UNITED STATES DISTRICT COURT                             
               DISTRICT OF MINNESOTA                                 


Eide Bailly LLP,                                                          

     Plaintiff and Counter-Defendant,                                

                                         MEMORANDUM OF LAW           
                                          AND ORDER                  
v.                                          Civil File No. 22-03132 (MJD/LIB) 

Michael Humphreys, Acting Insurance                                       
Commissioner of the Commonwealth                                          
of Pennsylvania, in his capacity as the                                   
Statutory Rehabilitator of Senior Health                                  
Insurance Company of Pennsylvania,                                        

     Defendant and Counter-Claimant,                                      


Lawrence M. Shapiro, Mark L. Johnson, Aaron P. Knoll, & Emily M. McAdam,  
Greene Espel PLLP, Counsel for Plaintiff and Counter-Defendant.           

Heather L. Marx, Michael Broadbent, Dexter R. Hamilton, & Matthew J. Siegel,  
Cozen O’Connor, Counsel for Defendant and Counter-Claimant.               


I.   INTRODUCTION                                                         
This matter is before the Court on Plaintiff/Counter-Defendant Eide Bailly 
(“EB”)’s Motion to Dismiss the Amended Counterclaim.  (Doc. 40.)  For the 
reasons discussed below, the motion is granted in part and denied in part.  For 
simplicity, the “Amended Counterclaim” is referred to as “the Counterclaim” in 

this Order.                                                               
II.  RELEVANT FACTS                                                       
The facts are taken from the Amended Answer and Counterclaim and are 

assumed to be true.  The Counterclaim states claims for breach of fiduciary duty, 
negligence/accounting malpractice, and breach of contract arising out of the 
Parties’ professional relationship.  (Countercl. ¶¶ 180-200.)             

A.   The Parties                                                     
     1.   Senior Health Insurance Company of Pennsylvania            
          (“SHIP”)                                                   
SHIP is a long-term care (“LTC”) insurer that has been in rehabilitation 
under the supervision of the Commonwealth Court of Pennsylvania since     

January 2020.  (Id. ¶¶ 23-24, 166.)  “SHIP” will variously be used to refer to the 
insurance company and to the Defendant/Counter-Claimant in this action, the 
Rehabilitator.  Rehabilitation “is a court supervised process intended to remedy 

the company’s financial deterioration for the benefit of policyholders and 
creditors.  The Rehabilitator is charged with the protection of the company’s 

policyholders, creditors and the public.  The rehabilitator’s actions are dictated 
by the laws and regulations of Pennsylvania and are subject to review by the 

Commonwealth Court.”  https://www.insurance.pa.gov/Regulations/           
LiquidationRehab/Documents/GA/GA_FREQUENTLY_ASKED_QUESTIONS_U             
PDATED_FEBRUARY_12_2020.pdf (last visited March 26, 2024).                

SHIP’s recent ownership and operational history is complicated.  Until 
2008, SHIP was a subsidiary of CNO Financial Group (“CNO”), which         

transferred ownership of SHIP to a newly-formed trust, which was then merged 
into an independent oversight trust, the also newly-formed Senior Health Care 
Oversight Trust (“SHOT”), due to significant underwriting losses for SHIP 

policies.  (Countercl. ¶¶ 26-27.)  CNO and its subsidiaries made approximately 
$915 million in capital contributions to SHIP.  (Id. ¶ 28.)               

SHIP maintained its own operations until 2012, when Fuzion Analytics, 
Inc. (“Fuzion”) was formed as a wholly-owned subsidiary of SHOT, ostensibly to 
provide administrative and management services to SHIP and other long-term 

care insurance companies.  (Id. ¶ 29.)  Pursuant to a 2012 Agreement, SHIP 
conveyed essentially all of its employees and infrastructure to Fuzion in 

exchange for agreed-upon cash consideration and Fuzion assumed responsibility 
for the administration of SHIP’s long-term care policies.  (Id. ¶¶ 30-31.)  Since 
2012, SHIP has had no facilities or employees and relies exclusively on Fuzion 

and other vendors for its operations.  (Id. ¶ 31.)  In August 2019, SHOT  
transferred all of its interest in Fuzion to SHIP as a capital contribution.  
Accordingly, Fuzion is now a wholly-owned subsidiary of SHIP.  (Id. ¶ 32.) 

SHIP began experiencing a material increase in financial difficulties “[a]t 
least by 2015, and perhaps earlier,” that led to the rehabilitation proceedings 

described in the Counterclaim.  (Id. ¶ 45.)  Thus, during the relevant time period, 
SHIP was an LTC company in run-off, i.e., only a fraction of its business remains 
in force, and it will not generate any new business.  (Id. ¶¶ 25, 38.)  SHIP blames 

its deterioration, “at least in part [on] diminished assets caused by poor 
management, imprudent investment decisions, and insufficient premiums and 

premium rate increases, coupled with increased liabilities caused, in part, by 
demographic and market changes that led to higher than planned benefits costs.”  
(Id. ¶ 45.)                                                               

SHIP asserts that it was advised by a series of third-party consultants, 
including EB, that “provided overly optimistic, inappropriate, or inaccurate 

estimates, assumptions, and calculations related to SHIP’s financial health” and 
“failed to notify SHIP or regulatory authorities of red flags that they knew or 
should have known existed regarding SHIP’s financial condition.”  (Id. ¶ 46.)  

SHIP states that it relied on “the purported expertise, advice, and opinions of EB 
to help make critical financial decisions in the management of its business and to 
ensure that SHIP reported and provided accurate, complete, and truthful   

information to SHIP’s domestic regulator, the Pennsylvania Insurance      
Department [(“PID”)], and other regulatory authorities.”  (Id. ¶ 47.)     

     2.   Eide Bailly (“EB”)                                         
EB was SHIP’s independent auditor from 2013 to 2020.  (Id. ¶ 33.)  In that 
role, EB provided audit services required under Pennsylvania law, “including to 

provide an independent opinion as to whether SHIP’s financial statements  
presented its financial condition and the results of its operations and cash flows 
fairly in all material respects.”  (Id. ¶ 35.)  In relevant part, Pennsylvania law 

states that “every insurer . . . [shall] have an annual audit performed by an 
independent certified public accountant and shall file as instructed by the 

Commissioner an audited financial report for that year on or before June 1 for the 
year ending December 31 immediately preceding unless an extension is granted . 
. . .” 

.  (Id. ¶ 33 (ellipses in original).)           

As an independent auditor, EB was required to adhere to Generally    
Accepted Accounting Standards (“GAAS”) when conducting audits.  (Id. ¶ 36.)  
EB’s audit opinions each covered two years and its audit opinions from 2013-20 

for fiscal years 2013-19 stated that the audits were conducted in accordance with 
GAAS.  (Id. ¶¶ 34, 36, 121.)  At the time that EB became SHIP’s auditor, the LTC 
industry was having financial difficulties, “largely stemming from aggressive 

actuarial assumptions which resulted in inadequate policy pricing and materially 
understated loss reserves . . . .” (Id. ¶ 38.)  Therefore, EB had to “understand the 

risks of SHIP being a [sic] LTC company in run-off” and the “key vendors and 
consultants upon which SHIP relied,” including SHIP’s appointed actuary,  
Milliman, USA.  (Id.)                                                     

B.   Relevant Background Information and Entities                    
     1.   Milliman USA (“Milliman”) and Lewis and Ellis (“L&E”)      
SHIP engaged Milliman USA as its actuary from as early as 2008 until at 

least 2019.  (Id. ¶¶ 38, 48.)  During three years of litigation in another case, the 
Commonwealth Court of Pennsylvania criticized and, in 2012, “rejected”    
Milliman’s actuarial work for two other Pennsylvania LTC insurers “before and 

after the start of the receivership, finding that Milliman’s analyses and 
calculations ‘fluctuated wildly’ and ‘violently in a short period of time,’ and that 

Milliman’s projections were ‘inherently unreliable.’”  (Id. ¶¶ 41-42.)  In its 
decision denying the insurers’ request for liquidation and requiring      

rehabilitation in that case, the word “Milliman” appeared 295 times.  (Id. ¶ 42.)   
     2.   Issues with Milliman’s Work for SHIP                       
In this case, Milliman provided 2015 assumptions that misrepresented 

SHIP’S financial health, “potentially concealing a massive deficit that SHIP 
should have recognized in its financial statements.”  (Id. ¶ 141.)        
EB was required to “review Milliman’s estimates, assumptions, and    

methodology because Milliman’s work formed the backbone of SHIP’s financial 
and statutory reporting.”  (Id. ¶ 49.)  To that end, EB engaged third-party expert 

consultants to assist it by reviewing Milliman’s work.  (Id.)             
L&E, an outside actuarial firm that had been engaged by EB to provide 
actuarial expertise for EB’s audit of SHIP’s business, brought “potential 

deficiencies” with Milliman’s actuarial work for the years 2012-13 and 2013-14 to 
EB’s attention.  (Id. ¶ 52.)  Ultimately, however, L&E actuaries concluded they 

could accept Milliman’s results for those years and EB provided SHIP with clean 
audit opinions.  (Id. ¶¶ 50-52.)                                          
     3.   Growing Concern with Milliman’s Work for SHIP              

L&E continued to take issue with Milliman’s work for SHIP.  (Id. ¶¶ 135-
39.)  In June 2016, Brian Rankin, an LTC actuary and principal at L&E provided 
EB with L&E’s draft actuarial audit of SHIP as of December 31, 2015.  (Id. ¶¶ 139-

40.)  The audit found that Milliman’s assumptions regarding lapse, mortality 
rate, and the lengthening of the morbidity improvement were not quantitatively 
supported by Company experience; the ultimate lapse rate was set outside of 

LTC cash flow testing standard practice; and that there was “a circular nature” to 
the calculation of the active life reserves and cash flow testing.  (Id. ¶ 140.)  For 

the first time, the June 2016 report revealed that Milliman’s 2015 assumptions 
“had the effect of misrepresenting SHIP’s financial health, potentially concealing 
a massive deficit that SHIP should have recognized in its financial statements. . . .  

Milliman had been wrong three years in a row. . . .”  (Id. ¶ 141.)        
L&E’s Rankin “was so concerned about the calculation that Milliman was 

advancing for SHIP’s active life reserves that he took the unusual step of 
reaching out to PID actuaries directly to raise his concerns,” although the PID 
could not communicate with Rankin without SHIP’s permission and therefore 

the PID did not discuss this issue with him.  (Id. ¶ 142 & n.11.)         
On March 31, 2016, Joe Pope of EB learned that Rankin contacted the PID 

about L&E’s concerns with Milliman’s assumptions.  (Id. ¶ 143.)  On the same 
day, Pope directed Rankin to communicate his concerns to Milliman and get 
additional information from them “so [L&E] could get on board with revising its 

opinion to allow [EB] to issue a ‘clean’ audit opinion.”  (Id.)           
  Although EB tried to persuade L&E to abandon its analysis of Milliman’s 
work, L&E would not do so.  (Id. ¶ 145.)  Therefore, on May 20, 2016, Pope wrote 

to Tom Hampton, a SHIP trustee who chaired SHIP’s audit committee, and told 
Hampton that L&E did not expect it would change its position because it   

believed the change in assumptions “from 2014 to 2015 that are at issue have not 
been supported.”  (Id.)  Pope also told Hampton that it was time to “move 
forward with obtaining a 3rd actuary.”  (Id. ¶ 147.)                      

On June 6, 2016, Pope announced that EB had contracted with David    
Axene of Axene Health Partners (“Axene”) as its additional support actuary.  (Id. 

¶¶ 152-53.)  On the same day, Paul Lorentz, SHIP’s CFO, asked the PID for an 
additional extension of time for the submission of SHIP’s financial statements, 
stating that L&E “assigned a new actuary to review SHIP’s actuarial assumptions 

and additional days are requested to complete this project.”  (Id. ¶ 152.)   
Likewise, on June 8, 2016, Pope wrote to the PID to satisfy the statutory 

requirement that an extension request be supported by the insurer and its 
independent auditor, that stated there were “unforeseen delays” from L&E’s 
review of certain Milliman assumptions when the real reason for the delay was 

that EB switched actuarial consultants because L&E disagreed with Milliman.  
(Id. ¶¶ 154-57.)                                                          
     4.   The Beechwood Investments                                  

In February 2014, Fuzion and an entity known as Beechwood Re         
(“Beechwood”) entered into an agreement under which Fuzion would provide  
third-party administration and management services to Beechwood, a group of 

reinsurance and asset management companies formed by the principals of the 
now-defunct hedge fund Platinum Partners (“Platinum”).  (Id. ¶¶ 61-62.)  From 

May 2014 to March 2015, SHIP invested $320 million of its reserves with   
Beechwood.  (Id. ¶ 63.)  The investments were funded by SHIP with assets it was 
required to hold for benefits that would be owed to policyholders.  (Id.)  In 

exchange for SHIP’s $320 million investment, a Beechwood affiliate guaranteed 
an alleged annual return of 5.85% over a period of five years, “which at the time 

substantially exceeded market returns for investments suitable for SHIP.”  (Id.)  
Beechwood described the investments it was making “with SHIP’s $320 million 
as high-quality and high-yield investments, and stated that it was investing 

SHIP’s money conservatively and that the investments were more than       
sufficiently collateralized.”  (Id. ¶ 65.)                                
SHIP’s Board believed Beechwood was investing the monies in secured  

loans that were rated NAIC 1 and 2, which are “investment grade securities.”  
(Id. ¶ 66 & n.6 (stating that “NAIC” is an acronym for “The National Association 
of Insurance Commissioners,” which rates securities from 1 to 6; only those in the 

first 2 tiers are deemed “investment grade”).)  The ratings of the Beechwood 
investments, however, were “suspect” because they were based on incorrect 

information provided by Beechwood, itself, to ratings agencies.  (Id. ¶ 66.)  
Moreover, Beechwood’s valuations were not independent, “but rather were   
concocted by an entity that worked closely with Beechwood [] to ensure they 

were consistent with Beechwood’s [] expectations and needs.”  (Id. (cleaned up).)  
In October 2014, CPA Michael Rhoads, a Fuzion financial auditor,     

reviewed the custodial agreements governing SHIP’s Beechwood investments  
and determined they were not compliant with 2014 NAIC guidance, which is  
applicable under Pennsylvania law.  (Id. ¶ 67.)                           

