Lewis v. Del. Charter Guarantee & Trust Co.
| Decision Date | 31 March 2015 |
| Docket Number | 14-CV-1779 (KAM) |
| Court | U.S. District Court — Eastern District of New York |
| Parties | KEVIN and SUSAN LEWIS, on behalf of themselves and all others similarly situated, Plaintiffs, v. DELAWARE CHARTER GUARANTEE & TRUST COMPANY d/b/a PRINCIPAL TRUST COMPANY, PRINCIPAL FINANCIAL GROUP, INC., and DAVID LERNER ASSOCIATES, INC., Defendants. |
Putative class plaintiffs Kevin and Susan Lewis ("Plaintiffs") commenced this class action on behalf of themselves and others similarly situated against defendants alleging common law claims of breach of contract, breach of trust, breach of fiduciary duty, negligence, and intentional and negligent misrepresentation. (See generally, Corrected Class Action Complaint ("Complaint" or "Compl."), ECF No. 17.)
Presently before the court are two motions to dismiss by (1) defendant Delaware Charter Guarantee & Trust Company d/b/a Principal Trust Company ("Principal Trust") and (2) defendant David Lerner Associates, Inc. ("DLA") (collectively,the "Defendants").1 (See Def. Delaware Charter Guarantee & Trust Co. d/b/a Principal Trust Co. Mem. of Law in Supp. of Its Mot. to Dismiss ("Principal Trust Mot."), ECF No. 126; Mem. of Law of David Lerner Associates, Inc. in Supp. of Mot. to Dismiss Compl. ("DLA Mot."), ECF No. 117.) For the reasons set forth below, Principal Trust's motion to dismiss the Complaint is granted in part and denied in part. DLA's motion to dismiss the Complaint is granted in its entirety.
On October 2, 2013, Plaintiffs filed a complaint in the United States District Court for the District of Nevada. (See Complaint, ECF No. 1.) Plaintiffs filed an amended complaint on October 30, 2013, which is the operative complaint in this action. (See Compl., ECF No. 17.) On December 20, 2013, DLA moved to transfer the instant case to the United States District Court for the Eastern District of New York. (See Mot. to Transfer, ECF No. 33.) On March 17, 2014, Magistrate Judge George Foley, Jr. granted DLA's motion to transfer.
Plaintiffs are residents of Nevada who entered into Self-Directed Individual Retirement Trust Agreements ("SIRTA") to establish individual retirement accounts ("IRAs") with Principal Trust, a corporation organized under the laws of Delaware with its principal place of business in Wilmington, Delaware. (see Compl. ¶¶ 5-6, 8, 15.) The SIRTAs allegedly are standardized form contracts drafted by Principal Trust. (Id. ¶ 15.) The IRAs are organized under § 408 of the Internal Revenue Code ("IRC"). (Id. ¶¶ 14, 18.)
As part of their IRAs, Plaintiffs directed investment in one or more Apple REITs, including but not limited to, Apple REITs Six, Seven, Eight, Nine, and Ten (collectively, the "Apple REITs").2 (See id. ¶ 15.) Real estate investment trusts ("REITs") are securities that invest in real estate, primarily hotels. (See id. ¶ 16.)
Plaintiffs allege that, pursuant to the SIRTA, Principal Trust had a duty to "render an accounting, valuing the [Apple REITs] at fair market value" within 90 days following the close of each year and to provide such reports as "prescribed by the Commissioner of Internal Revenue". (Id. ¶¶ 22, 33.) Plaintiffs allege that, despite paying "Trustee Fees" to Principal Trust, it "failed to provide the required valuations for many years," and in some years reported "Not Priced" or "Unpriced," and in other years reported the price that investors paid for the Apple REIT units, which did not represent "a current market value." (Id. ¶¶ 19, 25-26.)
