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Gordon v. Dailey

United States District Court, D. New Jersey

March 27, 2018

BRANDON GORDON, et al., Plaintiffs,
v.
ZACHARY DAILEY and LAB RAT DATA PROCESSING, LLC., Defendants.

          OPINION

          Hon. Joseph H. Rodriguez, United States District Judge.

         This matter is before the Court on Defendant's Motion to Dismiss the Second Amended Complaint [Dkt. No. 126]. The Court has considered the written submissions of the parties pursuant to Fed.R.Civ.P. 78 (b). For the reasons that follow, Defendant's motion is denied.

         I. Background

         Plaintiffs Brandon Gordon, Curtis Green, Jakub Vondrak, Jesse Lobb, Derek Piper, Christopher Galido, Mark Boehler, Merlin Fisher-Levine, Nathanael Flachsbart, and Russ Henderson bring this action against Defendant Zachary Dailey (“Defendant”) for claims arising out of Defendant's sale of alleged securities, in the form of bonds issued by administratively terminated Defendant Lab Rat Data Processing, LLC.[1]Investment in the bonds allowed Plaintiff Brandon Gordon (“Plaintiff”) to participate in a Bitcoin related initial public offering. The Bonds purchased by Plaintiff are attached to the Second Amended Complaint.

         The Second Amended Complaint, like its predecessors, alleges violations Section 12(a)(1) and 12(a)(2) of the Securities Act of 1933 (The 1933 Act), 15 U.S.C. § 77l and Section 10(b) of the Securities Exchange Act of 1934 (The 1934 Act), and Rule 10b-5 promulgated thereunder, codified at 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5, for Defendant's misrepresentations in connection with the sale of the Bonds. These are the only federal claims plead. The remainder of the claims assert violations of New Jersey and Florida state laws, arising out of the same operative facts as the federal claims set forth above, for violations of the New Jersey Uniform Securities Law, N.J. Stat. Ann. §§ 49:3-47, et. seq. and violations of the Florida Securities and Investor Protection Act, Fla. Stat. § 517.301, common law fraud, negligent misrepresentations, fraudulent inducement, breach of contract, and unjust enrichment.

         In support of the motion to dismiss, Defendant reargues some of the points already addressed in the previous motion to dismiss and in opposition of the motion to amend. In short, Defendant claims that the Second Amended Complaint should be dismissed for the following reasons: 1) Plaintiff has failed to plead a claim under Section 10 (b) of the Securities Act of 1934; 2) the Complaint fails to plead facts that support any claim; 3) the Complaint fails to state a claim under state law; 4) the Complaint fails to state a claim of common law fraud pursuant to Fed.R.Civ.P. 9 (b); 5) Plaintiff's fraud, negligent representation and unjust enrichment claims are barred by the economic loss doctrine; 6) the Complaint fails to state a claim for unjust enrichment and/or breach of contract; and 7) Counts XXI through XXIII should be dismissed based upon Plaintiff's voluntary dismissal of these claims.[2]

         II. Standard of Review

         A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) may involve either a facial challenge to subject matter jurisdiction or a factual challenge to the jurisdictional allegations. Gould Elec., 220 F.3d at 176. If the defendant's attack is facial-i.e., “asserting that the complaint, on its face, does not allege sufficient grounds to establish subject matter jurisdiction”-a court must accept all allegations in the complaint as true. Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006). Alternatively, a defendant may “challenge a federal court's jurisdiction by factually attacking the plaintiff's jurisdictional allegations as set forth in the complaint.” Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). A factual challenge attacks the existence of a court's subject matter jurisdiction apart from any of the pleadings and, when considering such a challenge, a presumption of truthfulness does not attach to a plaintiff's allegations.” Id.; see also Martinez v. U.S. Post Office, 875 F.Supp. 1067, 1070 (D.N.J. 1995).

         Alternatively, Federal Rule of Civil Procedure 12(b)(6) allows a party to move for dismissal of a claim based on “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A complaint should be dismissed pursuant to Rule 12(b)(6) if the alleged facts, taken as true, fail to state a claim. Fed.R.Civ.P. 12(b)(6). When deciding a motion to dismiss pursuant to Rule 12(b)(6), ordinarily only the allegations in the complaint, matters of public record, orders, and exhibits attached to the complaint, are taken into consideration.[3] See Chester County Intermediate Unit v. Pa. Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990). It is not necessary for the plaintiff to plead evidence. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977). The question before the Court is not whether the plaintiff will ultimately prevail. Watson v. Abington Twp., 478 F.3d 144, 150 (2007). Instead, the Court simply asks whether the plaintiff has articulated “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

         “A claim has facial plausibility[4] when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). “Where 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.” Iqbal, 556 U.S. at 679.

