Michael Alan Mooney v. UnitedHealth Group Incorporated, Stephen L. Hemsley, William W. McGuire, David J. Lubben

• Court: Court of Appeals of Minnesota
• Decided: July 21, 2014
• Docket: A13-2093
• Status: Unpublished

Opinion

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2012).

STATE OF MINNESOTA IN COURT OF APPEALS A13-2093

Michael Alan Mooney, Appellant,

vs.

UnitedHealth Group Incorporated, Respondent,

Stephen L. Hemsley, Respondent,

William W. McGuire, Respondent,

David J. Lubben, Respondent

Filed July 21, 2014 Affirmed Peterson, Judge

Hennepin County District Court File No. 27-CV-12-22115

Michael Alan Mooney, Plymouth, Minnesota (pro se appellant)

Peter W. Carter, Michelle S. Grant, Shannon L. Bjorklund, Dorsey & Whitney LLP, Minneapolis, Minnesota (for respondents UnitedHealth Group Incorporated and Stephen L. Hemsley)

Steve Gaskins, Gaskins, Bennett, Birrell, Schupp, L.L.P., Minneapolis, Minnesota (for respondent William W. McGuire)

Richard G. Mark, Briggs and Morgan, Minneapolis, Minnesota (for respondent David J. Lubben) Considered and decided by Peterson, Presiding Judge; Connolly, Judge; and

Hooten, Judge.

UNPUBLISHED OPINION

PETERSON, Judge

Pro se appellant Michael Mooney appeals from the judgment dismissing his

claims against respondents. Because it appears to a certainty that no facts exist that

would support granting the relief demanded, we affirm.

FACTS

On October 14, 2012, appellant Michael Mooney filed separate complaints against

respondents UnitedHealth Group Incorporated, Stephen Hemsley, David Lubben, and

William McGuire alleging fraud and defamation. Respondents moved to dismiss the

complaints. Appellant obtained counsel and moved for leave to amend his complaint and

to consolidate the four actions.

The actions were consolidated, and appellant filed an amended complaint that

alleged claims of fraudulent misrepresentation against UnitedHealth, Hemsley, and

Lubben; and fraudulent nondisclosure and civil conspiracy against all respondents.

Respondents moved to dismiss the claims brought in the amended complaint, and the

district court granted the motion. Appellant’s attorney withdrew from representation

between the hearing date and the issuance of the district court’s order. This appeal

follows.

Appellant alleged the following facts in his amended complaint:

2 Appellant began working as a manager at UnitedHealth, a public health-care-

services company, in 1985. McGuire became CEO and Chairman of the Board of

UnitedHealth around 1991. Lubben was hired as general counsel and secretary at

UnitedHealth around 1996 and had worked previously as general counsel to the

UnitedHealth Board of Directors. Hemsley was hired around 1997 as senior executive

vice president and became chief operating officer in 1998. Hemsley was made president

of the company in 1999, became a member of the board of directors in 2000, and was

made chief executive officer and president in 2006.

During his time at UnitedHealth, appellant created the company’s underwriting

and pricing functions and was put in charge of those functions around 1988. He ran the

pricing functions until 1998, and he was also required to participate in due-diligence

activities when the company considered acquisitions. Beginning around 1999, appellant

was a vice president. His compensation included stock options beginning around 1993.

Appellant was subject to UnitedHealth’s policy that restricted trades in

UnitedHealth stock. The policy included a blackout-period at the end of every quarter

when no employee could make stock trades and an insider-trading restriction that

prohibited individuals with “material non-public information” from using the information

to their advantage.

In May 1995, appellant participated in UnitedHealth’s due-diligence process for

the acquisition of Metrahealth. From May through October 1995, appellant purchased

and sold approximately 40,000 shares of UnitedHealth stock.

3 In 1999, the Securities and Exchange Commission (SEC) began investigating

appellant’s 1995 trades of UnitedHealth stock. Before August 9, 1999, Hemsley spoke to

appellant on at least four occasions about a “possible investigation” into his 1995 trades.

Appellant alleged that Hemsley “was supportive of” appellant, assured appellant that he

would be “taken care of,” told appellant that he would not need to get a severance or take

early retirement, and said he would help appellant keep his stock options by hiring him at

a company related to UnitedHealth.

The SEC filed a complaint against appellant in early August 1999, alleging that

appellant made illegal trades in 1995 to take advantage of inside information. Around

August 9, 1999, Hemsley and Lubben told appellant that UnitedHealth’s “legal

department had performed an objective and unbiased review” of appellant’s May through

October 1995 trading and determined that appellant violated UnitedHealth’s policies and

needed to resign and give up his stock options. Lubben then suspended appellant.

Around August 16, 1999, Hemsley told appellant that he “had to do what Lubben says or

[appellant] won’t like the results,” and appellant resigned from UnitedHealth as

demanded.

