How to plead the elements of the following claims in Minnesota: fraud, mistake, capacity to contract, ratification, covenant of good faith and fair dealing, and violation of the uniform deceptive trade practices act, unjust enrichment, and reckless misrepresentation.

Lyon Financial Services, Inc.


MBS Management Services

United States District Court, D. Minnesota Sep 6, 2007

Civil No. 06-4562 (PJS-JJG). (D. Minn. Sep. 6, 2007)



JEANNE GRAHAM, Magistrate Judge

The above matter came before the undersigned on July 31,
2007 on a motion to dismiss (Doc. No. 16) by third party defendant American
Business Machines (ABM). Troy C. Kepler, Esq., appeared for plaintiff Lyon
Financial Services (Lyon). V. John Ella, Esq., appeared for defendants MBS
Management Services and MBS Realty Investors (collectively MBS). William C.
Penwell, Esq., appeared for ABM. The motion is referred to this Court for a report
and recommendation in accordance with 28 U.S.C. § 636 and Local Rule 72.1(c).


This dispute originates in four contracts where MBS leased
photocopiers from ABM. ABM assigned these leases to Lyon, and at some point
afterwards, MBS stopped making payments. Lyon 
responded by bringing this action against MBS for breach of contract.
MBS then filed a third party complaint against ABM, with claims for fraud,
rescission, breach of contract, unjust enrichment, and violation of the
Minnesota Uniform Deceptive Trade Practices Act (DTPA).

The complaint names MBS Management Services and MBS Realty
Investors as defendants. MBS Management Services allegedly executed the leases
and MBS Realty Investors purportedly was a guarantor under some of the leases.
Both entities are represented by the same counsel and, for the purposes of this
motion, their interests are identical. In the factual narrative, references to
MBS refer to MBS Management alone. Elsewhere in this report, MBS may include
both defendants, even though it is described in the singular.

ABM now moves to dismiss seven of the nine counts in the
third party complaint for failure to state a claim. In the alternative, ABM
seeks a more definite statement of the pleadings under Rule 12(e).


1. General Considerations

A. Standard of Review

Under Rule 12(b)(6), a defendant may move to dismiss for
failure to state a claim where the allegations in the complaint are so
deficient that they provide no cause for relief. Quinn v. Ocwen Federal Bank
FSB, 470 F.3d 1240, 1244 (8th Cir. 2006). When considering this question, a
court shall only examine the pleadings, taking all reasonable inferences in
favor ofthe nonmovingparty. Potthoff v. Morin, 245 F.3d 710, 715 (8th Cir.
2001); Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).

This standard is a liberal one, and as some courts have
noted, it must be beyond doubt that the plaintiff has no claim for relief. See,
e.g., Coleman v. Watt, 40 F.3d 255, 258 (8th Cir. 1994). Nonetheless, the nonmoving
party must still allege “sufficient facts, as opposed to mere conclusions,
to  satisfy the legal requirements of the
claim.” Levy v. Ohl, 477 F.3d 988, 991 (8th Cir. 2006). So a court may
ignore legal conclusions presented in the form of factual allegations. Wiles v.
Capitol Indem. Corp., 280 F.3d 868, 870 (8th Cir. 2002).

2. Record on Review

Though MBS and ABM do not materially dispute the underlying
standard of review, they do raise some concerns about the record properly
before the court on a motion to dismiss for failure to state a claim. The
general rule is that a court only examines the pleadings and matters
incorporated by reference. Katun Corp. v. Clarke, 484 F.3d 972, 975 (8th Cir.

ABM argues it has another document that, though not attached
to the third party complaint, may be examined here. MBS counters that ABM is
attempting to convert the motion into one for summary judgment, and
consequently it includes several additional documents with its own papers.

The document submitted by ABM is a letter, from MBS to ABM,
dated February 10, 2006. The letter states that only two persons, Mary Gonzales
and Michael Smuck, are authorized to enter equipment leases for MBS. The third
party complaint describes this letter. Though the following discussion will
show this letter is relevant, the allegations in the third party complaint
sufficiently describe it. The letter itself does not need to be part of the

The documents submitted by MBS are four copies of the
purported lease contracts at issue in this litigation. These copies depart in
some respects from the lease contracts that Lyon attached to its complaint. MBS
suggests these differences may signal that the lease contracts were either
forged or inauthentic.

