United States District Court, D. South Dakota, Southern Division
LARSON MANUFACTURING COMPANY OF SOUTH DAKOTA, INC., SUPERIOR HOMES, LLC, Plaintiffs/Counterclaim Defendants,
AMERICAN MODULAR HOUSING GROUP, LLC and PAUL THOMAS, Defendants, and WESTERN SHOW HOMES, INC. and AMERICAN MODERN HOUSING GROUP, INC. Defendants/Counterclaim Plaintiffs.
ORDER DENYING DEFENDANTS' MOTION FOR JUDGMENT ON
THE PLEADINGS DOCKET NO. 52
VERONICA L. DUFFY United States Magistrate Judge.
matter is before the court on the basis of diversity
jurisdiction, 28 U.S.C. § 1332, after defendants removed
the matter from South Dakota state court. See Docket
No. 1, 1-1. The parties have consented to this magistrate
judge handling their case pursuant to 28 U.S.C. §
636(c). Now pending is defendants' motion for judgment on
the pleadings regarding plaintiffs' fraud claims.
See Docket No. 52. Plaintiffs oppose the motion.
See Docket No. 63.
Background Facts and Claims
court states the following facts from plaintiffs' second
amended complaint in order to evaluate defendants'
pending motion. Plaintiff Larson Manufacturing Company of
South Dakota, Inc. (Larson) is the parent company of
plaintiff Superior Homes, LLC (Superior). See Docket
No. 58 at p. 1. Both are South Dakota business entities.
Id. Superior is in the business of manufacturing and
selling modular homes. Id. at p. 2.
Western Showcase Homes, Inc. ("Western") is a
Nevada corporation in the business of purchasing, reselling,
and financing modular homes. Id. at p. 2. Defendant
Paul Thomas, a Nevada resident, is the sole member of
American Modular Housing Group, LLC (AMHG, LLC), a Nevada
company in the business of buying and reselling modular
homes. Id. American Modular Housing Group, Inc.
(AMHG, Inc.), is a Canadian corporation with its principal
place of business in Nevada that also buys and resells
modular homes. Id. Thomas is the principal agent and
owner of both AMHG entities. Id.
defendant entities purchased modular homes from Superior and
then re-sold those homes to customers, sometimes arranging
for delivery, set and completion of the home at the
customer's location. Id. at pp. 2-3. Larson and
Superior extended credit to the defendant entities for these
purchases; AMHG would then repay the loans when its customer
paid the defendant entities. Id. at p. 3.
second amended complaint recites that defendant entities
placed orders for fourteen modular homes with plaintiffs.
Plaintiffs constructed the homes. Of the homes that were
delivered to defendants, full payment was never made even
though the complaint alleges the ultimate customers who
received these homes paid defendants. Other modular homes
ordered by defendants were custom-built and never delivered
because defendants never paid for the homes. As to the homes
plaintiffs retain possession of, plaintiffs allege the custom
nature of the homes makes resale of the homes at a reasonable
addition, Larson entered into a loan agreement with Western
which was guaranteed by AMHG, Inc. This loan agreement
ultimately encompassed $14 million in funds. Larson alleges
that Western defaulted on the loan and AMHG, Inc. refused to
pay pursuant to its guarantee. For all these matters,
plaintiffs assert three counts of breach of contract, two
counts of fraud, two counts of conversion, one count each of
debt and guarantee, and one count of piercing the corporate
veil. Plaintiffs also allege defendant Thomas
converted money which was received from third parties and
intended for plaintiffs, but was instead used by Mr. Thomas
for his own personal use. See Docket No. 58 at
¶¶ 15, 20, 49- 51.
their answer to the second amended complaint, defendants
generally deny nearly all of plaintiffs' allegations.
See Docket No. 62. Defendants Western Showcase,
Inc., and American Modular Housing Group, Inc., assert five
counterclaims against Larson and Superior. Docket No. 57.
Those counterclaims include breach of contract (failure to
pay rebates, failure to repay personal loans from Thomas and
failure to provide future promised business); unjust
enrichment (rebates, warranty and service fees); tortious
interference with business expectancy (Aspen Links Country
Club and Aspen Village Properties); breach of contract
(manufacturing defects in modular homes); and fraud and
deceit (fraudulent inducement to sign a mortgage in
connection with Aspen Village and McKenzie Lane, assignment
of mortgage interest in Moose Ridge, fraudulent building
practices). See Docket No. 57 at pp. 7-9.