In federal court in October 2001, appellant was convicted of securities fraud.

Appellant alleged that his “conviction was based in large part on the false and misleading

testimony of . . . Lubben.” Appellant alleged that Hemsley, McGuire, and Lubben “took

advantage of [appellant] in 1999 in order to improve the chances of success in their

ongoing fraud.”

4 In October 2006, UnitedHealth released the Wilmer Hale Report, which detailed

fraud at the company that involved backdating employee stock-option awards from 1994

until 2006, with the largest part of the fraud occurring in 1999. Appellant alleged that

none of the fraudulent actions was disclosed until 2006 or later and that the fraud would

not have been possible absent a conspiracy among Hemsley, McGuire, and Lubben.

DECISION

We review de novo a district court’s grant of a motion to dismiss under Minn. R.

Civ. P. 12.02(e). Sipe v. STS Mfg., Inc., 834 N.W.2d 683, 686 (Minn. 2013). When

reviewing a dismissal under Minn. R. Civ. P. 12.02(e), we consider only the facts alleged

in the complaint and accept those facts as true. Bodah v. Lakeville Motor Express, Inc.,

663 N.W.2d 550, 553 (Minn. 2003). “A pleading will be dismissed only if it appears to a

certainty that no facts, which could be introduced consistent with the pleading, exist that

would support granting the relief demanded.” Krueger v. Zeman Constr. Co., 758

N.W.2d 881, 884 (Minn. App. 2008) (quotation omitted), aff’d, 781 N.W.2d 858 (Minn.

2010).

Fraudulent Misrepresentation Claims

Dismissal for failure to state a claim is proper when the complaint, on its face,

“clearly and unequivocally” demonstrates that the statute of limitations has run and

contains no facts that toll the running of the statute. Pederson v. Am. Lutheran Church,

404 N.W.2d 887, 889 (Minn. App. 1987), review denied (Minn. June 30, 1987). An

action “for relief on the ground of fraud” must be commenced within six years of “the

discovery by the aggrieved party of the facts constituting the fraud.” Minn. Stat.

5 § 541.05, subd. 1(6) (2012). “‘[T]he facts constituting the fraud are deemed to have been

discovered when, with reasonable diligence, they could and ought to have been

discovered.’” Bustad v. Bustad, 263 Minn. 238, 242, 116 N.W.2d 552, 555 (1962)

(quoting First Nat’l Bank of Shakopee v. Strait, 71 Minn. 69, 72, 73 N.W. 645, 646

(1898)). Failure to actually discover fraud does not extend the statute of limitations if the

failure was inconsistent with reasonable diligence. Id. (quoting First Nat’l Bank of

Shakopee, 71 Minn. at 72, 73 N.W. at 646).

In separate counts against UnitedHealth, Hemsley, and Lubben labeled as

fraudulent misrepresentation, appellant alleged that each of these respondents made false

representations regarding UnitedHealth’s investigation into appellant’s improper trading

activities in 1995. The separate counts against each respondent alleged that the

representations were made with knowledge that the representations were false, without

knowing whether the representations were true or false, or without exercising reasonable

care or competence. All of the counts alleged that appellant resigned from UnitedHealth

in reasonable reliance on the false representations and, as a result, suffered damages.

To establish fraudulent misrepresentation a plaintiff must prove:

(1) a false representation of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made without knowing whether it was true or false; (3) with the intention to induce action in reliance thereon; (4) that the representation caused action in reliance thereon; and (5) pecuniary damages as a result of the reliance.

U.S. Bank v. Cold Spring Granite Co., 802 N.W.2d 363, 373 (Minn. 2011).

6 To prevail on a negligent misrepresentation claim, the plaintiff must establish: (1) a duty of care owed by the defendant to the plaintiff; (2) the defendant supplies false information to the plaintiff; (3) justifiable reliance upon the information by the plaintiff; and (4) failure by the defendant to exercise reasonable care in communicating the information.

Williams v. Smith, 820 N.W.2d 807, 815 (Minn. 2012). A duty of care arises when the

person making the representation is either “supplying information for the guidance of

others in the course of a transaction in which one has a pecuniary interest, or in the course

of one’s business, profession or employment.” Safeco Ins. Co. of Am. v. Dain Bosworth

Inc., 531 N.W.2d 867, 870 (Minn. App. 1995).

Appellant traded UnitedHealth stock in 1995. Appellant alleged that (1) false

statements about the investigation into his 1995 trading activity were made to him before

he resigned, (2) he resigned from UnitedHealth in reliance on the false statements, and

(3) he suffered damages when he resigned. Appellant resigned in August 1999.

