In Ritchie Special Credit Invs., Ltd. v. JPMorgan Chase & Co., Civ. No. 14-4786 (DWF/FLN), 2021 WL 2686079, slip op. (D. Minn. August 30, 2021), Judge Frank granted the defendants’ motions to dismiss the plaintiffs’ third amended complaint and dismissed the complaint with prejudice based upon lack of standing and untimely claims.
This action stems from loans plaintiffs made to Thomas Petters, which were documented as promissory notes retroactively by Petters Company, Inc. (PCI) and Petters Group Worldwide, LLC (PGW) and guaranteed by Petters. The plaintiffs allege that these loans were made after the defendants became aware of Petters’s Ponzi scheme and, as a result, refused to provide extensions to existing loans, but encouraged the plaintiffs to make loans to Petters and related entities. After the Ponzi scheme was discovered, Petters and his companies were put into receivership and several Petters companies filed for bankruptcy. The bankruptcy cases were consolidated, and the bankruptcy trustees and receiver filed a multitude of cases seeking recovery of fraudulent transfers against many defendants, including the defendants in this case. Subsequently, the defendants entered into settlements with the trustees and receiver, and the bankruptcy court entered bar orders “permanently enjoining Petters’s creditors from asserting any claims that belonged to the Trustees or Receiver or claims that are derivative of any such claims, whether denominated in tort, unjust enrichment, or otherwise, and including but not limited to claims for fraudulent transfer.” 2021 WL 2686079, at 2 (citing In re Petters Co., Inc. et al., No. 08-45257 (Bankr. D. Minn.) at 6-7; United States v. Petters, Civ. No. 08-5348 (D. Minn.), Doc. No. 2990, at 4-5).
The district court held that all of the claims alleged by certain plaintiffs were time-barred under Illinois’s statute of limitations and dismissed the second amended complaint while declining to consider alternative grounds for dismissal. On appeal, the Eighth Circuit affirmed the district court’s dismissal of claims made by two plaintiffs as time-barred, but reversed and remanded as to the the three plaintiffs named in this case, which are all Cayman Island exempt companies. Ritchie Capital Mgmt., L.L.C. v. JPMorgan Chase & Co., 960 F.3d 1037, 1048-51. The Eighth Circuit held the court could not yet find the claims of those plaintiffs as accruing in Illinois and barred and remanded the case, including consideration of alternative grounds for dismissal. Id. at 1050-51, 1055. The remaining plaintiffs amended the complaint and filed the third amended complaint asserting eight causes of action including aiding and abetting fraud, aiding and abetting fraud, negligence, breach of fiduciary duty, unjust enrichment, constructive fraudulent conveyance, and knowing fraudulent conveyance. The defendants filed motions to dismiss the plaintiffs’ third amended complaint.
The district court first examined the issue of whether the plaintiffs have standing to bring the claims. The defendants argued that plaintiffs lack standing because the claims for aiding and abetting, unjust enrichment, and fraudulent conveyance are
general claims common to all of Petters’s creditors and derivative of the Petters bankruptcy estate’s injury, as opposed to particularized claims alleging specific wrongdoing by JPMC or Richtie and leading to Ritchie’s injuries. As such, Defendants argued that Ritchie lacked standing to bring the claims because the claims were the property of the Debtors’ bankruptcy estate or the Petters receivership.
2021 WL 2686079, at 4. The plaintiffs alleged that the aiding and abetting claims were not part of the bankruptcy estates and are direct and particularized. The district court concluded that the aiding and abetting claims were property of the bankruptcy estate as derivative claims, and the trustees had exclusive standing to pursue such claims because the “claims allege the same kind of harm—a loss of funds—that affected all creditors of the Petters entities, namely that it lost money it loaned to Petters and his entities because it did not know about the Ponzi scheme.” Id. at 5.
The plaintiffs alleged fraudulent transfer and unjust enrichment claims and sought in part to reclaim a repayment to the defendant on a PGW credit line based upon a transfer of funds from Ritchie to a PCI account. The plaintiffs asserted that the funds were transferred to Petters personally and then to the defendant and, as such, was not a transfer belonging to the PCI bankruptcy trustee and were not property of the debtor. Because PCI is a debtor, the district court concluded that the trustees had exclusive standing to bring claims based upon the transfer of the debtor’s property. The district court also opined that, in the event that the claims involved transfers of Petters’s personal property, any of those claims were property of the Petters receiver and were permanently enjoined by the bar order.
The defendants also argued that the plaintiffs’ claims for negligence, breach of fiduciary duty, and unjust enrichment were time-barred. The district court analyzed the timeliness of the claims using New York’s borrowing statute and concluded that the claims for negligence, breach of fiduciary duty, and unjust enrichment were time-barred. The plaintiffs also argued that the negligence claim should be equitably tolled but the district court disagreed.
Despite concluding that the claims were properly dismissed for lack of standing and because they were time-barred, the district court then examined the merits of the claims in the third amended complaint. The district court found that all of the plaintiffs’ claims also failed on the merits. The plaintiffs alleged the same claims against one defendant as it asserted against another defendants, but in Ritchie Capital Mgmt., L.L.C. v. JPMorgan Chase & Co., Civ. No. 14-4786, 2017 WL 6403096, at 6 (D. Minn. Dec. 14, 2017), the district court held that it lacked personal jurisdiction over the first defendant, which was upheld by the Eight Circuit, but the Eighth Circuit reversed and remanded to allow the district court to consider whether jurisdictional discovery is appropriate. 2021 WL 2686079, at 2 (citing Ritchie Capital Mgmt., L.L.C. v. JPMorgan Chase & Co., 960 F.3d 1037 at 1055). The district court concluded that jurisdictional discovery is unnecessary because the claims are time-barred and even if the claims were not untimely, the claims would fail. Additionally, the court dismissed claims asserted against another defendant because the plaintiffs did not identify any allegations specifically against that defendant.
Co-Editors in Chief
Alexander J. Beeby, Larkin Hoffman Daly & Lindgren Ltd.
Kesha Tanabe, Tanabe Law