Brown et al v. J.P. Turner & Company, LLC, No. 1:2009cv02649 - Document 48 (N.D. Ga. 2011)
Court Description: ORDER and OPINION GRANTING dft's 21 Motion to Dismiss Plaintiff's Class Action Complaint.. Signed by Judge Julie E. Carnes on 5/17/11. (jlm)
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IN THE DISTRICT COURT )COR THE NORTHSRN DISTRICT OF GEORGIA ATLANTA DIVIS ION FllID IN ClIAM!lERS U.S<D.C, MAY 1 '{ 2011 RON BROWN, ar:d VIVIAN GARCIA, or: behalf of themselves and all others similarly situated, Plaintiffs, v. 1:09-CV-2649-JEC J.P. TURNER & COMPANY, Defendant. ORDER & OPINION case is presently before the Court or: defendant's Motion to Dismiss Plaintiff's Class Action Complair:t [21]. The reviewed the record and the arguments of the parties, Court has and for the reasons set out below, concludes that defendant's Motion to Dismiss [21] should be GRANTED. BACKGROUND This class action arises out of an alleged orchestrated by third party Provident Royalties, Ponzi scheme (-Provident"). Plaintiffs i:-lVested in Provident, an entity that they believed to be involved in oil and gas exploration, by purchasing securities in Provident's affiliate Shale Royalties (ftSR"). Plaintiffs purchased the securities through (CompI. a series [1] at 'l! 1.: of private Dockets.Justia placement offerings (the "Offerings") that were promoted and sold by (Id. ) a network of broker-dealers, including defendant. Each Offering was accompanied by a Private Placement Memorandum (,'PPMfI') that purported to (Id. at 'lI 9.) investment. describe the nature of the underlying Plaintiffs claim that the PPMs contained material misstatements and omissions that served to hide Provident's fraudulent nature. that defendant (Id. at 'lI'lI 9, 41-43.) drafted the PPMs, or Plaintiffs do not allege otherwise (Id.) Provident's business operations. participated in However, plaintiffs assert that defendant fraudulently and/or negligently distributed the false PPMs to investors. (Compl. [1] at 'lI 51.) Provident's scheme began to unravel in January, 2009, when it stopped accepting new investors and suspended dividend payments and redemptions. (Id. at 'lI 11.) Shortly thereafter, Provident filed for Chapter 11 bankruptcy in the Northern District of Texas. 12.) (Id. at 'lI While the bankruptcy was pending, the SEC filed suit against Provident, alleging federal securities fraud. (Id. at 'lI 13.) In conjunction with its suit, the SEC obtained a freeze on Provident's assets and appointed a receiver to recover assets on behalf of ( Id. ) Provident's investors. Plaintiffs subsequently filed this class action on behalf of themselves and other Provident investors who purchased securities through defendant. plaintiffs allege (Compl. that [1] at defendant's 2 'lI 56.) role in In the their complaint, Provident affair violated Georgia securities law and various other cOIT@on law duties. (Id. at 'lI'lf 64-86.) They assert claims against defendant for: (1) failure to corr,ply with the notice and registration requirements of L'le Georgia Securities Act ("GSA") of 1973, and violation of sale of securities in (2) the fraud in the offer GSA, corrmon law ( Id. ) negligence, and (4) negligent misrepresentation. (3) Plaintiffs state that the Court has jurisdiction over their claims under the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d).' Defendant has filed a motion to dismiss the complaint under Rule 9 (b) and Rule 12 (b) (6) (Def.'s Mot. to Disniss of the Federal Rules of Civil Procedure. Defendant argues that the complaint does not comply with Rule 9(b) because it (1) is pled on "information and belief" circumstances and (2) lacks surrounding specific defendant's allegations concerning the alleged misrepresentat ions. (Def.'s Br. in Supp. of Mot. to Dismiss ("Def.'s Be") [21] at 3.) In addition, defendant contends that plaintiffs' negligence claims are legally deficient because defendant discover or disclose Provident's fraud.' did not have a duty to ( Id. ) 1 Pursuant to the CAFA, the Court has original jurisdiction of a class action when the natter in controversy exceeds $5 million, the putative class consists of more than 100 people, and any menber of the class is diverse fran any defendant. See 28 C. S.C. § 1332 (d) (2) and (5) and Lowery v. Alabama Power Co., 483 F.3d 1184, 1193-94 (11th Cie 2007) (applying the CAFA). 