Absolute Resolutions Investments, LLC v. Citibank, N.A.

Background

Absolute Resolutions Investments, LLC sued Citibank, N.A. over Citibank’s sale of delinquent consumer credit-card accounts. Absolute alleged that the account batches it received contained fewer high-value accounts and more low-value accounts than the information supplied during the parties’ due-diligence process suggested. Absolute also alleged that the accounts withheld from the sales were not selected randomly.

The parties entered into master purchase-and-sale agreements and addenda covering the sales. The agreements included representations about the account information, a provision addressing account-selection criteria, integration clauses stating that the written agreements contained the parties’ entire understanding, and a pre-suit notice process for certain alleged breaches. The parties also signed a release concerning claims related to some earlier sales.

Absolute asserted four claims: fraud, negligent misrepresentation, breach of contract, and, alternatively, breach of the implied covenant of good faith and fair dealing. Citibank moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim.

Court’s analysis

The court applied South Dakota law because the agreements selected that law.

For the fraud claim, the court applied South Dakota’s independent-tort doctrine, which generally requires a tort claim to be based on a legal duty separate from the parties’ contractual duties. The court held that Absolute had not identified such an independent duty. It concluded that the seller surveys did not create one because they were part of the contracting process, the master agreements and addenda described the parties’ duties, and the written agreements disclaimed understandings beyond those documents. The court therefore dismissed the fraud claim without reaching Citibank’s alternative arguments based on the economic-loss doctrine or the heightened pleading requirement for fraud.

The court dismissed the negligent-misrepresentation claim for the same reason: Citibank did not owe Absolute a legal duty independent of the contracts. It did not reach the economic-loss argument for that claim.

The court dismissed the breach-of-contract claim because Absolute did not adequately allege compliance with the agreements’ specific pre-suit notice procedure. The court determined that the procedure applied to the account-selection provision in the agreements and rejected Absolute’s argument that the provision was outside the notice requirement. The court also found that Absolute’s allegations about a June 16, 2020 letter and a later communication did not explain how those communications satisfied the required procedure. The court did not decide whether the release separately barred some contract claims.

The court treated the implied covenant of good faith and fair dealing as a type of contract claim under South Dakota law, rather than as an independent tort. It nevertheless dismissed that claim because it was duplicative of the breach-of-contract claim: both claims rested on the same alleged failure to deliver account batches consistent with the due-diligence information. The court did not decide whether the agreements’ merger clauses could waive the implied covenant.

Disposition

The court granted Citibank’s motion to dismiss in its entirety. It dismissed all of Absolute’s claims without prejudice to Absolute’s filing an amended complaint within 21 days of the order’s date.