Scott et al v. Vantage Corporation et al
MEMORANDUM ORDER re 7 MOTION to Dismiss for Failure to State a Claim filed by Defendants and 11 Answering Brief in Opposition filed by Wilson Carter, Tara Scott: IT IS ORDERED and ADJUDGED that: 1. Defendants motion to dismiss, pursuant to Fe d. R. Civ. P. 12(b)(6), for failure to state a claim upon which relief can be granted (D.I. 7) be GRANTED as to counts I and IV and DENIED as to counts II, III, V, VI, and VII and 2. Plaintiffs request for leave to amend (D.I. 11) be GRANTED. The amended complaint shall be filed on or before September 22, 2017. Signed by Judge Mary Pat Thynge on 8/15/17. (cak)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
TARA SCOTT and WILSON CARTER,
INDIVIDUALLY AND AS TRUSTEE OF
THE BAILEY MIDDLETON CARTER 2009
TRUST, THE MARY WILSON CARTER
2009 TRUST, and THE WILSON M.
CARTER 1988 TRUST,
VANTAGE CORPORATION, VANTAGE
ADVISORY MANAGEMENT, LLC, VF(X)
LP, TRADELOGIX, LLC, BRIAN ASKEW
and GERALD FINEGOLD,
C.A. No. 17-448-MPT
Plaintiffs Tara Scott and Wilson Carter, individually and as Trustee of the Bailey
Middleton Carter 2009 Trust, the Mary Wilson Carter 2009 Trust, and the Wilson M.
Carter 1988 Trust brought this action against Vantage Corporation, Vantage Advisory
Management, LLC (“Vantage Advisory”), VF(x) LP (“VF(x)”), Tradelogix, LLC
(“Tradelogix”), Brian Askew, and Gerald Finegold on April 20, 2017 alleging violation of
15 U.S.C. § 771 for the sale of unregistered and non-exempt securities (Count I);
violation of O.C.G.A. § 10-5-20 for the sale of unregistered and non-exempt securities
(Count II); violation of O.C.G.A. § 10-5-31 for the sale of unregistered and non-exempt
securities (Count III); violation of 15 U.S.C. § 771(a)(2) due to alleged
misrepresentations in connection with the issuance of securities (Count IV); breach of
fiduciary duty (Count V); negligence (Count VI); and the right to an accounting (Count
Currently before the court is defendants’ motion to dismiss plaintiffs’ complaint,
pursuant to FED. R. CIV. P. 12(b)(6), for failure to state a claim upon which relief can be
Tara Scott (“Scott”) is a citizen of Colorado, while Wilson Carter (“Carter”) is a
citizen of Georgia.4 Carter serves as the Trustee for the Bailey Middleton Carter 2009
Trust, the Mary Wilson Carter 2009 Trust, and the Wilson M. Carter 1988 Trust.5
Brian Askew (“Askew”) resides in Georgia.6 Askew is an officer and a director of
Vantage Corporation.7 Gerald Finegold (“Finegold”) also resides in Georgia, and is a
director and the President of Vantage Corporation.8
Vantage Corporation is a Delaware corporation.9 It maintains its principal place
of business in Alpharetta, Georgia, but is not registered to do business in Georgia.10
Vantage Corporation is a technology and investment company which specializes in
D.I. 1 at 7-12.
The facts contained in this section are primarily from the complaint and
plaintiffs’ answering brief in response to defendants’ motion and are accepted as true
consistent with FED. R. CIV. P. 12(b)(6).
D.I. 1 at ¶¶ 1-2.
Id. at ¶ 3.
Id. at ¶ 8.
Id. at ¶ 9.