          a.   Investment Management Agreements with BAM             
SHIP’s investments in Beechwood were formalized by investment        

management agreements (“IMAs”) with a nonregistered investment advisor    
subsidiary of Beechwood called BAM Administrative Services (“BAM”).  (Id. ¶ 
68.)  Through three IMAs implemented between 2014 and 2015, “SHIP forfeited 

its rights to the collateral purportedly securing the return promised by  
Beechwood.”  (Id. ¶¶ 68-69.)  The IMAs were structured such that SHIP had no 
oversight or ability to exercise its rights with regard to any of the Beechwood 

investments.  (Id. ¶ 70.)  Those rights were effectively turned over to BAM.  (Id.)  
The IMAs also allowed Beechwood to use leverage in the account at its     

discretion, “thus putting Beechwood’s interests ahead of those of SHIP.”  (Id.)   
Moreover, under the IMAs, the false valuations also triggered $33.5 million 
in performance-based bonus payments from SHIP to Beechwood but did not    

require Beechwood to report the performance fee, in violation of the      
Pennsylvania Insurance Code.  (Id. ¶ 71.)  In short, the IMAs gave Beechwood 

ultimate control of the investment valuations, which incentivized Beechwood “to 
manipulate pricing to increase its (wrongfully unreported) performance fee. . . . 
[when its] investments were highly speculative and opaque, and riddled with 

related-party transactions creating risks for SHIP.”  (Id. ¶¶ 72-73).)    
          b.    The End of the Beechwood Investments                 

“On June 8, 2016, . . . a Platinum co-founder was arrested on bribery 
charges and its offices were raided under suspicion of running a Ponzi scheme, 
including through the use of SHIP’s $320 million investment.”  (Id. ¶ 74.)  After 

the arrest, SHOT hired an outside consultant to evaluate the IMAs and     
investments made under them on SHIP’s behalf.  The consultant concluded that 
(1) SHIP’s belief that the Beechwood investments were all high-quality assets 

with secure collateral positions was “questionable”; (2) the alleged positive 
NAIC ratings of the Beechwood investments were “dubious given the conflicts of 

interest, the control position of Beechwood, and the time limitation on the length 
the rating remained intact” (analysis confirmed that Beechwood “held a negative 
capital position and did not conform to accounting standards”); (3) there was to 

be little or no oversight of the Beechwood investments management programs by 
SHIP’s management; and (4) legal documentation supporting SHIP’s investments 

in Beechwood was incomplete or missing.  (Id. ¶¶ 75-78.)                  
“At a November 2016 SHOT executive session meeting, it became clear  
that SHIP’s valuation of Beechwood [] investments was likely inaccurate”; 

further review found red flags regarding conflicts of interest, incomplete 
documentation, and flawed ratings reports.  (Id. ¶¶ 79-80.)  By the end of 2016, 

SHIP began ending its relationship with Beechwood and listed SHIP’s       
investments as a “significant risk while planning . . . audits.”  (Id. ¶¶ 81, 83.) 
     5.   The Roebling Transaction                                   
“In 2016, SHIP sought to increase surplus by entering into a reinsurance 

transaction with Roebling Re [(“Roebling”)], a newly established entity   
domiciled in Barbados.”  (Id. ¶ 85.)  Roebling only ever entered into a   

reinsurance transaction with SHIP.  (Id.)  In addition, Roebling never received 
any assets outside of SHIP’s assets and appeared to be entirely funded by SHIP.  
(Id.)  Though funded as a legitimate reinsurance transaction, Roebling had no 

funds of its own to pay the excess liabilities it contracted to pay.  (Id. ¶¶ 86-89.)  
In fact, Roebling did not have any resources other than funds provided to it by 

SHIP, so there was no required meaningful transfer of risk from SHIP to   
Roebling.  (Id. ¶¶ 89, 99.)  “As a result of the transaction, the loss reserves on 
SHIP’s balance sheet decreased by 49%, SHIP recorded a liability in the amount 

equal to the assets transferred to the funds withheld account ($1.3 billion), and 
SHIP received a reinsurance commission from Roebling [] to cover SHIP’s   

expenses, which was paid in the form of a ‘Class B’ note issued by Bruckner 
Investment Trust (‘the BIT’).”  (Id. ¶ 86.)                               
In addition, Roebling “was permitted to withdraw the first $100 million of 

what was planned to be at least $300 million from the funds withheld account to 
fund certain investments, and to substitute for the amount withdrawn certain 
securities of dubious or misstated value.  The flawed transaction also included 

unachievable projections on returns on investments.”  (Id. ¶ 90.)         
“To fund the investments, SHIP transferred $100 million from its funds 
withheld account to the BIT.  The BIT then invested $88.2 million of the monies 

into securities.”  ( 

.)  However, SHIP’s management and those acting 
with them falsely represented that these securities had a value of $150.9 million.  

The purchased securities were also not rated by a recognized rating organization 
and were purchased originally by a non-insurer, the BIT.  (Id. ¶ 92.)     
In return for its investment, the BIT issued SHIP a note with a 2.5% coupon 

rate and a 15-year maturity date, which was collateralized by the purchased 
securities (the returns of which were used to pay the note), Roebling’s stock 

(profits from the securities, if any) and the BIT’s other property (which was non-
existent beyond cash flows from the Roebling arrangement).  (Id. ¶ 94.)  Without 
justification, SHIP and EB valued the BIT note at $100 million.  (Id. ¶ 95.)  The 

BIT also issued a $29 million note to Roebling for Roebling’s alleged     
contributions to capitalization of the BIT and its alleged efforts to enter into the 

Roebling transaction.  The note was “inferiorly collateralized to the $100 million 
note” and has a 20-year maturity date.  (Id. ¶ 96.)                       
Within just over a year, Roebling could no longer maintain its reserving 

obligations under the co-insurance agreement.  The BIT was also unable to repay 
its note to SHIP.  (Id. ¶ 101.)  During the next year, the BIT used almost all of its 
retained cash and Roebling transferred another $19 million of the note to SHIP, 

to avoid triggering a funding top up obligation.  (Id. ¶¶ 101-03.)  By December 
2017, the BIT presumably had only approximately $500,000 in its accounts, which 

meant that within 15 months of the initial investment, SHIP was relying   
completely on the performance of the collateralized securities “and had no 
material reinsurance protection” from the Roebling transaction.  (Id. ¶¶ 104-05.)   

In its 2017 annual statement, SHIP stated that “[a]s a result of the reinsurer 
not meeting its obligations under the reinsurance contract, the Company   

recognized a $12.6 million reduction in surplus due to a reserve credit deficiency 
in 2017.”  (Id. ¶ 106.)  As of April 2018, SHIP was still owed $98 million under the 
initial note and $31.2 million under the Roebling note and, in its April 2018, 

regulatory filings, SHIP stated that it was terminating its reinsurance agreement 
with Roebling.  (Id. ¶¶ 108-09.)  SHIP exited this transaction at the urging of the 

PID.  (Id. ¶ 109.)  SHIP has only a worsened financial condition to show for the 
millions of dollars it expended in the Roebling transaction.  (Id. ¶ 110.)   
     6.   SHIP Enters Rehabilitation                                 
In 2018, SHIP “booked a premium reserve deficiency of $373.6 million, 

materially increasing SHIP’s loss reserves and causing surplus to be negative.”  
(Id. ¶ 161.)  On March 1, 2019, SHIP filed its annual financial statement for the 

year ending December 31, 2018, with the PID that showed a decline from a  
reported surplus of more than $12 million as of year-end 2017 to a reported 
deficit of more than $466 million—a drop of $478 million, which rendered SHIP 

statutorily insolvent under Pennsylvania law.  (Id. ¶¶ 163-64.)  “On January 29, 
2020, the Commonwealth Court of Pennsylvania placed SHIP into rehabilitation. 

. . .”  (Id. ¶ 166.)  SHIP remains in rehabilitation.  (Id. at 39 n.12.)  
Additional facts will be discussed as necessary.                     
III.  DISCUSSION                                                          

EB raises three arguments in its motion: (1) that Minnesota law applies to 
this motion; (2) that SHIP’s claims are barred by the applicable statute of 
limitations and therefore SHIP has failed to state a claim upon which relief can be 

granted; and (3) that SHIP fails to state a claim for breach of fiduciary duty.  The 
Court will first address EB’s arguments and will then address arguments raised 

by SHIP in its Response.                                                  
A.    Choice of Law                                                  
The Parties agree that Minnesota law governs all matters related to their 

engagements.  (Doc. 43-1 at 6 (Ex. A to Hartmann Decl. (Audit Engagement  
Letter)).)  However, SHIP argues that both Minnesota and Pennsylvania law 

must be considered to decide this motion.  (Doc. 48 at 14.)               
Although SHIP agrees that Minnesota substantive law governs disputes 
arising under the contractual agreements between the Parties, SHIP contends 

that “it is clear” they intended that both states’ laws be used to interpret the 
agreements, in particular the obligations EB had to carry out its statutorily-

mandated auditing services.  (Id.)  SHIP notes that the first paragraph of the 
Parties’ contract uses the word “statutory” five times, which means EB agreed to 
satisfy the statutes of the Commonwealth of Pennsylvania.  Specifically, EB 

agreed to:                                                                
audit the statutory financial statements of Senior Health Insurance  
Company of Pennsylvania, . . . which comprise the statutory balance  
sheet . . . and the related statutory statements of operations, changes 
in capital and surplus, and cash flows . . . and the related notes to the 
statutory financial statements.                                      
(Ex. A to Hartmann Decl. at 1 (emphasis added to match emphasis in SHIP’s 
brief).)  In addition, the audit was to be “conducted with the objective of [EB] 
expressing an opinion on the statutory financial statements.”  (Id. (emphasis 

added to match emphasis in SHIP’s brief).)                                
The Court finds that it need only consider Minnesota law to decide the 
issues currently before it.  First, the Parties’ Engagement Letter provides: “This 

agreement shall be governed by and construed in accordance with the laws of 
the State of Minnesota (regardless of the laws that might be applicable under the 

principles of conflict of law) as to all matters including without limitations, 
matters of validity, construction, effect, and performance.”  (Id. at 6.)  Second, for 
the most part, SHIP applies Minnesota law when addressing the grounds for the 

motion to dismiss and does not identify a material conflict between Minnesota 
and Pennsylvania law as applied to SHIP’s claims.  (Doc. 48 at 13-27.)    

Thus, it appears that SHIP confuses the legal elements of its claims with 
the state insurance regulations that determine how a company’s financial  
statements must be presented.  Even if SHIP, as a Pennsylvania-domiciled  

insurer, had to present its financial statements in the manner required by the 
PID, its claims against EB are governed by Minnesota law.  Accordingly, SHIP’s 

arguments on this issue are without merit.  Minnesota law applies to this motion.  
B.   Whether the Counterclaim Should be Dismissed Under Fed. R.      
     Civ. P. 12(b)(6) for Failure to State a Claim Upon Which Relief can 
     be Granted                                                      
     1.   Legal Standard for a Motion to Dismiss                     
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may 
move the Court to dismiss a claim if, on the pleadings, a party has failed to state 

a claim upon which relief may be granted.  In reviewing a motion to dismiss, the 
Court takes all facts alleged in the complaint to be true.  Bell Atl. Corp v. 

Twombly, 

 (2007); Zutz v. Nelson, 

 (8th Cir. 
2010).  However,                                                          
To 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.  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.                                                  
Zutz, 

 (citations omitted); Ashcroft v. Iqbal, 

 
(2009) (“Threadbare recitals of the elements of a cause of action, supported by 
mere conclusory statements, do not suffice.”).                            
“A claim has facial plausibility when the plaintiff pleads factual content 
that allows the court to draw the reasonable inference that the defendant is liable 

for the misconduct alleged.”  

 (citing Twombly, 

).  Thus, the 
Court “need not accept as true a plaintiff’s conclusory allegations or legal 

conclusions drawn from the facts.”  Glick v. W. Power Sports, Inc., 

 (8th Cir. 2019) (citation omitted).                                   
     2.   Whether SHIP’s Claims are Time Barred                      

          a.    Legal Framework                                      
SHIP and EB entered into a written tolling agreement on January 28, 2022.  
(Ex. B to Hartmann Decl.)  Therefore, any claims that accrued prior to January 28, 

2016 are time barred because the statute of limitations (alternatively “SOL”) is six 
years.  See 

(1)(1),(1)(5); Ames & Fischer Co., II, LLP v. 

McDonald, 

 (Minn. Ct. App. 2011) (SOL for accounting   
malpractice is six years); Hope v. Klabal, 

 (8th Cir. 2006) (SOL 
for breach of fiduciary duty is six years) (citing Anderson v. Anderson, 

 (Minn. 1972)); Untiedt’s Vegetable Farm, Inc. v. Southern 
Impact, LLC, 

, 767 (D. Minn. 2020) (Minnesota SOL for breach 

of contract is six years).                                                
Minnesota follows the damage-accrual rule.  Under this rule, a cause 
of action accrues and the statute of limitations begins to run when  
“some damage” has occurred as a result of the alleged malpractice.   
This does not depend on the ability to ascertain the exact amount of 
damages—absent evidence of fraudulent concealment—and the            
limitations period is not tolled by ignorance of the cause of action.  
“Some damage” is defined broadly, and the cause of action accrues    
on the occurrence of any compensable damage, whether specifically    
identified in the complaint or not.  That is, damage for purposes of 
the damage-accrual rule occurs once a party suffers any legally      
cognizable damage. . . .                                             
Ames, 

 (citations omitted).                              
A series of cases illustrate how early “some damage” can begin.  In  
Herrmann v. McMenomy & Severson, the plaintiffs sued their attorneys for  

negligence for failing to advise them that certain business transactions involving 
an employee trust were prohibited, which subjected the trust to “significant 
federal excise taxes and interest.”  

 (Minn. 1999).  The first of 

the prohibited transactions occurred in 1987.  The court held that the plaintiffs’ 
claims accrued when the plaintiffs entered “the first prohibited transaction” 

rather than in 1993 when they became aware of their illegality and “began 
expending money to address the prohibited transactions” because that is when 
the plaintiffs “became immediately liable” for taxes and interest.  

.  

The court further held that the running of the statute of limitations “does not 
depend on the ability to ascertain the exact amount of damages” and that  

ignorance of a cause of action does not toll the statute of limitations.  

 
(rejecting the “discovery rule” for determining when SOL begins to run).  
Similarly, in Antone v. Mirviss, the plaintiff argued that a prenuptial 

agreement did not protect his interest in marital appreciation to his premarital 
property.  

