Opinion
CIVIL ACTION FILE NO. 1:20-CV-02387-SCJ
2021-03-30
Mary SHEA, Plaintiff, v. BEST BUY HOMES, LLC and Mike Cherwenka, Defendants.
Kamal Ghali, Matthew Sellers, Bondurant Mixson & Elmore, LLP, Atlanta, GA, for Plaintiff. Craig H. Kuglar, The Law Office of Craig Kuglar, LLC, Atlanta, GA, for Defendants.
Kamal Ghali, Matthew Sellers, Bondurant Mixson & Elmore, LLP, Atlanta, GA, for Plaintiff.
Craig H. Kuglar, The Law Office of Craig Kuglar, LLC, Atlanta, GA, for Defendants.
ORDER
STEVE C. JONES, UNITED STATES DISTRICT JUDGE
This matter appears before the Court on Defendants’ Motion to Dismiss the Complaint. Doc. No. [18]. Plaintiff has responded (Doc. No. [19]), and Defendants have replied (Doc. No. [23]). This matter is now ripe for review.
All citations are to the electronic docket unless otherwise noted, and all page numbers are those imprinted by the Court's docketing software.
I. BACKGROUND
Plaintiff filed the instant action against Defendants on June 3, 2020, seeking declaratory relief and damages arising out of a real estate transaction. See generally Doc. No. [1]. In February 2020, Plaintiff, a citizen of California, listed for sale a house she owned in Clayton County, Georgia. Id. at 26, ¶ 82. Shortly thereafter, Plaintiff received from Defendant Cherwenka a proposed Purchase and Sale Agreement (the "Contract") offering to purchase the house at the list price of $125,000. Id. ¶¶ 86–87; Doc. No. [1-3]. The Contract stipulated that "30% OF PURCHASE PRICE [WAS] TO BE PAID WITH TROPTIONS.GOLD CRYPTOCURRENCY (POC)." Doc. Nos. [1], p. 27, ¶ 91; [1-3], p. 8. Attached to the Contract was a "Proof of Funds" showing the amount in Defendant Best Buy's checking account as well as an information sheet on Troptions with the heading, "Go to www.TroptionsXchange.com for more Information." Doc. Nos. [1], pp. 26–27, ¶¶ 89–90, 93; [1-3], pp. 10–11. Plaintiff alleges that based on the representations in the Contract and after speaking with her broker, she accepted Defendants’ offer to purchase her home believing that she would receive the full purchase price in cash. Doc. No. [1], pp. 28–29, ¶¶ 98–105.
Defendant Cherwenka is the manager, a member, and the authorized agent of Defendant Best Buy Homes, LLC ("Best Buy"). Doc. No. [1], pp. 2, 8, ¶¶ 4, 22. The Complaint does not identify any other members or managers of Best Buy with whom Plaintiff had contact. For simplicity, the Court will at times refer to acts of either Cherwenka or Best Buy as acts of "Defendants."
The Contract also contained a provision stating that the Contract was the "sole and entire agreement between all of the parties, supersede[d] all of their prior written and verbal agreements and shall be binding upon the parties and their successors, heirs and permitted assigns. No representation, promise or inducement not included in [the Contract] shall be binding upon any party hereto." Doc. No. [1-3], p. 6. The Court refers to this provision as the "Merger Clause."
Plaintiff alleges that she was not told until March 6, 2020, the day of closing, that she would need to open a "cryptocurrency wallet" to receive payment. Id. at 29–30, 33, ¶¶ 100, 106, 109, 124. She also alleges that Defendants, the closing attorney, and her own broker refused to assist Plaintiff in verifying or exchanging the funds in the cryptocurrency wallet. Id. at 30, 32–33, ¶¶ 108, 122–123, 127. Plaintiff contends that she did not finalize the closing paperwork that weekend. Id. at 33, ¶ 128. Instead, Plaintiff consulted with an attorney "who advised her that he suspected that the transaction involved securities fraud and that she should not proceed without further investigation." Id. ¶ 129. Following an email exchange between Defendant Cherwenka and Plaintiff's broker and attorney, Plaintiff refused to finalize the closing. Id. at 34, ¶¶ 130–134. In response, Defendant Best Buy filed a contract action against Plaintiff and a lis pendens with respect to her property in Georgia state court on March 11, 2020. Id. at 34–35, ¶¶ 134–135. Plaintiff ultimately removed that action to this Court; Defendant Best Buy then voluntarily dismissed the action. Id. at 35, ¶¶ 139–140.
Plaintiff asserts that she has remained liable for mortgage payments on the home and has lost the rental income she received due to the lis pendens. Id. ¶ 138. She further alleges that she has suffered economic damages and has had difficulty selling her property as a result of Defendants’ actions in connection with the transaction to purchase her home. Id. at 35–36, ¶¶ 142–145. In her Complaint, she asserts claims for declaratory judgment, fraud, negligent misrepresentation, promissory estoppel, litigation expenses, and violations of the Georgia Uniform Securities Act (the "GUSA") and the Georgia RICO Act. See generally Doc. No. [1]. Defendants filed a Motion to Dismiss the Complaint for failure to state a claim pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). Doc. No. [18]. The court rules as follows.
II. LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss a complaint for failure to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). A complaint has failed to state a claim if the facts as pled do not state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 687, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 561–62, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Labels, conclusions, and formulaic recitations of the elements of the cause of action "will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. To state a plausible claim, a plaintiff need only plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. "Asking for plausible grounds ... does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of [the claim]." Twombly, 550 U.S. at 556, 127 S.Ct. 1955. "[W]hile notice pleading may not require that the pleader allege a specific fact to cover every element or allege with precision each element of a claim, it is still necessary that a complaint contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Fin. Sec. Assurance, Inc. v. Stephens, Inc., 500 F.3d 1276, 1282–83 (11th Cir. 2007) (quotations omitted).
Additionally, the Federal Rules of Civil Procedure impose a heightened pleading standard for fraud claims. Fed. R. Civ. P. 9(b). Under Rule 9(b), a party alleging fraud "must state with particularity the circumstances constituting fraud" but may allege scienter generally. Id. To plead fraud with particularity, a plaintiff must allege
(1) precisely what statements or omissions were made in which documents or oral representations; (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) them; (3) the content of such statements and the manner in which they misled the plaintiff; and (4) what the defendant obtained as a consequence of the fraud.
