The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
SOUTHEASTERN DIVISION
THE HANOVER INSURANCE )
COMPANY, )
)
Plaintiff, )
)
vs. ) Case No. Case No. 1:20CV192 ACL
)
FIRST MIDWEST BANK OF POPLAR )
BLUFF and DENNIS YOUNG, )
)
Defendants. )
MEMORANDUM AND ORDER
This matter is before the Court on the following motions: Defendant First Midwest Bank
of Poplar Bluff’s (“First Midwest”) Motion to Dismiss or to Refer this Case to Bankruptcy Court
(Doc. 7); Defendant Dennis Young’s Motion to Dismiss or to Refer this Case to Bankruptcy
Court (Doc. 15); and Plaintiff The Hanover Insurance Company’s (“Hanover”) Motion for Leave
to Amend Complaint (Doc. 28).
I. Background
Factual Background1
Hanover issued payment bonds and performance bonds to Harding Enterprises, LLC
(“Harding Enterprises”) for multiple public construction projects for which Harding Enterprises
won bids and performed work. Hanover issued the bonds to guarantee Harding Enterprises’
performance obligations on these bonded projects and to ensure the payment obligations Harding
Enterprises had to its subcontractors and material suppliers. In consideration of the issuance of
1The Court’s summary of the facts is taken from the Complaint, assumed as true for the purpose
of the instant motions only.
these bonds, Greggory Harding and Dawn Harding (“Hardings”), members of Harding
Enterprises, each executed a General Agreement of Indemnity (“GAI”) in favor of Hanover.
When Harding Enterprises began to struggle financially, the Hardings requested that
Hanover provide Harding Enterprises with financial assistance to complete the performance of
the work on the bonded projects. Hanover and the Hardings entered into a Financing and Special
Account Agreement on August 26, 2016 (“Financing Agreement”). Pursuant to the terms and
conditions of the Financing Agreement, Hanover paid claims and advanced funds to Harding
Enterprises in the total amount of $3,807,673.03. These funds were to be used by Harding
Enterprises for the sole purpose of paying labor and material costs incurred by it to perform work
on the bonded contracts.
Harding Enterprises ultimately failed to complete performance or pay its subcontractors
and suppliers, which constituted a default under the GAI. As a result, Hanover’s obligations
under the bonds was triggered. Hanover completed Harding Enterprises’ performance
obligations on the bonded projects and paid payment bond claims of subcontractors and
suppliers. Hanover suffered losses exceeding $5,000,000. Hanover demanded collateral and
reimbursement from the Hardings in the amount of $4,975,000, pursuant to its rights under the
GAI. The Hardings failed to post any collateral or reimburse Hanover.
In October 2016, Hanover discovered that the Hardings were misappropriating large
sums of money they received from the bonded projects owners and from Hanover that were
expressly required to have been used for Harding Enterprises’ performances obligations on the
bonded projects and payment to bonded subcontractors and suppliers (collectively, the “Bonded
Proceeds”). After nearly all of the Bonded Proceeds had been paid by the bonded project owners
to Harding Enterprises and then misappropriated, Hanover discovered the extent of the scheme.
Specifically, Hanover discovered that the Hardings had used cashier’s checks and other forms of
transfer to move the Bonded Proceeds through the financial system, ending in payments to the
Hardings; the Hardings’ son, Josh Harding; the Hardings’ benefactor, Mr. Young; the Hardings’
lender, First Midwest; and for the benefit of their newly purchased ranch, Diamond H. Ranch.
The evidence regarding the fraudulent transfers was discovered through tracing analysis
performed by Hanover during its prosecution of an Adversary Proceeding filed in the Hardings’
bankruptcy case. Mr. and Mrs. Harding filed a Voluntary Petition for Relief under Chapter 7 of
the Bankruptcy Code on February 26, 2018. On March 19, 2018, Harding Enterprises filed a
voluntary petition for relief under Chapter 7. During a hearing in the Hardings’ bankruptcy
proceedings, the Hardings testified that they engaged in so many cashier’s check transactions to
prevent the funds from being garnished or seized by creditors.
Hanover alleges that First Midwest knowingly received and benefited from the Hardings’
transfer of Bonded Proceeds. From July 2016 through January 2017, First Midwest issued over
one hundred cashier’s checks totaling $2,871,957 to the Hardings. Hanover asserts that Young
also benefitted from the receipt of Bonded Proceeds because the Hardings’ loan indebtedness to
him was paid. Hanover contends that Young knew or was complicit with the Hardings’ scheme
to misappropriate the Bonded Proceeds and was closely involved in Harding Enterprises’ bonded
work.
