2002 JBO Trust No 1 et al v. Royal Bank of Canada et al
Filing
54
ORDER AND REASONS granting 32 Motion to Dismiss Case; granting 21 Motion to Dismiss for Failure to State a Claim. Signed by Chief Judge Sarah S. Vance on 3/8/13. (jjs, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
2002 JBO TRUST NO. 1, JOHN
BREWSTER OHLE III, DUMAINE
GROUP LLC
CIVIL ACTION
VERSUS
NO: 12-1344
ROYAL BANK OF CANADA ET AL.
SECTION: R
ORDER AND REASONS
Before the Court is the motion to dismiss of defendants
Royal Bank of Canada and RBC Dain Rauscher Inc.1 Also before the
Court is the motion to dismiss of John Kruse and Mark Love, who
join RBC’s motion and submit additional grounds for dismissal.2
Because plaintiffs have failed to state claims on which relief
can be granted, the Court GRANTS defendants’ motions.
I.
BACKGROUND
This dispute arises out of financial transactions set up by
plaintiff John Brewster Ohle III and defendants Royal Bank of
Canada (RBC), RBC Dain Rauscher Inc., Mark Love, John Kruse, and
others. In February 2002, Ohle formed the limited liability
company Dumaine Group LLC, which began discussions with RBC about
an investment structure RBC had designed.3 RBC employee John
1
R. Doc. 21.
2
R. Doc. 32.
3
R. Doc. 1 at 3.
Kruse described a tax-advantaged investment in which clients
would make a small investment in a portfolio structured to
exploit the price movement of foreign currencies.4 Plaintiffs
allege that Kruse provided them with RBC materials indicating
that the investments would produce a sizeable return, as well as
a proper tax deduction.5 Mark Love, an employee of RBC’s
subsidiary Dain Rauscher, assisted in the marketing and design of
the RBC transaction.6 Upon the recommendation of Dumaine and
Ohle, several entities entered into the RBC transaction on
December 19, 2002, including the 2002 JBO Trust No. 1, which was
established in 2002 for the benefit of Ohle’s children.7 Ohle
reported all income or losses from the JBO Trust on his personal
income returns in 2002.8
In April 2003, the Internal Revenue Service (IRS) issued
Information Disclosure Requests to Dumaine regarding its
activities with the RBC investment structure.9 In December 2003,
the IRS issued the following notice:
4
R. Doc. 1.
5
Id. at 4.
6
Id.
7
Id. at 5.
8
Id.
9
Id. at 6.
2
The Internal Revenue Service and the Treasury Department are
aware of a type of transaction, described below, in which a
taxpayer claims a loss upon the assignment of a section 1256
contract to a charity but fails to report the recognition of
gain when the taxpayer’s obligation under an offsetting nonsection 1256 contract terminates. This notice alerts
taxpayers and their representatives that these transactions
are tax avoidance transactions.10
Plaintiffs state that, pursuant to the notice, Ohle disclosed JBO
Trust’s involvement in the RBC investment transaction, which fell
under the section 1256 contracts identified in the IRS notice.
Plaintiffs claim that Ohle was unaware that his involvement in
the RBC investments was subject to a criminal complaint until
November 13, 2008, when he was indicted.
In 2010, plaintiff was convicted of conspiracy to defraud an
agency of the United States, specifically the IRS, and two counts
of attempted tax evasion. His conviction was affirmed by the
Second Circuit Court of Appeals on October 20, 2011. See United
States v. Ohle, 441 Fed. Appx. 798 (2d Cir. 2011). On May 24,
2012, Ohle, along with 2002 JBO Trust No. 1 and the Dumaine
Group, filed suit in this Court against defendants, claiming that
they set up fraudulent financial schemes that plaintiffs did not
know were illegal until defendants Kruse and Love testified
against Ohle at his trial. Plaintiffs allege violations of the
Racketeer Influenced and Corrupt Organizations (RICO) statute,
federal and Louisiana securities law, Louisiana Unfair Trade
10
R. Doc. 1 at 6.
3
Practices Act, and the Illinois Consumer Fraud and Deceptive
Business Practices Act, as well as civil fraud, civil conspiracy,
unjust enrichment, and breach of contract and fiduciary duty
under Louisiana law.11
Defendants RBC and RBC Dain Rauscher filed a motion to
dismiss on the grounds that plaintiffs’ claims are collaterally
estopped and/or barred by the doctrine of in pari delicto due to
Ohle’s criminal conviction, are time-barred, and that venue is
improper.12 Defendants Kruse and Love also filed a motion to
dismiss in which they join RBC’s motion. In addition, they argue
that plaintiffs’ complaint fails to assert facts demonstrating
that the Court may exercise personal jurisdiction over defendants
and that plaintiffs’ cause of action under RICO is barred under
the Private Securities Litigation Reform Act.13
II.
MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION
A. Standard
When a nonresident defendant moves the court to dismiss for
lack of personal jurisdiction, the plaintiff bears the burden to
show that personal jurisdiction exists. Stuart v. Spademan, 772
F.2d 1185, 1192 (5th Cir. 1985). The allegations of the
11
R. Doc. 1.
12
R. Doc. 21.
13
R. Doc. 32.
4
complaint, except as controverted by opposing affidavits, must be
taken as true, and all conflicts in the facts must be resolved in
favor of plaintiffs. Thompson v. Chrysler Motors Corp., 755 F.2d
1162, 1165 (5th Cir. 1985). In making its determination, the
Court may consider “affidavits, interrogatories, depositions,
oral testimony, or any combination of ... recognized [discovery]
methods.” Id.
A court has personal jurisdiction over a nonresident
defendant if (1) the forum state's long-arm statute confers
personal jurisdiction over that defendant, and (2) the forum
state's exercise of jurisdiction complies with the Due Process
Clause of the Fourteenth Amendment. Latshaw v. Johnson, 167 F.3d
208, 211 (5th Cir. 1999). Because Louisiana's long-arm statute,
La.Rev.Stat. § 13:3201, et seq., extends jurisdiction to the full
limits of due process, the Court's focus is solely on whether the
exercise of its jurisdiction in this case satisfies federal due
process requirements. Dickson Marine Inc. v. Panalpina, Inc., 179
F.3d 331, 336 (5th Cir. 1999)(citing La. Rev. Stat. §13:3201(B)).
The exercise of personal jurisdiction over a nonresident
defendant satisfies due process when (1) the defendant has
purposefully availed himself of the benefits and protections of
the forum state by establishing “minimum contacts” with that
state, and (2) exercising personal jurisdiction over the
defendant does not offend “traditional notions of fair play and
5
substantial justice.” Latshaw, 167 F.3d at 211 (citing Int'l Shoe
Co. v. Wa., 326 U.S. 310, 316 (1945)).
There are two ways to establish minimum contacts: specific
jurisdiction and general jurisdiction. Wilson v. Belin, 20 F.3d
644, 647 (5th Cir. 1994). General jurisdiction will attach, even
if the act or transaction sued upon is unrelated to the
defendant's contacts with the forum state, if the defendant has
engaged in “systematic and continuous” activities in the forum
state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466
U.S. 408, 414 n. 9 (1984); Wilson, 20 F.3d at 647. Contacts
between a defendant and the forum state must be “extensive” to
satisfy the “systematic and continuous” test. Submersible Sys.,
Inc. v. Perforadora Cent., S.A. de C.V., 249 F.3d 413, 419 (5th
Cir. 2001). See also Goodyear Dunlop Tires Operations, S.A. v.
Brown, 131 S.Ct. 2846, 2853–54 (2011)(“For an individual, the
paradigm forum for the exercise of general jurisdiction is the
individual's domicile; for a corporation it is an equivalent
place, one in which the corporation is fairly regarded as at
home.”).
Specific jurisdiction exists when a nonresident defendant
“has purposefully directed its activities at the forum state and
the litigation results from alleged injuries that arise out of or
related to those activities.” Panda Brandywine Corp. v. Potomac
Elec. Power Co., 253 F.3d 865, 867 (5th Cir. 2001); Helicopteros,
6
466 U.S. at 414 n. 8. The minimum contacts showing may be
established by actions, or even just a single act, by the
nonresident defendant who “purposefully avails itself of the
privilege of conducting activities within the forum state, thus
invoking the benefits and protections of its laws.” Burger King
Corp. V. Rudzewicz, 471 U.S. 462, 475 (1985). Purposeful
availment “must be such that the defendant ‘should reasonably
anticipate being haled into court’ in the forum state.” Ruston
Gas Turbines Inc. v. Donaldson Co., 9 F.3d 415, 418 (5th Cir.