FindWhat Inv. Grp. v. FindWhat.com, 658 F.3d 1282, 1296 (11th Cir. 2011). "In short, the plaintiff must plead facts that when taken as true establish the who, what, when, where, how and why of the fraud." C & C Fam. Tr. 04/04/05 ex rel. Cox-Ott v. AXA Equitable Life Ins. Co., 44 F. Supp. 3d 1247, 1254 (N.D. Ga. 2014) (citing Garfield v. NDC Health Corp., 466 F.3d 1255, 1262 (11th Cir. 2006) ), aff'd, 654 F. App'x 429 (11th Cir. 2016). The heightened pleading standard of Rule 9(b) is important because it "serves the dual purpose of ensuring that a complaint ‘alert[s] defendants to the precise misconduct with which they are charged and protecting defendants against spurious charges of immoral and fraudulent behavior.’ " TTCP Energy Fin. Fund II, LLC v. Ralls Corp., 255 F. Supp. 3d 1285, 1289 (N.D. Ga. 2017) (quoting Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (internal punctuation omitted)).
III. DISCUSSION
In their Motion to Dismiss, Defendants argue that the Merger Clause bars Plaintiff's claims for fraud, negligent misrepresentation, promissory estoppel, and securities fraud, and prohibits reliance on predicate acts of fraud upon which to base her RICO claim. See Doc. No. [18-1], pp. 12–15. Plaintiff responds that the Merger Clause does not bar her claims because (1) the Contract itself contains the misrepresentations at issue and (2) the Merger Clause is unenforceable because the Contract, as a whole, is void. Doc. No. [19], pp. 27–30.
A motion to dismiss usually must be converted into a motion for summary judgment when a district court considers matters outside the pleadings. Fed. R. Civ. P. 12(d) ; Day v. Taylor, 400 F.3d 1272, 1275–76 (11th Cir. 2005). Nevertheless, a district court may consider exhibits attached to the complaint on a 12(b)(6) motion because exhibits are part of the pleadings. Fed. R. Civ. P. 10(c) ; Thaeter v. Palm Beach Cty. Sheriff's Office, 449 F.3d 1342, 1352 (11th Cir. 2006). Because Plaintiff attached the Contract and related documents to her Complaint as exhibits, the Court may properly consider them without converting Defendant's Motion to Dismiss into a motion for summary judgment.
A merger clause is a provision stating that the written agreement is the "entire agreement of the parties." First Data POS, Inc. v. Willis, 273 Ga. 792, 794–95, 546 S.E.2d 781, 784 (2001). Typically, if a contract contains a merger clause, then "prior or contemporaneous representations that contradict the written contract cannot be used to vary the [contract's] terms," and the violation of any such extraneous agreement would not "amount to actionable fraud." Id. ; see also C & C Fam. Tr. 04/04/05 ex rel. Cox-Ott, 44 F. Supp. 3d at 1256 ("A merger or integration clause essentially operates as a disclaimer of all representations not made on the face of the contract."). But a merger clause has no effect when the entire contract is invalid "since, in legal contemplation, there is no contract between the parties." del Mazo v. Sanchez, 186 Ga. App. 120, 126, 366 S.E.2d 333, 337 (1988). Here, Plaintiff asserts the Contract is invalid on the grounds of fraud, illegality, and mistake. Doc. Nos. [19], p. 28; [1], pp. 36–38, ¶¶ 146–155.
A. Enforceability of the Merger Clause
"In Georgia, ‘[a] contract to do ... an illegal thing is void.’ But a contract does not fall within this principle unless its object or purpose is illegal." Smith v. Saulsbury, 286 Ga. App. 322, 333, 649 S.E.2d 344, 347 (2007) (quoting O.C.G.A. § 13-8-1 ). "[F]or the purpose or object of a contract to be illegal, thereby making the contract void, the contract must require a violation of law when performed." Hays v. Adam, 512 F. Supp. 2d 1330, 1342 (N.D. Ga. 2007) (citing Shannondoah, Inc. v. Smith, 140 Ga. App. 200, 202, 230 S.E.2d 351, 352 (1976) ).
A contract that contemplates the sale of unregistered securities is void "[b]ecause the act of performance under the contract[ ] necessarily result[s] in violation of ... securities laws." Hays, 512 F. Supp. 2d at 1342. Plaintiff asserts that Troptions are an unregistered security and that by stipulating that a portion of the purchase price to be paid in Troptions, the Contract constitutes a sale of unregistered securities in violation of the GUSA. Doc. No. [19], pp. 12–15, 28–29.
Georgia law prohibits a person from selling or offering to sell unregistered securities in the state. O.C.G.A. § 10-5-20. Both federal and Georgia law state that an investment contract is a type of security. O.C.G.A. § 10-5-2(31) ; cf. 15 U.S.C. §§ 77b(a)(1), 78c(a)(10). However, "investment contract" is not statutorily defined under either Georgia or federal law. Cherokee Funding LLC v. Ruth, 342 Ga. App. 404, 408, 802 S.E.2d 865, 869 (2017). The United States Supreme Court has devised a test for determining whether a particular scheme constitutes an investment contract under federal law, and the Supreme Court of Georgia has adopted that test. Id.
An offer to sell is made in Georgia—regardless of whether either party is present in Georgia—if it either "(1) [o]riginates from within this state; or (2) [i]s directed by the offeror to a place in this state and received at the place to which it is directed." O.C.G.A. § 10-5-79(c). Defendant Cherwenka's offer to purchase Plaintiff's home—and thereby his offer to sell securities—was made from Georgia. See Doc. No. [1-3], p. 9.
1. Definition of Investment Contract
Under the test, an investment contract results from (1) an investment of money (2) in a common enterprise (3) with the expectation of profits to come solely from others’ efforts. SEC v. W.J. Howey Co., 328 U.S. 293, 298–99, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). The investment of money "need not be made in cash." Beranger v. Harris, No. 1:18-CV-05054-CAP, 2019 WL 5485128, at *3 (N.D. Ga. Apr. 14, 2019). Rather, the first prong is satisfied where "an investor commits assets to an enterprise or venture in such a manner as to subject himself to financial losses." Id.
The second prong is satisfied "where the ‘fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.’ " Eberhardt v. Waters, 901 F.2d 1578, 1580 (11th Cir. 1990) (quoting Villeneuve v. Advanced Bus. Concepts Corp., 698 F.2d 1121, 1124 (11th Cir. 1983) ). In other words, a common enterprise exists if its investors expect that a third party would be responsible for performing the chores necessary for a return. Id. at 1580–81.
In Eberhardt, the defendant argued that the return success of investors in his cattle embryo business "was determined by how well the investor exercises the option of whether ... to utilize [the defendant's] management services." 901 F.2d at 1581. The Eleventh Circuit, however, found that it was "unlikely that an average investor would be in a position to assume or maintain any substantial degree of control over the investment" where the plaintiff "had no experience with cattle" and "significant technical expertise [would be] required if an investor intend[ed] to take possession and successfully maintain the embryos at a facility other than at [the defendant's]." Id.