Pursuant to the SIRTA, Plaintiffs allege that brokerage accounts for the IRAs were opened with DLA. (Id. ¶ 20.) DLA is a New York corporation with its corporate headquarters in Syosset, New York. (Id. ¶ 9.) Plaintiffs allege that DLA, as the named "Brokerage Firm" in the SIRTA, "is the custodian of Plaintiffs' and the Class Members' IRA trust assets." (Id. ¶ 20.)
Plaintiffs also seek to represent "a class defined as all persons in the United States who invested in any kind of IRA that included the Apple REITs where Principal Trust was the Trustee and the account was opened and maintained by Defendant DLA." (Id. ¶ 34.)
Plaintiffs' Complaint asserts the following claims:
Rule 12(b)(6) provides for the dismissal of a cause of action if plaintiff's complaint fails "to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). In order 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.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To determine whether a complaint states a plausible claim for relief, the Supreme Court has suggested a "'two-pronged approach.'" Hayden v. Paterson, 594F.3d 150, 161 (2d Cir. 2010) (quoting Iqbal, 556 U.S. at 679). First, a court should begin "by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Iqbal, 556 U.S. at 679 (). Second, "[w]hen 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.
The plausibility determination is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. A claim is plausible "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. at 678. The plausibility standard, however, does not require a showing of a "probability" of misconduct, but it does demand more than a "sheer possibility that a defendant has acted unlawfully." Id.
A well-pleaded complaint may survive a motion to dismiss even where "it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely." Twombly, 550 U.S. at 556 (citation and internal quotation marks omitted). This is because the court's function is "not to weigh the evidence that might be presented at trialbut merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985).
In conducting such an assessment on a Rule 12(b)(6) motion to dismiss, courts must "'accept as true all allegations in the complaint and draw all reasonable inferences in favor of the non-moving party.'" Vietnam Ass'n for Victims of Agent Orange v. Dow Chem. Co., 517 F.3d 104, 115 (2d Cir. 2008) (citation omitted); Starr v. Sony BMG Music Entm't, 592 F.3d 314, 321 (2d Cir. 2010). Further, courts may consider "the full text of documents that are quoted in the complaint or documents that the plaintiff either possessed or knew about and relied upon in bringing the suit." Holmes v. Air Line Pilots Ass'n, 745 F. Supp. 2d 176, 193 (E.D.N.Y. 2010) (internal quotations marks omitted). Courts may also "consider matters of which judicial notice may be taken under Fed. R. Evid. 201." Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991).
This liberal pleading standard is modified by Rule 9(b), which requires a plaintiff asserting fraud claims to meet a heightened pleading standard. While Rule 8(a) usually requires only a "short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a), a plaintiff asserting fraud must "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P.9(b). Rule 9(b) is satisfied when the complaint specifies "the time, place, speaker, and content of the alleged misrepresentations;" alleges how the misrepresentations were fraudulent; and provides the details that "'give rise to a strong inference that the defendant[ ] had an intent to defraud, knowledge of the falsity, or a reckless disregard for the truth.'" Cohen v. S.A.C. Trading Corp., 711 F.3d 353, 359 (2d Cir. 2013) (quoting Caputo v. Pfizer, Inc., 267 F.3d 181, 191 (2d Cir. 2001)).
However, under Rule 9(b) "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). Nonetheless, "plaintiff[s] must allege facts that give rise to a strong inference of fraudulent intent." Nakahata v. New York-Presbyterian Healthcare Sys., Inc., 723 F.3d 192, 198 (2d Cir. 2013) (citation omitted); see also Acito v. IMCERA Grp., Inc., 47 F.3d 47, 52 (2d Cir. 1995). The inference of fraudulent intent "may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290-91 (2d Cir. 2006) (citation omitted).
In addition to Defendants' motions to dismiss and Plaintiffs' oppositions thereto, (Pls.' Mem. of Law in Opp. to Principal Trust's Mot. to Dismiss ( ), ECF No. 123; Pls.' Mem. of Law in Opp. to DLA's Mot. to Dismiss ( ), ECF No. 122), the court has also reviewed the exhibits attached to the parties' motions. ...
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