Fagan v. K. Scott Fischer, Veronika M. Fischer, Brian E. Carroll, Bruce W. Breitweiser, Fischer Inv. Capital, LLC
| Decision Date | 28 January 2016 |
| Docket Number | Civ. Action No.: 14-7013 (FLW)(TJB) |
| Court | U.S. District Court — District of New Jersey |
| Parties | TINA FAGAN and MICHAEL FAGAN, Plaintiffs, v. K. SCOTT FISCHER, VERONIKA M. FISCHER, BRIAN E. CARROLL, BRUCE W. BREITWEISER, FISCHER INVESTMENT CAPITAL, LLC, BYANA, LLC, PRIVATE CAPITAL, LLC, FUNDER, LLC, BOWDER, LLC, WEALTH CAPITAL GROUP, LLC, DUNBAR BREITWEISER & COMPANY, LLP, JOHN/JANE DOES 1-5, fictitious individuals to be named after discovery, and ABC CORPS. 1-5, fictitious corporate entities to be named after discovery, Defendants. |
*NOT FOR PUBLICATION*
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This case arises from a failed business relationship between plaintiffs Tina Fagan and Michael Fagan (collectively, "Plaintiffs") and K. Scott Fischer, Veronika M. Fischer, Brian E. Carroll, Byana, LLC ("Byana"), Fischer Investment Capital, LLC, ("Fischer Capital"), Private Capital LLC ("Private Capital"), Funder, LLC, Bowder, LLC ("Bowder"), and Wealth Capital Group, LLC ("Wealth Capital"), (collectively, "Fischer Defendants"), Bruce W. Breitweiser and Dunbar Breitweiser & Company, LLP (collectively "Breitweiser Defendants,"), and John/Jane Does and ABC Corps. 1-5 (together with Fischer Defendants and Breitweiser Defendants, "Defendants"). Plaintiffs bring claims arising from their allegedly failed investments in (1) the Derbyshire Project, a real estate development in North Carolina, and (2) Fischer Capital, an investment company focused on the acquisition and development of small market enterprises. Plaintiffs assert various fraud, securities, and contract related claims. Presently before the Court is a Motion to Dismiss filed by Mr. Breitweiser and his former employer, Dunbar Breitweiser & Company, LLP, allegedly accountants to Fischer Defendants. In their Motion, Breitweiser Defendants seek dismissal of all claims brought against them as either barred by the applicable statute of limitations or for failure to state a claim.
For the reasons set forth in this Opinion, Plaintiffs' claim against Breitweiser Defendants for violation of Section 12(a)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), 48 Stat. 881, as amended, 15 U.S.C. § 78a et seq. (Count V) is dismissed with prejudice. Plaintiffs' claims against Breitweiser Defendants for violation of Section 10(b) of the Exchange Act (Count IV), violation of the New Jersey Uniform Securities Law (the "NJUSL"), N.J.S.A. 49:3-47 et seq. (Count VI), common law fraud (Count VII), aiding and abetting common law fraud (Count VIII), equitable fraud (Count IX), conversion (Count X), and unjust enrichment (Count XI) are dismissed without prejudice. Breitweiser Defendants' Motion to Dismiss Plaintiffs' remaining claims for state and federal RICO1 violations (Counts I & III), conspiring to commit federal RICO violations (Count II), negligent misrepresentation (Count XIII), professional negligence (Count XIV), and breach of fiduciary duty (Count XV) is denied.
The following allegations are taken from Plaintiffs' Complaint and are assumed as true for the purposes of review under Rule 12(b)(6). In 2006, on the advice of Mr. Fischer, Plaintiffs made equity and debt investments in Byana, a corporate investment vehicle used to fund the Derbyshire Project, a real estate development project in North Carolina. Compl. ¶¶ 41, 61-78. In exchange for a $1,000,000 investment, Ms. Fagan was given a 10% membership interest in Byana.2 Compl. ¶¶ 61-63. Additionally, Plaintiffs gave Byana $500,000 in investment loans, pursuant to certain promissory notes. Compl. ¶¶ 64-78, 240. In 2007, again on the advice of Mr. Fischer, Plaintiffs gave investment loans, pursuant to certain promissory notes, totaling $750,000, to Fischer Capital, a private investment company founded by Mr. Fischer which was "focused on the acquisition and development of small market enterprises." Compl. ¶¶ 70-78, 240.