The third prong focuses on the investor's dependence "on the entrepreneurial or managerial skills of a promoter or other party." SEC v. Merch. Cap., LLC, 483 F.3d 747, 755 (11th Cir. 2007) (quoting Gordon v. Terry, 684 F.2d 736, 741 (11th Cir. 1982) ). In Beranger, the court found that the plaintiff-investors only had the ability to buy the security and could not manage any of the tasks required to increase its value. 2019 WL 5485128, at *3. Rather, "[t]hey could only hope that the defendants would do so effectively and that the value of the [security] would increase." Id. at *3–4.
i. Investment of money
Here, Plaintiff offered to sell her home for $125,000. Doc. No. [1], p. 26, ¶ 84. The Contract stated that Defendants would purchase Plaintiff's home for the list price, paying $87,500 in cash and the remaining 30% with "Troptions.Gold Cryptocurrency (POC)." Doc. No. [1-3], pp. 2–3, 8. For the Troptions to constitute an investment contract, Plaintiff need not have received the cryptocurrency in exchange for cash. See Beranger, 2019 WL 5485128, at *3 ("It is well-established that the ‘investment of money’ required for an investment contract need not be made in cash ...."). Plaintiff committed an asset—$125,000 real property interest—and was to receive in return $87,500 in cash and the equivalent of $37,500 in Troptions cryptocurrency. Doc. No. [1], p. 26, ¶¶ 84, 87. Moreover, Troptions are generally available to purchase for monetary value both online and at in-person events. See Doc. No. [1], pp. 20, 22, ¶¶ 64, 68. This proposed exchange of assets was sufficient to constitute an investment of money. Thus, the Court finds that the first prong is met.
ii. Common enterprise with the expectation of profits to come solely from the efforts of others
The Complaint further alleges that Defendant Cherwenka attached an information sheet on Troptions to his offer to purchase Plaintiff's home. Doc. No. [1], p. 27, ¶ 93; see Doc. No. [1-3], p. 11. That information sheet contains several statements including that "Troptions has purchased over 1.8 billion dollars of assets using Troptions," "people use the coins to purchase goods and services," "Troptions can be used daily for your needs," "Troptions continues to go up in value each day," and "[i]f Airbnb and Troptions.gold go on the public exchanges, you will be able to liquidate them." See Doc. Nos. [1], pp. 27–28, ¶ 95; [1-3], p. 11. It also states that "Troptions offers educational workshops" and "has a team of proven experts you can contact and get your questions answered." See Doc. Nos. [1], pp. 27–28, ¶ 95; [1-3], p. 11. The information sheet's heading refers the reader to "[g]o to www.TroptionsXchange.com for more Information." Doc. No. [1], pp. 27, ¶ 93; see Doc. No. [1-3], p. 11.
Plaintiff alleges that the Troptions website states that "Troptions are designated ... a commodity by the Commodity Futures Trading Commission," "can be ... traded in a marketplace in exchange for cash," "have a ‘cash price on exchange,’ " "can buy Cars, Real Estate, Business, Hotel Rooms, Gems, and many other things," and are "growing in value and liquidity each and every day." Doc. No. [1], pp. 10–11, ¶ 29. The website also allegedly states that Troptions are "serviced and managed by TROPTIONS CORPORATION," which "exists to facilitate the usefulness and utility of TROPTIONS for the holders by: 1. [p]roviding education and assistance in the best practices of TROPTIONS use[;] 2. [i]ncreasing the marketplace for TROPTIONS purchases[;] [and] 3. [p]romoting increased visibility and value of TROPTIONS in national and international trading markets." Doc. No. [1], pp. 16–17, ¶ 47. Additionally, other websites promoting Troptions state that they are "[d]eveloping an ECO-SYSTEM of vendors accepting Troptions (car dealerships, fast food chains, legal services, ATM machines etc.)"; are "coming out with a credit card this fall so you can use your TROPTIONS to purchase merchandise"; and "will ‘do the due diligence for our investors,’ ‘purchase large quantities of coins at a discounted rate,’ and ‘sell the private coins to our investors below market value.’ " Doc. No. [1], p. 22, ¶¶ 67–68. And a photo posted on the "Troptions Marketplace" Facebook page shows a man standing in front of a BMW with a caption that states "Just paid all Troptions for this BMW X5 in LA!!" Doc. No. [1], p. 12, ¶ 33.
The Complaint asserts that this online information about Troptions "induces investors to rely on the managerial efforts and expertise of the promoters." Doc. No. [1], p. 16, ¶ 47. It alleges that "[a]t no point ever did anyone inform [Plaintiff] how to exchange the Troptions for U.S. dollars." Doc. No. [1], p. 33, ¶ 127. Plaintiff states that she accepted the offer on the belief that Defendants would have a third party convert the Troptions into $37,500 so she could receive the full payment in cash and that she never expected to be involved in converting the cryptocurrency into dollars. Doc. No. [1], pp. 30, 32–33, ¶¶ 107, 118, 126. She further alleges that she did not know how to "get the money out of the cryptocurrency wallet" and that Defendants "expressly refused to help her do so" when asked. Doc. No. [1], pp. 32–33, ¶¶ 117, 121–122, 127.
In Beranger, the court found that "the complaint detail[ed] several ways in which [the defendant] led the plaintiffs to believe that they could expect a profit from buying the tokens" such as advertising on social media that the "tokens will be redeemable for $3.99 in 3 months, $9.99 in 12 months and $14.99 in 15 months" as well as the fact that the "tokens were for an internet platform that had not yet been launched, and it was entirely up to the defendants to make that happen," otherwise "the tokens would be worthless." 2019 WL 5485128, at *3. Here, the Complaint alleges statements that characterize Troptions as an appreciating asset and convey that Troptions holders can rely on the promoters to see an increase in value and use. Thus, the Court finds that the there is a common enterprise with the expectation of profits to come solely from others’ efforts.
2. Unlawful Sale of Unregistered Securities
Accordingly, under the facts alleged in the Complaint, the Court finds that Troptions meet the definition of an "investment contract" and thus are a security under Georgia and federal law. Taking the allegations of the Complaint as true, the Court further finds that Troptions are neither a registered nor exempted security. Doc. No. [1], p. 18, ¶ 52. However, for the Contract to constitute a violation of Georgia securities law—and thus be void for illegality—it must constitute a sale of, or offer to sell, securities. See O.C.G.A. § 10-5-20.
