Hutton v. Deutsche Bank Ag

• Decision Date: 24 March 2008
• Docket Number: No. 07-2041-JTM.,07-2041-JTM.
• Citation: 541 F.Supp.2d 1166
• Parties: Mark BUTTON and Clear Meadow Investment LLC, Plaintiffs, v. DEUTSCHE BANK AG, et al., Defendants.
• Court: U.S. District Court — District of Kansas

541 F.Supp.2d 1166

Mark BUTTON and Clear Meadow Investment LLC, Plaintiffs, v. DEUTSCHE BANK AG, et al., Defendants.

No. 07-2041-JTM.

United States District Court, D. Kansas.

March 24, 2008.

Francis J. Casey Flynn, Jeffrey J. Lowe, Jeffrey J. Lowe, PC, St. Louis, MO, Stephen M. Gorny, Bartimus, Frickleton, Robertson, & Gorny, P.C., Leawood, KS, for Plaintiff.

Francis P. Greene, Nelson A. Boxer, Alston & Bird LLP, New York, NY, Joselyn R. Treadway Verschelden, Lawrence A. Rouse, Rouse Hendricks German May PC, Kansas City, MO, for Defendants.

MEMORANDUM ORDER

J. THOMAS MARTEN, District Judge.

Presently before the court are defendants Deutsche Bank AG and Deutsche Bank Securities, Inc's (Deutsche Bank) motion to dismiss plaintiffs' class action complaint (Dkt. No. 10), defendant Clarion Capital Partners', LLC (Clarion) motion to dismiss plaintiffs' class action complaint, or in the alternative, for a more definite statement (Dkt. No. 17), and defendant Société Générale's (SG) motion to dismiss (Dkt. No 48). For the following reasons, the court grants the motions.

I. Legal Standard

Dismissal of a cause of action for failure to state a claim is appropriate only where it appears beyond a doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle him to relief, or where an issue of law is dispositive. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Fuller v. Norton, 86 F.3d 1016, 1020 (10th Cir.1996). The pleadings are liberally construed, and all reasonable inferences are viewed in favor of the plaintiff. Fuller, 86 F.3d at 1020. All well-pleaded facts, as distinguished from conclusory allegations, must be taken as true. Jojola v. Chavez, 55 F.3d 488, 494 n. 8 (10th Cir.1995). When resolving a motion to dismiss, the issue is not whether the plaintiffs will ultimately prevail, but instead is whether the plaintiffs are entitled to offer evidence to support the claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974).

II. Facts

On January 23, 2007, Mark Hutton (Hutton) and Clear Meadow Investment LLC (Clear Meadow) initiated this class action. Defendants Deutsche Bank and Clarion separately filed motions to dismiss (Dkt. No. 10 and 17) which this court granted, in part, due to lack of response (Dkt. No. 28). After the dismissal, plaintiff Hutton filed a motion for reconsideration of the court's order (Dkt. No. 30), which was granted by this court (Dkt. No. 32). Accordingly, this court will now consider the defendants' motions, as well as SG's later filed motion to dismiss, on the merits.

Plaintiffs are Hutton, an individual, and Clear Meadow, his affiliated entity. Hutton is the owner of a construction company based in Wichita, Kansas who, according to the complaint, was advised by defendant Daniel Brooks, Jr., that Hutton could potentially earn a substantial rate of return by investing in the foreign currency markets. Hutton took that advice and implemented the foreign currency market-linked deposit strategy (MLD strategy) in late 2001. At some unspecified date after being introduced to the MLD strategy by Brooks, Hutton formed plaintiff Clear Meadow, which is wholly owned by Hutton and treated for federal tax purposes as a disregarded entity. Ultimately, Hutton suffered a loss on his 2001 tax returns, and was later audited by the Internal Revenue Service (IRS) and Kansas tax authorities. Hutton brings this action on behalf of himself and a putative class seeking to recover losses allegedly arising from "over 19 tax strategies that the federal government has found to be unregistered tax shelters," including the MLD Strategy implemented by Hutton, that has now been challenged by the IRS and state taxing authorities.

Hutton claims, among other things, that he was misled by his attorneys and other advisors who introduced him to and advised him regarding the MLD strategy, and by Deutsche Bank and the other defendants. In the amended complaint, plaintiffs assert the following claims against all of the defendants: (1) violations of state deceptive trade practices acts and the Racketeer Influenced and Corrupt Organizations Act (RICO); (2) breach of fiduciary duty; (3) inducing breach of fiduciary duty; (4) fraud; (5) negligent misrepresentation; (6) civil conspiracy; (7) restitution or recoupment of unethical, excessive, illegal and unreasonable fees and unjust enrichment; and (8) declaratory relief.

