Court Opinion

ID: 4505705
Source: CourtListenerOpinion
Date Created: 2020-02-07 17:00:26.464199+00
Date Added: 2024-06-11T15:04:27.132642
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 18-3017
                        ___________________________

                              Ambassador Press, Inc.

                       lllllllllllllllllllllPlaintiff - Appellant

                                          v.

                       Durst Image Technology U.S., LLC

                       lllllllllllllllllllllDefendant - Appellee
                                      ____________

                    Appeal from United States District Court
                     for the District of Minnesota - St. Paul
                                  ____________

                           Submitted: October 15, 2019
                             Filed: February 5, 2020
                                 ____________

Before SMITH, Chief Judge, GRUENDER and BENTON, Circuit Judges.
                              ____________

BENTON, Circuit Judge.

       Ambassador Press, Inc., a commercial printing company, purchased a printing
press, the Rho 1012, from Durst Image Technology U.S., LLC. Four years later,
Ambassador sued Durst for fraud, alleging the 1012 did not have the speed or
durability Durst represented at the time of purchase. The district court1 granted
Durst’s motion to dismiss. Ambassador appeals. Having jurisdiction under 28 U.S.C.
§ 1291, this court affirms.

                                         I.

      In 2013, Ambassador expressed interest in buying a commercial-grade Rho
1012 printer from Durst. The companies emailed about the characteristics of the
1012, including its speed, and the frequency and costs of replacing its 64 print heads
(each costing $12,990).

       As to speed, Durst’s Sales Manager emailed Ambassador that the 1012 would
be at least 50% faster than a competitor HP model and that “the 1012 is the fastest 12
picoliter 1000 dpi printer on the market.” Durst forwarded a chart of specific levels
of print output in square feet per hour. Durst delivered to Ambassador a written list
of expected output. Ambassador employees visited Durst’s headquarters (in Austria)
to see the printer and print heads, where Durst repeated many of the representations
about speed.

        As to durability, the Sales Manager emailed Ambassador that Durst’s
information about North American printers showed a “low failure rate of heads out
of warranty.” The Sales Manager noted that he had incomplete information for those
still in warranty, and no information about those sold overseas. He added that the
“worst case scenario I could find” was one unit that required six print-head
replacements at the end of two years. In another email, the Sales Manager informed
Ambassador that Durst had “some customers with many years of operation without
head replacement and others with minor but varying degrees of head replacements

      1
      The Honorable Joan N. Ericksen, United States District Judge for the District
of Minnesota.

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mostly due to preventative maintenance procedures and in some cases poor operator
practices.” During the trip to Austria, the Sales Manager and other Durst employees
represented that although Durst’s print heads were substantially more expensive than
others on the market, Ambassador should not worry because the print-heads were of
the highest quality, rarely fail, and rarely require replacement.

       At a Durst trade booth, an Ambassador employee “spent some time with the
tech on the machine,” emailing the Sales Manager that the printer had “[b]eautiful
print quality!” Soon after, Ambassador purchased the 1012, a service plan, and a
two-year warranty. Ambassador alleges that the 1012 never functioned as promised
in terms of speed or print-head durability.

       Four years after the purchase, Ambassador sued Durst in state court alleging
common law and consumer fraud. Durst removed the case to federal court and moved
to dismiss the complaint. The district court dismissed the consumer fraud claim but
allowed an amended complaint for common law fraud. The amended complaint
reasserted the common law fraud claim. Durst moved to dismiss it. The district court
dismissed for two reasons. First, the amended complaint failed to set forth plausible
allegations of fraud, and second, Ambassador failed to allege detrimental reliance
with particularity. Ambassador Press, Inc. v. Durst Image Tech. U.S., LLC, 2018
WL 3975117 at *4 ( D. Minn. Aug. 20, 2018).

                                          II.

       This court reviews de novo a dismissal for failure to state a claim, accepting
as true the allegations in the complaint and drawing all reasonable inferences in favor
of the nonmoving party. Star City Sch. Dist. v. ACI Bldg. Sys., LLC, 844 F.3d 1011,
1016 (8th Cir. 2017). To withstand a motion to dismiss, a complaint must set forth
“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible when “the plaintiff

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pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). “Where a complaint pleads facts that are ‘merely consistent with’ a
defendant’s liability, it ‘stops short of the line between possibility and plausibility.’”
Id. quoting Twombly, 550 U.S. at 557. In a diversity suit, this court applies “federal
pleading standards. . . to the state substantive law to determine if a complaint makes
out a claim under state law.” Karnatcheva v. JPMorgan Chase Bank, N.A., 704
F.3d 545, 548 (8th Cir. 2013).

         In Minnesota, a fraudulent misrepresentation claim requires that a plaintiff
plead:

                (1) there was a false representation by a party of a past or
               existing material fact susceptible of knowledge; (2) made
               with knowledge of the falsity of the representation or made
               as of the party’s own knowledge without knowing whether
               is was true or false; (3) with the intention to induce another
               to act in reliance thereon; (4) that the representation caused
               the other party to act in reliance thereon; and (5) that the
               party suffer[ed] pecuniary damage as a result of the
               reliance.

