Grace Village Health Care Facilities, Inc. v. Lancaster Pollard & Co.

896 F. Supp. 2d 757, 2012 WL 3916652
CourtDistrict Court, N.D. Indiana
DecidedSeptember 7, 2012
DocketCivil No. 3:11cv295
StatusPublished
Cited by1 cases

This text of 896 F. Supp. 2d 757 (Grace Village Health Care Facilities, Inc. v. Lancaster Pollard & Co.) is published on Counsel Stack Legal Research, covering District Court, N.D. Indiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Grace Village Health Care Facilities, Inc. v. Lancaster Pollard & Co., 896 F. Supp. 2d 757, 2012 WL 3916652 (N.D. Ind. 2012).

Opinion

OPINION AND ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on a motion for partial dismissal filed by the defendants, Lancaster Pollard & Co. (“Lancaster Pollard”) and Steven W. Kennedy, Jr. (“Kennedy”), on April 20, 2012. The plaintiffs, Grace Village Health Care Facilities, Inc. and National Fellowship Brethren Retirement Homes, Incorporated (collectively “Grace Village”), filed its response on May 7, 2012, to which the defendants replied on May 24, 2012.

Also before the court are motions to dismiss filed by third-party defendants, Peck, Shaffer & Williams LLP and Jason L. George.

For the following reasons, the defendants’ motion for partial dismissal will be granted and the third-party defendants’ motions to dismiss will be denied.

Discussion

Grace Village has sued the defendants in three counts: (1) breach of contract; (2) professional negligence, misrepresentation, and negligence per se; and (3) breach of fiduciary duty. The following background facts are taken from Grace Village’s First Amended Complaint. This action arises from the termination of two interest-rate swap agreements between Grace Village and Lehman Brothers Special Financing, [761]*761Inc. (“Lehman”). Defendant Lancaster Pollard, an investment bank, served as an underwriter for bonds issued in 2006 for the benefit of Grace Village, a not-for-profit retirement home for the elderly.

In or around 2006, Kennedy, a Vice President and Investment Banker at Lancaster Pollard, advised Grace Village to enter into two interest-rate swaps with Lehman, which Grace Village did. After Lehman and certain of its related entities filed for bankruptcy in September 2008, Lancaster Pollard and Kennedy advised Grace Village to terminate the swaps. Lancaster Pollard and Kennedy instructed Grace Village on how to terminate the swaps. Among other things, Lancaster Pollard and Kennedy specifically instructed Grace Village to send default and termination notices to Lehman by fax; and at termination, to state that the value of the swaps was zero. Grace Village, relying on Lancaster Pollard and Kennedy’s superior knowledge, followed Lancaster Pollard and Kennedy’s instructions. Those instructions were wrong.

Nevertheless, when Lehman claimed that Grace Village had not properly terminated the swaps and demanded payment from Grace Village, Lancaster Pollard and Kennedy advised Grace Village that Lehman was wrong.

After lengthy negotiations, Grace Village settled with Lehman. Though the Bankruptcy Court’s September 17, 2009 Order and the terms of the settlement require that Lehman’s arguments and statements during the mediation be confidential, Grace Village is authorized to reveal that it paid $1,050,000 to Lehman as a reasonable final settlement resolving Lehman’s claims against Grace Village.

Count II of Grace Village’s Amended Complaint is a claim, in part, for “Misrepresentation” and alleges that Lancaster Pollard and Kennedy are liable for “intentionally ... misrepresenting the effectiveness of faxing the notices” and “intentionally ... misrepresenting that the swaps had been terminated.” See Dkt. 58, p. 13, Count II. In their prayer for relief, Grace Village seeks “punitive damages” against Lancaster Pollard and Kennedy for alleged “fraudulent ... misconduct in continuing to misrepresent to Grace Village the effectiveness of the default and termination notices and the status of the swaps’ terminations” (Dkt. 58, p. 15).

The defendants contend that Grace Village’s fraud claim against Lancaster Pollard and Kennedy should be dismissed under Rule 9(b), which provides: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed. R.Civ.P. 9(b). “This heightened pleading requirement is a response to the great harm to the reputation of a business firm or other enterprise a fraud claim can do.” Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir.2007). Rule 9(b) provides a measure of assurance “that the charge of fraud is responsible and supported, rather than defamatory and extortionate.” Ackerman v. Northwestern Mutual Life Ins. Co., 172 F.3d 467, 469 (7th Cir.1999); see also id. (stating “public charges of fraud can do great harm to the reputation of a business firm or other enterprise (or individual)”).

The “circumstances constituting fraud” that must be pled “with particularity” under Rule 9(b) “include the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff.” Windy City Metal Fabricators & Supply, Inc. v. CIT Technology Financing Services, Inc., 536 F.3d 663, 668 (7th Cir.2008) (internal quotations [762]*762omitted). “A complaint alleging fraud must provide the who, what, when, where, and how.” Borsellino, 477 F.3d at 507 (internal quotations omitted).

In the present case, the Amended Complaint asserts (1) that “Lancaster Pollard and Kennedy” intentionally misrepresented “the effectiveness of faxing the notices” and “that the swaps had been terminated” (Dkt. 58, p. 13, ¶ 79), (2) that, after Lehman’s bankruptcy and demands for payment, “Lancaster Pollard and Kennedy” advised Grace Village by emails on September 18, 2009, and August 10, 2010, “that it was ‘confident we have collectively proceeded in the correct manner’ and that ‘the process we used to unwind your swap will hold up,’” and (3) that “Lancaster Pollard and Kennedy” made “similar representations” on “many occasions” (Dkt. 58, p. 11, ¶ 67). The defendants argue that such allegations do not satisfy the heightened pleading requirement of Rule 9(b). See, e.g., Sears v. Likens, 912 F.2d 889, 893 (7th Cir.1990) (affirming dismissal of fraud claim under Rule 9(b)); In re Healthcare Compare Corp. Securities Litigation, 75 F.3d 276, 281-84 (7th Cir.1996) (reversing denial of motion to dismiss fraud claim based on Rule 9(b)).

The defendants argue that the Amended Complaint’s general allegations omit the particulars regarding the “circumstances constituting fraud” (Fed.R.Civ.P. 9(b)), such as: (1) Does Grace Village allege that anyone at Lancaster Pollard other than Kennedy made misrepresentations? If so, who?; (2) Were misrepresentations made to both Grace Village and National? Or just Grace Village? To whom (what individual) were the misrepresentations made? (3) Were the misrepresentations all communicated in emails? Or were they also made in other writings? Were any verbal misrepresentations made?; (4) What is the content of the “similar representations” (Dkt. 58, ¶ 67) that were made? And by whom, to whom, and when were they made?; (5) What dates correspond to the “many occasions” (Dkt.

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Bluebook (online)
896 F. Supp. 2d 757, 2012 WL 3916652, Counsel Stack Legal Research, https://law.counselstack.com/opinion/grace-village-health-care-facilities-inc-v-lancaster-pollard-co-innd-2012.