1993)(citing World–Wide Volkswagen Corp. v. Woodson, 444 U.S.
286, 297 (1980)). Whether the Court has specific jurisdiction
over defendants John Kruse and Mark Love is at issue here,
because plaintiffs do not argue that general jurisdiction exists.
B. Discussion
Plaintiffs contend that because Kruse and Love engaged in
transactions with and provided materials to 2002 JBO Trust No. 1,
a Louisiana trust, they purposely directed their activities
towards the state. Further, plaintiffs argue that their alleged
injuries were felt in Louisiana and arise out of or relate to the
actions taken by Love in designing and marketing RBC’s 1256 tax
shelter and Kruse’s design, marketing, implementation, and
documentation of the tax shelter. Plaintiffs do not allege that
either defendant traveled to Louisiana to conduct the business at
issue here.
7
In examining an individual’s relevant contacts with a forum,
courts consider whether a party directed specific acts towards a
forum and assess the foreseeable effects of an intentional tort.
See Allred v. Moore & Peterson, 117 F.3d 278, 286-87 (5th Cir.
1997). That a party merely contracts with a resident of the forum
state does not satisfy the requirement of minimum contacts. See
Holt Oil & Gas Corp. v. Harvey, 801 F.2d 773, 778 (5th Cir.
1986). But, the Fifth Circuit Court of Appeals has distinguished
communications that solicit business or negotiate contracts from
communications “the actual content of [which] . . . gives rise to
intentional tort causes of action.” Wien Air Alaska, Inc. v.
Brandt, 195 F.3d 208, 213 (5th Cir. 1999). In Wien Air, the
plaintiff sued an attorney for fraud, fraudulent inducement,
breach of contract, and breach of fiduciary duties. Id. at 211.
The attorney lived in Germany but had sent letters and faxes and
made phone calls to Texas, all of which allegedly contained
fraudulent misrepresentations. Id. at 212. The court held that
these communications constituted purposeful availment of the
forum such that the defendant had the requisite minimum contacts
with Texas. Id. at 213.
Similarly, plaintiffs here contend that the allegedly
fraudulent representations made by Kruse and Love were specific
acts directed towards Louisiana. The complaint states that Kruse
and Love made representations to JBO Trust and the other
8
plaintiffs about the compliance of the RBC transaction with tax
regulations.14 Plaintiffs also allege that Kruse introduced JBO
Trust to the entities acting as counterparties to the RBC
transaction, with whom Kruse and Love had allegedly formed a
secret, fraudulent agreement.15
That JBO Trust is domiciled in Louisiana does not
necessarily demonstrate that representations made by defendants,
whether by mail, email, or phone, were actually received in
Louisiana. Cf. Wien Air Alaska, Inc., 195 F.3d at 212
(individuals in Texas received defendant’s letters, faxes and
phone calls). Nevertheless, the Court finds that plaintiffs have
put forth a prima facie case that defendants’ actions in sending
allegedly fraudulent materials to a trust based in Louisiana
constituted purposeful availment of the forum. By allegedly
inducing JBO Trust to enter into the RBC transactions through
their representations, defendants could reasonably expect to be
haled into court in Louisiana. See, e.g., Shane Matherne Enter.,
Inc. v. Sokolic, No. 04-2140, 2006 WL 622821, at *5 (E.D. La.
Mar. 6, 2006) (defendant’s fraudulent transfer of domain name
ownership was act aimed at Louisiana corporation that conferred
specific jurisdiction, despite defendant’s lack of other contacts
with Louisiana).
14
R. Doc. 1 at 5.
15
Id.
9
Moreover, according to the facts alleged in the complaint,
plaintiffs’ causes of action arise directly out of the
representations made by defendants regarding the nature of the
RBC transactions. Defendants’ argument that the activities at
issue took place in New York, not Louisiana, is without merit.
Although the secret agreements allegedly formed among defendants
and the investments related to the RBC transactions may have
occurred in New York, plaintiffs’ complaint identifies the
representations that defendants made in materials prepared and
sent to plaintiffs as integral components of their claims.
