Wrubel et al v. Kopacka et al

Filing 23

OPINION AND ORDER granting in part Defendants' 13 Motion to Dismiss; Dismissing Counts VI and VII with prejudice; Dismissing Count IV without prejudice and Granting Plaintiffs Leave to Amend the Complaint within 21 days. (See order for details). Signed by District Judge George Caram Steeh. (LWag) Modified on 8/3/2018 (LWag).

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
EQUITY TRUST COMPANY, et al.,
Plaintiff,
Case No. 17-12275
HON. GEORGE CARAM STEEH

vs.
TIMOTHY JAMES KOPACKA, et al.,
Defendant.
______________________________/

OPINION AND ORDER GRANTING IN PART DEFENDANTS’ MOTION
TO DISMISS (DOC. 13), GRANTING PLAINTIFFS LEAVE TO AMEND
THE COMPLAINT, AND GIVING NOTICE THAT THE COURT WILL
REMAND THE REMAINING STATE LAW CLAIMS IF PLAINTIFFS FAIL
TO AMEND THE COMPLAINT TO STATE A FEDERAL CLAIM
Plaintiffs Danny Wrubel; Teresa Wrubel; the Marion Family Living
Trust, by its Trustee, Josephine A. Marion; the Marion Irrevocable Trust, by
its Trustee, Teresa Wrubel; Josephine A. Marion, by her Next Friend,
Teresa Wrubel; Equity Trust Company, Custodian FBO Marilynn Peterson
IRA; Marilynn Peterson; Travis Peterson; the Ferrario Family Revocable
Trust, by its Trustee, Julie Ferrario; Julie Ferrario; Julie Vipond; Karen Fell;
the Marilynn L. Peterson Revocable Trust, by its Trustee, Marilynn L.
Peterson; and Equity Trust Company, Custodian FBO Danny J. Wrubel IRA
bring this securities fraud action against defendants Timothy James

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Kopacka, United Mortgage Trust (UMT), United Development Funding II,
LP (UDF II), and United Development Funding III, LP (UDF III).
Plaintiffs filed suit in Macomb County Circuit Court on June 28, 2017.
On July 12, 2017, defendants removed the case to federal court on the
basis of jurisdiction under 28 U.S.C. § 1331. Plaintiffs filed their First
Amended Complaint (FAC) on August 2, 2017. (Doc. 9). Plaintiffs bring six
claims; fraud (Count I), breach of fiduciary duties, (Count II), negligent
misrepresentation/omission, (Count III), securities fraud under section 10(b)
of the Securities and Exchange Act and SEC Rule 10b-5, (Count IV), civil
RICO, (Count VI), and civil RICO conspiracy, (Count VII). Plaintiffs pleaded
additional theories of liability including aiding and abetting fraud and breach
of fiduciary duty, (Count V), and agency, (Count VIII).
Defendants filed the instant motion to dismiss on September 18,
2017. (Doc. 13). Plaintiffs filed a response on October 30, 2017. (Doc. 16).
Defendants filed a reply on November 30, 2017. (Doc. 19). The Court held
oral argument on July 16, 2018. For the reasons stated below, defendants’
motion to dismiss is GRANTED IN PART. Counts VI and VII are dismissed
with prejudice. Count IV is dismissed without prejudice. The Court declines
to exercise supplemental jurisdiction over plaintiffs’ remaining state law
claims. The Court will allow plaintiffs an opportunity to amend their
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complaint regarding Count IV. Plaintiffs’ failure to amend by the deadline
will result in remand of the remaining state law claims.
I. Background
Plaintiffs worked with Kopacka to purchase interests in UMT, UDF II,
and UDF III between 2000 and 2009. (Doc. 9 at PageID 65). In 2016, the
FBI investigated UDF II and UDF III following allegations that they were
operating a Ponzi scheme. (Doc. 9 at PageID 68). This investigation
appears to have prompted plaintiffs’ complaint. The FAC generally alleges
that Kopacka made three types of misrepresentations; (1) misrepresenting
the risk, liquidity, and other features of the investments; (2) concealing
Kopacka’s status as a direct or indirect owner, manager, and/or advisor of
UMT, UDF II, or UDF III; and (3) failing to disclose that Kopacka was
barred from the stock brokerage industry. (Doc. 9 at PageID 65-66).
II. Legal Standard
A court confronted with a motion to dismiss under Federal Rule of
Civil Procedure 12(b)(6) must construe the complaint in favor of the
plaintiff, accept the allegations of the complaint as true, and determine
whether the plaintiff's factual allegations present plausible claims. Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 554-56 (2007). “[N]aked
assertions devoid of further factual enhancement” and “unadorned, the-3-

