CASE 0:09-cv-00907 -DSD-JJG Document 17 Filed 06/15/09 Page 1 of 15

UNITED STATES DISTRICT COURT

DISTRICT OF MINNESOTA

)
OPPORTUNITY BRIDGE FUNDING, ) Civil File No. 09-907 (DSD/JJG)
LLC, a Delaware limited liability )
company, and THE GERMAINE )
TOMLINSON INSURANCE TRUST, a )
Delaware trust, )
)
Plaintiffs, )
) REPLY MEMORANDUM OF LA W IN
v. ) SUPPORT OF DEFENDANTS'
) MOTION TO DISMISS
SJB INVESTMENTS, LLC, a Nevada )
limited liability company, and JAMES C. )
BURCHARD, individually and as )
managing partner of SJB Investments, )
LLC, )
)
Defendants. )
)

INTRODUCTION

Plaintiffs Opportunity Bridge Funding, LLC's ("OBF") and The Germaine

Tomlinson Insurance Trust's ("Trust") response does several things: it repeats, often

verbatim, lengthy portions of the allegations contained in the Complaint; it provides long

recitations of boilerplate law that may not even apply in this case; it treats the two

plaintiffs as indistinguishable when it is legally critical to recognize each plaintiffs

separate and distinct contacts with Defendant SJB Investments,LLC ("SJB")l; and it

argues for the improper application of law to the facts as alleged.

1 Plaintiffs confirm that Defendant James Burchard acted at all relevant times in his

capacity as employee of SJB. (PIs.' Mem. at 34.) Accordingly, Defendants will

collectively be referred to as "SJB."
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Perhaps even more telling than what Plaintiffs have done in their response, is what

they have not. Plaintiffs have not meaningfully addressed the fatal legal deficiencies

identified in the motion to dismiss, have not cited any authority establishing the existence

of affirmative duties (fiduciary or otherwise) in this context involving arm's-length

commercial dealings between sophisticated parties, and have not explained why they

refuse to accept, or even directly respond to, SJB' s outstanding offer to accept the same

subordinated security interest in the Policy that they seek as relief in this Court.

Indeed, the most revealing part of Plaintiffs' opposition brief may be their

admission, in footnote 2, that they entered into a Forbearance Agreement with one

another on February 11,2009, and that OBF filed a Confession of Judgment signed by

the Trust in Hennepin County District Court on March 18,2009.2 Under the Forbearance

Agreement, the Trust agrees, in part, to (i) pay a $3,000,000 "forbearance fee" to OBF

(§ 7(c)); (ii) cooperate with OBF in the prosecution of this action against Defendants

(§ 9(d)); and (iii) pay OBF 50 percent of its recovery against Defendants in this action

(§ 7(c)). In return, OBF agrees, in part, to (i) forbear from enforcing its remedies against

the Trust and the guarantors of the Trust's obligation to OBF (§ 7(a)); and (ii) advance

the attorneys' fees and costs necessary to prosecute this action against Defendants

(§ 3(b )). This "deal" now makes it clear how these two adverse parties came to

2 Although Plaintiffs failed to provide copies of the agreements they referenced, the Court
may take judicial notice of those agreements. Great Plains Trust Co. v. Union Pac. R.R.
Co., 492 F.3d 986,995-96 (8th Cir. 2007). A Copy of the Confession of Judgment is
attached for the Court's convenience as Exhibit 5. The March 18, 2009 Affidavit of
Steve Sabes, which is attached as Exhibit 6 and was also filed in Hennepin County,
attaches the Forbearance Agreement as Exhibit C.
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collaborate on their claims against Defendants. But despite such creative collaboration,

Plaintiffs have still been unable to muster a legally sufficient claim.

ARGUMENT

I. SJB'S OFFER TO TAKE A SUBORDINATED SECURITY INTEREST IS

ADMISSIBLE.

Plaintiffs first argue that the Court should strike any reference to SJB' s offer to

take a subordinated security interest because it is inadmissible under Rule 408 of the

3
Federal Rules of Evidence. (PIs.' Mem. at 8-9.) But Rule 408 is not implicated here.

Without admitting any wrongdoing, SJB has simply offered to allow OBF to take a

security position ahead of its own. It merely states a present willingness to subordinate

its legal interest in the Policy. Under these circumstances, Rule 408 does not apply. See

Fed. R. Evid. 408 (prohibiting use of "furnishing or offering or promising to fumish-or

accepting or offering or promising to accept-a valuable consideration in compromising

or attempting to compromise the claim ... "). Additionally, given that SJB is disclosing

its own offer, it is doubtful whether Plaintiffs even have standing to challenge the

admissibility of that offer. See 23 Charles Alan Wright and Kenneth W. Graham, Federal

Practice & Procedure § 5308 at243 (1980) (suggesting that "the opponent lacks standing

to object to the introduction of evidence of another person's offer of compromise").