Trooien v. Mansour, 608 F.3d 1020, 1028 (8th Cir. 2010) citing Hoyt Props., Inc.
v. Prod. Res. Group, LLC, 736 N.W.2d 313, 318 (Minn. 2007).

       A complaint alleging fraud “must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). The complaint must plead “such
matters as the time, place and contents of false representations, as well as the identity
of the person making the misrepresentation and what was obtained or given up
thereby.” Shaller Tel. Co. v. Golden Sky Sys. Inc., 298 F.3d 736, 746 (8th Cir.
2002). The complaint must plead the “who, what, where, when, and how” of the
alleged fraud. United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552,

                                            -44-
556 (8th Cir. 2006). “Conclusory allegations that a defendant’s conduct was
fraudulent and deceptive are not sufficient to satisfy the Rule.” Schaller, 298 F.3d
at 746.

       “Allegations pleaded on information and belief usually do not meet Rule 9(b)’s
particularity requirement.” Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8th Cir.
2009). “When the facts constituting the fraud are peculiarly within the opposing
party’s knowledge, however, such allegations may be pleaded on information and
belief.” Id. at 783-84. “If the plaintiff’s allegations of fraud are . . . based only on
information and belief, the complaint must set forth the source of the information and
the reasons for the belief.” Munro v. Lucy Activewear, Inc., 899 F.3d 585, 590 (8th
Cir. 2018).

      Ambassador argues that their complaint is like the complaint in Johnson v.
Bobcat Co., 175 F. Supp. 3d 1130, 1135 (D. Minn. 2016). Plaintiff there bought a
Bobcat loader, alleging as a fraudulent misrepresentation: “top speed was not 12.3
mph as advertised, but rather, approximately half of that.” Bobcat, 175 F. Supp. 3d
at 1135. This allegation withstood the motion to dismiss because the plaintiff alleged
“specific mile-per-hour parameters” and provided the defendant with “more than
enough information to adequately respond and prepare a defense, which is the critical
inquiry under Rule 9(b).” Id. at 1146.

       In Bobcat, the plaintiff outlined at length the factual basis for each allegation
and how the model was incapable of meeting publicly-advertised metrics, including
the specific ways plaintiff tested and discovered that the representations were false.
Complaint at 8-14, Johnson, 175 F. Supp. 3d 1130 (0:15-CV-02097). True,
Ambassador did allege the time, place and contents of the statements made about the
1012, but Ambassador did not allege any particular facts that the statements were
false to “allow[] the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 556 U.S. at 678. Ambassador does provide some
expected speeds with particularity, but, unlike in Bobcat, only makes the vague

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assertion that the printer never reached it, with no factual information about actual
speeds reached.

       Ambassador discusses two other Minnesota district court cases about pleading
fraud with sufficient particularity. Both dealt with defective consumer products that
allegedly did not perform as represented. See Podpeskar v. Makita U.S.A. Inc., 247
F. Supp. 3d 1001, 1010 (D. Minn. 2017); City of Wyoming v. Procter & Gamble Co.,
210 F. Supp. 3d 1137, 1154 (D. Minn 2016). In the lengthy amended complaint in
Podpeskar, plaintiff specifically alleged the features that made the company’s
batteries defective and how the alleged defect caused the batteries to have less battery
life than advertised. Complaint at 4-5, Podpeskar, 247 F. Supp. 3d 1001
(0:15-CV-03914). Plaintiffs attached complaints from Amazon.com reviews
spanning multiple years, effectively detailing the source of the information, the reason
for their belief that the defect existed, and defendant’s notice of these inadequacies
while continuing to represent that the batteries were defect-free. Id. at 9-12. The
district court ruled that the complaint clearly apprised defendant of the acts relied on
in support of the alleged claims. Podpeskar, 247 F. Supp. 3d at 1011.

        In City of Wyoming, the court ruled “Plaintiffs have thoroughly pleaded facts
about each Defendant’s alleged misrepresentations in marketing their products as
‘flushable’ when the wipes were allegedly not flushable,” and “Plaintiffs also plainly
allege that Defendants’ representations that their products are in fact flushable are
false.” City of Wyoming, 210 F. Supp. 3d. at 1154. Plaintiffs attached the
advertisements for the wipes, which said they break apart after flushing and are safe
for sewers and septic systems. Id. at 1147-49. Plaintiffs also attached pictures of the
still intact wipes clogging the city’s wastewater treatment facilities. Complaint at 16-
18, 27, City of Wyoming, 210 F. Supp. 3d 1137 (0:15-CV-02101). Unlike the
plaintiffs in Podpeskar and City of Wyoming, Ambassador does not set forth any
facts, beyond general descriptions of its own experience, to support its allegations
about the 1012's alleged inadequacies, or that Durst knew its representations about
the 1012 were false.