defendant-unlawfully-harmed-me accusation[s]” are insufficient to “state a
claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). The complaint need not contain “detailed” factual allegations,
but its “factual allegations must be enough to raise a right to relief above
the speculative level on the assumption that all of the allegations in the
complaint are true.” Ass’n of Cleveland Fire Fighters v. City of Cleveland,
502 F.3d 545, 548 (6th Cir. 2007).
III. Analysis
A. Counts VI and VII
Count VI alleges a civil RICO claim pursuant to 18 U.S.C. § 1962(c),
which prohibits “any person employed by or associated with any enterprise
engaged in, or the activities of which affect, interstate or foreign commerce,
to conduct or participate, directly or indirectly, in the conduct of such
enterprise's affairs through a pattern of racketeering activity or collection of
unlawful debt.” Plaintiffs allege that defendants “worked together to
fraudulently cause Plaintiffs and other investors to purchase securities
issued by companies” with which Kopacka was associated and held
pecuniary interests. (Doc. 9 at PageID 89). Plaintiffs allege that Kopacka
“operated an unregistered investment advisor firm, was legally prohibited
from providing investment advice, was barred by the NASD, and used his

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wife, Ms. Kopacka, and other registered representatives of D.H. Hill
Securities and IMS Securities as conduits through which to unlawfully sell
shares of UMT and partnership interests in UDF II and UDF III to his
clients.” (Doc. 9 at PageID 88). Plaintiffs frame these allegations as
predicate acts of mail fraud and wire fraud. (Doc. 9 at PageID 89).
Section 107 of the Private Securities Litigation Reform Act (PSLRA)
amended 18 U.S.C. § 1964(c) to prohibit plaintiffs from relying “upon any
conduct that would have been actionable as fraud in the purchase or sale
of securities to establish a violation of [18 U.S.C.] section 1962.” As such,
“[a]ny fraudulent conduct actionable under the securities laws is no longer
actionable under RICO.” Aries Aluminum Corp. v. King, 194 F.3d 1311, at
*2 (6th Cir. 1999) (table) (citing Bald Eagle Area School District v. Keystone
Financial, Inc., 189 F.3d 321, 329-30 (3rd Cir.1999)). Moreover, “a plaintiff
cannot avoid the RICO Amendment's bar by pleading mail fraud, wire fraud
and bank fraud as predicate offenses in a civil RICO action if the conduct
giving rise to those predicate offenses amounts to securities fraud. Allowing
such surgical presentation of the cause of action here would undermine the
congressional intent behind the RICO Amendment.” Javitch v. First
Montauk Fin. Corp., 279 F. Supp. 2d 931, 943–44 (N.D. Ohio 2003) (citing
Bald Eagle Area School Dist., 189 F.3d at 330).
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Count VI implicates “conduct that would have been actionable as
[securities] fraud.” 18 U.S.C. 1964(c). In fact, plaintiffs’ securities fraud
claim is based on the same conduct. As such, 18 U.S.C. § 1964(c) bars the
use of this alleged conduct as predicate offenses. Plaintiffs do not plead
any other predicate offenses. The FAC therefore fails to state a civil RICO
claim. Count VI is dismissed.
Count VII alleges that all defendants participated in a civil RICO
conspiracy. “To establish a violation of 18 U.S.C. § 1962(d), Plaintiffs must
successfully allege all elements of a RICO violation, in addition to alleging
‘the existence of an illicit agreement to violate the substantive RICO
provision.’” Taborac v. NiSource, Inc., No. 2:11-CV-498, 2011 WL
5025214, at *9 (S.D. Ohio Oct. 21, 2011) (quoting United States v. Sinito,
723 F.2d 1250, 1260 (6th Cir.1983)). “Where, as here, the substantive
RICO count fails to state a claim, the conspiracy claim fails, too, as to all
Defendants.” Id. (citing Craighead v. E.F. Hutton & Co., Inc., 899 F.2d 485,
495 (6th Cir.1990)). As such, the Court shall dismiss Count VII.
B. Count IV
Count IV alleges that Kopacka committed securities fraud in violation
of Section 10(b) of the Securities and Exchange Act of 1934 and SEC Rule
10b-5, which “prohibit fraudulent, material misstatements or omissions in

