Ivar v. Elk River Partners LLC

Decision Date30 March 2010
Docket NumberCivil Action No. 09-cv-00453-CMA-CBS.
Citation705 F.Supp.2d 1220
PartiesAlan C. IVAR, an individual, Deborah L. Ivar, an individual, and Clifford A. Bernstein, an individual, Plaintiffs,v.ELK RIVER PARTNERS, LLC, a Georgia limited liability company, DMB Realty LLC, a Delaware limited liability company, d/b/a Marabou Realty, Jeffrey Temple, an individual, John Hillenbrand, an individual, M & I Marshall and Ilsley Bank, a Wisconsin Corporation, and Does 1-100, Defendants.
CourtU.S. District Court — District of Colorado

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Jay B. Freedman, Michael B. McClellan, Newmeyer & Dillion, LLP, Newport Beach, CA, for Plaintiffs.

William Pope Langdale, III, Langdale Vallotton, LLP, Valdosta, GA, Laura E. Sixkiller, E. Jeffrey Walsh, Greenberg Traurig, LLP, Phoenix, AZ, Mark Brian Wiletsky, Timothy Mark Rastello, Holland & Hart, LLP, Boulder, CO, Jeffrey Max Lippa, Greenberg Traurig, LLP, Denver, CO, Jon A.C. Vonderhaar, Smith Dollar, PC, Santa Rosa, CA, for Defendants.

ORDER REGARDING MOTIONS TO DISMISS

CHRISTINE M. ARGUELLO, District Judge.

This matter is before the Court on Defendants' Motion to Dismiss (Doc. # 14) and Defendant M & I Bank's Motion to Dismiss on Additional Grounds (Doc. # 15). This lawsuit stems from Plaintiffs Alan C. and Deborah Ivar and Clifford A. Bernstein's purchase of undeveloped lots in a subdivision of Steamboat Springs, Colorado. Plaintiffs contend that the sellers, Defendants Elk River Partners, LLC, DMB Realty LLC, Jeffrey Temple, and John Hillenbrand, and the bank that offered financing in connection with the purchase, Defendant M & I Bank, concocted a scheme to fraudulently inflate the value of these properties. Plaintiffs assert a host of federal and state law claims based on this conduct, each of which Defendants move to dismiss.

I. BACKGROUND
A. FACTS

For purposes of the motions, all well-pleaded facts in the amended complaint are assumed to be true, and all reasonable inferences therefrom are drawn in the light most favorable to Plaintiffs.

Defendants Elk River, DMB Realty, Temple, and Hillenbrand (the “Seller Defendants) are in the business of developing and selling expensive lots in a subdivision of Steamboat Springs, Colorado, known as Marabou Ranch. (Doc. # 10 ¶ 18.) Initial buyers of these lots were given purchase incentives, meaning they ended up paying far less than the listed sales price. ( Id. ¶¶ 19, 22.) However, in order to boost the perceived value of the remaining properties, Seller Defendants publicly recorded the lots' pre-incentive prices rather than the lower, actual sales prices. ( Id. ¶¶ 19, 25.) These recorded prices were $270,000 to $1,000,000 higher than what the buyers paid for the lots. ( Id. ¶ 25.)

Plaintiffs were identified as potential investors in Marabou Ranch. ( Id. ¶ 20.) Seller Defendants flew them to Steamboat Springs via private jet, providing luxury accommodations while they contemplated a purchase. ( Id. ¶ 21.) Seller Defendants told Plaintiffs that the lots they were considering contained a million dollars of “built in equity” as a result of the special, one-time “founder's prices” Plaintiffs would be receiving. ( Id. ¶ 22.) Seller Defendants failed to mention that all previous purchasers received similar financial discounts. ( Id.)

While in Steamboat Springs, Plaintiffs asked about the prior sales prices of comparable lots. ( Id. ¶ 23.) In response, Seller Defendants disclosed the publicly recorded gross sales prices-not disclosing that these prices were inflated by several hundred thousand dollars over the actual amounts paid by previous buyers. ( Id.) Indeed, when Defendant Hillenbrand was asked about the price of his property, he represented that he bought the lot for $2,000,000 when, in actuality, he paid half a million less. ( Id. ¶ 24.) These misrepresentations were part of the arrangement to mislead Plaintiffs into thinking the lots were worth substantially more than they in fact were. ( Id. ¶ 25.)

