Cadence Bank v. Hurl

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

CADENCE BANK, N.A., :

:

Plaintiff, : Case No. 2:20-cv-6403

:

v. : Chief Judge Algenon L. Marbley

:

JEFFREY HURL, et al., : Magistrate Judge Chelsey M. Vascura

:

Defendants. :

OPINION & ORDER

This matter is before the Court on Defendants’ Motion for Judgment on the Pleadings (ECF

No. 12). For the reasons that follow, Defendants’ Motion is GRANTED IN PART and DENIED

IN PART. The claims against Defendant Hurl in Counts I and II may proceed. For all other claims,

Defendants are entitled to judgment on the pleadings.

I. BACKGROUND

This case originates from a Loan and Security Agreement that Plaintiff Cadence Bank,

N.A., entered into with borrower Heritage Holdco, Inc., and subsidiary Heritage Sportswear, Inc.

(together, “Heritage”). (ECF No. 1 ¶ 15).1 Defendants Hurl, Schumacher, Disney, and Witthuhn

are officers, shareholders, and members of Heritage, though the company itself is not a party to

this case. (Id. ¶¶ 6–9). Under the Loan Agreement, Plaintiff extended a revolving line of credit to

Heritage, the amount of which was pegged to the value of Heritage’s current qualifying inventory.

(ECF No. 1-1 at 1, 3–4). To determine the amount of qualifying inventory, Heritage was required

to provide “Borrowing Base Certificate[s]” (hereinafter, the “Certificates”) to Plaintiff at regular

intervals. (Id. at 4).

1 Cadence Bank was not itself a signatory of the Loan Agreement. It is a successor by merger to one of the lender

signatories, AloStar Bank of Commerce. (Id. ¶ 1).

The Complaint alleges that Defendants, as “Senior Officers” of Heritage, falsified the

Certificates by reporting inventory on consignment from another company. (ECF No. 1 ¶¶ 20, 25–

28). This overstatement of inventory increased Heritage’s borrowing capacity under the Loan

Agreement and induced Plaintiff to lend approximately $40 million that it otherwise would not

have lent. (Id. ¶¶ 37–40, 48). Plaintiff alleges that the Certificates were falsified regularly from

October 2018 through February 2019. (Id. ¶¶ 18, 25).

The issue of improper inventory reporting emerged in February 2019, after Plaintiff

initiated a receivership case due to Heritage Sportswear’s breach of other covenants in the Loan

Agreement. (ECF No. 1 ¶¶ 16, 29–30). That case was filed in the Northern District of Georgia and

is captioned Cadence Bank, N.A. v. Heritage Sportswear, Inc., Case No. 1:19-cv-00595

(hereinafter, the “Receivership Case”). Shortly after initiating the Receivership Case, Plaintiff sent

third-party field examiners to test inventory counts. (ECF No. 1 ¶¶ 30–31). The resulting counts

matched Heritage’s internal data but conflicted with the Certificates, showing their falsity. (Id. ¶¶

34–35). The Receivership Case ended with liquidation of Heritage’s assets and assignment of its

claims to Plaintiff. (Id. ¶ 17).

Plaintiff’s Complaint states three causes of action against the Defendant officers: negligent

misrepresentation, fraudulent misrepresentation, and breach of fiduciary duties. Plaintiff brings the

misrepresentation claims directly, and it brings the fiduciary duty claim as Heritage’s assignee.

Defendants filed a joint answer (ECF No. 13) and moved for judgment on the pleadings (ECF No.

12). The briefing consists of Plaintiff’s response (ECF No. 17), Defendants’ reply (ECF No. 20),

and a pair of sur-replies (ECF Nos. 24, 25). The matter stands ripe for adjudication.

II. STANDARD OF REVIEW

When a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c)

is based on the argument that the complaint fails to state a claim upon which relief may be granted,

the Court employs the same legal standard as a Rule 12(b)(6) motion. Morgan v. Church’s Fried

Chicken, 829 F.2d 10, 11 (6th Cir. 1987) (“Where the Rule 12(b)(6) defense is raised by a Rule

12(c) motion for judgment on the pleadings, we must apply the standard for a Rule 12(b)(6)

motion”). The Court will grant the Rule 12(c) motion “when no material issue of fact exists and

the party making the motion is entitled to judgment as a matter of law.” JPMorgan Chase Bank,

N.A. v. Winget, 510 F.3d 577, 582 (6th Cir. 2007) (internal quotation marks omitted). The Court

must construe “all well-pleaded material allegations of the pleadings of the opposing party . . . as

true, and the motion may be granted only if the moving party is nevertheless clearly entitled to

judgment.” Id. at 581 (internal quotation marks omitted). The Court is not required, however, to

accept as true mere legal conclusions unsupported by factual allegations. Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009).