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connection with the sale or purchase of a security.” Zaluski v. United Am.
Healthcare Corp., 527 F.3d 564, 570 (6th Cir. 2008) (internal citations and
quotations omitted). Pursuant to 28 U.S.C. § 1658(b),
a private right of action that involves a claim of
fraud, deceit, manipulation, or contrivance in
contravention of a regulatory requirement
concerning the securities laws, as defined in section
3(a)(47) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(47)), may be brought not later than
the earlier of – (1) 2 years after the discovery of the
facts constituting the violation; or (2) 5 years after
such violation.
“The Supreme Court has held the two-year period to be a statute of
limitations, and described the five-year period as an ‘unqualified bar on
actions instituted “5 years after such violation,” [28 U.S.C.] § 1658(b)(2),
giving defendants total repose after five years.’” Stein v. Regions Morgan
Keegan Select High Income Fund, Inc., 821 F.3d 780, 787 (6th Cir. 2016)
(quoting Merck & Co. v. Reynolds, 559 U.S. 633, 650 (2010)). The Sixth
Circuit “read[s] this language as interpreting § 1658(b)(2) as a statute of
repose.” Stein, 821 F.3d at 787.1

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“[A] statute of limitations creates a time limit for suing in a civil case, based on the date when
the claim accrued.” Stein, 821 F.3d at 786 (quoting CTS Corp v. Waldburger, 134 S. Ct. 2175,
2182 (2014) (internal quotation and citation omitted). “[A] statute of repose ‘puts an outer limit
on the right to bring a civil action,’ which is ‘measured not from the date on which the claim
accrues but instead from the date of the last culpable act or omission of the defendant.’” Id.
(quoting CTS Corp, 134 S. Ct. at 2182). “Statutes of limitations, but not statutes of repose, are
subject to equitable tolling, a doctrine that pauses the running of, or ‘tolls,’ a statute of limitations
when a litigant has pursued his rights diligently but some extraordinary circumstance prevents
him from bringing a timely action.” Id. at 787 (quoting CTS Corp, 134 S. Ct. at 2183). “Statutes
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Defendant Kopacka argues that Count IV is precluded by 28 U.S.C. §
1658(b). Kopacka asserts that the “violation” referenced in the statute is
limited to misrepresentations preceding a purchase or sale of securities. As
such, Kopacka reasons that the outer limit to file a federal securities claim
is five years from the final sale date. Kopacka relies on Stein and In re
Rospatch Sec. Litig., No. 1:90-CV-805, 1991 WL 335253 (W.D. Mich. Oct.
11, 1991).
In Stein, investors brought a federal securities case alleging
misrepresentations regarding risk, liquidity, and diversification of funds in
which they had invested. 821 F.2d at 780. In 2007 and 2008, following the
plaintiffs’ investment, the funds lost nearly 90% of their value. Id. at 783. As
a result, management of the funds was turned over to a different
investment advisor in July 2008. Id. The plaintiffs filed suit on October 25,
2013. Id. at 785. The complaint did not allege any misconduct by any
defendant following the 2008 management transfer. See id. at 792. While
the court ultimately ruled that the plaintiffs’ federal securities claims were
barred by the statute of repose, it did not hold that the Section 10(b) repose

of repose, on the other hand, generally may not be tolled, even in cases of extraordinary
circumstances beyond a plaintiff's control.... [A] statute of repose is a judgment that defendants
should be free from liability after the legislatively determined period of time, beyond which the
liability will no longer exist and will not be tolled for any reason.” Id. at 787 (quoting CTS Corp,
134 S. Ct. at 2183).
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period is triggered by the purchase or sale of a security. Id. at 792-94. To
the contrary, the court stated that “Plaintiffs also do not make clear when
the violations of Section 10(b) and 20(a) of Securities Exchange Act, 15
U.S.C. §§ 78j(b) and 78t(a), occurred, or when they believe the five-year
repose period to have started running. See 28 U.S.C. § 1658(b)(2).” Id. at
792. Rather than adding five years to the date of the last purchase or sale,
the court appears to have counted back five years from the complaint to
consider whether the defendants committed any violations between
October 25, 2013 and October 25, 2008. See id.
In any event, Defendants cannot have offered
securities to the public, sold them, or engaged in
any of the other misconduct alleged in the
complaints after July 2008, when management of
the four closed-end funds was turned over to a
different investment advisor, and after which the
allegations of misconduct by Defendants cease.
Because Plaintiffs filed their respective complaints
on October 25, 2013—more than five years later—
all of their claims are barred by the relevant threeor five-year statutes of repose . . .
Id.
In Rospatch, the defendant argued that the plaintiff’s federal
securities claims should be dismissed as time-barred under the “oneyear/three-year statute of limitations announced in Lampf, Pleva, Lipkind,
Prupis and Petigrow v. Gilbertson, 501 U.S. 350 (1991).” 1991 WL 335253,
at *1. Lampf held that “all section 10(b) and Rule 10b-5 securities fraud
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claims . . . ‘must be commenced within one year after discovery of the facts
constituting the violation and within three years after such violation.’” Id. at
*3 (citing Lampf, 501 U.S. at 350).2 The defendant asserted that the
plaintiff’s claims were time barred under the three-year prong of Lampf
because the plaintiff purchased its stock more than three years before the
defendant was added to the class complaint. Id. at *4. The Court ruled for
the defendant, stating that the plaintiff’s federal securities claims “cannot be
preserved by arguing that the limitations period should begin later because
of the doctrine of continuing wrong or fraudulent concealment.” Id. The
Court ruled that “[a] later start to the three-year statute period is expressly
prohibited by Lampf,” which “overruled any equitable tolling in prior law and
stated an absolute three-year period of repose.” Id. Moreover, the court
stated that:
The doctrine of continuing wrong cannot extend the
start of the limitations period any later than the date
the stock was purchased because a section 10(b)
action is triggered by the purchase of stock. Both
section 10(b) of the Securities Exchange Act of
1934 and SEC Rule 10b–5 require that any violation
occur in connection with the purchase or sale of a
security. 15 U.S.C. § 78j(b). For statute of
limitations purposes, “[a] 10b–5 cause of action
accrues on the date that the purchase or sale of
securities occurred.” Helman v. Murry's Steaks, Inc.,
2

