FAGAN et al v. FISCHER et al
AMENDED OPINION re 41 Opinion. Signed by Judge Freda L. Wolfson on 7/14/2015. (eaj)
*NOT FOR PUBLICATION*
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
TINA FAGAN and MICHAEL FAGAN,
Civil Action No. 14-7013(FLW)
K. SCOTT FISCHER; VERONIKA M.
FISCHER; BRIAN E. CARROLL; BRUCE
INVESTMENT CAPITAL, INC.; BYANA,
LLC; PRIVATE CAPITAL, LLC; FUNDER,
BRIETWEISER & COMPANY, LLP;
JOHN/JANE DOES 1–5, fictitious individuals
to be named after discovery; and ABC
CORPS. 1–5, fictitious corporate entities to be
named after discovery;
WOLFSON, District Judge:
This case arises from a failed business relationship between Tina Fagan and Michael Fagan
(collectively, “Plaintiffs”) and various individuals and corporate entities named as defendants here,
in the course of managing a real estate development in North Carolina. Plaintiffs’ Complaint
asserts claims, inter alia, for state and federal RICO 1 violations, conspiring to commit RICO
violations, common law fraud, aiding and abetting common law fraud, equitable fraud, state and
federal securities violations, breach of contract, and breach of fiduciary duty. Presently before the
The term “RICO” relates to organizations which may be in violation of Racketeering
Influenced and Corrupt Organization statutes. See, e.g., 8 U.S.C. § 1962(c) (2012).
Court is a Motion to Dismiss filed by Defendants K. Scott Fischer, Veronika M. Fischer, Brian E.
Carroll, Fischer Investment Capital LLC, Byana LLC, Private Capital LLC, Funder LLC, Bowder
LLC, and Wealth Capital Group LLC (collectively, “Moving Defendants”). 2 In their motion,
Moving Defendants seek dismissal under Federal Rule of Civil Procedure 12(b)(6), contending
that the forum selection clause included in one of the contracts involved in the allegedly fraudulent
scheme requires the dismissal of this case against them. For the following reasons, the Motion to
Dismiss is DENIED.
I. Factual Background and Procedural History
Plaintiffs became associated with Defendants Byana LLC (“Byana”) and Fischer
Investment Capital (“Fischer Capital”) through both debt and equity investments in a real estate
development project in North Carolina, known as the Derbyshire Project. See Compl. ¶ 8. From
2006 to the time of filing of this Complaint, Plaintiffs invested $1,000,000 in Defendant Byana in
exchange for a 10% interest in the company, and Plaintiffs made debt investment loans in the
amounts of $500,000 to Byana and $750,000 to Fischer Capital. Id., ¶¶ 61–78. In the course of
Plaintiffs’ equity investment in Byana, Tina Fagan signed onto the Byana LLC Limited Liability
Company Agreement (“Operating Agreement”). 3 See Signature Page to Byana LLC Limited
Liability Company Agreement.
The Operating Agreement purports to govern the organization and activity of Defendant
Byana. See generally Operating Agreement. The document is comprised of eleven Articles,
respectively governing the following: “Definitions,” “Formation of Company,” “Business of
Plaintiffs asserted two additional claims against the non-moving defendants, Bruce W.
Breitweiser and Dunbar, Breitweiser & Company, LLP, in this case.
Plaintiffs argue that because they did not reference or cite to the Operating Agreement in
their Complaint, the Court cannot consider it on this motion. As explained infra, because I find
that the Operating Agreement is integral to the Complaint, I will reference it in this Opinion.
Company,” “Rights and Duties of Manager,” “Rights and Obligations of Members,”
“Contributions to the Company; Capital Accounts; Distributions; Related Matters,”
“Transferability,” “Additional Members,” “Dissolution and Termination,” “Miscellaneous,” and
“Member Representations and Warranties.” See generally Operating Agreement.
The Operating Agreement also contained a forum selection clause which provided that
“ALL ACTIONS BROUGHT TO INTERPRET OR ENFORCE THIS AGREEMENT SHALL
BE BROUGHT IN THE COURTS LOCATED IN THE STATE OF DELAWARE . . . .” Operating
Agreement, Art. 10.6 (emphasis added). The Operating Agreement further included a choice-oflaw provision that provided that the Agreement, including the forum selection clause, would be
governed by Delaware state law. Whether the Operating Agreement was fully executed is disputed
by the parties.