When a plaintiff’s claim sounds in fraud, the plaintiff also must satisfy Federal Rule of

Civil Procedure 9(b). Rule 9(b) reads: “In alleging fraud or mistake, a party must state with

particularity the circumstances constituting fraud or mistake.” The requirement “reflects the

rulemakers’ additional understanding that, in cases involving fraud and mistake, a more specific

form of notice is necessary to permit a defendant to draft a responsive pleading.” United States ex

rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008) (internal quotation marks

omitted)). The Sixth Circuit has explained that to satisfy Rule 9(b), a plaintiff must at a minimum

“allege the time, place, and content of the alleged misrepresentation,” as well as “the fraudulent

scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.” Bennett

v. MIS Corp., 607 F.3d 1076, 1100 (6th Cir. 2010) (internal quotation marks omitted).

In addition to allegations in the pleadings, the Court may take into account “matters of

public record, orders, items appearing in the record of the case, and exhibits attached to the

complaint.” Nieman v. NLO, Inc., 108 F.3d 1546, 1554 (6th Cir. 1997) (internal quotation marks

omitted). Additionally, the Court “may consider exhibits attached to a motion for judgment on the

pleadings ‘so long as they are referred to in the Complaint and are central to the claims contained

therein.’” Roe v. Amazon.com, 170 F. Supp. 3d 1028, 1032 (S.D. Ohio 2016) (quoting Bassett v.

Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th Cir. 2008)).

III. LAW AND ANALYSIS

A. Conflict of Laws

As a threshold matter, the Court must determine which state’s laws apply to the claims

brought. The Loan Agreement specifies that it is governed by Georgia law, “without giving effect

to any conflict of law principles.” (ECF No. 1-1 at 71). This does not end the Court’s inquiry,

however. Plaintiff’s claims, though related to the Loan Agreement, are styled in tort rather than

contract. Therefore, the Court must look to state tort laws, “apply[ing] the conflict of law rules of

the state in which it sits.” See Sky Tech. Partners, LLC v. Midwest Res. Inst., 125 F. Supp. 2d 286,

294 (S.D. Ohio 2000) (citing Klaxon v. Stentor, 313 U.S. 487, 490 (1941)). Ohio follows the

Restatement (Second) of the Law of Conflicts. Macurdy v. Sikov & Love, P.A., 894 F.2d 818, 820

(6th Cir. 1990) (citing Morgan v. Biro Mfg. Co., 474 N.E.2d 286 (Ohio 1984)).

1. Misrepresentation Claims

For the misrepresentation claims (Counts I and II), the Second Restatement specifies the

following inquiry:

When the plaintiff’s action in reliance took place in whole or in part in a state other

than that where the false representations were made, the forum will consider such

of the following contacts, among others, as may be present in the particular case in

determining the state which, with respect to the particular issue, has the most

significant relationship to the occurrence and the parties:

(a) the place, or places, where the plaintiff acted in reliance upon the

defendant’s representations,

(b) the place where the plaintiff received the representations,

(c) the place where the defendant made the representations,

(d) the domicil, residence, nationality, place of incorporation and place of

business of the parties,

(e) the place where a tangible thing which is the subject of the transaction

between the parties was situated at the time, and

(f) the place where the plaintiff is to render performance under a contract

which he has been induced to enter by the false representations of the

defendant.

Restatement (Second) of Conflict of Laws § 148(2) (1971).

Here, the Complaint alleges that the relevant acts and omissions occurred in Ohio. (ECF

No. 1 ¶¶ 13–14). This includes the signing of the Certificates, which are the source of the alleged

misrepresentations. Those certificates were received and relied upon in Georgia, where Plaintiff

has its principal place of business. (Id. ¶ 1). Accordingly, the law to apply will be either Ohio’s or

Georgia’s.