 (Minn. 2006).  The court held that the plaintiff 
suffered “some damage” beginning the day he got married—the date he “passed 

a point of no return with respect to the laws of marital and nonmarital   
property”—rather than the day the marriage was legally dissolved.  

.  

Accordingly, because this date was more than six years before the plaintiff sued 
the attorney who drafted the prenup, the statute of limitations barred the 
plaintiff’s claim.  

.                                           

Likewise, in an accountant malpractice case based on an “allegedly   
negligent failure to make or advise to make” an election on a partnership’s tax 

returns, the cause of action accrued, and the SOL began to run, at the time the 
returns were filed without the election, not one year later when the automatic 
extension period expired.  Ames, 

.  The plaintiffs were  

damaged when the returns were filed without the elections because they    
overpaid taxes and lost the use of those funds starting on that date.  

   

Moreover, even when a professional “provides a series of separate and 
distinct services over a period of years, the existence of an ongoing relationship 
does not toll the statute of limitations with regard to acts of negligence for which 

service has been completed.”  Reid Enters., Inc. v. Deloitte & Touche, LLP, No. 
C8-99-1801, 

, at *3 (Minn. Ct. App. May 23, 2000) (accountant 
malpractice) (citing Hermann, 590 N.W.2d at 643–44).  Any “separate or    

continuing negligence” by a defendant after the running of the statute of 
limitations was “entirely irrelevant” because the penalty for the defendant’s 

alleged negligence had already attached and was “irreversible.”  

      
However, in Frederick v. Wallerich, the Minnesota Supreme Court held 
that independent acts of alleged negligence by the same attorney could give rise 

to independent causes of action for legal malpractice.  

, 174 
(Minn. 2018).  In Frederick, an attorney prepared an unenforceable antenuptial 

agreement (“the agreement”).  

 at 170–71.  A year later, the same attorney 
drafted a will for the plaintiff that incorporated the agreement and reassured him 
that the agreement was valid and enforceable.  

.  Following his divorce, 

the plaintiff sued the attorney for malpractice and argued that the attorney’s 
subsequent representations regarding the validity of the agreement together with 

incorporation of the agreement into the will constituted an independent act of 
legal malpractice, triggering its own limitations period.  

.  The court 
held that “some damage” occurred when the attorney drafted, and the plaintiff 

executed, his will because the plaintiff had lost the “opportunity to mitigate 
additional damages” as a result of a second negligent act: the attorney’s failure to 
inform the plaintiff of the invalidity of the antenuptial agreement when drafting 

the will.  

 (emphasis in original).  As a result of this second negligent 
act, the attorney was exposed to additional asset appreciation owed to his spouse 

upon divorce.  

  Among other things, the court reasoned that the “two acts 
[were] not connected by a sufficient causal link that would necessitate a 
conclusion that the two acts flowed from the same negligence.”  

. 

          b.     EB’s Arguments                                      
EB argues that SHIP seeks to recover for alleged professional negligence 

that occurred as early as 2013.  (Doc. 42 at 6 (citing Countercl. ¶¶ 177 (“the 
material deficiency in SHIP’s loss reserves that was or should have been  
apparent as of 2013-2014 . . . Had [EB] investigated and addressed SHIP’s 

reserves at that time, . . . SHIP would have avoided entirely its ill-advised 
investment decisions, SHIP would have made prudent financial decisions to its 

benefit during that time, and SHIP would have benefitted from additional  
regulatory oversight”) (emphasis in Doc. 42).)                            
          c.    SHIP’s Arguments                                     

SHIP responds that its claims did not accrue until after 2016 and that EB’s 
claims to the contrary are “categorically false based on the Amended      
Counterclaim itself.”  (Doc. 48 at 16.)  SHIP asserts that EB wants the Court to 

ignore the motion to dismiss standard and to instead draw inferences in favor of 
EB.  (Id. at 18-19.)                                                      

SHIP also argues that the Court should reject EB’s approach to       
determining when a cause of action accrued because SHIP has alleged the   
occurrence of independent acts by EB in each year it provided services to SHIP, 

and “each independent act by a professional can create a new cause of action of 
malpractice.”  (Id. (citing Frederick, 907 N.W.2d at 176 (finding “minimal 

showing” of independent act of negligence sufficient to survive motion for 
judgment on the pleadings).)  SHIP states that EB cannot use its initial errors “to 
excuse its later negligence and breaches of professional standards” and at a 

minimum, SHIP has alleged independent acts sufficient to permit its claims to 
move forward to discovery on liability and damages.  (Id. & n.4.)         

SHIP specifically asserts that EB’s acts related to the Beechwood and 
Roebling transactions were independent acts of negligence and malpractice 
under Frederick.  SHIP argues there is “no question” regarding the over $100 

million damages that SHIP suffered from the Beechwood investments, although 
the exact date of that damage is yet to be determined.  SHIP avers that discovery 
on this issue is crucial because discovery may show that SHIP did not suffer 

damage until 2016.  (Id. at 21.)  SHIP states, “We do know that even after the 
arrest of the co-founder in June 2016, SHIP hired an outside consultant to 

investigate the situation and it was not until the end of 2016 that SHIP  
understood that the investment was a failure and that money was likely lost.”  
(Id. (citing Countercl. ¶¶ 75-82).)  SHIP also notes that all facts related to 

Roebling occurred in 2016.                                                
SHIP further asserts that EB’s “unprofessional and deceitful acts    

surrounding the replacement of L&E with Axene,” only occurred once and “the 
magnitude of harm it caused is yet to be determined.”  (Id.)  This “act” occurred 
in the first and second quarters of 2016 and is therefore not time barred.      

          d.    Analysis                                             
EB spends much of its brief reiterating claims from the Counterclaim in 

support of the argument that SHIP is merely asserting that EB continued to make 
the same errors year-after-year in and after 2016.  (Doc. 42 at 20-22 (citing Reid 

Enters., 

, at *3); Doc. 50 at 12-14 (same).)                
SHIP, on the other hand, asserts that EB failed to conduct its duties 
according to GAAS and otherwise failed to identify material deficiencies in 

SHIP’s loss reserves in 2013-2014, which resulted in SHIP making the      
catastrophic Beechwood and Roebling transactions based on Milliman’s faulty 

actuarial work.  SHIP suffered damages as a result.  The Parties focus on these 
transactions and EB’s hiring of Axene, and the Court does the same.       
               i.   Beechwood                                        

SHIP entered into the series of investments with Beechwood in 2014 and 
2015.  (Countercl. ¶ 63.)  The Counterclaim asserts that Beechwood “provided 

valuations that were not truly independent, but rather were concocted by an 
entity that worked closely with Beechwood Re to ensure they were consistent 
with Beechwood Re’s expectations and needs,” and SHIP suffered harm in    

February 2014 when it invested $320 million in exchange for a guaranteed annual 
return of 5.85%.  (Id. ¶¶ 63, 73.)  The Counterclaim also states that in October 

2014, a Fuzion auditor discovered that the investments were not compliant with 
2014 NAIC guidance.  (Id. ¶ 67.)  In addition, as discussed above, SHIP’s 
investment in Beechwood was secured by three IMAs with BAM that SHIP      

entered into in 2014 and 2015 by which “SHIP forfeited its rights to the collateral 
purportedly securing the return promised by Beechwood,” which certainly states 
damage as of the date of these IMAs.  (Id. ¶ 69.)  The Counterclaim also states 

that the IMAs were not only structured so that SHIP had no oversight or ability 
to exercise any rights with regard to its Beechwood investments and gave  

Beechwood “ultimate control over the investment,” but also that the IMAs  
violated Pennsylvania law because they did not require SHIP to report     
performance fees it paid to Beechwood.  (Id. ¶¶ 70-72.)                   

These were not, as SHIP argues, independent acts under Frederick,    
because these acts were connected by a causal link—the failure of EB to do its 

work in compliance with GAAS and other standards, including having        
knowledge of the LTC industry.  907 N.W.2d at 176 (non-exhaustive list of facts 
supporting Frederick holding).  Thus, the Beechwood investments were      

connected by a causal link to the first acts alleged in the Counterclaim.  Id.  The 
Counterclaim alleges that if not for EB’s failure to comply with GAAS and other 

standards, especially to properly review Milliman’s work, SHIP would not have 
entered into the Beechwood investments in 2014 and 2015.  (Countercl. ¶ 60.)  

This distinguishes the investment from the will written in Frederick.  Here, 
SHIP relied on the purported expertise, advice, and opinions of [EB] 
to help make critical financial decisions in the management of its   
business. . . . [and EB’s] failure to adequately perform its duties in 
accordance with GAAS ultimately inured to SHIP’s tremendous          
detriment, as doing so permitted SHIP to enter into and remain in . . 
. the Beechwood Re transactions in 2014 and 2015.                    
(Id. ¶¶ 47, 60.)  Beechwood’s alleged guaranteed rate of return should also have 
been “an immediate red flag” for EB.  (Id. ¶ 64 (emphasis added).)        
In addition, although SHIP argues that discovery is necessary because it 
may show that SHIP suffered damages from the Beechwood investments in 2016, 
as discussed above, SHIP suffered damages prior to that, and discovery is 

therefore unnecessary.                                                    
Accordingly, claims related to the Beechwood investments will be     
dismissed because they are time barred.                                   

               ii.  Roebling                                         
SHIP alleges that as a result of EB’s failures, “SHIP suffered financial 

damages including but not limited to those that arose from the Roebling [] 
transaction as well as damages arising from the inaccurately audited 2017 

financial results.”  (Countercl. ¶ 118.)  SHIP further argues that “[e]very detail 
relating to the Roebling transaction, and every act and omission by [EB] that 

caused or contributed to SHIP’s damages arising from the transaction, occurred 
in 2016 and beyond.  Moreover, [EB’s] transgressions with respect to Roebling Re 
are wholly independent of, and have no relation to, [EB’s] failures with respect to 

its review of Milliman’s actuarial assumptions or the Beechwood investments.”  
(Doc. 48 at 12.)                                                          

EB responds that despite including allegations related to EB’s work in 2016 
and thereafter, SHIP has plainly alleged that “had Eide Bailly uncovered the 
reserve deficiency prior to 2016, SHIP would have not been in a position to enter 

into the reinsurance agreement with Roebling Re, which created millions of 
dollars in avoidable expenses” and that EB’s issuance of “clean” audit opinions 

beginning in 2013 put SHIP in the position to enter into the Roebling transaction 
in the first place.  (Doc. 42 at 14-15 (citing Countercl. ¶¶ 159, 175) (emphasis in 
Doc. 42).)  Thus, EB argues that this transaction is also time barred.    

The Court finds that the Roebling transaction is different from the  
Beechwood investments for two reasons.  First, while there was no alleged 

nefarious purpose attached to the initial Beechwood investments, the alleged 
motivation for the Roebling transaction was “the desire to enable SHIP to 
mislead regulators as to its true financial condition and to facilitate these 

investments outside regulatory scrutiny, and [EB’s] failure to perform its 
obligations concealed and furthered this scheme.”  (Countercl. ¶ 91.)  This, if 
nothing else, is worthy of discovery—at least in the context of the entire 

Counterclaim.  See Glick, 

 (stating that the Court need not accept a 
plaintiff’s conclusory allegations as true).                              

Second, not only did all relevant acts related to the Roebling transaction 
occur in 2016, on the face of the Counterclaim, the transaction is not causally 
related to EB’s prior work.  Frederick, 907 N.W.2d at 176.  At a minimum, SHIP 

states the following harm unrelated to EB’s failure to conduct audits of Milliman 
prior to June 2016:  EB provided a November 2016 opinion that the Roebling 

transaction “met the requirements for reinsurance and risk transfer standards set 
forth by the NAIC and applicable Pennsylvania law. . . .”  (Countercl. ¶¶ 116-18.)  
Whether claims related to the Roebling transaction will survive discovery and 

subsequent motion practice is not an issue before the Court.  For now, SHIP has 
stated a claim to relief that is plausible on its face.  See Zutz, 

. 

Thus, this claim is not time barred.                                 
               iii.  L&E and Axene                                   

EB argues that SHIP’s allegations related to the replacement of L&E with 
Axene all relate to EB’s evaluation of SHIP’s loss reserves.  (Doc. 50 at 13.)  
Specifically, EB notes that “SHIP alleges that Eide Bailly should ‘have concluded 

that reserves were materially understated’ in ‘2013, 2014, and 2015’ and ‘then 
from 2016 forward.’” (Id. (citing Countercl. ¶ 160).)  Thus, EB argues that SHIP 

only alleges that EB repeatedly made the same alleged error before and after 
2016.  (Id. (citing Reid Enters., 

, at *3).)                
SHIP counters that EB committed “unprofessional and deceitful acts   

surrounding the replacement of L&E with Axene.”  (Doc. 48 at 21.)  SHIP asserts 
that EB hired Axene because Axene would state that Milliman’s “aggressive 

actuarial assumptions” were reasonable and thus would allow EB to give clean 
audit opinions that SHIP management welcomed “[r]ather than include L&E’s 
concerns in its audit opinion . . . .”  (Id. at 10 (citing Countercl. ¶¶ 157-58).)   

