RC Family Farms, Inc. v. Compeer Financial, ACA

Background

RC Family Farms, Inc., David Bomgaars, and Anita Bomgaars sued Compeer Financial, ACA; Compeer Financial, PCA; and AgriBank, FCB. RC maintained a $20 million line of credit with Compeer, and AgriBank held RC’s investment assets for that arrangement.

The plaintiffs alleged that hackers sent RC’s bookkeeper emails pretending to be Chris Bomgaars. Based on those emails, Compeer processed transfers of $875,000 to Mexico, $1.1 million to China, and additional transfers totaling $1.411 million to banks in Mexico. The FBI recovered the $1.1 million transfer before it cleared. The plaintiffs alleged that Compeer and AgriBank refunded only $500,000 of the $2.2 million stolen.

The plaintiffs alleged that their agreements required Compeer to verify wire-transfer requests using information provided when the account was opened and to call only the requester’s telephone number on record. They also alleged that they had elected an optional dual-authorization procedure. When Compeer could not reach the bookkeeper at the recorded number, it contacted David Bomgaars without telling him about the pending international transfer, obtained updated information, and ultimately completed the transfers.

Legal Standard

The defendants moved to dismiss under Rule 12(b)(6), which asks whether the complaint contains enough factual allegations to make a claim legally plausible. At this stage, the court accepts plausible factual allegations as true but does not accept bare legal conclusions.

Claims and Rulings

Breach of contract

The court held that the agreements were ambiguous about whether the dual-authorization procedure applied to all wire transfers or only transfers made through the internet banking or automated-clearinghouse systems. The plaintiffs also plausibly alleged that Compeer violated the agreement by contacting David Bomgaars after failing to reach the bookkeeper at the telephone number on record. The court further held that the plaintiffs plausibly alleged a claim against AgriBank, even if the damages from that bank’s specific conduct might be limited. The motion to dismiss the breach-of-contract claims was denied.

Promissory estoppel

The plaintiffs alleged that a Compeer employee told them to elect dual authorization “just like with Wires.” The court found it plausible that RC reasonably understood this statement to apply to all wire transfers and that RC relied on that understanding when it authorized the bookkeeper to send transfers. The motion to dismiss this claim was denied.

Conversion

The plaintiffs alleged that AgriBank converted RC’s investment funds by sending them directly to the wire-transfer banks. The court dismissed this claim because the allegations duplicated the breach-of-contract allegations and the plaintiffs did not allege damages separate from their contract damages.

Covenant of good faith and fair dealing

The plaintiffs alleged that the defendants breached the implied covenant of good faith and fair dealing by failing to use dual authorization, seeking the bookkeeper’s updated telephone number without explaining why, and transferring funds from RC’s investment accounts. Because the court found that the contract claims were plausibly pleaded, it denied the motion to dismiss this claim.

Fraudulent inducement and misrepresentation

The plaintiffs alleged that Compeer misrepresented why David Bomgaars needed to update the bookkeeper’s telephone number and failed to disclose the pending wire transfer. The court rejected the argument that a fiduciary relationship was required for these claims. It held that the plaintiffs plausibly alleged that Compeer had special knowledge of material facts and did not provide enough information to prevent its statements from being misleading. The motion to dismiss the fraudulent-inducement and negligent-misrepresentation claims was denied.

Uniform Commercial Code claim

The court dismissed the claim under Minnesota’s and Wisconsin’s Uniform Commercial Code because the parties appeared to agree that those provisions did not apply to the transactions.

Disposition

The opinion first states that the motion to dismiss was “granted in part and denied in part.” Its claim-by-claim discussion says that the conversion and Uniform Commercial Code claims were dismissed and that the other identified claims survived. However, the final order states: “Defendants’ Motion to Dismiss ... is DENIED.” The opinion is therefore internally inconsistent about the overall wording of the disposition, while clearly stating the individual outcomes for the claims discussed.