Under Georgia law, a sale of securities includes "every ... disposition of a security ... for value." O.C.G.A. § 10-5-2(29). An offer to sell securities includes "every attempt or offer to dispose of or solicitation of ... a security ... for value." Id. Because the Contract contemplated the exchange of real property interest for Troptions, the Contract meets the definition of a sale or offer to sell securities. Thus, the Court finds that the Contract is void for illegality because performance would have required the unlawful sale of unregistered securities. See Hays, 512 F. Supp. 2d at 1342. For that reason, the Court finds that the Merger Clause is unenforceable and thus does not preclude Plaintiff's fraud-based claims.
B. Georgia Uniform Securities Act Claim
Count V of the Complaint asserts a claim for unlawful sale of unregistered securities. Doc. No. [1], p. 44. The GUSA makes it unlawful to offer or sell unregistered securities in Georgia, O.C.G.A. § 10-5-20, and it provides a private cause of action to the purchaser of an unregistered security, id. § 10-5-58(b). As discussed, the Court finds that Troptions cryptocurrency is an unregistered security and that Defendants’ offer to purchase Plaintiff's home with Troptions cryptocurrency constitutes an offer to sell an unregistered security. Thus, the Court finds that the Complaint has stated a violation of O.C.G.A. § 10-5-20 and a plausible claim under the GUSA. For that reason, Defendants’ Motion to Dismiss (Doc. No. [18]) is due to be DENIED as to Count V.
While O.C.G.A. § 10-5-20 makes it unlawful to "offer or sell" an unregistered security, the GUSA statute creating a private cause of action provides that "[a] person is liable to the purchaser if the person sells a security in violation of [O.C.G.A. §] 10-5-20. O.C.G.A. § 10-5-58(b) (emphasis added). While the transaction contemplated in the Contract appears not to have occurred, Plaintiff alleges in her Complaint that Defendants "sold and offered to sell Shea Troptions." Doc. No. [1], p. 44, ¶ 184. Furthermore, Defendants have not moved to dismiss on the ground that Plaintiff has no cause of action because no unregistered security was sold. Thus, because the Court must accept Plaintiff's allegations as true at this stage, the Court finds that Plaintiff has properly pled an action pursuant to O.C.G.A. § 10-5-58(b) because Defendants "sold" Troptions to Shea.
C. Georgia RICO Claim
Under Georgia law, it is "unlawful for any person, through a pattern of racketeering activity or proceeds derived therefrom, to acquire or maintain, directly or indirectly, any interest in or control of any enterprise, real property, or personal property of any nature, including money." O.C.G.A. § 16-14-4(a). A "pattern of racketeering activity" requires at least two interrelated predicate acts. O.C.G.A. § 16-14-3(4). To state a Georgia RICO claim, a plaintiff must allege facts "show[ing] that the defendant committed predicate offenses (set forth in O.C.G.A. § 16-14-3(9) ) at least twice." Cobb Cnty. v. Jones Grp., P.L.C., 218 Ga. App. 149, 154, 460 S.E.2d 516, 521 (1995) (quotations omitted). "[S]uch acts must be linked, but distinguishable enough to not be merely ‘two sides of the same coin.’ " McGinnis v. Am. Home Mortg. Servicing, Inc., 817 F.3d 1241, 1252 (11th Cir. 2016) (quoting S. Intermodal Logistics, Inc. v. D.J. Powers Co., 10 F. Supp. 2d 1337, 1359 (S.D. Ga. 1998) ). In other words, a single extended transaction cannot provide the basis for a Georgia RICO claim. See Sec. Life Ins. Co. of Am. v. Clark, 273 Ga. 44, 48, 535 S.E.2d 234, 238 (2000).
"The Eleventh Circuit has advised that the particularity requirement for fraud under Rule 9(b) applies to fraud-based state RICO claims brought in a federal court." Fortson v. Best Rate Funding, Corp., No. 1:13-CV-4102-CC, 2014 WL 11456286, at *6 (N.D. Ga. Sept. 2, 2014) (citing Curtis Inv. Co. v. Bayerische Hypo-und Vereinsbank, AG, 341 F. App'x 487, 493–94 (11th Cir. 2009) ); see also Peterson v. Merscorp Holdings, Inc., No. 1:12-CV-00014-JEC, 2012 WL 3961211, at *7 (N.D. Ga. Sept. 10, 2012) ("[I]f a plaintiff raises ... R.I.C.O. claims based on predicate acts of fraud, the plaintiff must comply not only with the plausibility [standard] articulated in Twombly and Iqbal, but also with Federal Rule of Civil Procedure 9(b) ’s heightened pleading standard.").
However, "there is no requirement that plaintiff suffer direct harm from each and every alleged predicate act introduced to show a pattern of racketeering activity." InterAgency, Inc. v. Danco Fin. Corp., 203 Ga. App. 418, 424, 417 S.E.2d 46, 53 (1992). "The direct involvement with plaintiff is not the interrelatedness or ‘interconnectedness’ required by the Georgia statute. It is the ‘pattern’ which must be shown, not that plaintiff was injured by each incident of which the pattern was comprised." Id. (internal citations omitted).
Here, the Complaint alleges the following predicate acts: wire fraud, in violation of 18 U.S.C. § 1343 ; a sale of unregistered securities, in violation of O.C.G.A. § 10-5-20 ; an unregistered broker-dealer transaction, in violation of O.C.G.A. § 10-5-30 ; securities fraud, in violation of O.C.G.A. § 10-5-50 ; and residential mortgage fraud, in violation of O.C.G.A. § 16-8-102. See Doc. No. [1], pp. 39–40, ¶ 161.
As discussed above, the Complaint has sufficiently stated a claim under the GUSA for the sale of unregistered securities in violation of O.C.G.A. § 10-5-20. Additionally, under the GUSA "[i]t is unlawful for a person to transact business in this state as a broker-dealer unless the person is registered." O.C.G.A. § 10-5-30(a). Georgia law defines a "broker-dealer" as "a person engaged in the business of effecting transactions in securities for the account of others or for the person's own account." O.C.G.A. § 10-5-2(2). Taking the Complaint's allegations as true, the Court finds that Defendants were engaged in the business of effecting securities transactions without being registered as a broker-dealer. See Doc. No. [1], p. 18, ¶¶ 51, 53–54. Thus, the Court finds that the Complaint has also alleged facts showing that Defendants violated O.C.G.A. § 10-5-30 under the GUSA.
