JRS Partners, GP v. Leech Tishman Fuscaldo & Lampl, LLC
| Decision Date | 15 July 2022 |
| Docket Number | 3:19-cv-00469 |
| Court | U.S. District Court — Middle District of Tennessee |
| Parties | JRS PARTNERS, GP, et al., Plaintiffs, v. LEECH TISHMAN FUSCALDO & LAMPL, LLC, et al., Defendants. |
Pending before the Court is Defendant Brett Mankey's Motion to Dismiss (Doc. No. 95), supported by a Memorandum in Support (Doc. No. 96). Also pending before the Court is Defendant Leech Tishman Fuscalo & Lampl, LLC's Second Motion to Dismiss (Doc. No. 97), supported by a Memorandum in Support (Doc. No. 98). Plaintiffs filed an omnibus response to both motions (Doc. No. 99, “Response”), and each Defendant filed a respective reply (Doc. Nos. 100, 101). For the following reasons, each of the motions (Doc. Nos. 95, 97) will be GRANTED in part and DENIED in part.
This case is one of several lawsuits arising from a complicated Ponzi scheme through which Chris Warren and others perpetrated securities fraud via their promotion and sales of (purported) securities in two purported-but entirely fictitious-investment funds run by Warren and a company called Clean Energy Advisors (“CEA”). In this action, Plaintiffs have sued Brett Mankey, an attorney who was formerly a partner with the law firm of Leech Tishman Fuscaldo & Lampl (“Leech Tishman”) in Philadelphia Pennsylvania, as well as Leech Tishman. Plaintiffs assert claims for negligent and fraudulent misrepresentations, civil conspiracy, legal malpractice, and (against Leech Tishman only) negligent retention and supervision. The case was filed in this Court pursuant to 28 U.S.C. § 1332 (diversity jurisdiction). (Doc. No. 1 at 5).
Plaintiffs allege that Defendants made certain misrepresentations to Plaintiffs in connection with Plaintiffs' investments in two of the fictitious investment funds, specifically the Utility Solar Fund IV (“Solar IV”) and the CEA Utility Income Fund (“UIF”) (together, “the Funds”). Plaintiffs contend that prior to making their investments in the Funds, they spoke with Mankey, who represented CEA and the Funds, to confirm that the Funds were legitimate and valid investments. Plaintiffs assert that Mankey falsely represented that (1) the Funds were in fact legitimate, (2) the Funds' operations were up and running, (3) the Funds were insured through various insurance policies, and (4) Plaintiffs could recognize certain tax benefits from investments in the Funds. (Id. at 3). In truth, Plaintiffs allege, Defendants “had no idea if the statements they made to Plaintiffs were accurate and were relying solely on the unchecked representations of the mastermind of the scheme.” (Id. at 1). Plaintiffs contend that they relied on Mankey's misrepresentations and, had Defendants “told Plaintiffs the truth,” Plaintiffs never would have invested in the Funds. (Id.).
On October 2, 2020, the Court denied Mankey's Motion to Dismiss (asserting a lack of personal jurisdiction) and granted in part and denied in part Leech Tishman's Motion to Dismiss. The Court dismissed Plaintiffs' claims against Leech Tishman (and also against Mankey, sua sponte) for legal malpractice and civil conspiracy. JRS Partners, GP v. Leech Tishman Fuscaldo & Lampl, LLC, No. 3:19-CV-00469, 2020 WL 5877131 (M.D. Tenn. Oct. 2, 2020), reconsideration denied, No. 3:19-CV-00469, 2021 WL 2021436 (M.D. Tenn. May 20, 2021). On May 20, 2021, the Court denied Plaintiffs' motion to reconsider its October 2, 2020 order. (Doc. No. 90). On May 17, 2021, with leave of the Court,[1] Plaintiffs filed an Amended Complaint, which asserted two new claims of securities fraud violations, re-asserted the conspiracy claim that the Court had previously dismissed on Defendants' first Rule 12(b)(6) motions, and included its other state law claims that were included in its original complaint and had not been dismissed on the Rule 12(b)(6) motions. (Doc. No. 88). Thus, Plaintiffs' Amended Complaint contains the following claims:
For purposes of a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court must take all of the factual allegations in the complaint as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Id. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Id. When there are well- pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Id. at 679. A legal conclusion, including one couched as a factual allegation, need not be accepted as true on a motion to dismiss, nor are mere recitations of the elements of a cause of action sufficient. Id.; Fritz v. Charter Twp. of Comstock, 592 F.3d 718, 722 (6th Cir. 2010), cited in Abriq v. Hall, 295 F.Supp.3d 874, 877 (M.D. Tenn. 2018). Moreover, factual allegations that are merely consistent with the defendant's liability do not satisfy the claimant's burden, as mere consistency does not establish plausibility of entitlement to relief even if it supports the possibility of relief. Iqbal, 556 U.S. at 678.
In determining whether a complaint is sufficient under the standards of Iqbal and its predecessor and complementary case, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), it may be appropriate to “begin [the] analysis by identifying the allegations in the complaint that are not entitled to the assumption of truth.” Iqbal, 556 U.S. at 680. This can be crucial, as no such allegations count toward the plaintiff's goal of reaching plausibility of relief. To reiterate, such allegations include “bare assertions,” formulaic recitation of the elements, and “conclusory” or “bold” allegations. Id. at 681. The question is whether the remaining allegations-factual allegations, i.e., allegations of factual matter-plausibly suggest an entitlement to relief. Id. If not, the pleading fails to meet the standard of Federal Rule of Civil Procedure 8 and thus must be dismissed pursuant to Rule 12(b)(6). Id. at 683.
As a general rule, matters outside the pleadings may not be considered in ruling on a motion to dismiss under Rule 12(b)(6) unless the motion is converted to one for summary judgment under Rule 56. Fed.R.Civ.P. 12(d). When a document is referred to in the pleadings and is integral to the claims, it may be considered without converting a motion to dismiss into one for summary judgment. Doe v. Ohio State Univ., 219 F.Supp.3d 645, 652-53 (S.D. Ohio 2016); Blanch v. Trans Union, LLC, 333 F.Supp.3d 789, 791-92 (M.D. Tenn. 2018).
On a Rule 12(b)(6) motion to dismiss, “[t]he moving party has the burden of proving that no claim exists.” Total Benefits Plan. Agency, Inc. v. Anthem Blue Cross and Blue Shield, 552 F.3d 430, 433 (6th Cir. 2008). That is not to say that the movant has some evidentiary burden; as should be clear from the discussion above, evidence (as opposed to allegations as construed in light of any allowable matters outside the pleadings) is not involved on a Rule 12(b)(6) motion. The movant's burden, rather, is a burden of explanation; since the movant is the one seeking dismissal, it is the one that bears the burden of explaining-with whatever degree of thoroughness is required under the circumstances-why dismissal is appropriate for failure to state a claim.
In Plaintiffs' Amended Complaint, Plaintiffs assert for the first time two federal securities fraud claims against both Defendants: violation of Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j, and Rule 10b-5 (Count I), and violation of Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t (Count II). Each Defendant argues that these claims are time- barred by both the relevant statute of limitations and the statute of repose. (Doc. No. 96 at 15; Doc. No. 98 at 10-11).[2] Leech Tishman additionally argues that Plaintiffs fail to adequately plead each element of these claims.
In the past, the undersigned has noted that “[s]tatutes of limitations are distinct from statutes of repose.”[4] Eli J. Richardson, Eliminating the Limitations of Limitations Law, 29 Ariz. St. L.J. 1015 1018 (1997). And he has offered the following general, if not comprehensive, explanation of the distinction between the two: ...
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