Nelson v. Jerentosky

Background

Roger Nelson and Eric Jerentosky allegedly each owned 50 percent of Lakes Area Fabrication, LLC, which they started in 2007. Nelson alleged that, in 2013, Jerentosky told him that Lakes would be sold, that Nelson and Jerentosky would each receive a 16.65 percent interest in a new company called Container Experts, and that each would receive 16.65 percent of that company’s eventual sale proceeds. Nelson further alleged that Jerentosky had instead arranged a transaction that excluded Nelson while giving Jerentosky a share of the proceeds.

Consolidated Container Company, LLC allegedly purchased Lakes in 2013, and Consolidated and Jerentosky formed Container Experts. Nelson alleged that he worked on projects for Container Experts based on Jerentosky’s representations. Container Experts was sold to QualaWash in 2020, and Nelson alleged that Jerentosky received one-third of the sale price but did not pay Nelson his promised share.

Nelson asserted four claims under Minnesota law: breach of fiduciary duty, fraudulent misrepresentation, breach of contract, and promissory estoppel. Jerentosky moved to dismiss all four claims under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The case had been removed from state court based on diversity jurisdiction.

Court’s analysis

At the motion-to-dismiss stage, the court accepted the complaint’s factual allegations as true and drew reasonable inferences in Nelson’s favor. The court considered whether the amended complaint plausibly stated each claim, not whether the alleged facts were ultimately true.

Breach of fiduciary duty. The court granted the motion in part as to Nelson’s theory that Jerentosky owed him fiduciary duties because Jerentosky acted as Nelson’s agent. Under Minnesota law, an agency relationship requires consent by one person that the other will act on that person’s behalf and subject to that person’s control, along with the other person’s consent to act that way. The court found that the amended complaint used labels and legal conclusions but did not allege facts showing that Nelson and Jerentosky agreed to such a relationship.

The court denied the motion in part as to Nelson’s separate theory that fiduciary duties arose from their membership in the same limited liability company. The amended complaint plausibly alleged that they were members of the same two-member company, that Jerentosky breached duties by misrepresenting the transaction and benefiting himself to Nelson’s exclusion, and that Nelson suffered direct financial harm. The court also concluded that Nelson alleged a direct injury to himself rather than an injury that belonged only to Lakes and therefore had to be pursued on the company’s behalf.

Fraudulent misrepresentation. The court denied the motion as to this claim. It held that Nelson pleaded the alleged misrepresentations with the particularity required by Federal Rule of Civil Procedure 9(b), including who made them, what was said, where and when the statements were made, and how Nelson allegedly relied on them. The amended complaint plausibly alleged that Jerentosky knowingly made false statements about Nelson’s interest in Container Experts, that Nelson relied on those statements by working on the projects, and that he suffered financial harm. The court also rejected the argument that the statements could not support a fraud claim because they concerned actions by Consolidated or Container Experts.

Breach of contract and promissory estoppel. The court denied the motion as to both claims. For the contract claim, the court found that the amended complaint plausibly alleged an offer, acceptance, and consideration—a mutual exchange of something of value—between Nelson and Jerentosky. It was reasonable at this stage to infer that Jerentosky promised to pay Nelson and that Nelson accepted by completing the work.

For promissory estoppel, which can provide relief when a person reasonably relies on a clear promise, the court found that the alleged promise was sufficiently definite. The promise allegedly involved a 16.65 percent interest in Container Experts or 16.65 percent of its sale price in exchange for completing the defined Nalco projects. The court stated that it was reasonable to infer that Jerentosky was responsible for providing the promised benefit even if the proceeds first passed through another company.

Statute of limitations. The court declined to dismiss any claim as untimely. The parties agreed that a six-year limitations period applied. The court explained that dismissal on this basis at the pleading stage is proper only when the complaint itself clearly establishes that the claim is time-barred.

For the fiduciary-duty, contract, and promissory-estoppel claims, the amended complaint alleged that the relevant harm or failure to pay occurred when Container Experts was sold in 2020. For the fraud claim, the complaint did not establish that Nelson knew of the alleged fraud by June 17, 2015, six years before he filed the action. Whether Nelson should have discovered the alleged fraud through reasonable diligence was a factual issue that could not be resolved on this motion based on facts outside the complaint.

Disposition

Judge John R. Tunheim ordered that Jerentosky’s motions to dismiss were granted in part and denied in part. The motions were granted as to Count I to the extent it alleged a fiduciary duty based on a principal-agent relationship. They were denied as to Count I to the extent it relied on the parties’ membership in a limited liability company, and denied as to Counts II, III, and IV—fraudulent misrepresentation, breach of contract, and promissory estoppel.