Opinion
CASE NO. 8:09-CV-551-T-17EAJ.
March 21, 2011
ORDER
This cause is before the Court on:
Dkt. 152 Motion to Dismiss Second Amended Complaint Dkt. 166 Response The Second Amended Complaint (Dkt. 148) is a multi-count, multi-defendant complaint. Plaintiff BCJJ, LLC ("BCJJ") has asserted the following counts against Defendant M I Marshall Ilsley Bank ("M I"):Fla Stat Count II Sec. 10(b), Rule 10b-5 Count III Ch. 517.301, . . Count IV Fraudulent Inducement Count V Negligent Misrepresentation Count VI Aiding and Abetting FraudI. Background
On April 3, 2006, Plaintiff BCJJ entered into a Contract for Purchase and Sale with Bayonne Development, LLC for the purchase of Unit 241 in Grande Bay Condominium. On March 15, 2007, Defendant LeFevre approached William Turkish and Jason Turkish to inquire whether BCJJ was interested in investing $400,000 in Bayonne Investments, LLC, owner of the Commercial Property next to the Waterfront Property on which Grande Bay Condominiums were planned. Defendant LeFevre represented that Bayonne Investments, LLC owned the Commercial Property, was in default on its mortgage, and required a cash infusion to refinance. (Dkt. 148, par. 19). Plaintiff declined, due to the state of the first mortgage on the Commercial Property. (Dkt. 148, par. 20). On March 24, 2007, Thomas LeFevre, accompanied by Evan Berlin, approached William Turkish, managing member of BCJJ, LLC to inquire whether BCJJ would make a $400,000 investment in Bayonne Investments, LLC in exchange for additional security and an upgrade to a more expensive condominium unit in Grande Bay Condominium. Based on the representations of Defendant Lefevre and Defendant Berlin, Plaintiff BCJJ agreed to the investment proposal (Dkt. 148, par. 21). Defendants LeFevre, LeFevre Trust and Berlin Law Firm also provided a balance sheet showing the total liabilities and equity in Bayonne Investments, LLC as of March 27, 2007, and an appraisal of the Commercial Property dated November 10, 2006, directed to M I Bank, the mortgage holder. On March 27, 2007, Plaintiff BCJJ, LLC closed on this investment transaction, in which Plaintiff invested $400,000 in Bayonne Investments, LLC through his purchase of seven Investment Units in Bayonne Investments, LLC. As security for the investment, BCJJ was provided with an upgrade to a more expensive unit in Grande Bay Condominium. In the event the condominium upgrade did not come to fruition, and as an alternative security for BCJJ's investment, BCJJ was provided with membership units in TT, LLC and GLRS, LLC, both of which owned other real estate in Sarasota, FL., to secure the repayment of $400,000 to Plaintiff. Upon consummation of the investment transaction, the funds from BCJJ were wired from the Berlin Law Office's trust account to Defendant M I, the owner and holder of the mortgage on Bayonne Investments, LLC's development site, the Commercial Property.Plaintiff BCJJ alleges that Plaintiff later learned that the appraisal provided to Plaintiff was substantially inflated, due to the restrictions of the Joint Development Agreement, which burdened the Commercial Property and the Waterfront Property, and which was superior to the mortgage of Defendant M I. (Dkt. 148, par. 26). Plaintiff further alleges that, prior to BCJJ's investment of $400,000, Karen Wild, of M I Bank, assured Plaintiff that $400,000 would successfully capitalize the refinancing of the Commercial Property. (Dkt. 148, par. 27).
Plaintiff BCJJ, LLC alleges that in April, 2008, Plaintiff learned from Evan Berlin that the investment transaction was a deliberately orchestrated sham, in that LeFevre and LeFevre Trust were never authorized to pledge their membership units in GLRS, and the conditions required by TT's operating agreement were never satisfied. The security pledged to Plaintiff BCJJ as consideration for BCJJ's investment in Bayonne Investments, LLC was completely defective, resulting in an a completely unsecured obligation to BCJJ by LeFevre and LeFevre Trust.
The Court previously granted in part and denied in part Defendant M I's Motion to Dismiss (Dkt. 136), after which Plaintiff filed the Second Amended Complaint. The subject appraisal (Dkt. 148-10) is attached to the Second Amended Complaint, along with other documents relevant to the transaction.
