Slainte Invs. Ltd. P'ship v. Jeffrey

• Decision Date: 03 November 2015
• Docket Number: 3:14-cv-01750 (CSH)
• Citation: 142 F.Supp.3d 239
• Court: U.S. District Court — District of Connecticut
• Parties: Slainte Investments Limited Partnership, Plaintiff, v. John B. Jeffrey a/k/a Tucker Jeffrey, Defendant.

142 F.Supp.3d 239

Slainte Investments Limited Partnership, Plaintiff,

v.John B. Jeffrey a/k/a Tucker Jeffrey, Defendant.

3:14-cv-01750 (CSH)

United States District Court, D. Connecticut.

Signed November 3, 2015

J. Christopher Rooney, Carmody Torrance Sandak & Hennessey, LLP, New Haven, CT, Liam S. Burke, Carmody Torrance Sandak & Hennessey, LLP, Stamford, CT, for Plaintiff.

Craig A. Raabe, James Nault, Robinson & Cole, LLP, Hartford, CT, Meredith C. Braxton, Greenwich, CT, for Defendant.

RULING ON MOTION TO DISMISS

HAIGHT, Senior District Judge:

Plaintiff Slainte Investments Limited Partnership ("Slainte Investments" or "Slainte") a Texas limited partnership investing funds on behalf of its founder and manager Douglas Mueller, brings this diversity action to recover damages in connection with $719,500 it invested with Defendant John B. Jeffrey between April 24, 2008 and December 2011. Plaintiff's claims all arise under a common theme: Defendant fraudulently induced its investments through an elaborate "pyramid scheme" in which he diverted investors' funds for his personal use to fund a lavish lifestyle.

Defendant moved to dismiss the entirety of Plaintiff's amended complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing that most of the claims are barred by the applicable statute of limitations (or repose), and that certain claims are otherwise inadequately pled to state a claim upon which relief can be granted. Doc. 26. Plaintiff has filed an opposition [Doc. 31], and Defendant has elected not to file a reply. This Ruling resolves the Motion.

I. Background

The following facts are derived from Plaintiff's Amended Complaint [Doc. 17], and are accepted as true solely for the purposes of resolution of the instant motion.

At some point prior to 2008, Mueller became socially acquainted with Jeffrey through mutual friends in New Canaan, Connecticut. Am. Compl. [Doc. 17], ¶ 5. Jeffrey was the founder and Chief Executive Officer of Industrial Shipping Enterprises Management Co., LLC—a shipping company that Jeffrey registered as a foreign LLC doing business in Stamford, Connecticut—and "gave the appearance of being a successful businessman." Id. ¶¶ 5, 53. In conversations with Mueller, Jeffrey represented that he "had a successful career in the business of owning and managing a fleet of ships and shipping contracts for cargo carriers internationally." Id. ¶ 5. Jeffrey "had been involved for at least the last ten years in the trade or business of national and international shipping of goods via ocean going vessels." Id. ¶ 53.

However, by 2008 the situation was not as favorable as Jeffrey portrayed. "Jeffrey had sold most of the ships that comprised the fleet of Industrial Shipping" in 2005, and, by 2008, Jeffrey actually "had no source of income" and was in "dire financial straits." Id. ¶ 6.

Notwithstanding these reversals, Jeffrey "continued to maintain the presence around New Canaan and Stamford of being a successful business man [sic ]." Id. ¶ 6. To continue to finance his lavish tastes, Jeffrey concocted the "elaborate but fraudulent scheme" that is at the center of the instant litigation. Id. His plan was to solicit investments from his friends and neighbors that he would purport to use to "purchase ships and/or shipping contracts" for the benefit of the investors, but that he would actually use to fund his expensive lifestyle. Id. To do so, Jeffrey claimed to have established two entities for which he sought investments: Anchor Shipping & Trading LLC ("AS&T") and Southern Cross Shipping Inc. ("Southern Cross"). AS&T was to be an LLC registered in the Marshall Islands whose business was "the operation of ‘conbulkers' (i.e., cargo ships capable of handling both containerized cargo and bulk cargo) to take advantage of the spread between voyage charter business and time charter business." Id. ¶¶ 7, 9. Southern Cross was also purported to be a Marshall Islands LLC, and was set up, at least in part, to make "use [of] a deep water port in the Southeast United States." Id. ¶¶ 22-23. In reality, these entities either never existed or were dissolved, but, in either case, were doing "no legitimate business." Id. ¶¶ 11, 26 ("In actuality, neither company existed outside of the misleading documents Jeffrey gave the investors and in reality both were the alter ego of John Jeffrey").