Plaintiffs allege that Mr. Fischer and Mr. Carroll, working on behalf of a criminal enterprise, to which all Defendants are members (the "Fischer Enterprise"), made material misrepresentations and omissions to Plaintiffs to induce them to invest in Byana and Fischer Capital. Compl. ¶¶ 6, 7-10, 47-48. Among these alleged misrepresentations, Mr. Fischer and Mr. Carroll purportedly claimed (1) that "investors in the Derbyshire Project would be fully protected against any losses because the investors owned all of the land related to the Derbyshire Projectthrough their co-investment in Byana"; (2) that "the land related to the Derbyshire Project had been bought through a 'cash purchase' and that the land was owned 'debt-free' and clear of any encumbrances"; (3) that "the value of the property alone would protect [Plaintiffs'] investments" even if the development project collapsed; (4) that "all of the land [depicted as part of the project] was owned by Byana"; and (5) that "the Derbyshire Project was a legitimate land improvement project, and that Defendants were at all times acting in good faith in furtherance of a legitimate investment opportunity." Compl. ¶¶ 5, 9, 47-51. Plaintiffs aver that Mr. Fischer and Mr. Carroll made these misrepresentations knowing they were false. Compl. ¶ 52. Additionally, Mr. Fischer allegedly promised favorable terms to Plaintiffs for the repayment of their debt investment loans, but never intended to repay these loans. Compl. ¶ 10. Consequently, Plaintiffs invested in Byana and Fischer Capital, acting "[i]n reliance upon the above misrepresentations." Compl. ¶ 54.
Although Plaintiffs initially received some interest payments on their loans, Plaintiffs allege that in 2008, Fischer Capital defaulted on its loans, and in 2009, Byana did the same. Compl. ¶ 79. Following these defaults, Mr. Fischer allegedly made numerous false representations to Plaintiffs regarding the success and status of the Derbyshire Project, as well as the financial health of Fischer Capital. Id. Based on these reassurances, Plaintiffs agreed to restructure their loans, which postponed the repayment deadlines until 2010. Compl. ¶¶ 89-91.
However, in 2010, Mr. Fischer informed Plaintiffs that Byana would be unable to continue making interest payments on the loans, because it required immediate capital to pay off a $3.8 million note secured by the property related to the Derbyshire Project. Compl. ¶ 86. Based on further alleged misrepresentations and false reassurances from Mr. Fischer, Plaintiffs agreed to forgo receiving their monthly interest payments under the Byana loan and agreed to consolidate the Fischer Capital loans into a single loan, due on January 1, 2013. Compl. ¶¶ 88-95. At this point,according to Plaintiffs, Fischer Capital had only repaid $50,000 of the principal of Plaintiffs' loans, and $700,000 remained outstanding. Compl. ¶ 93.
On January 1, 2013, Fischer Capital again defaulted on its loans. Compl. ¶ 96. Mr. Fischer allegedly continued to represent that Fischer Capital "was financially healthy while at all times knowing this was not true." Compl. ¶ 97.
On June 22, 2013, Ms. Fagan received a notice from the U.S. Internal Revenue Service (the "IRS") that she would be audited based on her failure to report income from 2011 - $16,877.00 in interest revenue and $23,658.00 in capital gains related to her membership interests in Byana. Compl. ¶¶ 98-99. Ms. Fagan, however, purportedly did not receive any interest payments from Byana in 2011, and had not been apprised of any capital gains. Compl. ¶ 99. Plaintiffs contacted Mr. Fischer and Breitweiser Defendants, as accountants of Byana, to inquire about these discrepancies and request Ms. Fagan's previously unreceived tax documents from Byana for the years 2010, 2011, and 2012. Compl. ¶ 100. Through early 2014, according to Plaintiffs, Mr. Fischer and Breitweiser Defendants refused to provide Plaintiffs with these tax records. Compl. ¶¶ 102-04.
Plaintiffs allege that in 2011, Breitweiser Defendants made fraudulent adjustments to Byana's books and knowingly made false tax statements on behalf of Byana, which ultimately resulted in Ms. Fagan's audit. Compl. ¶¶ 262-64. Plaintiffs rely on an email communication between Mr. Fischer and Mr. Breitweiser, in which Mr. Fischer stated that "Bruce needs to use his 'secret sauce recipe,'" to allege that Breitweiser Defendants regularly falsified Byana's financial records and tax returns. Compl. ¶ 264. Additionally, Plaintiffs allege that Breitweiser Defendants falsely claimed that they were not authorized to provide Plaintiffs with the requested tax records,"despite knowing that [Ms. Fagan] was a member of [Byana] and fully entitled to this information." Compl. ¶¶ 105, 141.
Finally, in mid-2014, Plaintiffs "began to realize that Defendants had worked together in furtherance of a scheme to defraud them out of millions of dollars through misrepresentations and deceit." Compl. ¶ 106. Specifically, in June 2014, Plaintiffs discovered that Byana did not own all of the real estate involved in the Derbyshire Project, but rather Mr. Fischer and his wife, Ms. Fischer, through their control of Bowder, and Mr. Carroll, through his control of Wealth Capital, owned at least 50% of the land related to the Derbyshire Project. Compl. ¶ 107. Additionally, in 2014, Plaintiffs discovered that third parties had brought actions against Mr. Fischer and Private Capital for injuries arising from similar equity and debt investments in other real estate development projects. Compl. ¶ 109.
Consequently, on November 7, 2014, Plaintiffs filed the instant Complaint against Defendants, asserting claims for violations of state and federal RICO statutes, conspiring to commit RICO violations, common law fraud, aiding and abetting common law fraud, equitable fraud, state and federal securities violations, conversion, unjust enrichment, breach of contract, negligent misrepresentation, professional negligence, and breach of fiduciary duty.3 See generally Compl. ¶¶ 123-283. In the instant matter, Breitweiser Defendants...
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