3 This is just one example of Plaintiffs' failure to distinguish between themselves when it
is legally necessary to do so. SJB's offer to subordinate its security interest to that of
OBF's is a matter solely between SJB and OBF. Therefore, even ifOBF has standing to
raise this argument, the Trust does not.
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Moreover, it should be noted that although Plaintiffs claim the offer should be

stricken from the motion, they then cite and rely upon the offer in opposing Defendants'

motion. (See PIs.' Mem. at 16, 28.) Obviously, Plaintiffs cannot have it both ways.

II. SJB OWED NO DUTY TO EITHER PLAINTIFF AS A MATTER OF LAW.

Plaintiffs' principal claims-fraud, fraudulent inducement, breach of fiduciary

duty, and negligence-are all dependent on the existence of a legal duty owed by SJB to

the Trust and, separately, to OBF. As discussed at length in the opening brief, SJB owed

no duty whatsoever to either the Trust or OBF. The transactions at issue were all arm's

length commercial transactions between sophisticated parties for which the law does not

recognize a duty.

Moreover, contrary to Plaintiffs' assertion, courts have repeatedly held that the

existence of a duty can be determined as a matter of law, and the Court should do so here.

Under Minnesota law," although the existence of a fiduciary duty is generally considered

to be a question of fact, courts hold that a breach of fiduciary duty claim should be

addressed and dismissed under Rule l2(b)( 6) when the complaint fails to allege facts

sufficient to give rise to such a duty. In fact, this Court recently granted a Rule 12 motion

4 Without undertaking the well-established choice-of-law analysis applied by the

Minnesota Federal District Court when sitting in diversity, see Allianz Ins. Co. of Can. v.
Sanftleben, 454 F.3d 853, 855 (8th Cir. 2006), Plaintiffs simply state that Minnesota law
should apply to the relationship between OBF and SJB and that Indiana law should apply
to the relationship between the Trust and SJB. (PIs.' Mem. at 21:) Further, Plaintiffs fail
to recognize that the relationship between the Trust and SJB is actually governed by
Nevada law pursuant to the choice of law provision in the Service Agreement. (See Ex. 1
at 5 (Court Docket No.8).) As demonstrated throughout this memorandum, the laws of
each potentially applicable state are in accord for purposes of the relevant analyses.
Therefore, SJB's motion should be granted irrespective of which state's law applies.

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to dismiss a plaintiff's breach of fiduciary duty claim after concluding that the plaintiff's

allegations were "legally insufficient to establish a fiduciary relationship between the

parties." Northstar Indus., Inc. v. Merrill Lynch & Co., Inc., 558 F. Supp. 2d 944,947-48

(D. Minn. 2008) (Doty, J.); see also Soomekh Oriental Rugs v. Target Corp., No. 00-

2570 ADM/AJB, 2001WL 1619453, at *3 (D. Minn. ApI. 27, 2001) (finding no duty as

a matter of law on a motion to dismiss).

A. SJB Owed No Fiduciary Duty To Either Plaintiff As A Matter Of Law.

Here, dismissal under Rule 12(b)( 6) is appropriate, because Plaintiffs have not

alleged facts which, even if true, would give rise to a fiduciary duty. This case, in fact,

bears a striking similarity to this Court's recent decision in Northstar. 558 F. Supp. 2d at

947-48. There, Northstar Industries was an alleged finder of acquisition targets for a

private equity firm, Merrill Lynch Global Private Equity. Id. at 946. After Northstar

located an acquisition target, Merrill Lynch negotiated a lower finder's fee, claiming that

the underlying deal would not be consummated if the fee remained at its original amount.

Id. at 947. After the deal closed, Northstar learned that other companies involved in the

acquisition had not similarly reduced their fees. Id. Northstar then sued Merrill Lynch

alleging fraud and breach of fiduciary duty. Id. In granting a motion to dismiss the

fiduciary duty claim, this Court held that "the arm's-length negotiation of a contract does

not give rise to a fiduciary relationship," explaining that "[rJelationships that involve

competing interests and 'often generate litigation' are 'not compatible with the concept of

a fiduciary.'" Id. at 948 (citations omitted). This Court further reasoned that any reliance

on statements made by one party to the other did not create a fiduciary duty, particularly

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because, despite both parties' "mutual desire" in completing the deal, each had

"competing interests at play." Id.

As this Court did in Northstar, other courts have likewise held that the arm's-

length negotiation of a contract does not give rise to a fiduciary relationship. Nat'l

Minority Supplier Dev. Counsel Bus. Consortium Fund, Inc. v. Hessian & McKasy, P.A.,

No. 04-1670 DWF/AJB, 2005 WL 3526587, at *6 (D. Minn. Dec. 22, 2005); Shema v.