Because plaintiffs have made a prima facie showing that
defendants had minimum contacts with Louisiana and that
plaintiffs’ causes of action arise from these contacts,
defendants bear the burden of showing that the Court’s exercise
of jurisdiction would be unfair or unreasonable. See Nuovo
Pignone, SpA v. STORMAN ASIA M/V, 310 F.3d 374 (5th Cir. 2002).
The Court finds that defendants have not demonstrated that the
Court’s jurisdiction would offend the notions of fair play and
substantial justice. By allegedly soliciting clients across the
country, defendants took on the risk that they would have to
litigate in different forums, and defendants point to no
particular hardship that would result from the Court’s exercise
of jurisdiction. See, e.g., Burger King Corp., 471 U.S. at 477.
Accordingly, the Court finds that it has personal jurisdiction
10
over defendants Love and Kruse.
III. MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM
A.
Standard
When a defendant attacks the complaint because it fails to
state a legally cognizable claim, Rule 12(b)(6) provides the
appropriate challenge. To survive a Rule 12(b)(6) motion to
dismiss, the plaintiff must plead enough facts “to state a claim
to relief that is plausible on its face.” Ashcroft v. Iqbal, 129
S.Ct. 1937, 1960 (2009)(quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). A claim is facially plausible when the
plaintiff pleads facts that allow the court to “draw the
reasonable inference that the defendant is liable for the
misconduct alleged.” Id. at 1949. A court must accept all wellpleaded facts as true and must draw all reasonable inferences in
favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d
228, 239 (5th Cir. 2009); Baker v. Putnal, 75 F.3d 190, 196 (5th
Cir. 1996). But the Court is not bound to accept as true legal
conclusions couched as factual allegations. Iqbal, 129 S.Ct. at
1949.
B.
Collateral Estoppel
The Court may dismiss a claim under Rule 12(b)(6) if it
appears from the face of the complaint that the claim is barred
by collateral estoppel. See, e.g., Cade v. U.S. Postal Serv., 45
11
F. App'x 323 (5th Cir. 2002). Collateral estoppel bars a party
from relitigating issues of fact or law that were actually
determined in a prior action and were necessary to the court's
judgment. Sidag Aktiengesellschaft v. Smoked Foods Products Co.,
776 F.2d 1270 (5th Cir. 1985). Federal law applies in determining
the preclusive effect of a federal judgment in another federal
court. Duffy & McGovern Accommodation Services v. QCI, 448 F.3d
825, 829 n.16 (5th Cir. 2006). A party asserting collateral
estoppel under federal law must show the following: “(1) the
identical issue was previously adjudicated; (2) the issue was
actually litigated; and (3) the previous determination was
necessary to the decision.” Pace v. Bogalusa City Sch. Bd., 403
F.3d 272, 290 (5th Cir. 2005), cert. denied sub nom. Louisiana
State Bd. of Elem. and Sec. Educ. v. Pace, 546 U.S. 933 (2005).
The parties in the subsequent suit need not be identical to those
in the earlier suit, but the party against whom collateral
estoppel is applied generally must have been a party or in
privity with a party in the earlier litigation. See Vines v.
Univ. of Louisiana at Monroe, 398 F.3d 700, 705 (5th Cir. 2005).
In arguing that collateral estoppel bars all of plaintiffs’
claims, defendants point to court materials and judgments from
Ohle’s criminal conviction. See Davis v. Bayless, 70 F.3d 367,
372 n.3 (5th Cir. 1995) (“Federal courts are permitted to refer
to matters of public record when deciding a 12(b)(6) motion to
12
dismiss.”). Defendants contend that plaintiffs’ claims are based
on the factual assertion that Ohle did not know that RBC’s “1256"
shelters were fraudulent and that this issue has already been
litigated.
Ohle was convicted of conspiracies involving another type of
tax shelter, called HOMER, and a scheme to defraud the IRS, as
well as income tax evasion. Defendants argue that Ohle’s
knowledge that the RBC “1256" shelter was fraudulent was made
clear through the jury instructions given for the tax evasion
charge and the Second Circuit’s treatment of Ohle’s appeal. The
jury was instructed that to convict Ohle of tax evasion, it must
find that he acted willfully, in that he “specifically intended
to defeat or evade the payment of taxes that he knew he owed.”16
Although the jury charges did not specifically identify the
“1254" tax shelters, in appealing his conviction, Ohle argued
that he did not have fair notice that his conduct in entering
into the “1256" tax shelter transaction could be considered a
willful attempt to evade federal income taxes. See Ohle, 441 Fed.