III. Analysis

Plaintiffs executed an account agreement with Deutsche Bank as part of the MLD strategy, which contained a New York choice of law clause. (Dkt. No. 11, Exhibit 2). Kansas courts generally give effect to contractual choice of law provisions if the forum selected bears a reasonable relation to the contract at issue. See, e.g. Abbott v. Chem. Trust, No 01-2049, 2001 WL 492388, at *5 (D.Kan. Apr.26, 2001) (applying the law designated in the choice of law provision to both contract and tort claims). Accordingly, New York law governs plaintiffs' substantive claims. Nevertheless, a federal court exercising diversity jurisdiction applies the statute of limitations of the forum state, even when the action is brought under the law of another state. See, e.g., Dow Chem. Corp. v. Weevil-Cide Co., 897 F.2d 481, 483-84 (10th Cir.1990); Bagby v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 104 F.Supp.2d 1294, 1297 (D.Kan.2000). Thus, although New York substantive law governs plaintiffs' common law claims, Kansas law provides the statute of limitation for these claims.

Kansas law provides a two-year statute of limitations for fraud and tort claims, including plaintiffs' claims for breach of fiduciary duty, inducing breach of fiduciary duty, fraud, negligent misrepresentation and conspiracy. See Kan. Stat. Ann. §§ 60-513(a)(3)-(4); see also Bagby v. Merrill Lynch, 104 F.Supp.2d 1294, 1298-99 (D.Kan.2000) (breach of fiduciary duty and fraud); Phillips USA Inc. v. Allflex USA Inc., 869 F.Supp. 842, 850-54 (D.Kan.1994) (inducing breach of fiduciary duty); Roof-Techs Int'l, Inc. v. Kansas, 30 Kan.App.2d 1184, 57 P.3d 538, 545-46 (2002) (negligent misrepresentation); Masters v. Daniel Int'l Corp., No. 87-1290, 1992 WL 405307, at *3 (D.Kan. Dec.3, 1992) (civil conspiracy). Kansas law provides a three-year limitations period for claims of unjust enrichment and KCPA violations. See 475342 Alberta, Ltd. v. Starfire, Civ. A. No. 95-2083, 1996 WL 370221, at *9 (D.Kan. June 19, 1996) (unjust enrichment); Roy v. Young, 278 Kan. 244, 93 P.3d 712, 715 (2004) ("Actions for violations of the KCPA are governed by [Kan. Stat. Ann. § 60-512(2)], the 3-year statute of limitations."). A four-year statute of limitations governs plaintiffs' RICO claims. See Cory v. Aztec Steel Bldg., Inc., 468 F.3d 1226, 1234 (10th Cir.2006).

Under Kansas law, the statute of limitations begins to run when the claim accrues, which for certain tort claims occurs when:

the act giving rise to the cause of action first causes substantial injury, or, if the fact of the injury is not reasonably ascertainable until some time after the initial act, then the period of limitation shall not commence until the fact of the injury becomes reasonable ascertainable to the injured party ...

Kan. Stat. Ann. § 60-513(b). The term "substantial injury" is not intended to imply that the plaintiff must have knowledge of the full extent of his injuries before the statute of limitations begins; rather, a plaintiff simply must have "sufficient ascertainable injury to justify an action for recovery of the damages." Rigby v. Clinical Reference Lab., Inc., 995 F.Supp. 1217, 1222 (D.Kan.1998) (quoting Roe v. Diefendorf, 236 Kan. 218, 689 P.2d 855 (1984)).

For purposes of commencing the statute of limitations running, the fact of injury becomes reasonable ascertainable either when the alleged tortious conduct has first caused substantial injury or at the point when the plaintiff either knew or reasonable should have ascertained that the alleged tortious conduct caused plaintiff to be injured. Id. (citing Kan. Stat. Ann. § 60-513(b)). In determining the date upon which an injury is reasonable ascertainable, a court must "invoke an objective standard based on an examination of all the surrounding circumstances." Id. Further, "Kansas law does not require that the plaintiff have ironclad actual knowledge about his injury, but rather he have such notice as would permit him to discover the injury with the use of due diligence. `Reasonably ascertainable' does not mean `actual knowledge.'" Austin v. U.S. Bank, Nat'l Ass'n., No. 03^130, 2006 WL 980739, at *11 (D.Kan. Jan.25, 2006).

Deutsche Bank's¹ motion asserts multiple arguments, including that all of plaintiffs' RICO and common law claims are barred by the applicable statute of limitations. Deutsche Bank argues that the alleged wrongdoing and the plaintiffs' purported injuries became "reasonably ascertainable" through a reasonable investigation of publicly available information by January 14, 2002, at the latest, which is the date when the IRS published the disclosure initiative. Plaintiffs' actual knowledge regarding the IRS disclosure initiative is irrelevant, Deutsche Bank argues, because public documents and other publicly available information are sufficient to put a plaintiff on notice and commence the running of the statute of limitations. See, e.g., Kan. Pub. Employees Ret. Sys. v. Blaekwell, Sanders, Matheny, Weary, & Lombardi, L.C., 114 F.3d 679, 689 (8th Cir.1997) (applying Kansas statute of limitations and finding that "public statements" including news articles, "were enough to put [the plaintiffs] on notice" of their injury); Brueck v. Krings, 230 Kan. 466, 638 P.2d 904, 908 (1982) (fact of injury reasonable ascertainable from press reports). Accordingly, Deutsche Bank asserts that even the claim with the longest statute of limitations, the four-year RICO claim, is time barred because the limitations period expired no later...