage over the other." Id. (quoting Yuster v. Keefe, 90 N.E. 920, 922 (Ind. App. 1910)). No fiduciary relationship arises when the parties conduct "arm's length" or adversarial transactions. Gold Standard, Inc. v. Getty Oil Co., 915 P.2d 1060, 1064 (Utah 1996).

In dismissing Springfield's claim for breach of fiduciary duty in the original Complaint, the Court noted that "Springfield makes no allegations that it depended on Ms. Lilley's superior expertise in the field, that Ms. Lilley had knowledge of material facts inaccessible to Springfield through reasonable diligence, or that the parties did not enter into an 'arm's length' transaction." (Order 9, ECF No. 17; see First Sec. Bank, 786 P.2d at 1334; Gold Standard, 915 P.2d at 1064.)

In its Amended Complaint, Springfield includes further allegations as to how Ms. Lilley breached her fiduciary duty:

69. [Ms.] Lilley represented that she was an experienced investor, that she had insider knowledge of investment opportunities that were available to the Plaintiffs only through her, and that as a result of her position with True Blue and her relationships with the Investment Opportunities she could guaranty exceptional and safe returns to people who invested through her.

70. The Plaintiffs relied on Ms. Lilley's representations and purported expertise in the field of overseas investments.

(1st Am. Compl. ¶¶ 69-70, ECF No. 18.) The Amended Complaint also includes allegations that Ms. Lilley personally vouched for the integrity of Ms. Hoffman, the alleged principal in Assured Capital and DAH Management, (id. at ¶¶ 23, 58, 59, ECF No. 18); True Blue served as a vehicle for Ms. Lilley's investment strategies, and Ms. Lilley represented herself as True Blue's managing director, (id. at ¶ 33, ECF No. 18); and Ms. Lilley represented that the True Blue investment opportunity was "shutting its doors to any and all new submission [sic]," (id. at ¶¶ 35, 59, ECF No. 18).

Taken together, these allegations raise a plausible inference of an implied-in-law fiduciary relationship between the parties. According to Springfield, Ms....