         The Court need not accept “‘unsupported conclusions and unwarranted inferences, '” Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir. 2007) (citation omitted), however, and “[l]egal conclusions made in the guise of factual allegations . . . are given no presumption of truthfulness.” Wyeth v. Ranbaxy Labs., Ltd., 448 F.Supp.2d 607, 609 (D.N.J. 2006) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)); see also Kanter v. Barella, 489 F.3d 170, 177 (3d Cir. 2007) (quoting Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005) (“[A] court need not credit either ‘bald assertions' or ‘legal conclusions' in a complaint when deciding a motion to dismiss.”)). Accord Iqbal, 556 U.S. at 678-80 (finding that pleadings that are no more than conclusions are not entitled to the assumption of truth). Further, although “detailed factual allegations” are not necessary, “a plaintiff's obligation to provide the ‘grounds' of his ‘entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do.” Twombly, 550 U.S. at 555 (internal citations omitted). See also Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”).

         Thus, a motion to dismiss should be granted unless the plaintiff's factual allegations are “enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true (even if doubtful in fact).” Twombly, 550 U.S. at 556. “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘shown'-‘that the pleader is entitled to relief.'” Iqbal, 556 U.S. at 679.

         Further, Rule 9(b) provides that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). Pursuant to Rule 9(b), a plaintiff must plead “with particularity ‘the circumstances of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior.' ” Lum v. Bank of Am., 361 F.3d 217, 223-24 (3d Cir. 2004) (quoting Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984)).

         There are two ways to satisfy the particularity requirement. See Lum, 361 F.3d at 224. First, a plaintiff may plead the “date, place or time” of the fraudulent act. Id. (quoting Seville, 742 F.2d at 791) (internal quotations omitted) (emphasis added). Second, a plaintiff may use “alternative means [to] inject [ ] some measure of substantiation into their allegations of fraud.” Id. (internal quotations omitted). Still, the plaintiff must plead enough to substantiate the allegations of fraud being made and may not rely on “conclusory statements.” NN & R, Inc. v. One Beacon Ins. Group, 362 F.Supp.2d 514, 518 (D.N.J. 2005) (quoting Mordini v. Viking Freight, Inc., 92 F.Supp.2d 378, 385 (D.N.J. 1999)). At a minimum, a plaintiff “must allege who made a misrepresentation to whom and the general content of the misrepresentation.” Lum, 361 F.3d at 224. Significantly, the heightened pleading standard required by Rule 9(b) applies to claims of fraud brought under New Jersey law. Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007).

         III. Analysis

         As a preliminary matter, the Court will not consider the large declaration Defendant appends to his motion to dismiss. Given the posture of the Court under Fed.R.Civ.P. 12 (b) (6), only the allegations in the complaint, matters of public record, orders, and exhibits attached to the complaint, are taken into consideration. See Chester County Intermediate Unit v. Pa. Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990); see also U.S. Express Lines, Ltd. v. Higgins, 281 F.3d 383, 388 (3d Cir. 2002) (“Although a district court may not consider matters extraneous to the pleadings, a document integral to or explicitly relied upon in the complaint may be considered without converting the motion to dismiss into one for summary judgment.”) (internal quotation marks and citations omitted) (emphasis deleted). The Court finds that Defendant's motion asks the Court to consider evidence not properly before the Court in this posture.

         In the Court's Opinion granting Plaintiffs' Motion to Amend, the Court found that the proposed Second Amended Complaint addressed concerns raised with respect to jurisdiction and permitted the amendment because the proposed, now operative, Second Amended Complaint was not futile. The Court will address Defendant's arguments as follows.

         1. Plaintiffs have plead a claim under Section 10 (b) of the Securities Act of 1934 and the motion to dismiss Counts V-VI is denied.

         Section 10(b) of the Securities Exchange Act prohibits the use of “any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe ....” 15 U.S.C. § 78j(b). The SEC has in turn promulgated Rule 10b-5, which makes it unlawful for any person to “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were ...


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