United States District Court, D. South Dakota, Southern Division
OPINION AND ORDER ON PENDING MOTIONS
ROBERTO A. LANGE UNITED STATES DISTRICT JUDGE.
Claims, Procedural History, and Pending Motions
Dakota National Bank (First Dakota) filed this case claiming
that Defendant/Third-Party Plaintiff Jerome N. Ruba (Ruba)
had breached a loan agreement for $500, 000 and owed First
Dakota principal and interest. Doc. 1. First Dakota is a bank
based in Yankton, South Dakota; Ruba is an Iowa citizen;
federal jurisdiction is based on diversity of citizenship
under 28 U.S.C. § 1332. Doc. 1.
filed an answer, counterclaim, and third-party complaint.
Doc. 7. Ruba then filed a first amended third-party
complaint, Doc. 10, and most recently an amended answer,
counterclaim, and second amended third-party complaint, Doc.
105. Ruba acknowledges signing the $500, 000 note in favor of
First Dakota, but maintains that it was .part of a loan
package to Bailey Ridge Partners, LLC (Bailey Ridge), a hog
confinement business in Iowa. Doc. 7 at ¶ 6; Doc. 105 at
¶ 6. Ruba in his counterclaim alleged misrepresentation
by First Dakota about Bailey Ridge finances. Doc. 7 at 4.
Ruba in his amended answer and counterclaim added a second
count for illegal tying arrangement under 12 U.S.C. §
1972, claiming that First Dakota abused its power in
requiring Ruba to put up collateral for an indebtedness of
Bailey Ridge. Doc. 105 at 6-7.
third-party complaint and various amendments thereto, Ruba
names other owners/members of Bailey Ridge, including Grubb
Family Partnership, Floyd C. Davis, Verlyn Nafe, Frank
Manthei, and Paul Engle. Docs. 7, 10, 49, 105. Ruba likewise
names as Third-Party Defendants the owners of Grubb Family
Partnership, including Ruba's brother-in-law Jack Grubb,
Nicole Grubb-Nearman, and Jason Grubb (collectively with
Grubb Family Partnership "the Grubb Defendants").
Docs. 7, 10, 49, 105. The second amended third-party
complaint has five claims: 1) breach of contract
against Bailey Ridge for the $500, 000 First Dakota loan that
Ruba obtained but that went to fund Bailey Ridge; 2) breach
of a memorandum agreement dated July 11, 2013 against all
Third-Party Defendants; 3) breach of a promissory note
against Bailey Ridge for a $664, 581.30 promissory note
executed by Bailey Ridge in favor of Ruba; 4) "fraud
and/or material misrepresentation" against all
Third-Party Defendants; and 5) minority oppression against
Bailey Ridge and the Grubb Defendants. Doc. 105.
one Third-Party Defendant-Floyd C. Davis-filed a counterclaim
against Ruba. That counterclaim pleaded claims of breach of
contract, breach of good faith and fair dealing, breach of
fiduciary duty, and unjust enrichment. Doc. 109. None of the
pending motions relate to Davis's counterclaim against
Dakota filed this case in 2016. On December 21, 2016, this
Court entered an Opinion and Order granting Ruba's motion
for partial summary judgment against Bailey Ridge for the
$664, 581.30 promissory note, plus interest. This case then
was delayed by Bailey Ridge's bankruptcy filing in the
Northern District of Iowa. Docs. 80, 81, 86. After
proceedings resumed in this Court and after Ruba filed his
amended answer, counterclaim, and second amended third-party
complaint, the parties filed the following motions: 1)
Third-Party Defendants Paul Engle and Verlyn Nafe's
motion to dismiss fraud claim, Doc. Ill; 2) Third-Party
Defendant Floyd Davis's motion to dismiss fraud claim,
Doc. 113; 3) Bailey Ridge and the Grubb Defendants'
motion to dismiss fraud claim, Doc. 115; 4) Bailey Ridge and
the Grubb Defendants' motion for summary judgment, Doc.
121; 5) First Dakota's motion for summary judgment, Doc.
126; 6) Third-Party Defendants Nafe, Engle, and Davis's
joint motion for partial summary judgment, Doc. 131; and
quite recently 7) Bailey Ridge and the Grubb Defendants'
motion for leave to file supplemental brief in support of
summary judgment, Doc. 151.
than ruling separately and perhaps more promptly on the
motions to dismiss the fraud claims, this Court allowed the
briefing on all pending motions to be completed before
scheduling a single motion hearing. On August 28, 2019, this
Court heard from counsel for all of the parties on all of the
pending motions. For the reasons explained herein, the
motions to dismiss the fraud claims are granted except as to
a fraud claim against Jack Grubb where leave is given for
Ruba to plead with greater particularity any such fraud
claim. The motion for summary judgment filed by First Dakota
is granted. The motion for summary judgment by individual
Third-Party Defendants, including the Grubb Defendants, is
granted as to Ruba's claims under the memorandum
agreement dated July 11, 2013. What then remains of this
case-a breach of contract claim against Bailey Ridge which
appears not to be contested, a potential fraud claim against
Jack Grubb, and a minority oppression claim against Bailey
Ridge and the Grubb Defendants-all involve Iowa citizens such
that the interests of justice militate against a federal
district court in South Dakota retaining supplemental
jurisdiction over such claims.