Plaintiffs were also told, on numerous occasions, that their lots would appraise at the publicly recorded gross sales price rather than the discounted price they would be paying. ( Id. ¶ 32.) These assertions seemed to corroborate the promises that the properties contained significant built in equity. ( Id.) To prevent discovery of the fraud, Seller Defendants intentionally withheld the property appraisals, knowing that they would undermine Seller Defendants' statements about equity and value. ( Id.)

Not content to keep their scheme internal, Seller Defendants conspired with Defendant M & I Bank, whose officers were acquaintances of theirs. ( Id. ¶ 28.) Plaintiffs were referred to M & I as a potential source of financing. ( Id.) M & I's vice president, John Hicks, repeatedly told Plaintiffs that, if and when they wanted to build on the Marabou Ranch lots, the bank would provide construction financing based on the publicly recorded value of the lots rather than the actual price paid. ( Id.) These representations further convinced Plaintiffs that the lots were worth the recorded price. ( Id.)

Given Defendants' sales pitch, Plaintiffs decided to invest. ( Id. ¶¶ 29, 31, 35.) On January 30, 2007, the Ivars signed a purchase agreement for lot F7, paying $2,920,000. ( Id. ¶ 29.) Consistent with their plan, Seller Defendants recorded the sales price as $3,650,000. ( Id.) Similarly, on March 3, Mr. Bernstein purchased lot G3 for a price of $3,040,000. ( Id. ¶ 30.) The sales price of the lot was recorded as $3,800,000. Some time after these purchases, Plaintiffs discovered that the lots had appraised for “significantly less” than the recorded value, notwithstanding Defendants' earlier representations. ( Id. ¶ 33.) This lawsuit followed.

B. PROCEDURAL HISTORY

Plaintiffs initially sued only Seller Defendants, asserting federal law claims for violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), the Interstate Land Sales Full Disclosure Act, and the Securities Act of 1933, and state law claims for fraudulent misrepresentation, negligent misrepresentation, and violation of the Colorado Consumer Protection Act. (Doc. # 1.) Several weeks later, and before any defendant had answered, Plaintiffs filed an amended complaint adding M & I Bank as a party. (Doc. # 10.)

Defendants collectively moved to dismiss the claims against them. (Doc. # 14.) Defendant M & I Bank also filed a separate motion to dismiss, asserting arguments particular to it. (Doc. # 15.) While these motions were pending, and prompted by M & I Bank's initiation of foreclosure proceedings, the Ivars moved for a preliminary injunction against M & I Bank. (Doc. # 46.) After full briefing and a hearing, the Court denied the motion. As the Court understands it, the foreclosure proceeded as scheduled.

On December 2, 2009, the Court held a hearing on the motions to dismiss. At that hearing, Plaintiffs conceded that their Securities Act claim was barred by the Tenth Circuit's decision in Woodward v. Terracor, 574 F.2d 1023 (10th Cir.1978). The Court took the remaining claims under advisement, and now issues its ruling.

II. STANDARD OF REVIEW

The Federal Rules of Civil Procedure provide that a defendant may move to dismiss a claim for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir.2003) (citations and quotation marks omitted). A court reviewing the sufficiency of a complaint presumes that the factual allegations are true and construes them in the light most favorable to the plaintiff. Hall v. Bellmon, 935 F.2d 1106, 1109 (10th Cir.1991).

The Supreme Court recently retired “the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), abrogated by Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In Twombly and, more recently, Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the Court “prescribed a new inquiry for [courts] to use in reviewing a dismissal: whether the complaint contains ‘enough facts to state a claim to relief that is plausible on its face.’ Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.2007) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). “The Court explained that a plaintiff must ‘nudge his claims across the line from conceivable to plausible’ in order to survive a motion to dismiss.” Id. (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955) (alterations omitted). “Thus, the mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.” Id. (emphasis in original).

While courts must still assume the truth of factual allegations, and may not dismiss a complaint “even if it strikes a savvy judge that actual proof of those facts is improbable,” Twombly, 550 U.S. at 556, 127 S.Ct. 1955, the Supreme Court made clear that the focus under Rule 12(b)(6) is on the well-pleaded facts. [T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 129 S.Ct. at 1940. Moreover, [a] pleading that offers ‘labels and conclusions' or a formulaic recitation of...

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