Ferrara v. Todd J. Ferrara

Background

Standard Heating & Air Conditioning, Inc. was founded in 1930 and eventually passed down through the Ferrara family. By 2007, brothers Todd J. Ferrara and Theodore (Ted) Ferrara were the sole shareholders, each owning 50%. Todd served as Vice President and Secretary; Ted was Chairman of the Board and CEO. In 2017, Ted's daughter Claire began working at the company; by 2018 she had become CEO.

On September 1, 2019, the three parties executed a Shareholder Transfer Agreement, and Todd and Claire separately executed a First Amended Share Purchase Agreement. Under these agreements: (1) Ted gifted all his shares to Claire; (2) Todd sold Claire 200 non-voting shares, making her the 51% majority owner; and (3) Todd granted Claire a call option — the right to purchase all of Todd's remaining shares starting December 31, 2024, at a price determined by the valuation mechanisms in the First Amended Share Purchase Agreement.

The purchase price mechanism worked in two steps. First, if shareholders had unanimously agreed on a fair market value within the prior 15 months, that agreed-upon value would govern. Second, if no such recent agreement existed, fair market value would be determined by agreement between the transferring shareholder and the corporation, or — if they could not agree — by independent appraisal.

The company had a history of setting artificially low valuations in its annual shareholder certificates, a practice Ted developed and Todd approved, intended to allow the surviving owner to buy out a deceased co-owner's shares cheaply and keep the business in the family. In 2020, Todd had misgivings about signing a new valuation certificate, but agreed after Ted proposed — and Claire and Todd agreed — that the low certificate value would not be used to price the call option; instead, the call option price would be set by independent appraisal.

In mid- to late-2024, the parties met twice to discuss the call option. Ted repeatedly asked Todd for a suggested price; Todd deferred and said he was working on a proposal. No one during those discussions suggested using the Re-determination of Value Certificate to set the call option price; in fact, Ted and Claire said they preferred to negotiate a price fair to all parties. Ted estimated the company's shares were worth between $4 million and $6 million.

On March 3, 2025, Claire attempted to exercise the call option, offering Todd $3,569,800 — a figure derived from the April 2024 Re-determination of Value Certificate, which had set the company's total value at $6,400,000 (with each share valued at $320, making Todd's 9,800 shares worth approximately $3,136,000, though the court noted an internal inconsistency in the pleaded figures). Todd refused to sell. Claire then sued Todd for specific performance (an equitable remedy requiring a party to carry out a contractual obligation), and Todd counterclaimed.

Todd also filed a third-party complaint against Ted under Federal Rule of Civil Procedure 14 (which allows a defendant to bring in a new party who may be liable for part or all of the claims against the defendant). Todd's operative Amended Third-Party Complaint raised four claims, but by the time of the motion only two remained live: (1) Negligent/Intentional Misrepresentation, and (2) Tortious Interference with Contract. Two others — Breach of Fiduciary Duty (voluntarily dismissed without prejudice by Todd) and Promissory Estoppel (voluntarily dismissed at the hearing) — were no longer at issue.

Ted moved to dismiss the remaining claims under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint fails to state a claim upon which relief can be granted.

Legal Standard

Under Rule 12(b)(6), the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. To survive, a complaint must plead enough facts to make a claim for relief plausible on its face — meaning the court can reasonably infer the defendant is liable for the alleged misconduct. Mere conclusory assertions or speculative allegations are insufficient. The parties agreed that Minnesota law governed the substantive claims.

Because Todd's misrepresentation claims sound in fraud, they were also subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires that the circumstances constituting fraud be stated with particularity — typically including the who, what, when, where, and how of the alleged false statements.

Negligent Misrepresentation

Under Minnesota law (following the Restatement (Second) of Torts § 552), negligent misrepresentation requires: (1) a duty of care owed by the defendant to the plaintiff; (2) the defendant supplied false information; (3) the plaintiff justifiably relied on it; and (4) the defendant failed to exercise reasonable care in communicating the information.

The court identified three independent grounds for dismissal of this claim.