Defendants/counterclaim plaintiffs Western Showcase, Inc. and
AMHG, Inc. seek compensatory and punitive damages on their
counterclaims, pre- and post-judgment interest,
attorney's fees, and other remedies. Id. at 9.
dates of the business transactions alleged by plaintiffs in
their second amended complaint go back as far as April, 2012,
and extend into the year 2016. See Docket No. 58.
Fraud Allegations in Plaintiffs' Second Amended
defendants move for judgment on the pleadings based upon
their assertion that, pursuant to Fed.R.Civ.P. 9(b), the
fraud allegations contained within the plaintiffs' second
amended complaint are insufficient as a matter of law. Before
analyzing the applicable law, therefore, the court extracts
the fraud allegations in the second amended complaint. Counts
5 and 8 of the second amended complaint are both entitled
“fraud and deceit, ” and are both leveled against
Paul Thomas in his personal capacity. Docket 58, p. 7,
¶¶ 53-58 (count 5); pp. 9-10, ¶¶ 75-79
(count 8). Count 5 pertains to the representations Paul
Thomas made to defendants regarding the Aspen Units in
particular. It states as follows:
Thomas made representations of fact to Larson that he would
collect and forward to Larson the proceeds received for sale
of the Aspen Units to which Larson was entitled. At the time
Thomas made said representations of fact, he knew or had
reasonable grounds for believing them not to be true. Thomas
made said representations of fact with the intent to induce
Larson to fund the purchase of the Aspen Units. Larson relied
on said representations of fact and funded AMHG, LLC's
purchase of the Aspen Units. As a result of Thomas's
deceit, Aspen has been injured in an amount to be proven at
See Docket 58, ¶¶ 54-58.
pertains to the representations made by Paul Thomas to the
plaintiffs regarding the intent and ability of Mr. Thomas and
his entities to perform their obligations pursuant to credit
contracts and money advances granted to Mr. Thomas and his
entities by the plaintiffs, as well as the purpose for which
the monies received would be used. Count 8 states as follows:
Over the course of the dealings between the Thomas Entities
and Plaintiffs, Thomas made representations of fact asserting
his intention to perform his and the Thomas Entities'
obligations under the respective contracts, asserting the
Thomas Entities were able to pay such obligations, and
asserting advances provided by Plaintiffs would be used for
modular unit purchases and real estate development purchases.
Thomas made those representations of fact with the intent to
induce Plaintiffs' reliance on those representations.
Plaintiffs relied on Thomas's representations by
manufacturing and shipping Units to the Thomas Entities
without prepayment and by advancing monies under the Credit
Agreement to the Thomas Entities. As a result of
Plaintiffs' reliance on Thomas's representations they
were injured in an amount to be proven at trial.
both count 5 and count 8 incorporate the allegations
contained within all the other causes of action contained
within the complaint. See Docket 58, ¶¶ 53
Provisions of Rule 9(b)
9(b) of the Federal Rules of Civil Procedure requires that
allegations of fraud contained within a civil complaint must
be made with sufficient particularity. See
Fed.R.Civ.P. 9(b). The circumstances constituting fraud must
be alleged with particularity, but Rule 9(b) instructs that
“malice, intent, knowledge, and other conditions of a
person's mind may be alleged generally.”
Defendants Have Not Waived Their Opportunity to Object to the
Sufficiency of Plaintiffs' Fraud Allegations
assert the defendants waived their opportunity to move for
judgment on the pleadings based upon Fed.R.Civ.P. 9(b). The
plaintiffs theorize that because defendants filed an answer
to both the amended complaint and the second amended
complaint without first or simultaneously making a specific
objection/motion to dismiss based upon plaintiffs'
allegedly insufficient fraud allegations, the defendants are
precluded from doing so now.
to this argument are Fed.R.Civ.P. 12(b), (c), (g), and (h).
Those Rules provide:
12. Defenses and Objections: When and HowPresented; Motion for Judgment on the Pleadings;
Consolidating Motions; ...