Loftin v. QA Investments, LLC
| Decision Date | 01 February 2018 |
| Docket Number | 03 CVS 16882 |
| Citation | 2018 NCBC 11 |
| Parties | PETER T. LOFTIN, Plaintiff, v. QA INVESTMENTS, LLC and QUELLOS GROUP, LLC, Defendants. |
| Court | Superior Court of North Carolina |
The Brocker Law Firm, P.A., by Crystal S. Carlisle and Douglas J Brocker and Eagan Avenatti, LLP, by Michael Avenatti (pro hac vice), for Plaintiff.
Parker Poe Adams & Bernstein, LLP, by William L. Rikard, Jr. Deborah L. Edney, James C. Lesnett, Jr., and Sarah Fulton Hutchins, for Defendants.
James L. Gale Chief Business Court Judge.
1. THIS MATTER is now before the Court on Defendants' Motion for Summary Judgment ("Defendants' Motion") and Plaintiff Peter T. Loftin's Motion for a Rule 56(f) Continuance Regarding Defendant QA's Motion for Summary Judgment ("Plaintiff's Motion") (collectively the "Motions"). For the reasons discussed below the Court GRANTS Defendants' Motion and DENIES Plaintiff's Motion.
2. Plaintiff Peter T. Loftin ("Loftin") brought claims against several defendants arising from their involvement in creating, executing, and selling two tax investment schemes-Foreign Leveraged Investment Program ("FLIP") and Bond Linked Issue Premium Structure ("BLIPS")-which were designed to avoid taxation on income, but resulted in Loftin owing substantial tax deficiencies to the Internal Revenue Service ("IRS").
3. Loftin's only remaining claims are against Defendants QA Investments, LLC and Quellos Group, LLC (collectively, "QA"). QA conducted the investment transactions for FLIP, but not for BLIPS. However, Loftin claims that QA is liable for his losses associated with both transactions because he would not have invested in BLIPS if he had known that FLIP was illegal.
4. After the completion of a nine-month discovery period, QA now moves for summary judgment, contending that Loftin has not put forward sufficient evidence to establish either that Loftin suffered damages or that QA's conduct caused any damage that Loftin suffered. Loftin opposes the motion, contending that the present record is adequate to defeat summary judgment, but, if not, that he is entitled, under Rule 56(f) of the North Carolina Rules of Civil Procedure ("Rule 56(f)"), to a continuance to conduct additional discovery on contested issues raised by Defendants' Motion.
5. The Court concludes, first, that Loftin is not entitled to a Rule 56(f) continuance because he failed to diligently conduct discovery during the nine-month discovery period. The Court then concludes that Loftin has failed to forecast evidence demonstrating that he is entitled to recover damages from QA, which is an essential element of each of his claims; therefore, QA is entitled to judgment as a matter of law and Loftin's Second Amended Complaint must be dismissed with prejudice.
6. Loftin is or was a resident of Wake County, North Carolina.
7. QA Investments, LLC is a Delaware company with its principal place of business in Seattle, Washington. QA Investments was an investment advisor registered under the Investment Advisors Act of 1940, but discontinued its investment advisory services effective April 8, 2000. (Second Am. Compl. ¶ 2, ECF No. 60; Answer Second Am. Compl. ¶ 2, ECF No. 63.)
8. Quellos Group, LLC is a Delaware company with its principal place of business in Seattle, Washington and is the parent of QA Investments.
9. Former defendant, KPMG, LLP ("KPMG") is a Delaware limited-liability partnership headquartered in New York, New York. (Am. Compl. ¶ 2, ECF No. 19.) Loftin settled and voluntarily dismissed his claims against KPMG with prejudice on November 20, 2013. (See Voluntary Dismissal with Prejudice, ECF No. 33.)
10. Former defendant, Wachovia Bank, N.A., the successor of First Union National Bank (collectively, "FUNB"), is a banking corporation with its principal place of business in North Carolina. (Compl. ¶ 3, ECF No. 1.) Loftin settled and voluntarily dismissed his claims against FUNB with prejudice. (Mem. Supp. Defs.' Mot. Summ. J. Ex. 46, at 1-2, ECF No. 92.3.)
11. Former defendant, Sidley Austin Brown & Wood, LLP ("Sidley Austin") is a Delaware limited-liability partnership with its principal place of business in Chicago, Illinois. (Am. Compl. ¶ 7.) Sidley Austin is the successor-in-interest to Brown & Wood, LLP. Loftin settled and voluntarily dismissed his claims against Sidley Austin with prejudice on November 20, 2013. (See Voluntary Dismissal with Prejudice.) The Court has been advised as to the amounts of the confidential settlements with these defendants. Those amounts are not material to the Court's ruling on the Motions.