 Where a document is
not attached to a complaint, but it is “necessarily embraced” by the
allegations in the complaint, it may be considered on a motion to dismiss for
failure to state a claim. Enervations, Inc. v. Minnesota Mining Mfg. Co., 380
F.3d 1066, 1069 (8th Cir. 2004). Thus where the contents of a particular
document are alleged in a complaint, and the authenticity of that document is
not questioned, a court may properly consider it. Kushner v. Beverly Enters.,
Inc., 317 F.3d 820, 831(8th Cir. 2003).

Because the February 10 letter is described in the third
party complaint, it may be treated as part of the record on the motion to
dismiss. But the alternate lease contracts are not mentioned in the third party
complaint, and because they are not “necessarily embraced” by it,
they may not be considered on the motion to dismiss. However, even if these
documents were considered, they do not materially influence the following

B. Count I: Rescission

Turning to the merits, ABM begins by challenging MBS’ suit
for rescission. It argues that this count is founded on allegations of fraud
and mistake, and because the third party complaint does not plead these matters
with particularity as required by Rule 9(b), this count does not state a claim.

This argument is somewhat misleading, as this count does not
rely exclusively on the theories of fraud and mistake. The count states in
relevant part,

25. As a result of fraud on the part of ABM or its agents or
employees, or a mutual mistake by the parties, a number of contracts were signed
by the parties pursuant to which no machine was actually delivered to MBS.

26. All or some of the Lease Agreements were signed by

[corporate representatives]

of MBS who were not one of the two persons
specifically authorized to sign such contracts.

 This count,
therefore, is not founded solely on fraud or mistake. It also alleges
incapacity, based on allegations that a corporate representative was not
authorized to execute contracts for MBS.

Minnesota law provides that a party may bring suit for rescission
on whatever grounds are recognized in equity. Liebsch v. Abbott, 122 N.W.2d
578, 579 (Minn. 1963) (quoting Knappen v. Freeman, 50 N.W. 533, 534 (Minn.
1891)). Such grounds include that the contract is void because of unilateral
mistake, Gethsemane Lutheran Church v. Zacho, 104 N.W.2d 645, 649 (Minn. 1960);
that it is voidable for fraud in the inducement, E.E. Atkinson Co. v. Neisner
Bros., 258 N.W. 151, 154 (Minn. 1935); or that it is voidable due to incapacity
of a party, Slingerland v. Slingerland, 124 N.W. 19, 19 (Minn. 1910).

The parties have not engaged in a choice of law analysis. It
may seem suspicious that the lease contracts, originally executed by companies
based in Texas and Louisiana, are controlled by Minnesota law. But the
choice-of-law clauses in the lease contracts provide, “This Agreement
shall be deemed fully executed and performed in the state of Owner or its
Assignee’s principal place of business and shall be governed by and construed
in accordance with its laws.” Because Lyons, the current assignee of the
leases, has its principal place of business in Minnesota, the law of this state

Minnesota law also uses the term rescission to describe
other circumstances. These include discharge of a contract by mutual agreement
of the parties, Abdallah, Inc. v. Martin, 65 N.W.2d 641, 644 (Minn. 1954), or
renunciation of a contract by one party following the other party’s refusal to
perform, Liebsch v. Abbott, 122 N.W.2d 578, 579(Minn. 1954). In order to
distinguish these concepts of rescission, some authorities suggest that when a
contract is void or voidable, the proper remedy in equity is cancellation. See
Richard A. Lord, Williston on Contracts § 75:3 (4th ed. 2005). But Minnesota
case law does not make this distinction, and therefore, this discussion follows
the same practice.

When examining the merits of MBS’ suit for rescission, it is
most useful to consider theories of fraud and mistake together, and then to
give separate consideration to the theory of incapacity. Because these issues
return in many of the subsequent counts, the following discussion will control
those counts as well.

1. Fraud and Mistake

As noted beforehand, ABM argues that MBS has not adequately
alleged fraud or mistake as required under Rule 9(b). The rule states, “In
all averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity.”

