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Schmidt v. Wells Fargo & Co.

United States District Court, D. Colorado

March 28, 2018

JOHN SCHMIDT, Plaintiff,


          R. Brooke Jackson, United States District Judge.

         This matter is before the Court on defendants Wells Fargo & Company's; Wells Fargo Bank, N.A.'s; Wells Fargo Capital Finance, LLC's; Global Alternative Investments'; and Global Alternative Investment Services, Inc.'s (“defendants”) motion to dismiss. ECF No. 16. For the reasons stated below, the Court GRANTS defendants' motion.

         I. BACKGROUND

         Plaintiff John Schmidt is a former Wells Fargo employee. ECF No. 1 at 4. Before joining Wells Fargo, Mr. Schmidt co-founded Castle Pines Capital, LLC (“Castle Pines”). Id. at 1. After Wells Fargo acquired Castle Pines, Mr. Schmidt entered into an employment agreement with Wells Fargo on May 25, 2011 (the “2011 Agreement”) whereby Mr. Schmidt would remain employed as the Managing Partner of Castle Pines for a period of five years. Id. at 4. In April of 2016, as the 2011 Agreement was nearing expiration, Wells Fargo asked Mr. Schmidt to apply for a position in which he would assist with another large Wells Fargo acquisition. Id. Mr. Schmidt declined and instead chose to resign from Wells Fargo. Id. After the acquisition occurred, Mr. Schmidt engaged in employment discussions with Wells Fargo executives which resulted in his being offered the position of Head of Supply Chain Finance for Wells Fargo Capital Finance, LLC, effective May 5, 2016. Id.

         The terms of Mr. Schmidt's new position were set forth in oral communications and in a May 5, 2016 letter sent to Mr. Schmidt by Scott Diehl, Executive Vice President and Head of Global Solutions Group with Wells Fargo Capital Finance, LLC. Id. According to Mr. Schmidt, the parties orally agreed that his term of employment would be for five years. Id. at 5. Additionally, the May 2016 letter allegedly provided partial terms of Mr. Schmidt's employment, including his annual base pay and bonuses. Id. at 4. On August 25, 2016 Wells Fargo disseminated a press release announcing that Mr. Schmidt would be leading the Supply Chain Finance Group. Id. at 5. Mr. Diehl also issued statements in September 2016 touting Mr. Schmidt's experience and expertise and noting that Wells Fargo was “fortunate to have him leading this group.” Id.

         Unbeknownst to Mr. Schmidt, this honeymoon period would soon draw to a close as implementation of the so-called “Volcker Rule” drew closer. Codified in section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Volcker Rule prohibits an employee of a banking entity-like Mr. Schmidt-from investing in certain types of funds sponsored by the banking entity unless the employee is directly engaged in providing investment advisory or other services to the covered fund. Id. at 6 (citing 12 U.S.C. § 1851(d)(1)(G)(vii)). The restrictions of the Volcker Rule became effective on July 21, 2012, but in July 2016 the deadline for banking entities to comply with the Rule was extended to July 21, 2017. Id.

         Mr. Schmidt was subject to the requirements of the Volcker Rule because he had “significant assets” managed in Wells Fargo's securities and was a Wells Fargo employee. Id. At the crux of the instant case are the actions undertaken by Mr. Schmidt to comply with the Volcker Rule. Mr. Schmidt states that he was “assured by Wells Fargo Senior Vice President, Wealth Advisor Liz O'Connor's and Investment Manager Paul Hojnick's conduct, actions, and representations that he would be given the opportunity to assess his financial position at the end of 2016 and would have several months into 2017 to take any action required under the Volcker Rule.” Id. Specifically, Mr. Schmidt alleges that Wells Fargo's plan was to value his hedge fund investments after the end of 2016, determine the impact of selling his assets, and allow Mr. Schmidt time to make a decision in 2017 about whether or not to sell his assets to ensure compliance with the Volcker Rule. Id. at 6-7. At some point the plan changed.

         Despite being assured that his hedge fund investments would not be redeemed until “several months into 2017, ” Mr. Schmidt alleges that he received notice from Wells Fargo on December 8, 2016 that Wells Fargo would redeem his hedge fund investments on December 31, 2016. Id. at 7. Mr. Schmidt attempted to elicit an explanation for the accelerated redemption timeline but claims that “no satisfactory answer was provided.” Id. Mr. Schmidt alleges that the accelerated timeline put him in the “untenable position of choosing whether to remain employed and potentially face unknown colossal tax and/or opportunity cost consequences by having to redeem his investment without the opportunity to conduct due diligence prior to the redemption, or to resign from his position before the [end of the] five-year term of his employment agreement.” Id. On December 13, 2016 Ms. O'Connor requested that Mr. Schmidt submit his resignation and Mr. Schmidt complied. Id. Mr. Schmidt asserts that this interaction amounted to constructive discharge. Id. at 2, 9.

         Mr. Schmidt filed a complaint on June 26, 2017, asserting four claims: (1) breach of contract; (2) negligent misrepresentation; (3) negligence; and (4) promissory estoppel. See Id. at 8-13. On August 9, 2017 Wells Fargo filed a motion to dismiss Mr. Schmidt's complaint in its entirety. ECF No. 16. That motion has been fully briefed. See ECF Nos. 16, 24, 27.


         To survive a 12(b)(6) motion to dismiss, the complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plausible claim is a claim that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the Court must accept the well-pleaded allegations of the complaint as true and construe them in the light most favorable to the plaintiff, Robbins v. Wilkie, 300 F.3d 1208, 1210 (10th Cir. 2002), conclusory allegations are not entitled to be presumed true, Iqbal, 556 U.S. at 681. However, so long as the plaintiff offers sufficient factual allegations such that the right to relief is raised above the speculative level, he has met the threshold pleading standard. See, e.g., Twombly, 550 U.S. at 556; Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008).

         III. ANALYSIS

         Defendants move to dismiss plaintiff's complaint in its entirety for failure to state a claim. ECF 16 at 1. Defendants argue that each of plaintiff's four counts should be dismissed as a matter of law. Id. I will address each count in turn.

         A. Count I: Breach of Contract.

         In his complaint, plaintiff asserts that he entered into a five-year employment contract with defendants on May 5, 2016 which incorporated both oral and written terms. ECF No. 1 at 8. Plaintiff contends that defendants' accelerating his investment redemption timeline-which resulted in his resigning-amounted to a constructive discharge, thereby breaching the terms of his employment contract.[1] ECF No. 16 at 9-10. Plaintiff further asserts that defendants' actions constituted a breach of the implied covenant of good faith and fair dealing that is inherent in every contract under Colorado law. Id. at 10. Defendants argue in their motion to dismiss that Colorado's statute of frauds renders plaintiff's alleged contract void, precluding his breach of contract claim and his related claim for breach of the implied covenant of good faith and fair dealing. ECF No. 16 at 1-2. Because I ...

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