II. Standard of Review
III. Discussion A. Count II — Section 10(b), Rule 10b-5
8Bell Atlantic v. Twombly 550 U.S. 544555Id. Id. Twombly Id. Id. See Ashcroft v. Iqbal129 S.Ct. 19371955-1956Bell Atlantic v. Twombly550 U.S. 544
Defendant M I Marshall Ilsley Bank moves for dismissal of the Second Amended Complaint as to M I with prejudice.
Plaintiff BCJJ opposes Defendant M I's Motion. Plaintiff argues that Plaintiff has included allegations that Defendant M I actively solicited Plaintiff's investment, and disclosed the substance of the alleged false appraisal in the conference call which took place prior to the closing of Plaintiff's transaction with Bayonne Investments, LLC.
A securities fraud claim under Section 10(b) and Rule 10b-5 includes the following elements: 1) a material misrepresentation or omission; 2) made with scienter; 3) a connection with the purchase or sale of a security; 4) reliance on the misstatement or omission; 5) economic loss and 6) a causal connection between the material misrepresentation or omission and the loss. . . .Instituto de Prevision Militar v. Merrill Lynch, 546 F.3d 1340, 1352 (11th Cir. 2008).
In the Second Amended Complaint, Plaintiff BCJJ summarizes the specific misrepresentations made to Plaintiff in paragraphs 29-35. Plaintiff alleges that Defendant M I falsely represented the value of the property owned by Bayonne Investments, LLC by presenting BCJJ with an appraisal which failed to account for substantial private restrictions arising from a Joint Development Agreement on the Commercial Property in favor of the adjoining Waterfront Property. Plaintiff alleges that Defendant M I commissioned the appraisal. Plaintiff further alleges that the substance of the appraisal was provided to Plaintiff in a conference call which took place between March 15, and March 27, 2007, in which Karen Wild, representative of M I, Evan Berlin, Tom LeFevre and Jason Turkish, on behalf of Plaintiff, participated. Plaintiff further alleges that the discussion centered on how much money Bayonne Investments, LLC owed on its mortgage on the Commercial Property, the balance of the mortgage relative to the value of the property, and the requirements of M I to recapitalize the loan. Plaintiff alleges that Karen Wild, Tom LeFevre and Evan Berlin told Jason Turkish that Tom LeFevre had already negotiated a mortgage modification on behalf of Bayonne Investments, LLC, and M I required an additional $400,000 to recapitalize the loan. Plaintiff further alleges that Karen Wild, Tom LeFevre and Evan Berlin knew that the appraisal did not account for the Joint Development Agreement but did not disclose that fact to Jason Turkish. Plaintiff alleges that Defendant LeFevre provided the appraisal to Plaintiff.
1. Scienter
Plaintiff's claim is based on the alleged false appraisal and the direct assurance that $400,000 would successfully recapitalize the mortgage loan. Plaintiff BCJJ alleges that Defendant M I knew the misrepresentations were false when made, or was reckless in not recognizing that the appraisal was false. Severe recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it. Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1284 (11th Cir. 1999).
To determine a motion to dismiss for failure to allege facts which give rise to a strong inference of scienter, the Court considers whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter i.e. the intent to deceive, defraud or manipulate, or severe recklessness. The Court must consider plausible nonculpable explanations for the defendant's conduct, as well as inferences favoring the plaintiff. When the allegations are accepted as true and taken collectively, the Court must determine whether a reasonable person would deem the inference of scienter at least as strong as any opposing inference. See Mizzaro v. Home Depot, 544 F.3d 1230, 1238-39 (11th Cir. 2008). Scienter must be found with respect to each defendant, and with respect to each alleged violation or the statute. Phillips v. Scientific-Atlanta, Inc., 374 F.3d 1015, 1017-18 (11th Cir. 2004).
Defendant M I had a commercial lending relationship with Defendant Bayonne Investments, LLC; Defendant M I held the mortgage on the Commercial Property. While lending procedures may vary among lenders, the core basics are the same. When a lending institution lends money in a mortgage transaction, the lender typically obtains an appraisal. The appraisal is for the benefit of the lender. The purpose of the appraisal is to reduce the lender's risk associated with the loan; the appraisal provides an objective opinion of the value of the collateral. In the event of default, the loan documents typically provide that the lender can foreclose and sell the property to recover its loan.