Although the basis for Plaintiff's individual GUSA claims arise from a single transaction—the sale of Plaintiff's home—the GUSA violations that serve as predicate acts for her RICO claim arise from more than one transaction. For example, the Complaint alleges that Defendants sold or offered to sell Troptions through various online platforms and in-person events as well as in connection with the sale of Plaintiff's home. See Doc. Nos. [1], pp. 4, 20, 22, ¶¶ 7, 64, 68; [19], pp. 10–11, 14. Because Plaintiff need only allege that Defendants committed at least two predicate acts that are not part of a single, extended transaction in order to state a Georgia RICO claim, the Court need not determine whether the Complaint has alleged plausible facts to support every alleged act of each alleged offense. Accordingly, with respect to Count II, Defendant's Motion to Dismiss (Doc. No. [18]) is DENIED .
D. Fraud, Negligent Misrepresentation, and Promissory Estoppel Claims
Counts III, IV, and VI of the Complaint assert causes of action for fraud, negligent misrepresentation, and promissory estoppel. See Doc. No. [1], pp. 41–46. In their Motion to Dismiss, Defendants argue that, in addition to being barred by the Merger Clause, the Complaint has failed to state claims based on fraud or misrepresentation because the alleged misrepresentations made in connection with the transaction are not actionable statements and because the Complaint fails to show justifiable reliance. Doc. No. [18-1], pp. 15–24.
1. Fraud Claim
To state a claim for fraud under Georgia law, a plaintiff must allege facts showing: "(1) the defendant knowingly made a false statement; (2) the defendant intended for the plaintiff to act or refrain from acting in reliance on that statement; (3) the plaintiff justifiably relied on the defendant's false statement; and (4) the plaintiff's reliance resulted in damage." C & C Fam. Tr. 04/04/05 ex rel. Cox-Ott, 44 F. Supp. 3d at 1253 (citing Wylie v. Denton, 323 Ga. App. 161, 168, 746 S.E.2d 689, 695 (2013) ). In addition to false statements, a fraud claim may be based on the omission of a fact "if the omitting party is under an obligation to communicate the fact." Purchasing Power, LLC v. Bluestem Brands, Inc., No. 1:12-CV-00258-WSD, 2012 WL 3065419, at *6 (N.D. Ga. July 27, 2012) (citing O.C.G.A. § 23-2-53 (1982)).
"The obligation to communicate may arise from the confidential relations of the parties or from the particular circumstances of the case." O.C.G.A. § 23-2-53. But "[t]he mere fact that one reposes trust and confidence in another does not create a confidential relationship." Trulove v. Woodmen of the World Life Ins. Soc'y, 204 Ga. App. 362, 365, 419 S.E.2d 324, 327 (1992). "The ‘particular circumstances’ impose a disclosure obligation in ‘any case where a person intentionally concealed a fact from a certain other person, hoping thereby to derive a benefit, and knowing that only by silence and by concealing the truth would the anticipated benefit accrue.’ " Purchasing Power, LLC, 2012 WL 3065419, at *6 (quoting Reeves v. B.T. Williams & Co., 160 Ga. 15, 127 S.E. 293, 295 (1925) ) (citing Miller v. Lomax, 266 Ga. App. 93, 98, 596 S.E.2d 232, 239 (2004) ). "To state a prima facie case of an obligation to disclose under the ‘particular circumstances,’ therefore, a plaintiff must allege two factors: (1) the intentional concealment of a fact (2) for the purpose of obtaining an advantage or a benefit." Id. (citing Ga. Real Est. Comm'n v. Brown, 152 Ga. App. 323, 324, 262 S.E.2d 596, 597 (1979) ).
As discussed above, fraud claims are subject to a heightened pleading standard. See Fed. R. Civ. P. 9(b). The Complaint must allege with particularity "the who, what, when, where, how and why of the fraud." C & C Fam. Tr. 04/04/05 ex rel. Cox-Ott, 44 F. Supp. 3d at 1254 (citing Garfield v. NDC Health Corp., 466 F.3d 1255, 1262 (11th Cir. 2006) ). Also, the alleged misrepresentations must be not only material but also actionable; otherwise, a party is not justified in relying upon them. GCA Strategic Inv. Fund, Ltd. v. Joseph Charles & Assocs., Inc., 245 Ga. App. 460, 464, 537 S.E.2d 677, 682 (2000). Statements that are not actionable are those "constating of mere expressions of opinion, hope, expectation, puffing, and the like; rather, representations of this nature must be inquired into and examined to ascertain the truth." Id. "To be actionable, [a misrepresentation] must relate to an existing fact or past event. Fraud cannot consist of mere broken promises, unfilled predictions or erroneous conjecture as to future events." Fuller v. Perry, 223 Ga. App. 129, 131, 476 S.E.2d 793, 796 (1996) (citations omitted). Additionally, a "fact is material if its existence or nonexistence is a matter to which a reasonable man would attach importance in determining his choice or action in the transaction in question." Greenwald v. Odom, 314 Ga. App. 46, 55, 723 S.E.2d 305, 315 (2012) (quoting McKesson Corp. v. Green, 299 Ga. App. 91, 94, 683 S.E.2d 336, 339–40 (2009) ).
For example, Georgia courts hold that "a misrepresentation as to a matter of law is a statement of opinion only ... because all persons are presumed to know the law and therefore cannot be deceived by erroneous statements of law." Lakeside Invs. Grp., Inc. v. Allen, 253 Ga. App. 448, 450, 559 S.E.2d 491, 493 (2002) (internal quotations and citations omitted).
The Complaint identifies several statements and omissions Defendants allegedly made in connection with the sale of Plaintiff's home. It alleges that Defendants "made these false representations or omissions [with scienter and] with the intent to induce [Plaintiff] to sell her home." Doc. No. [1], p. 42, ¶¶ 169–172. It asserts that Plaintiff
justifiably relied on Best Buy's and Cherwenka's false representations, in that, among other things, she believed a closing attorney would provide her with the full purchase price in U.S. dollars irrespective of how Best Buy and Cherwenka paid, and she further believed she would have a way of exchanging Troptions for U.S. dollars if she provided Best Buy and Cherwenka a "crypto wallet."
Doc. No. [1], p. 42, ¶ 173. The Complaint further alleges that Plaintiff also relied on conversations with her real estate broker, the presence of a closing attorney, and her understanding of California real estate transactions. Doc. No. [1], pp. 28–29, ¶¶ 98, 101–102. The Complaint also alleges that Plaintiff suffered damages because of Defendants’ fraud. Doc. No. [1], pp. 35–36, 42, ¶¶ 142–145, 174.