Id. at ¶ 4.
proprietary trading technology.11 It claims that it can process substantial amounts of
real time financial trading data to exploit trading opportunities to generate significant
investment returns.12 In 2014, Vantage Corporation sought outside investor funding.13
Askew, on behalf of Vantage Corporation, made general solicitations, including
allegedly soliciting unaccredited investors.14 Notably, all solicitations and investments
relevant to the present case were made in Georgia.15 Askew does not hold a securities
license nor is he a registered investment advisor.16
Vantage Advisory is a Delaware limited liability company.17 It is a subsidiary of
Vantage Corporation and was formed as the investment advisor firm for Vantage
Corporation’s asset management division.18 VF(x), a subsidiary of Vantage
Corporation, is a Delaware limited partnership, and was formed to operate as an
unregistered hedge fund.19 It is the general partner of Vantage Advisory.20 Tradelogix
is a Delaware limited liability company and a subsidiary of Vantage Corporation.21
On January 27, 2016, Carter purchased 476.962702 Class A shares in Vantage
Corporation for $1,000,000.00.22 After executing a Stock Subscription Agreement in
connection with this purchase, Carter subsequently invested an additional
D.I. 8 at 1.
D.I. 1 at ¶ 12.
Id. at ¶ 13.
Id. at ¶¶ 15, 18.
Id. at ¶ 14.
Id. at ¶ 5.
Id. at ¶ 7.
Id. at ¶ 16.
$2,000,000.00 in Vantage Corporation.23 Portions of the investments by Carter were
contributed by the Bailey Middleton Carter 2009 Trust, the Mary Wilson Carter 2009
Trust, and the Wilson M. Carter 1988 Trust.24
On January 28, 2016, Scott purchased an additional 476.962702 Class A shares
in Vantage Corporation for $1,000,000.00.25 She executed a Stock Subscription
Agreement and eventually invested another $1,000,000.00.26 Between September 29,
2016 and October 24, 2016, Scott sold 262.329485 Class A shares, recouping a part of
The stock plaintiffs bought is a “security” within the meaning of the Securities Act
of 1933, 15 U.S.C. § 77b, and the Georgia Securities Act, O.C.G.A. § 10-5-2.28
Plaintiffs allege that at the time the stock was sold, it was not subject to an effective
registration statement or exempt from registration pursuant to either the Georgia
Securities Act or the Securities Act of 1933.29 Plaintiffs claim that they made these
investments and purchased Vantage Corporation stock as the direct result of
misrepresentations and omissions by Askew.30
Before plaintiffs bought the stock, Askew assured them that “70% of their
investment was to be placed in a segregated account for the benefit of each investor.”31
Id.; see also D.I. 8 at Ex. B.
D.I. 1 at ¶ 17.
Id. at ¶ 19.
Id. at ¶ 20.
Id. at ¶ 25; see also 15 U.S.C. § 77b; O.C.G.A. § 10-5-2.
D.I. 1 at ¶ 26; see also O.C.G.A. § 10-5-1; O.C.G.A. § 10-5-10; O.C.G.A.
Id. at ¶ 21.
Id. at ¶ 28.
Ultimately, plaintiffs’ investments were never placed into segregated accounts.32 Askew
also told plaintiffs that Vantage Corporation was raising funds for a general partnership
structure, which would allow investors to own the company, its intellectual property, as
well as share in future revenue streams.33 Askew further represented that, through their
investment, plaintiffs would become general partners of a Vantage-related entity.34
However, plaintiffs never became general partners of any of the Vantage-related
entities.35 Instead, plaintiffs are minority shareholders in Vantage Corporation.36
Askew also represented to plaintiffs that Vantage Corporation’s “systems and
strategies reached a level of maturity and stability to invest significantly large amounts
of trading capital.”37 He further claimed that Vantage Corporation “held 100% ownership
of all the proprietary software and systems or intellectual property needed for its
business model.”38 However, TradeVue, LLC (“TradeVue”) owned the purported
proprietary technology and system.39 After plaintiffs’ invested, Vantage Corporation
paid TradeVue $2,447,853.00 for the software and intellectual property.40 Askew is the
sole and managing member of TradeVue, and plaintiffs maintain that he received all or
a significant portion of the $2,447,853.00 payment.41
Since investing in Vantage Corporation, plaintiffs made multiple inquiries about
Id. at ¶ 31.
Id. at ¶ 32.
Id. at ¶ 33.
Id. at ¶ 36.
Id. at ¶ 37.