Defendant M I's conduct as to Bayonne Investments, LLC, owner of the Commercial Property, is subject to statutory and common law, the loan documents for the transaction, and requirements of banking industry custom. The appraisal report states that it is made in compliance with the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Institute, that it is a self-contained appraisal, and "[t]he purpose of this report is to estimate the market value of the subject property for underwriting a mortgage loan." The Court notes that the appraisal report is dated November 10, 2006; the appraisal was commissioned in connection with Defendant M I's loan to Bayonne Investments, LLC at that time. The appraisal was obtained months before any investment proposal was made to Plaintiff BCJJ in March, 2007. Assuming that Defendant M I disclosed the substance of the appraisal to Plaintiff BCJJ in March, 2007, Defendant M I disclosed what Defendant M I relied on in proceeding with the loan transaction with Bayonne Investments, LLC.
In the Second Amended Complaint, Plaintiff BCJJ alleges that Defendant LeFevre told Plaintiff BCJJ that the mortgage on the Commercial Property was in default on March 15, 2007, when Defendant LeFevre first inquired about an investment of $400,000 from Plaintiff BCJJ. Plaintiff BCJJ declined at that time. Defendant LeFevre and Defendant Berlin approached Plaintiff BCJJ again on March 24, 2007, with a different proposal, which Plaintiff accepted. Something changed Plaintiff's decision to invest in Bayonne Investments, LLC between March 15, 2007 and March 24, 2007. However, Plaintiff knew on March 15, 2007 that the mortgage on the Commercial Property was in default and Defendant was seeking a cash infusion of $400,000 to refinance.
In ruling on a motion to dismiss, the Court accepts the truth of all well-pleaded factual allegations. In the Second Amended Complaint, Plaintiff BCJJ does not allege that appraisal was disclosed in contemplation of a transaction between Defendant M I and Plaintiff BCJJ, nor does Plaintiff BCJJ allege that Defendant M I knew the terms of Defendant Bayonne Investment, LLC's offer to Plaintiff BCJJ in exchange for Plaintiff's investment of $400,000 in Defendant Bayonne Investments, LLC. Plaintiff does not allege that there was any discussion during the conference call of any proposed sale of securities to Plaintiff, or that Defendant M I advised Plaintiff to make an investment; the subject of the discussion was the mortgage on the Commercial Property, the balance of the mortgage relative to the value of the Commercial Property, and Defendant M I's requirements to recapitalize the loan. The appraisal report looked back to November, 2006 and revealed what Defendant M I relied on in its lending decision. Assuming that Defendant's representative, Karen Wild, directly assured Plaintiff that $400,000 would successfully capitalize the refinancing of the mortgage on the Commercial Property at some time before March 27, 2007, the closing date, Plaintiff already knew that the mortgage was in default and that Defendant Lefevre sought $400,000 to refinance on March 15, 2007. Any assurance offered by Karen Wild that $400,000 would successfully capitalize the refinancing of the mortgage on the Commercial Property was not new information. However, Plaintiff had declined the first investment proposal while Plaintiff had knowledge of the default and the amount required to refinance. Plaintiff accepted the investment proposal only when a different proposal was made. In the Second Amended Complaint, Plaintiff BCJJ does not allege that the loan on the Commercial Property was not refinanced. Plaintiff alleges that, after Plaintiff closed on the transaction, the funds were later transmitted to Defendant M I Bank. The Court does not understand how Karen Wild's assurance that $400,000 would successfully recapitalize Defendant M I's loan to Bayonne Investments, LLC is a misrepresentation.
The Court notes that Plaintiff BCJJ alleges that Defendant M I knew that the March 27, 2007 balance sheet provided to Plaintiff BCJJ grossly understated the liabilities of Bayonne Investment, LLC (Dkt. 148, par. 91). However, Plaintiff BCJJ makes no factual allegations of any participation by Defendant M I in the closing of the transaction between Plaintiff BCJJ and Defendant Bayonne Investments, LLC, other than the telephone conference involving the amount of money Bayonne Investments, LLC owed on its mortgage, the balance of the mortgage relative to the value of the property, and Defendant M I's requirements to recapitalize the loan. Even if Defendant M I had such knowledge, it does not transform the arms-length relationship between Defendant M I, Defendant Bayonne Investments, LLC and Plaintiff BCJJ into something other than an arms-length relationship. Defendant M I's lending relationship with Bayonne Investments, LLC was established before Defendant Lefevre made any proposal to Plaintiff, and the topics discussed in the conference call are typical of those within the lending relationship.