The Court finds that while discovery and perhaps future motion practice 
may prove EB correct, for now, SHIP has stated a claim to relief that is plausible 

on its face that EB’s choice of Axene to help it either further its bad accounting 
practices or cover them up is an independent act under Frederick.  There is also 
no question regarding the statute of limitations on this issue because Axene was 

not appointed until 2016.                                                 
Therefore, claims related to the appointment of Axene are not time barred. 
     3.   Whether SHIP States a Claim of Breach of Fiduciary Duty    

          a.      The Parties’ Arguments                             
SHIP argues that EB was not acting as an independent auditor here, but 
rather was in a de facto fiduciary relationship with SHIP.  SHIP points to the 

following:                                                                
[F]rom March 31, 2016 to May 20, 2016, Joe Pope of Eide Bailly was   
in contact with Tom Hampton, the SHIP Trustee who chaired SHIP’s     
Audit Committee, to let Hampton know that L&E would not back         
away from their concerns about Milliman’s then recent change in      
assumptions.  Eide Bailly sought to persuade L&E, its own actuarial  
consulting expert, to modify their position. . . .  Replacing L&E with 
Axene was a clear example of Eide Bailly shopping for actuarial      
analysis that was more to the liking of SHIP management.             
(Doc. 48 at 29 (citing Countercl. ¶¶ 142-49).)                            
SHIP also asserts that the “nefarious nature of that act” is further shown by 
SHIP CFO Lorentz’s and EB’s Joe Pope’s “separate misleading [June 2016] letters 
to PID about the need for an extension of time to submit the financial    
statements.”  (Id. at 30 (citing Countercl. ¶¶ 149-54).)  SHIP argues that EB’s 
explanations for the need for an extension to file financial statements were 
misleading because, while CEO Lorentz told the PID that L&E had assigned a 

new actuary to review SHIP’s actuarial assumptions, EB had hired Axene that 
day and L&E had not assigned or obtained a new actuary.  (Id. (citing Countercl. 
¶ 153).)  Likewise, SHIP argues that Pope’s June 8, 2016 letter to the PID claiming 

“unforeseen delays” was misleading because Pope did not tell the PID that EB 
was switching actuarial consultants because EB refused to work with L&E when 

L&E disagreed with Milliman and instead chose Axene.  (Id. at 30-31 (citing 
Countercl. ¶ 154).)  Thus, SHIP avers that EB “voluntarily assumed the role of 
business consultant who sought to shape analysis to satisfy SHIP management,” 

caused injury to SHIP,  and therefore should be held responsible as a de facto 
fiduciary.  (Id. at 31.)                                                  

EB responds that “[a]ccording to SHIP, ‘in light of its duties as    
independent auditor, [EB] could not have relied reasonably on the findings and 
opinions of Milliman, [L&E], or Axene to reach a conclusion that SHIP was in 

sound financial condition.’  What SHIP ultimately alleges, then, is that [EB’s] 
2016 work did not comply with the duties of an independent auditor.”  (Doc. 50 

at 27 (comparing Countercl. ¶ 35 with ¶ 160).)  EB argues that this is a claim that 
EB violated its duties as an independent auditor not that EB breached a separate 

fiduciary duty. (Id. (citation omitted).)                                 
EB reiterates that “[w]hen an accountant acts as an independent auditor, 
its duties are not fiduciary in nature absent special circumstances because it must  

perform its duties objectively and impartially.”  (Id. at 28 (quoting FDIC v. 
Schoenberger, 

 (E.D. La. 1992)).)  EB concludes that 

because SHIP has not “plausibly differentiated” EB’s relationship with SHIP 
from its role of independent auditor, SHIP fails to state a claim for breach of 
fiduciary duty.  (Id.)                                                    

          b.     Analysis                                            
“Courts do not generally regard the accountant-client relationship as a 

fiduciary one.”  Brown-Wilbert, Inc. v. Copeland Buhl & Co., P.L.L.P., No. A07-
2462, 

, at *6 (Minn. Ct. App. Dec. 30, 2008) (citations omitted).  
Independent auditors, especially, do not have a fiduciary relationship with their 

clients because they act “independently, objectively and impartially,” rather than 
“in a representative capacity for another” as a fiduciary does.  Resolution Tr. 

Corp. v. KPMG Peat Marwick, 

 (N.D. Ill. 1994).       
To prove that [EB] breached a fiduciary obligation, [SHIP] had to    
establish that the two were in a fiduciary relationship and that [EB] 
breached a duty arising from that relationship.  The existence of a  
fiduciary relationship is generally a question of fact.  Fiduciary   
relationships arise when one person trusts and confides in another   
who has superior knowledge and authority.                            
                                             .   .   .   .           
A “fiduciary” is a person who is required to act for the benefit of  
another person on all matters within the scope of their relationship. 
The duty imposed on fiduciaries is the highest standard of duty      
implied by law.  Minnesota caselaw recognizes two categories of      
fiduciary relationship: relationships of a fiduciary nature per se, and 
relationships in which circumstances establish a de facto fiduciary  
obligation.                                                          
Swenson v. Bender, 

 (Minn. Ct. App. 2009) (cleaned up) 
(internal citations omitted).                                             
To show a fiduciary relationship, SHIP must show more than the standard 
accountant-client relationship, such as an assertion that EB became a de facto 
officer or director of SHIP.  See Brown-Wilbert, 

, at *6.  Placing 
trust and confidence in a firm as an independent advisor is insufficient to create a 
fiduciary duty.  See Resol. Tr., 

 (affirming dismissal of certain 
claims against independent auditor in case based, at least in part, on taking 
auditor’s advice).  Likewise, “an accountant hired to audit the financial 

statements of a client is not a fiduciary of the client, but rather is required to be 
independent of the client.”  Wright v. Sutton, No. Civ. No. 1:08-1431, 

, at *4 (S.D. W. Va. Mar. 29, 2011) (quoting Strategic Cap. Res., Inc. v. 
Citrin Cooperman & Co., LLP, 

, *1 (11th Cir. 2007)) (gathering 

cases); Resol. Tr., 

 (“the nature of an independent auditor is 
that it will perform the services objectively and impartially”) (quoting  
Schoenberger, 

).                                      

Thus, the issue before the Court is whether SHIP asserts “special    
circumstances” that created a fiduciary relationship.  See Swenson, 

; Resol. Tr., 

 (stating that “special circumstances” are 
required to create a de facto fiduciary relationship).                    
Although the Court must look at the claims in the light most favorable to 

the party asserting them, the Court finds that SHIP fails to establish the existence 
of a fiduciary relationship.  SHIP relies on ¶¶ 149-54 of the Counterclaim, which 

accuses EB’s Pope and SHIP’s Lorentz of making misleading statements to the 
PID.  However, the statements seeking extensions, while not necessarily sharing 
all details about what was allegedly going on behind the scenes at SHIP in May 

and June 2016, do not show there were “special circumstances” that created a 
fiduciary duty for EB.                                                    

In context, conducting a search for an actuarial firm that could provide 
“actuarial expertise of [EB’s] audit of SHIP’s business” qualified as an  
“unforeseen delay,” even if the search began immediately on May 20, which was 

only 11 days before the June 1 statutory deadline to submit the 2015 audited 
report to the PID.  (Countercl. ¶¶ 50, 150.)  Moreover, contrary to SHIP’s 
argument, SHIP’s own CEO Lorentz told the PID on June 6 that SHIP had a new 

actuary, although SHIP is correct that EB, not L&E, assigned the actuary.  (Id. ¶¶ 
152-53.)  This misstatement, however, does not show that EB assumed the role of 

business consultant who shaped analysis to satisfy SHIP management.       
Accordingly, the Court finds that SHIP does not state a claim for breach of 
fiduciary duty.  This claim will be dismissed.                            

     4.   Whether Fraudulent Concealment Tolls the Statute of        
          Limitations                                                
Because this case arises under the Court’s diversity jurisdiction, the Court 
applies state tolling law and federal procedural law.  Summerhill v. Terminix, 
Inc., 

 (8th Cir. 2011) (citation omitted).  Under Minnesota law, 

the statute of limitations may be tolled if the cause of action is fraudulently 
concealed by the defendant.  Haberle v. Buchwald, 

 (Minn. 

Ct. App. 1992) (citing Schmucking v. Mayo, 

 (1931)).     
Federal Rule of Civil Procedure 9(b) requires fraud claims to be pleaded 

with particularity.  “In other words, the complaint must plead the who, what, 
where, when, and how” of the alleged fraud.  Drobnak v. Andersen Corp., 

 (8th Cir. 2009) (citation omitted).  “This requirement is designed to 
enable defendants to respond specifically, at an early stage of the case, to 
potentially damaging allegations of immoral and criminal conduct. . . .   

Conclusory allegations that a defendant’s conduct was fraudulent and deceptive 
are not sufficient to satisfy the rule.”  BJC Health Sys. v. Columbia Cas. Co., 

 (8th Cir. 2007) (cleaned up) (citations omitted).           
SHIP argues that EB fraudulently concealed “its faulty work” by issuing 
faulty audit opinions that communicated financial surpluses when SHIP was 

running deficits; that EB’s willingness to replace L&E with Axene to “mask 
actuarial flaws” was evidence of this concealment; and that EB worked with 

SHIP management to mislead PID regulators as to the reason why the 2015 audit 
would be delayed.  (Doc. 48 at 24-25.)  Thus, SHIP argues that the only way it 
could have possibly discovered EB’s fraud would have been to hire its own team 

of independent outside auditors, who in turn, would have had to hire a LTC 
actuarial consultant, to audit EB.  (Id. at 25.)                          

EB responds that SHIP has not pleaded fraudulent concealment in its  
counterclaim at all, let alone with particularity.  (Doc. 50 at 16.)  EB points out 
that SHIP alleges that SHIP, itself, participated in the alleged fraud and therefore 

the allegation that it would have had to hire outside auditors to discover any 
fraud is without merit.  (Id. at 17-19.)  EB also argues that SHIP has not 
articulated the “who, what, when, where, and why” of the fraud.  (Id. at 16.)  

EB further asserts that SHIP does not allege any “plausible reason” why 
EB—”a reputable, independent auditing firm”—would have participated in    

SHIP’s alleged effort to fraudulently conceal information from regulators or 
anyone else.  (Id. at 4, 17 (citing Varga v. U.S. Bank Nat’l Ass’n, 

 (D. Minn. 2013) (holding that to plead aider and abettor fraud for a 

corporate professional, the complaint had to state some kind of incentive for 
breaching fiduciary duties/“taking such a huge financial risk”), aff’d, 

 (8th Cir. 2014)).)                                                    
The Court finds that because there is no claim for fraudulent concealment 
in the Counterclaim, there is no allegation pleading the “who, what, where, 

when, and how” of the alleged fraud.  Drobnak, 

.  SHIP does not 
even cite specific paragraphs of the Counterclaim in its arguments that would 

alert the Court to what sections of the Counterclaim constitute a claim of 
fraudulent concealment.  Moreover, even if SHIP claimed the who, what, where, 
when, and how of the alleged fraud, SHIP cannot claim ignorance of the alleged 

fraud because SHIP states that Lorentz assisted in furthering the deceit.  See 
Hydra-Mac, Inc. v. Onan Corp., 

 (Minn. 1990) (“Merely  
establishing that a defendant had intentionally concealed the alleged defects is 

insufficient; the claimant must establish that it was actually unaware that the 
defect existed before a finding of fraudulent concealment can be sustained.”).  

Finally, the Court agrees with EB that SHIP fails to allege any plausible 
reason why EB would have participated in an effort to fraudulently conceal 
information from regulators or anyone else.  The reputational and financial risk 

would just be too great.  See Varga, 

.  Therefore, the statute 
of limitations is not tolled by fraudulent concealment.  To the extent SHIP 

purports to assert a claim of fraudulent concealment, that claim is dismissed.    
     5.   Whether Public Policy Tolls the Statute of Limitations     
SHIP argues that the statute of limitations should be tolled because “[t]he 

Rehabilitator’s arguments invoke equitable analyses requiring the consideration 
of competing facts, and the Court should not resolve these public policy  
considerations at the pleading stage before the Rehabilitator has an opportunity 

to develop the factual record.”  (Doc. 48 at 26.)  SHIP notes that the general 
purpose of both Pennsylvania’s and Minnesota’s insurance receivership schemes 
is to protect the public, insureds, and creditors related to a major insolvency.  (Id. 

(citing Foster v. Mutual Fire, Marine & Inland Ins. Co., 

 (Pa. 
1992); Minn. Stat. § 60B.01(4)(a)).)  SHIP states that although the Rehabilitator 
appears solely in his capacity as Rehabilitator, the claims in this action are not 

limited to SHIP’s direct interests and are pursued on behalf of its creditors and 
policyholders as well, and thus SHIP steps into the shoes of the insurer to recoup 

its assets and to protect the rights of SHIP’s creditors, policyholders, and 
shareholders.  (Id. at 27 (citation omitted).)  SHIP also argues that because EB 
concealed that any losses suffered by SHIP “were caused by malfeasance and 

deception by [EB],” policy considerations dictate that EB be precluded from 
avoiding liability for the losses caused by that malfeasance.  (Id. at 28.) 

SHIP’s attempt to convince the Court to adopt Pennsylvania public policy 
is unavailing.  Minnesota does not recognize the discovery rule.  Herrmann, 

; Untiedt’s Vegetable Farm, 493 F. Supp. 3d at 768 n.6 (“Minnesota 

applies the occurrence rule, not the discovery rule, in determining when a claim 
for breach of contract accrues”).  Moreover, SHIP cannot claim that it did not 

know about the alleged underlying concealment prior to the 2020 rehabilitation 
order because it admits in the Counterclaim that it did know.  The Counterclaim 
alleges that it “became clear that the valuation” of the Beechwood investments 

“was likely inaccurate” in November 2016; that SHIP “exited the Roebling  
transaction at the urging of the PID” in April 2018; and that SHIP alleges that the 
PID’s external consultant reviewed SHIP’s reserves and identified several issues 

leading to recognition that “its projected assets were materially short of expected 
liabilities” in 2018.  (Countercl. ¶¶ 79, 109, 161) (quotations cleaned up).)  Public 

policy does not toll the statute of limitations.                          
IV.  ORDER                                                                
Based upon the files, records, and proceedings herein, IT IS HEREBY  

ORDERED:                                                                  
1.   Plaintiff-Counter Defendant Eide Bailly’s Motion to Dismiss the 
     Amended Counterclaim [Doc. 40] is GRANTED in part and           
     DENIED in part:                                                 

     a.  The Motion is GRANTED as to a finding that Minnesota law    
       governs interpretation of the engagement agreements at issue; 

     b.  The Motion is GRANTED as to the Beechwood Re Investments;   

     c.  The Motion is GRANTED as to the Claim of Breach of Fiduciary 
       Duty;                                                         

     d.  The Motion is GRANTED as to a finding that Fraudulent       
       Concealment and Public Policy do not toll the applicable      
       statutes of limitations;                                      

     e.  The Motion is DENIED as to the Roebling Re Transaction;     
     f.  The Motion is DENIED as to claims related to the appointment 
       of Axene;                                                     

     g.  Claims as to the Beechwood Re Investments are DISMISSED     
       WITH PREJUDICE;                                               

     h.  To the extent Defendant-Counter Claimant asserts that the   
       Counterclaim states a claim for fraudulent concealment, that  
       purported claim is DISMISSED WITH PREJUDICE; and              

     i.  The claim of Breach of Fiduciary Duty is DISMISSED          
       WITHOUT PREJUDICE.                                            

2.   The Parties are directed to contact Magistrate Judge Brisbois within 
     14 days of the date of this Order to schedule a status conference to 
     discuss necessary scheduling orders and/or refiling deadlines to 
     comply with this Order and move this case forward.              

