The opinion of the court was delivered by: Hochberg, District Judge:
This matter comes before the Court on several Defendants' Motions to Dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).*fn1 The Court has reviewed the parties' submissions pursuant to Federal Rule of Civil Procedure 78.
This action is brought by Rondell and Zonovia White and Cornelius Floyd. Both Rondell White and Cornelius Floyd are professional baseball players.
I. THE PURCHASE OF THE HACKENSACK PROPERTY On October 17, 2005, Defendant Partners Investment Properties, LLC*fn3 ("PIP") entered into an agreement to purchase a seven acre parcel of property along the Hackensack River in Hackensack, New Jersey (the "Hackensack Property"), planning to develop the property for residential use.
In February of 2007, PIP entered into a joint venture with Defendant
K&K 320 River Street, LLC -- owned by individual Defendants David
Koenig, Edward Koenig and Jeffrey Koenig -- to form Defendant River
Street Project LLC. The Koenig Defendants and Defendant Kevin
Schmidt*fn4 are the managing members of the River
Street Project. The River Street Project is housed within the offices
of Defendant Kolinsky Hill Financial Group. The principals of Kolinsky
Hill are Defendants Steven Kolinsky and Stephen Hill,*fn5
both registered securities brokers.*fn6
On February 28, 2007, the purchase agreement for the Hackensack Property was assigned to the River Street Project.
Plaintiffs allege "upon information and belief," that the River Street Project "and/or one or more of the Defendants" incurred $750,000 in site planning and development costs and in expenditures related to effectuating the purchase agreement.*fn7 Plaintiffs further claim that before any documents were drafted in order to raise additional capital for the development of the Hackensack Property, Defendants had incurred $2,500,000 in costs and fees.
On August 1, 2007, the River Street Project filed an application with the City of Hackensack Planning Board to permit a variance that would allow for construction of low-rise apartment buildings on the Hackensack Property. The Planning Board met on September 10, 2007 but deferred decision on the application to permit the River Street Project to cure various deficiencies. Plaintiffs allege that the Planning Board considered the application on three occasions following that meeting and each time found that the deficiencies had not been cured.*fn8
II. THE SECURITIES OFFERING
Plaintiffs allege that Defendants -- concerned that they would not secure financing or the requisite Planning Board approvals to develop the proposed apartment buildings on the Hackensack Property -- "entered upon a plan, scheme, arrangement and agreement, to raise additional capital from one or more third parties, including Plaintiffs" in order to finance the full purchase and ultimate development of the property.*fn9 Plaintiffs claim that the Defendants planned to solicit investments from clients of Kolinsky Hill who "were not sophisticated and knowledgeable investors" and who relied on Kolinsky Hill for financial advice.*fn10
In mid-October 2007, the Hackensack Park Plaza LLC was formed in order to raise capital in a private securities offering (the "Offering"). Hackensack Park Plaza offered Plaintiffs the right to purchase up to $5,000,000 of Class B Non-Voting Limited Liability Company Units. In conjunction with this sale, Plaintiffs allege that Defendants prepared a "Private Offering Memorandum"*fn11 (the "POM").
III. FALSE STATEMENTS AND OMISSIONS Plaintiffs allege that Hill individually and Kolinsky Hill as an entity urged them to purchase shares in the offering, despite Hill's knowledge that they were unsophisticated investors seeking stable, long term investment strategies. Plaintiffs plead that in order to entice them to invest, Defendants "made intentionally incorrect and misleading statements and omissions with respect to the Offering...."*fn12
A. The Whites' Investment
The Complaint alleges that in a November 2007 telephone call, Hill assured Rondell White that the "deal was virtually certain to result in the full return and repayment of his money, plus very substantial profits."*fn13
In a later meeting with White, Hill allegedly described the deal as a
"slam dunk" and told the Whites that investing in the Offering was
consistent with their risk averse investment approach.*fn14
He also reiterated his guarantee that the Whites would get
their full investment back, in addition to a substantial return. Hill
further indicated that he and his partners were purchasing the
Hackensack Property for substantially less than the amount for which
it had been appraised and that the investment involved "no risk"
because he and his partners had a firm contract with a buyer and would
"flip" the Hackensack Property almost immediately after closing.
The Whites also claim that Hill presented them with a largely blank Subscription Agreement and told them he would fill in the details later. The Whites allege that Hill failed to indicate in the Agreement that they were being advised by an Investment Representative in order to distance himself from any liability.
Nevertheless, on November 15, 2007, the Whites executed a Subscription Agreement to purchase $1,000,000 of Class B Non-Voting Limited Liability Company Units.
The Complaint alleges that Hill first consulted Floyd about a
potential investment in the Hackensack Property in June 2006. At that
time, he told Floyd the deal was a "slam dunk"
involving "no risk at all."*fn15 Hill also told Floyd
that the transaction was a "quick flip" and that he and his partners
had a buyer lined up to purchase Hackensack Property.*fn16
Hill promised Floyd that he would get his money back in six
months and would make a substantial additional profit.
Hill reiterated these assurances to Floyd at June and October 2007 meetings and in subsequent phone calls.
On November 15, 2007, Floyd executed a Subscription Agreement to purchase $1,250,000 of Class B Non-Voting Limited Liability Company Units.
Plaintiffs allege that Defendants made several omissions in enticing them to invest in the Offering.
Plaintiffs claim that they were never given a copy of the appraisal done of the Hackensack Property,*fn17 nor shown photographs of the Property or drawings of potential development on the Property. Plaintiffs further allege that Defendants should have indicated that the Hackensack Property was troubled from the outset insofar as it was close to a jail and a homeless shelter, had a history of pollution problems and had remained undeveloped for more than twenty years.
Plaintiffs also cite a series of omissions with regard to the health of Defendants' investment in the Hackensack Property. They claim they should have been told that at the time they invested, all potential purchasers of the Property had withdrawn from discussions, and Defendants did not have sufficient capital to develop the Property themselves, nor had they received Planning Board approval to do so. Plaintiffs allege that they were never told any of the details of the agreement to purchase the Hackensack Property, including that PIP had only made an initial deposit, so additional payments were required to effect the purchase. The Complaint also alleges that at the time of Plaintiffs' investment, the Hackensack Property had materially depreciated in value, creating a substantial risk of ...