After considering all the facts alleged in the Second Amended Complaint, the Court concludes that a reasonable person would not deem the inference of scienter to be as strong as other, nonculpable explanations.
2. Loss Causation
Defendant M I argues that Plaintiff's allegations as to loss causation are insufficient.
Plaintiff BCJJ argues that Plaintiff's factual allegations as to loss causation are sufficient, in reliance on In Re PSS World Medical, Inc. Securities Litigation, 250 F.Supp.2d 1335, 1343 (M.D. Fla. 2003).
In In Re PSS World Medical, Inc., the plaintiffs contended that they adequately pleaded "loss causation" by alleging that as a result of the defendants' fraudulent statements of inaccurate facts, the market price of PSSI stock was artificially inflated during the Class Period, ultimately causing the plaintiffs' injury. In the plaintiffs' view, the fact that the stock price was artificially inflated on the date they purchased the stock established loss causation for the purposes of ruling on a motion to dismiss, since the truth regarding PSSI's financial reports would have resulted in a proper valuation of their investment. Plaintiffs contended that they properly alleged facts demonstrating an intentional or at least severely reckless course of conduct by defendants that inflated the value of PSSI' stock, leading ultimately to the termination of the Fisher merger, the firing of top company officers, and the restatement of previously misrepresented earnings, ultimately reflected in the marketplace. The Court concluded that the complaint adequately alleged loss causation, in that the complaint alleged that, as a result of defendant's misrepresentations and omissions that concealed Well-Care's true financial condition and its failure to comply with applicable laws and regulations, the Company's stock was artificially inflated during the Class Period until the truth about Well Care was revealed. After the truth was revealed, the stock dropped from $122 per share on October 23, 2007 to $42.67 per share on October 25, 2007. The Court further stated that loss causation is a fact-based inquiry that is generally not proper to resolve in a motion to dismiss. In Re PSS World Medical, Inc. Securities Litigation at 1351.
To succeed in a Rule 10b-5 fraud claim, a plaintiff must prove that the defendant's false statement caused his injury. In a securities fraud case, this requires a showing of transaction causation and loss causation. Transaction causation is established when the misrepresentations or omissions cause the plaintiff to engage in the transaction in question. Loss causation requires a plaintiff to show that the misrepresentation or omission was in some reasonably direct or proximate way responsible for his loss. The complaint must allege facts which demonstrate that the defendant's actions were a "significant contributing cause" to the plaintiff's loss. Robbins v. Kroger Properties, Inc., 116 F.3d 1441, 1447 (11th Cir. 1997). It would be insufficient to plead only that a company's stock price at the time of purchase was inflated because of a defendant's misrepresentation. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 335, 340 (2005). A securities fraud plaintiff must allege facts sufficient to put the defendant on notice of the causal connection between the defendant's misrepresentation and the plaintiff's loss. In Re Coca-Cola Enterprises, Inc. Securities Litigation, 510 F.Supp.2d 1187, 1202-1204 (N.D. Ga. 2007).
In this case, Plaintiff BCJJ has alleged transaction causation. In par. 71, Plaintiff alleges:
71. Each of the misrepresentations by Defendants has caused loss and damage to BCJJ. In particular, the investment units purchased in BI by BCJJ have been rendered much less valuable. The obligation to repay $400,000 to BCJJ as triggered under the terms of the Unit Upgrade Agreement is now unsecured because — and contrary to Defendants' misrepresentations-there was never authority to pledge the membership units in TT and GLRS as security to BCJJ. Further, the Investment Units owned by BCJJ in BI are much less valuable because liabilities of BI are 1.2 million greater than what was originally represented to BCJJ and the property owned by BI is diminished owing to the private restrictions on the Commercial Property that were never accounted for by the appraisal. Also, the misrepresentations, including the false appraisal, caused loss to BCJJ because the appraisal, pledge of membership units, and inflated balance sheet were material to BCJJ's decision to make the investment. Without these misrepresentations, BCJJ would not have made the investment, which resulted in a loss of $400,000 to BCJJ.