Dated:  March 29, 2024             s/Michael J. Davis                     
                              Michael J. Davis                       
                              United States District Court           

            UNITED STATES DISTRICT COURT                             
               DISTRICT OF MINNESOTA                                 


Eide Bailly LLP,                                                          

     Plaintiff and Counter-Defendant,                                

                                         MEMORANDUM OF LAW           
                                          AND ORDER                  
v.                                          Civil File No. 22-03132 (MJD/LIB) 

Michael Humphreys, Acting Insurance                                       
Commissioner of the Commonwealth                                          
of Pennsylvania, in his capacity as the                                   
Statutory Rehabilitator of Senior Health                                  
Insurance Company of Pennsylvania,                                        

     Defendant and Counter-Claimant,                                      


Lawrence M. Shapiro, Mark L. Johnson, Aaron P. Knoll, & Emily M. McAdam,  
Greene Espel PLLP, Counsel for Plaintiff and Counter-Defendant.           

Heather L. Marx, Michael Broadbent, Dexter R. Hamilton, & Matthew J. Siegel,  
Cozen O’Connor, Counsel for Defendant and Counter-Claimant.               


I.   INTRODUCTION                                                         
This matter is before the Court on Plaintiff/Counter-Defendant Eide Bailly 
(“EB”)’s Motion to Dismiss the Amended Counterclaim.  (Doc. 40.)  For the 
reasons discussed below, the motion is granted in part and denied in part.  For 
simplicity, the “Amended Counterclaim” is referred to as “the Counterclaim” in 

this Order.                                                               
II.  RELEVANT FACTS                                                       
The facts are taken from the Amended Answer and Counterclaim and are 

assumed to be true.  The Counterclaim states claims for breach of fiduciary duty, 
negligence/accounting malpractice, and breach of contract arising out of the 
Parties’ professional relationship.  (Countercl. ¶¶ 180-200.)             

A.   The Parties                                                     
     1.   Senior Health Insurance Company of Pennsylvania            
          (“SHIP”)                                                   
SHIP is a long-term care (“LTC”) insurer that has been in rehabilitation 
under the supervision of the Commonwealth Court of Pennsylvania since     

January 2020.  (Id. ¶¶ 23-24, 166.)  “SHIP” will variously be used to refer to the 
insurance company and to the Defendant/Counter-Claimant in this action, the 
Rehabilitator.  Rehabilitation “is a court supervised process intended to remedy 

the company’s financial deterioration for the benefit of policyholders and 
creditors.  The Rehabilitator is charged with the protection of the company’s 

policyholders, creditors and the public.  The rehabilitator’s actions are dictated 
by the laws and regulations of Pennsylvania and are subject to review by the 

Commonwealth Court.”  https://www.insurance.pa.gov/Regulations/           
LiquidationRehab/Documents/GA/GA_FREQUENTLY_ASKED_QUESTIONS_U             
PDATED_FEBRUARY_12_2020.pdf (last visited March 26, 2024).                

SHIP’s recent ownership and operational history is complicated.  Until 
2008, SHIP was a subsidiary of CNO Financial Group (“CNO”), which         

transferred ownership of SHIP to a newly-formed trust, which was then merged 
into an independent oversight trust, the also newly-formed Senior Health Care 
Oversight Trust (“SHOT”), due to significant underwriting losses for SHIP 

policies.  (Countercl. ¶¶ 26-27.)  CNO and its subsidiaries made approximately 
$915 million in capital contributions to SHIP.  (Id. ¶ 28.)               

SHIP maintained its own operations until 2012, when Fuzion Analytics, 
Inc. (“Fuzion”) was formed as a wholly-owned subsidiary of SHOT, ostensibly to 
provide administrative and management services to SHIP and other long-term 

care insurance companies.  (Id. ¶ 29.)  Pursuant to a 2012 Agreement, SHIP 
conveyed essentially all of its employees and infrastructure to Fuzion in 

exchange for agreed-upon cash consideration and Fuzion assumed responsibility 
for the administration of SHIP’s long-term care policies.  (Id. ¶¶ 30-31.)  Since 
2012, SHIP has had no facilities or employees and relies exclusively on Fuzion 

and other vendors for its operations.  (Id. ¶ 31.)  In August 2019, SHOT  
transferred all of its interest in Fuzion to SHIP as a capital contribution.  
Accordingly, Fuzion is now a wholly-owned subsidiary of SHIP.  (Id. ¶ 32.) 

SHIP began experiencing a material increase in financial difficulties “[a]t 
least by 2015, and perhaps earlier,” that led to the rehabilitation proceedings 

described in the Counterclaim.  (Id. ¶ 45.)  Thus, during the relevant time period, 
SHIP was an LTC company in run-off, i.e., only a fraction of its business remains 
in force, and it will not generate any new business.  (Id. ¶¶ 25, 38.)  SHIP blames 

its deterioration, “at least in part [on] diminished assets caused by poor 
management, imprudent investment decisions, and insufficient premiums and 

premium rate increases, coupled with increased liabilities caused, in part, by 
demographic and market changes that led to higher than planned benefits costs.”  
(Id. ¶ 45.)                                                               

SHIP asserts that it was advised by a series of third-party consultants, 
including EB, that “provided overly optimistic, inappropriate, or inaccurate 

estimates, assumptions, and calculations related to SHIP’s financial health” and 
“failed to notify SHIP or regulatory authorities of red flags that they knew or 
should have known existed regarding SHIP’s financial condition.”  (Id. ¶ 46.)  

SHIP states that it relied on “the purported expertise, advice, and opinions of EB 
to help make critical financial decisions in the management of its business and to 
ensure that SHIP reported and provided accurate, complete, and truthful   

information to SHIP’s domestic regulator, the Pennsylvania Insurance      
Department [(“PID”)], and other regulatory authorities.”  (Id. ¶ 47.)     

     2.   Eide Bailly (“EB”)                                         
EB was SHIP’s independent auditor from 2013 to 2020.  (Id. ¶ 33.)  In that 
role, EB provided audit services required under Pennsylvania law, “including to 

provide an independent opinion as to whether SHIP’s financial statements  
presented its financial condition and the results of its operations and cash flows 
fairly in all material respects.”  (Id. ¶ 35.)  In relevant part, Pennsylvania law 

states that “every insurer . . . [shall] have an annual audit performed by an 
independent certified public accountant and shall file as instructed by the 

Commissioner an audited financial report for that year on or before June 1 for the 
year ending December 31 immediately preceding unless an extension is granted . 
. . .” 

.  (Id. ¶ 33 (ellipses in original).)           

As an independent auditor, EB was required to adhere to Generally    
Accepted Accounting Standards (“GAAS”) when conducting audits.  (Id. ¶ 36.)  
EB’s audit opinions each covered two years and its audit opinions from 2013-20 

for fiscal years 2013-19 stated that the audits were conducted in accordance with 
GAAS.  (Id. ¶¶ 34, 36, 121.)  At the time that EB became SHIP’s auditor, the LTC 
industry was having financial difficulties, “largely stemming from aggressive 

actuarial assumptions which resulted in inadequate policy pricing and materially 
understated loss reserves . . . .” (Id. ¶ 38.)  Therefore, EB had to “understand the 

risks of SHIP being a [sic] LTC company in run-off” and the “key vendors and 
consultants upon which SHIP relied,” including SHIP’s appointed actuary,  
Milliman, USA.  (Id.)                                                     

B.   Relevant Background Information and Entities                    
     1.   Milliman USA (“Milliman”) and Lewis and Ellis (“L&E”)      
SHIP engaged Milliman USA as its actuary from as early as 2008 until at 

least 2019.  (Id. ¶¶ 38, 48.)  During three years of litigation in another case, the 
Commonwealth Court of Pennsylvania criticized and, in 2012, “rejected”    
Milliman’s actuarial work for two other Pennsylvania LTC insurers “before and 

after the start of the receivership, finding that Milliman’s analyses and 
calculations ‘fluctuated wildly’ and ‘violently in a short period of time,’ and that 

Milliman’s projections were ‘inherently unreliable.’”  (Id. ¶¶ 41-42.)  In its 
decision denying the insurers’ request for liquidation and requiring      

rehabilitation in that case, the word “Milliman” appeared 295 times.  (Id. ¶ 42.)   
     2.   Issues with Milliman’s Work for SHIP                       
In this case, Milliman provided 2015 assumptions that misrepresented 

SHIP’S financial health, “potentially concealing a massive deficit that SHIP 
should have recognized in its financial statements.”  (Id. ¶ 141.)        
EB was required to “review Milliman’s estimates, assumptions, and    

methodology because Milliman’s work formed the backbone of SHIP’s financial 
and statutory reporting.”  (Id. ¶ 49.)  To that end, EB engaged third-party expert 

consultants to assist it by reviewing Milliman’s work.  (Id.)             
L&E, an outside actuarial firm that had been engaged by EB to provide 
actuarial expertise for EB’s audit of SHIP’s business, brought “potential 

deficiencies” with Milliman’s actuarial work for the years 2012-13 and 2013-14 to 
EB’s attention.  (Id. ¶ 52.)  Ultimately, however, L&E actuaries concluded they 

could accept Milliman’s results for those years and EB provided SHIP with clean 
audit opinions.  (Id. ¶¶ 50-52.)                                          
     3.   Growing Concern with Milliman’s Work for SHIP              

L&E continued to take issue with Milliman’s work for SHIP.  (Id. ¶¶ 135-
39.)  In June 2016, Brian Rankin, an LTC actuary and principal at L&E provided 
EB with L&E’s draft actuarial audit of SHIP as of December 31, 2015.  (Id. ¶¶ 139-

40.)  The audit found that Milliman’s assumptions regarding lapse, mortality 
rate, and the lengthening of the morbidity improvement were not quantitatively 
supported by Company experience; the ultimate lapse rate was set outside of 

LTC cash flow testing standard practice; and that there was “a circular nature” to 
the calculation of the active life reserves and cash flow testing.  (Id. ¶ 140.)  For 

the first time, the June 2016 report revealed that Milliman’s 2015 assumptions 
“had the effect of misrepresenting SHIP’s financial health, potentially concealing 
a massive deficit that SHIP should have recognized in its financial statements. . . .  

Milliman had been wrong three years in a row. . . .”  (Id. ¶ 141.)        
L&E’s Rankin “was so concerned about the calculation that Milliman was 

advancing for SHIP’s active life reserves that he took the unusual step of 
reaching out to PID actuaries directly to raise his concerns,” although the PID 
could not communicate with Rankin without SHIP’s permission and therefore 

the PID did not discuss this issue with him.  (Id. ¶ 142 & n.11.)         
On March 31, 2016, Joe Pope of EB learned that Rankin contacted the PID 

about L&E’s concerns with Milliman’s assumptions.  (Id. ¶ 143.)  On the same 
day, Pope directed Rankin to communicate his concerns to Milliman and get 
additional information from them “so [L&E] could get on board with revising its 

opinion to allow [EB] to issue a ‘clean’ audit opinion.”  (Id.)           
  Although EB tried to persuade L&E to abandon its analysis of Milliman’s 
work, L&E would not do so.  (Id. ¶ 145.)  Therefore, on May 20, 2016, Pope wrote 

to Tom Hampton, a SHIP trustee who chaired SHIP’s audit committee, and told 
Hampton that L&E did not expect it would change its position because it   

believed the change in assumptions “from 2014 to 2015 that are at issue have not 
been supported.”  (Id.)  Pope also told Hampton that it was time to “move 
forward with obtaining a 3rd actuary.”  (Id. ¶ 147.)                      

On June 6, 2016, Pope announced that EB had contracted with David    
Axene of Axene Health Partners (“Axene”) as its additional support actuary.  (Id. 

¶¶ 152-53.)  On the same day, Paul Lorentz, SHIP’s CFO, asked the PID for an 
additional extension of time for the submission of SHIP’s financial statements, 
stating that L&E “assigned a new actuary to review SHIP’s actuarial assumptions 

and additional days are requested to complete this project.”  (Id. ¶ 152.)   
Likewise, on June 8, 2016, Pope wrote to the PID to satisfy the statutory 

requirement that an extension request be supported by the insurer and its 
independent auditor, that stated there were “unforeseen delays” from L&E’s 
review of certain Milliman assumptions when the real reason for the delay was 

that EB switched actuarial consultants because L&E disagreed with Milliman.  
(Id. ¶¶ 154-57.)                                                          
     4.   The Beechwood Investments                                  

In February 2014, Fuzion and an entity known as Beechwood Re         
(“Beechwood”) entered into an agreement under which Fuzion would provide  
third-party administration and management services to Beechwood, a group of 

reinsurance and asset management companies formed by the principals of the 
now-defunct hedge fund Platinum Partners (“Platinum”).  (Id. ¶¶ 61-62.)  From 

May 2014 to March 2015, SHIP invested $320 million of its reserves with   
Beechwood.  (Id. ¶ 63.)  The investments were funded by SHIP with assets it was 
required to hold for benefits that would be owed to policyholders.  (Id.)  In 

exchange for SHIP’s $320 million investment, a Beechwood affiliate guaranteed 
an alleged annual return of 5.85% over a period of five years, “which at the time 

substantially exceeded market returns for investments suitable for SHIP.”  (Id.)  
Beechwood described the investments it was making “with SHIP’s $320 million 
as high-quality and high-yield investments, and stated that it was investing 

SHIP’s money conservatively and that the investments were more than       
sufficiently collateralized.”  (Id. ¶ 65.)                                
SHIP’s Board believed Beechwood was investing the monies in secured  

loans that were rated NAIC 1 and 2, which are “investment grade securities.”  
(Id. ¶ 66 & n.6 (stating that “NAIC” is an acronym for “The National Association 
of Insurance Commissioners,” which rates securities from 1 to 6; only those in the 

first 2 tiers are deemed “investment grade”).)  The ratings of the Beechwood 
investments, however, were “suspect” because they were based on incorrect 

information provided by Beechwood, itself, to ratings agencies.  (Id. ¶ 66.)  
Moreover, Beechwood’s valuations were not independent, “but rather were   
concocted by an entity that worked closely with Beechwood [] to ensure they 

were consistent with Beechwood’s [] expectations and needs.”  (Id. (cleaned up).)  
In October 2014, CPA Michael Rhoads, a Fuzion financial auditor,     

reviewed the custodial agreements governing SHIP’s Beechwood investments  
and determined they were not compliant with 2014 NAIC guidance, which is  
applicable under Pennsylvania law.  (Id. ¶ 67.)                           