The Court notes that Plaintiff's acceptance of Defendants’ offer was the act that the allegedly fraudulent misrepresentations induced. However, some of the allegedly false statements that the Complaint identifies were made after Plaintiff had accepted the offer and signed the Contract. For example, Defendant Cherwenka's alleged misrepresentation that "Troptions are not security" and omission regarding the dismissal of the Missouri Secretary of State's enforcement action were made on March 10, 2020, four days after closing was to occur. Doc. No. [1], p. 34, ¶¶ 131–133. Even assuming these representations were false or materially misleading, the Complaint makes clear that Plaintiff did not take any action in reliance on them as she refused to finalize the closing. Doc. No. [1], p. 34, ¶ 134. Nor did Plaintiff rely on the closing paperwork's allegedly false representation that the Troptions were valued at $37,500 as that, too, was made after Plaintiff signed the Contract. Doc. No. [1], pp. 31–32, ¶¶ 113–114, 119. Thus, these representations do not provide a basis for Plaintiff's fraud claim.
The Complaint also alleges that Defendants’ offer incorporated not only all representations contained in the Troptions information sheet attached to their offer but also all representations made on the Troptions website because the information sheet's heading says to "[g]o to www.TroptionsXchange.com for more Information." Doc. No. [1], p. 27, ¶ 93; see Doc. No. [1-3], p. 11; see also Doc. No. [1], pp. 10–11, ¶ 29 (identifying misrepresentations on the website). Even assuming that those statements can be attributed to Defendants, only some of them present an actionable basis for fraud. And although the representations are included in the Complaint, the Complaint does not allege that Plaintiff had read and relied upon these representations when she accepted Defendants’ offer. Moreover, Plaintiff alleges that she was concerned about the cryptocurrency and expressed those concerns to her broker. Doc. No. [1], p. 28, ¶ 97. Thus, even if the Complaint had alleged that Plaintiff read the information sheet and the website, it fails to allege how those representations misled her as required to state a fraud claim with particularity. See FindWhat Inv. Grp., 658 F.3d at 1296. Therefore, these representations also cannot provide a basis for fraud.
See, e.g., Doc. No. [1], p. 28, ¶ 95(c) ("Troptions can show you proven secrets to make the purchase you want.").
In admitting that she relied, at least in part, on her broker's representations, Plaintiff alleges that her broker made those representations "based on her understanding of Cherwenka's offer and her discussion with Cherwenka of the terms of the offer." Doc. No. [1], p. 29, ¶ 99. Under Georgia law, a plaintiff may base her fraud claim on a misrepresentation to a third party if the defendant "having as his objective to defraud [the plaintiff], and knowing that [the plaintiff] will rely upon [the third party], fraudulently induces [the third party] to act in some manner on which [the plaintiff] relies." UWork.com, Inc. v. Paragon Techs., Inc., 321 Ga. App. 584, 599, 740 S.E.2d 887, 898 (2013) (quoting Fla. Rock & Tank Lines, Inc. v. Moore, 258 Ga. 106, 107, 365 S.E.2d 836, 837 (1988) ). Thus, Plaintiff could base her fraud claim on misrepresentations that Defendants made to her broker; however, she must still plead fraud with particularity. See Fed. R. Civ. P. 9(b). The Complaint does not identify any misrepresentations allegedly made by Defendants to Plaintiff's broker.
The Complaint further alleges that "Cherwenka specifically wrote in the offer that the offer included ... a business checking account statement for Best Buy Homes, LLC showing Best Buy had $285,907.12 available as of January 31, 2020," and that this account statement "was designed to give the impression that [Plaintiff] would receive $125,000 cash for the house." Doc. No. [1], pp. 26–27, ¶¶ 89–90. Plaintiff asserts that based, in part, on this statement, she "understood that she would receive $125,000 in cash if she accepted [Defendants’] offer" and she "signed the offer on [that] understanding." Doc. No. [1], p. 29, ¶¶ 104–105. However, the Complaint does not allege whether the checking account statement was false. And because the offer clearly states that part of the purchase price would be paid in cryptocurrency (Doc. No. [1-3], p. 8), this Court cannot conclude that Defendants made any material omission in connection with the checking account statement.
Plaintiff alleges that she was misled by the closing attorney's presence that there would be an independent party who would verify the funds. Doc. No. [1], p. 29, ¶ 102. She asserts that Defendants failed to disclose that Defendant Cherwenka "regularly worked with the closing attorney on real estate deals." Id. ¶ 103. But Plaintiff has not alleged that she would not have accepted the offer had she known this fact. Nor has she alleged that Defendants intentionally concealed this fact to gain a benefit. See Purchasing Power, LLC, 2012 WL 3065419, at *6. The Complaint also alleges that the offer did not define "Troptions.Gold Cryptocurrency (POC)" and that "no one provided ... a parol definition of that term." Doc. No. [1], p. 27, ¶ 92. However, the Complaint does not allege how this omission misled Plaintiff nor why Plaintiff would be justified in relying on such an omission.
For the foregoing reasons, Plaintiff has failed to state a claim for fraud because she has not plead with particularity supporting facts. Therefore, Count III of the Complaint is due to be DISMISSED .
2. Negligent Misrepresentation Claim
"[T]o state a claim for negligent misrepresentation, the plaintiff must allege facts showing that (1) the defendant negligently provided false information to foreseeable persons, known or unknown, including the plaintiff; (2) the plaintiff reasonably relied on this false information; and (3) the plaintiff's reliance proximately caused an economic injury." C & C Family Trust 04/04/05 ex rel. Cox-Ott, 44 F. Supp. 3d at 1253 n.4 (citing Home Depot U.S.A. v. Wabash Nat'l Corp., 314 Ga. App. 360, 367, 724 S.E.2d 53, 60 (2012) ). "As the Georgia courts have recognized, the reasonable reliance that is required to state a negligent misrepresentation claim is equivalent to that needed in the fraud context." Next Century Commc'ns Corp. v. Ellis, 318 F.3d 1023, 1030 (11th Cir. 2003). "[T]he only real distinction between negligent misrepresentation and fraud is the absence of the element of knowledge of the falsity of the information disclosed." Holmes v. Grubman, 286 Ga. 636, 640–41, 691 S.E.2d 196, 200 (2010) (citations and punctuation omitted). Thus, courts generally apply the "same principles ... to both fraud and negligent misrepresentation cases" under Georgia common law. Id. "However, the heightened pleading standards of Rule 9(b) do not apply to claims of negligent misrepresentation." In re Equifax, Inc., Customer Data Sec. Breach Litig., 371 F. Supp. 3d 1150, 1177 (N.D. Ga. 2019).