Plaintiff BCJJ alleges that the value of the Commercial Property was diminished by "private restrictions." However, the Joint Development Agreement was recorded in October, 2005. While the Agreement was between two limited liability corporations, the Agreement was a public document. In a transaction involving publicly traded stock, the market for the stock sets the price; when unfavorable, secret information is released to the public, the share price may fall. In this case, the "unfavorable information" was available to the public. Plaintiff BCJJ does not allege that Defendant somehow prevented Plaintiff BCJJ from obtaining that document. It is difficult to understand how information that was available to the public before an appraisal of real property was performed could cause the value of the real property to be artificially inflated, and then later diminished. The information was not held back from the marketplace, allowing an appraiser to place an inflated value on the subject real property. Defendant M I relied on the same appraisal in its November 2006 transaction with Bayonne Investments, LLC on which Plaintiff BCJJ allegedly relied in Plaintiff's March, 2007 transaction.
There is no allegation that Defendant M I knew the terms of Defendant Lefevre's offer to Plaintiff BCJJ to invest in Bayonne Investments, LLC. The amount Defendant M I required to recapitalize the loan was set according to the terms of the loan, Defendant's loan procedures, or banking industry practices, within the scope of Defendant M I's arms-length lending relationship with Defendant Bayonne Investments, LLC, not with reference to the pricing of the investment units offered to Plaintiff. Plaintiff's allegation that the provisions of a publicly-recorded document diminished the value of the property which secured Defendant M I's loan to Bayonne Investments, LLC is a conclusory allegation which the Court does not accept as true.
Plaintiff's allegations do not establish a strong inference of scienter, and Plaintiff has not made sufficient allegations as to loss causation. The Court grants Defendant M I's Motion to Dismiss with prejudice as to Count II.
B. Count III — Ch. 517.301, Fla. Stat.
The Court previously granted dismissal of the claim under Ch. 517.301, Fla. Stat. based on the absence of allegations as to the circumstances under which the appraisal was provided to Plaintiff, and any conduct that would take the relationship between Plaintiff BCJJ and Defendant M I beyond an arms-length transaction.
Defendant M I moves for dismissal with prejudice because Plaintiff does not allege that Defendant M I was a seller of securities and because Plaintiff alleges that Defendant Lefevre provided the appraisal to Plaintiff.
Plaintiff BCJJ responds that Plaintiff alleges that Defendant M I solicited the subject sale of securities for its financial gain. Plaintiff argues that the allegations that Defendant's vice president joined the conference call and made representations to Jason Turkish to entice BCJJ to invest $400,000, and the investment financially benefitted Defendant M I because the funds were transferred to Defendant M I, are sufficient to state a claim.
The Court notes that Defendant M I was in a creditor/debtor relationship with Defendant Bayonne Investments, LLC. Generally, the relationship of bank to borrower is that of creditor to debtor, in which the parties engage in arms-length transactions, and the bank owes no fiduciary responsibilities.Capital Bank v. MVB, Inc., 644 So.2d 515, 518 (Fla. 3d DCA 1994). A fiduciary relationship between a debtor and creditor arises only if the creditor has a joint proprietary interest in the enterprise, an expectation to share in profit or loss, or some arrangement apart and distinct from the loan. First Wisconsin Nat'l Bank v. Roose, 348 So.2d 610, 611 (Fla. 4th DCA 1977). Absent a proprietary or other pecuniary interest, the bank owes no duty of disclosure or other fiduciary duty to a potential borrower or guarantor. See Klein v. First Edina Nat'l Bank, 196 N.W.2d 619 (Minn. 1972). A fiduciary duty to disclose material facts to customers arises where a bank establishes a confidential or fiduciary relationship with a customer and the transaction is one from which the bank is likely to benefit. Barnett Bank of West Florida v. Hooper, 498 So.2d 923, 925 (Fla. 1986). In an arms-length transaction, there is no duty imposed on either party to act for the benefit or protection of the other party, or to disclose facts that the other party could, by its own diligence, have discovered. Lanz v. Resolution Trust Corp., 764 F. Supp. 176 (S.D. Fla. 1991); Cripe v. Atlantic First Nat'l Bank, 422 So.2d 820 (Fla. 1982). In the absence of a fiduciary relationship, the nondisclosure of material facts in an arms-length transaction is not actionable misrepresentation unless Defendant M I employed an artifice or trick to prevent an independent investigation by Plaintiff BCJJ. Hauben v. Harmon, 605 F.2d 920 (5th Cir. 1979).