2 Defendant also argues Securities Litigation Uniform [21] at 3-4.) Although it is the Court notes its agreerrent that the claims are preempted by the Standards Act ("SLUSA"). (Def.' s Br. unnecessary to address this argument, with plaintiffs that the securities at 3 DISCUSSION I. Motion To Dismiss Standard In deciding a motion to dismiss, the Court that all the allegations i:1 the complaint are true and construes the facts in favor of the plaintiff. Cir. 2005) Scott v. (citation omitted). sufficient factual matter, Taylor, 405 F.3d 1251, 1253 (11th That said, a complaint accepted as true, to contain 'state a claim to relief that is plausible on its face.'" Ashcroft v. Lqbal, 129 S. Ct. ::'937, 1949 (2009) 570 (2007)). "factual Bell Atl. Corp. v. Twombly, 550 U.S. 544, A claim has "facial plausibility" when it contains content that allows the court to inference that the defendant is liable for the draw the reasonable alleged." Ld. II. Under Cases alleging 9(bl fraud or misrepresentation heightened pleading requirements of Federal P. 9 (b) ("In alleging fraud or mistake, a must 9(b). party must meet the FE.D. R. CIV. state with particulari ty the circumstances constituting fraud or mistake."). mo satisfy Rule 9(0), the complaint must identify: (1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the perso:1 responsible for making (or, in the case of issue are not "covered securities" under SLUSA, subject to the Act. See 15 U.S.C. § 77r(b). 4 and thus are not omissions, not making) same, (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendant[] obtained as a consequence of the fraud. Ziemba v. Cascade Int'l, Inc., 256 F.3d All of plaintiffs' claims (Compl. fraudulent conduct. entire complaint must 1202 (11th Cir. 20Gl). arise out of the at 'll'll 64-86.) [1] comply with Rule 9. 3 same allegedly Accordingly, See Wagner v. the First Horizon Pharm. Corp., 464 F. 3d 1273, 1275 (11th Cir. 2006) ("even :a] securities claim[] without a fraud element must be pled with particularity pursuant to [Rule 9(b)] when th[e] nonfraud securities claim is alleged to be part of a defendant's fraudulent conduct") and Next Century Comm'n Corp. v. Ellis, 318 F.3d 1023, 2003) (" 'the same principles apply to misrepresentation' U) {quoting Artzner v. 242 Ga. App. 766 (2000)). case does not :r,eet the both fraud lC30 and (11th eir. negligent A & A Exterminators, Inc., As discussed below, the complair:t in this requirements of Rule 9 (b) . Accordingly, defendant's motion to dismiss the complaint [21] is GRANTED. A. on information and belief. Host of the factual allegations underlying the complaint, and all of the allegations supporting Count I, are pled "on information 3 Plaintiffs concede that Counts II, III, and IV must satisfy Rule 9(b), and they do not offer any argument or authority as to why Count I is not also subject to the Rule. (Pl.' s Resp. Br. [33] at 16. ) 5 and bellef." [lJ at 'II'll 21-26, 28-29, 31-39, 67.) (Compl. Under Rule 9 (b), pleading on information and belief is only permissible" [w] here it can be shown that the requisite factual is peculiarly wi thin the defendan t' s knowledge or control." Prop. f In re Rockefeller Ctr. Inc. Sec. Litig., 311 ;".3d :e98, 216 (3rd Cir. 2002). Clausen v. Lab. Corp. of Am. f Inc. f 290 F. 3d 1301, 1310 See also (11th Cir. 2002) (noting t:-'at pleadings generally cannot be based on inform,ation and belief ·,,:-'en Rule 9 (b) applies). :n such cases, t:he complaint still -must: adduce specific facts supporting a strong inference of fraud or it will not: sat:isfy even a relaxed pleading standard." Wexner v, First Manhattan Co., 902 F.2d 169, 172 (2nd Cir. 1990). Plaintiffs Plaintiffs do state not in meet their eit:-'er brief t:-'at wrongdoing lie particularly wit:-'in Resp. Br. [33J at lB.) explanation as of the above -details requirerr,ent:s. about defendant's knowledge." (PIs.' However, pJaintiffs do not offer any further to why that might be the case. (Id. ) Plaintiffs concede that defendant did not: draft the allegedly misleading PPMs, and that defendant was not otherwise involved in Provident's busir.ess operations. (Id.) Thus, it is unclear how defendant \-lOuld be ir. any better position than plaintiffs to discover the details about misrepresentations underlying this case. inference of fraud on the part of the Neither is there a stror.g defendant, given plaintiff's failure to allege that defendant actually part:icipated in Provident's misconduct:. 