Initially, Jeffrey solicited investments through in person meetings and over the phone, and, "in or around 2008," began to specifically target Mueller. Id. ¶ 7. Apparently intrigued by the opportunity Jeffrey presented but unsatisfied by his oral presentations, Mueller requested written materials further describing the investment opportunity and its potential return. Id. "At some point in 2008," Jeffrey provided Mueller a private placement memorandum ("PPM"), dated March 19, 2008, prepared by Jeffrey in relation to AS&T. Id. The PPM identified Jeffrey as AS&T's Managing Director and described the company's business function—the operation of "conbulkers."

Id. ¶¶ 8, 9. At some point shortly thereafter, Jeffrey sent Mueller a "Stock Purchase Agreement" dated April 2008 ("SPA"), which asserted that "AS&T was duly organized, validly existing and in good standing under the laws of the Marshall Islands.¹ " Id. ¶ 11.

Unbeknownst to Mueller at the time, the representations in the PPM and SPA regarding AS&T were all false, and the documents were created to conceal Jeffrey's fraudulent scheme. Id. ¶ 12. For example, Jeffrey chose the name "Anchor Shipping and Trading LLC" because it closely resembled a similarly-named legitimate business, and he named as "Participants" in AS&T four managers from that similarly-named company who had no connection to or knowledge of AS&T. Id. ¶ 13. This was done to shield Jeffrey's fraud from due diligence efforts of the investors he was deceiving. Id.

"Based upon [Jeffrey's] initial verbal representations and the information contained in the [PPM], [SPA] and on the information Jeffrey transmitted to him personally," Mueller directed Slainte Investments to make its first investment of $150,000 in AS&T on April 24, 2008. Id. ¶ 15. Rather than invest any of this money, however, Jeffrey appropriated it all for his personal use, including making payments on his home mortgage and paying " for club memberships, school tuition and other family expenses." Id. ¶ 16.

A year later, Jeffrey required additional funds to cover his personal expenses and set out to fraudulently obtain more funds from his "investors." Id. ¶ 18. On May 10, 2009, he drafted a letter claiming that AS&T had made $1,800,000 in profits and that the investors' shares were being reinvested. Id. In actuality, however, the company had not made any profits. Id. "These new misstatements of fact were made not only to defraud and mislead Slainte Investments and other investors into giving [Jeffrey] even more money but to assure through additional acts of frauds that he concealed the fact that the original investment was now appropriated to the defendant's ongoing criminal enterprise." Id.

Around this same time, in May 2009, Jeffrey began soliciting Mueller to invest in his other company, Southern Cross, which involved a "pattern of deceptions and structure of ... investment [that] mirrored that of AS&T." Id. ¶ 22. Jeffrey prepared a Stock Purchase Agreement and Stockholders Agreement, which contained similarly misrepresented information as the PPM and SPA for AS&T. Id. ¶ 23. "Based upon the documents that Jeffrey had presented, the May 10 letter announcing $1.8 million in profits in AS&T and the verbal information Jeffrey provided previously," Slainte Investments made its first investment in Southern Cross of $200,000 on May 11, 2009. Id. ¶ 24. This money was similarly diverted to Jeffrey's personal use. Id. Slainte invested another $40,000 in Southern Cross on June 19, 2009. Id. Sometime in the fall of 2009, Slainte Investments then invested another $119,500 in AS&T. Id. ¶ 20. The following year, Jeffrey solicited more funds from Slainte Investments, which made its third and final investment into Southern Cross of $110,000 on June 14, 2010. Id. ¶ 25. Finally, in December 2011, Jeffrey again contacted Mueller, and solicited a $100,000 investment into AS&T, the third and final investment into that entity, and the last investment with Jeffrey. Id. ¶ 21.

In total, Plaintiff made six investments with Jeffrey between April 24, 2008 and December 2011, amounting to $719,500 ($369,500 in AS&T, and $350,00 in Southern Cross² ). Plaintiff's investments with Jeffrey are identified in the table below:

While Plaintiff's money was invested with Jeffrey, Jeffrey "concealed the fraudulent nature of the investment by telling further lies." Id. ¶ 33. Between 2009 and 2013, "Mr. Mueller regularly communicated with Jeffrey in phone and in person and each time Jeffrey assured Mr. Mueller that his investments were safe and profitable." Id. ¶ 19. In fact,

[d]uring the period between the initial investment in 2008 and Slainte's final investment in December 2011, Jeffrey concealed the true circumstances, which was that the money was being used for Jeffrey's personal expenses and not for investment purposes, by various means, including but not limited to written documents such as private placement memoranda and subscription agreements that were completely untrue but intended to create a false sense that the investments were legitimate for purposes of concealing the fraud; verbal and written reports that the investments were not only being used for their intended purposes but that they were generating a profit and promises that investors would soon see a return on their investments also for purposes of concealing the fraud. Even after Slainte's final investment in 2011, Mr. Mueller regularly communicated with Jeffrey either by phone or in person and each time Jeffrey assured Mr. Mueller that his investments were safe and profitable.

Id. ¶ 27. Throughout this time, Jeffrey told Mueller "that there...