In E.F. Hutton v. Rousseff, 537 So.2d 978 (Fla. 1989) the Florida Supreme Court notes that buyer/seller privity is required. In this case, Defendant M I held the mortgage on the Commercial Property; Defendant M I did not own the investment units sold to Plaintiff. The appraisal and the statement of the amount necessary to capitalize the refinancing were statements made in connection with Defendant Bayonne Investments, LLC's refinancing transaction. Plaintiff alleges only that the subject of the conference call was how much money Defendant Bayonne Investments, LLC owed on its mortgage on the Commercial Property, the balance of the mortgage relative to the value of the property, and the requirements of Defendant M I to recapitalize the loan. After the transaction was completed, Defendant M I received only what was required by its loan documents and/or loan procedures to maintain the loan. Defendant M I's interest in the Commercial Property was that of a secured creditor. The typical alternative to a refinancing would have been for Defendant M I to foreclose the defaulted loan and recover the proceeds of its loan from the value of the property.
Plaintiff BCJJ does not allege that Defendant M I had any knowledge of the terms of the offer Defendant Lefevre made to Plaintiff BCJJ or that Defendant M I rendered investment advice to Plaintiff BCJJ. Defendant M I did not sell Plaintiff the securities. Plaintiff has not alleged any facts to support Plaintiff's allegation that Defendant M I solicited the sale of securities to Plaintiff. Plaintiff has not stated a plausible cause of action under FSIPA, nor can Plaintiff do so.
After consideration, Defendant M I's Motion to Dismiss with prejudice is granted as to Count III.
C. Count IV — Fraudulent Inducement
Defendant M I moves to dismiss Count IV with prejudice.
To state a claim for fraudulent inducement, Plaintiff must allege: 1) a false statement of material fact; 2) the maker of the statement knew or should have known of the falsity of the statement; 3) the maker intended that the false statement would induce another's reliance; and 4) the other party justifiably relied on the false statement to its detriment. Rose v. ADT Security Services, Inc., 989 So.2d 1244 (Fla. 1st DCA 2008).
Plaintiff's claim for fraudulent inducement as to Defendant M I is based on the appraisal report on the Commercial Property, which Plaintiff alleges is false in not accounting for the provisions of the Joint Development Agreement. Plaintiff alleges that Defendant M I knew the misrepresentation as to the value of the real property was false when it was made, or Defendant M I was severely reckless in not recognizing the falsity of the appraisal. Plaintiff further alleges that Defendant M I knew that the March 27 balance sheet grossly understated the liabilities of Bayonne Investments, LLC. Plaintiff alleges that Defendant M I intended Plaintiff to rely on the appraisal in entering into Plaintiff's transaction with Bayonne Investments, LLC. Plaintiff alleges that Defendant M I caused Plaintiff's loss because the Investment Units in Bayonne Investments, LLC that Plaintiff purchased are much less valuable, since the liabilities of Bayonne Investments, LLC were understated, and the value of the Commercial Property is diminished, owing to the restrictions in the Joint Development Agreement which are not accounted for in the appraisal.
At the outset, the Court notes that the Joint Development Agreement was a recorded document available to the public. Plaintiff's allegation that the appraisal report Defendant commissioned is false because the report does not account for the Joint Development Agreement is not plausible.
The appraisal report indicates that it was commissioned by Defendant M I Bank in connection with mortgage loan underwriting in November, 2006. Defendant M I relied on the provisions of the appraisal report in making its lending decision in November, 2006. It is not plausible that a document relied on by Defendant M I in making a mortgage loan to Defendant Bayonne Investments, LLC would become false when disclosed to a third party in connection with the refinancing of the loan in March, 2007.
The Court also notes that Defendant M I Bank was in creditor/debtor relationship with Defendant Bayonne Investments, LLC. Defendant M I Bank was not in a fiduciary relationship with Defendant Bayonne Investments, LLC or with Plaintiff BCJJ.