Procedural History
On September 4, 2020, Hanover filed the instant Complaint against Defendants First
Midwest and Dennis Young. (Doc. 1.) In Count I of the Complaint, Hanover seeks to avoid and
attach payments received by Defendant First Midwest that Harding Enterprises allegedly made
with the intent to hinder, delay and defraud its creditors, including Hanover. In Count II,
Hanover seeks to avoid and attach payments received by Defendant Young that Harding
Enterprises allegedly made with the intent to hinder, delay, and defraud its creditors, including
Hanover. Hanover seeks relief for both counts under Section 428.039 of the Missouri Revised
Statutes (the “Missouri Uniform Fraudulent Transfer Act” or “MUFTA”).
First Midwest filed the instant Motion to Dismiss or to Refer this Case to Bankruptcy
Court on September 29, 2020. First Midwest argues that the Court should dismiss Count I
pursuant to Federal Rule of Civil Procedure 12(b)(1) because Hanover lacks standing to assert
the claim. In the alternative, First Midwest requests that the Court refer this action to the United
States Bankruptcy Court for the Eastern District of Missouri (“Bankruptcy Court”) pursuant to
28 U.S.C. ⸹ 157(a) and Rule 9.01(B)(1) of this Court’s Local Rules. On October 14, 2020,
Defendant Young filed a Motion to Dismiss Count II of the Complaint, in which he makes the
same arguments for dismissal or referral to Bankruptcy Court as First Midwest. (Doc. 15.)
Pursuant to this Court’s order (Doc. 24), the parties provided supplemental briefing on certain
issues implicated by the Motions (Docs. 25, 26, 27, 30).
On February 5, 2021, Hanover filed its Motion for Leave to Amend Complaint, in
which it seeks leave to add two claims against Defendant First Midwest. (Doc. 28.) First
Midwest opposes the Motion. (Doc. 31.)
On July 14, 2021, the parties filed a Stipulated Motion to Stay all Proceedings until there
is a ruling on First Midwest’s Objection to Notice of Abandonment, which was pending in the
Bankruptcy Court in connection with the Hardings’ Chapter 7 Bankruptcy. (Doc. 36.) The
Court granted the Stipulated Motion on July 19, 2021, and stayed all proceedings in this matter.
(Doc. 38.)
The parties filed a Joint Memorandum on September 14, 2021, notifying the Court that
the Bankruptcy Court2 issued an order granting the Trustee’s request to abandon property of the
estate. (Doc. 39.) As a result, this Court lifted the July 19, 2021 stay and held a scheduling
conference on November 3, 2021. (Doc. 43.)
II. Discussion
The undersigned will address the pending motions in turn.
A. Motions to Dismiss
Defendants argue that Hanover lacks standing to assert its claims in this action because
an action to recover allegedly fraudulent payments made by Harding Enterprises is property of
the bankruptcy estate of Harding Enterprises. Defendants contend that only the trustee duly
appointed in the Harding Enterprises Bankruptcy Case has authority to prosecute an action to
recover property of the bankruptcy estate. Defendants therefore request that this Court dismiss
Hanover’s claims for lack of subject matter jurisdiction. In the alternative, Defendants request
that the Court refer this action to the Bankruptcy Court.
As previously noted, the Bankruptcy Court granted the Trustee’s request to abandon
property of the estate. (Doc. 39.) The property of the estate abandoned was described as “any
and all causes of action of any type or kind which may exist against First Midwest Bank of
Poplar Bluff.” (Doc. 39-1 at 1.)
During the Rule 16 Conference in this case, the undersigned inquired of counsel for each
Defendant how the Bankruptcy Court’s ruling impacted their motions to dismiss pending in this
action. Counsel for each defendant responded that their respective motions to dismiss were
rendered moot by the Bankruptcy Court’s decision.
2United States Bankruptcy Judge Barry S. Schermer.
Thus, Defendants’ Motions to Dismiss or Refer this Case to Bankruptcy Court (Docs. 7,
15) will be denied as moot.
B. Motion to Amend Complaint
Hanover requests leave to amend its Complaint to add claims against Defendant First
Midwest. Hanover states that it has identified the following two additional causes of action,
sounding in tort, which it seeks to bring against First Midwest: Aiding and Abetting in the
Commission of Conversion (Count III) and Civil Conspiracy to Commit Conversion (Count IV).
Hanover has attached the proposed First Amended Complaint to its Motion. (Doc. 28-1.)
First Midwest opposes Hanover’s request to amend its Complaint. First Midwest first
argues that amendment of the Complaint is futile, because both of the new causes of action fail to
state a claim. First Midwest also argues that Hanover’s bad faith, dilatory motive, and repeated
failures to cure deficiencies warrant denial of leave to amend. Additionally, First Midwest
contends that the filing of the proposed First Amendment Complaint is barred by the claim-
splitting doctrine, which prevents a plaintiff from suing a defendant in two different causes of
action based on the same set of facts.