Thorpe Bros., 62 N.W.2d 86,91 (Minn. 1953); Soomekh Oriental Rugs, 2001 WL

1619453, at *3; Comfax Corp. v. North Am. Van Lines, 587 N.E.2d 118,.125-26 (Ind. Ct.

App. 1992) (holding that when the parties involved are in an arm's length transaction, the

requisite fiduciary relationship may not be predicated on such an arrangement); Wilson v.

Lincoln Fed. Sav. Bank, 790 N.E.2d 1042, 1046-47 (Ind. Ct. App. 2003) ("[A] business

or 'arm's length' contractual relationship does not give rise to a fiduciary relationship ..

."); Cascade Invs., Inc. v. Bank of Am., NA., S.A., No. CV-N-99-559-ECR (RAM), 2000

WL 1842945, at *2 (D. Nev. Sept. 29,2000) (holding that no fiduciary duty existed

because the parties were "of equal bargaining stature," were "sophisticated business

entities," and plaintiffs failed to establish that "the defendant had any superior knowledge

or control in the negotiations").

Far from alleging facts which, if true, would support the existence of a fiduciary

duty, Plaintiffs have done little more than declare that a fiduciary relationship existed.

(PIs.' Mem. at 24-25; Compl.Y 51-53).) There is no dispute that the transactions at

issue here were arm's-length commercial transactions between sophisticated parties, and

Plaintiffs have not alleged facts to the contrary. Nor have Plaintiffs alleged facts that

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would otherwise support the finding of a fiduciary relationship. As Northstar itself

makes clear, there is nothing unusual about a "finder" relationship that would in itself

give rise to a fiduciary duty: Northstar Indus., Inc., 558 F. Supp. 2d at 948. Indeed,

Plaintiffs have not cited to a single case in which a court has imposed a fiduciary duty on

a finder who attempts to find financing for another party. As discussed at length in the

opening brief, SJB served as a finder for a bridge loan for the Trust and later as a conduit

for the Trust's communications with OBF. (Defs.' Mem. at 2-4; 18-19.) As to OBF, SJB

acted only as a conduit and nothing more. Such facts do not, as a matter of law, give rise

to a fiduciary duty.'

Remarkably; Plaintiffs have undercut their fiduciary duty claim by arguing that

SJB owed a fiduciary duty both to the Trust and to OBF-parties that had, and still have,

adverse and competing interests. (PIs.' Mem. at 20,25.) Simply put, Plaintiffs contend

that SJB owed the highest duty of loyalty and confidence to the opposite sides of a

transaction to which SJB was not a party, but served essentially as a conduit of

information. It is legally untenable to suggest that anyone, let alone a party playing the

role of a finder or information conduit, can be held to owe the highest duty recognized by

law to two competing parties at the same time in the same transaction. Indeed, the

5 Notably, even if there were such a duty here, one of the primary cases cited by Plaintiffs
in support of their fiduciary duty claim, TMF Tool Co. v. Siebengartner, 899 F.2d 584
(7th Cir. 1990), does not even apply or stand for the proposition cited by Plaintiffs. (See
PIs.' Mem at 25.) First, TMF Tool Co. involves application of Illinois law. Id. at 588.
Second, although cited for the proposition that failure to timely forward documents is a
breach of fiduciary duty, the court in TMF Tool Co. actually found a breach of fiduciary
duty based on a failure to timely forward transaction proceeds to a distressed company
and the commingling ofthose funds in order to pay personal debts. Id. at 589.

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claim as a matter of law. Plaintiffs have cited no law establishing that a party in this type

of commercial, arm's length relationship has an affirmative duty to disclose to another

party the steps it has taken to protect its own interest.

To the contrary, the Eighth Circuit recently affirmed the dismissal of fraud claims

premised on one party's alleged fraudulent failure "to timely inform [plaintiff] that

[defendant] was foreclosing on its security interest," explaining that "[t]he default rule is

that one party to a transaction has no duty to disclose facts to another party" and

concluding that the plaintiff had not pled facts giving rise to a legal duty of disclosure.

Noble Sys. Corp., 543 F.3d at 985-86 (citingL&H Airco., Inc., 446 N.W.2d at 380). See

also Safeco Ins. Co. of Am. v. Dain Bosworth, Inc., 531 N.W.2d 867, 872 (Minn. Ct. App.

1995) ("Because Dain was selling a deal to Safeco, and not supplying information for the

guidance of Safeco, and because they were sophisticated equals negotiating a commercial

transaction, Dain did not owe Safeco a duty for purposes of a negligent misrepresentation

tort threshold.").