Interpreting this rule, Eighth Circuit authorities require a
plaintiff to allege “such matters as the time, place, and contents of the
false representations, as well as the identity of the person making the
representation and what was obtained or given up thereby.” Schaller
Telephone Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th Cir. 2002)
(indirectly quoting Bennett v. Berg, 685 F.2d 1053, 1062 (8th Cir. 1982)).
Although Eighth Circuit decisions have not applied these standards in the
context of mistake, it is reasonable to suggest that similar levels of detail
are required.

Many decisions more concisely describe this standard as
requiring the “who, what, where, when, and how” of the alleged fraud.
See, e.g., United States ex rel. Costner v. United States, 317 F.3d 883, 888
(8th Cir. 2003). If a party alleges that certain misrepresentations were made,
but does not indicate what matters were false or how it relied on those
misrepresentations, such allegations are not particularized enough to comply
with the rule. BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th
Cir. 2007).

MBS argues for a more relaxed or liberal application of Rule
9(b). MBS relies in part on the Eighth Circuit decision of Abels v. Farmers
Commodity Corp., where the court stated that Rule 9(b) is consistent with
notice pleading and only requires a “higher degree of notice.” 259
F.3d 910, 920 (8th Cir. 2001).

 Although MBS
accurately quotes the decision, it omits to mention that the Abelscourt still
required allegations that “enabl[e] the defendant to respond specifically,
at an early stage of the case, to potentially damaging allegations of immoral
and criminal conduct[.]” Id. The court then went on to recite the same
standards described in the other cases noted above. Abels cannot be viewed,
therefore, as relaxing those standards. See id. (quoting Bennett, 685 F.2d at

MBS also recites certain Seventh Circuit authorities. These
authorities suggest that where a plaintiff lacks access to facts necessary to
plead fraud or mistake, especially where those facts are under the control of
another party, Rule 9(b) should not be applied as stringently. See Corley v.
Rosewood Care Center, Inc., 142 F.3d 1041, 1051(7th Cir. 1998). Eighth Circuit
authorities have not proposed a comparable rule.

The third party complaint offers few allegations about fraud
or mistake. The pleading alleges that Brent Couture, who allegedly executed the
leases on behalf of ABM, misrepresented himself as its chief financialofficer.
And it notes variances between the serial numbers of the photocopiers that were
delivered and those described in the leases. It may be possible to view another
allegation, ABM’s purported failure to deliver one or more copiers, as some
sort of fraudulent omission.

 At the motion
hearing, MBS mentioned another purported misrepresentation by ABM, that
“leasing is superior to buying.” This statement is not disclosed in
the third party complaint and so it cannot be considered here.

Taking a permissive view, the allegations might be enough to
describe the “who” or “what” of the fraud. But the third
party complaint does not meaningfully answer the “how,” the question
of detrimental reliance.

 MBS claims that it
made several payments under the leases, and that these payments were excessive
and unfair. It does not explain, however, how false or misleading
representations by ABM led it to make excessive payments. Cf. BJC Health Sys.,
478 F.3d at 917.

MBS and ABM were engaged in an arm’s-length commercial
transaction, and there are no allegations that connect the fraud to ABM’s
decision to execute and perform the lease. If this Court assumes, solely for
the sake of argument, that Couture had authority to execute the leases, this
fact is still immaterial to the price that ABM itself agreed upon in those

For these reasons, its claims of fraud and mistake are
insufficient under Rule 9(b). To the extent that its suit for rescission is
based on these theories, it does not state a claim and these matters may be

 MBS also argues that,
because ABM has pleaded ratification, a defense that recognizes the
enforceability of the contract, ABM waives the right to challenge whether fraud
is alleged with particularity under Rule 9(b). As will be noted later, Rule
8(e)(2) allows a party to assert as many claims or defenses as are available,
regardless of whether these claims or defenses are consistent with one another.
So this argument is misdirected.

In support of its theory of waiver, MBS cites a decision
from the District of Kansas, Sithon Maritime Co. v. Holiday Mansion, 983
F.Supp. 977 (D.Kan. 1997). This case does not support the proposition advanced
by MBS. Denying a motion to amend as untimely, the court noted in dicta that
previous claims of fraud were not pleaded with particularity. Id. at 991.