Appx. at 801. In rejecting Ohle’s arguments on the merits, the
Second Circuit identified trial evidence showing Ohle’s knowledge
of the nature of the “1256" investment vehicle. Id. The Second
Circuit described the evidence as “convincingly demonstrat[ing]
an intent to defraud the United States of taxes owed.” Id.
16
R. Doc. 21-4 (Jury Instructions).
13
The Court finds that the issue of Ohle’s intent and notice
in entering into the “1256" scheme was litigated during his
criminal trial and that the determination was necessary to the
judgment. See Pace, 403 F.3d at 290. Therefore, the Court finds
that Ohle is collaterally estopped from asserting that he was
unaware that the RBC “1256" tax structure constituted tax
evasion. Nevertheless, the Court finds that defendants have
failed to demonstrate that plaintiffs’ complaint is barred as a
result.
Defendants cite the Fifth Circuit decision in Wolfson v.
Baker in support of their contention that plaintiffs’ claims
should be dismissed in their entirety. In Wolfson, the Fifth
Circuit affirmed the district court’s application of nonmutual
collateral estoppel, which kept the plaintiff from asserting in a
civil suit filed after his criminal conviction that he did not
know the relevant securities regulations at the time of the
transaction at issue. 623 F.2d 1074 (5th Cir. 1980). The
plaintiff’s criminal liability depended on a finding that his
failure to file documents with the Securities Exchange Commission
was a willful act, id. at 1078, similar to the requirement in
Ohle’s criminal trial that he be found to have acted willfully in
evading taxes through the “1256" scheme.
Indeed, the holding in
Wolfson supports the Court’s determination that Ohle’s intent to
evade taxes has been established and may not be relitigated in a
14
subsequent civil suit. But, the district court in Wolfson
followed a two-step process in holding that collateral estoppel
barred the plaintiff’s claims. See Wolfson v. Baker, 444 F. Supp.
1124 (M.D. Fla. 1978) (granting summary judgment on two counts on
the basis of collateral estoppel). The court first established
that no factual questions remained as to Wolfson’s knowledge and
then considered the effect of this finding on the merits of each
of his claims. Id. at 1131-36.
Although defendants’ arguments here concern the face of
plaintiffs’ complaint rather than the merits, defendants cannot
contend that collateral estoppel bars all of plaintiffs’ claims
without any discussion of the elements of those claims and why
they cannot be maintained if plaintiffs may not litigate the
issue discussed above. Plaintiffs’ complaint contains seven
causes of action, which have diverse elements that may or may not
be affected by the Court’s finding that Ohle cannot argue his
lack of knowledge as to the fraudulent nature of the RBC
transaction. With the exception of plaintiffs’ claim for breach
of fiduciary duty, discussed infra, it is not apparent how this
bar renders plaintiffs’ claims facially implausible. See Iqbal,
129 S.Ct. at 1960. Moreover, defendants’ contention that the
doctrine of in pari delicto also applies and thus Ohle’s own
wrongdoing bars recovery on his claims is too broad and
insufficiently supported for the Court to conclude on this basis
15
that plaintiffs have not stated a claim. Accordingly, the Court
finds that plaintiffs’ complaint should not be dismissed on its
face under the doctrines of collateral estoppel or in pari
delicto.
C.
Prescription
Defendants also argue that plaintiffs’ claims are timebarred. A complaint may be dismissed under Rule 12(b)(6) if the
pleadings demonstrate that the claim has prescribed. See Kaiser
Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677
F.2d 1045, 1050 (5th Cir. 1982). The parties do not dispute that
the RBC “1256" tax shelter transaction at issue was implemented
on December 19, 2002. To determine whether dismissal of
plaintiffs’ claims on prescription grounds is appropriate, the
Court shall consider the statute of limitations for each claim.
