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The Western State Bank v. Cosey, L.L.C.

United States District Court, D. Colorado

November 4, 2019




         This matter is before me on Defendant Cheryl Ann Wollert's (“Ms. Wollert”) Motion to Dismiss (ECF No. 8). Ms. Wollert argues that her Motion should be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) because (1) Plaintiff the Western State Bank (“Western State”) has failed to adequately plead its claims for fraud and civil theft with respect to Ms. Wollert, and (2) Western State's fraud claim is barred by the economic loss rule.

         Western State has not adequately pleaded its fraud claim against Ms. Wollert under Federal Rule of Civil Procedure 9(b). And it has not satisfied the requirements of Rule 8(a) with respect to its civil theft claim, as it has failed to plead one of the elements of that claim. Consequently, I grant Ms. Wollert's Motion.

         I. Background

         Plaintiff Western State and Defendants Cosey, L.L.C. d/b/a Wollert Automotive (“Cosey”), Kent Ray Wollert (“Mr. Wollert”) and Ms. Wollert (collectively “Borrowers”) entered into a banking relationship beginning in 2001. Compl. ¶ 11, ECF No. 1. During their relationship, Western State made a series of loans to Borrowers to finance Cosey's operations as a car dealership. Id. at ¶¶ 11-13. The financing was given and continued based upon representations and certifications provided to Western State by Borrowers concerning the value of the collateral securing the loans. Id. at ¶¶ 12-13. Western State alleges that throughout the relationship, Borrowers misrepresented the value of the collateral securing the loans, leading Western State to believe that this “Borrowing Base” was sufficient to finance Borrowers and to fully secure the loans. Id. at ¶ 13. In reality, according to Western State, the Borrowing Base was far less than represented, leaving it significantly under-secured. Id.

         The banking relationship between Western State and Borrowers culminated in two October 2018 loans in the principal amounts of $1, 500, 000 and $150, 000. The loans were issued to finance Cosey's acquisition of automobiles and provide general operating capital for Cosey. Id. at ¶¶ 14-17. Borrowers made and delivered promissory notes for the respective amounts on October 30, 2018. Id. at ¶ 14-15. A June 14, 2017 Security Agreement, signed by Borrowers in favor of Western State, sets forth the collateral securing the promissory notes. Id. at ¶ 16.

         Western State alleges that “in a prolonged pattern of representations to Western State concerning the Borrowing Base, Borrowers misrepresented the Borrowing Base to induce Western State to finance them.” Id. at ¶ 18. Western State alleges that Borrowers' misrepresentations began at an unknown date, “but it may have started in 2014 and was discovered in 2019.” Id. Western State offers an example of these misrepresentations, alleging that Borrowers issued monthly “Borrowing Base Certificates” to Western State which identified the value of certain collateral in relation to the balance owed by Borrowers to Western State. Id. Western State alleges that the Borrowing Base Certificates misrepresented that Western State was or would be sufficiently secured, while the Borrowing Base was actually significantly less than represented. The Borrowing Base Certificates were typically signed by Mr. Wollert and Cosey. Id.

         In another instance of misrepresentation, Western State alleges that on September 27, 2018, shortly before the promissory notes were executed and in order to induce the loans evidenced by the promissory notes, Mr. Wollert sent an email to Western State wherein Borrowers misrepresented the Borrowing Base and that Western State was or would be over-secured by the collateral. Id. In fact, the Borrowing Base was “vastly overstated” and Western State was left “grossly under-secured.” Id. Additionally, Western State contends that when it routinely inspected the collateral, Borrowers misrepresented the Borrowing Base and failed to disclose that one or more of them had granted a security interest in the same collateral to another party. Id.

         The Complaint claims Borrowers defaulted on the promissory notes on or about January 24, 2019. Id. at ¶ 19. Shortly thereafter, Mr. Wollert purportedly admitted to engaging in the scheme described above. Id. After defaulting on the promissory notes, Borrowers also sold certain automobile inventory “out of trust” and retained the proceeds for their own use. Id. at ¶ 20.

         Western State filed this action on April 19, 2019, asserting five claims for relief. It's first two claims are for breach of the October 2018 promissory notes. The other claims are for fraud, conversion, and civil theft.

         On June 10, 2019, Ms. Wollert moved to dismiss the third, fourth[1], and fifth claims for failure to state a claim upon which relief can be granted. Ms. Wollert alleges that the claims for fraud and civil theft are inadequately pled and that the fraud claim is barred by the economic loss rule in any event.

         II. Legal Standard

         Federal Rule of Civil Procedure 8(a) requires that a claim for relief contain “a short and plain statement of the claim showing that the [plaintiff] is entitled to relief.” Fed.R.Civ.P. 8(a). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1235 (10th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Under Rule 12(b)(6), a court must “assume the truth of the plaintiff's well-pleaded factual allegations and view them in the light most favorable to the plaintiff.” Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (citation omitted).

         A claim is plausible on its face “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)). “Mere ‘labels and conclusions,' and ‘a formulaic recitation of the elements of a cause of action' will not suffice; a plaintiff must offer specific factual allegations to ...

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