          a.   Investment Management Agreements with BAM             
SHIP’s investments in Beechwood were formalized by investment        

management agreements (“IMAs”) with a nonregistered investment advisor    
subsidiary of Beechwood called BAM Administrative Services (“BAM”).  (Id. ¶ 
68.)  Through three IMAs implemented between 2014 and 2015, “SHIP forfeited 

its rights to the collateral purportedly securing the return promised by  
Beechwood.”  (Id. ¶¶ 68-69.)  The IMAs were structured such that SHIP had no 
oversight or ability to exercise its rights with regard to any of the Beechwood 

investments.  (Id. ¶ 70.)  Those rights were effectively turned over to BAM.  (Id.)  
The IMAs also allowed Beechwood to use leverage in the account at its     

discretion, “thus putting Beechwood’s interests ahead of those of SHIP.”  (Id.)   
Moreover, under the IMAs, the false valuations also triggered $33.5 million 
in performance-based bonus payments from SHIP to Beechwood but did not    

require Beechwood to report the performance fee, in violation of the      
Pennsylvania Insurance Code.  (Id. ¶ 71.)  In short, the IMAs gave Beechwood 

ultimate control of the investment valuations, which incentivized Beechwood “to 
manipulate pricing to increase its (wrongfully unreported) performance fee. . . . 
[when its] investments were highly speculative and opaque, and riddled with 

related-party transactions creating risks for SHIP.”  (Id. ¶¶ 72-73).)    
          b.    The End of the Beechwood Investments                 

“On June 8, 2016, . . . a Platinum co-founder was arrested on bribery 
charges and its offices were raided under suspicion of running a Ponzi scheme, 
including through the use of SHIP’s $320 million investment.”  (Id. ¶ 74.)  After 

the arrest, SHOT hired an outside consultant to evaluate the IMAs and     
investments made under them on SHIP’s behalf.  The consultant concluded that 
(1) SHIP’s belief that the Beechwood investments were all high-quality assets 

with secure collateral positions was “questionable”; (2) the alleged positive 
NAIC ratings of the Beechwood investments were “dubious given the conflicts of 

interest, the control position of Beechwood, and the time limitation on the length 
the rating remained intact” (analysis confirmed that Beechwood “held a negative 
capital position and did not conform to accounting standards”); (3) there was to 

be little or no oversight of the Beechwood investments management programs by 
SHIP’s management; and (4) legal documentation supporting SHIP’s investments 

in Beechwood was incomplete or missing.  (Id. ¶¶ 75-78.)                  
“At a November 2016 SHOT executive session meeting, it became clear  
that SHIP’s valuation of Beechwood [] investments was likely inaccurate”; 

further review found red flags regarding conflicts of interest, incomplete 
documentation, and flawed ratings reports.  (Id. ¶¶ 79-80.)  By the end of 2016, 

SHIP began ending its relationship with Beechwood and listed SHIP’s       
investments as a “significant risk while planning . . . audits.”  (Id. ¶¶ 81, 83.) 
     5.   The Roebling Transaction                                   
“In 2016, SHIP sought to increase surplus by entering into a reinsurance 

transaction with Roebling Re [(“Roebling”)], a newly established entity   
domiciled in Barbados.”  (Id. ¶ 85.)  Roebling only ever entered into a   

reinsurance transaction with SHIP.  (Id.)  In addition, Roebling never received 
any assets outside of SHIP’s assets and appeared to be entirely funded by SHIP.  
(Id.)  Though funded as a legitimate reinsurance transaction, Roebling had no 

funds of its own to pay the excess liabilities it contracted to pay.  (Id. ¶¶ 86-89.)  
In fact, Roebling did not have any resources other than funds provided to it by 

SHIP, so there was no required meaningful transfer of risk from SHIP to   
Roebling.  (Id. ¶¶ 89, 99.)  “As a result of the transaction, the loss reserves on 
SHIP’s balance sheet decreased by 49%, SHIP recorded a liability in the amount 

equal to the assets transferred to the funds withheld account ($1.3 billion), and 
SHIP received a reinsurance commission from Roebling [] to cover SHIP’s   

expenses, which was paid in the form of a ‘Class B’ note issued by Bruckner 
Investment Trust (‘the BIT’).”  (Id. ¶ 86.)                               
In addition, Roebling “was permitted to withdraw the first $100 million of 

what was planned to be at least $300 million from the funds withheld account to 
fund certain investments, and to substitute for the amount withdrawn certain 
securities of dubious or misstated value.  The flawed transaction also included 

unachievable projections on returns on investments.”  (Id. ¶ 90.)         
“To fund the investments, SHIP transferred $100 million from its funds 
withheld account to the BIT.  The BIT then invested $88.2 million of the monies 

into securities.”  ( 

.)  However, SHIP’s management and those acting 
with them falsely represented that these securities had a value of $150.9 million.  

The purchased securities were also not rated by a recognized rating organization 
and were purchased originally by a non-insurer, the BIT.  (Id. ¶ 92.)     
In return for its investment, the BIT issued SHIP a note with a 2.5% coupon 

rate and a 15-year maturity date, which was collateralized by the purchased 
securities (the returns of which were used to pay the note), Roebling’s stock 

(profits from the securities, if any) and the BIT’s other property (which was non-
existent beyond cash flows from the Roebling arrangement).  (Id. ¶ 94.)  Without 
justification, SHIP and EB valued the BIT note at $100 million.  (Id. ¶ 95.)  The 

BIT also issued a $29 million note to Roebling for Roebling’s alleged     
contributions to capitalization of the BIT and its alleged efforts to enter into the 

Roebling transaction.  The note was “inferiorly collateralized to the $100 million 
note” and has a 20-year maturity date.  (Id. ¶ 96.)                       
Within just over a year, Roebling could no longer maintain its reserving 

obligations under the co-insurance agreement.  The BIT was also unable to repay 
its note to SHIP.  (Id. ¶ 101.)  During the next year, the BIT used almost all of its 
retained cash and Roebling transferred another $19 million of the note to SHIP, 

to avoid triggering a funding top up obligation.  (Id. ¶¶ 101-03.)  By December 
2017, the BIT presumably had only approximately $500,000 in its accounts, which 

meant that within 15 months of the initial investment, SHIP was relying   
completely on the performance of the collateralized securities “and had no 
material reinsurance protection” from the Roebling transaction.  (Id. ¶¶ 104-05.)   

In its 2017 annual statement, SHIP stated that “[a]s a result of the reinsurer 
not meeting its obligations under the reinsurance contract, the Company   

recognized a $12.6 million reduction in surplus due to a reserve credit deficiency 
in 2017.”  (Id. ¶ 106.)  As of April 2018, SHIP was still owed $98 million under the 
initial note and $31.2 million under the Roebling note and, in its April 2018, 

regulatory filings, SHIP stated that it was terminating its reinsurance agreement 
with Roebling.  (Id. ¶¶ 108-09.)  SHIP exited this transaction at the urging of the 

PID.  (Id. ¶ 109.)  SHIP has only a worsened financial condition to show for the 
millions of dollars it expended in the Roebling transaction.  (Id. ¶ 110.)   
     6.   SHIP Enters Rehabilitation                                 
In 2018, SHIP “booked a premium reserve deficiency of $373.6 million, 

materially increasing SHIP’s loss reserves and causing surplus to be negative.”  
(Id. ¶ 161.)  On March 1, 2019, SHIP filed its annual financial statement for the 

year ending December 31, 2018, with the PID that showed a decline from a  
reported surplus of more than $12 million as of year-end 2017 to a reported 
deficit of more than $466 million—a drop of $478 million, which rendered SHIP 

statutorily insolvent under Pennsylvania law.  (Id. ¶¶ 163-64.)  “On January 29, 
2020, the Commonwealth Court of Pennsylvania placed SHIP into rehabilitation. 

. . .”  (Id. ¶ 166.)  SHIP remains in rehabilitation.  (Id. at 39 n.12.)  
Additional facts will be discussed as necessary.                     
III.  DISCUSSION                                                          

EB raises three arguments in its motion: (1) that Minnesota law applies to 
this motion; (2) that SHIP’s claims are barred by the applicable statute of 
limitations and therefore SHIP has failed to state a claim upon which relief can be 

granted; and (3) that SHIP fails to state a claim for breach of fiduciary duty.  The 
Court will first address EB’s arguments and will then address arguments raised 

by SHIP in its Response.                                                  
A.    Choice of Law                                                  
The Parties agree that Minnesota law governs all matters related to their 

engagements.  (Doc. 43-1 at 6 (Ex. A to Hartmann Decl. (Audit Engagement  
Letter)).)  However, SHIP argues that both Minnesota and Pennsylvania law 

must be considered to decide this motion.  (Doc. 48 at 14.)               
Although SHIP agrees that Minnesota substantive law governs disputes 
arising under the contractual agreements between the Parties, SHIP contends 

that “it is clear” they intended that both states’ laws be used to interpret the 
agreements, in particular the obligations EB had to carry out its statutorily-

mandated auditing services.  (Id.)  SHIP notes that the first paragraph of the 
Parties’ contract uses the word “statutory” five times, which means EB agreed to 
satisfy the statutes of the Commonwealth of Pennsylvania.  Specifically, EB 

agreed to:                                                                
audit the statutory financial statements of Senior Health Insurance  
Company of Pennsylvania, . . . which comprise the statutory balance  
sheet . . . and the related statutory statements of operations, changes 
in capital and surplus, and cash flows . . . and the related notes to the 
statutory financial statements.                                      
(Ex. A to Hartmann Decl. at 1 (emphasis added to match emphasis in SHIP’s 
brief).)  In addition, the audit was to be “conducted with the objective of [EB] 
expressing an opinion on the statutory financial statements.”  (Id. (emphasis 

added to match emphasis in SHIP’s brief).)                                
The Court finds that it need only consider Minnesota law to decide the 
issues currently before it.  First, the Parties’ Engagement Letter provides: “This 

agreement shall be governed by and construed in accordance with the laws of 
the State of Minnesota (regardless of the laws that might be applicable under the 

principles of conflict of law) as to all matters including without limitations, 
matters of validity, construction, effect, and performance.”  (Id. at 6.)  Second, for 
the most part, SHIP applies Minnesota law when addressing the grounds for the 

motion to dismiss and does not identify a material conflict between Minnesota 
and Pennsylvania law as applied to SHIP’s claims.  (Doc. 48 at 13-27.)    

Thus, it appears that SHIP confuses the legal elements of its claims with 
the state insurance regulations that determine how a company’s financial  
statements must be presented.  Even if SHIP, as a Pennsylvania-domiciled  

insurer, had to present its financial statements in the manner required by the 
PID, its claims against EB are governed by Minnesota law.  Accordingly, SHIP’s 

arguments on this issue are without merit.  Minnesota law applies to this motion.  
B.   Whether the Counterclaim Should be Dismissed Under Fed. R.      
     Civ. P. 12(b)(6) for Failure to State a Claim Upon Which Relief can 
     be Granted                                                      
     1.   Legal Standard for a Motion to Dismiss                     
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may 
move the Court to dismiss a claim if, on the pleadings, a party has failed to state 

a claim upon which relief may be granted.  In reviewing a motion to dismiss, the 
Court takes all facts alleged in the complaint to be true.  Bell Atl. Corp v. 

Twombly, 

 (2007); Zutz v. Nelson, 

 (8th Cir. 
2010).  However,                                                          
To 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.  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.                                                  
Zutz, 

 (citations omitted); Ashcroft v. Iqbal, 

 
(2009) (“Threadbare recitals of the elements of a cause of action, supported by 
mere conclusory statements, do not suffice.”).                            
“A claim has facial plausibility when the plaintiff pleads factual content 
that allows the court to draw the reasonable inference that the defendant is liable 

for the misconduct alleged.”  

 (citing Twombly, 

).  Thus, the 
Court “need not accept as true a plaintiff’s conclusory allegations or legal 

conclusions drawn from the facts.”  Glick v. W. Power Sports, Inc., 

 (8th Cir. 2019) (citation omitted).                                   
     2.   Whether SHIP’s Claims are Time Barred                      

          a.    Legal Framework                                      
SHIP and EB entered into a written tolling agreement on January 28, 2022.  
(Ex. B to Hartmann Decl.)  Therefore, any claims that accrued prior to January 28, 

2016 are time barred because the statute of limitations (alternatively “SOL”) is six 
years.  See 

(1)(1),(1)(5); Ames & Fischer Co., II, LLP v. 

McDonald, 

 (Minn. Ct. App. 2011) (SOL for accounting   
malpractice is six years); Hope v. Klabal, 

 (8th Cir. 2006) (SOL 
for breach of fiduciary duty is six years) (citing Anderson v. Anderson, 

 (Minn. 1972)); Untiedt’s Vegetable Farm, Inc. v. Southern 
Impact, LLC, 

, 767 (D. Minn. 2020) (Minnesota SOL for breach 

of contract is six years).                                                
Minnesota follows the damage-accrual rule.  Under this rule, a cause 
of action accrues and the statute of limitations begins to run when  
“some damage” has occurred as a result of the alleged malpractice.   
This does not depend on the ability to ascertain the exact amount of 
damages—absent evidence of fraudulent concealment—and the            
limitations period is not tolled by ignorance of the cause of action.  
“Some damage” is defined broadly, and the cause of action accrues    
on the occurrence of any compensable damage, whether specifically    
identified in the complaint or not.  That is, damage for purposes of 
the damage-accrual rule occurs once a party suffers any legally      
cognizable damage. . . .                                             
Ames, 

 (citations omitted).                              
A series of cases illustrate how early “some damage” can begin.  In  
Herrmann v. McMenomy & Severson, the plaintiffs sued their attorneys for  

negligence for failing to advise them that certain business transactions involving 
an employee trust were prohibited, which subjected the trust to “significant 
federal excise taxes and interest.”  

 (Minn. 1999).  The first of 

the prohibited transactions occurred in 1987.  The court held that the plaintiffs’ 
claims accrued when the plaintiffs entered “the first prohibited transaction” 

rather than in 1993 when they became aware of their illegality and “began 
expending money to address the prohibited transactions” because that is when 
the plaintiffs “became immediately liable” for taxes and interest.  

.  

The court further held that the running of the statute of limitations “does not 
depend on the ability to ascertain the exact amount of damages” and that  

ignorance of a cause of action does not toll the statute of limitations.  

 
(rejecting the “discovery rule” for determining when SOL begins to run).  
Similarly, in Antone v. Mirviss, the plaintiff argued that a prenuptial 

agreement did not protect his interest in marital appreciation to his premarital 
property.  