12. Former defendants, Presidio Growth, LLC and Presidio Advisory Services, LLC (collectively, "Presidio"), are Delaware companies with their primary places of business in San Francisco, California. (Am. Compl. ¶¶ 5-6.) Presidio served as the investment advisor for BLIPS and was named as a defendant in Loftin's initial complaints but then omitted from his Second Amended Complaint. See Loftin v. QA Invs. LLC, No. 03-CVS-16882, 2015 NCBC LEXIS 44, at *3 (N.C. Super. Ct. Apr. 30, 2015); (Second Am. Compl. ¶¶ 1-4.) The record suggests that Presidio is no longer a going concern.
13. Loftin filed his original complaint on December 15, 2003. The case was designated as an exceptional case and assigned to the Honorable Ben F. Tennille on July 25, 2006.
14. On November 8, 2006, Loftin filed his First Amended Complaint, alleging claims against KPMG, Sidley Austin, QA, and Presidio, including civil conspiracy and facilitation of fraud, fraud, negligent misrepresentation, professional negligence, and breach of contract. (Am. Compl. ¶¶ 140-81, 196-211, 216-19.) Loftin omitted his claims against FUNB from the First Amended Complaint because he pursued those claims in arbitration. (See Am. Compl. ¶ 8; Mem. Supp. Defs.' Mot. Summ. J. Ex. 46, at 2-3.)
15. By consent, this case was indefinitely stayed on January 5, 2007, pending resolution of proceedings before the United States Tax Court.
16. Loftin reached settlement agreements with FUNB, effective May 2009, and with KPMG and Sidley Austin, effective November 2013, as a result of which all claims against those parties were dismissed with prejudice. (See Mem. Supp. Defs.' Mot. Summ. J. Ex. 46.)
17. Loftin sought damages from KPMG and Sidley Austin arising from both FLIP and BLIPS. The settlement agreements did not allocate the settlement payments between these claims or provide a basis for doing so. (Aff. Pl. Peter T. Loftin Supp. Pl.'s Opp'n Def. QA's Mot. Summ. J. ("Loftin Aff.") ¶ 43, ECF No. 106.)
18. In 2011, the case was assigned to the undersigned following Judge Tennille's retirement. The case remained stayed.
19. The Court held a status conference on September 19, 2014, after which the stay was lifted at Loftin's request.
20. On October 21, 2014, QA moved to dismiss Loftin's claims of civil conspiracy, fraud, breach of fiduciary duty, constructive fraud, negligent misrepresentation, and unfair or deceptive trade practices ("Chapter 75").
21. On April 30, 2015, the Court dismissed Loftin's negligent misrepresentation and Chapter 75 claims, but allowed Loftin's other claims to proceed. Loftin, 2015 NCBC LEXIS 44, at *35. The Court also granted Loftin leave to amend his complaint. Id.
22. Loftin filed his Second Amended Complaint on May 29, 2015, which omitted the claims against Presidio, leaving QA as the sole defendant. The Second Amended Complaint asserted claims for (1) civil conspiracy and facilitation of fraud, (2) fraud, (3) breach of fiduciary duty, (4) constructive fraud, (5) negligent misrepresentation, and (6) violation of Chapter 75.
23. On July 1, 2015, QA moved to strike Loftin's Chapter 75 and negligent misrepresentation claims based on the Court's earlier rulings. The Court granted the motion on November 10, 2015. (See Order Mot. Strike, ECF No. 68.)
24. Between August 2015 and April 22, 2016, the parties engaged in limited expedited discovery, pursuant to which Loftin provided additional information related to the monies he received as a result of prior settlements related to this action.
25. The parties filed a Joint Case Management Report ("CMR") on March 31, 2016, jointly proposing a nine-month fact discovery period, followed by sixty days to identify experts and make the proper expert disclosures. (Joint Case Management Report ("CMR") 2-3, ECF No. 77.). The parties were unable to agree on the number of depositions that should be allowed or number of experts each party should be permitted, but otherwise agreed on the discovery schedule. (CMR 2.) Absent an agreement by the parties or order by the Court, the General Rules of Practice and Procedure for the North Carolina Business Court ("Business Court Rules") provide that each party is permitted to take twelve fact depositions. See N.C. Bus. Ct. R. 18.2 (2006); see also N.C. Bus. Ct. R. 10.4(c) (2017).
26. The Court held a Case Management Conference on April 21, 2016, and entered a Case Management Order on April 22, 2016, which adopted the CMR with a few specified exceptions, which are not material to this Order & Opinion. (See Case Management Order, ECF No. 79.) The parties were then free to take discovery, including depositions. To avoid any doubt, when deferring its ruling on whether the parties would be permitted to take more depositions than permitted by the Business Court Rules, the Court advised that "[t]he parties [were] free to commence discovery." (Case Management Order ¶ 3.)
27. The Court held status conferences with the parties on August 22 2016, December 21, 2016, and March 8, 2017. During...
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