Motions to Dismiss Fraud Claims
the Third-Party Defendants have filed motions to dismiss
Count 4 of the second amended third-party complaint alleging
"fraud and/or material misrepresentation." Docs.
105, 111, 113, 115. Ruba has filed a voluntary dismissal,
agreeing to dismiss without prejudice some of the Third-Party
Defendants-Jason Grubb, Davis, Manthei, and Engle, but not
Bailey Ridge, Jack Grubb, or Nicole Grubb-Nearman-from the
fraud claim. Doc. 120.
this case arises under diversity jurisdiction based on First
Dakota's claim against Ruba, this Court must apply state
substantive law and federal procedural law. Great Plains
Tr. Co. v. Union Pac. R.R. Co., 492 F.3d 986, 995 (8th
Cir. 2007). Federal procedural law requires allegations of
fraud to be pleaded with particularity. Fed.R.Civ.P. 9(b). To
satisfy Rule 9(b), the party alleging fraud "must
typically identify the 'who, what, where, when, and
how' of the alleged fraud." BJC Health Sys. v.
Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007)
(quoting United States ex rel. Costner v. U.R.S.
Consultants, Inc., 317 F.3d 883, 888 (8th Cir. 2003)).
Although a court must accept all factual allegations as true
when ruling on a motion to dismiss, a court need not
"accept conclusory legal allegations as true."
Great Plains Tr. Co., 492 F.3d at 995.
parties agreed at oral argument that South Dakota law governs
the claims between First Dakota and Ruba, but that Iowa law
governs the claims of Ruba against the Third-Party
Defendants. Under Iowa law, which governs the fraud claims
Ruba makes against the Third-Party Defendants, a fraud claim
requires a showing of: 1) representation; 2) falsity; 3)
materiality; 4) scienter; 5) intent to deceive; 6) reliance;
and 7) resulting injury and damage. Grefe v. Ross,
231 N.W.2d 863, 864 (Iowa 1975). The fourth element of
scienter and the fifth element of intent to deceive "are
closely related and 'are shown not only when the speaker
has actual knowledge of the falsity of his representations
but also when he speaks in reckless disregard of whether his
representations are true or false.'" Beeck v.
Aquaslide 'N' Dive Corp., 350 N.W.2d 149, 155
(Iowa 1984) (quoting Grefe, 231 N.W.2d at 867).
Under Iowa law, when a statement of intent to perform is
coupled with the absence of any intention to perform, there
can be a colorable fraud action. City of McGregor v.
Janett, 546 N.W.2d 616, 619 (Iowa 1996).
second amended third-party complaint generally alleges
"fraud and/or material misrepresentation" against
all Third-Party Defendants, but makes specific allegations of
false and deceitful misrepresentations only against Jack
Grubb and Bailey Ridge. Paragraph 36 of the second amended
third-party complaint alleges:
Bailey Ridge and Jack Grubb made false or misleading
representations regarding the financial status of Bailey
Ridge to induce Mr. Ruba to enter into a loan package
agreement with Baily [sic] Ridge and First Dakota.
Doc. 105 at ¶ 36. The heart of the fraud allegations in
the second amended third-party complaint is Paragraph 37,
which states in full:
Bailey Ridge and Jack Grubb, directly or through their agents
or representatives, continued to make representations
regarding repayment and the financial status of Baily [sic]
Ridge until Baily [sic] Ridge filed bankruptcy in January
2017. Such representations include:
a. That Baily [sic] Ridge would buy out Mr. Ruba's
interest and/or repay debts owed to him within a matter of
b. That Mr. Ruba would receive income from the sale of
certain hog sites;
c. That Ruba would receive a secured interest in certain hog
sites or other real estate;
d. That Mr. Ruba would receive information and updates
regarding the financial status and/or decisions of Baily
e. That Mr. Ruba would receive payments from an overfunded
f. That Bailey Ridge would pay First Dakota directly from any
g. That government payment would be available to pay Mr. Ruba in
whole or in part.