Lampf was superseded by the enactment of 28 U.S.C. § 1658(b). While the one-year/threeyear limitations period has been extended. Rospatch may still offer value on which events
trigger the start of the two-year/five-year limitations periods in section 1658(b).
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742 F.Supp. 860, 869 (D.Del.1990). In [the
plaintiff’s] case, this means that its cause of action
accrued as of the March 26—April 30, 1987 period
when it last purchased stock in Rospatch.
Id.
The FAC suggests that plaintiffs discovered the alleged securities
fraud in 2016 following the FBI investigation. Adding two years to this date,
the year contemplated under 28 U.S.C. § 1658(b)(1) is 2018. The FAC
alleges that plaintiffs purchased securities between 2000 and 2009. Adding
five years to the last purchase, Kopacka reasons that the deadline imposed
under 28 U.S.C. § 1658(b)(2) amounts to a date in 2014. The statute
specifies that private rights of action must be brought not later than the
earlier of these two dates. As such, Kopacka concludes that plaintiffs were
required to bring their securities fraud claims by 2014. Plaintiffs’ complaint
was filed three years later in 2017. This deadline is imposed by a statute of
repose, 28 U.S.C. § 1658(b)(2), and therefore, cannot be tolled. As such,
Kopacka asserts that Count IV is barred.
Plaintiffs respond that the “violation” articulated in 28 U.S.C. §
1658(b) is not only comprised of misrepresentations preceding the
purchase or sale of securities, but also any subsequent fraudulent
misrepresentations. Plaintiffs conclude that the five-year repose period runs
from the last fraudulent misrepresentation. Plaintiffs rely on three non- 11 -

binding district court opinions. In re Beacon Assocs. Litig., 282 F.R.D. 315
(S.D.N.Y. 2012) states that, as “adopted by the majority of courts in [the
Second] Circuit,” the statute of repose in section 1658(b)(2) “first runs from
the date of the last alleged misrepresentation regarding related subjecting
matter.” Id. at 324-25 (collecting cases). Likewise, Goldenson v. Steffens,
802 F. Supp. 2d 240 (D. Me. 2011), states that “[c]ourts are generally in
agreement that the repose period runs from the date of the alleged
fraudulent statements.” Id. at 258 (citing In re Exxon Mobil Corp. Securities
Litig., 500 F.3d 189, 200-01 (3d Cir. 2007)). An additional case from a
district court in the First Circuit, Quaak v. Dexia S.A., 357 F. Supp. 2d 330
(D. Mass. 2005), states that “[u]nder Section 10(b), the statute of repose
runs from the date of the last fraudulent misrepresentation.” Id. at 338.
The Sixth Circuit has not ruled on when the repose period under
section 1658(b)(2) begins to run. This Court therefore compares defendant
Kopacka’s argument; directly supported3 by only an unpublished 1991
opinion from the Western District of Michigan, with plaintiffs’ argument;
generally supported throughout the First, Second, and Third Circuits. The
latter is more persuasive, particularly when supplemented by In re Exxon
Mobil Corp. Securities Litig., 500 F.3d 189 (3d Cir. 2007). In Exxon, the

3

As stated above, the Court finds that Stein does not directly support defendant Kopacka’s argument.