Plaintiff's claim of fraudulent inducement is subject to the heightened pleading standard for fraud. Plaintiff did not allege any specific representations made by Defendant M I Bank other than the substance of the appraisal, in the context of Defendant M I's loan to Bayonne Investments, LLC. Defendant M I represented that $400,000 was required for Bayonne Investments, LLC to refinance its loan. Plaintiff BCJJ knew that Bayonne Investments, LLC was seeking $400,000 to refinance the mortgage on the Commercial Property before Defendant M I made any representation about the amount Defendant M I required. Plaintiff alleges that $400,000 was later transmitted to Defendant M I Bank after the closing. Defendant M I's statement was therefore not a misrepresentation.
Plaintiff alleges that Defendant M I knew that the balance sheet of March 3, 2007 understated the liabilities of Defendant Bayonne Investments, LLC. Plaintiff has alleged that Defendant M I's only misrepresentation involved the "false appraisal" and the assurance that $400,000 would successfully recapitalize Defendant's mortgage loan. Plaintiff has not alleged that there was any discussion of a sale of securities to Plaintiff during the conference call, or a discussion of the overall financial condition of Bayonne Investments, LLC. Plaintiff does not allege that Defendant M I participated in the closing of the transaction, in which the balance sheet was presented to Plaintiff. Therefore the statement that "Defendant M I knew that the March 2007 balance sheet understated the liabilities of Defendant Bayonne Investments, LLC" is a conclusory allegation. Given that there was no fiduciary relationship between Defendant M I and Defendant Bayonne Investments, LLC, and Plaintiff BCJJ, if Defendant M I had such knowledge, Defendant M I was not required to disclose it.
After consideration, the Court grants Defendant M I's Motion to Dismiss Count IV with prejudice.
D) Count V Negligent Misrepresentation
Defendant M I moves to dismiss Count V with prejudice.
To state a claim for negligent misrepresentation, a plaintiff must show: 1) the defendant made a misrepresentation of material fact that he believed to be true but was in fact false; 2) the defendant was negligent in making the statement because he should have known the misrepresentation was false; 3) the defendant intended to induce the plaintiff to rely on the misrepresentation; and 4) injury resulted to the plaintiff acting in justifiable reliance upon the misrepresentation. Specialty Marine and Industrial Supplies, Inc. v. Venus, 2011 WL 479912 (Fla. 1st DCA 2011).
Plaintiff alleges that Defendant M I made false statements in the Security Agreement and the Collateral Assignment entered into by Plaintiff (Exhibits F, G). Plaintiff alleges that Defendant M I misrepresented the value of Bayonne Investments, LLC to Plaintiff BCJJ by presenting Plaintiff with a balance sheet that understated the liabilities of Bayonne Investments LLC. Plaintiff further alleges that Defendant M I falsely represented the value of the Commercial Property owned by Defendant Bayonne Investments, LLC, by presenting Plaintiff with the appraisal report that did not account for the provisions of the Joint Development Agreement. Plaintiff alleges that the alleged misrepresentations of Defendant M I were material to and made in connection with the sale of Investment Units in Bayonne Development, LLC to Plaintiff BCJJ. Plaintiff alleges that Defendant M I knew the misrepresentations were false when made, or was severely reckless in not recognizing the falsity. Plaintiff alleges that Defendant M I was negligent in that Defendant should have known the misrepresentations were false. Plaintiff alleges that Defendant M I intended Plaintiff to rely on the misrepresentations in entering into Plaintiff's transaction with Defendant Bayonne Investments, LLC. Plaintiff alleges that the misrepresentations of Defendant M I have caused Plaintiff's loss because the Investment Units are less valuable, and the obligation to repay $400,000 to Plaintiff is unsecured. Plaintiff BCJJ further alleges that the Investment Units are less valuable because the liabilities of Defendant Bayonne Investments, LLC are greater, and the value of the Commercial Property is diminished, owing to the restrictions of the Joint Development Agreement not accounted for in the appraisal report.
