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Rabo Agrifinance, Inc. v. Bliss

United States District Court, D. Utah, Central Division

January 4, 2017

RABO AGRIFINANCE, INC., Plaintiff,
v.
MICHAEL R. BLISS, TIMOTHY S. BLISS, JUSTIN H. BLISS, J & S FINANCIAL CORPORATION, STEPHEN L. ADAMSON, and JARED ADAMSON, Defendants.

          MEMORANDUM DECISION AND ORDER GRANTING MOTION TO DISMISS

          Clark Waddoups United States District Court Judge

         INTRODUCTION

         This 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.

         FACTUAL BACKGROUND

         Plaintiff 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.

         On 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.)

         After 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 ¶¶ 68-70.)

         Rabo 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 ¶¶ 42-45.)

         On 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.)

         On May 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. 20.)

         As time 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.)

         Rabo 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.

         DISCUSSION

         The 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 ...


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