Iseman v. Werner
| Decision Date | 12 August 2020 |
| Docket Number | No. 3:19-CV-365-TRM-DCP,3:19-CV-365-TRM-DCP |
| Parties | ALYSSA ISEMAN and POSITIVELY MEDIEVAL, LLC, Plaintiffs, v. M. JACOB WERNER, Defendant. |
| Court | U.S. District Court — Eastern District of Tennessee |
This case is before the undersigned pursuant to 28 U.S.C. § 636, the Rules of this Court, and Standing Order 13-02. Now before the Court are Plaintiffs' Motion for Leave to Amend Complaint [Doc. 18] and Motion for Leave to Substitute Proposed Amended Pleading [Doc. 20], and Defendant's Motion for Hearing [Doc. 32].
Accordingly, for the reasons stated below, Plaintiffs' Motion for Leave to Amend Complaint [Doc. 18] will be GRANTED, Plaintiffs' Motion for Leave to Substitute Proposed Amended Pleading [Doc. 20] will be GRANTED, and Defendant's Motion for Hearing [Doc. 32] will be DENIED.
On September 20, 2019, Plaintiffs Alyssa Iseman and Positively Medieval, LLC filed their Original Complaint [Doc. 1] against Defendant, alleging causes of action for legal malpractice, breach of fiduciary duty, and negligent misrepresentation. Plaintiffs then filed an Amended Complaint ("First Amended Complaint") [Doc. 10] on October 21, 2019 with the same three causes of action. Defendant filed an Answer [Doc. 11] to the First Amended Complaint on November 4, 2019.
On April 27, 2020, Plaintiffs filed a Motion for Leave to Amend Complaint [Doc. 18], attaching a proposed Second Amended Complaint [Doc. 18-1], which asserted causes of action for legal malpractice, breach of fiduciary duty, negligent misrepresentation, fraud, a violation of the Tennessee Consumer Protection Act ("TCPA"), and conversion. The Court's Scheduling Order [Doc. 16] previously set a deadline of April 27, 2020 for the filing of any motions to amend the pleadings in this case.
Defendant filed his Response [Doc. 19] in opposition to Plaintiffs' motion on May 8, 2020. Defendant claimed that Plaintiffs' proposed TCPA claim was futile, as Plaintiffs did not have a private right of action against him, and thus requested that Plaintiffs' motion be denied with respect to the TCPA claim and corresponding claims for treble damages and attorneys' fees.
However, Plaintiffs also filed a Motion for Leave to Substitute Proposed Amended Pleading [Doc. 20] on May 8, 2020, seeking leave to substitute the proposed Second Amended Complaint ("Substitute Complaint"). The Substitute Complaint alleges causes of action for legal malpractice, breach of fiduciary duty, negligent misrepresentation, fraud, a violation of the Tennessee Consumer Protection Act, and conversion—similar to the Second Amended Complaint—but also asserts federal securities fraud claims and violations of the Tennessee "Blue Sky Law." See [Doc. 20-1].1 Plaintiffs claimed that since the filing of their Motion for Leave to Amend Complaint [Doc. 18], they consulted with an expert in securities law, which led them to believe that they had legitimate causes of action under §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission ("SEC") Rule 10b-5, as well as claims under Tennessee's "Blue Sky" law, Tenn. Code Ann. § 48-1-121(a). [Doc. 20 at 2].
Defendant responded in opposition [Doc. 26], claiming that Plaintiffs' motion [Doc. 20] was an untimely motion to amend, as it was not filed until May 8, 2020, and Plaintiffs have failed to establish good cause to justify their motion. Additionally, Defendant claims that he will be prejudiced by the Substitute Complaint, and that Plaintiffs' motion should be denied with respect to their fraud claims, violation of the TCPA, federal securities fraud, and violation of the Tennessee Blue Sky Law, as these claims are futile.
Plaintiffs subsequently filed a Reply [Doc. 31] on June 15, 2020, claiming that there was only one motion to amend filed because the Court had yet to rule on the initial motion to amend, and thus the Substitute Complaint merely replaces the Second Amended Complaint. Additionally, Plaintiffs claim that they have established good cause to support any amendment, Defendant will not be prejudiced by the filing of the Substitute Complaint, and that Plaintiffs' newly asserted claims are not futile.
Defendant also filed a Motion for Oral Argument [Doc. 32], as well as accompanying Memorandum in Support [Doc. 33]. Defendant asserts that oral argument will assist the Court by allowing Defendant to address "[c]ertain representations and arguments made by the Plaintiffs" in their Reply, including Plaintiffs' failure to address several unresolved legal issues with respect to their common law fraud claim and the basis of Plaintiffs' claim of a "Ponzi scheme." [Id.]. Additionally, Defendant contends that oral argument will "present an in-court speaking opportunity for a young lawyer, Karissa H. Range, Esq., co-counsel of record for Mr. Werner." [Doc. 32].