The result would be no different if the Seventh Circuit
rule, as urged by MBS, were applied. That rule relaxes the pleading standards
under Rule 9(b) where a party does not have access to the facts necessary to
plead the fraud. But as the previous analysis indicates, the most notable
defect in the third party complaint is the failure to plead reliance. Such
facts are necessarily within MBS’ own control.

dismissal of this claim, MBS argues for a stay, so that it may conduct
discovery and then cure its third party complaint by amendment. As a general
rule, if a party asserts that it can cure its defective complaint, a court
ordinarily will grant leave to amend. See In re Cerner Corp. Securities
Litigation, 425 F.3d 1079, 1086(8th Cir. 2005). But where a party fails to
adequately plead fraud under Rule 9(b), that party is not allowed to pursue
discovery in order to remedy the complaint, and dismissal is appropriate.
United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 559-60
(8th Cir. 2006). The same is true here.

2. Capacity to Contract

The other theory for rescission is that the leases were
executed by a representative of MBS who lacked this authority. Although MBS and
ABM do not squarely present this issue in the context of rescission, their
arguments are equally applicable here.

As mentioned beforehand, MBS alleges Couture was not
authorized to execute the leases. By his signature, he indicated that his job
title was “CFO.” ABM contends that it believed Couture was the Chief
Financial Officer of MBS and that, from its perspective, he had apparent
authority to execute contracts on behalf of MBS.

MBS counters that, according to the allegations in its third
party complaint, it had rejected a lease contract from ABM in December 2005,
due to undisclosed irregularities in the handling of the contract. These
concerns culminated with the February 10 letter, which informed ABM that only
Gonzales and Smuck had authority to execute equipment leasing contracts on
behalf of MBS. For these reasons, MBS argues, ABM knew or had reason to know
that Couture was not authorized to execute the lease contracts.

 Where a corporate
agent enters into a contract without express authority from the corporation,
the enforceability of the contract depends on the circumstances. If the other
party either knew or had reason to know the agent lacked authority to bind the
corporation, the contract is not enforceable. Reynolds v. Prudential Ins.
Co.,231 N.W. 615, 616 (Minn. 1930).

This principle is well illustrated by the decision of the
Minnesota Supreme Court in Truck Crane Service Co. v. Barr-Nelson, Inc. 329
N.W.2d 824 (Minn. 1983). After some questionable transactions, a prime
contractor sent a letter to one of its subcontractors, advising that a
particular employee was not authorized to enter contracts. The letter further
advised that transactions executed by this employee, on behalf of the prime,
would not be honored. Id. at 827.

The court reasoned that this letter was sufficient to put
the subcontractor on inquiry regarding the authority of not just that employee,
but other employees of the contractor. The court also held that the
subcontractor had the burden of due diligence to determine the authority of
corporate agents. Id.; accord, North Star Mutual Ins. Co. v. Zurich Ins. Co.,
269 F.Supp.2d 1140, 1152-53 (D.Minn. 2003).

A countervailing principle is that, where the conduct of a
corporation would lead another to reasonably believe that a corporate
representative has power to bind the corporation, agency may be implied on a
theory of apparent authority. But this determination must be based on the
conduct of the corporation rather than that of its purported agent. The conduct
and intent of the corporation may be inferred when the purported agent uses
corporate resources, and in some circumstances, the corporation may be estopped
from denying agency altogether. Duluth Herald News Tribune v. Plymouth Optical
Co., 176 N.W.2d 552, 556-57 (Minn. 1970).

 Taking reasonable
inferences in favor of MBS, the third party complaint alleges that Couture was
not authorized to execute the lease contracts, and ABM had reason to know that
he lacked this authority. The complaint supplies sufficient grounds, therefore,
to seek rescission on this theory. Because MBS has a claim for relief under
this theory, but not for reasons of fraud or mistake, it is appropriate to
sever the count for rescission and only grant dismissal in part.