Reviewing the Second Restatement factors, the Court determines that Ohio contacts are

more abundant and significant. Heritage Sportswear is an Ohio corporation with its principal place

of business in Ohio. (Id. ¶ 3). Two Defendants (Hurl and Wittthuhn) also are residents of Ohio,

while the others (Schumacher and Disney) are residents of Illinois. (Id. ¶¶ 6–9). The inventory,

which was the subject of the Certificates, was held at Heritage facilities in Ohio, Florida, Indiana,

and Virginia. (Id. ¶ 30). Aside from Plaintiff’s place of business, the only connections to Georgia

are the Receivership Case and the Loan Agreement’s choice-of-law clause. (Id. ¶ 16; ECF No. 1-1

at 71). Plaintiff seems to concur that Ohio law should apply; its briefing makes no reference to

Georgia law. (ECF Nos. 17, 24). Because Ohio has the more significant relationship, the Court

will apply Ohio tort law to Plaintiff’s misrepresentation claims.

2. Fiduciary Duty Claim

As to the fiduciary duty claim (Count III), the Second Restatement provides as follows:

The local law of the state of incorporation will be applied to determine the existence

and extent of a director’s or officer’s liability to the corporation, its creditors and

shareholders, except where, with respect to the particular issue, some other state

has a more significant relationship under the principles stated in § 6 to the parties

and the transaction, in which event the local law of the other state will be applied.

Restatement (Second) of Conflict of Laws § 309 (1971).

Heritage Sportswear is incorporated in Ohio. (ECF No. 1 ¶ 3). Plaintiff’s Georgia

connections have no bearing on this claim, which Plaintiff is pursuing as an assignee. (Id. ¶ 17;

ECF No. 1-2). The underlying controversy is between an Ohio corporation and its directors and

officers, two of whom are Ohio residents. Once again, Plaintiff’s briefing concurs and rests

exclusively on Ohio law. (ECF Nos. 17, 24). Accordingly, the Court sees no grounds on which to

override the default rule that applies the law of the state of incorporation. The Court will apply

Ohio tort law to the fiduciary duty claim as well.

B. Misrepresentation Claims

1. Contract versus Tort

Defendants argue that the two misrepresentation claims (negligent and fraudulent) are in

fact “a breach of contract claim disguised as tort claims,” and that Plaintiff cannot hold them liable

in tort for “acts . . . based solely on contractual duties.” (ECF No. 12 at 10–11). Defendants cite

Wolfe v. Continental Casualty Co. for its proposition that “under Ohio law, the existence of a

contract action generally excludes the opportunity to present the same case as a tort claim.” 647

F.2d 705, 710 (6th Cir. 1981)). Here, however, the Court sees no inherent conflict in allowing

Plaintiff to sue in tort.

In Textron Financial Corp. v. Nationwide Mutual Insurance Co., the state court wrote that

“[a] tort claim based upon the same actions as those upon which a claim of contract breach is based

will exist independently of the contract action only if the breaching party also breaches a duty

owed separately from that created by the contract, that is, a duty owed even if no contract existed.”

684 N.E.2d 1261, 1270 (Ohio Ct. App. 1996) (citing Battista v. Lebanon Trotting Ass’n, 538 F.2d

111, 117 (6th Cir. 1976)). Moreover, the tort claim “must include actual damages attributable to

the wrongful acts of the alleged tortfeasor which are in addition to those attributable to the breach

of the contract.” Id. at 1271 (emphasis in original). Under Textron, therefore, a contract action will

not preclude tort claims that are based on separate duties and damages.

The pertinent contract action was the Receivership Case, brought by Plaintiff for breach of

the Loan Agreement. That action proceeded solely against Heritage, as Defendants were not parties

to the Loan Agreement and owed no duties under it. By contrast, the claims here are based on

tortious acts (i.e., the alleged misrepresentations) in derogation of general (not contractual) duties

of care. While the duty of Heritage to deliver Borrowing Base Certificates was contractual in

nature, the breach here relates to Defendants’ duty to exercise reasonable care in making the

representations contained therein. This fulfills the first requirement in Textron of a separate duty.

