Opinion ID: 2815238
Heading Depth: 1
Heading Rank: 3

Heading: The Merits Rulings

Text: After denying appellants’ motion to remand, the district court dismissed fourteen counts for failure to state a claim in January 2013, leaving only a breach of contract claim against Hillcrest Bank and a conversion claim against the Director Defendants for copying Hillcrest Bank’s records and transmitting them to attorneys at Bryan Cave. In September 2013, the FDIC determined that Hillcrest Bank in receivership lacked sufficient assets to make distributions to unsecured creditors. See 78 Fed. Reg. 56,228 (Sept. 12, 2013); 12 U.S.C. § 1821(d)(11)(A). In April 2014, the district court dismissed the FDIC as a party, concluding appellants’ claims against the FDIC as the Bank’s receiver were prudentially moot. See Adams v. RTC, 927 F.2d 348, 354 (8th Cir. 1991). Appellants do not appeal that ruling. Consequently, we need not review the court’s earlier dismissal of appellants’ claims against Hillcrest Bank. The following month, the district court granted summary judgment to the Director Defendants on the conversion claim, denied appellants’ motion to amend the 3 At least two circuits have concluded that a case should be remanded to state court if a motion to remand was improperly denied, and the district court’s final judgment is reversed on the merits. See Huffman v. Saul Holdings Ltd. P’ship, 194 F.3d 1072, 1080 (10th Cir. 1999). As we affirm the district court’s rulings on the merits, we need not consider this question. -6- Omnibus Petition to add a claim for spoliation, and entered final judgment dismissing all claims. A. The Rule 12(b)(6) Dismissals. Appellants argue the district court erred in dismissing fourteen counts for failure to state a claim. “We review de novo the district court’s grant of a motion to dismiss.” Gorog v. Best Buy Co., 760 F.3d 787, 792 (8th Cir. 2014). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quotation omitted). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement.” Id. (quotations omitted). Like the district court, we find it “incredibly difficult to sift through [appellants’] 72 single-spaced pages and 340 numbered paragraphs to ascertain any coherent argument as to why [defendants] are liable.” The bulk of appellants’ highly confusing Omnibus Petition consists of sheer speculation and conclusory allegations of defendants’ wrongdoing. At oral argument, counsel declined to prioritize appellants’ fifteen claims of reversible error. The district court discussed in detail why each count failed to state a claim. We have little to add. Appellants’ brief on appeal argues at great length that the fourteen dismissed counts adequately pleaded claims that Hillcrest Bank breached fiduciary duties to appellants; aided and abetted McClung’s fraudulent financial misrepresentations and his fraudulent and improper cancellation of letters of credit, which intentionally interfered with appellants’ contract or business relations; negligently cancelled the letters of credit and negligently failed “to learn of and prevent” McClung’s fraudulent activities; and conspired with McClung to engage in various vaguely pleaded torts. These are claims against Hillcrest Bank we need not review. -7- The claims we need to review because they survived dismissal of the FDIC and Hillcrest Bank are appellants’ claims against the Director Defendants, including Hillcrest Bancshares. As to these claims, appellants’ brief says little beyond conclusory assertions such as, “The petition repeatedly avers that each defendant knew about McClung’s bad financial condition, his scam attempts to get more financing, knew that the development had not been completed, and knew that the Bank had engaged in improper banking practices . . . to conceal its own bad financial condition and avoid being shut down by the FDIC.” The district court concluded that the allegations in appellants’ Omnibus Petition were similarly deficient, failing to plead facts establishing plausible claims that each officer and director could be personally liable to appellants. Appellants fail to provide specific cites to the Omnibus Petition refuting this conclusion. “Without some guidance, we will not mine a summary judgment record searching for nuggets of factual disputes to gild a party’s arguments.” Rodgers v. City of Des Moines, 435 F.3d 904, 908 (8th Cir. 2006). Likewise, without guidance, we will not mine a seventy-two-page complaint searching for nuggets that might refute obvious pleading deficiencies. 