According to Plaintiffs, over the course of the parties’ dealings, other documents were
executed defining the nature of the relationships between the parties, including an unexecuted
subscription agreement (“Subscription Agreement”), purporting to govern Plaintiff Tina Fagan’s
$1,000,000 equity investment, and executed promissory notes relating to Plaintiffs’ debt
investments. The Subscription Agreement contained a competing forum selection clause setting
Illinois as the litigation forum, 4 while the notes contained no forum selection provisions.
The Derbyshire Project eventually collapsed financially, and Defendants Byana and Fisher
Capital defaulted on the loans made by Plaintiffs. See Compl., ¶¶ 79, 85–86. As to Moving
Defendants, Plaintiffs filed the present action on November 7, 2014, asserting fourteen claims for
violations of various state and federal RICO statutes, conspiracy to violate the federal RICO
statute, violations of state and federal securities law, common law fraud, unjust enrichment,
Neither party advocates for the position that Illinois is the proper forum here.
equitable fraud, breach of contract, and breach of fiduciary duty. See generally Compl.
Importantly, Plaintiffs have not asserted any breach of contract claims relating to the Operating
Plaintiffs allege that Moving Defendants collectively engaged in fraudulent and
racketeering conduct surrounding the Derbyshire Project. See id., ¶¶ 1–8. More specifically,
Plaintiffs allege that “Defendants directly or indirectly induced equity investors to contribute
capital contributions to become co-members of Defendant Byana, the corporate investment vehicle
used to further the Derbyshire Project.” Id., ¶ 41. The communications between Plaintiffs and
Defendants involved numerous representations by Defendants through pictures and oral
representations. Id., ¶¶ 47–53. These representations included the following assertions: first, that
“investors in the Derbyshire Project would be fully protected against any losses because the
investors owned all of the land related to the Derbyshire Project through their co-investment in
Defendant Byana[;]” second, that “the land related to the Derbyshire Project had been bought
through a ‘cash purchase’ and that the land was owned ‘debt-free’ and clear of any
encumberances[;]” third, that “the value of the property alone would protect [Plaintiffs’]
investments” even if the development project collapsed; fourth, that “all of the land [depicted as
part of the project] was owned by Byana[;]” and fifth, that “the Derbyshire Project was a legitimate
land improvement project, and that Defendants were at all times acting in good faith in furtherance
of a legitimate investment opportunity.” Id., ¶¶ 47–51.
Plaintiffs further allege that the above representations were knowingly false. Id., ¶ 52. And,
Plaintiffs acted “[i]n reliance upon the above misrepresentations” by investing in Defendants
Byana and Fischer Capital. Id., ¶ 54. Plaintiffs aver that Defendants continued to make false
representations regarding the status of the investments and the project to deceptively reassure
Plaintiffs. Id., ¶¶ 89–91.
Moving Defendants filed the present motion on December 22, 2014, seeking dismissal of
Plaintiffs’ claims pursuant to the forum selection clause contained in the Operating Agreement.
Plaintiffs oppose the motion on numerous grounds discussed infra.
II. Standard of Review
When reviewing a motion to dismiss on the pleadings, courts “accept all factual allegations
as true, construe the complaint in the light most favorable to the plaintiff, and determine whether,
under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Phillips v.
County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (citation and quotations omitted). In the
Third Circuit, “a 12(b)(6) dismissal is a permissible means of enforcing a forum selection clause
that allows suit to be filed in another federal forum.” Salovaara v. Jackson Nat’l Life Ins. Co., 246
F.3d 289, 298 (3d Cir. 2001); see also Crescent Int’l, Inc. v. Avatar Cmtys., Inc., 857 F.2d 943 (3d
Cir. 1988) (affirming the use of a 12(b)(6) dismissal based on a valid forum selection clause).
Accordingly, to the extent that the present forum selection clause is valid and enforceable, a Rule
12(b)(6) dismissal would be an appropriate relief.
Scope of the Complaint and Examination of the Operating Agreement
At the outset, the Court must address the threshold procedural issue of whether the
Operating Agreement may be considered in deciding Moving Defendants’ motion, when
Plaintiff’s Complaint neither cites to nor references the Agreement.