1. Federal Claims
Under RICO, a four-year limitations period applies, which
begins to run at the time that a plaintiff knew or should have
known of his injury. Rotella v. Wood, 528 U.S. 549, 553-54
(2000). The limitations period under federal securities law is
five years from the time of the violation or two years from its
discovery. 28 U.S.C. § 1658(b). The Court finds that the face of
the complaint makes clear that both claims have prescribed.17 The
17
Because the Court finds that plaintiffs’ RICO claims
are time-barred, it need not address the issue of whether the
claim is precluded by the Private Securities Litigation Reform
16
RBC transaction was executed in 2002, and thus the allegedly
fraudulent representations made by defendants concerning the tax
shelter must have occurred around this time as well.
Moreover, plaintiffs cannot argue that they did not discover
defendants’ fraud until Ohle’s trial. As previously stated, the
issue of Ohle’s awareness that the “1256" investment was a
vehicle with which to evade taxes has already been decided and
may not be relitigated. Thus, Ohle cannot argue that, at the time
of the transaction, he was unaware of the nature of the RBC tax
shelter due to fraudulent representations by defendants. Further,
it is unlikely that the Dumaine Group and JBO Trust, entities
integrally linked to Ohle, did not share his knowledge of the
fraudulence of the “1256" tax shelters. In any event, the Court
finds that the notice issued in December 2003 by the IRS, stating
that “1256" transactions constituted tax avoidance measures, put
the Dumaine Group and JBO Trust on notice that the transactions
were of a different nature than was allegedly advertised by
defendants.18 Further, the complaint states that after the IRS
issued Information Disclosure Requests to Dumaine in April 2003
regarding its activities with the RBC transactions, Dumaine hired
representation to comply with the IRS requests.19 Plaintiffs
Act.
18
See R. Doc. 1 at 6.
19
R. Doc. 1 at 6.
17
state that a year later, after paying $500,000 in legal fees and
a tax shelter promoter penalty, Dumaine Group was put out of
business.20 Thus, it is clear that plaintiffs knew of their
injury by 2004 at the latest and that their federal claims have
prescribed.
2. State statutory claims
The Louisiana Unfair Trade Practices Act (LUTPA) has a oneyear limitations period that runs from the time of the
transaction giving rise to the cause of action. La. R.S. §
51:1409(E). LUTPA’s limitations period is peremptive and thus is
not subject to interruption or suspension. See Glod v. Baker, 899
So. 2d 642 (La. Ct. App. 2005). Given that the transaction at
issue occurred in December 2002, it is clear from the face of the
complaint that the claim has prescribed.
So too have plaintiffs’ claim of civil liability from the
sale of securities under Louisiana law, which is subject to a
two-year prescriptive period, and plaintiffs’ claim under the
Illinois Consumer Fraud and Deceptive Business Practices Act,
which must be brought within three years. La. R.S. §51:714(C);
815 Ill. Comp. Stat. 505/10a. Plaintiffs contend that they are
entitled to equitable tolling under the federal “discovery” rule
or the Louisiana doctrine of contra non valentem, since
plaintiffs did not know about defendants’ fraud until Ohle’s
20
Id.
18
criminal trial. Under these doctrines, prescription may be
suspended or a statute of limitation tolled if a litigant was
unable to bring a claim for reasons outside of his control. See,
e.g., Terrebonne Parish Sch. Bd. v. Mobil Oil Corp., 310 F.3d
870, 885 (5th Cir. 2002).
As previously discussed, both Ohle’s
criminal conviction and the facts pleaded in the complaint bar
plaintiffs from claiming that they did not know of the nature of
the RBC tax shelter until Ohle’s trial. Accordingly, the tolling
or suspension of the limitations period under the doctrine of
contra non valentem is unavailable for plaintiffs’ claims that
have clearly prescribed.
The Court thus finds that plaintiffs’ claims under LUTPA,
Louisiana securities law, and the Illinois Consumer Fraud Act
must be dismissed.
3. Civil fraud, civil conspiracy, and unjust enrichment
Plaintiffs’ complaint also contains claims of civil fraud,
civil conspiracy, and unjust enrichment. The limitations period
for these claims depends on whether they are considered delictual
and arise from a general duty owed to all individuals or are
contractual and “flow from the breach of a special obligation
contractually assumed.” Carriere v. Jackson Hewitt Tax Serv.
