Bare Body Laser Spa Inc. v. Bankers Healthcare Group, LLC

Background

Bare Body Laser Spa Inc. alleged that John M. Billings, M.D., and Lunabit Capital LLC were involved in obtaining and using a $500,000 loan. Bare Body alleged that it made Billings a 50-percent shareholder based on his representation that he would return the shares immediately after Bare Body secured equipment financing. Bare Body further alleged that Billings applied for the loan, directed $485,000 of the proceeds to Lunabit, and said the money would be invested in Bitcoin in Bare Body’s name.

Bare Body asserted four Minnesota common-law claims: fraudulent inducement against Billings; conversion against Billings and Lunabit; unjust enrichment against Billings and Lunabit; and breach of fiduciary duty against Billings. The defendants moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the fraudulent-inducement claim for failure to state a claim. They also moved under Rule 12(f) to strike allegations concerning Billings’s use and distribution of controlled hallucinogenic drugs.

Fraudulent-Inducement Claim

The court applied Minnesota law. A future promise generally is not actionable as fraud unless the plaintiff alleges facts plausibly showing that the person making the promise had no intention of performing when the promise was made. The court also applied the ordinary pleading requirement that a complaint contain enough factual content to make liability plausible, along with the heightened requirement that fraud be described with particularity.

The court identified the relevant alleged promise as Billings’s statement that he would return the 50-percent ownership interest after the financing was secured. Bare Body alleged that Billings later refused to relinquish the shares and alleged, as a conclusion, that his promise was false when made. The court held that these allegations did not plausibly show that Billings lacked the intention to perform when he made the promise. A later refusal to perform, without more, did not establish fraudulent intent at the earlier time. The court also noted that the complaint did not allege when or how Billings communicated his refusal to return the shares, which prevented Bare Body from relying on the alleged timing of that refusal to show an original intent not to perform.

Motion to Strike

Rule 12(f) permits a court to strike material that is redundant, immaterial, impertinent, or scandalous. The court found that the allegations about Billings’s use and distribution of controlled hallucinogenic drugs were neither essential nor helpful to pleading any of Bare Body’s claims. Bare Body stated at the hearing that it viewed those allegations as relevant only to the fraudulent-inducement claim and conceded that they could be stricken if that claim were dismissed. The court therefore granted the motion to strike.

Disposition

The court concluded that Bare Body’s pleading failure could potentially be corrected, so dismissal with prejudice was not appropriate. The order granted defendants’ Partial Motion to Dismiss and Strike Pleadings. It dismissed Count I of the First Amended Complaint without prejudice. It struck Paragraphs 13, 14, 15, 16, and 37, and struck Paragraph 38 except for the allegation that Billings terminated his romantic relationship with Claudia Theodoro.