In the Third Circuit, in the context of a 12(b)(6) motion, “[a] document forms the basis of
a claim if the document is ‘integral to or explicitly relied upon in the complaint.’” Lum v. Bank of
America, 361 F.3d 217, 221 n.3 (3d Cir. 2004) (quoting In re Burlington Coat Factory Securities
Litigation, 114 F.3d 1410, 1426 (3d Cir. 1997)). This exception to the general exclusion of
extrinsic evidence on 12(b)(6) motions exists to “prevent . . . the situation in which a plaintiff is
able to maintain a claim of fraud by extracting an isolated statement from a document and placing
it in the complaint, even though if the statement were examined in the full context of the document,
it would be clear that the statement was not fraudulent.” Burlington Coat Factory, 114 F.3d at
1426 (citing Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)). In other words,
“[p]laintiffs cannot prevent a court from looking at the text of the documents on which its claim is
based by failing to attach or explicitly cite them.” Id.
A factual comparison of the present case to that in Burlington Coat Factory leads the Court
to conclude that the Operating Agreement is “integral to” Plaintiff’s Complaint here. In Burlington
Coat Factory, investors sued a corporation alleging securities fraud, and according to the corporate
defendants, the investors relied on a 1994 Annual Report in their complaint without expressly
citing to it. Burlington Coat Factory, 114 F.3d at 1426. Despite its apparent absence in the
complaint, the district court considered the extrinsic information in granting the defendants’
motion to dismiss. Id. As here, the complaint in Burlington Coat Factory did not mention the
Annual Report at all, but some of the factual allegations flowed from the document. See id.
Accordingly, on appeal, the Third Circuit found that “it was reasonable for the district court to
have looked to the 1994 Annual Report that defendants provided.” Id.
Here, while Plaintiffs do not reference or cite to the Operating Agreement in their
Complaint, Plaintiffs do allege that “[Moving] Defendants provided false and misleading
information to Plaintiffs, resulting in Plaintiffs making an equity investment in Derbyshire for
$1,000,000.00 . . . .” Compl., ¶ 8. Further, Plaintiffs allege that Moving Defendants “directly or
indirectly induced equity investors to contribute capital contributions to become co-members of
Defendant Byana . . . .” Id., ¶ 41. In exchange for such contributions, Plaintiffs allege that each
“equity investor was promised ‘the return of their investment capital plus 1% of the net profit for
each $100,000.00 invested’” in the project. Id., ¶ 42. Plaintiffs also note in their Complaint that
“Tina Fagan became a limited partner in furtherance of her investment in Derbyshire,” Id., ¶ 9,
without noting the mechanism by which her partner status was established. Indeed, based on these
allegations, reference to the Operating Agreement is “integral to” factually framing the allegations
in the Complaint. See Burlington Coat Factory, 114 F.3d at 1426. Thus, the Court will refer to the
Operating Agreement in considering the present motion. However, examining the document does
not suggest that the Court finds the contract valid or enforceable, particularly when the parties
dispute the contract’s execution.
Scope of the Forum Selection Clause
Having established that the Operating Agreement may be examined in conjunction with
this Motion, the Court now turns to the Agreement’s applicability to the claims at issue, when
nearly all the claims sound in fraud.
Plaintiffs and Moving Defendants dispute numerous issues of both law and fact relating to
the forum selection clause. Plaintiffs contend that the forum selection clause is invalid for a number
of reasons: first, the claims are not based on the Operating Agreement but rather they are comprised
of fraud and RICO violations; second, the language of the forum selection clause does not cover
claims beyond those relating to breach of contract; third, the forum selection clause in the
Operating Agreement is inconsistent with the forum selection clause in the Subscription
Agreement and the lack of a forum selection clause in the promissory notes; and fourth, Moving
Defendants are not all adequately “closely related” to enforce the forum selection clause on behalf
In response, Moving Defendants contend that the claims inherently center on the contract
because it governed the relationships and obligations of the parties; that the language of the forum
selection clause has been frequently interpreted to include tort claims relating to contracts; that the
Operating Agreement is the only executed agreement in the case, and as such, its forum selection
clause should control; and that, due to the allegations of RICO violations, all of the Moving
Defendants are “closely related” as a matter of course. The parties further dispute whether the
forum selection clause, even if valid, would be enforceable under the three-prong inquiry set forth
in Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir. 1983). 5
While the Court disagrees with a number of these theories on both sides of the argument,
it need not address most of the issues raised by either side. Rather, the scope of the forum selection
clause is independently determinative. Even if the Court were to accept all of Moving Defendants’
assertions—that the forum selection clause is enforceable, that Delaware state law applies pursuant
to the choice-of-law provision in the Operating Agreement, that all of the Moving Defendants are
closely related for the purposes of the forum selection clause, and that the enforcement of the
forum selection clause would survive a Coastal Steel inquiry—the claims in this case are not
covered under the forum selection clause at issue here, because only claims that relate to the
interpretation and enforcement of the contract would fall within the purview of that clause.