Compare Wilding v. DNC Servs. Corp., 941 F.3d 1116, 1127 (11th Cir. 2019) (applying Rule 9(b) to negligent misrepresentation claims "under Florida law because such claims sound in fraud") with Baker v. GOSI Enters., Ltd., 351 Ga. App. 484, 488, 830 S.E.2d 765, 769 (2019) ("Negligent misrepresentation ... sounds in tort, and, more specifically, in the law of negligence.").
Even without imposing Rule 9(b) ’s heightened pleading requirements, however, the Court finds that Plaintiff has failed to state a plausible claim for negligent misrepresentation. To state a plausible claim, a complaint must allege facts showing "more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Here, the Complaint refers to the statements made on the information sheet and the Troptions website but does not allege that Plaintiff read, let alone relied on, any of those representations. In fact, the Complaint states Plaintiff relied on her broker's representations after Plaintiff had concerns about the cryptocurrency. Doc. No. [1], p. 28, ¶¶ 97–98. Although the Complaint alleges that the broker's representations were based on conversations between Defendant Cherwenka and the broker, the Complaint does not allege that Defendants made any misrepresentations in their conversations with Plaintiff's broker. See Doc. No. [1], p. 29, ¶ 99. For the reasons discussed above, Count IV of the Complaint is due to be DISMISSED .
The Complaint does not allege whether those concerns arose from the stipulation in the offer or from the representations made on either the information sheet or online.
3. Promissory Estoppel Claim
The elements of a promissory estoppel claim are: "(1) the defendant made a promise to the plaintiff; (2) the defendant should have known that the plaintiff would rely on the promise; (3) the plaintiff did in fact rely on the promise, to [her] detriment; and (4) injustice can only be avoided by enforcement of the promise." Peery v. CSB Behav. Health Sys., No. CV106-172, 2008 WL 4425364, at *9 (S.D. Ga. Sept. 30, 2008) (citing Mitchell v. Ga. Dep't of Cmty. Health, 281 Ga. App. 174, 179, 635 S.E.2d 798, 804 (2006) ). The existence of a valid contract generally bars a claim for promissory estoppel if the terms of the contract give rise to the claim. See Bank of Dade v. Reeves, 257 Ga. 51, 52, 354 S.E.2d 131, 133 (1987) ; see also Bouboulis v. Scottsdale Ins. Co., 860 F. Supp. 2d 1364, 1379 (N.D. Ga. 2012) ("Georgia law bars a claim for promissory estoppel in the face of an enforceable contract."). But a claim for promissory estoppel is not barred if "the promise was made in a contract that is not legally enforceable." Hendon Props., LLC v. Cinema Dev., LLC, 275 Ga. App. 434, 439, 620 S.E.2d 644, 649 (2005). Thus, the Contract does not bar Plaintiff's promissory estoppel claim because the Court determined that, under the facts as alleged in the Complaint, the Contract is void for illegality.
Here, Plaintiff asserts that Defendants "promised to purchase [Plaintiff's] home at the list price of $125,000 in cash." Doc. No. [1], p. 45, ¶ 191. The Court finds that there was a promise to purchase the home for $125,000; however, the Complaint alleges that the offer stipulated that 30% of the purchase price was to be paid with cryptocurrency. Doc. No. [1], p. 27, ¶ 91; see Doc. No. [1-3], p. 8. The offer also states that the "Purchase Price shall be paid in U.S. Dollars ... or such other form of payment acceptable to the closing attorney ." Doc. No. [1-3], p. 3 (emphasis added); see also Doc. No. [1], p. 28, ¶ 98 ("Shea's broker told her ‘[a]s long as the attorney finds these funds acceptable, then It [sic ] should be fine."). Accordingly, the Court finds that Defendants did not make a promise to purchase the home for $125,000 in cash , and the Complaint thus fails to state a claim for promissory estoppel. Thus, Count VI of the Complaint is due to be DISMISSED .
E. Declaratory Judgment Claim
Count I of the Complaint asserts a claim under the Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that the Contract is illegal and void and that Defendants have no interest in her property. Doc. No. [1], pp. 36–38, ¶¶ 146–155. In their Motion to Dismiss, Defendants argue that Plaintiff's declaratory judgment claim does not present a justiciable controversy as "there is no pending lawsuit against Shea," such a lawsuit is only hypothetical, and nothing currently prevents Plaintiff from selling her home. Doc. Nos. [18-1], pp. 30–32; [23], pp. 13–15. Additionally, Defendants have filed a "Suggestion of Partial Mootness" in which they allege that Plaintiff's declaratory judgment claim is moot because (1) Defendants "notified Plaintiff in writing that [they] would not be seeking specific performance ‘nor will they take any other legal action to block any potential sale of the property,’ " and (2) Plaintiff has since sold the property at issue. Doc. No. [23], pp. 2–3, ¶¶ 4, 8.
In response, Plaintiff argues that there is a live, justiciable controversy because Defendants still have a live breach of contract claim against her and threat of suit is not hypothetical as Defendants had previously filed a suit in state court for breach of the Contract. See Doc. Nos. [19], pp. 30–32; [28]. Plaintiff's arguments are consistent with the allegations in her Complaint. The Complaint alleges that Defendant Best Buy filed a contract action in state court in March 2020, Plaintiff removed that action to this Court on May 28, 2020, and Defendant Best Buy then voluntarily dismissed its action without prejudice on June 3, 2020. Doc. No. [1], pp. 34–35, ¶¶ 134, 139–140 (citing Best Buy Homes, LLC v. Shea, No. 1:20-cv-2276-SCJ, Doc. No. [4] (N.D. Ga. June 3, 2020)).
"Generally, the [Declaratory Judgment] Act allows prospective defendants to sue to establish non-liability, or affords a party threatened with liability an opportunity for adjudication before its adversary commences litigation." Melton v. Century Arms, Inc., 243 F. Supp. 3d 1290, 1308 (S.D. Fla. 2017). The Court agrees with Plaintiff that because Defendants may refile their breach of contract claim and seek damages, a live controversy still exists. However, "district courts possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites." Wilton v. Seven Falls Co., 515 U.S. 277, 282, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995).
The Eleventh Circuit has provided a non-exhaustive list of factors to consider in determining whether to proceed with a declaratory judgment action:
(1) the strength of the state's interest in having the issues raised in the federal declaratory action decided in the state courts;
(2) whether the judgment in the federal declaratory action would settle the controversy;
(3) whether the federal declaratory action would serve a useful purpose in clarifying the legal relations at issue;
(4) whether the declaratory remedy is being used merely for the purpose of "procedural fencing"—that is, to provide an arena for a race for res judicata or to achieve a federal hearing in a case otherwise not removable;
(5) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach on state jurisdiction;
(6) whether there is an alternative remedy that is better or more effective;
(7) whether the underlying factual issues are important to an informed resolution of the case;
(8) whether the state trial court is in a better position to evaluate those factual issues than is the federal court; and
(9) whether there is a close nexus between the underlying factual and legal issues and state law and/or public policy, or whether federal common or statutory law dictates a resolution of the declaratory judgment action.
