United States District Court, D. Minnesota
Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investment I, L.L.C.; Ritchie Capital Structure Arbitrage Trading, Ltd.; and Ritchie Capital Management, Ltd.; Plaintiffs,
JPMorgan Chase & Co; JPMorgan Chase Bank, N.A.; J.P. Morgan Private Bank; Richter Consulting, Inc.; Wells Fargo & Co., as successor by merger to Wachovia Capital Finance Central; Wells Fargo Bank, N.A.; Wachovia Capital Finance Corporation Central; UBS Loan Finance, L.L.C.; UBS AG; UBS AG Stamford Branch; Merrill Lynch Business Financial Services, Inc.; LaSalle Business Credit, L.L.C.; Bank of America Business Capital; Bank of America Corp.; The CIT Group Inc.; The CIT Group/Business Credit, Inc.; PNC Bank N.A.; Fifth Third Bank; Webster Business Credit Corporation; Associated Commercial Finance, Inc.; Chase Lincoln First Commercial Corporation, Defendants.
W. Halter, Esq., Liddle & Robinson, L.L.P.; James M.
Jorissen, Esq., Leonard, O'Brien, Spencer, Gale &
Sayre, Ltd; Kelly A. Lelo, Esq., and Patrick H. O'Neil,
Jr., Esq., Larson King, LLP; counsel for Plaintiffs.
Benjamin E. Gurstelle, Esq., Kevin M. Decker, Esq., and John
R. McDonald, Esq., Briggs & Morgan, PA; and David J.
Woll, Esq., Isaac Martin Rethy, Esq., Michael Freedman, Esq.,
Thomas Charles Rice, Esq., William T. Pilon, Esq., Simpson
Thacher & Bartlett LLP, counsel for Defendants JPMorgan
Chase & Co; JPMorgan Chase Bank, N.A.; J.P. Morgan
Private Bank; Chase Lincoln First Commercial Corporation; and
J.P. Morgan Europe Ltd.
Bradley R. Schneider, Esq., David H. Fry, Esq., Kevin H.
Scott, Esq., and Marc T.G. Dworsky, Esq., Munger, Tolles
& Olson, LLP; and Daniel J. Millea, Esq., and Elizabeth
V. Kniffen, Esq., Zelle Hofmann Voelbel & Mason LLP,
counsel for Defendants Wells Fargo & Co.; Wells Fargo
Bank N.A.; Wachovia Capital Finance Corporation (Central);
UBS Loan Finance, L.L.C.; UBS AG; UBS AG Stamford Branch;
Merrill Lynch Business Financial Services, Inc.; LaSalle
Business Credit, L.L.C.; Bank of America Business Capital;
Bank of America Corp.; The CIT Group Inc.; The CIT
Group/Business Credit, Inc.; PNC Bank, N.A.; Fifth Third
Bank; Webster Business Credit Corporation; Associated
Commercial Finance, Inc.; Allen P. Pegg, Esq., and John F.
O'Sullivan, Esq., Hogan Lovells U.S. LLP; and Bryant D.
Tchida, Esq., Robert T. Kugler, Esq., and Timothy P. Griffin,
Esq., Stinson Leonard Street LLP, counsel for Defendant
Richter Consulting, Inc.
A. Gillette, Esq., Baillon Thome Jozwiak & Wanta LLP;
George H. Singer, Esq., and James A. Lodoen, Esq., Lindquist
& Vennum LLP; Jennifer G. Lurken, Esq., Gislason &
Hunter LLP; Lori A. Johnson, Esq., Nilan Johnson Lewis PA;
Richard T. Thomson, Esq., and Rosanne H. Wirth, Esq., Lap
Libra Thomson Stoebner & Pusch, Chartered; Terrence J.
Fleming, Esq. Fredrikson & Byron; and Thomas E. Jamison,
Esq., Fruth Jamison & Elsass PA, counsel for Intervenor
MEMORANDUM OPINION AND ORDER
DONOVAN W. FRANK UNITED STATES DISTRICT JUDGE
plaintiffs in this case loaned millions of dollars to a
business that turned out to be part of a Ponzi scheme. The
plaintiffs allege that the defendants (lenders and
consultants for the business in the Ponzi scheme) were aware
of the Ponzi scheme but wrongfully allowed the plaintiffs to
sink their money into the business. This case is before the
Court on a report and recommendation from the bankruptcy
court on the defendants' motions to dismiss. For the
reasons discussed below, the Court grants the defendants'
Ritchie Capital Management, L.L.C.; Ritchie Special Credit
Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville
Investment I, L.L.C.; Ritchie Capital Structure Arbitrage
Trading, Ltd.; and Ritchie Capital Management, L.L.C.,
(collectively, the “Ritchie
Entities” or “Ritchie”) filed suit against
Defendants seeking to recover millions in loans that the
Ritchie Entities made to convicted fraudster Tom Petters and
entities that he controlled. Defendants are made up of four
relevant groups: (1) “JPMorgan”; (2) JPMorgan
Europe LTD. or JPME; (3) the “Syndicated
Lenders”; and (4) Richter Consulting. In addition, the
Trustees from the Petters bankruptcies have
Petters Buys Polaroid Corporation
Petters fraud is well known and is recounted in short: Tom
Petters operated a Ponzi scheme whereby he would fabricate
purchase orders from wholesalers (like Costco) and get
financiers to lend money to fund the purchase orders. The
Ponzi scheme was operated through the Petters Company, Inc.