Federal Rule of Civil Procedure 15(a) provides that leave to amend “shall be freely given
when justice so requires.” Fed. R. Civ. P. 15(a). “Unless there is a good reason for denial,
...leave to amend should be granted.” Brown v. Wallace, 957 F.2d 564, 566 (8th Cir. 1992).
Although Rule 15(a) allows liberal amendment, the Court has discretion whether to grant leave.
Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, (1971). Factors to consider in
determining whether leave to amend should be granted include but are not limited to (1) whether
the motion was filed in bad faith or with dilatory motive; (2) whether the motion was filed with
undue delay; (3) whether leave to amend would be unduly prejudicial to the opposing parties;
and (4) whether the proposed amendment would be futile. See Bell v. Allstate Life Ins. Co., 160
F.3d 452, 454 (8th Cir. 1998).
1. Bad Faith and Dilatory Motive
First Midwest argues that Hanover’s Motion to Amend its Complaint should be denied
due to Hanover’s alleged bad faith and dilatory motive. In support of this claim, First Midwest
provides a lengthy summary of previous actions filed by Hanover against defendants other than
First Midwest related to the Bonded Proceeds. First Midwest contends that Hanover has long
known the facts that form the basis of its proposed new counts but has failed to allege these
claims against First Midwest in the previous actions. According to First Midwest, “it is clear that
Hanover is only now seeking leave to add new counts because the existing fraudulent
conveyance count in the Complaint is the subject of a fully briefed motion to dismiss.” (Doc. 31
at 12.)
Hanover responds that First Midwest has presented no evidence of undue delay, bad
faith, or undue prejudice. Hanover contends that, at this early stage in the litigation, the
prejudice that Hanover would suffer if the Court were not to allow the amendment is
substantially greater than any burden First Midwest may bear as a result of the amendment.
The undersigned finds that First Midwest has failed to demonstrate that Hanover’s
request to amend its Complaint was motivated by bad faith or a dilatory motive. The fact that
Hanover has engaged in extensive litigation in an effort to recover the Bonded Proceeds does not
establish bad faith on its part. Similarly, First Midwest has not shown that the amendments
should be barred by the “claim-splitting doctrine.” The only other action filed by Hanover
against First Midwest was an Adversary Proceeding that Hanover dismissed before it was
resolved. Further, First Midwest’s allegation that Hanover is only seeking to add claims
because First Midwest’s fully briefed motion to dismiss is pending fails, as the motion to dismiss
has been denied as moot. Hanover’s request to amend its Complaint is timely, as it was filed
prior to the Rule 16 Conference and entry of the Case Management Order. The deadline to
amend the Complaint does not expire until January 31, 2022. Thus, First Midwest has failed to
demonstrate bad faith or dilatory motive as a basis to deny Hanover’s request to amend its
Complaint.
2. Futility
First Midwest next argues that the Court should deny Hanover’s Motion because the
amendment would be futile, as Counts I, III, and IV fail to state causes of action.
A proposed claim is futile when it could not withstand a motion to dismiss under Rule
12(b)(6) of the Federal Rules of Civil Procedure. J-McDaniel Constr. Co. v. Mid-Continent Cas.
Co., 761 F.3d 916, 919 (8th Cir. 2014); Zutz v. Nelson, 601 F.3d 842, 850 (8th Cir. 2010). The
proposed claim must therefore satisfy the pleading standards laid out in Ashcroft v. Iqbal, 556
U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Zutz, 601 F.3d at
850-51. Under those cases, “[t]o survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). Thus, “although a complaint need
not include detailed factual allegations, ‘a plaintiff’s obligation to provide the grounds of his
entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.’” C.N. v. Willmar Pub. Schs., Indep. Sch. Dist. No.
347, 591 F.3d 624, 629-30 (8th Cir. 2010) (quoting Twombly, 550 U.S. at 555).
a. Count I
Count I of the proposed First Amended Complaint—which is identical to Count I of the
original Complaint—seeks to avoid and attach payments received by First Midwest Bank that
Harding Enterprises allegedly made to defraud its creditors. Hanover seeks relief under Section
428.039 of the MUFTA.
First Midwest argues that Count I fails to state a cause of action. In support, First
Midwest raises the same argument made in support of its Motion to Dismiss. In light of the
Bankruptcy Court’s ruling and this Court’s denial of First Midwest’s Motion to Dismiss as moot,
First Midwest’s arguments fail.
b. Count III
In Count III of the proposed First Amended Complaint, Hanover alleges a Civil
Conspiracy to Commit Tortious Acts claim against First Midwest.
The elements of a civil conspiracy claim are: “(1) two or more persons, (2) an object to
be accomplished, (3) a meeting of the minds on the object or course of action, (4) one or more
unlawful overt acts, and (5) resulting damages. The essence of a civil conspiracy is an unlawful
act agreed upon by two or more persons.” Aguilar v. PNC Bank, N.A., 853 F.3d 390, 403 (8th
Cir. 2017) (quoting Mackey v. Mackey, 914 S.W.2d 48, 50 (Mo. Ct. App. 1996)) (emphasis in
original).