1) Security Agreement and Collateral Assignment
Defendant M I is a secured creditor of Defendant Bayonne Investments, LLC. Defendant M I was not a party to the transaction between Bayonne Investments, LLC and Plaintiff BCJJ. Defendant M I's only participation in the transaction was the conference call in which the substance of the appraisal was disclosed to Plaintiff, and the assurance that $400,000 would successfully recapitalize the mortgage of Defendant Bayonne Investments, LLC. Defendant M I is not a signatory to the Security Agreement and Collateral Assignment, and did not participate in the closing of the transaction between Defendant Bayonne Investments, LLC and Plaintiff BCJJ.
2) Balance Sheet of March 27, 2007
Defendant M I was in an arms-length relationship with Defendant Bayonne Investments, LLC through its mortgage loan on the Commercial Property. Plaintiff BCJJ has alleged that Defendant M I made misrepresentations in a conference call. Given that Defendant M I did not participate in the transaction between Defendant Bayonne Investments, LLC and Plaintiff BCJJ, Defendant M I did not provide the balance sheet of March 27, 2007 to Plaintiff BCJJ. Because there was no fiduciary relationship between Defendant M I, Defendant Bayonne Investments, LLC and Plaintiff BCJJ, if Defendant M I had such knowledge, Defendant M I was not required to disclose it.
3) "False Appraisal"
As the Court stated above, Plaintiff's allegation that the appraisal report was false because it does not account for the Joint Development Agreement is not plausible. The appraisal report states that it was made in accordance with the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Institute, and that it was provided to Defendant M I in connection with Defendant's mortgage underwriting in November, 2006.
After consideration, the Court grants Defendant M I's Motion to Dismiss Count V with prejudice.
E. Count VI Aiding and Abetting Fraud
Plaintiff alleges that Defendant M I had knowledge of the underlying fraud perpetrated by Defendants LeFevre, LeFevre Trust, Tom's Friends, Bayonne Investments, LLC, Bayonne Development, LLC, Evan Berlin, and Berland Investments, LLC.
Plaintiff BCJJ alleges that Defendant M I was aware of the underlying fraud because Defendant's Vice President Wild played an instrumental role in providing assurances to Plaintiff BCJJ that $400,000 would successfully recapitalize Bayonne Investments, LLC's mortgage held by Defendant M I. Plaintiff BCJJ further alleges that Vice President Wild commissioned a false appraisal that substantially inflated the value of the property owned by Bayonne Investments, LLC. Plaintiff alleges that Vice President Wild coordinated her activities with Defendants LeFevre and Berlin in an effort to persuade Plaintiff BCJJ to make the $400,000 investment.
Plaintiff BCJJ alleges that Defendant M I provided substantial assistance to advance the fraud by commissioning and then presenting the false appraisal to Plaintiff BCJJ to induce Plaintiff BCJJ to invest. Plaintiff BCJJ further alleges that Defendant M I encouraged Plaintiff to invest by Vice President Wild's representation that $400,000 would recapitalize the mortgage on the Commercial Property of Bayonne Investments, LLC. Plaintiff alleges that Plaintiff suffered damage as a direct and proximate result of the actions of Defendant M I.
As the Court noted above, Defendant M I commissioned the appraisal report in November, 2006, in connection with the underwriting of Defendant's mortgage loan to Bayonne Investments, LLC. Defendant LeFevre approached Plaintiff BCJJ in March, 2007 to inquire about an investment of $400,000 from Plaintiff in Bayonne Investments, LLC, so that Defendant Bayonne Investments, LLC could refinance its mortgage with Defendant M I. Defendant M I's representation that $400,000 would successfully recapitalize Defendant Bayonne Investment, LLC's mortgage loan was not a misrepresentation.
Defendant M I and Defendant Bayonne Investments, LLC were in an arms-length creditor/debtor relationship. Plaintiff BCJJ's statement that Defendant M I knew of the underlying fraud is a conclusory allegation.
After consideration, the Court grants the Motion to Dismiss as to Count VI with prejudice.
F. Leave to Amend
The Court previously granted leave to amend. Plaintiff BCJJ has had a full opportunity to identify the alleged misrepresentations or omissions on which Plaintiff's claims rest, who made the statements, when they were made, and the circumstances under which the statements were made. After consideration, the Court denies Plaintiff's request for leave to amend the Second Amended Complaint.
DONE AND ORDERED in Chambers, in Tampa, Florida.