Moving Defendants rely on the choice-of-law provision in the Operating Agreement in
citing Delaware law for the interpretation of the forum selection clause. Assuming Delaware law
Coastal Steel enunciated three circumstances in which the presumptive validity of a
forum selection clause may be overcome. One such circumstance arises when the clause in
question is the product of fraud. See Coastal Steel, 709 F.2d at 202.
governs, a motion to dismiss should be granted to enforce a forum selection clause when the
contracting parties “use express language clearly indicating [that] the forum selection clause
excludes all other courts before which those parties could otherwise properly bring an action.”
Eisenbud v. Omnitech Corp. Solutions, Inc., 1996 WL 162245, at *1 (Del. Ch. Mar. 21, 1996)
(emphasis added). This requirement reflects “the common law principle that a meeting of the
minds on all essential contract terms is critical for contractual formation . . . .” Hardwire, LLC v.
Zero Int’l, Inc., 2014 WL 5144610, at *9 (D. Del. Oct. 14, 2014).
Notwithstanding the general standard, Moving Defendants cite Ashall Homes Ltd. v. ROK
Entm’t Group, Inc., 992 A.2d 1239 (Del. Ch. 2010), to support their contention that the forum
selection clause, regardless of contractual wording, should encompass any and all claims related
to the contract in which the forum selection clause is found. Motion Brief at 17–19. In particular,
Moving Defendants assert that, “[u]nder Delaware law, forum selection clauses must be applied to
tort claims ‘arising out of, or depending upon, the contractual relationship in question.’” Motion
Brief at 17 (quoting Ashall Homes, 992 A.2d at 1245) (emphasis added). However, in doing so,
Moving Defendants omit the first half of the Delaware Chancery Court’s sentence, in which the
court made clear that “[f]orum selection clauses can be applied not only to contract-based claims
but also tort claims arising out of, or depending upon, the contractual relationship in question.”
Ashall Homes, 992 A.2d at 1245 (emphasis added). Moving Defendants’ assertion misconstrues
Delaware’s standard governing the enforcement of forum selection clauses.
Indeed, a review of Delaware law reveals the importance of contractual language in forum
selection clauses. The forum selection clause provisions in cases interpreting Delaware law and
citing Ashall almost universally involve far broader language than does the forum selection clause
here; they frequently include language such as “any,” relating to actions, or “arising out of,” with
respect to the contracts in question. See, e.g., Carlyle Inv. Mgmt. LLC v. Moonmouth Co. SA, 779
F.3d 214, 217 (3d Cir. 2015) (enforcing a forum selection clause the scope of which included “any
action, suit or proceeding with respect to [a] Subscription Agreement” (internal quotation marks
omitted)); OTK Assocs., LLC v. Friedman, 85 A.3d 696, 719 (Del. Ch. 2014) (refusing to enforce
a forum selection clause for “[a]ll actions and proceedings arising out of or relating to this
Agreement and the Other Agreements” when the claim hinged upon breach of fiduciary duty
instead of breach of contract); RWI Acquisition LLC v. Todd, No. 6902–VCP, 2012 WL 1955279,
at *3 (Del. Ch. May 30, 2012) (“Any lawsuit arising out of or in any way related to this Agreement
[or] to the parties' relationship under this Agreement shall be brought only in those state or federal
cou[r]ts having jurisdiction over actions arising in the State of New Mexico.” (modifications in
original) (internal quotation marks omitted)); Scanbuy, Inc. v. NeoMedia Techs., Inc., No. 9465–
VCN, 2014 WL 5500245, at *1 (Del. Ch. Oct. 31, 2014) (“[T]he Agreement’s forum selection
clause directs ‘any dispute’ between the parties to Georgia.”).
