United States District Court, D. Nebraska
MEMORANDUM AND ORDER
E. STROM, Senior Judge.
matter is before the Court on the motion of defendants, Kelly
Finnell and Executive Financial Services, Inc.
(“EFS”) (hereinafter collectively the
“Finnell defendants”), to dismiss (Filing No.
23). The matter has been fully briefed by the
parties. See Filing Nos. 23-1, 30, and 33. After
review of the motion, the parties' briefs, and the
applicable law, the Court finds as follows.
case arises out of “the creation, implementation,
valuation, and application” of an employee stock
ownership plan (“ESOP”) on behalf of the
plaintiff, William Willett's (“Willett”)
company, Reefer Systems, Inc. (“Reefer”) (Filing
No. 1 at 1). In the early part of 2009, Kelly
Finnell spoke to Willett about establishing an ESOP for
Reefer (Id. at 3). On January 21, 2010, Reefer hired
Southard Financial, LLC (“Southard”), at the
recommendation of the Finnell defendants, to perform
“valuation and financial advisory services” for
Reefer and “the yet-to-be formed ESOP.”
(Id.); see also Id. at 4 (stating EFS would
assist in finding “a valuation expert
months later, on April 21, 2010, Reefer and EFS entered into
a contract whereby EFS would provide various consulting
services “including, without limitation: assisting with
the creation and coordination of the ‘ESOP team' .
. . drafting the ESOP document and [s]ummary [p]lan
[d]escription and submitting the ESOP to the IRS requesting a
[f]avorable [d]etermination [l]etter.” (Id.)
EFS drafted the ESOP, the trust agreement, and the stock
purchase agreement (Id.)
December 17, 2010, the ESOP was executed (Id. at
4-5). The trust, set up for the ESOP, under the direction of
Daniel Bracht as trustee, paid $10 million for 30% of
Reefer's stock. See Id. at 5. That same day,
Southard issued a fairness opinion stating that “the
stock sale of the ESOP of 30% of [Reefer] for $10 million
d[id] not exceed the fair market value of [Reefer] as of
December 17, 2010.” (Id.)
eight months later, on August 26, 2011, Southard sent Kelly
Finnell an email stating:
I am in the process of providing Reefer Systems (Midland
Carrier Transicold) with an update valuation as of December
I am running into the same type of issue we had with Security
Seed, where we valued [t]he company on a control basis for a
minority purchase under the assumption that the plan would
specify that all future valuations would be on the same
Doug and I were just looking at the plan document and it does
not say that.
Is this something you can help us with?
We would prefer not to have to change the valuation
methodology since that would result in a significant drop in
(Id.) Three days later on August 29, 2011, Finnell
answered the email and allegedly sent, “what purported
to be a page from the ESOP [p]lan [d]ocument . . . .”
(Id.) The email stated: “When ‘valuing
the assets comprising the Trust Fund at their fair market
value, ‘the Trustee shall not apply a ‘minority
interest discount' or ‘discount for lack of
marketability' when valuing [Reefer's] Stock.”
(Id. at 5-6).
October 30, 2013, “the United States Department of
Labor (“DOL”) . . . sent Reefer an audit letter
notifying it of an audit of Reefer's ESOP . . . .”
(Id. at 6). Then in August of 2015, plaintiffs
allege that they “learned that the DOL was taking the
position that the initial valuation established by Southard .
. . was overstated by millions of dollars.”
filed the instant action on February 24, 2016, alleging
various causes of action against Southard and the Finnell
defendants. See generally Filing No. 1 at
6-12. Plaintiffs' claims against the Finnell defendants
include: professional malpractice, negligent
misrepresentation, fraudulent concealment, and breach of
contract. (Id. at 9-12).
specifically allege with respect to the professional
malpractice claim, that “Finnell and EFS failed to
obtain a [f]avorable [d]etermination [l]etter from the IRS
and upon information and belief . . . knew the valuation and
fairness opinion provided by Southard . . . was unlawful and
incorrect and failed to inform [p]laintiffs of this
fact.” (Id. at 9). With respect to the
negligent misrepresentation claim plaintiffs allege
“Finnell and EFS supplied [p]laintiffs with false
information that was intended for their guidance . . . [and]
failed to exercise reasonable care and competency in
supplying information regarding the ESOP.”