ABM contends that Couture had apparent, if not actual,
authority to execute the lease contracts. Because Couture had this authority,
ABM argues, MBS cannot bring suit for rescission and dismissal is appropriate.
But to maintain this argument, ABM improperly takes inferences from the third
party complaint in its favor. The standard of review requires those inferences
to be taken in MBS’ favor. In that light, it is reasonable to conclude Couture
did not have authority to execute the lease contracts. This factual dispute
shows, at minimum, that MBS has a cause of action.

3. Ratification

ABM then argues, notwithstanding the fraud or capacity
theories, that MBS waived relief because it ratified the lease contracts. If a
contract is voidable and a party has a right to rescission, but that party does
not exercise that right within a reasonable time, the party ratifies the
contract and the right to rescission is waived. In re Digital Resource, LLC,
246 B.R. 357, 369 (B.A.P. 8th Cir. 2000).

The right to rescission does not arise until a party has
knowledge of facts that would give it that right. Once a party acquires such
knowledge, if that party continues to accept the benefits of the contract for a
reasonable time, there is ratification and waiver. In re Landmark Holding Co.,
286 B.R. 377, 383 (Bankr. D.Minn. 2002); Carpenter v. Vreeman, 409 N.W.2d 258,
261-62 (Minn.App. 1987).

 Taking all reasonable
inferences in MBS’ favor, the third party complaint states that it did not
learn of the suspect lease contracts until fall 2006. Once it did, it stopped
making payments under the contracts. These allegations are more than enough to
suggest that it intended to avoid the lease contracts, and that it did not
intend to accept the benefits of those contracts without objection. For these
reasons, the third party complaint does not necessarily establish ratification
or foreclose rescission.

ABM once again advances an argument that is based on
inferences in its favor, even though the standard of review requires the
contrary. This Court further notes, however, that even though ABM cannot seek
dismissal a theory of ratification at this time, this result does not prevent
it from asserting the argument later in this litigation.

C. Count III: Covenant of Good Faith
and Fair Dealing

Leaving the count for breach of contract undisturbed, MBS
next challenges the count for breach of the covenant of good faith and fair
dealing. In support of this count, MBS alleges that the price terms under the
lease contracts are unfair and unconscionable. ABM counters that, because the
price terms are expressly stated in the leases, the implied covenant is not at

These arguments are misdirected. The implied covenant of
good faith and fair dealing bars one party from undertaking actions that
unjustifiably hinder performance by the other party. In re Hennepin County
Recycling Bond Litigation, 540 N.W.2d 494, 502 (Minn. 1995). This covenant only
relates to the performance of a contract. It does not involve concerns, such as
unconscionable terms, that relate to the formation of a contract. Cf.
Restatement (Second) of Contracts § 205 cmt. c.

The third party complaint lacks any allegations that ABM
interfered with MBS’ performance of the lease contracts. For this reason, MBS fails
to state a claim for breach of the covenant of good faith and  fair dealing, and this count is appropriately
dismissed. Any concerns about the fairness of the price terms are inapposite.

D. Count IV: Unjust Enrichment

Regarding MBS’ claim for unjust enrichment, ABM correctly
states the general rule that this relief is not available where the rights of
the parties are controlled by a valid contract. U.S. Fire Ins. Co. v. Minnesota
State Zoological Bd., 307 N.W.2d 490, 497(Minn. 1981). ABM then argues that,
because the lease contracts are valid, MBS cannot assert a claim for unjust

 The existence of a
valid contract, by itself, does not foreclose a claim for unjust enrichment. If
a contract is valid, but the rights of the parties are ambiguous, the remedy of
unjust enrichment remains available. Midwest Sports Marketing, Inc. v.
Hillerich Bradsby of Canada, Ltd., 552 N.W.2d 254, 268 (Minn.App. 1996).

This argument is answered by Rule 8(e)(2), which provides in
relevant part, “A party may also state as many separate claims or defenses
as the party has regardless of consistency or whether based on legal,
equitable, or maritime grounds.” ABM may accordingly plead some claims
that are premised on a valid contract and others that are not. The fact that
these claims may be inconsistent with one another does not make them
susceptible to a motion to dismiss for failure to state a claim. See Babcock
Wilcox Co. v. Parsons Corp., 430 F.2d 531, 536 (8th Cir. 1970).