Here, the alleged omissions cannot give rise to a duty by SJB to either OBF or the

Trust. First, SJB and OBF are not contractual counterparties. SJB served merely as a

conduit of information between OBF and the Trust after SJB located OBF as a bridge

lender. There are no specific factual allegations that could support a finding that SJB had

an independent legal relationship with or duty to OBF. The Trust's position on this issue

is similarly flawed. While SJB and the Trust are parties to the Service Agreement, the

Trust cannot plausibly claim that it did not know it had agreed to convey a security

interest to SJB because that interest was a term of the agreement between the two parties.

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irrespective of what law is applied, Plaintiffs have failed to state a claim that can give rise

to rescission of the Service Agreement. As discussed in detail in SJB' s opening brief,

Plaintiffs have failed to plead facts that, even if true, would give rise to a fraudulent

inducement claim. (Defs.' Mem. at 10-15.) Even if Plaintiffs' fraudulent inducement

claim could pass Rule 12(b)(6) and Rule 9(b) muster, however, rescission would still not

be an appropriate form of relief in this case.

Under each possibly applicable law-Minnesota, Nevada, or Indiana-rescission

is a remedy that is generally only available if the parties can be restored to the status quo

ante. See Cut Price Super Markets v. Kingpin Foods, Inc., 98 N.W.2d 257,267 (Minn.

1959) ("[T]he general rule is that a party who wishes to rescind an agreement must place

the opposite party in statu quo .... As part of the rule requiring the placing of the other

party in statu quo, it is held that a party cannot rescind and at the same time retain a

benefit under the contract."); Strong v. Jackson, 777 N.E.2d 1141, 1151 (Ind. Ct. App.

2002) ("The remedy of rescission only entitles a plaintiff to be returned to the status quo,

which usually necessitates a return of money or other things received or paid under the

contract ... The rescinding party must also restore all benefits received under the

contract."); Scaffidi v. United Nissan, 425 F. Supp. 2d 1172, 1184 (D. Nev. 2005)

(denying request for rescission when parties "could not be returned to the position they

occupied prior to executing the contract"). In other words, if both parties cannot be

placed in the position they were in prior to the execution of the contract, rescission is not

an available remedy. Here, that is the case. The Trust has already received the benefit of

the Service Agreement-the bridge loan that SJB located for the Trust. The bridge loan

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Morfin v. Estate of Martinez, 831 N.E.2d 791, 803 (Ind. Ct. App. 2005) ("[W]e reiterate

that the law presumes constructive fraud once it is clear that a fiduciary or confidential

relationship existed between two parties, and the dominant party gains an advantage

through a transaction involving the weaker party."); Comfax Corp., 587 N.E.2d at 125-26

(Ind. Ct. App. 1992) (holding that an arm's-length, contractual arrangement does not

create a fiduciary relationship and does not provide basis for constructive fraud claim).

As discussed above and in the opening brief, Plaintiffs' allegations are legally insufficient

to establish that SJB owed a fiduciary duty to either of them.

V. PLAINTIFFS HAVE NOT SUFFERED DAMAGES.

The complete absence of any legally cognizable damages calls into question

whether Plaintiffs have even presented a justiciable dispute to this Court. Perhaps

recognizing that they have not actually suffered any damages to date because the

underlying policy proceeds have not yet been paid, Plaintiffs argue that they have

suffered damages because they have incurred and will continue to incur attorneys' fees

and costs. (PIs.' Mem. at 17.) This does not cure the Complaint's defects. The law is

clear that a party is not entitled to attorneys' fees and costs unless provided for by

contract or by statute. See Lanoue v. Fireman's Fund Am. Ins. Cos., 278 N.W.2d 49,54

(Minn. 1979) ("The general rule is that attorneys fees are allowed only when authorized

by statute or provided for in the contract."); Liberty Mut. Ins. Co. v. OSI Indus., Inc., 831

N.E.2d 192,205 (Ind. Ct. App. 2005) ("[A]ttorneys' fees are not allowable in the absence

of a statute or some agreement or stipulation authorizing such an award."); Young v.

Nevada Title Co., 744 P.2d 902,905 (Nev. 1987) ("It is well established in Nevada that

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Dated: June 15,2009 FAEGRE & BENSON LLP

s/Jesseca R.F. Cookson

Jeffrey D. Hedlund (#175791)
jhedlund@faegre.com
Jesseca R.F. Cockson (#294329)
jcocksonuifaegre.com
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Tel.: (612) 766-7000
Fax: (612) 766-1600

Jesse B. Simpson
Admitted pro hac vice
LEWIS AND ROCA, LLP
40 North Central Avenue
Suite 1900
Phoenix, AZ 85004
Tel.: (602) 262-5387
Fax: (602) 734-3741

Attorneys for Defendants

SJB Investments, LLC and
James C. Burchard
fb.usAl16134.05

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