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Ritchie Capital Management, Ltd. v. Costco Wholesale Corp.

United States District Court, D. Minnesota

October 30, 2017

Ritchie Capital Management, Ltd., Ritchie Special Credit Investments, Ltd., Plaintiffs,
Costco Wholesale Corporation, Defendant.

          Jenny Gassman-Pines, Esq., Lawrence M. Shapiro, Esq., and Sybil L. Dunlop, Esq., Greene Espel PLLP, counsel for Plaintiffs.

          Joseph W. Anthony, Esq., Peter McElligott, Esq., Steven M Pincus, Esq., Anthony Ostlund Baer & Louwagie PA, counsel for Defendant.




         The plaintiffs in this case are financiers who were defrauded as part of a Ponzi scheme, whereby the fraudsters fabricated purchase orders for the financiers to fund. The defendant in this case is the business that the fraudsters falsely told the plaintiffs was placing the orders. Long after the fraud was uncovered, the plaintiffs filed suit against the defendant alleging violations of the Minnesota Consumer Fraud Act and the Minnesota Uniform Deceptive Trade Practices Act. The defendant moved to dismiss. For the reasons discussed below, the Court grants the defendant's motion in part.


         This case begins and ends with Tom Petters's notorious Ponzi scheme. In short, Petters would convince financiers (like Plaintiffs) to fund fabricated purchase orders from wholesalers. Petters would then repay the financiers by convincing other financiers to fund new fabricated purchase orders. One of Petters's companies, Petters Company, Inc. (“PCI”) purportedly operated as intermediary that bought goods from manufacturers and resold them to wholesalers (like Defendant Costco Wholesale Corporation). This type of business existed to circumvent manufacturers' desire to not sell goods to Costco because it would dilute the manufacturers' brands. Manufacturers would allegedly be on the lookout for their product in Costco's stores, so Costco had to “sanitize” the goods by, among other things, scraping off original shipping labels and SKUs, removing the goods from original packaging, and creating false purchase orders, bills of sale, bills of lading, and other shipping documents. As a result of this process, consumers have allegedly bought counterfeit goods from Costco. (Compl. ¶ 17.)

         PCI convinced Plaintiffs that it was one of Costco's intermediaries. On March 21, 2008, PCI offered Plaintiffs the opportunity to fund a $31 million purchase order ostensibly from Costco for Playstation3 videogame consoles. PCI provided a fabricated purchase order. On June 6, 2008, Petters represented to Plaintiffs that the PS3s had been shipped. On September 24, 2008, the FBI raided Petters's home and businesses. The search-warrant affidavit explained PCI's scheme. On December 2010, Petters was sentenced to 50 years in prison.

         On April 19, 2017, Plaintiffs filed suit against Costco in Minnesota state court alleging claims for: (1) violating the Minnesota's Consumer Fraud Act (“MCFA”), Minnesota Statute § 325F.69; and (2) violating the Minnesota Uniform Deceptive Trade Practices Act (“MUDTPA”), Minnesota Statute § 325D.44. Costco removed the case to federal court and now has moved to dismiss for lack of personal jurisdiction and for failure to state a claim.


         I. Motion to Dismiss for Lack of Personal Jurisdiction

         A. Legal Standard

         Costco seeks to dismiss Plaintiffs' claims for lack of personal jurisdiction. To survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must make a prima facie showing that personal jurisdiction exists. That is, a plaintiff must allege facts to support a reasonable inference that defendant may be subjected to jurisdiction in the chosen forum. Steinbuch v. Cutler, 518 F.3d 580, 585 (8th Cir. 2008) (citing Dever v. Hentzen Coatings, Inc., 380 F.3d 1070, 1072 (8th Cir. 2004)). If, as is the case here, the defendant denies jurisdiction, the plaintiff bears the burden of proving facts supporting personal jurisdiction. See Wells Dairy, Inc. v. Food Movers Int'l, Inc., 607 F.3d 515, 518 (8th Cir. 2010) (quotation omitted). Once a defendant offers affidavits to challenge personal jurisdiction, “facts, not mere allegations, must be the touchstone” in determining whether personal jurisdiction exists. Dever, 380 F.3d at 1072 (citation omitted); see also Abbasi v. Leading Edge Aviation Servs., Inc., Civ. No. 16-295, 2016 WL 4007571, at *3 (D. Minn. July 26, 2016).

         B. The Court has ...

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