Nor can it be said conclusively at this stage that Plaintiff has failed to allege damages in

tort. Defendants cite Thornton v. Cangialosi for its proposition that, “[i]f the tort claim is factually

intertwined with the breach of contract claim such that the two cannot be separated, recovery

cannot be had for both.” 2010 WL 2162905, at *2 (S.D. Ohio May 26, 2010) (citing Textron, 684

N.E.2d at 1272). Here, the damages claims do differ—not vastly, but adequately. The Receivership

Case sought repayment of the principal and interest on Heritage’s line of credit due to multiple

defaults apart from overstatement of inventory. (Receivership Case ECF No. 1). The damages

theory in this case is that Defendants induced Plaintiff to loan approximately $40 million in funds,

leveraged against the consigned inventory, that it otherwise would not have lent. (ECF No. 1 ¶¶

53, 71). It is conceivable that the loaning of those funds, with the attendant opportunity cost, could

have damaged Plaintiff in ways that are separable from the Receivership Case. See, e.g., McCarthy,

Lebit, Crystal & Haiman Co., L.P.A. v. First Union Mgt., Inc., 622 N.E.2d 1093, 1107 (Ohio Ct.

App. 1993) (damages from defendant’s misrepresentations—specifically, the “forbearance of

pursuing other leasing opportunities”—were distinct from “damages based on the benefit of the

bargain” and thus were recoverable in tort). There might be a double-recovery concern as this case

progresses, but it would turn on issues of fact that are not evident at this stage.

The Court therefore rejects Defendants’ premise that this case is a contract action in

disguise. Borrowing the language of Wolfe, this is not “the same case” as the Receivership Case.

647 F.2d at 710. “Ohio law provides that a corporate officer can be held personally liable for a tort

committed while acting within the scope of his employment,” Atram v. Star Tool & Die Corp.,

581 N.E.2d 1110, 1113 (Ohio Ct. App. 1989); and that is the crux of Plaintiff’s case here.

Having determined that the Receivership Case does not bar Plaintiff from maintaining its

case in tort, the Court next must consider whether Plaintiff adequately has pled the required

elements of its misrepresentation claims.

2. Required Elements

Under Ohio law, the tort of negligent misrepresentation involves the following elements:

“One who, in the course of his business, profession or employment, or in any other

transaction in which he has a pecuniary interest, supplies false information for the

guidance of others in their business transactions, is subject to liability for pecuniary

loss caused to them by their justifiable reliance upon the information, if he fails to

exercise reasonable care or competence in obtaining or communicating the

information.”

Delman v. City of Cleveland Heights, 534 N.E.2d 835, 838 (Ohio 1989) (emphasis removed)

(quoting 3 Restatement (Second) of Torts 126–27, § 552(1) (1965)).

Fraudulent misrepresentation differs mainly in the level of intentionality. It requires proof

of the following elements:

(1) a representation, (2) which is material to the transaction at hand, (3) made

falsely, with knowledge of its falsity, or with such utter disregard and recklessness

as to whether it is true or false that knowledge may be inferred, (4) with the intent

of misleading another into relying upon it, (5) justifiable reliance upon the

representation or concealment, and (6) a resulting injury proximately caused by the

reliance.

Brewer v. Brothers, 611 N.E.2d 492, 495 (Ohio Ct. App. 1992) (citing Burr v. Stark Cty. Bd. of

Commrs., 491 N.E.2d 1101, 1105 (Ohio 1986); and Klott v. Assocs. Real Estate, 322 N.E.2d 690,

691–92 (Ohio Ct. App. 1974)).

3. Claims Against Defendants Schumacher, Disney, and Witthuhn

First, the Court must narrow the misrepresentation counts to the sole Defendant who is

alleged to have made a misrepresentation: Defendant Hurl. The Borrowing Base Certificates were

the source of all alleged misrepresentations (ECF No. 1 ¶¶ 51, 58), and they were signed only by

Defendant Hurl as CFO (Id. ¶¶ 54, 57). Nothing in the Complaint suggests that Defendants

Schumacher, Disney, or Witthuhn personally supplied any false information or made any false

representations. Rather, Defendants Schumacher, Disney, and Witthuhn are alleged to have

“approved of or directed Defendant Hurl to sign the fraudulent borrowing base certificates,” by

virtue of their positions as “Senior Officers” of Heritage. (Id. ¶¶ 23, 38, 64). But these allegations

are bare and conclusory, resting only on corporate titles and a misreading of the Loan Agreement.