Id. at ¶ 40.
Id. at ¶ 41.
Id. at ¶ 40.
their role in the company and learn of the sources and uses of their investments.42
Vantage Corporation and Askew refused to provide plaintiffs any information regarding
their investments.43 In the complaint, plaintiffs tendered back their Vantage Corporation
stock to defendants.44
In analyzing a motion to dismiss under FED. R. CIV. P. 12(b)(6), a review of Rule
8(a)(2) is necessary. It requires that a pleading contain a “short and plain statement of
the claim showing that the pleader is entitled to relief.”45 That standard “does not
require ‘detailed factual allegations,’ but . . . demands more than an unadorned, thedefendant-unlawfully-harmed me accusation.”46 Thus, to survive a motion to dismiss
under Rule 12(b)(6), a complaint “must contain sufficient factual matter, accepted as
true, to ‘state a claim for relief that is plausible on its face.’”47 The purpose of a Rule
12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve
disputed facts or decide the merits of the case.48 Evaluating a motion to dismiss under
Rule 12(b)(6) requires the court to accept as true all material allegations of the
complaint.49 “The issue is not whether a plaintiff will ultimately prevail, but whether the
Id. at ¶ 42.
Id. at ¶ 43.
Id. at ¶ 44.
FED. R. CIV. P. 8(a)(2).
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007)).
Id. (quoting Twombly, 550 U.S. at 570); see also FED. R. CIV. P. 12(b)(6).
Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993).
Spruill v. Gillis, 372 F.3d 218, 223 (3d Cir. 2004).
claimant is entitled to offer evidence to support the claims.”50 A motion to dismiss may
be granted only if, after, “accepting all well-pleaded allegations in the complaint as true,
and viewing them in the light most favorable to the plaintiff, plaintiff is not entitled to
To survive a motion to dismiss under rule 12(b)(6), the factual allegations must
be sufficient to “raise a right to relief above the speculative level, on the assumption that
all the allegations in the complaint are true (even if doubtful in fact).”52 A plaintiff is
obliged “to provide the ‘grounds’ of his entitle[ment] to relief’” beyond “labels and
conclusions.”53 Heightened fact pleading is not required: rather “enough facts to state a
claim to relief that is plausible on its face” must be alleged.54 Rejected are unsupported
allegations, “bald assertions,” or “legal conclusions.”55 Further, “the tenet that a court
must accept as true all of the allegations contained in the complaint is inapplicable to
legal conclusions.”56 The analysis is a “context-specific task that requires the reviewing
In re Burlington Coat Factory Secs. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997)
(internal quotation marks and citations omitted).
Maio v. Aetna, Inc., 221 F.3d 472, 481-82 (3d Cir. 2000) (internal quotation
marks and citations omitted).
Twombly, 550 U.S. at 555; see also Victaulic Co. v. Tieman, 499 F.3d 227, 234
(3d Cir. 2007).
Twombly, 550 U.S. at 555.
Id. at 570.
Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements do not suffice.”); see also Morse v.
Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (“[A] court need not credit a
complaint’s ‘bald assertions’ or ‘legal conclusions’ when deciding a motion to dimiss.”)
(citations omitted); Schuylkill Energy Res., Inc. v. Pennsylvania Power & Light Co., 113
F.3d 405, 417 (3d Cir. 1997) (“unsupported conclusions and unwarranted inferences”
are insufficient.); Nami v. Fauver, 82 F.3d 63, 69 (3d Cir. 1996) (allegations that are
“self evidently false” are not accepted.).