Inc., 750 F. Supp. 2d 694, 704 (E.D. La. 2010). Under Louisiana
law, delictual actions are subject to a one-year prescriptive
period, La. Civ. Code. art. 3492, whereas contractual claims have
19
a ten-year prescriptive period, La. Civ. Code. art. 3499.
Louisiana courts look to the nature of the duty breached to
determine whether a cause of action is contractual or delictual.
Roger v. Dufrene, 613 So.2d 947, 948 (La. 1993). Even when a
contract exists, if an action is grounded in tort, courts
generally apply the delictual prescription. Gallant Investments,
Ltd. v. Illinois Cent. R. Co., 7 So.3d 12, 17 (La. Ct. App.
2009). Further, “that the circumstances arose in the context of a
contractual relationship does not make the action contractual.”
Id. Rather, a plaintiff must put forth factual allegations
supporting the characterization of the action as contractual. Id.
In their complaint, plaintiffs assert that defendants
provided investment materials to plaintiffs and made
representations about the nature of the RBC transaction and the
resulting tax implications.21 Plaintiffs state that they entered
into investment contracts with defendant Montgomery Global
Advisors V, LLC, which had an agreement to breach the contracts
with the RBC defendants.22 Plaintiffs further assert that RBC and
Montgomery were plaintiffs’ fiduciaries.23 The Court addresses
these alleged contracts below, but even assuming a contractual
21
R. Doc. 1 at 4-8.
22
R. Doc. 1 at 23-24. Montgomery did not join in the
motions to dismiss and was dismissed from the case for
plaintiffs’ failure to prosecute.
23
R. Doc. 1 at 24.
20
relationship existed between the parties, the Court finds that
plaintiffs’ fraud and conspiracy actions are grounded in tort.
Plaintiffs allege that defendants made false and misleading
representations and formed a conspiracy to commit unlawful
acts.24 Such actions are delictual, rather than contractual, as
plaintiffs do not present facts that describe the way in which
these actions violated the terms of the contracts. Rather,
plaintiffs’ complaint faults defendants for acting dishonestly in
inducing plaintiffs to enter into the contracts and thus
identifies delictual claims for which a one-year prescriptive
period applies. See Henry v. Cisco Sys., Inc., 106 F. App'x 235,
239 (5th Cir. 2004) (plaintiff’s fraudulent inducement claim had
prescriptive period of one-year from the time injury or damage
was sustained).
Moreover, an unjust enrichment remedy is “only applicable to
fill a gap in the law where no express remedy is provided.”
Walters v. MedSouth Record Mgmt., LLC, 38 So.3d 245, 246 (La.
2010) (per curiam) (claimant’s delictual cause of action
precluded remedy of unjust enrichment). In stating a claim for
unjust enrichment, plaintiffs incorporate their allegations from
the first four causes of action and thereby demonstrate that
other, more specific causes of action are available. That the
other claims are time-barred has no bearing on the Court’s
24
R. Doc. 1 at 18-20.
21
dismissal of the unjust enrichment claim, for “the mere fact that
a plaintiff does not successfully pursue another available remedy
does not give the plaintiff the right to recover under the theory
of unjust enrichment.” Id. at 246. The Court thus finds that
plaintiffs, in alleging civil fraud, civil conspiracy, and unjust
enrichment, have failed to state a claim on which relief may be
granted.
D.
Failure to Plead Elements of Claim
Lastly, defendants contend that plaintiffs’ remaining claims
for breach of contract and fiduciary duty must also be dismissed.
Regarding plaintiffs’ claim for breach of contract, defendants
assert that plaintiffs have failed to identify a specific
contract that existed or the actions that constituted a breach of
contract. Plaintiffs’ complaint identifies defendant Montgomery,
not the RBC defendants, as the counterparty with which plaintiffs
contracted.25 Regarding the RBC defendants, plaintiffs allege
that they had an agreement with Montgomery to breach the
investment contracts and that the RBC defendants provided
fraudulent investment contracts.26
Under Louisiana law, “a contract is an agreement by two or
more parties whereby obligations are created, modified, or
extinguished.” La. Civ. Code art. 1906. Plaintiffs state that a
25
R. Doc. 1 at 23.
26
Id. at 23-24.
