Ahlgren v. Capital One Bank (USA), N.A., Civil No. 19-1607 (JRT/LIB)

ERIK A. AHLGREN, in his capacity as assignee in the assignment for the benefitof creditors of Ashby Farmers Co-Operative Elevator Company, Plaintiffs, v. CAPITAL ONE BANK (USA), N.A. and CABELA'S INCORPORATED, Defendants.

Civil No. 19-1607 (JRT/LIB)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

February 10, 2020

MEMORANDUM OPINION AND ORDER

Erik A. Ahlgren, AHLGREN LAW OFFICE, PLLC, 220 West Washington Avenue, Suite 105, Fergus Falls, MN 56537, for plaintiff.

Joseph C. Wylie K&L GATES LLP, 70 West Madison Street, Suite 3100, Chicago, IL 60602; Nelson Moon Hua, K&L GATES LLP, 1717 Main Street, Suite 2800, Dallas, TX 75201; Patrick M. Biren, STICH ANGELL KREIDLER & UNKE P.A., France Place 3601 Minnesota Drive, Suite 450, Minneapolis, MN 55435, for defendants.

This case arises out of Jerry Hennessey's unauthorized use of funds from his prior employer, the Ashby Farmers Co-Operative Elevator Company (the "Co-Op"). From 2003 to 2018, Hennessey paid over $5 million of the Co-Op's funds to himself or directly to third parties for his personal benefit. Among others, Hennessey paid Defendants Capital One Bank ("Capital One") and Cabela's Inc. ("Cabela's") with checks from the Co-Op to cover charges Hennessey had accrued on his personal Cabela's Club Visa credit card while on exotic hunting trips. Upon discovery of the fraud in 2018, the Co-Op ceased operations and appointed an Assignee, Plaintiff Erik Ahlgren, to pursue claims and remedies on behalf of the Co-Op and its creditors. Ahlgren brought this action on May 24, 2019, seeking to void the unauthorized payments to Defendants. Ahlgren alleges three Counts: (I) actual fraud pursuant to the Minnesota Uniform Voidable Transactions Act ("MUVTA"), Minn. Stat. §§ 513.44(a)(1), 513.47; (II) constructive fraud pursuant to the MUVTA, Minn. Stat. §§ 513.45(a), 513.47; and (III) unjust enrichment.

Presently before the Court is Defendants' Motion to Dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). For the reasons set forth below, the Court will grant the motion as to Count III but deny the motion as to Counts I and II, while also denying without prejudice Defendants' statute of limitations argument.

BACKGROUND

I. FACTUAL BACKGROUND

The Co-Op is a grain farmers' cooperative based in Ashby, Minnesota. (First Am. Compl ("FAC") ¶¶ 1, 15-16, June 24, 2019, Docket No. 9.) The Co-Op purchases grain from local farmers, who are also owners of the Co-Op, and sells it to grain markets. (Id. ¶ 16.) In 1989, the Co-Op hired Jerry Hennessey as its general manager. (Id. ¶ 17.) In this role, Hennessey "had access and control over [the Co-Op's] assets" and bank accounts and "was trusted to act in the best interest of [the Co-Op]." (Decl. of Erik A. Ahlgren("Ahlgren Decl.") ¶ 4, Ex. D at 58, Aug. 2, 2019, Docket No. 25.)¹ Between June 2003 and September 2018, Hennessey received over $5.4 million in unauthorized funds from the Co-Op by writing checks from the Co-Op to himself and directly to third parties to pay for personal bills, home improvement projects, property purchases, and domestic and international hunting trips. (FAC ¶¶ 18-20, 24.) Hennessey hid the true nature of the checks from the Co-Op by coding them as feed purchases or other ordinary expenses. (Id. at 19.)

Capital One is a national credit card issuer that conducts business in Minnesota and has offices in Virginia. (Id. ¶ 3.) Cabela's is a national sports outfitter that operates stores in Minnesota and has its principal place of business in Sidney, NE. (Id. ¶ 2.) From 2008 to 2018, Hennessey cut at least $1,191,852.34 in Co-Op checks, made payable to Defendants, to cover personal charges Hennessey made on his Cabela's Club Visa card issued by Defendants. (Id. ¶ 20.) The payments related to Hennessey's personal, exotic hunting trips and did not benefit the Co-Op in any way. (Id. ¶ 19-22.) Ahlgren alleges that Defendants wrongfully accepted the Co-Op checks even though their contractual relationship was with Hennessey and not with the Co-Op. (Id. ¶ 23.)

According to Ahlgren, Hennessey fraudulently and intentionally concealed the Co-Op checks in an effort to hinder, delay and defraud the government, governmental authorities, the Co-Op and the Co-Op Board of Directors. (Id. ¶ 24.) Ahlgren claims the Co-Op was insolvent the entire time the Co-Op checks were being issued to Defendants but that Hennessey concealed the Co-Op's insolvency by (1) overstating the value of grain and product inventory, (2) failing to fully disclose accounts payable to Co-Op members for grain delivered, and (3) valuing equity in other cooperatives based on their projected value as opposed to their current fair market value. (Id. ¶ 26.) Hennessey also obtained a $7 million-plus line of credit for the Co-Op in his ongoing efforts to conceal his fraud and cover up the Co-Op's expenses. (Ahlgren Decl. ¶ 4, Ex. C at 42-43.)