 (Minn. 2006).  The court held that the plaintiff 
suffered “some damage” beginning the day he got married—the date he “passed 

a point of no return with respect to the laws of marital and nonmarital   
property”—rather than the day the marriage was legally dissolved.  

.  

Accordingly, because this date was more than six years before the plaintiff sued 
the attorney who drafted the prenup, the statute of limitations barred the 
plaintiff’s claim.  

.                                           

Likewise, in an accountant malpractice case based on an “allegedly   
negligent failure to make or advise to make” an election on a partnership’s tax 

returns, the cause of action accrued, and the SOL began to run, at the time the 
returns were filed without the election, not one year later when the automatic 
extension period expired.  Ames, 

.  The plaintiffs were  

damaged when the returns were filed without the elections because they    
overpaid taxes and lost the use of those funds starting on that date.  

   

Moreover, even when a professional “provides a series of separate and 
distinct services over a period of years, the existence of an ongoing relationship 
does not toll the statute of limitations with regard to acts of negligence for which 

service has been completed.”  Reid Enters., Inc. v. Deloitte & Touche, LLP, No. 
C8-99-1801, 

, at *3 (Minn. Ct. App. May 23, 2000) (accountant 
malpractice) (citing Hermann, 590 N.W.2d at 643–44).  Any “separate or    

continuing negligence” by a defendant after the running of the statute of 
limitations was “entirely irrelevant” because the penalty for the defendant’s 

alleged negligence had already attached and was “irreversible.”  

      
However, in Frederick v. Wallerich, the Minnesota Supreme Court held 
that independent acts of alleged negligence by the same attorney could give rise 

to independent causes of action for legal malpractice.  

, 174 
(Minn. 2018).  In Frederick, an attorney prepared an unenforceable antenuptial 

agreement (“the agreement”).  

 at 170–71.  A year later, the same attorney 
drafted a will for the plaintiff that incorporated the agreement and reassured him 
that the agreement was valid and enforceable.  

.  Following his divorce, 

the plaintiff sued the attorney for malpractice and argued that the attorney’s 
subsequent representations regarding the validity of the agreement together with 

incorporation of the agreement into the will constituted an independent act of 
legal malpractice, triggering its own limitations period.  

.  The court 
held that “some damage” occurred when the attorney drafted, and the plaintiff 

executed, his will because the plaintiff had lost the “opportunity to mitigate 
additional damages” as a result of a second negligent act: the attorney’s failure to 
inform the plaintiff of the invalidity of the antenuptial agreement when drafting 

the will.  

 (emphasis in original).  As a result of this second negligent 
act, the attorney was exposed to additional asset appreciation owed to his spouse 

upon divorce.  

  Among other things, the court reasoned that the “two acts 
[were] not connected by a sufficient causal link that would necessitate a 
conclusion that the two acts flowed from the same negligence.”  

. 

          b.     EB’s Arguments                                      
EB argues that SHIP seeks to recover for alleged professional negligence 

that occurred as early as 2013.  (Doc. 42 at 6 (citing Countercl. ¶¶ 177 (“the 
material deficiency in SHIP’s loss reserves that was or should have been  
apparent as of 2013-2014 . . . Had [EB] investigated and addressed SHIP’s 

reserves at that time, . . . SHIP would have avoided entirely its ill-advised 
investment decisions, SHIP would have made prudent financial decisions to its 

benefit during that time, and SHIP would have benefitted from additional  
regulatory oversight”) (emphasis in Doc. 42).)                            
          c.    SHIP’s Arguments                                     

SHIP responds that its claims did not accrue until after 2016 and that EB’s 
claims to the contrary are “categorically false based on the Amended      
Counterclaim itself.”  (Doc. 48 at 16.)  SHIP asserts that EB wants the Court to 

ignore the motion to dismiss standard and to instead draw inferences in favor of 
EB.  (Id. at 18-19.)                                                      

SHIP also argues that the Court should reject EB’s approach to       
determining when a cause of action accrued because SHIP has alleged the   
occurrence of independent acts by EB in each year it provided services to SHIP, 

and “each independent act by a professional can create a new cause of action of 
malpractice.”  (Id. (citing Frederick, 907 N.W.2d at 176 (finding “minimal 

showing” of independent act of negligence sufficient to survive motion for 
judgment on the pleadings).)  SHIP states that EB cannot use its initial errors “to 
excuse its later negligence and breaches of professional standards” and at a 

minimum, SHIP has alleged independent acts sufficient to permit its claims to 
move forward to discovery on liability and damages.  (Id. & n.4.)         

SHIP specifically asserts that EB’s acts related to the Beechwood and 
Roebling transactions were independent acts of negligence and malpractice 
under Frederick.  SHIP argues there is “no question” regarding the over $100 

million damages that SHIP suffered from the Beechwood investments, although 
the exact date of that damage is yet to be determined.  SHIP avers that discovery 
on this issue is crucial because discovery may show that SHIP did not suffer 

damage until 2016.  (Id. at 21.)  SHIP states, “We do know that even after the 
arrest of the co-founder in June 2016, SHIP hired an outside consultant to 

investigate the situation and it was not until the end of 2016 that SHIP  
understood that the investment was a failure and that money was likely lost.”  
(Id. (citing Countercl. ¶¶ 75-82).)  SHIP also notes that all facts related to 

Roebling occurred in 2016.                                                
SHIP further asserts that EB’s “unprofessional and deceitful acts    

surrounding the replacement of L&E with Axene,” only occurred once and “the 
magnitude of harm it caused is yet to be determined.”  (Id.)  This “act” occurred 
in the first and second quarters of 2016 and is therefore not time barred.      

          d.    Analysis                                             
EB spends much of its brief reiterating claims from the Counterclaim in 

support of the argument that SHIP is merely asserting that EB continued to make 
the same errors year-after-year in and after 2016.  (Doc. 42 at 20-22 (citing Reid 

Enters., 

, at *3); Doc. 50 at 12-14 (same).)                
SHIP, on the other hand, asserts that EB failed to conduct its duties 
according to GAAS and otherwise failed to identify material deficiencies in 

SHIP’s loss reserves in 2013-2014, which resulted in SHIP making the      
catastrophic Beechwood and Roebling transactions based on Milliman’s faulty 

actuarial work.  SHIP suffered damages as a result.  The Parties focus on these 
transactions and EB’s hiring of Axene, and the Court does the same.       
               i.   Beechwood                                        

SHIP entered into the series of investments with Beechwood in 2014 and 
2015.  (Countercl. ¶ 63.)  The Counterclaim asserts that Beechwood “provided 

valuations that were not truly independent, but rather were concocted by an 
entity that worked closely with Beechwood Re to ensure they were consistent 
with Beechwood Re’s expectations and needs,” and SHIP suffered harm in    

February 2014 when it invested $320 million in exchange for a guaranteed annual 
return of 5.85%.  (Id. ¶¶ 63, 73.)  The Counterclaim also states that in October 

2014, a Fuzion auditor discovered that the investments were not compliant with 
2014 NAIC guidance.  (Id. ¶ 67.)  In addition, as discussed above, SHIP’s 
investment in Beechwood was secured by three IMAs with BAM that SHIP      

entered into in 2014 and 2015 by which “SHIP forfeited its rights to the collateral 
purportedly securing the return promised by Beechwood,” which certainly states 
damage as of the date of these IMAs.  (Id. ¶ 69.)  The Counterclaim also states 

that the IMAs were not only structured so that SHIP had no oversight or ability 
to exercise any rights with regard to its Beechwood investments and gave  

Beechwood “ultimate control over the investment,” but also that the IMAs  
violated Pennsylvania law because they did not require SHIP to report     
performance fees it paid to Beechwood.  (Id. ¶¶ 70-72.)                   

These were not, as SHIP argues, independent acts under Frederick,    
because these acts were connected by a causal link—the failure of EB to do its 

work in compliance with GAAS and other standards, including having        
knowledge of the LTC industry.  907 N.W.2d at 176 (non-exhaustive list of facts 
supporting Frederick holding).  Thus, the Beechwood investments were      

connected by a causal link to the first acts alleged in the Counterclaim.  Id.  The 
Counterclaim alleges that if not for EB’s failure to comply with GAAS and other 

standards, especially to properly review Milliman’s work, SHIP would not have 
entered into the Beechwood investments in 2014 and 2015.  (Countercl. ¶ 60.)  

This distinguishes the investment from the will written in Frederick.  Here, 
SHIP relied on the purported expertise, advice, and opinions of [EB] 
to help make critical financial decisions in the management of its   
business. . . . [and EB’s] failure to adequately perform its duties in 
accordance with GAAS ultimately inured to SHIP’s tremendous          
detriment, as doing so permitted SHIP to enter into and remain in . . 
. the Beechwood Re transactions in 2014 and 2015.                    
(Id. ¶¶ 47, 60.)  Beechwood’s alleged guaranteed rate of return should also have 
been “an immediate red flag” for EB.  (Id. ¶ 64 (emphasis added).)        
In addition, although SHIP argues that discovery is necessary because it 
may show that SHIP suffered damages from the Beechwood investments in 2016, 
as discussed above, SHIP suffered damages prior to that, and discovery is 

therefore unnecessary.                                                    
Accordingly, claims related to the Beechwood investments will be     
dismissed because they are time barred.                                   

               ii.  Roebling                                         
SHIP alleges that as a result of EB’s failures, “SHIP suffered financial 

damages including but not limited to those that arose from the Roebling [] 
transaction as well as damages arising from the inaccurately audited 2017 

financial results.”  (Countercl. ¶ 118.)  SHIP further argues that “[e]very detail 
relating to the Roebling transaction, and every act and omission by [EB] that 

caused or contributed to SHIP’s damages arising from the transaction, occurred 
in 2016 and beyond.  Moreover, [EB’s] transgressions with respect to Roebling Re 
are wholly independent of, and have no relation to, [EB’s] failures with respect to 

its review of Milliman’s actuarial assumptions or the Beechwood investments.”  
(Doc. 48 at 12.)                                                          

EB responds that despite including allegations related to EB’s work in 2016 
and thereafter, SHIP has plainly alleged that “had Eide Bailly uncovered the 
reserve deficiency prior to 2016, SHIP would have not been in a position to enter 

into the reinsurance agreement with Roebling Re, which created millions of 
dollars in avoidable expenses” and that EB’s issuance of “clean” audit opinions 

beginning in 2013 put SHIP in the position to enter into the Roebling transaction 
in the first place.  (Doc. 42 at 14-15 (citing Countercl. ¶¶ 159, 175) (emphasis in 
Doc. 42).)  Thus, EB argues that this transaction is also time barred.    

The Court finds that the Roebling transaction is different from the  
Beechwood investments for two reasons.  First, while there was no alleged 

nefarious purpose attached to the initial Beechwood investments, the alleged 
motivation for the Roebling transaction was “the desire to enable SHIP to 
mislead regulators as to its true financial condition and to facilitate these 

investments outside regulatory scrutiny, and [EB’s] failure to perform its 
obligations concealed and furthered this scheme.”  (Countercl. ¶ 91.)  This, if 
nothing else, is worthy of discovery—at least in the context of the entire 

Counterclaim.  See Glick, 

 (stating that the Court need not accept a 
plaintiff’s conclusory allegations as true).                              

Second, not only did all relevant acts related to the Roebling transaction 
occur in 2016, on the face of the Counterclaim, the transaction is not causally 
related to EB’s prior work.  Frederick, 907 N.W.2d at 176.  At a minimum, SHIP 

states the following harm unrelated to EB’s failure to conduct audits of Milliman 
prior to June 2016:  EB provided a November 2016 opinion that the Roebling 

transaction “met the requirements for reinsurance and risk transfer standards set 
forth by the NAIC and applicable Pennsylvania law. . . .”  (Countercl. ¶¶ 116-18.)  
Whether claims related to the Roebling transaction will survive discovery and 

subsequent motion practice is not an issue before the Court.  For now, SHIP has 
stated a claim to relief that is plausible on its face.  See Zutz, 

. 

Thus, this claim is not time barred.                                 
               iii.  L&E and Axene                                   

EB argues that SHIP’s allegations related to the replacement of L&E with 
Axene all relate to EB’s evaluation of SHIP’s loss reserves.  (Doc. 50 at 13.)  
Specifically, EB notes that “SHIP alleges that Eide Bailly should ‘have concluded 

that reserves were materially understated’ in ‘2013, 2014, and 2015’ and ‘then 
from 2016 forward.’” (Id. (citing Countercl. ¶ 160).)  Thus, EB argues that SHIP 

only alleges that EB repeatedly made the same alleged error before and after 
2016.  (Id. (citing Reid Enters., 

, at *3).)                
SHIP counters that EB committed “unprofessional and deceitful acts   

surrounding the replacement of L&E with Axene.”  (Doc. 48 at 21.)  SHIP asserts 
that EB hired Axene because Axene would state that Milliman’s “aggressive 

actuarial assumptions” were reasonable and thus would allow EB to give clean 
audit opinions that SHIP management welcomed “[r]ather than include L&E’s 
concerns in its audit opinion . . . .”  (Id. at 10 (citing Countercl. ¶¶ 157-58).)   

