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Sbav, LP v. Porter Bancorp, Inc.

United States District Court, W.D. Kentucky, Louisville Division

September 16, 2014

SBAV, LP, Plaintiff,
v.
PORTER BANCORP, INC., PBI BANK, INC., J. CHESTER PORTER, and MARIA BOUVETTE Defendants. ORTER BANCORP, INC. Third-Party Plaintiff,
v.
CLINTON GROUP, INC. Third-Party Defendant.

MEMORANDUM OPINION

THOMAS B. RUSSELL, Senior District Judge.

This matter comes before the Court upon the Motion to Dismiss of Third-Party Defendant Clinton Group ("Clinton"). (Docket No. 136.) Third-Party Plaintiff Porter Bancorp, Inc., ("PBI"), has responded, (Docket No. 139), and Clinton has replied, (Docket No. 140). Fully briefed, this matter is ripe for adjudication. For the reasons explained below, the Court will GRANT Clinton's Motion.

Factual Background

This lawsuit originates from a 2010 Supplemental Private Placement whereby SBAV, LP ("SBAV") invested-and ultimately lost-$5 million in PBI Bank, Inc., ("the Bank"), a subsidiary of PBI. Prior to the investment, SBAV conducted due diligence by engaging in a series of meetings, discussions, and correspondence with various PBI officials. PBI also created a "virtual due diligence room, " also known as a "data room, " that reflected the financial condition of the Bank's accounts. PBI granted SBAV access to the data room. PBI also invited Clinton, SBAV's investment manager, to participate in these due diligence activities as SBAV's "investment adviser and agent." (Docket No. 128 at 3.) PBI offered Clinton the opportunity to conduct a robust investigation of the company, inviting Clinton representatives to speak with PBI personnel and to examine documentation and properties associated with the Bank's portfolio.

Unbeknownst to SBAV, the Bank confronted rapidly deteriorating financial and regulatory conditions. According to SBAV, the Bank's losses totaled over $100 million from the time of the initial investment. (Docket No. 101 at 13.) Its share price plunged from $11.50 per share in July 2010 to less than $1.00 at the time that SBAV filed this action. (Docket No. 101 at 13.) In this lawsuit, SBAV contends that such financial malaise was not accurately communicated before it purchased the stock. (Docket No. 101 at 7.)

PBI now asserts third-party claims for contribution from Clinton. (Docket No. 128 at 4.) According to PBI, Clinton's alleged negligence contributed to SBAV's losses. Although PBI denies that it violated Kentucky's Blue Sky Law, it nonetheless argues that Clinton shares responsibility for any illegal distortions or omissions. (Docket No. 128 at 5.) Given Clinton's due diligence obligations, PBI reasons, Clinton was an agent who "materially aid[ed]" in the sale; therefore, Kentucky's Blue Sky Act renders it jointly and severally liable.

PBI further points to Kentucky's contribution statute, arguing that Clinton's negligence has proven on par with PBI's own: that is, it was of substantially the same character as PBI's alleged negligence. PBI contends that the two companies' distinct acts of negligence converged to create a unified harm to SBAV, yielding indivisible damages. Accordingly, PBI argues that it is entitled to contribution from Clinton.

Legal Standard

The Federal Rules of Civil Procedure require that pleadings, including complaints, contain 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 may be attacked for failure "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, a court will presume that all the factual allegations in the complaint are true and will draw all reasonable inferences in favor of the nonmoving party. Total Benefits Planning Agency v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). "The court need not, however, accept unwarranted factual inferences." Id. (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)).

Even though a "complaint attacked by a Rule 12(b)(6) motion to dismiss does not need 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." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). Instead, the plaintiff's "[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). That is, a complaint must contain enough facts "to state a claim to relief that is plausible on its face." Id. at 570. A claim becomes plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556). If, from the well-pleaded facts, the court cannot "infer more than the mere possibility of misconduct, the complaint has alleged-but has not show[n]'-that the pleader is entitled to relief.'" Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)). "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss." Id.

Analysis

Long before Kentucky adopted the doctrines of comparative negligence and joint and several liability, the Commonwealth recognized a statutory right to contribution. Ky. Rev. Stat. 412.030; Deneger v. Hall Contracting Corp., 27 S.W.3d 775, 778-79 (Ky. 2000). Contribution allows a tortfeasor to seek payment from his fellow tortfeasors for a proportional share of the amount of the plaintiff's judgment against him. Degener, 27 S.W.3d at 779. The right to contribution arises only where the parties are in pari delicto -that is, where they share equal fault for the plaintiff's injury. See Brown Hotel v. Pittsburgh Fuel Co., 224 S.W.2d 165, 166 (1949). Such tortfeasors need not be "literal 50/50 partners in the plaintiff's injury." Stanford v. U.S., 948 F.Supp.2d 729, 744 (E.D. Ky. 2013). Rather, parties are in pari delicto when they are "guilty of concurrent negligence of substantially the same character, which converges to cause the plaintiff's damages." Degener, 27 S.W.3d at 778.

PBI alleges that Clinton neglected to exercise the requisite due diligence in examining the Bank. Had Clinton adequately engaged in this process, PBI claims, any questionable or outright false characterizations of the Bank's financial health would have been revealed. In PBI's alternate scenario, Clinton's intensified conscientiousness would have stopped the deal in its tracks, averting the consequences that SBAV would ultimately suffer. The lack of such attention, PBI reasons, therefore renders Clinton's alleged negligence "of substantially the same character" as that of PBI.

The Court cannot agree. The two actions are not concurrently negligent acts, but are instead "separate and independent actions of two fundamentally different characters." Jackson v. Tullar, 285 S.W.3d 290, 296 (Ky. Ct. App. 2007).[1] Clinton's alleged negligence is essentially different from PBI's purported misdeeds. PBI indisputably possessed and controlled the information at issue. The failure to provide a complete and accurate disclosure of the Bank's financial health, then, lies exclusively with PBI. Perhaps Clinton failed to provide sound investment advice; ...


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