The U.S. Court of Appeals for the Eighth Circuit recently reversed a trial court order dismissing a plaintiff's complaint for lack of standing, holding that the plaintiff properly alleged an injury in fact because it claimed an economic harm to it that was concrete and personal to the plaintiff.
In so ruling, the Eighth Circuit found that standing existed even if the claim may lack merit under the Missouri Uniform Fraudulent Transfer Act, because Article III standing is distinct from the merits of a state law claim.
A copy of the opinion is available at: Link to Opinion
The Plaintiff sold vehicle service contracts. Plaintiff had an agreement with a distributor (Distributor) to sell its vehicle service contracts. The Distributor agreed to pay Plaintiff a share of any refunds when a customer cancelled the vehicle service contracts early. Plaintiff claimed that the Distributor did not meet its contractual obligation to pay its share of the early cancellations.
In a separate Texas state court action, Plaintiff sued the Distributor and its owners seeking damages, injunctive relief, and a declaration that Plaintiff has a security interest in the Distributor's assets.
In this action Plaintiff sued the Distributor's owners and several entities affiliated with the Distributor ("Defendants") under the Missouri Uniform Fraudulent Transfer Act (MUFTA). The MUFTA affords relief to creditors "who are victims of fraudulent transfers."
Plaintiff claimed that the Distributor's owners wrongly transferred the Distributor's assets to themselves to avoid the Distributor paying its share of the early cancellations under the contract. Plaintiff alleged that as a result of these wrongful transfers it had to pay over $6 million to cover the Distributor's share of refunds to customers that cancelled their vehicle service contract early. Plaintiff also alleged that the Distributor wrongly transferred at least $350,000 to the Defendants that should have gone towards contractually agreed upon marketing and advertising expenses.
Defendants moved to dismiss arguing that plaintiff lacked standing to sue because no injury in fact could have occurred until Plaintiff prevailed in the separate Texas action. The trial court agreed with Defendants and dismissed the case for lack of standing. This appeal followed.
As you may recall, to establish standing a plaintiff must allege that they "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision."
The Eighth Circuit observed that to show an injury in fact, Plaintiff had to allege an injury that "is actual or imminent, as well as concrete and particularized." The Eighth Circuit held that Plaintiff met this obligation because it alleged economic losses totaling over $6 million and this alleged economic harm "is a concrete, non-speculative injury" that is personal to Plaintiff.
The Court rejected the Defendants' arguments that the Plaintiff had to prevail in the Texas state court case first before it could allege an injury in fact because Article III standing "is distinct from the merits of a claim under the Missouri Uniform Fraudulent Transfer Act." Thus, regardless of whether Plaintiff "can satisfy the elements of a claim under the Act, it has alleged a present injury in fact that is sufficient to establish Article III standing."
The Eighth Circuit next examined Defendants' theory that the Plaintiff could not demonstrate an alleged injury that is fairly traceable to Defendants' conduct because the third-party Distributor caused the alleged injury. The Eighth Circuit rejected this argument because it takes two to tango.
A fraudulent transfer required the Distributor to transfer the assets and the Defendants to accept the transfer. Plaintiff alleged that the Defendants received and kept the disputed assets rendering the Distributor insolvent and contributing to Plaintiff's harm. The Eighth Circuit concluded that this claimed injury is "fairly traceable" to Defendants' alleged conduct.
Therefore, the Eighth Circuit reversed the trial court's order that Plaintiff lacked standing.
Ralph T. Wutscher
Maurice Wutscher LLP
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