The Court finds that while discovery and perhaps future motion practice 
may prove EB correct, for now, SHIP has stated a claim to relief that is plausible 

on its face that EB’s choice of Axene to help it either further its bad accounting 
practices or cover them up is an independent act under Frederick.  There is also 
no question regarding the statute of limitations on this issue because Axene was 

not appointed until 2016.                                                 
Therefore, claims related to the appointment of Axene are not time barred. 
     3.   Whether SHIP States a Claim of Breach of Fiduciary Duty    

          a.      The Parties’ Arguments                             
SHIP argues that EB was not acting as an independent auditor here, but 
rather was in a de facto fiduciary relationship with SHIP.  SHIP points to the 

following:                                                                
[F]rom March 31, 2016 to May 20, 2016, Joe Pope of Eide Bailly was   
in contact with Tom Hampton, the SHIP Trustee who chaired SHIP’s     
Audit Committee, to let Hampton know that L&E would not back         
away from their concerns about Milliman’s then recent change in      
assumptions.  Eide Bailly sought to persuade L&E, its own actuarial  
consulting expert, to modify their position. . . .  Replacing L&E with 
Axene was a clear example of Eide Bailly shopping for actuarial      
analysis that was more to the liking of SHIP management.             
(Doc. 48 at 29 (citing Countercl. ¶¶ 142-49).)                            
SHIP also asserts that the “nefarious nature of that act” is further shown by 
SHIP CFO Lorentz’s and EB’s Joe Pope’s “separate misleading [June 2016] letters 
to PID about the need for an extension of time to submit the financial    
statements.”  (Id. at 30 (citing Countercl. ¶¶ 149-54).)  SHIP argues that EB’s 
explanations for the need for an extension to file financial statements were 
misleading because, while CEO Lorentz told the PID that L&E had assigned a 

new actuary to review SHIP’s actuarial assumptions, EB had hired Axene that 
day and L&E had not assigned or obtained a new actuary.  (Id. (citing Countercl. 
¶ 153).)  Likewise, SHIP argues that Pope’s June 8, 2016 letter to the PID claiming 

“unforeseen delays” was misleading because Pope did not tell the PID that EB 
was switching actuarial consultants because EB refused to work with L&E when 

L&E disagreed with Milliman and instead chose Axene.  (Id. at 30-31 (citing 
Countercl. ¶ 154).)  Thus, SHIP avers that EB “voluntarily assumed the role of 
business consultant who sought to shape analysis to satisfy SHIP management,” 

caused injury to SHIP,  and therefore should be held responsible as a de facto 
fiduciary.  (Id. at 31.)                                                  

EB responds that “[a]ccording to SHIP, ‘in light of its duties as    
independent auditor, [EB] could not have relied reasonably on the findings and 
opinions of Milliman, [L&E], or Axene to reach a conclusion that SHIP was in 

sound financial condition.’  What SHIP ultimately alleges, then, is that [EB’s] 
2016 work did not comply with the duties of an independent auditor.”  (Doc. 50 

at 27 (comparing Countercl. ¶ 35 with ¶ 160).)  EB argues that this is a claim that 
EB violated its duties as an independent auditor not that EB breached a separate 

fiduciary duty. (Id. (citation omitted).)                                 
EB reiterates that “[w]hen an accountant acts as an independent auditor, 
its duties are not fiduciary in nature absent special circumstances because it must  

perform its duties objectively and impartially.”  (Id. at 28 (quoting FDIC v. 
Schoenberger, 

 (E.D. La. 1992)).)  EB concludes that 

because SHIP has not “plausibly differentiated” EB’s relationship with SHIP 
from its role of independent auditor, SHIP fails to state a claim for breach of 
fiduciary duty.  (Id.)                                                    

          b.     Analysis                                            
“Courts do not generally regard the accountant-client relationship as a 

fiduciary one.”  Brown-Wilbert, Inc. v. Copeland Buhl & Co., P.L.L.P., No. A07-
2462, 

, at *6 (Minn. Ct. App. Dec. 30, 2008) (citations omitted).  
Independent auditors, especially, do not have a fiduciary relationship with their 

clients because they act “independently, objectively and impartially,” rather than 
“in a representative capacity for another” as a fiduciary does.  Resolution Tr. 

Corp. v. KPMG Peat Marwick, 

 (N.D. Ill. 1994).       
To prove that [EB] breached a fiduciary obligation, [SHIP] had to    
establish that the two were in a fiduciary relationship and that [EB] 
breached a duty arising from that relationship.  The existence of a  
fiduciary relationship is generally a question of fact.  Fiduciary   
relationships arise when one person trusts and confides in another   
who has superior knowledge and authority.                            
                                             .   .   .   .           
A “fiduciary” is a person who is required to act for the benefit of  
another person on all matters within the scope of their relationship. 
The duty imposed on fiduciaries is the highest standard of duty      
implied by law.  Minnesota caselaw recognizes two categories of      
fiduciary relationship: relationships of a fiduciary nature per se, and 
relationships in which circumstances establish a de facto fiduciary  
obligation.                                                          
Swenson v. Bender, 

 (Minn. Ct. App. 2009) (cleaned up) 
(internal citations omitted).                                             
To show a fiduciary relationship, SHIP must show more than the standard 
accountant-client relationship, such as an assertion that EB became a de facto 
officer or director of SHIP.  See Brown-Wilbert, 

, at *6.  Placing 
trust and confidence in a firm as an independent advisor is insufficient to create a 
fiduciary duty.  See Resol. Tr., 

 (affirming dismissal of certain 
claims against independent auditor in case based, at least in part, on taking 
auditor’s advice).  Likewise, “an accountant hired to audit the financial 

statements of a client is not a fiduciary of the client, but rather is required to be 
independent of the client.”  Wright v. Sutton, No. Civ. No. 1:08-1431, 

, at *4 (S.D. W. Va. Mar. 29, 2011) (quoting Strategic Cap. Res., Inc. v. 
Citrin Cooperman & Co., LLP, 

, *1 (11th Cir. 2007)) (gathering 

cases); Resol. Tr., 

 (“the nature of an independent auditor is 
that it will perform the services objectively and impartially”) (quoting  
Schoenberger, 

).                                      

Thus, the issue before the Court is whether SHIP asserts “special    
circumstances” that created a fiduciary relationship.  See Swenson, 

; Resol. Tr., 

 (stating that “special circumstances” are 
required to create a de facto fiduciary relationship).                    
Although the Court must look at the claims in the light most favorable to 

the party asserting them, the Court finds that SHIP fails to establish the existence 
of a fiduciary relationship.  SHIP relies on ¶¶ 149-54 of the Counterclaim, which 

accuses EB’s Pope and SHIP’s Lorentz of making misleading statements to the 
PID.  However, the statements seeking extensions, while not necessarily sharing 
all details about what was allegedly going on behind the scenes at SHIP in May 

and June 2016, do not show there were “special circumstances” that created a 
fiduciary duty for EB.                                                    

In context, conducting a search for an actuarial firm that could provide 
“actuarial expertise of [EB’s] audit of SHIP’s business” qualified as an  
“unforeseen delay,” even if the search began immediately on May 20, which was 

only 11 days before the June 1 statutory deadline to submit the 2015 audited 
report to the PID.  (Countercl. ¶¶ 50, 150.)  Moreover, contrary to SHIP’s 
argument, SHIP’s own CEO Lorentz told the PID on June 6 that SHIP had a new 

actuary, although SHIP is correct that EB, not L&E, assigned the actuary.  (Id. ¶¶ 
152-53.)  This misstatement, however, does not show that EB assumed the role of 

business consultant who shaped analysis to satisfy SHIP management.       
Accordingly, the Court finds that SHIP does not state a claim for breach of 
fiduciary duty.  This claim will be dismissed.                            

     4.   Whether Fraudulent Concealment Tolls the Statute of        
          Limitations                                                
Because this case arises under the Court’s diversity jurisdiction, the Court 
applies state tolling law and federal procedural law.  Summerhill v. Terminix, 
Inc., 

 (8th Cir. 2011) (citation omitted).  Under Minnesota law, 

the statute of limitations may be tolled if the cause of action is fraudulently 
concealed by the defendant.  Haberle v. Buchwald, 

 (Minn. 

Ct. App. 1992) (citing Schmucking v. Mayo, 

 (1931)).     
Federal Rule of Civil Procedure 9(b) requires fraud claims to be pleaded 

with particularity.  “In other words, the complaint must plead the who, what, 
where, when, and how” of the alleged fraud.  Drobnak v. Andersen Corp., 

 (8th Cir. 2009) (citation omitted).  “This requirement is designed to 
enable defendants to respond specifically, at an early stage of the case, to 
potentially damaging allegations of immoral and criminal conduct. . . .   

Conclusory allegations that a defendant’s conduct was fraudulent and deceptive 
are not sufficient to satisfy the rule.”  BJC Health Sys. v. Columbia Cas. Co., 

 (8th Cir. 2007) (cleaned up) (citations omitted).           
SHIP argues that EB fraudulently concealed “its faulty work” by issuing 
faulty audit opinions that communicated financial surpluses when SHIP was 

running deficits; that EB’s willingness to replace L&E with Axene to “mask 
actuarial flaws” was evidence of this concealment; and that EB worked with 

SHIP management to mislead PID regulators as to the reason why the 2015 audit 
would be delayed.  (Doc. 48 at 24-25.)  Thus, SHIP argues that the only way it 
could have possibly discovered EB’s fraud would have been to hire its own team 

of independent outside auditors, who in turn, would have had to hire a LTC 
actuarial consultant, to audit EB.  (Id. at 25.)                          

EB responds that SHIP has not pleaded fraudulent concealment in its  
counterclaim at all, let alone with particularity.  (Doc. 50 at 16.)  EB points out 
that SHIP alleges that SHIP, itself, participated in the alleged fraud and therefore 

the allegation that it would have had to hire outside auditors to discover any 
fraud is without merit.  (Id. at 17-19.)  EB also argues that SHIP has not 
articulated the “who, what, when, where, and why” of the fraud.  (Id. at 16.)  

EB further asserts that SHIP does not allege any “plausible reason” why 
EB—”a reputable, independent auditing firm”—would have participated in    

SHIP’s alleged effort to fraudulently conceal information from regulators or 
anyone else.  (Id. at 4, 17 (citing Varga v. U.S. Bank Nat’l Ass’n, 

 (D. Minn. 2013) (holding that to plead aider and abettor fraud for a 

corporate professional, the complaint had to state some kind of incentive for 
breaching fiduciary duties/“taking such a huge financial risk”), aff’d, 

 (8th Cir. 2014)).)                                                    
The Court finds that because there is no claim for fraudulent concealment 
in the Counterclaim, there is no allegation pleading the “who, what, where, 

when, and how” of the alleged fraud.  Drobnak, 

.  SHIP does not 
even cite specific paragraphs of the Counterclaim in its arguments that would 

alert the Court to what sections of the Counterclaim constitute a claim of 
fraudulent concealment.  Moreover, even if SHIP claimed the who, what, where, 
when, and how of the alleged fraud, SHIP cannot claim ignorance of the alleged 

fraud because SHIP states that Lorentz assisted in furthering the deceit.  See 
Hydra-Mac, Inc. v. Onan Corp., 

 (Minn. 1990) (“Merely  
establishing that a defendant had intentionally concealed the alleged defects is 

insufficient; the claimant must establish that it was actually unaware that the 
defect existed before a finding of fraudulent concealment can be sustained.”).  

Finally, the Court agrees with EB that SHIP fails to allege any plausible 
reason why EB would have participated in an effort to fraudulently conceal 
information from regulators or anyone else.  The reputational and financial risk 

would just be too great.  See Varga, 

.  Therefore, the statute 
of limitations is not tolled by fraudulent concealment.  To the extent SHIP 

purports to assert a claim of fraudulent concealment, that claim is dismissed.    
     5.   Whether Public Policy Tolls the Statute of Limitations     
SHIP argues that the statute of limitations should be tolled because “[t]he 

Rehabilitator’s arguments invoke equitable analyses requiring the consideration 
of competing facts, and the Court should not resolve these public policy  
considerations at the pleading stage before the Rehabilitator has an opportunity 

to develop the factual record.”  (Doc. 48 at 26.)  SHIP notes that the general 
purpose of both Pennsylvania’s and Minnesota’s insurance receivership schemes 
is to protect the public, insureds, and creditors related to a major insolvency.  (Id. 

(citing Foster v. Mutual Fire, Marine & Inland Ins. Co., 

 (Pa. 
1992); Minn. Stat. § 60B.01(4)(a)).)  SHIP states that although the Rehabilitator 
appears solely in his capacity as Rehabilitator, the claims in this action are not 

limited to SHIP’s direct interests and are pursued on behalf of its creditors and 
policyholders as well, and thus SHIP steps into the shoes of the insurer to recoup 

its assets and to protect the rights of SHIP’s creditors, policyholders, and 
shareholders.  (Id. at 27 (citation omitted).)  SHIP also argues that because EB 
concealed that any losses suffered by SHIP “were caused by malfeasance and 

deception by [EB],” policy considerations dictate that EB be precluded from 
avoiding liability for the losses caused by that malfeasance.  (Id. at 28.) 

SHIP’s attempt to convince the Court to adopt Pennsylvania public policy 
is unavailing.  Minnesota does not recognize the discovery rule.  Herrmann, 

; Untiedt’s Vegetable Farm, 493 F. Supp. 3d at 768 n.6 (“Minnesota 

applies the occurrence rule, not the discovery rule, in determining when a claim 
for breach of contract accrues”).  Moreover, SHIP cannot claim that it did not 

know about the alleged underlying concealment prior to the 2020 rehabilitation 
order because it admits in the Counterclaim that it did know.  The Counterclaim 
alleges that it “became clear that the valuation” of the Beechwood investments 

“was likely inaccurate” in November 2016; that SHIP “exited the Roebling  
transaction at the urging of the PID” in April 2018; and that SHIP alleges that the 
PID’s external consultant reviewed SHIP’s reserves and identified several issues 

leading to recognition that “its projected assets were materially short of expected 
liabilities” in 2018.  (Countercl. ¶¶ 79, 109, 161) (quotations cleaned up).)  Public 

policy does not toll the statute of limitations.                          
IV.  ORDER                                                                
Based upon the files, records, and proceedings herein, IT IS HEREBY  

ORDERED:                                                                  
1.   Plaintiff-Counter Defendant Eide Bailly’s Motion to Dismiss the 
     Amended Counterclaim [Doc. 40] is GRANTED in part and           
     DENIED in part:                                                 

     a.  The Motion is GRANTED as to a finding that Minnesota law    
       governs interpretation of the engagement agreements at issue; 

     b.  The Motion is GRANTED as to the Beechwood Re Investments;   

     c.  The Motion is GRANTED as to the Claim of Breach of Fiduciary 
       Duty;                                                         

     d.  The Motion is GRANTED as to a finding that Fraudulent       
       Concealment and Public Policy do not toll the applicable      
       statutes of limitations;                                      

     e.  The Motion is DENIED as to the Roebling Re Transaction;     
     f.  The Motion is DENIED as to claims related to the appointment 
       of Axene;                                                     

     g.  Claims as to the Beechwood Re Investments are DISMISSED     
       WITH PREJUDICE;                                               

     h.  To the extent Defendant-Counter Claimant asserts that the   
       Counterclaim states a claim for fraudulent concealment, that  
       purported claim is DISMISSED WITH PREJUDICE; and              

     i.  The claim of Breach of Fiduciary Duty is DISMISSED          
       WITHOUT PREJUDICE.                                            

2.   The Parties are directed to contact Magistrate Judge Brisbois within 
     14 days of the date of this Order to schedule a status conference to 
     discuss necessary scheduling orders and/or refiling deadlines to 
     comply with this Order and move this case forward.              

Dated:  March 29, 2024             s/Michael J. Davis                     
                              Michael J. Davis                       
                              United States District Court