1. As to the claims that the Director Defendants breached fiduciary duties to appellants, they alleged no facts plausibly suggesting that each Hillcrest Bank officer, director, or shareholder consciously assumed to act as their fiduciaries in these business transactions. See Urias v. PCS Health Sys., Inc., 118 P.3d 29, 35 (Ariz. App. 2005); Denison State Bank v. Madeira, 640 P.2d 1235, 1243-44 (Kan. 1982).4 4 Applying Missouri choice-of-law principles, the district court concluded Kansas law applied to breach of fiduciary duty and conversion claims, Arizona law applied to Arizona statutory claims, and there is no apparent conflict between Kansas and Arizona law regarding any other claim. This ruling is not contested on appeal. -8- Nor did they allege how each Director Defendant substantially assisted primary tortfeasor McClung in a breach of fiduciary duty that proximately caused appellants’ injuries. See Cal X-Tra v. W.V.S.V. Holdings, LLC, 276 P.3d 11, 40 (Ariz. App. 2012) (elements of aiding and abetting); State ex rel. Mays v. Ridenhour, 811 P.2d 1220, 1231-32 (Kan. 1991) (same). “[D]irector and officer liability in breach of fiduciary duty actions is determined on an individual -- rather than a collective -- basis.” In re Farmland Indus., Inc., 335 B.R. 398, 410 (Bankr. W.D. Mo. 2005). Appellants also failed to plausibly allege how each Director Defendant aided and abetted breaches of fiduciary duty when undescribed letters of credit were allegedly canceled by either McClung or Hillcrest Bank. Under Arizona and Kansas law, “a director cannot be liable without some kind of personal participation in the tort or at least acquiescence by knowledge of the tort combined with a failure to act.” Dawson v. Withycombe, 163 P.3d 1034, 1051 (Ariz. App. 2007); accord Kerns ex rel. Kerns v. G.A.C., Inc., 875 P.2d 949, 957-58 (Kan. 1994). Defendant Robert Sperry is alleged to have issued letters of credit to McClung and then agreed to “free up” funds when McClung asked that letters of credit be “sent back” to Hillcrest in March 2007. That does not plausibly allege that Sperry participated in canceling any letters of credit. The only letter of credit in the record on appeal expired of its own terms in March 2006. Once issued, an irrevocable letter may not be cancelled except according to its terms or with the consent of the beneficiary. See U.C.C. § 5-106(b). The allegedly cancelled letters of credit were not attached to the Omnibus Petition, and no facts were pleaded to support the conclusory assertion that all Director Defendants personally participated in canceling the letters of credit. Such “naked assertions, devoid of further factual enhancement,” did not nudge appellants’ claims “across the line from conceivable to plausible.” Iqbal, 556 U.S. at 678, 680 (quotations omitted). Nor did appellants plausibly allege how cancellation of the letters of credit proximately caused their losses. -9- 2. Appellants failed to plead fraud with the specificity required by Rule 9(b) of the Federal Rules of Civil Procedure. “Rule 9(b)’s particularity requirement for fraud applies equally to a claim for aiding and abetting.” E-Shops Corp. v. U.S. Bank Nat’l Ass’n, 678 F.3d 659, 663 (8th Cir. 2012). Thus, “the complaint must set forth the who, what, when, where, and how surrounding the alleged fraud,” id. (quotation omitted), and specify “what was obtained as a result.” United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006). Appellants’ shotgun-style allegations of wrongdoing by all the Director Defendants “generally, in a group pleading fashion . . . do[es] not satisfy Rule 9(b).” Streambend Props. II, LLC v. Ivy Tower Mpls., LLC, 781 F.3d 1003, 1013 (8th Cir. 2015). The allegations in Count 4 did not come close to meeting this standard. Appellants entirely failed to plead facts plausibly showing that any Director Defendant knew of any of McClung’s alleged fraudulent misrepresentations to appellants regarding Quintero’s financial health, some of which occurred years before Hillcrest Bank began dealing with McClung. See E-Shops, 678 F.3d at 664; Mays, 811 P.2d at 1232 (aiding and abetting liability requires knowledge of principal’s tortious activity) Cal X-Tra, 276 P.3d at 40 (same). Allegations that the Director Defendants assisted McClung’s fraud by jimmying the Bank’s books and “execut[ing] transactions that gave the false appearance of financial viability” were far too vague to satisfy Rule 9(b). Nor did appellants show how they relied on McClung’s alleged misrepresentations and how that reliance caused them injury. See Nordstrom v. Miller, 605 P.2d 545, 551-52 (Kan. 1980) (elements of fraud); Dillon v. Zeneca Corp., 42 P.3d 598, 603 (Ariz. App. 2002) (same). 