Branch v. Sickert

• Decision Date: 28 February 2011
• Docket Number: CIVIL ACTION NO. 2:10-CV-128-RWS
• Parties: K. CRAIG BRANCH, et al, Plaintiffs, v. JAYME S. SICKERT, et al, Defendants.
• Court: U.S. District Court — Northern District of Georgia

K. CRAIG BRANCH, et al, Plaintiffs,

v.JAYME S. SICKERT, et al, Defendants.

CIVIL ACTION NO. 2:10-CV-128-RWS

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

Dated: February 28, 2011

ORDER

This case comes before the Court on Defendant Jayme B. Sickert's Motion to Dismiss [14], Defendant John T. Ottinger, Jr.'s Motion to Dismiss [27], and Defendant George B. Dixon's, as Personal Representative of the Estate of Cecil Brooks, Motion to Dismiss [36]. After a review of the record, the Court enters the following Order. I. Brief Factual Summary¹

The case arises out of securities transactions between the Plaintiffs and the Defendants' organizations. Plaintiffs K. Craig Branch, Mary W. Branch, and H. Brian Haney all purchased securities in Cornerstone Ministries Investments, Inc. ("Cornerstone") and Wellstone Retirement Communities I, LLC ("WRC"). Cmpl., Dkt. No. [1] at ¶¶ 26, 31. Additionally, Plaintiffs Craig and Mary Branch purchased the same type of securities on behalf of their children, Plaintiffs Catherine Branch Chestnut, Ladye Kimberly Branch, and Cristopher Craig Branch. Id at ¶ 28. Cornerstone and WRC were "created and controlled" by the Defendants along with Wellstone Securities, Inc. ("Wellstone Securities"). Id at ¶ 22.

Cecil A. Brooks, who is represented in this suit by his estate's administrator-George Dixon, was the Chairman and Chief Executive Officer of Cornerstone and Defendant John T. Ottinger, Jr. was the Chief Financial Officer. Additionally, Defendant Jayme Sickert actually sold the Plaintiffs securities through the Wellstone Securties arm of Defendants' organization. Id at ¶¶ 26, 29.

Eventually in 2008, approximately eleven years after the Branches' initial investment, Cornerstone filed for bankruptcy. Id at ¶¶ 26, 72. This bankruptcy was due to the "for-profit, high-risk business deals" which the companies were making, contrary to the Defendants' assertion that the investments would be "safe and stable." Id at ¶¶ 26, 74. Plaintiffs, upon learning of this information, filed this suit, alleging: (1) Georgia and Alabama securities law violations; (2) common law fraud; (3) breach of fiduciary duty; (4) promissory fraud; (5) breach of fiduciary duty; and, (5) violations of 1934 Act and Rule 10b-5.

Defendant Dixon has now moved to dismiss for lack of jurisdiction and Defendant Sickert has joined him to dismiss for improper venue. Additionally, Defendant Ottinger has moved to dismiss for failure to state a claim. The Court will consider each motion in turn.

II. Discussion

A. Defendant Dixon's Jurisidiction

Defendant Dixon first moves to dismiss for lack of personal jurisdiction. "A plaintiff seeking the exercise of personal jurisdiction over a nonresident defendant bears the initial burden of alleging in the complaint sufficient facts to make out a prima facie case of jurisdiction." United Techs. Corp. v. Mazer, 556 F.3d 1260, 1274 (11th Cir. 2009). Under the Georgia Long Arm Statute, Georgia courts may exercise personal jurisdiction over a non-resident who transacts business within the State of Georgia. O.C.G.A. § 9-10-91(1). Jurisdiction exists under the "transacting business" prong of the long-armstatute if "(1) the nonresident defendant has purposefully done some act or consummated some transaction in [Georgia], (2) the cause of action arises from or is connected with such act or transaction, and (3) the exercise of jurisdiction... does not offend traditional fairness and substantial justice." Aero Toy Store, LLC v. Grieves, 631 S.E.2d 734, 737 (Ga. Ct. App. 2006). The Eleventh Circuit has stated that the first prong of the three-part inquiry satisfies the "transacting business" requirement of the long arm statute and the second and third prongs satisfy federal due process-the "transacting business" inquiry is no longer collapsed into the federal due process inquiry. Diamond Crystal Brands, Inc. v. Food Movers Int'l, Inc., 593 F.3d 1249, 1260 n.11 (11th Cir. 2010).