The proposed First Amended Complaint alleges that First Midwest agreed to engage with
Harding Enterprises and the Hardings in an unlawful check scheme with the purpose of
defrauding creditors. (Doc. 28-1 at 19.) Hanover alleges that it was damaged as a result. Id.
First Midwest argues that Count III fails to state a claim because Hanover names First
Midwest as the only conspiring defendant. Hanover responds that two defendants need not be
named in order to assert a claim for civil conspiracy.
It is true that, “[s]trictly speaking, the fact of conspiracy is not actionable, but the action
sounds in tort and is in the nature of an action on the case upon the wrong done under the
conspiracy alleged.” Envirotech, Inc. v. Thomas, 259 S.W.3d 577, 586 (Mo. App. E. Dist. 2008)
Under Missouri law, “[j]oint action may be maintained against conspirators for damages caused
by their wrongful act, but all the conspirators need not be joined; an action may be maintained
against but one.” Id. (quoting Grubb v. Curry, 72 S.W.2d 863, 864 (Mo. Ct. App. 1934))
(emphasis added). Here, Hanover alleges that First Midwest, along with others, engaged in an
unlawful check scheme to defraud Hanover. These allegations set forth all the necessary
elements of a civil conspiracy claim. Hanover’s claim does not fail because it does not name a
conspirator as a defendant in this action.
First Midwest next contends that Count III fails to state a claim because Hanover has not
sufficiently alleged an agreement or meeting of the minds between First Midwest and any other
party.
Count III of the proposed First Amended Complaint alleges as follows, in relevant part:
By wittingly engaging in so many cashier’s check transactions by which
the same cashier’s checks were bought and sold and exchanged in a clear chain of
title, FMB agreed to engage and did engage with Harding Enterprises, LLC,
Greggory Harding, Dawn Harding, Dimond H. Ranch and others in unlawful acts
and/or FMB engaged in unlawful means (money laundering) to do lawful acts
(provide banking services to a cherished client).
(Doc. 28-1 at 19) (emphasis added). The background section of the proposed First Amended
Complaint provides additional details supporting Hanover’s allegations that First Midwest
knowingly received and then benefitted from the transfer of the Bonded Proceeds. Id. at 9-15.
Hanover’s allegations sufficiently allege that First Midwest agreed to engage in a
fraudulent scheme with Harding Enterprises and others. Although Hanover may not be able to
ultimately support these allegations, they are sufficient at this stage to state a plausible claim for
civil conspiracy to commit a tortious act.
c. Count IV
Count IV of the proposed First Amended Complaint sets forth a claim against First
Midwest for “Aiding and Abetting a Breach of Fiduciary Duty.” (Doc.. 28-1 at 20.)
First Midwest argues that Count IV fails to state a claim because Missouri law does not
recognize this theory of liability.
The Eighth Circuit recently concluded the Missouri Supreme Court would not recognize
a claim for aiding and abetting breach of fiduciary duty under the Restatement (Second) of Torts.
Jo Ann Howard & Assocs., P.C. v. Cassity, 868 F.3d 637, 650-51 (8th Cir. 2017); see also
Cardinal Health 110, LLC v. Premiere Healthcare, LLC, No. 18-CV-165, 2019 WL 108837, at
*7 (E.D. Mo. Jan. 4, 2019) (following the Eighth Circuit’s decision, and finding the Missouri
Supreme Court would not recognize a cause of action for aiding and abetting breach of fiduciary
duty); Enslein ex rel. Xurex, Inc. v. Di Mase , No. 16-09020-CV-W-ODS, 2019 WL 2505052, at
*31 (W.D. Mo. June 17, 2019) (same); Bader Farms., Inc v. Monsanto Co., No. 16-CV-299,
2019 WL 3017425, at *7 (E.D. Mo. Nov. 8, 2021) (same).
Because Missouri does not recognize a claim for aiding and abetting a breach of fiduciary
duty, Count IV fails to state a claim for which relief can be granted. As such, Hanover’s request
to add Count IV will be denied as futile.
Accordingly,
IS HEREBY ORDERED that Defendants’ Motions to Dismiss or to Refer this Case to
Bankruptcy Court (Docs. 7, 15) are found moot.
IT IS FURTHER ORDERED that Plaintiff's Motion for Leave to Amend Complaint
(Doc. 28) is granted in part and denied in part. The Motion is denied as to Count IV of the
proposed First Amended Complaint and is granted in all other respects.
Uris Outen Leone
ABBIE CRITES-LEON] sts”
UNITED STATES MAGISTRATE JUDGE
Dated this 16th day of November, 2021.
12