This argument is yet another instance where ABM improperly
takes inferences in its own favor. As noted previously, when the third party
complaint is taken with reasonable inferences in MBS’ favor, it shows that
there was no valid or enforceable contract. For this reason, MBS has a claim
for unjust enrichment, and dismissal of this claim is not warranted.

E. Counts V, VI: Fraud

To the extent ABM challenges the counts for fraud, those
arguments were fully addressed in the discussion of rescission. As noted at
that point, MBS has not alleged the details of fraud with particularity under
Rule 9(b). For this reason, these counts are appropriately dismissed for
failure to state a claim.

F. Count VII: Reckless

Assuming that Minnesota law recognizes reckless
misrepresentation as a separate tort, it is generally characterized as a type
of fraud. Florenzano v. Olson, 387 N.W.2d 168, 177 (Minn. 1986) (Simonett, J.,
concurring specially); cf. Zutz v. Case Corp., 422 F.3d 764, 770 (8th Cir.
2005) (holding that this tort is recognized under Minnesota law). Like fraud,
it occurs where a plaintiff relies on the misrepresentation of another party.
Williams v. Tweed, 520 N.W.2d 515, 517 (Minn.App. 1994); see generally4
Minnesota Practice: CIVJIG § 57.10 (5th ed. 2007).

There can be little dispute, and the parties do not contest,
that the particularized pleading requirements of Rule 9(b) also apply to this
tort. Because MBS has not adequately alleged fraud under this rule, its
allegations of reckless misrepresentation likewise fail.

G. Count VIII: Uniform Deceptive Trade
Practices Act

The only other claim ABM challenges is for violation of the
DTPA. It argues that none of the allegations in the third party complaint show
a “likelihood of confusion or of misunderstanding” that allow a claim
under this statute. MBS agrees that this phrase is controlling. It asserts that
this language is broadly construed to embrace a wide range of deceptive
business practices, including those alleged in its complaint.

The DTPA permits action against a business that engages in
deceptive trade practices. In defining what constitutes such practices, the
phrase “likelihood of confusion or of misunderstanding” appears in
three  places, for conduct that

(2) causes likelihood of confusion or of misunderstanding as
to the source, sponsorship, approval, or certification of goods or services;

(3) causes likelihood of confusion or of misunderstanding as
to affiliation, connection, or association with, or certification by, another;
. . . [or]

(13) engages in any other conduct which similarly creates a
likelihood of confusion or misunderstanding.

Minn. Stat. § 325D.44, subd. 1. Under Minnesota’s version of
the DTPA, only two published cases have examined the meaning of the phrase.

One is a bankruptcy decision from this District, In re
Simitar Entertainment, Inc. 275 B.R. 331 (Bankr. D.Minn. 2002). It involved a
retailer who challenged a distributor of music recordings, arguing that the
distributor’s conduct caused a likelihood of confusion about the nature of the
recordings. Id. at 339. The court noted that, under the statutory language, it
is not necessary to show actual confusion but only a likelihood of confusion.
It found, among the acts that cause a likelihood of confusion, are those that
may create a mistake about the identity of a product or its essential aspects.

The other is the decision of this District in Minnesota ex
rel. Hatch v. Fleet Mortgage Corp. 158 F.Supp.2d 692 (D.Minn. 2001). This case
involved a telemarketing firm that, in the course of solicitations, acquired personal
data which it then sold to third parties. Because persons contacted by the firm
were not informed their data would be sold to others, the court described this
practice as a material omission. 696. Taking a broad approach to the term
“likelihood of confusion or misunderstanding,” the court  determined that an omission may qualify for
this term, and refused to dismiss for failure to state a claim. Id. at 697.

The third party complaint alleges that ABM delivered
photocopiers with different serial numbers than those promised in the leases.
It also suggests a material omission, as ABM failed to disclose that the
leasing cost for the photocopiers was about ten times their retail price.

Under the standard of Simitar Entertainment, it is possible
to conclude that the concern about the serial numbers is enough to show a
likelihood of confusion about the identity of the photocopiers or their
essential aspects. The material omission of reasonable pricing information may
also provide MBS with a theory under Fleet Mortgage Corp.  Either theory is sufficient to state a claim
and so it is not appropriate to dismiss this count.

