United States District Court, D. Utah, Central Division
MEMORANDUM DECISION AND ORDER GRANTING MOTION TO
Waddoups United States District Court Judge
matter is before the court on a Motion to Dismiss brought by
defendants J & S Financial Corporation, Stephen L.
Adamson, and Jared Adamson (the J & S Defendants) under
Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 25.) A
hearing on this motion was held on October 13, 2016, at which
time the court took the matter under advisement. The court
has carefully considered the memoranda and other materials
submitted by the parties, the arguments of counsel, and the
law and facts relating to the motion. For the reasons
discussed below, the court GRANTS the Motion to Dismiss.
Rabo Agrifinance, Inc. (Rabo) is a Delaware corporation with
its principal place of business in St. Louis, Missouri. (Am.
Compl. ¶ 1, Dkt. No. 20.) All defendants reside within
the state of Utah for the purposes of 28 U.S.C. §
1332(a). (Id. at ¶¶ 2-10.) This court has
diversity jurisdiction over the subject matter of this action
pursuant to 28 U.S.C. § 1332(a), because there is
complete diversity between the adversarial parties, and the
matter in controversy before the court exceeds $75, 000.
January 6, 2012, Rabo made a loan of $11, 944, 494.53 to
three dairies owned by the Bliss family: Revolution Dairy,
Highline Dairy, and Robert and Judith Bliss dba Bliss Dairy
(collectively, the Borrowers). (Id. ¶¶
15-17.) The Borrowers hired the J & S Defendants as
financial consultants to help them obtain financing for their
dairies. (Id. at ¶ 35.) In deciding to fund the
loan for the dairies, Rabo alleges that it relied on the
Borrowers' written financial information for the years
2008 through 2011 as sent to them by the J & S
Defendants. (See Id. at ¶ 45.)
the loan was funded, Rabo alleges that it discovered the
financial information it received about the Borrowers was
inaccurate. Rabo alleges it received three fraudulent pieces
of information: (1) a June 30, 2011 financial statement, (2)
a December 1, 2011 borrowing base report (Base Report), and
(3) a December 31, 2011 Base Report. (Id. at
alleges the following, which the court accepts as true for
purposes of the Motion to Dismiss: In the December 1, 2011
Base Report, the Borrowers represented that the accounts
payable for the dairies as of December 1, 2011 was $98, 474.
(Id. at ¶ 41.) In the December 31, 2011 Base
Report, the Borrowers represented to Rabo that the
dairies' total net accounts payable as of December 31,
2011 was $749, 282. (Id. at ¶ 44.) On January
6, 2012, Rabo, relying on the Base Reports, closed and funded
the loan to the Borrowers. (See Id. at ¶¶
April 17, 2012, Rabo received the Borrowers' 2011
financial statement that was prepared by an independent
accounting firm and was intended to report on the
dairies' financial condition as of December 31, 2011.
(Id. at ¶ 48.) The 2011 Financial Statement
should have been entirely, or at least materially consistent
with the December 31, 2011 Base Report. However, it was not.
(Id. at ¶ 49.) Among other things, the 2011
financial statement revealed that the Borrowers had
underreported their accounts payable by over $2.5 million.
(Id. at ¶¶ 52-53.)
2, 2012, Rabo sent the J & S Defendants an email asking
for an explanation from both the Borrowers and the J & S
Defendants of the reasons for the substantial and material
discrepancies between the December 31, 2011 Base Report and
the 2011 Financial Statement. (Id. at ¶ 50.)
This suit was filed on June 12, 2015. (See Dkt. No.
1.) By Rabo's own admission it had observed
“substantial and material discrepancies between the
December 31, 2011 Base Report and the 2011 Financial
Statement on May 2, 2012. (Am. Compl. ¶ 50, Dkt. No.
progressed, Rabo continued to discover the full extent of the
fraud. After further investigation Rabo became aware that the
accounts payable was more than $8 million, which was
significantly higher than the $98, 474 that was originally
represented. (Id. at ¶ 57.) Rabo's further
investigation also revealed that the Borrowers had suffered a
loss in 2011 of over $3.5 million, which was materially
different from the profit of $813, 000 the Borrowers
originally represented. (Id. at ¶¶ 58-60.)
seeks recovery from the J & S Defendants for (1) Common
Law Fraud, (2) Fraudulent Non-Disclosure, (3) Negligent
Misrepresentation, (4) Aiding and Abetting Fraud, and (5)
Conspiracy. The J & S Defendants filed this Motion to
Dismiss asserting that Rabo's fraud claims are barred by
the three-year statute of limitations, and that Rabo failed
to adequately allege a negligent misrepresentation claim due
to the fact that the J & S Defendants did not owe Rabo an
independent duty outside of contract law.
court will first address the reasons why Rabo's fraud
claims are barred by the statute of limitations, and then
will discuss the reasons why the J & S Defendants, as
financial consultants to the Borrowers, did not owe Rabo an
independent duty to refrain from negligent ...