Iqbal, 556 U.S. at 678; see also Twombly, 550 U.S. at 555 (A court is “not
bound to accept as true a legal conclusion couched as a factual allegation.”).
court to draw on its judicial experience and common sense.”57 Well-pled facts which
only infer the “mere possibility of misconduct” do not show that “the pleader is entitled to
relief” under Rule 8(a)(2).58 “When there are well-pleaded factual allegations, a court
should assume their veracity and then determine whether they plausibly give rise to an
entitlement of relief.59
Federal Securities Claims (Counts I and IV)
Plaintiffs assert defendants violated 15 U.S.C. §§ 771 and 771(a)(2) for
the sale of unregistered and non-exempt securities and for misrepresentations in
connection with the issuance of these securities.60 Defendants respond that, inter alia,
these claims are barred by the statute of limitations.61 Plaintiffs argue their claims are
not barred by the applicable statute of limitations because “the bar is not apparent on
the face of the complaint” and therefore, dismissal is improper.62 Plaintiffs allege they
made subsequent purchases of Vantage Corporation shares which fall within the
limitations’ period, pointing to paragraphs 16 and 19 of the complaint in support.63
Plaintiffs’ claims for violation of the Securities Act of 1933 are barred by the
statute of limitations. Claims for the sale of unregistered securities are limited by a oneyear limitations period.64 Furthermore, neither the discovery rule nor equitable tolling
Iqbal, 556 U.S. at 679.
D.I. 1 at ¶¶ 46, 64.
D.I. 8 at 4-6; D.I. 12 at 1-3.
D.I. 11 at 4.
Id.; see D.I. 1 at ¶¶ 16, 19.
15 U.S.C.A. § 77m (West).
are applicable.65 Plaintiffs state they purchased shares on January 27, 2016 and
January 28, 2016, but fail to provide the dates of the subsequent purchases which fall
within the limitations period in either the complaint or their answering brief.66 Since
plaintiffs’ complaint was filed on April 20, 2017, almost four months after the statute of
limitations ran, Counts I and IV should be dismissed for failure to state a claim.
Accordingly, the court need not address plaintiffs’ additional arguments.
Defendants ask the court to decline exercising supplemental jurisdiction over the
remaining state claims.67 In the interests of “judicial economy, convenience, and
fairness to the parties,” and because neither party has demonstrated hardship, the court
denies defendants’ request and supplemental jurisdiction is applied to address the state
State Securities Claims
O.G.C.A. § 10-5-20 (Count II)
Plaintiffs aver defendants violated O.C.G.A. § 10-5-20 by selling
Vantage Corporation shares that are not federally covered securities, which makes
them subject to proper registration and not exempt from registration.69 Defendants, on
whom the burden of proof lies regarding this issue, argue that the shares are exempt
Pell v. Weinstein, 759 F. Supp. 1107, 1111 (M.D. Pa. 1991), aff’d without
opinion, 961 F.2d 1568 (3d Cir. 1992) (The language of the statute militates against the
application of either the discovery rule or equitable tolling.).
D.I. 1 at ¶¶ 16, 19; See generally D.I. 1; D.I. 11.
D.I. 8 at 11-12.
See Hedges v. Musco, 204 F.3d 109, 123 (3d Cir. 2000); see also United
States v. Medco Health Solutions, Inc., C.A. No. 11–684–RGA, 2017 WL 63006, at *13
(D. Del. Jan 5, 2017); 28 U.S.C. § 1367.
D.I. 1 at ¶¶ 51-56.
from registration.70 Defendants fail to demonstrate that the shares were exempt from
registration.71 Moreover, raising the issue of exemption during a Rule 12(b)(6) motion to
dismiss is “premature.”72 As a result, plaintiffs meet the pleading requirements of Rule
O.C.G.A. § 10-5-31 (Count III)
Plaintiffs maintain defendants violated O.C.G.A. § 10-5-31 because
Askew sold Vantage Corporation shares while he was not registered with the Georgia
Commissioner of Securities at the time of the sale.73 Defendants again contend that
plaintiffs failed to plead sufficient facts to withstand Rule 12(b)(6) scrutiny, and that the
defendant corporations cannot be held liable because the statute only applies to
Plaintiffs raise a plausible claim to relief for violation of O.C.G.A. § 10-5-31. They
clearly allege that Askew transacted business in Georgia as an agent by selling Vantage
Corporation shares and was not registered as a securities salesperson or an investment
advisor with the Georgia Commissioner of Securities at the time of the sales.75
Although defendants characterize these assertions as bald legal conclusions in an
attempt by plaintiffs to “conjure up a claim,” the court finds that these are factual
allegations that, when accepted as true, state a plausible claim for relief pursuant to
D.I. 8 at 12; Jenkins v. Fid. Bank, 365 F. Supp. 1391, 1396 (E.D. Pa. 1973);
Securities and Exch. Commn. v. Ralston Purina Co., 346 U.S. 119, 126 (1953).