Indeed, “[t]he Courts of Delaware defer to forum selection clauses,” Ashall Homes, 992
A.2d at 1245, and even the most deferential courts would not consider a forum selection clause
relating to “actions to interpret or enforce” an agreement to include claims for RICO violations,
fraud, or other illegal business practices unrelated to contractual obligations. In only one case,
which applied Delaware law, has a relatively narrow forum selection clause been enforced, and
that enforcement came pursuant to a breach of contract claim—a completely distinct factual
circumstance from the present case. 6 See PPF Safeguard, LLC v. BCR Safeguard Holding, LLC,
While Plaintiffs have filed a breach of contract claim, that claim relates to the documents
governing loans made by Defendants to Plaintiffs rather than to the Operating Agreement, which
flowed from Plaintiffs’ equity investment.
No. 4712–VCS, 2010 WL 2977392, at * 3 (Del. Ch. July 29, 2010) (involving a forum selection
clause “for the enforcement of [the] Agreement”).
Moreover, despite Moving Defendants’ reliance on the Ashall Homes, that decision was
based on a completely different set of facts. Primarily, the forum selection clauses discussed
therein contained significantly broader language, stating in one agreement that “English courts
shall have jurisdiction over any disputes arising hereunder[,]” Id. at 1250 (emphasis added), and
in another agreement that “the parties submit to the exclusive jurisdiction of the English courts.”
Id. at 1246–47. In the former instance, the language clearly contemplates claims which go beyond
breach of contract, and in the latter, the language of the clause is even broader. These clauses
contrast sharply with the clause in the Operating Agreement here, which only contemplates
“actions to interpret or enforce” the Agreement itself.
With that guidance in mind, the Court next interprets the scope of the clause. See Ashall
Homes, 992 A.2d at 1245. In their briefing, Defendants make a number of comparisons between
the language of the Complaint and that of the Operating Agreement. In so doing, Defendants
contend that the similarities outlined in their briefing demonstrate that the Complaint -- which
contains some language from the Operating Agreement’s terms -- must fall under the purview of
the forum selection clause. However, to the extent that the Complaint recites language from the
Operating Agreement, it only does so for the purposes of laying factual foundation concerning the
relationships of the parties. Indeed, contrary to Defendants’ argument, the Court focuses on
Plaintiff’s claims and determines whether those claims involve interpreting or enforcing any
provisions of the Operating Agreement. I do not so find.
To reiterate, the narrow language of the present forum selection clause applies only to
“actions to enforce or interpret” the Operating Agreement. However, none of the claims in this
case require interpretation or enforcement of that agreement. Indeed, the Operating Agreement
only governs the business operations of Defendant Byana. The Articles of the Agreement relate to
business organization, managing responsibilities, member contributions, and other business
logistics. While the alleged representation relating to equity established per dollar invested is
contained in the Operating Agreement, see Operating Agreement Art. 1, Plaintiffs do not allege
that this provision was breached. In fact, none of the claims for RICO violations, fraud, unjust
enrichment, or related aiding and conspiracy claims pertains to contract disputes such that the
Operating Agreement, which only defined the relationship among the members, would control or
even be consulted.
I note only the breach of fiduciary duty and the breach of the promissory notes asserted
against Moving Defendants depend on a contractual relationship between the parties, but even
those claims do not involve the interpretation or enforcement of the Operating Agreement. The
promissory notes are completely separate documents from the Operating Agreement; the merits of
that claim do not depend on interpreting or enforcing the Operating Agreement. Moreover,
fiduciary duties amongst partners in a limited liability partnership exist independent of the LLP’s
partnership agreement. See OTK Assocs., 85 A.3d at 720-21 (noting that an arbitration clause does
not apply to a claim for breach of fiduciary duty because such a claim did not “touch on contract
rights or contract performance under the agreement containing the clause” (quoting Parfi Holding
AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002) (internal quotation marks omitted)).
Accordingly, the present claims lie outside the scope of the plain meaning of the forum selection
In short, even applying the Delaware law on which Moving Defendants rely, to allow a
broad construction of a narrowly-tailored forum selection clause involved in this case to include
Plaintiffs’ claims, particularly those for fraud and RICO violations, would not be appropriate under
Delaware law. Therefore, this clause does not apply to the claims in the present case. 7
For all of the reasons set forth above, the Court finds that the forum selection clause in the
Operating Agreement does not cover actions for common law fraud, state and federal RICO
violations, or any of the claims asserted in Plaintiffs’ Complaint. Accordingly, Moving
Defendants’ Motion to Dismiss is DENIED.
DATED: July 14, 2015
Freda L. Wolfson
Freda L. Wolfson
United States District Judge
While I have applied Delaware law in construing the Operating Agreement for the
purposes of this Motion, I make no findings on the validity of that Agreement in this case.
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