The Loan Agreement required Heritage to submit Certificates signed by “a Senior Officer” (ECF

No. 1-1 at 4 (emphasis added)); but Plaintiff cites that clause as obligating every Senior Officer.

(ECF No. 1 ¶ 22–23).

Absent any well-pled facts to support a personal connection with or participation in the

alleged torts, Defendants Schumacher, Disney, and Witthuhn are “not liable, merely because of

[their] official character, for the fraud or false representations of the other officers or agents of the

corporation.” Seale v. Citizens Sav. & Loan Ass’n, 806 F.2d 99, 106 (6th Cir. 1986). Accordingly,

Plaintiff’s misrepresentation claims lie, if at all, with Defendant Hurl.

4. Claims Against Defendant Hurl

As to Defendant Hurl, the Court will proceed to Defendants’ other arguments. Defendants

seek to dismiss the negligent misrepresentation claim for lack of a “special relationship” between

them and Plaintiff. (ECF No. 12 at 15–16). The “special relationship” element has been applied in

some courts to limit the reach of negligent misrepresentation claims and exclude “ordinary

business transactions.” Palmer-Donavin Mfg. Co. v. Rheem Sales Co., 2014 WL 2767665, at *8

(S.D. Ohio June 18, 2014) (internal quotation marks omitted). “‘Usually the defendant is a

professional (e.g., an accountant) who is in the business of rendering opinions to others for their

use in guiding their business, and the plaintiff is a member of a limited class.’” Id. (quoting Ziegler

v. Findlay Indus., 464 F.Supp.2d 733, 738 (N.D. Ohio 2006)).

As one federal court observed in denying a motion to dismiss, “this appears to be a very

unsettled area in Ohio law.” MV Circuit Design, Inc. v. Omnicell, Inc., 2015 WL 1321743, at *12

(N.D. Ohio Mar. 24, 2015). Palmer-Donavin referenced some state-court cases supporting the

application of a special relationship element, including Gutter v. Dow Jones, Inc., 490 N.E.2d 898,

900 (Ohio 1986) (tort action against newspaper by its readers found improper, as readers “do[] not

fall within a special limited class (or group) of foreseeable persons”); Haddon View Inv. Co. v.

Coopers & Lybrand, 436 N.E.2d 212, 215 (Ohio 1982) (tort action found appropriate against

accountant by third parties who foreseeably relied on their work); and Nichols v. Ryder Truck

Rentals, Inc., 1994 WL 285000 (Ohio Ct. App. June 23, 1994) (“Such persons who are in the

business of supplying information for the guidance of others typically include attorneys, surveyors,

abstractors of title and banks dealing with non-depositors’ checks. . . . The business transactions

of the alleged injured party are usually those involving lease or insurance agreements.” (citing

McCarthy, Lebit, 622 N.E.2d 1093)). None of these state-court cases, however, stands squarely for

the requirement of a special relationship exclusive of ordinary business transactions.2

This is a dispositive issue. Though Defendants argue to the contrary, the Complaint plainly

alleges that Defendant Hurl signed the Certificates to guide Plaintiff in a business transaction—

specifically, to determine the amount of the loan Plaintiff would extend to Heritage. (ECF No. 1

¶¶ 24, 37–40, 51). If this suffices, then Plaintiff has stated a viable claim for negligent

misrepresentation against Defendant Hurl. On the other hand, if such claims are limited to

professionals like attorneys and accountants, then Plaintiff would fail for want of a special

relationship.

This Court is persuaded by the harmonizing approach taken in National Mulch and Seed,

Inc. v. Rexius Forest By-Products, Inc., 2007 WL 894833, at *9–12 (S.D. Ohio Mar. 22, 2007).