Doc. 105 at ¶ 37. Ruba then alleges in Paragraph 39 of
the second amended third-party complaint that neither Bailey
Ridge nor its members intended to repay Ruba. Doc. 105 at
¶ 39. The remaining parts of Count 4-Paragraphs 38, 40,
and 41-simply allege damage. Doc. 105 at ¶¶ 38, 40,
the second amended third-party complaint as a whole,
Ruba's claims for fraud and material misrepresentation
fall well short of the Rule 9(b) standard with regard to all
Defendants except Jack Grubb and Bailey Ridge. Typically,
allegations of fraud against groups of defendants - are not
sufficient without identifying how each individual defendant
committed a fraud. Streambend Props. II. LLC v. Ivy Tower
Minneapolis. LLC, 781 F.3d 1003, 1013 (8th Cir. 2015)
("Where multiple defendants are asked to respond to
allegations of fraud, the complaint should inform each
defendant of the nature of his alleged participation in the
fraud." (citation omitted)); Trooien v.
Mansour, 608 F.3d 1020, 1030 (8th Cir. 2010) ("It
is not sufficient to attribute alleged false statements to
'defendants' generally."); Parnes v. Gateway
2000. Inc., 122 F.3d 539, 550 (8th Cir. 1997) (noting
plaintiffs failure to particularize fraud when defendants
were "left to guess" who was responsible for
fraud). Ruba indeed recognizes the shortcomings in his fraud
claims in agreeing to dismiss voluntarily some of the named
Third-Party Defendants from Count 4. Doc. 120.
the claims against Jack Grubb and Bailey Ridge, the second
amended third-party complaint alleges the who (Bailey Ridge
and Jack Grubb) and the what (the alleged statements
contained in Paragraph 37 of the second amended third-party
complaint), and the how (misleading Ruba into the financial
arrangement where he borrowed money from First Dakota for
Bailey Ridge), but lacks the explicit "where" and
"when" components of a properly pleaded fraud claim
under Rule 9(b). See BJC Health Sys., 478 F.3d at
917. Ruba, in opposing the Grubb Defendants' motions,
presented more specific facts of possible fraud by Jack Grubb
both relating to some matters pleaded in the second amended
third-party complaint and beyond, such as that Jack Grubb
told Ruba that the $500, 000 that Ruba was injecting (via the
loan from First Dakota) into Bailey Ridge would be used to
purchase back hog sites from foreclosure, but in reality
included payments to Jack Grubb and Nicole Grubb-Nearman, and
to settle a lawsuit and for bills allegedly not owed by
Bailey Ridge. Doc. 13 6 at 10-11. A document exists showing
that, out of the funds, Jack Grubb received $55, 000, Nicole
Grubb-Nearman received $35, 000, and payments were made
elsewhere to those who may not have been Bailey Ridge
creditors or lienholders on Bailey Ridge properties. See Doc.
138-22 at 4.
these circumstances, this Court typically would grant Ruba
leave to file another amended third-party complaint to
satisfy the Rule 9(b) requirements as to Bailey Ridge and
Jack Grubb. Dismissal of the fraud claim against remaining
Third-Party Defendants is justified. For the reasons
explained below, any fraud claim by Ruba against Jack Grubb
and Bailey Ridge, however, should be litigated in Iowa state
Summary Judgment Motions
Summary Judgment Standard
one of the remaining motions in this case seek summary
judgment. Under Rule 56(a) of the Federal Rules of Civil
Procedure, summary judgment is proper when "the movant
shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of
law." Fed.R.Civ.P. 56(a). On summary judgment, the
evidence is "viewed in the light most favorable to the
nonmoving party." True v. Nebraska, 612 F.3d
676, 679 (8th Cir. 2010) (quoting Cordry v. Vanderbilt
Mortg. & Fin., Inc., 445 F.3d 1106, 1109 (8th Cir.
2006)). There is a genuine issue of material fact if a
"reasonable jury [could] return a verdict for either
party" on a particular issue. Mayer v. Countrywide
Home Loans, 647 F.3d 789, 791 (8th Cir. 2011). A party
opposing a properly made and supported motion for summary
judgment must cite to particular materials in the record
supporting the assertion that a fact is genuinely disputed.
Fed.R.Civ.P. 56(c)(1); Gacek v. Owens & Minor
Distrib., Inc., 666 F.3d 1142, 1145 (8th Cir. 2012).
"Mere allegations, unsupported by specific facts or
evidence beyond the nonmoving party's own conclusions,
are insufficient to withstand a motion for summary
judgment." Thomas v. Corwin, 483 F.3d 516, 527
(8th Cir. 2007). Summary judgment is not "a disfavored
procedural shortcut, but rather... an integral part of the
Federal Rules as a whole, which are designed 'to secure
the just, speedy and inexpensive determination of every
action.'" Celotex Corp. v. Catrert, 477
U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1).
Material Facts in the Light ...