(“PCI”). In addition, Petters owned a number of
legitimate businesses under a parent company, Petters Group
Worldwide, LLC (“PGW”).
2004, JPMorgan approached Petters about purchasing Polaroid
Corporation. At the time, Petters had a license agreement
that allowed PCI to use Polaroid's brand name on
electronic equipment. (Doc. No. 164, Second Amended
Complaint, (“SAC”) ¶ 73.) But by 2004, PCI
had fallen behind significantly on its license payments to
Polaroid. JPMorgan allegedly used PCI's delinquent
payments as leverage to force Petters to purchase Polaroid.
(Id. ¶ 81.) JPMorgan and Petters agreed to a
deal worth $426 million for Polaroid. Plaintiffs make much of
the fact that JPMorgan expected Petters to buy Polaroid when
PCI could not afford to even use Polaroid's name.
(Id. ¶ 87.)
deal had a complex structure: Petters needed to fund the full
purchase price in an escrow account at Wells Fargo. JPMorgan
would then refinance the completed transaction. According to
Plaintiffs, the Wells Fargo account was used to circumvent
anti-money laundering laws that obligate JPMorgan to
investigate its customers. (Id. ¶ 96.) The
merger resulted in PGW owning Polaroid Holding Company, which
in turn owned Polaroid Corporation. The merger closed on
April 27, 2005. Then, on April 28, 2005, JPMorgan loaned $125
million to Polaroid Corporation as a term loan, and Defendant
Syndicate Lenders loaned another $250 million as a
revolving-credit agreement. (See Id. ¶¶
107-108.) JPMorgan was the administrative agent for
the U.S.-based Syndicate Lenders and JPME was the
administrative agent for the Europe-based lenders.
forward to 2007, and Polaroid was in default on its loans for
failure to provide audited financial statements. Polaroid had
been required to provide them in 2005 and 2006, but JPMorgan
had not strictly enforced the requirement. But by 2007,
JPMorgan declared default. Rather than call the debt,
JPMorgan granted an extension and installed Defendant Richter
Consulting at Polaroid to report to JPMorgan on
Polaroid's financial condition. Richter Consulting began
examining Polaroid's business and determined that its
business model was not viable. Then in October 2007,
JPMorgan, Richter, and Polaroid discussed financing options
for additional forbearance and extensions of credit. PGW
agreed to make repayments each week in amounts ranging from
$4 to $6 million. According to the Plaintiffs, JPMorgan or
Richter instructed Petters not to transfer the money directly
from PCI (the Ponzi scheme) but to instead route the money
through another entity, Petters Capital. (SAC ¶ 149.)
end of 2007, Polaroid was still behind on its debt to
JPMorgan and the Syndicate Lenders. Under the forbearance
agreement, the lenders had the option to hire an investment
bank to monetize some of Polaroid's assets, but they did
not do that. Instead, Richter expanded its role at Polaroid
to helping to find a lender to replace JPMorgan and the
Syndicate Lenders. Pursuant to this expanded role, Richter
allegedly helped Polaroid with the due-diligence process and
to consult with advisors and counsel in connection with
financing-related activities. (Id. ¶ 156.)
The Ritchie Entities' Loans and the Ponzi Scheme
January 2008, JPMorgan allegedly learned of PCI's Ponzi
scheme and refused to grant any more extensions. The
situation became dire for Petters: JPMorgan and the Syndicate
Lenders were still owed roughly $50 million. If Petters
failed to repay the lenders, then they could take 100% of the
Polaroid stock. So on January 31, 2008, Petters reached out
to the Ritchie Entities for a short-term emergency loan.
Petters and Polaroid sent some due diligence materials to
Ritchie. Plaintiffs allege that JPMorgan and Richter
Consulting were aware that the diligence materials were
inaccurate. (See Id. ¶ 190.) Between February
1, 2008, and February 19, 2008, the Ritchie Entities loaned
almost $150 million. The money went to a PCI bank account.