There, the court “agree[d] that a special relationship is not a formal element of a negligent

misrepresentation claim under Ohio law,” and reasoned that “[t]o the extent Ohio courts discuss a

2 Some other intermediate state courts have described a special relationship requirement more forcefully. See, e.g.,

Austin v. Warrensville Heights, 176 N.E.3d 67, 75 (Ohio Ct. App. 2021) (“Thus, where negligent misrepresentation

claims have been recognized, the courts have emphasized the existence of a duty to provide accurate information to

the plaintiff that goes beyond the common-law duty to exercise reasonable care to prevent foreseeable harm.”); Levy

v. Seiber, 57 N.E.3d 331, 340 (Ohio Ct. App. 2016) (writing, with a gloss on Nichols, that “[t]he class of persons who

are in the business of supplying information to others is limited to certain professionals” (emphasis added)). These

cases, while relevant, do not settle the debate—in part because they cannot substitute for a pronouncement of the Ohio

Supreme Court. See Bailey v. V & O Press Co., 770 F.2d 601, 604 (6th Cir. 1985) (Erie doctrine “dictates that federal

courts must apply the law of the state’s highest court” when sitting in diversity jurisdiction); FL Aerospace v. Aetna

Cas. & Sur. Co., 897 F.2d 214, 218–19 (6th Cir. 1990) (intermediate appellate decisions are relevant, but not

conclusive, at least where there is “other persuasive data that the highest court of the state would decide otherwise”

(internal quotation marks omitted)).

special relationship in connection with a negligent misrepresentation claim, the discussion appears

to be related to the requirement that a defendant supply false information for the guidance of the

plaintiff in its business transactions.” Id. at *9. This “serves to limit the class of potential

plaintiffs,” and precludes claims over misrepresentations “intended to reach an extensive,

unresolved class of persons.” Id. at *9-10. Notably, this approach would not preclude negligent

misrepresentation claims between the defined parties in ordinary business transactions, as is the

case here.

Rather than foreclosing relief on unsettled grounds, the prudent course is to preserve

Plaintiff’s claim, as did the courts in National Mulch and MV Circuit Design, and “wait to see what

discovery shows the parties’ true relationship was.” 2015 WL 1321743, at *12. Therefore, the

negligent misrepresentation claim in Count I can proceed against Defendant Hurl.

Next, Defendants seek to dismiss the fraudulent misrepresentation claim as insufficiently

pled under Rule 9(b). As this claim sounds in fraud, Plaintiff must meet heightened pleading

standards by “alleg[ing] the time, place, and content of the alleged misrepresentation,” as well as

“the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the

fraud.” Bennett, 607 F.3d at 1100 (internal quotation marks omitted).

At least as to Defendant Hurl, the Complaint meets this standard. It alleges specific

misrepresentations about eligible inventory (ECF No. 1 ¶¶ 25–26, 35, 58) and attaches the exact

Certificates in which those misrepresentations were made (ECF No. 1-3). It alleges scheme and

motive: “Defendants submitted incorrect inventory information and representations . . . so that the

Bank would loan Heritage additional funds under the Loan Agreement.” (ECF No. 1 ¶ 66). And it

alleges resulting injury: the Certificates “caused the Bank to make additional loan advances to

Heritage” and “significantly increased the Bank’s substantial losses under the Loan Agreement.”

(Id. ¶¶ 37, 39–41). No more is required at this stage. Therefore, the fraudulent misrepresentation

claim in Count II can proceed against Defendant Hurl.3

To summarize, the negligent and fraudulent misrepresentation claims (Counts I and II)

remain viable against Defendant Hurl. Judgment on the pleadings is granted on those claims as to

all other Defendants.

C. Fiduciary Duty Claims

Plaintiff brings its fiduciary duty claim as assignee to Heritage. “‘[A]n assignee . . . of a

claim stands in the shoes of the assignor . . . and succeeds to all the rights and remedies of the

latter.’” Chrysler Fin. Co. v. Wilkins, 812 N.E.2d 948, 952 (Ohio 2004) (quoting Inter Ins.

Exchange of Chicago Motor Club v. Wagstaff, 59 N.E.2d 373, 375 (Ohio 1945) (emphasis in

original)). Therefore, Plaintiff is limited to whatever recovery Heritage could have obtained from

Defendants’ breach of duty to Heritage.