Ameritas Variable Life Ins. v. Roach, 411 F.3d 1328, 1331 (11th Cir. 2005).
"No single factor is controlling, and the court may find other factors appropriate to consider." Atl. Specialty Ins. Co. v. City of College Park, 319 F. Supp. 3d 1287, 1292 (N.D. Ga. 2018) (citing Ameritas, 411 F.3d at 1331 ). Additionally, "not every factor will be relevant in every case." First Mercury Ins. v. Excellent Computing Distribs., Inc., 648 F. App'x 861, 866 (11th Cir. 2016). "Even in the absence of a parallel [state court] action, application of the Ameritas factors is appropriate." Atl. Specialty Ins., 319 F. Supp. 3d 1287, 1293–94 (N.D. Ga. 2018) (citing First Mercury Ins., 648 F. App'x at 866 ("[W]e have never held that the Ameritas factors apply only when reviewing parallel actions. Indeed, nothing in the Declaratory Judgment Act suggests that a district court's discretionary authority exists only when a pending state proceeding shares substantially the same parties and issues.")).
Here, declaratory judgment as to the Contract's enforceability would resolve any outstanding issues between the Parties. And there is no evidence to suggest that the purpose of filing this action was an attempt at forum-shopping or "procedural fencing." Plaintiff filed this federal action after Defendant Best Buy dismissed its earlier contract action, which it had done after Plaintiff had removed the case to federal court but before Plaintiff could answer. Doc. No. [28], p. 3; see Doc. No. [1], p. 35, ¶¶ 139–140. She asserts that her declaratory judgment claim raises "all the defenses that [Plaintiff] intended to assert in [Defendants’] original breach of contract action." Doc. No. [28], p. 3. And because there is no pending litigation in state or federal court, there is no risk of increased friction between the federal and state courts nor encroachment on state jurisdiction by entertaining the declaratory judgment claim.
However, resolution of Plaintiff's declaratory claim would primarily be a question of Georgia contract law, and thus this Court's decision would most likely affect only state law. Further, "courts generally decline to entertain the declaratory judgment count" where it "would serve no useful purpose because the issues will be resolved by another claim." Organo Gold Int'l, Inc. v. Aussie Rules Marine Servs., Ltd., 416 F. Supp. 3d 1369, 1376 (S.D. Fla. 2019). In deciding whether the Merger Clause bars Plaintiff's fraud-based claims, this Court has determined that the Contract was unenforceable and void due to illegality. But, as discussed above, this Court found that those claims are due to be dismissed for other reasons. Plaintiff's remaining RICO and GUSA claims would not resolve the issue at the heart of the declaratory judgment claim: whether the Contract is enforceable. For the foregoing reasons, this Court finds it appropriate to exercise jurisdiction over Plaintiff's declaratory judgment claim.
The Court recognizes that Plaintiff has asserted violation of federal securities law as a ground for unenforceability of the Contract. Doc. No. [1], p. 37, ¶ 150(b). However, Plaintiff's eight other bases all rest on state law, and the overarching question—whether the Contract is void—is a question of contract law. See id. ¶ 150.
But see Allstate Ins. v. Auto Glass Am., LLC, 418 F. Supp. 3d 1009, 1026 (M.D. Fla. 2019) (holding that a claim for declaratory judgment that was premised on alleged violations set forth in other claims did not have to be dismissed on the basis that it was nothing more than a "mash-up" of all prior claims).
F. Bad Faith and Stubborn Litigiousness Claim
The last count of Plaintiff's Complaint, Count VII, asserts a claim for "bad faith and stubborn litigiousness" and seeks attorney's fees under O.C.G.A. § 13-6-11. Doc. No. [1], pp. 46–47, ¶¶ 197–199. The statute authorizes an award of attorney's fees "where the plaintiff has specially pleaded and has made prayer therefor and where the defendant has acted in bad faith, has been stubbornly litigious, or has caused the plaintiff unnecessary trouble and expense, the jury may allow them." O.C.G.A. § 13-6-11. "A request for attorney's fees under § 13-6-11 is considered specifically pled if it references the statute ‘or the criteria set forth therein.’ " Iroko Partners Ltd. v. Devace Integrated LLC, No. 1:12-CV-01194-SCJ, 2014 WL 11716168, at *10 (N.D. Ga. Jan. 6, 2014) (quoting Dep't of Transp. v. Ga. Television Co., 244 Ga.App. 750, 536 S.E.2d 773, 776 (2000) ).
"However, simply invoking § 13-6-11 is insufficient. If unsupported by an underlying cause of action, a request for attorney's fee under § 13-6-11 is not viable." Id.; see Gilmour v. Gates, McDonald & Co., 382 F.3d 1312, 1316 (11th Cir. 2004). "The fact that [a plaintiff] has pleaded its claim for litigation expenses in a separate count ... from its other claims for relief ... is irrelevant." Tri-State Consumer Ins. v. LexisNexis Risk Sols., Inc., 858 F. Supp. 2d 1359, 1371 (N.D. Ga. 2012). "[W]hat matters is that [the plaintiff] seeks litigation expenses related to a cause of action set forth in its other substantive counts. Thus, [the plaintiff's] ability to state a claim under O.C.G.A. § 13-6-11 depends on whether it has stated at least one viable substantive claim in its [complaint]." Id.
Defendants only address Count VII in a footnote in their brief in support of their Motion to Dismiss. Doc. No. [18-1], p. 10 n.8. Thus, their only argument with respect to Count VII is that O.C.G.A. § 13-6-11 is "not an independent cause of action and therefore does not state a claim." Id. As stated above, this Court will dismiss Plaintiff's claims for fraud, negligent misrepresentation, and promissory estoppel. However, Plaintiff's GUSA, RICO, and declaratory judgment claims remain and may provide a basis for Plaintiff's claim for litigation expenses. See Tri-State Consumer Ins., 858 F. Supp. 2d at 1371.
IV. CONCLUSION
For the reasons discussed above, Defendants’ Motion to Dismiss (Doc. No. [18]) is DENIED as to Counts I, II, V, VII and GRANTED as to Counts III, IV, and VI. Counts III, IV, and VI are hereby DISMISSED without prejudice .
IT IS SO ORDERED this 30th day of March, 2021.