United States District Court, D. Minnesota
B. RILEY FBR, INC. f/k/a B. RILEY & CO., LLC, Plaintiff,
THOMAS M. CLARKE, Defendant.
ORDER ON MOTION TO DISMISS AMENDED COMPLAINT
E. Brasel United States District Judge.
case presents a dispute over a contract between B. Riley,
Thomas Clarke, and various entities, where B. Riley agreed to
provide financial advisory services, allegedly provided those
services, and was never paid. B. Riley has sued the other
entities in a separate lawsuit. In this suit, B. Riley
alleges that Clarke negotiated on behalf of the entities,
fraudulently induced B. Riley into the contract, and knew all
along that B. Riley would not be paid. B. Riley has thus
brought several fraud claims and a negligent
misrepresentation claim against Clarke, and Clarke has moved
to dismiss. The Court concludes that B. Riley failed to plead
a duty to disclose and thus dismisses the negligent
misrepresentation claim. The Court also concludes that B.
Riley successfully pleaded fraud with particularity and
denies Clarke's motions on the fraud claims.
Court accepts the following factual allegations of the
Amended Complaint as true, as it must on a motion to dismiss.
Aten v. Scottsdale Ins. Co., 511 F.3d 818, 820-21
(8th Cir. 2008). The Plaintiff B. Riley provides investment
services to its clients. [ECF No. 13 ¶ 3.] In February
2017, B. Riley began negotiations to provide financial
advisory services to ERP Iron Ore, LLC ("ERPI").
[ECF No. 60 ("Complaint" or "Am. Compl.")
¶ 9.] These and additional negotiations ultimately led
to three contracts (the "Agreements") for B. Riley
to provide financial services to ERPI, Chippewa Capital
Partners, LLC, and Mesabi Metallics Company, LLC.
first agreement is the February 2017 Engagement Agreement
between B. Riley and ERPI. (Am. Compl. Ex. A.) The Defendant
Thomas Clarke was the sole negotiator on behalf of ERPI, and
ultimately signed the document as CEO of ERPI. (Am. Comp.
¶¶ 11, 16.) During the negotiations, "Mr.
Clarke represented and affirmed to B. Riley that he had
authority to act on behalf of [ERPI] when he negotiated the
terms of the Engagement Agreement and signed it on behalf of
the company." (Zd.¶ 17.)
second agreement, called the First Amendment, came a month
later. It called for B. Riley to provide enhanced services
and receive additional fees. (Id. ¶¶ 20,
22.) The First Amendment was also between B. Riley and ERPI,
and again negotiated and signed solely by Clarke for ERPI.
(Id. ¶¶ 20, 23.) Clarke "represented
and affirmed" that he had authority to act on behalf of
ERPI in these negotiations too. (Id. ¶ 25.)
third agreement, called the Second Amendment, came at the end
of 2017. It added Mesabi, a wholly-owned subsidiary of
Chippewa. (Id. ¶¶ 26-27.) Clarke
negotiated and signed the Second Amendment on behalf of
ERPI and Chippewa as CEO of both companies.
(Id. ¶¶ 28-28, 32) Clarke "never
made any representation to B. Riley that he was not an
authorized signatory on behalf of ERPI and Chippewa."
(Id. ¶ 32.) And, during those negotiations,
Clarke "knowingly and intentionally made material
representations that he and Mesabi would honor the Second
Amendment and that he and Mesabi intended to compensate B.
Riley under the Agreements." (Id. ¶ 28.)
the negotiations, Clarke affirmatively told B. Riley that he
had authority to act on behalf of the entities, and that the
entities intended to pay B. Riley for services provided under
the Agreements. (Am. Compl. ¶¶ 17, 25, 28, 34, 36,
42, 46, 49, 50.) Conversely, the Complaint alleges, Clarke
omitted the opposite information: he did not inform B. Riley
that he was not an authorized signatory for the entities or
that they were unwilling to pay. (Id. ¶¶
32, 34, 35, 43, 47, 48, 49.)
Riley held up its end of the bargain, performing financial
services under the Agreements through the spring of 2018.
Indeed, in June of that year, Mesabi closed on debt and
equity funding for $900 million of new capital, including
$650 million of debt financing. (Am. Compl. ¶ 47.) B.
Riley calculates that for its role in helping to obtain the
financing, Mesabi owes it $16, 875, 000. (Id.
¶¶ 57-60.) But when B. Riley requested payment,
Mesabi refused, stating that Clarke did not have authority to
bind it to the Agreements. (Id. ¶ 61.)
Riley sued, claiming that Clarke fraudulently induced B.
Riley to enter into these three contracts. According to B.
Riley, Clarke made two misrepresentations: (1) he
misrepresented his authority to act on behalf of the entities
and (2) he misrepresented their intention to pay B. Riley for
Riley's original claims included fraudulent inducement,
fraudulent misrepresentation, and negligent
misrepresentation. [ECF No. 1.] About a month after filing
suit, B. Riley sought a temporary restraining order and
preliminary injunction [ECF No. 11.] and this Court denied
the motion [ECF No. 46.] B. Riley later amended its complaint
to include a claim for fraudulent omission. (Am.
Compl.¶¶ 95-105.) Clarke then moved to
dismiss. [ECF No. 63.]
Standard of Review
has moved for dismissal under both Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim and Federal
Rule of Civil Procedure 9(b) for failure to plead fraud with
particularity. When reviewing a motion to dismiss for failure
to state a claim under Federal Rule of Civil Procedure
12(b)(6), a court must accept as true all factual allegations
in the complaint and draw all reasonable inferences in the
plaintiff's favor. Aten v. Scottsdale Ins. Co.,511 F.3d 818, 820-21 (8th Cir. 2008). The factual allegations
in the complaint "must be enough to raise a right to
relief above the speculative level" and the complaint
must "state a claim to relief that is plausible on its
face." Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555, 570 (2007). Generally, a complaint must contain
"a short and plain statement of the claim showing that
the pleader is entitled to relief . . . ." Fed.R.Civ.P.
8(a)(2). When the complaint alleges fraud, however, "a