                                          -66-
       A closer case on the facts is Drobnak v. Andersen Corp., 561 F.3d 778 (8th Cir.
2009). Plaintiffs there alleged four counts of fraud, pleading, on information and
belief, that their windows were not filled with inert gas, as Andersen represented at
the time of purchase. Drobnak, 561 F.3d at 784. This court held: “No facts were
pleaded to support this broad allegation, and the plaintiffs did not identify the facts
on which the belief was founded.” Id. This court determined that pleading on
information and belief was inappropriate because plaintiffs possessed the windows,
with sole access to the factual underpinnings for the conclusion that their windows
were not filled with the gas. Id. Further, this court said that “plaintiffs failed to plead
facts to support the ‘what’: that the products they own did not contain inert gas,”
instead making sweeping allegations. Id.

       Ambassador alleges, on information and belief, that Durst knew, when it made
its representations, that “the Rho 1012 was experiencing significant print head
problems,” and that it knew “the Rho 1012 was experiencing significant speed
problems.” Ambassador alleges the representations made in support of the 1012's
speed and durability must be false based on its experience with the 1012. For
example, Ambassador alleges that in the four years since the purchase, they replaced
54 print heads. Ambassador argues that this number of replacements over four years
is excessive when compared with the historical performance data Durst provided
(although Durst provided print-head replacement data only for 1012 models after two
years). Ambassador also alleges that the 1012 “never functioned or achieved the
speeds as promised.” As in Drobnak, no additional facts were pleaded in support of
these broad allegations.

      Most instructive is Munro v. Lucy Activewear, Inc., 899 F.3d 585 (8th Cir.
2018). Plaintiff there pleaded, on information and belief, that intentional false
misrepresentations were made. The plaintiff “relie[d] on the phrase ‘on information
and belief’ to allege that [defendant] intentionally provided false promises.” Munro,
899 F.3d at 590. Plaintiff argued that defendant’s broken promises were proof it

                                           -77-
never intended to keep the promises. Id. This court disagreed, noting that plaintiff’s
complaint did not “set forth any supporting facts showing that [defendant] intended
to defraud [plaintiff ]when the promises were made.” Id. at 590-91. Thus, plaintiff
did not adequately allege fraud under Minnesota law. Id.

      As in Munro, Ambassador’s complaint does not set forth any supporting facts
showing that Durst intended to defraud them when the promises were made. All
Ambassador alleges is, on information and belief, that Durst knew of the problems
when it sold the printer. Ambassador alleges Durst told them, four years after the
purchase, that Durst had replaced fewer print heads than were actually replaced.
They allege, on information and belief, that Durst lied about the number of
replacements to conceal the extent of the fraud. Instead of pleading facts that
plausibly show Durst knew its representations were false at the time of the purchase,
Ambassador’s allegations only indicate its experience did not align with its
expectations.

       The district court correctly determined that Ambassador did not plausibly
allege common law fraud.

                                          III.

       Ambassador argues that the district court erred when it ruled that detrimental
reliance was not pleaded with sufficient particularity. Parties alleging fraud must
plead reliance with “sufficient particularity to state a plausible claim of justifiable
reliance.” OmegaGenesis Corp. v. Mayo Found. For Med. Educ. & Research, 851
F.3d 800, 805 (8th Cir. 2017). Conclusory allegations that a plaintiff detrimentally
relied on defendants’ representations are not sufficient factual matter to state a claim
of relief plausible on its face. See Cox v. Mortgage Elec. Registration Sys., Inc., 685
F.3d 663, 673 (8th Cir. 2012).

                                          -88-
       The only allegation in the complaint about reliance is the assertion that
“Ambassador would not have purchased the Printer, the Service Plan, or the two-year
warranty, but for the Fraudulent Misrepresentations.” As in Cox, this is a conclusory
allegation. Ambassador pleads no other facts in support of Ambassador’s reliance as
a result of the allegedly fraudulent misrepresentations.

       Ambassador relies on consumer fraud cases to argue that a purchase
sufficiently proves reliance on the representations of a seller. Minnesota courts,
however, explain that “[r]eliance in fraud cases is generally evaluated in the context
of the aggrieved party’s intelligence, experience, and opportunity to investigate the
facts at issue. Valspar Refinish, Inc. v. Gaylord’s, Inc., 764 N.W.2d 359, 369 (Minn.
2009). “When a party conducts an independent factual investigation before it enters
into a commercial transaction, that party cannot later claim that it reasonably relied
on the alleged misrepresentation. Id.

        As in Valspar, Ambassador and Durst are sophisticated commercial entities.
Ambassador visited Durst’s facility, watched the printers operate, and viewed the
manufacture and testing of print heads. Ambassador representatives visited a Durst
sales booth and saw a demonstration of the machine, noting that they were happy with
the performance. Ambassador made an independent factual investigation before
entering the transaction. Ambassador cannot assert, with only conclusory allegations,
that it reasonably relied on the alleged misrepresentations.

       The district court properly determined that reliance was not pleaded with
particularity and properly granted the motion to dismiss.

                                    *******

      The judgment is affirmed.
                     ______________________________

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