6 Plaintiffs apparently seek to avoid the above inquiry by arguing that the "three essential purposes" of Rule 9 (b) this case: wrongs, (1) are satisfied in the suit is not a pretext for discovering unknown (2) defendant's reputation will not be tarnished, and (3) the allegations are particular enough to allow defendant to formulate a (Id. at 18-19.) defense. Plaintiffs do not cite any legal authority in support of their argument for expanding the circumstances under which a complaint may be pled on information and belief under Rule 9. Noreover, likely defendant suffer as persuasively argues a result of that plaintiffs' its reputation will allegations that it fraudulently disseminated false investment material to its clients. Count I of plaintiffs' complaint is pled entirely on information and belief. (Compl. [lJ at motion to disIT,iss Count I . The Court thus GRANTS defendant's 64.) To the extent plaintiffs plead other underlying factual allegations on information and belief, the Court disregards those allegations in ruling on defendant's motion to dismiss the remaining counts in the complaint. B. to plead the essential In Count I I of the complaint, securities fraud prevail on this claim, plaintiffS IT,ust show: o!1,ission, which injury. (2) of a material fact, plaintiff[s: U relied, GCA Strategic Inv. (5) (3) that [::.] at claim for 69-75.) To "(1) a misstatement or made with scienter, proximately Fund, Ltd. v. 7 of fraud. plaintiffs assert a (Compl. under the GSA. caused Joseph Charles & (4) on Assoc., Inc., 245 Ga. App. 460, 921 F.2d 1465, securities 1511 464 (2000). (11th Clr. fraud See also Pelletier v. Zweifel, 1991) (discussing the elements of a under Georgia law) . deficient as to the most fundamental e1em.ents: omission by defendant and (2) scienter. The complaint is (1) a misstatenent or Accordingly, the Court GRANTS defendant's motion to dismiss Count I I . 1. In Or O:nlssion support of Count plaintiffs I:, allege that defendant ·offered and sold securities issued by [Provident] (CompI. false and misleading statements and omissions." n.) via verba2[ 1] at 'II Plaintiffs do not provide any more detail about the alleged (Id.) ·statements and omissions· in Count II. However, plaintiffs clarify in Count IV and in their briefing that the "statenents and omissions" consist solely of defendant's provision of PPMs containir:g (Id. at 'II 84 and PI.'s the nisstatements of third party Provident. Resp. Br. In [33] at 13, 20.) asserting circulation divided of panel (Tambone I), held that an a securities Provident's decision PPMs, from 550 F.3d 106 underwriter, fraud claim based plaintiffs the First as a result primarily Circuit, (1st Cir. 2008). on SEC defendant's rely v. on a Tambone In Tambone I the Court of its duty to review and confirn the accuracy of the material that it distributes, ·impliedly makes a statement" to potential investors that "the information cor:tained in the prospectus . . . is truthful and complete.· 8 Id. at 135. Based on this authority, similarly "made a plaintiffs conclude that defendant statement" by circulating information contained in Provident's PPMs. the investment The Court rejects this conclusIon, for several reasons. lIS an initial matter, the underlyi:1g rationale of Tambone I is based on the duty of an underwriter to accuracy of the material it distributes. u:1derwriter, bat a broker. review Id. and confirrr. the Defendant is not an (PIs.' Resp. Br. [33] at 12.) PlaIntiffs do not cite any authority to suggest that a broker has the same duty as an underwriter to ensure the accaracy of investment materials. Neither do plaintiffs offer any other principled (Id.) applying the n:le anno:.mced in Tambone I to a broker. for (Id.) Thus, it does not appear that Tambone I is applicable here. In any case, Tambone I is no longer good law. First Circui t, in an en bane decision, In Tambone II the expressly rej ected "implied representation" theory endorsed in Tambone I. 597 F.3d 436, 442-43 (1st Cir. 2010). the Tambone II, Specifically, the Tambone II Coart held that a securi ties professional does not "make a statement" merely by disseminating information created by others. holding, permit the Court a securities lenient In so found no authority in any Circuit that would fraad claim based information created by a third party. relatively Id. standard used by merely Id. the on at 447 Ninth disseminating (comparing t!le Circuit for estabiishing securities fraud with the more stringent "bright line" 9 test used by the Second, Tenth, and Eleventh Plaintiffs also fail to adequately plead scienter. only allegation addressing this element, In their plaintiffs state that defendant qacted with scienter, a state of mind which can be averred (CompI. If [11 at 'lI 72.) Rule 9(b) allows for scienter to be alleged generally, the GSA demands that scienter be pled qwith particular facts that give rise to a strong inference that the defendant acted in a severely reckless manner." lnv. Fund, Ltd., 245 Ga. App. at 464. GCA Stra tegie In this context, '" [sj evere recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, care.'N ld. an extreme departure from the standards of ordinary (quoting Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1282 (11th Cir. 1999)). clearly is deficient C. Plaintiffs' "general" averment of scienter Georgia law. Plaintiffs do not