First: No Duty of Care

Todd conceded there was no formal legal relationship (such as attorney-client or accountant-client) creating a duty. He argued instead that the brothers' relationship was 'more collaborative than adversarial,' and that Ted had superior knowledge. The court rejected this. Both brothers were sophisticated businessmen with decades of experience co-owning and operating Standard Heating; both held senior corporate positions; both independently approved business decisions. The complaint portrayed Todd as capable of independent judgment, not as someone who relied on Ted the way a client relies on a professional advisor. Under Minnesota law, arm's-length commercial negotiations between parties of comparable sophistication do not give rise to a duty of care sufficient to support a negligent misrepresentation claim.

Second: No Actionable False Statement (Future Predictions)

Minnesota law does not permit negligent misrepresentation claims based on predictions about future events — the misrepresentation must concern a past or present fact. Todd identified Ted's alleged false information as his representations that the call option price would not be based on the low certificate valuation and would instead require an independent appraisal. The court found these were predictions about what Claire would do in the future, not statements of present or past fact. Analogizing to Rognlien v. Carter, 443 N.W.2d 217 (Minn. Ct. App. 1989), the court noted that a defendant's predictions about a family member's future conduct are not actionable absent allegations that the defendant knew at the time those predictions were false. Todd's complaint contained no such allegation.

Third: No Damages Pleaded

Negligent misrepresentation requires that the plaintiff suffered a pecuniary loss caused by reliance on the false information. Todd had not yet been forced to sell his shares; the call option had not been executed. He therefore had not pleaded any loss of value.

Intentional (Fraudulent) Misrepresentation

In Minnesota, intentional misrepresentation (fraud) requires proving eleven elements, including that the false statement concerned a past or present fact, that the defendant knew it to be false or made it without knowing if it was true, that it was made with intent to induce action, and that it caused damages.

This claim failed for two of the same reasons. First, Ted's statements were about future events (what Claire would or would not do), not past or present facts. The court acknowledged that one statement — Ted's expressed preference 'to negotiate a price that was fair to Todd' — might be construed as a false promise rather than a future prediction. But even treated as intentional misrepresentation, it was not pleaded with the particularity Rule 9(b) requires: Todd placed the statement only during 'months of discussions, phone calls and emails,' without specifying when it was made. Moreover, the complaint did not allege that Ted knew the statement was false when he made it — indeed, the allegations suggested Ted had previously honored the understanding. Second, as with negligent misrepresentation, Todd had not alleged damages.

Tortious Interference with Contract

To prevail on a tortious interference with contractual relations claim under Minnesota law, a plaintiff must establish: (1) the existence of a contract; (2) the defendant's knowledge of the contract; (3) the defendant's intentional procurement of its breach; (4) without justification; and (5) resulting damages.

The court first noted a threshold issue: Ted was a party to the Shareholder Transfer Agreement (which incorporated the call option), but not a party to the First Amended Share Purchase Agreement (which set the valuation mechanism). Under the general rule in Nordling v. Northern States Power Co., 478 N.W.2d 498 (Minn. 1991), a party generally cannot tortiously interfere with its own contract. Because Ted was a party to the overarching agreement, the Nordling rule arguably barred the claim as to that agreement. The court did not resolve this question definitively, however, because the claim failed on a more basic ground regardless of which agreement was at issue.

Even setting aside the Nordling issue, Todd had not plausibly alleged that Ted intentionally procured Claire's breach. The court identified several deficiencies. Todd's assertion that Ted 'exercises influence and control over his daughter Claire' was conclusory, with no underlying facts. The allegation that 'Ted Ferrara intentionally caused Claire Ferrara to breach the agreements' was followed only by a reference to Ted's assurances about the valuation — which the court found to be a non sequitur having nothing to do with Ted inducing Claire to act. The allegation that Ted 'induced Claire Ferrara to make a demand upon Todd Ferrara' was similarly unsupported by any factual detail about how such inducement occurred. Finally, Todd had again not alleged damages.

Dismissal Without Prejudice

The court exercised its discretion to dismiss without prejudice rather than with prejudice (which would permanently bar refiling). A dismissal with prejudice is appropriate when a plaintiff has shown persistent pleading failures or when amendment would clearly be futile. Here, the court found that the lack-of-damages ground could conceivably be cured: if the call option is eventually executed at the disputed contractual price, Todd may be able to plead actual damages and potentially replead his claims. The other grounds did not make amendment obviously futile.

Disposition

Judge Tostrud granted Ted's motion to dismiss and dismissed Todd's Amended Third-Party Complaint without prejudice. The underlying litigation between Claire and Todd — over whether the call option must be honored at the contractual price — continues separately.