Appellant knew the circumstances of his trading activity in 1995, and, by the time he

resigned, he knew that Hemsley was pressuring him to resign and give up his stock

options. With reasonable diligence, appellant could and ought to have discovered by the

time that he was convicted in October 2001 that the statements that (1) UnitedHealth’s

legal department had performed an objective and unbiased review that revealed that

appellant violated UnitedHealth’s policies when he traded UnitedHealth stock and

(2) Hemsley was going to take care of appellant and help him keep his stock options were

false statements that constituted fraud, which means that the statute of limitations on

7 these claims began running no later than October 2001 and expired six years later in

October 2007.

Appellant also alleged that Lubben was the most important witness at appellant’s

criminal trial and that when the FBI and the United States Attorney’s Office investigated

and prosecuted him for securities fraud, respondents made false statements about

UnitedHealth’s investigation into appellant’s trading activity in 1995. Appellant was

convicted in October 2001. With reasonable diligence, appellant could and ought to have

discovered by the time he was convicted that respondents’ statements to investigators and

at trial were false statements that constituted fraud. Therefore, the statute of limitations

on these claims began running in 2001 and expired in 2007, five years before appellant

brought his action, and the district court properly dismissed these claims.

Fraudulent-nondisclosure Claims

If a party conceals a material fact that is “‛peculiarly within his own knowledge,

knowing that the other party acts on the presumption that no such fact exists, it is as much

a fraud as if the existence of such fact were expressly denied, or the reverse of it

expressly stated.’” Richfield Bank & Trust Co. v. Sjogren, 309 Minn. 362, 365, 244

N.W.2d 648, 650 (1976) (quoting Thomas v. Murphy, 87 Minn. 358, 361, 91 N.W. 1097,

1098 (1902)). But “[b]efore nondisclosure may constitute fraud, . . . there must be a

suppression of facts which one party is under a legal or equitable obligation to

communicate to the other, and which the other party is entitled to have communicated to

him.” Id. “A duty to disclose may exist when a fiduciary relationship exists between the

8 parties or when disclosure would be necessary to clarify information already disclosed.”

Heidbreder v. Carton, 645 N.W.2d 355, 367 (Minn. 2002).

Appellant alleged claims of fraudulent nondisclosure based on each respondent’s

failure to disclose “illegal stock-option backdating taking place at the company.”

Appellant alleged that, as a direct and proximate cause of the failure to disclose the

backdating, he resigned from UnitedHealth.

Any failure to disclose that caused appellant to resign had to have occurred before

appellant resigned in August 1999. Appellant argues, however, that the statute of

limitations for his fraudulent-nondisclosure claims did not begin to run until October

2006, when UnitedHealth released the Wilmer Hale Report and appellant learned about

the concealed backdating scheme.

Generally, “fraudulent concealment of the existence of a cause of action will toll

the statute of limitations, postponing the commencement of the running of the statute

until discovery or reasonable opportunity for discovery of the fact by the exercise of

ordinary diligence.” Wild v. Rarig, 302 Minn. 419, 450, 234 N.W.2d 775, 795 (1975).

But we need not consider whether concealing the backdating scheme tolled the statute of

limitations for appellant’s fraudulent-nondisclosure claims because appellant did not

plead any facts that show that the backdating scheme was material to his decision to

resign.

Appellant alleged that the actions that Lubben took against him “were done with

the intent and purpose of continuing the fraud and protecting the [respondents].” But this

does not show that respondents concealed the fraud knowing that appellant would make

9 his decision to resign on the presumption that respondents were not engaged in a

fraudulent scheme. Appellant resigned when respondents were engaged in the

backdating scheme, but the allegations in appellant’s complaint do not in any way show

that knowledge about the backdating scheme was relevant to appellant’s resignation.

Therefore, it appears to a certainty that no facts exist that would support granting the

relief demanded on appellant’s fraudulent-nondisclosure claims, and the district court

properly dismissed those claims.

Civil Conspiracy Claim

Appellant alleged that respondents conspired to commit fraud against him. “A

conspiracy is a combination of persons to accomplish an unlawful purpose or a lawful

purpose by unlawful means.” Harding v. Ohio Cas. Ins. Co. of Hamilton, Ohio, 230

Minn. 327, 337, 41 N.W.2d 818, 824 (1950). Liability for conspiracy is predicated upon

the tort committed by the conspirators, not on the conspiracy itself, id. at 338, 41 N.W.2d

at 825, and a civil conspiracy claim must be supported by an underlying tort. D.A.B. v.

Brown, 570 N.W.2d 168, 172 (Minn. App. 1997). Because the district court properly

dismissed appellant’s fraudulent-misrepresentation and fraudulent-nondisclosure claims,

appellant’s civil conspiracy claim was no longer supported by an underlying tort.

Therefore, the district court properly dismissed the civil conspiracy claim.

Affirmed.