• April 4, 2012

Update (April 4, 2012):  Plaintiff Bank of Montreal (“BMO”) survives (in significant part) defendants’ motion to dismiss BMO’s second amended complaint.

BMO [, the party claiming it was the victim of fraud,] cannot assert a claim based on Defendants’ statements to BMOCM/Steenbergen unless those statements were actually conveyed to BMO. It is not enough to allege that Defendants intended the statements to be conveyed to BMO…[Therefore, some counts of BMO’s  complaint were again dismissed.]

[As for defendants’ claim that BMO’s other fraud claims were “implausible,” a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.  This is not a ‘probability requirement,’ but only requires ‘more than a sheer possibility that a defendant has acted unlawfully.’  The Court denies Defendant’s motion to dismiss based on implausibility….

BMO alleges that, at some point, Defendants knew that Lakeland was in trouble and that their money was at risk, so they attempted to shift the risk to BMO by fraudulently inducing it to enter the RFA and lulling BMO into not investigating Lakeland’s financial soundness.  According to this theory, Defendants put more money into Lakeland to avoid immediate default, in the hopes of later extracting their investment, leaving BMO holding the bag.  This theory is not lacking in plausibility.

(Also some interesting analysis of motion to dismiss veil-piercing claims, btw.)

Original Post (March 15, 2012):  U.S. state and federal law provide remedies for outright financial fraud but the law sits it out when a sophisticated investor just has made a bad call and lost a pile of money.  The law’s role (and its lack of one) at these polar extremes of economic loss are clear.

The trick is when deciding when “puffing,” zealous sales efforts, putting one’s best foot forward, or “putting lipstick on a pig” crosses the line from capitalism in action into outright deception.

Bank of Montreal (“BMO”) brought a complaint in U.S. District Court (D. Minn.) that billionaire Theodore “Ted” Waitt and others crossed that line, causing BMO millions of dollars of damages.  BMO’s complaint got thrown out.  BMO came back, most recently with its second amended complaint.  And, once again, the defendants take the position that the lengthy allegations (it is a 100-page complaint) are not actionable, that BMO lost money on an investment and that is all.

Some cases, like the BMO case, develop their own vocabulary, often picked from a document in the case that one side or the other (or both) take to be “the key” or to contain a pithy catch-phrase.  This case seems to focus on “the Bob Problem,” referring to the fact that defendants’ business venture had a convicted felon at or near its center and BMO seems to suggest that this, and other problems with defendants’ business were actively concealed as defendants allegedly sought cover from the risk of the venture at BMO’s expense.

Of possible interest to litigators, is it improper in a motion to dismiss a second amended complaint to include citations to previous versions of the complaint (the original complaint or the first amended complaint)?  Allegations in the earlier complaints are “superceded” by allegations in the latter “operative” complaint, but does that mean the Court cannot even acknowledge the earlier (infirm) allegations? What if later allegations are contradictory?

U.S. District Court Chief Judge Michael J. Davis (D. Minn.) will need to decide these issues.  The most recent motion to dismiss was argued in this case at the end of last week.

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