This cause of action is fatally flawed because Plaintiff seeks to substitute its own damages

for those of Heritage. Plaintiff alleges that “The Bank has loaned an additional $40,541,901.51 to

Heritage that it would not have loaned if it had correct information” (ECF No. 1 ¶ 80 (emphasis

added)); that “Plaintiff has suffered damages as a direct and proximate result of the breaches by

Defendants of their statutory and common law duties as D&Os [directors & officers]” (Id. ¶ 81

(emphasis added)); and that “Plaintiff has been directly and substantially injured by reason of

Defendants’ intentional breach and/or reckless disregard of their fiduciary duties to Heritage” (Id.

¶ 82 (emphasis added)). All of these allegations state harms to Plaintiff, not Heritage.

3 Ultimately, Plaintiff may be limited to a single theory of recovery. Defendant Hurl’s acts could have been negligent

for Count I, or intentional for Count II, but not both simultaneously. See Textron, 684 N.E.2d at 1269 (“Where fraud

and negligent misrepresentation are claimed as to the same set of underlying facts, if fraud is proved, then the claim

of negligent misrepresentation is necessarily subsumed thereby.”). At this stage, however, Plaintiff is permitted to

plead in the alternative. See Fed. R. Civ. P. 8(d)(3) (“A party may state as many separate claims or defenses as it has,

regardless of consistency.”).

The sole allegations about harm to Heritage are that “Defendants breached their fiduciary

duties when they misstated the inventory on borrowing base certificates submitted to the Bank,

causing financial harm to Heritage” (Id. ¶ 46); and that “[a]s a direct and proximate result of

Defendants’ breaches of their fiduciary duties, Defendants have caused Heritage to suffer damages

as a result of the wrongdoing described herein” (Id. ¶ 79). These statements are vague and

conclusory, as they do not attempt to connect the breach of duty to any specific harm suffered by

Heritage. In their briefing, Plaintiffs claim that “[a]s a result of Defendants’ bad acts, Heritage

incurred additional loans and debt that it could not repay and could not satisfy with existing

collateral,” and that those bad acts “deprived Heritage of any reasonable defense to the

appointment of a receiver.” (ECF No. 17 at 18–19). However, such allegations were not made in

the Complaint, and it is well established that a party may not supplement its Complaint through

briefing. See, e.g., Bates v. Green Farms Condo. Ass’n, 958 F.3d 470, 483 (6th Cir. 2020) (“[A]

court evaluating a motion for judgment on the pleadings (or a motion to dismiss) must focus only

on the allegations in the pleadings. . . . ‘[M]emoranda do not constitute pleadings under Rule

7(a).’” (quoting 2 James Wm. Moore et al., Moore’s Federal Practice § 12.34[2])).

As pled, the Complaint contains no factual allegations that support an injury to Heritage

by reason of Defendants’ breach of fiduciary duties. Rather, all indications are that Plaintiff seeks

to recover its own damages, despite standing in the shoes of Heritage. Plaintiff’s failure to allege

injury means it cannot state a prima facie case for breach of fiduciary duty. See Wells Fargo Bank,

N.A. v. Sessley, 935 N.E.2d 70, 83 (Ohio Ct. App. 2010) (third required element of fiduciary duty

claim is “an injury resulting proximately therefrom” (internal quotation marks omitted)).4

Consequently, the Court must grant Defendants’ Motion on the fiduciary duty claim in Count III.

4 Even if Plaintiff properly had alleged the damages described in its briefing, the injury would remain dubious. Wells

Fargo states that the injury must be a proximate one, and it is apparent from the Receivership Case that the purported

IV. CONCLUSION

For the reasons stated above, Defendants’ Motion for Judgment on the Pleadings (ECF No.

12) is GRANTED IN PART. Counts I and I] are DISMISSED as against Defendants

Schumacher, Disney, and Witthuhn; and Count II] is DISMISSED in its entirety. The Motion is

DENIED IN PART as to Counts I and II against Defendant Hurl. Plaintiff's case may proceed

against Defendant Hurl on the negligent and fraudulent misrepresentation claims only.

IT IS SO ORDERED.

CHIEF UNITED STATES DISTRICT JUDGE

DATED: March 14, 2022

bad debt was not among the main causes of Heritage’s dire financial straits. (See Receivership Case ECF No. 1). The

second argument, regarding the loss of defenses to the receivership, is belied by the judge’s order appointing a receiver,

which made no reference to the Certificates or falsification thereof. (See Recetvership Case ECF No. 7).

15