While Plaintiffs alleged that George Brooks was a Georgia resident at the time of his death, following a hearing on the matter, it was confirmed that George Brooks became a resident of Florida on August 26, 2008, approximately ten months before his death. As such, while Defendant Brooks was a resident of Georgia when the causes of action arose, he will be considered a "nonresident" for purposes of the long arm statute under O.C.G.A. § 9-10-90. See O.C.G.A. § 9-10-90 (stating that a "nonresident" also includes one who resides in Georgia at the time of the cause of action but later becomes domiciledin another state prior to service of process). As Brooks would be deemed a non-resident for purposes of the long arm statute, Georgia's long arm statute would also reach Defendant Dixon as Brooks' administrator. See O.C.G.A. § 910-91 (stating that the long arm statute extends personal jurisdiction "over any nonresident or his or her executor or administrator"). Therefore, personal jurisdiction will be proper if Brooks' conduct satisfies the long arm.

Here, there is no dispute that Brooks transacted business within the state. In fact, Cornerstone and Wellstone Securities operated out of Cumming, Georgia, and Brooks worked in Georgia when all of these events took place. See Cmpl., Dkt. No. [1] at ¶¶ 14, 22. These causes of actions arise out of Brooks' purposeful acts and traditional notions of fair play and substantial justice are not offended by extending jurisdiction over Brooks' estate. Therefore, personal jurisdiction is proper over Defendant Dixon as the administrator of Brooks' estate.

However, Dixon also alleges that Plaintiffs' claims are untimely under Section 733.702 of the Florida probate code. This provision bars any claim which arose prior to the decedent's death if that claim was not presented within three months of the creditor publication notice. Fla. Stat. § 733.702.

Ultimately, this statute works as a statute of nonclaim, or is an "automatic bar to untimely claims." Thames v. Jackson, 598 So. 2d 121, 123 (Fla. Ct. App. 1992). Here, it is undisputed that notice was not provided to Brooks' estate within the Florida three-month filing period. However, this provision is in direct conflict with both the Georgia and federal statutes of limitations for Plaintiffs' tort claims.

A federal court sitting in diversity applies the "conflict of laws rules of the courts of the states in which they sit." Griffin v. McCoach, 313 U.S. 498, 503 (1941). Georgia uses the traditional rule of lex loci delicti, which provides that "a tort action is governed by the substantive law of the state where the tort was committed." Dowis v. Mudslingers, Inc., 621 S.E.2d 413, 414, 419 (Ga. 2005). Further, Georgia law generally regards foreign statutes of limitations as procedural and will apply its own statute of limitations. Hudnall v. Kelly, 388 F. Supp. 1352, 1354 (N.D. Ga. 1975); see, e.g. O.C.G.A. § 10-5-58(j) (stating that an action for the as-alleged securities fraud must be filed within two years of discovery of the facts which support the claim or within five years of the violation, whichever is earlier).

The Court finds Peterson v. Wade, 152 S.E.2d 745 (Ga. 1966) instructive in this case. There, a car accident occurred in Georgia. Id at 746. The drivers of one vehicle, the defendants, died as a result of the accident and their estate was probated in Massachusetts. Id Under Massachusetts probate law, the plaintiffs were required to file a notice of claim in the Massachusetts Probate Court registry within one year after the defendants' administrator gave bond. Id. at 747. Failure to do so barred any claim against the estate under Massachusetts law. Id at 749. However, the plaintiffs did not file such claim, and the Defendants raised this defense in the Georgia court.

The Georgia court ruled that the plaintiffs' failure to file did not bar their Georgia tort claims-the Georgia statute of limitations would control. Id Further, the court stated that "in an action brought by creditors of a testator in the state of Georgia against his executors, the statute of limitations of Georgia will be applied, rather than the statute of limitations of the state of the testator's domicile." Id

Here, Plaintiffs did not file their claim with Brooks' estate within three months of the publication notice. However, under Georgia law, that failure is irrelevant. Georgia treats statutes of limitations, and by extension, statutes ofnonclaim as procedural. Thus, Georgia law will control and Florida's probate statute is of no consequence here. Further, the federal statute of limitations will control on the federal securities fraud claims. See 28 U.S.C. § 1658(b)(1) (stating that a §10(b) action must be brought within "2 years after the discovery of the facts constituting the violation; or 5 years after such violation, " whichever is earlier). As such, Florida's probate statute is not a bar to Plaintiffs' claims against Defendant Dixon.

B. Arbitration

Defendants Dixon and Sickert have additionally moved to dismiss for improper venue, citing an arbitration clause. The Federal Arbitration Act is "a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The FAA has instituted a policy "favoring arbitration agreements" and its main goal is "moving the parties to an arbitrable dispute out of court and into arbitration as quickly as possible." Green Tree Fin. Corp-Alabama v. Randolph, 531 U.S. 79, 85 (2000) (citing Moses, 460 U.S. at 22). Further, the FAA establishes that "as a matter of federal law, any doubts concerning thescope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses, 460 U.S. at 24-25.

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