include sufficient facts to support a claim of negligence or negligent misrepresentation. Plaintiffs concede that their negligence claims are subject to the heightened pleading requirements of R'Jle 9(b). [33] at 16.) However, argu:nent that Counts plaintiffs fail to (PIs.' Resp. Br. address defendant's and "IV do not co:nply with Rule 9. (Id. ) Plaintiffs' failure to respond is in itself grounds for the Court to r'Jle in favor of defendant. See Resolution Trust Corp. Corp., 43 F.3d 587, 599 (11th Cir. 1995) 10 v. Dunmar (discussing the consequences of failing to respond to arguments presented in a motion) and Kirkland v. county Comm'n of Elmore County, Alabama, 2009 WL 596538 at *2 (N.D. Circuit Ala. holding 2009) (Fuller, that the C.J.) (collecting ::ailure to respond to cases a from tt:is legal argument consti tutes abandonluent and warrants dismissal of a claim) . Moreover, defendant's argument is persuasive on the merits. The complaint ::ails to plead the circumstances underlying plaintif::s' negligence and negligent misrepresentation claims with any particularity. Indeed, the allegations offered in support of Counts I I I and IV are essentially generic recitations of the elements of each (See cIa im. Cornpl. [1] at 'lI'lI 77, 83.) Such conclusory allegations do not meet the general pleading requirements of Federal Rule 8, much less the heightened requirements of Rule 9. Asset Ltd. Mgmt., v. 297 Jaharis, 2002) (·conclusory allegations, F.3d 1182, 1188 See Oxford (11th unwarranted deductions of facts or legal conclusions masquerading as facts wiL:' not prevent dismissal") . Accordingly, the Court GRANTS defendant's r.wtion to dismiss Counts III and IV of the complaint. II. Dismissal Under Rule 12{bl (6) As an alternative ground for granting defendant's motion as to Counts III and IV, the Court finds that dismissal of both Counts is warranted under Federal Rule 12(b) (6). claim asserted in Count III, To prevail on the negligence plaintiffs must show, things, that defendant owed a legal duty to plaintiffS. 11 amcng other l'1cKenna Long & Aldridge, LLP v. of duty. . Keller, 267 Ga. App. 171, 173 (2004) ("the element is necessary to every lawsuit based upon a theory of negligence") (internal cications omitted) Plaintiffs do noc allege any facts, or cite any Georgia authority, to support cheir conclusory statement chac defendanc owed a duty Provident's statements in the PPMs. Georgia aUchority that In an attempt impermissibly contracted dismiss, 762, 765 complaint cO raise for che to new (l:C::h Cir. argument receive a (Pls.' Resp. Br. first the time is plainly inappropriate. Is broker to conduct Que materials it provides to clients. plaintiffs made duty on a performing due diligence. allegation, accuracy of to bolster their negligence claim, seek wich confirm the Neither has che Courc found any imposes a diligence concerning the to in fee plaintiffs that in defendant exchange [33] at 14-15.) response See Milburn to v. a for S:Jch an motion U.S., 734 to F.2d 1984) (" [c;or.sideration of matters beyond the improper in che conte x:: of a motion to dismiss"). Moreover, even if the Court were LO consider the new allegation, the complaint would still be deficlen:: beca:Jse plaintiffs do not that they relied in any way on defendant's efforts. reliar.ce investors be reasonable, that as the PPMs they should only rely Providen:: itself. (21s.' Resp. expressly on Nor would s".1ch advise potential information provided by [33] at Ex. A.) The negligent misrepresentatior. claim asserted in Count IV is similar ly deficient. To prevail 12 on this claim, plain::iffs must establist:: information persons' the " (1) to defendant's foreseeable persons, negligent kno"JD reasonable reliance upon that supply or false of unknown; (2) information; economic inj <.1ry proximately resulting from such re:iance." false suct: and Mi tchelI v. Georgia Dep't of Cmty. Health, 281 Ga. App. 174, 177 (2006). alleged, the complaint clear .is misrepresentations was Provident, 84.) tt:at the not defendant. (3) source of (Comp!. As the at 1. Having failed so show that the PPMs contain statements tt:at are attributable to defendant, or that defendan:: had a duty to verify the accuracy of the PPMs, addi tional reasons, Count IV necessarily fails. For these the Court GRANTS defendant's motion to disrr.iss Counts III and IV of the complaint. CONCLusrON For the foregoing reasons, tt:e Court GRANTS defendant's Motion to Dismiss Plaintiff's Class Action Complairlt [21;. P<.1rsuant to this Order, the clerk is directed to CLOSE this case. SO ORDERZD, this -2 day of 1'1 I 2011. ,/", ti,£1 { JU i E. CARNES CH EF UNITZD S7ATES DISTRICT JUDGE 13
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