See generally D.I. 8; D.I. 12.
Jenkins, 365 F. Supp. 1391, 1396 (E.D. Pa. 1973).
D.I. 1 at ¶¶ 57-62; D.I. 12 at 6-7.
D.I. 8 at 13-14; D.I. 12 at 6-7.
D.I. 1 at ¶ 58.
Breach of Fiduciary Duty (Count V)
Plaintiffs argue that defendants owed a fiduciary duty and subsequently
breached that duty via the alleged misrepresentations and omissions of Askew.77
Defendants respond that plaintiffs’ claim for breach of fiduciary duty sounds in fraud,
and should be dismissed because it fails to meet the heightened pleading requirements
of FED. R. CIV. P. 9(b).78
Delaware law holds that Rule 9(b) generally does not apply to state law claims
for alleged breach of fiduciary duty.79 Furthermore, Rule 9(b) was not triggered in In re
Fruehauf Trailer Corp.,80 a case on which defendants rely, and involved similar
allegations that the defendant knew or should have known certain misrepresentations to
be false in connection with selling securities.81 Defendants’ argument, therefore, does
not support the application of Rule 9(b).
Defendants further contend that plaintiffs’ allegations are premised on conduct
which occurred before they became stockholders, and as a result, no fiduciary
relationship existed.82 Plaintiffs maintain that their breach of fiduciary duty claim is
D.I. 8 at 14.
D.I. 1 at ¶¶ 70-75.
D.I. 8 at 16-17; D.I. 12 at 8- 9; see also FED. R. CIV. P. 9(b).
In re Fruehauf Trailer Corp., 250 B.R. 168, 197 (D. Del. 2000).
250 B.R. 168 (D. Del. 2000).
See Buckley v. O’Hanion, C.A. No. 04-955-GMS 2007 WL 956947, at *5 (D.
Del. Mar. 28, 2007).
D.I. 8 at 17; D.I. 12 at 8-9.
D.I. 11 at 11-13.
“[F]iduciary duties are imposed on the directors of Delaware corporations to
regulate their conduct when they discharge that function.”84 Directors owe a duty of
loyalty, due care, and good faith to both the corporation and the shareholders.85 “The
directors’ fiduciary duties include the duty to deal with their stockholders honestly.”86
Plaintiffs adequately plead sufficient facts to show that a fiduciary relationship
existed and was breached by defendants. Although certain of the alleged
misrepresentations and omissions occurred before plaintiffs bought Vantage
Corporation shares, this conduct and the conduct which transpired after the purchase,
when accepted as true, show defendants breached their fiduciary duties.87 Accordingly,
plaintiffs’ allegations are sufficient under Rule 12(b)(6).
Negligence (Count VI)
Plaintiffs assert defendants owed a duty of care to them as shareholders
and purchasers of Vantage Corporation shares, and defendants breached that duty
based on the acts and omissions of Askew.88 Defendants argue plaintiffs merely recite
the elements of negligence devoid of any specific factual allegations that provide the
Malone v. Brincat, 722 A.2d 5, 9 (Del. Supr. 1998) (citing Mills Acquisition Co.
v. Macmillan, Inc., 559 A.2d 1261, 1280 (Del. Supr. 1989)).
See id. at 9.
See D.I. 1 at ¶¶ 41-43; D.I. 11 at 13 (“Askew violated his fiduciary duties to [p]laintiffs
by repeatedly failing to disclose to [p]laintiffs their roles in Vantage Corporation as well
as the sources and uses of their funds in the company. Askew also violated his
fiduciary duties when he effectively pocketed their investment. Finally, Askew continued
to make representations to [p]laintiffs regarding (1) how [p]laintiffs’ investments were
being used; (2) [p]laintiffs’ roles in Vantage; and (3) Vantage’s current operational
capabilities, including its ownership of relevant software and intellectual property.”).