Plaintiffs respond [Doc. 34] that there is no need for oral argument on the issues "because the parties have fully briefed the matters and further argument would serve no purpose other thanto needlessly increase the expenses of litigation for the parties." [Id. at 1]. Plaintiffs note the extensive briefing on this matter before the Court.
"The decision to allow for oral argument on request of one of the parties is entirely in the Court's discretion." White v. Suarez Corp. Indus., No. 3:15-CV-411-TAV-HBG, 2016 WL 11597921, at *1 n.2 (E.D. Tenn. Nov. 4, 2016) (citing Nam v. U.S. Xpress, Inc., No. 1:11-cv-116, 2012 WL 10161528, at *8 (E.D. Tenn. June 25, 2012)). Here, the Court finds that the parties have briefed the matter in a manner that makes additional argument unnecessary. Additionally, Defendant was granted leave to file excess pages in its response to Plaintiffs' motion. [Doc. 25]. Therefore, because the Court is capable of resolving the matter without a hearing, and in light of Plaintiffs' opposition to the motion, Defendant's Motion for Oral Argument [Doc. 32] will be DENIED.
This action stems from an alleged fraudulent scheme perpetrated upon the Plaintiffs, Alyssa Iseman ("Iseman") and Positively Medieval, LLC, after they entered into an investment opportunity to fund the development of a film/television project. The following factual allegations are taken from Plaintiffs' Substitute Complaint [Doc. 20-1].
Iseman was approached in summer of 2018 by Josh Hodgins ("Hodgins"), an individual who had been involved in financing entertainment industry projects, about a potential investment opportunity. [Id. at ¶ 8]. Iseman participated in a conference call on July 30, 2018 with Hodgins, Gene Francisconi ("Francisconi"), Ryan O'Quinn ("O'Quinn"), and Mike Davis ("Davis"), where she was told about an investment opportunity with a group that was interested in funding film and television projects and was typically involved in multi-million dollar transactions. [Id. at ¶ 8-9]. The Substitute Complaint alleges that Iseman was told that investor's funds would be placed in atrust account of an attorney who would oversee the transaction, that she would have sole signatory access to the account along with Defendant, and that she would receive proof of how the funds were being used. [Id. at ¶ 10].
A second conference call took place on July 30, 2018 with Iseman, Hodgins, Francisconi, O'Quinn, Davis, and Allen Myers ("Myers"), wherein Myers explained the investment opportunity in more detail. [Id. at ¶ 11]. Myers elaborated that the investor's funds would be tied to the purchase of a banking instrument or bond, which would be bundled with other, similar bonds and sold to pre-qualified investors, typically returning three to four times the principal. [Id.]. Additionally, Myers represented that after the bundled bonds were purchased by the pre-qualified buyers, the funds would go into an attorney's trust account and distributed to investors, with a typical turnaround time for repayment of 45-60 days. [Id. at ¶ 12]. A second call also took place on July 30th, where Myers provided information on tax rebates and current rates. [Id. at ¶ 13]. Plaintiffs allege that during these telephone calls, Myers stated that the funds would be deposited into Defendant's trust account, who would represent all investors and oversee the entire transaction on behalf of all parties, and that Defendant was a licensed Tennessee lawyer. [Id. at ¶ 14]. Iseman completed a Client Information Package and Non-Solicitation Agreement to obtain specific information about the transaction, and was told that "first moneys" were needed to pay up-front costs and expenses necessary to cause registration of the bonds, and that the "first moneys" would be transferred into Defendant's escrow account so he could serve as the "paymaster." [Id. at ¶ 15].
Iseman then had several telephone calls with Defendant, where Plaintiffs allege that he "made representations about the legitimacy of the investment opportunity, described how the transaction would work, and described his role." [Id. at ¶ 16]. In particular, Defendant stated that Plaintiffs' funds would be placed into his trust account, as well as that he represented that the fundswould be safe, that he would serve as the paymaster for the distribution of the funds, that the funds would be used for fees and costs, and that all expenditures would be under his supervision. [Id.]. Defendant further represented that the funds would be tracked, that this information would be provided to Iseman, and that she would be given access to the IOLTA account once she deposited the funds into the account. [Id. at ¶ 17].
During a conference call, which included O'Quinn and Iseman, among others, "Defendant confirmed and acknowledged that he was representing the investors (Plaintiffs and Davis) and the film makers (Hodgins and O'Quinn) in the transaction." [Id. at ¶ 18]. Plaintiffs allege that in his conversations with Iseman, Defendant encouraged her to invest and assured her that the transaction, the bank, and the security were all legitimate. [Id. at ¶ 19]. Moreo...
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