This analysis may appear to be inconsistent with the prior
determination that the purported omissions of ABM do not support a claim for fraud.
But the pleading requirements for fraud do not apply to claims under the DTPA,
and a wider range of conduct is actionable under the DTPA than for fraud. See
Fleet Mortgage Corp., 158 F.Supp.2d at 966-67.

H. Remedy

Although a dismissal for failure to state a claim is
ordinarily with prejudice, where the failure is due to the omission of material
facts from the complaint, a court has discretion to dismiss without prejudice.
See Belizan v. Hershon, 434 F.3d 579, 583(D.C. Cir. 2006); Craighead v. E.F. Hutton
Co., 899 F.2d 485, 495 (6th Cir. 1990).

This Court has determined dismissal is appropriate for the
claims that are founded on fraud and breach of the covenant of good faith and
fair dealing. In both areas, the dismissal is chiefly due to MBS’ omission of
material facts from the complaint. This Court finds it appropriate, under these
circumstances,  to dismiss without
prejudice. Should MBS acquire facts that allow it to revive its claims, it may
then do so.

I. More Definite Statement

Assuming that it does not prevail on its motion to dismiss,
ABM alternatively asks for a more definite statement of the third party
complaint under Rule 12(e). The rule provides that where a pleading “is so
vague or ambiguous that a party cannot reasonably be required to frame a
responsive pleading, the party may move for a more definite statement before
interposing a responsive pleading.”

When examining whether a more definite statement is required
under Rule 12(e), the only question is whether it is possible to frame a response
to the pleading. See Century `21′ Shows v. Owens, 400 F.2d 603, 607 (8th Cir.
1968). This inquiry focuses on the allegations in the complaint, not the
claims. Thus a more definite statement is appropriate where the allegations are
so vague or unintelligible that no reasonable response can be expected. See
Swierkewicz v. Sorema N.A., 534 U.S. 506, 514 (2002); see also Radisson Hotels
Int’l, Inc. v. Westin Hotel Co., 931 F.Supp. 638, 644(D.Minn. 1996).

The allegations in the complaint are reasonably precise and
understandable. Even though ABM objects to the lack of detail, in its answer to
the third party complaint, it framed a response and admitted or denied the
allegations. For these reasons, a more definite statement is not needed here.


Because MBS does not make particularized allegations about
fraud, it does not state claims that are founded on this theory. So its claims
for fraud and negligent misrepresentation, and its suit for rescission to the
extent it relies on this theory, are appropriately dismissed. Because MBS does
not allege that ABM  interfered with its
performance of the leases, it also does not state a claim for breach of the
implied covenant of good faith and fair dealing.

To the extent MBS founds its suit for rescission on
incapacity, it has adequately alleged that a representative of ABM did not have
authority to execute the leases, and dismissal of this matter is not
appropriate. Its allegations are also sufficient to establish a claim for
unjust enrichment. As the conduct of ABM potentially caused a likelihood of
confusion or misunderstanding, MBS also has a claim for violation of the DTPA.

Consistent with this analysis, this Court concludes that
ABM’s motion to dismiss should be granted in part and denied in part, and that
the inadequate claims be dismissed without prejudice.


Being duly advised of all the files, records, and
proceedings herein, IT IS HEREBY RECOMMENDED THAT:

1. ABM’s motion to dismiss (Doc. No. 16) be GRANTED IN PART

2. The following claims in the third party complaint be

a. Counts III, V, VI, and VII in their entirety.

b. Count I only to the extent it is founded on a theory of


Pursuant to Local Rule 72.2(b), any party may object to this
report and recommendation by filing and serving specific, written objections by
September 25, 2007. A party may respond to the objections within ten days after
service. Any objections or responses filed under this rule shall not exceed
3,500 words. The District Court shall make a de novo determination of those
portions to which objection is made. Failure to comply with this procedure
shall operate as a forfeiture of the objecting party’s right to seek review in
the United States Court of Appeals for the Eighth Circuit. Unless the parties
stipulate that the District Court is not required, under 28 U.S.C. § 636, to
review a transcript of the hearing in order to resolve all objections made to
this report and recommendation, the party making the objections shall timely
order and cause to be filed within ten days a complete transcript of the