22
contract existed among the parties but do not provide any facts
that would allow the Court to assess the obligations imposed on
defendants by the contract and to determine whether plaintiffs
have successfully pleaded facts demonstrating that defendants
breached the contract terms. Plaintiffs assert that defendants
made false statements, provided false investment contracts, and
engaged in an undisclosed kickback scheme.27 But, any contractual
terms agreed upon by the parties remain unidentified. Thus,
plaintiffs’ allegations discuss only defendants’ alleged
violations of a general duty to act lawfully, not contractual
duties owed by defendants. Consequently, even accepting as true
plaintiffs’ factual allegations, the Court finds that plaintiffs
have not set forth a facially plausible claim for breach of
contract. See Iqbal, 129 S.Ct. at 1949.
Similarly, the Court finds that plaintiffs have failed to
plead the elements of a claim for breach of fiduciary duty. Under
Louisiana law, the fiduciary duty of a financial institution or
its officer or employee to customers or third parties must be
established by a written agency or trust agreement under which
the financial institution “specifically agrees to act and perform
in the capacity of a fiduciary.” La. Rev. Stat. Ann. § 6:1124. A
financial institution is defined as a “bank, savings and loan
association, savings bank, or credit union authorized to transact
27
Id. at 24.
23
business in [Louisiana].” La. Rev. Stat. Ann. 6:1121. Thus, RBC,
as the Royal Bank of Canada, and its employee John Kruse
constitute a financial institution and its employee, against whom
a fiduciary duty cannot be implied.
Plaintiffs have not pointed
to a written agency or trust agreement demonstrating RBC’s or
Kruse’s agreement to act as fiduciary. Moreover, under § 6:1124,
claims for breach of fiduciary duty by a financial institution or
its employee must be brought within one year of the first breach.
Therefore, plaintiffs’ claims against RBC and Kruse are both
inadequately pleaded and prescribed.
Based on the record, the Court cannot determine whether
RBC’s subsidiary, RBC Dain Rauscher, qualifies as a financial
institution under § 6:1121. Nevertheless, the Court finds that
plaintiffs have not stated a claim for breach of fiduciary duty
against RBC Dain Rauscher or its employee, Mark Love. The
existence of a fiduciary duty depends on a “special relationship
of confidence or trust imposed by one in another who undertakes
to act primarily for the benefit of the principal in a particular
endeavor.”
Scheffler v. Adams & Reese, LLP, 950 So.2d 641, 648
(La. 2007). In fact, the mere execution of a contract does not
impose fiduciary duties on the parties. See Omnitech Int'l, Inc.
v. Clorox Co., 11 F.3d 1316, 1330 (5th Cir. 1994). Plaintiffs
have not pleaded facts demonstrating that defendants RBC Dain
Rauscher and Love assumed any fiduciary obligations towards
24
plaintiffs. The complaint states that plaintiffs entered into a
transaction set up by defendants, but it provides no detail as to
specific fiduciary relationships that the parties developed. Nor
does the complaint detail the duties that defendants assumed as
plaintiffs’ alleged fiduciaries or suggest the manner in which
defendants violated any such duties.
Instead, plaintiffs allege that Love misrepresented the
nature of the RBC transaction and that RBC Dain Rauscher formed a
kickback scheme with RBC and Montgomery Global. But such
allegations alone support a claim of fraud, which the Court has
already addressed, not a claim for breach of fiduciary duty.
Further, in contending that defendants’ misrepresentations
constituted a breach of fiduciary duty, plaintiffs must
necessarily show that they were duped or defrauded by defendants.
But, the Court has held that Ohle is estopped from litigating
that he was unaware of the nature of the RBC transaction, which
estoppel applies to the privies on whose behalf he acted.
Therefore, plaintiffs cannot allege that they formed with
defendants a special relationship of confidence or trust that was
broken by the RBC transaction’s true nature as a tax shelter.
Accordingly, the Court finds that plaintiffs have failed to plead
the elements of a claim for breach of fiduciary duty.
25
IV.
CONCLUSION
For the foregoing reasons, the Court GRANTS defendants’
motions to dismiss for failure to state a claim and orders
plaintiffs’ claims dismissed.
New Orleans, Louisiana, this 8th day of March, 2013.
__
_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
26
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?