(Id. ¶ 193.) The Ritchie Entities did not
document the loans until February 19, 2008, when they signed
a promissory note with PGW and Petters as co-obligors. The
promissory notes gave Petters and PGW the sole discretion in
using the money. In the Polaroid bankruptcy, Judge Nelson
concluded based on the analysis of PWC accountants that none
of the money from the Ritchie Entities actually went to
Polaroid. Ritchie Capital Mgmt., L.L.C. v. Stoebner,
Civ. No. 12-3038, 2014 WL 1386724, at *28 (D. Minn. Jan. 6,
2014) (citing affidavit of Theodore Martens). Instead, the
loans from the Ritchie Entities went to PCI primarily to pay
off investors in the Ponzi scheme. Id. In addition
to the February loans, in March and May, Petters convinced
the Ritchie Entities to loan money for purchase orders as
part of the Ponzi scheme. In total, the Ritchie Entities
loaned $189 million to Petters and companies that he
controlled. Meanwhile, JPMorgan and the Syndicate Lenders
were repaid in full by Polaroid.
September 24, 2008, the FBI raided Petters's home and his
companies' offices. On December 1, 2008, Petters, PCI,
and PGW (Polaroid's parent) were indicted. (USA v.
Petters, et al., Crim. No. 08-364 (D. Minn), Doc. No.
79.) Days after the raid, the Ritchie Entities sought and
received from Petters a security interest in Polaroid's
trademarks. In December 2009, a jury convicted Petters of
various federal crimes, and he was sentenced to 50 years in
the Ponzi scheme collapsed, a number of Petters's
companies declared bankruptcy, including Polaroid and PCI.
The Trustees have sought to void a number of transactions as
fraudulent. As relevant here, the Trustees have sued JPMorgan
to recover the loan repayments, and the Trustees sued the
Ritchie Entities to void the Polaroid trademark transfer. In
2012, the bankruptcy court voided the trademark transfer,
concluding that the Ritchie Entities provided no value to
Polaroid. See In re Polaroid Corp., 472 B.R. 22, 46
(Bankr. D. Minn. 2012) (Polaroid I). The decision
was affirmed by the district court and the Eighth Circuit.
Ritchie Capital Mgmt., L.L.C. v. Stoebner, Civ. No.
12-3038, 2014 WL 1386724, at *28 (D. Minn. Jan. 6, 2014)
(Polaroid II), aff'd sub nom. Ritchie
Capital Mgmt., LLC v. Stoebner, 779 F.3d 857 (8th Cir.
2015) (Polaroid III).
has sued a number of entities that it claims learned of the
Ponzi scheme, but kept quiet to recoup their
investments. Here, Ritchie brought 22 claims for: (1)
aiding and abetting tortious conduct by JPMorgan; (2) aiding
and abetting tortious conduct by Richter Consulting; (2)
fraudulent transfers against the banks; (3) commercial bad
faith by JPMorgan; (4) breach of fiduciary duty by JPMorgan;
and (5) negligence against JPMorgan and Richter Consulting;
and (6) unjust enrichment against all Defendants.
Court referred the case to the bankruptcy court, and
Defendants moved to dismiss. The bankruptcy court recommended
that the Court grant the motion to dismiss on jurisdictional
grounds: Judge Sanberg concluded that the bankruptcy court
did not have subject matter jurisdiction for some claims;
Plaintiffs did not have standing to pursue the fraudulent
transfer claims; and the abstention doctrine compelled
dismissal for other claims because they would affect the
Trustees' adversary proceedings against JPMorgan. (Doc.
No. 159 (“Report and Recommendation”).) Because
the bankruptcy court dismissed on jurisdictional grounds, it
declined to address the merits. Defendants, Trustees, and
Plaintiffs all objected to various parts of the Report and
Recommendation. Additionally, Plaintiffs have filed a motion
to withdraw the reference to the bankruptcy court, which
Defendants and the Trustees oppose.
as here, the bankruptcy court has issued proposed findings
and conclusions for non-core claims, the Court reviews de
novo “those matters to which any party has timely and
specifically objected.” 28 U.S.C. § 157(c)(1). The
parties have effectively objected to the entire Report and
Recommendation, including Judge Sanberg's decision not to
address the merits. Additionally, the parties have
incorporated by reference their prior motions to dismiss.
Thus, the Court is essentially presented with Defendants'
original motions to dismiss. The Court therefore will
approach the parties' objections as a typical motion to
dismiss, noting, where relevant, the Report and
Motion to Dismiss for Lack of Personal ...