D.I. 1 at ¶¶ 76-82; D.I. 11 at 14.
required notice of the claim against them.89
Plaintiffs plead sufficient factual allegations to state a claim for relief. In their
complaint, they allege Askew represented that 70% of their investment would be kept in
separate accounts, by investing they would become general partners in Vantage
Corporation, and Vantage Corporation owned 100% of its proprietary software, to
induce Carter and Scott to invest.90 These representations, which are asserted as
untrue and occurred after the purchase of Vantage Corporation shares, are sufficient to
raise a claim to satisfy the pleading requirements for a claim of negligence.91
Accounting (Count VII)
Count VII in plaintiffs’ complaint is a claim for accounting.92 Defendants
argue that because plaintiffs fail to adequately plead breach of fiduciary duty, the
accounting claim should be dismissed.93 Conversely, plaintiffs assert since they
adequately pled breach of fiduciary duty, they are entitled to an accounting to determine
the amount of damages sustained.94
Delaware law recognizes accounting as an equitable remedy rather than an
equitable claim.95 Whether plaintiffs are entitled to an accounting is dependent on the
D.I. 8 at 18; D.I. 12 at 9-10.
D.I. 1 at ¶¶ 28-30, 32-35, 37-39.
Fanean v. Rite Aid Corp. of Del., 984 A.2d 812, 823 (Del. Super. 2009) (A
claim of negligence requires a showing of duty, a breach of that duty, proximate
causation, and damages.).
D.I. 1 at ¶¶ 83-88.
D.I. 8 at 18-19; D.I. 12 at 10.
D.I. 1 at ¶¶ 83-88; D.I. 11 at 15.
Garza v. Citigroup Inc., 192 F. Supp. 3d 508, 512 (D. Del. 2016),
reconsideration denied sub nom. Lopez Garza v. Citigroup, Inc., C.A. No. 15-537-SLR,
2016 WL 7197364 (D. Del. Dec. 9, 2016).
success of their claim for breach of fiduciary duty.96 Since the court previously
determined that plaintiffs’ claim for breach of fiduciary duty is adequately pled, their
request for an accounting is sufficiently pled.
Opportunity to Amend
Plaintiffs request that should this court find any claim inadequately pled,
dismissal should be without prejudice with leave to amend.97 Defendants maintain that
plaintiffs’ claims be dismissed with prejudice.98 Plaintiffs’ complaint was filed on April
20, 2017. Roughly two months later on June 26, 2017, defendants’ present motion was
In light of the above and consistent with principles of Foman v. Davis and FED. R.
CIV. P. 15(a)(2), plaintiffs’ leave to amend is granted.100
For the foregoing reasons, it is ORDERED and ADJUDGED that:
1. Defendants’ motion to dismiss, pursuant to FED. R. CIV. P. 12(b)(6), for failure
to state a claim upon which relief can be granted (D.I. 7) be GRANTED as to counts I
and IV and DENIED as to counts II, III, V, VI, and VII.
2. Plaintiffs’ request for leave to amend (D.I. 11) be GRANTED. The amended
Garza, 192 F. Supp. 3d 508, 512 (D. Del. 2016); see also Rhodes v. Silkroad
Equity, LLC, Civ. No. 2133–VCN, 2007 WL 2058736, at *11 (Del. Ch. July 11, 2007).
D.I. 11 at 15.
D.I. 8 at 2.
D.I. 1; D.I. 7.
371 U.S. 178, 182 (1962) (“In the absence of any apparent or declared
reason—such as undue delay, bad faith or dilatory motive on the part of the movant,
repeated failure to cure deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the amendment, futility of
amendment, etc.—the leave sought should, as the rules require, be ‘freely given.’”).
complaint shall be filed on or before September 22, 2017.
Dated: August 15, 2017
/s/ Mary Pat Thynge
CHIEF U.S. MAGISTRATE JUDGE
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