3. Regarding the claim in Count 8 that the Director Defendants assisted and participated in Hillcrest Bank’s alleged negligent mismanagement, we agree with the district court that Count 8 failed to state a claim even if it plausibly alleged the Defendant Directors owed appellants a duty of care. In general, banks owe no duty -10- of care to non-customers. See Eisenberg v. Wachovia Bank, 301 F.3d 220, 225 (4th Cir. 2002); Gilbert Tuscany Lender, LLC v. Wells Fargo Bank, 307 P.3d 1025, 1028 (Ariz. App. 2013); N. Cent. Kan. Prod. Credit Ass’n v. Hansen, 732 P.2d 726, 730-31 (Kan. 1987). Arguably, Hillcrest Bank and therefore the Director Defendants had some duty of care by reason of the Bank’s complex relationships with appellants. But the Omnibus Petition did not plausibly allege breaches of a specific duty, for example, by showing how each Director knew of alleged problems with the Quintero loans, why each Director’s knowledge created a duty to act, and how the Directors’ failure to act was both the actual and proximate cause of appellants’ injuries. See Shirley v. Glass, 308 P.3d 1, 6 (Kan. 2013); Dawson, 163 P.3d at 1051; Kerns, 875 P.2d at 957-58; Wisener v. State, 598 P.2d 511, 512 (Ariz. 1979). 4. The remaining counts do not require extended discussion. Count 2 failed to allege facts showing that any defendant canceled letters of credit with the intent to interfere with appellants’ contractual or business relationships or caused appellants’ losses. See generally Restatement (Second) of Torts § 766. Count 5 contained only conclusory and speculative assertions that an agreement existed between the Director Defendants and McClung to accomplish vaguely pleaded torts. This was insufficient to support a claim of civil conspiracy. See Iqbal, 556 U.S. at 678; Wells Fargo Bank v. Ariz. Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12, 36 (Ariz. 2002) (elements of civil conspiracy); Mays, 811 P.2d at 1226 (same). Count 7, which charged the Director Defendants with aiding and abetting Hillcrest Bank in converting funds owed to two appellants, failed to allege facts showing the personal participation of any Director. Count 9 alleged “Violations of Consumer Protection Law,” and referenced “Arizona Consumer Protection Statutes,” but did not explain which law was violated. In substance, Count 9 simply re-alleged -11- the aiding-and-abetting-fraud claim in Count 4 with nothing approaching the particularity required by Rule 9(b). Count 16 asserted claims of tortious interference and aiding and abetting against Hillcrest Bank’s sole shareholder, Hillcrest Bancshares, but failed to plausibly allege how Hillcrest Bancshares was involved. The district court’s Rule 12(b)(6) dismissals are affirmed. B. Summary Judgment on the Conversion Claim. Count 1 alleged that the Director Defendants converted property in which appellants had an interest when defendants copied Hillcrest Bank’s records and transferred the copies to Bryan Cave. The district court granted summary judgment dismissing this claim. Reviewing de novo, we agree. See Alexander v. Avera St. Luke’s Hosp., 768 F.3d 756, 759 (8th Cir. 2014) (standard of review). Under Kansas law, conversion is “the unauthorized assumption or exercise of the right of ownership over goods or personal chattels belonging to another to the exclusion of the other’s rights.” Bomhoff. v. Nelnet Loan Servs., Inc., 109 P.3d 1241, 1246 (Kan. 2005) (emphasis added). Assuming without deciding that QCA as well as Hillcrest Bank possessed a property interest in the Bank’s records, the Director Defendants’ mere copying of those records did not interfere with QCA’s property interest. See Moeller v. Kain, No. 98,531, 2008 WL 4416042, at  (Kan. App. Sept. 26, 2008) (copying files and removing the copies is not conversion); accord Monarch Fire Prot. Dist. v. Freedom Consulting & Auditing Servs., Inc., 644 F.3d 633, 637 (8th Cir. 2011) (“Under Missouri law, a copy of a document cannot be converted where the owner has not been deprived of possession or prevented from utilizing the property.”). C. Denial of Leave to Amend. Finally, appellants argue that the district court abused its discretion in denying QCA leave to amend its petition to include a new tort claim for spoliation of evidence during litigation. See O’Neil v. Simplicity, Inc., 574 F.3d 501, 505 (8th Cir. 2009) (standard of review). The district court concluded that -12- QCA unduly delayed seeking leave to amend, defendants were prejudiced by the delay, and the amendment would likely be futile. We agree. The Supreme Court of Kansas has not yet recognized an independent tort of spoliation when a party destroys evidence that would have been useful to an adverse or potentially adverse litigant. See Superior Boiler Works, Inc. v. Kimball, 259 P.3d 676, 685-90 (Kan. 2011). There was no abuse of the district court’s substantial discretion. The judgment of the district court is affirmed. _____________________________ -13-