Dyck v. Blake et al

Filing 35

AMENDED ORDER re: 33 Order on Motion to Dismiss for Failure to State a Claim. Signed by Judge David G Campbell on 5/16/2014. (DGC, nvo)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Stanley Dyck,

No. CV-13-02461-PHX-DGC
Plaintiff,

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v.

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AMENDED ORDER

Michael J. Blake, et al.,

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Defendants.

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Defendant Ameritas Investment Corp. has filed a motion to dismiss under

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Rule 12(b)(6). Doc. 24. The motion has been fully briefed. For the reasons set forth

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below, the motion will be denied.1

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I.

Background.

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Plaintiff, who resides in New Mexico, alleges that he opened a personal retirement

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account and retirement accounts for his employees with Defendant Michael Blake, a

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securities representative and alleged agent of Defendant Ameritas Investment Corp.

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(“Ameritas”). Doc. 1. Plaintiff executed a written statement that he was a conservative

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investor, with minimal tolerance for risk. Id., ¶¶ 21-22. Plaintiff gave Blake discretion

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over the Ameritas accounts, allowing him to buy and sell without Plaintiff’s prior

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approval, which Blake did. Ameritas sent annual summaries of the account activities to

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Defendant’s request for oral argument is denied because the issues have been
fully briefed and oral argument will not aid the Court’s decision. See Fed. R. Civ. P.
78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998).

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Plaintiff. Id., ¶¶ 20, 23-24. Blake allegedly represented to Plaintiff in writing that all

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investment advice rendered by Blake was through Defendant. ¶ 26.

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Blake eventually moved to Arizona, at which time he informed Plaintiff that he

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was doing business as “Olympus Financial Advisors, LLC” and “Olympus Financial

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Advisors Peak,” and began using the email address [e-mail] for

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communications with Plaintiff. Id. ¶¶ 27-30. Plaintiff alleges that these emails contained

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a statement that securities were being offered solely through Ameritas. Id. ¶ 32.

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In July 2008, Blake contacted Plaintiff by telephone and convinced him to invest

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$100,000 in a bridge loan for an office building in the Chicago area, advising Plaintiff

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that the developers were successful and profitable, the investment was safe, and the loan

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would generate a 25% annual return. Id. ¶¶ 39-44. Blake instructed Plaintiff to make his

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$100,000 check payable to “Longest Drive LLC,” which Plaintiff alleges was wholly

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owned by Blake and his wife. Id., ¶¶ 34, 44. Plaintiff does not allege that Ameritas was

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involved in the bridge loan or knew Blake was offering it to Plaintiff, but that “based on

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the broker-dealer relationship with Ameritas, [Blake] ostensibly represented that this was

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investment advice being provided by Ameritas and thus this was an Ameritas investment

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transactions, [sic] the same as plaintiff’s other Ameritas investments.” Id., ¶ 48.

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Plaintiff claims that he was defrauded in connection with the $100,000 investment.

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Id., ¶¶ 50-63. Plaintiff asserts that Blake concealed key facts about the transaction,

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including the property address, that there was no collateral, and that the project was in

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financial trouble. Id. at 64. Plaintiff has sued Blake for fiduciary misconduct and fraud,

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and Ameritas for breach of fiduciary duty. Id.

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II.

Legal Standard.

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When analyzing a complaint for failure to state a claim to relief under Rule

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12(b)(6), the well-pled factual allegations are taken as true and construed in the light

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most favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th

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Cir. 2009). Legal conclusions couched as factual allegations are not entitled to the

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assumption of truth, Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009), and therefore are

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insufficient to defeat a motion to dismiss for failure to state a claim, In re Cutera Sec.

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Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). To avoid a Rule 12(b)(6) dismissal, the

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complaint must plead enough facts to state a claim to relief that is plausible on its face.

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Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This plausibility standard “is not

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akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a

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defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at

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556). “[W]here the well-pleaded facts do not permit the court to infer more than the mere

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possibility of misconduct, the complaint has alleged B but it has not ‘show[n]’ B ‘that the

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pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).

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III.

Analysis.

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Ameritas argues that Plaintiff has failed to support his allegation that Ameritas had

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a fiduciary duty to Plaintiff, and, even if such a duty existed, that Ameritas breached the

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duty. Id. at 9-12.

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A.

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Plaintiff asserts that Ameritas had a fiduciary relationship with Plaintiff because

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the company held $700,000 of his investment funds. Id., ¶ 67. Plaintiff argues that

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Ameritas had a duty to oversee the dealings that its agent Blake had with Plaintiff,

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“including auditing and reviewing incoming and outgoing e-mails regarding all matters,”

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overseeing Blake’s management of customers’ investments, and ascertaining whether or

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not Blake was selling unregistered securities by “monitor[ing] his activities, examin[ing]

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his emails, incoming and outgoing, sent through the ofapeak.us address.” Id., ¶¶ 73-75.

Duty.

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Ameritas admits that Blake had a fiduciary duty to his customers under the

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Investment Advisor’s Act (“IAA”), but argues that broker-dealers like Ameritas do not.

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Doc. 24 at 11. Ameritas argues that it had no discretion or control over Plaintiff’s

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investment accounts or decisions regarding those accounts, and therefore was required to

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comply only with the federal “suitability standards” promulgated under Conduct Rule

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2111 of the Financial Industry Regulatory Authority (FINRA), rather than any fiduciary

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duty to Plaintiff. Id. at 11-12.