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Third Circuit addressed the following question; “when did § 9(e)'s and §
1658(b)(2)'s statutes of repose begin to run—at the time of Exxon's alleged
misrepresentation (the March 1999 proxy statement) or at the time its
merger with Mobil was consummated (late November 1999).” Id. at 199.
The Court concluded that:
while it is true that for a § 10(b) claim to ‘accrue’
there must be an exchange of securities . . . and
only then do plaintiffs suffer any actual injury,
nevertheless the specific acts targeted by a § 10(b)
cause of action are fraudulent statements
themselves. It therefore is more consonant with the
traditional understanding of how a statute of repose
functions for the repose periods of § 9(e) and §
1658(b)(2) to begin from the date of Exxon's alleged
misrepresentation: the March 26, 1999, proxy
statement.
Id. at 200. This Court shall therefore consider the statute of repose to run
from the date of Kopacka’s last fraudulent misrepresentation.
At issue, however, is when Kopacka’s last fraudulent
misrepresentation was made. In their response to the motion to dismiss,
plaintiffs assert that they “have alleged that until very recently, Defendant
Kopacka continuously misrepresented to them that their investments were
performing well and that they were ‘making money,’ when in fact, the
issuers of the investments were operating a massive Ponzi scheme.” (Doc.
16 at PageID 586). Plaintiffs further assert that “the most recent

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misrepresentations occurred within a year of the FAC being filed,” and as
such, their “claims do not fall outside of the repose period. . . .” (Doc. 16 at
PageID 587). Neither of these statements cite any specific allegation in the
FAC. As such, the Court is unable to determine when the 5-year period
began to run.
As in Stein, where the plaintiffs did “not make clear . . . when they
believe the five-year repose period to have started running,” this Court shall
determine the five-year period by subtracting five years from the date that
plaintiffs filed their complaint. The plaintiffs’ original complaint was filed on
June 18, 2017. (Doc. 1-2 at PageID 22). The Court therefore considers
whether the FAC alleges that Kopacka made a misrepresentation between
June 18, 2012 and June 18, 2017. The FAC makes no such allegation. At
oral argument, plaintiffs’ counsel conceded that the FAC does not state
specific dates for many representations and would require amendment to
maintain a federal claim. The Court agrees.
The Court shall therefore dismiss Count IV because, due to plaintiffs’
undated allegations, it is barred by the statute of repose. Count IV,
however, shall be dismissed without prejudice. Pursuant to Federal Rule of
Civil Procedure 15(a)(2), the Court will allow plaintiffs to amend their
complaint regarding Count IV. If plaintiffs wish to amend their complaint,
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they SHALL FILE an amended complaint within TWENTY ONE DAYS of
the entry of this opinion and order.
C. State Law Claims
A district court “may decline to exercise supplemental jurisdiction over
a claim” if the court “has dismissed all claims over which it has original
jurisdiction.” 28 U.S.C. § 1367(c)(3). As stated above, the Court shall
dismiss Counts IV, VI, and VII; the three federal claims over which it has
original jurisdiction. The remaining claims arise under Michigan law and
address predominately state interests. The Court shall therefore decline to
exercise supplemental jurisdiction over Counts I-III, V, and VIII at this time.
If plaintiffs fail to file an amended complaint that successfully states at least
one viable federal claim, the Court will exercise its discretion to decline to
exercise supplemental jurisdiction over plaintiffs’ state law claims and will
remand those claims to Macomb County Circuit Court pursuant to 28
U.S.C. § 1447(c).
IV. Conclusion
For the reasons stated above defendants’ motion is GRANTED IN
PART.
Counts VI and VII are dismissed with prejudice.

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Count IV is dismissed without prejudice. Pursuant to Rule 15(a)(2),
the Court will allow plaintiffs to amend their complaint. If plaintiffs wish to
amend their complaint, they SHALL FILE an amended complaint within
TWENTY ONE DAYS of the entry of this opinion and order.
Further, the Court notes that it has dismissed all of plaintiffs’ federal
claims and that the parties are not diverse. If plaintiffs fail to file an
amended complaint that successfully states a federal claim, the Court will
exercise its discretion to decline to exercise supplemental jurisdiction over
plaintiffs’ remaining state law claims and remand those claims to Macomb
County Circuit Court. See 28 U.S.C. §§ 1367(c)(3) and 1447(c).
IT IS SO ORDERED.
Dated: August 3, 2018
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE

CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
August 3, 2018, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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