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First Dakota National Bank v. Ruba

United States District Court, D. South Dakota, Southern Division

September 30, 2019

FIRST DAKOTA NATIONAL BANK, Plaintiff,
v.
JEROME N. RUBA, a/k/a JERRY RUBA, Defendant. JEROME N. RUBA, a/k/a JERRY RUBA, Counter Plaintiff,
v.
FIRST DAKOTA NATIONAL BANK, Counter Defendant. JEROME N. RUBA, a/k/a JERRY RUBA, Third-Party Plaintiff,
v.
BAILEY RIDGE PARTNERS, LLC; JACK GRUBB; NICOLE GRUBB-NEARMAN; JASON GRUBB; GRUBB FAMILY PARTNERSHIP; FLOYD C. DAVIS; VERLYN NAFE; FRANK MANTHEI; and PAUL ENGLE, Third-Party Defendants.

          OPINION AND ORDER ON PENDING MOTIONS

          ROBERTO A. LANGE UNITED STATES DISTRICT JUDGE.

         I. Claims, Procedural History, and Pending Motions

         First 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.

         Ruba 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.

         In his 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[1] 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.

         Only 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 Ruba.

         First 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.

         Rather 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.

         II. Motions to Dismiss Fraud Claims

         All of 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.

         Because 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.

         The 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).

         Ruba's 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 weeks;
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 [sic] Ridge;
e. That Mr. Ruba would receive payments from an overfunded construction project;
f. That Bailey Ridge would pay First Dakota directly from any source; and
g. That government payment[2] 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, 41.

         Viewing 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.

         As to 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.

         Under 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 court.

         III. Summary Judgment Motions

         A. Summary Judgment Standard

         All but 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).

         B. Material Facts in the Light ...


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