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Ameritas has not shown that the alleged fiduciary duty in this case is legally

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unfounded. Ameritas cites Thomas v. Metro. Like Ins. Co., 631 F.3d 1153 (10th Cir.

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2011), without providing a page citation, but does not address whether the two

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requirements identified in that case – advice incidental to conduct as a broker and the

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absence of special compensation – are satisfied here. Nor does Ameritas address whether

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the holding of Thomas applies in light of Ninth Circuit law.

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Ameritas also cites Hoffman v. UBS-AG, 591 F.Supp.2d 522 (S.D.N.Y. 2008), but

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that case relies on Press v. Chem. Inv. Servs. Corp., 166 F.3d 529, 536 (2d Cir.1999),

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which in turn relies on the New York common law of fiduciary duty. Id. Ameritas does

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not claim that New York common law applies in this case, nor does he address relevant

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Ninth Circuit law on the subject.

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In addition, the complaint alleges a fiduciary duty owed to Plaintiff under the New

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Mexico Security Act. Doc. 1 at 19 (citing N.M.S.A. §§ 58-13-B-40(A); 58-13-C-501,

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502 and 509(B)). The New Mexico Act makes it unlawful for a person, “in connection

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with the offer, sale or purchase of a security, directly or indirectly: (A) to employ a

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device, scheme or artifice to defraud; (B) to make an untrue statement of a material fact

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or to omit to state a material fact necessary in order to make the statement made, in the

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light of the circumstances pursuant to which it is made, not misleading; or (C) to engage

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in an act, practice or course of business that operates or would operate as a fraud or deceit

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upon another person.” N.M.S.A. § 58-13C-501. The Act specifically prohibits such

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conduct by investment advisers (§ 58-13C-502) and imposes liability for the sale of

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securities “by means of an untrue statement of a material fact or an omission” (§ 58-13C-

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509(B)). New Mexico law also imposes joint and several liability on “a person that

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directly or indirectly controls a person liable” for such conduct.2 Id. at § 58-13C-

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509(G)(1). A controlling person may avoid liability by showing that it “did not know,

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In his Complaint, Plaintiff cites to numerous provisions of New Mexico’s
Security Act, including §§ 58-13C-501, 502 and 509(B), but does not specifically cite
subsection 509(G). The Court, however, will construe Plaintiff’s allegations to include
the applicable section of the Act.
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and in the exercise of reasonable care could not have known, of the existence of [the]

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conduct.” Id. at § 58-13C-509(G)(1).

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Ameritas argues in a three-sentence footnote that if any state’s law applies, it is the

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law of Nebraska where the Ameritas accounts were based. Doc. 24 at 9 n. 3. But

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Ameritas provides no choice-of-law analysis and fails to address whether it is a

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controlling person under the New Mexico statute.

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The Court concludes that Ameritas has not, at this stage of the litigation, shown

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the absence of a fiduciary duty. The Court cannot grant the motion to dismiss on this

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ground.

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B.

Breach and Proximate Cause.

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Ameritas argues that even if a fiduciary duty existed, Plaintiff has not alleged any

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actions by Ameritas that constituted a breach of the duty or caused the injury complained

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of by Plaintiff. Doc. 24 at 12-15. Ameritas argues that the only factual averment in the

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complaint, “even implying that Ameritas breached its fiduciary duties,” is Plaintiff’s

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contention that on July 2, 2010, Blake sent Plaintiff an email from his ofapeak.us email

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address referencing the problems with the development project, and that the email

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contained a disclosure that the services and securities offered were through Defendant.

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Id. at 13. Ameritas claims this is insufficient to state a claim for breach of a fiduciary

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duty. In response, Plaintiff claims that Defendant’s fiduciary duty carried with it a duty

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to oversee the actions of Blake, and that Ameritas breached this duty because it “was

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aware or should have been aware that Michael Blake was selling unregistered loan

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securities under the Ameritas umbrella of trust.” Id., ¶¶ 71, 76.

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Because the July 2, 2010 email was sent almost two years after Plaintiff made the

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bridge loan investment at issue in this case, Defendant’s failure to note the suspicious

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nature of the email could not have caused the injury alleged by Plaintiff. The same is true

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for the four emails that Plaintiff’s complaint notes were sent by Blake from a non-

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Ameritas email account beginning in October 2010. Doc. 1, ¶ 69.

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Plaintiff’s complaint also asserts, however, that Defendant had a duty to oversee

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Blake’s actions, including ascertaining whether Blake was selling unregistered loan

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securities. Id., ¶¶ 71, 73, 75. And Ameritas itself admits that it had an obligation to

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“ensur[e] trades made through the firm were appropriate based on Plaintiff’s investment

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profile.” Doc. 24 at 12 (emphasis in original). The complaint alleges that the bridge loan

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investment was not suitable and that the failure by Ameritas to oversee Blake’s actions

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was a proximate cause of Plaintiff’s injuries. These allegations sufficiently state a claim

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for breach of fiduciary duty.

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IT IS ORDERED that Defendants motion to dismiss claims against Defendant
Ameritas (Doc. 24) is denied.
Dated this 16th day of May, 2014.

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