The fraud was discovered in September 2018. (FAC ¶ 24.) As a result of Hennessey's fraud, the Co-Op was forced to close and has been unable to pay its debts. (FAC ¶ 16; Ahlgren Decl. ¶ 8, Ex. G at 74.)² In December 2018, the Co-Op executed an assignment (the "Assignment") with Erik Ahlgren for the benefit of the Co-Op's creditors. (FAC ¶ 7; Ahlgren Decl. ¶ 8, Ex. G at 74.) Pursuant to Minnesota Statutes, chapters 576 and 577, Ahlgren has committed to liquidating and administering the Co-Op's assets and may pursue any claim or remedy that could be asserted by the Co-Op or by a creditor of the Co-Op. (FAC ¶¶ 8, 10.) According to reports filed with the Assignment, the Co-Op hasforty-three creditors, most of which are based in Minnesota. (Ahlgren Decl. ¶ 8, Ex. G at 81-82.) On February 14, 2019, Hennessey pleaded guilty to mail fraud and income tax evasion. (Id. ¶ 4, Ex. C at 41.)

II. PROCEDURAL BACKGROUND

Ahlgren brought this action in Grant County District Court on May 24, 2019, alleging three Counts: (I) actual fraud pursuant to Minn. Stat. §§ 513.44(a)(1), 513.47; (II) constructive fraud pursuant to Minn. Stat. §§ 513.45(a), 513.47; and (III) unjust enrichment. (Notice of Removal ¶ 2, Ex. 1 ¶¶ 30-52, June 18, 2019, Docket No. 1.) On June 18, 2019, Defendants removed the case to this Court. (Id. at 6.) On June 24, 2019 Ahlgren filed an amended complaint. (FAC at 12.) Presently before the Court is Defendants' Motion to Dismiss the FAC for failure to state a claim pursuant to Rule 12(b)(6). (Mot. to Dismiss, July 15, 2019, Docket No. 16.)

DISCUSSION

I. STANDARD OF REVIEW

In reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court considers all facts alleged in the complaint as true to determine if the complaint states a "claim to relief that is plausible on its face." Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8^th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court todraw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. Although the Court accepts the complaint's factual allegations as true and construes the complaint in a light most favorable to the plaintiff, it is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286 (1986)). In other words, a complaint "does not need detailed factual allegations" but must include more "than labels and conclusions, and a formulaic recitation of the elements" to meet the plausibility standard. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

"When considering a Rule 12(b)(6) motion, 'the court generally must ignore materials outside the pleadings, but it may consider some materials that are part of the public record or do not contradict the complaint, as well as materials that are necessarily embraced by the pleadings.'" Smithrud v. City of St. Paul, 746 F.3d 391, 395 (8^th Cir. 2014) (quoting Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8^th Cir. 1999)).

Defendants seek dismissal of Count I for actual fraud, Count II for constructive fraud, and Count III for unjust enrichment. Defendants also argue that at least some of the claims are precluded by the statute of limitations. Each argument is considered in turn below.

II. COUNT I: ACTUAL FRAUD

Defendants argue that Ahlgren's claim of actual fraud fails because (1) Hennessey's intent cannot be imputed to the Co-Op and (2) even if intent could be imputed, Ahlgrenhas failed meet Rule 9(b)'s heightened pleading standard and failed to properly plead badges of fraud.

A. Imputation

The MUVTA provides that "a transfer made or obligation incurred by a debtor is voidable as to a creditor . . . if the debtor made the transfer or incurred the obligation . . . with actual intent to hinder, delay or defraud any creditor of the debtor." Minn. Stat. § 513.44(a)(1). The MUVTA is a remedial statute and should be interpreted broadly. Reilly v. Antonello, 852 N.W.2d 694, 699, 701 (Minn. Ct. App. 2014). "Intent for a corporation under [MUVTA] is still derived from a natural person in control." In re Petters Co., Inc., 557 B.R. 711, 734 n. 32 (Bankr. D. Minn. 2016).

Defendants argue imputation is only proper under MUVTA if the corporate agent has both legal and formal control. Defendants point to Reilly, noting the corporate agent there was the sole shareholder, officer, and director of the corporation and thus, exerted both formal and legal control of the company. Here, Defendants argue imputation is improper because Hennessey was not the sole shareholder, officer, and director. Instead, Hennessey had supervisors, namely the Board of Directors.

Defendants' argument misses the point. First, the MUVTA is to be interpreted broadly and Defendants' proposed rule would require a narrow interpretation because imputation would only be allowed in situations where the corporate actor was the sole shareholder, officer, and director.

Second, corporate intent is derived from a natural...