(Id. at 10). With respect to the fraudulent
concealment claim, plaintiffs allege “[i]n effort to
conceal their overstatement of the initial valuation relating
to the ESOP, [d]efendants conspired to create a false
document and fraudulently concealed the fact that the initial
valuation was overstated and not consistent with the ESOP
plan documents.” (Id.) Finally, with respect
to the breach of contract claim, plaintiffs allege
“Finnell and EFS breached the agreement in the ways
identified above.” (Id. at 11). Through
plaintiffs' brief the Court understands the breach of
contract claim to be based on the Finnell defendants'
failure to obtain a favorable determination letter from the
IRS. See Filing No. 30 at 18 (claiming
“[p]laintiffs have clearly put the Finnell [d]efendants
on notice that they are claiming they failed to obtain a
[f]avorable [d]etermination [l]etter and have clearly alleged
a breach of contract although the Finnell [d]efendants
disagree with such a claim.”).
April 20, 2016, the Finnell defendants filed the instant
motion to dismiss (Filing No. 23). The Finnell
defendants argue plaintiffs' causes of action should be
dismissed pursuant to Federal Rules of Civil Procedure
12(b)(6), 12(b)(7), and 9(b). (Id.)
whether a complaint states a plausible claim for relief is
“a context-specific task” that requires a court
“to draw on its judicial experience and common
sense.” Braden v. Wal-Mart Stores, Inc., 588
F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 677-78, 129 S.Ct. 1937, 173 L.Ed.2d
868 (2009)). Federal Rule of Civil Procedure 8 requires a
complaint to present “a short and plain statement of
the claim showing that the pleader is entitled to
relief.” Fed.R.Civ.P. 8(a)(2). “[A] complaint
must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face.”
Braden, 588 F.3d at 594 (quoting Iqbal, 556
U.S. at 677-78) (citing Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d
929 (2007)). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 556 U.S.
considering a motion to dismiss under Rule 12(b)(6),
well-pled allegations are considered to be true and are
viewed in the light most favorable to the plaintiff.
Braden, 588 F.3d at 591, 595. In viewing the facts
in this light, the Court must determine whether the complaint
states any valid claim for relief. Jackson Sawmill Co. v.
United States, 580 F.2d 302, 306 (8th Cir. 1978).
Recitations of elements of a cause of action with mere
conclusory statements fail to meet Rule 8's pleading
requirements. Iqbal, 556 U.S. at 678. However, a
plaintiff may use legal conclusions to provide the framework
of a complaint, so long as factual allegations support those
legal conclusions. Id. at 678-79. Thus, a dismissal
is likely “only in the unusual case in which a
plaintiff includes allegations which show on the face of the
complaint that there is some insuperable bar to
relief.” Jackson Sawmill, 580 F.2d at 306.
deciding a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(7) for ‘failure to join a party under
Rule 19, ' Fed.R.Civ.P. 12(b)(7), the Court must first
determine if the party is a ‘necessary party' under
Rule 19(a)(1).” Rayeman Elements, Inc. v.
Masterhand Milling, LLC, No. 8:15CV89, 2015 WL 3658529,
at *2 (D. Neb. June 12, 2015) (citing Baker Group, L.C.
v. Burlington N. & Santa Fe Ry. Co., 451 F.3d 484, 490
(8th Cir. 2006) (citing Fed.R.Civ.P. 19(a))). Under Rule 19 a
party is “necessary” if:
(A) in that person's absence, the court cannot accord
complete relief among existing parties; or
(B) that person claims an interest relating to the subject of
the action and is so situated that disposing of the action in