Granata v. Berson et al
Filing
33
MEMORANDUM OPINION & ORDER: that Plaintiff's First Claim for Relief under Section 10(b) against Miller and TCC is dismissed. This Court declines to exercise supplemental jurisdiction over the remaining state law claims but notes that they also l ikely would not survive any legal analysis given the lack of allegations against TCC and Miller. Accordingly, it is hereby ORDERED that defendant Miller and TCC's motion to dismiss the Complaint is GRANTED. It is FURTHER ORDERED that any amend ed complaint setting forth a sufficient basis to allege liability against Miller and TCC must be filed no later than fifteen (15) days from the date of entry of this Memorandum Opinion & Order. Plaintiff's failure to do so within the requisite t ime frame will result in dismissal of the Complaint against TCC and Miller with prejudice.The Clerk of the Court is directed to terminate the motion(Dkt. No. 18). Additional relief as set forth in this Order. , Fred Miller and Traders Commercial Capital, LLC. terminated. (Signed by Judge Katherine B. Forrest on 12/5/2011) (pl) Modified on 12/5/2011 (pl).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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VSDCSDNV
DOCUMENT
ELECTRONICALLV FILED
DOC':_ _ _ _ _ __
DATE FILED:
0 5 DEC 20ft
ETTA GRANATA,
Plaintiff,
11 Civ. 689 (KBF) (KNF)
MEMORANDUM OPINION &
ORDER
-v-
DAVID BERSON, DAREMY COURT QUALIFIED
VENTURES, LLC, DAREMY COURT XIV, INC.,
FRED MILLER, ERIC RIEDMAN and TRADERS
COMMERCIAL CAPITAL, LLC,
Defendants.
----------------------------------------X
KATHERINE B. FORREST, District Judge:
A material misrepresentation or material omission is the
sina
~
non of a claim under Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and of Rule 10b-5
promulgated thereunder.
Here, as defendants Fred Miller
("Miller") and Traders Commercial Capital, LLC ("TCC") argue in
their Motion to Dismiss Plaintiff Etta Granata's Complaint
Pursuant to Rule 12(b) (6) of the Federal Rules of Civil
Procedure, the Complaint is devoid of any references to movants'
making or failing to make any statements to plaintiff Etta
Granata ("Plaintiff").
Indeed, there is no allegation in the
Complaint that Miller or TCC said anything to anyone at all.
Accordingly, and for the reasons set forth below, this Court
dismisses Plaintiff's First Claim for Relief under the Exchange
Act.
Since there is nothing on the face of the Complaint setting
forth a separate basis for federal jurisdiction over the
remaining state law claims, they are dismissed for failure to
plead a sufficient predicate for federal jurisdiction.
BACKGROUND
On January 31, 2011, Plaintiff brought this action alleging
securities fraud and various state law claims in connection with
her investment in Daremy Court Qualified Ventures, LLC ("Daremy
Court"), a private investment fund, founded by defendant David
Berson ("Berson"), Plaintiff's alleged accountant and financial
advisor.
The below recitation of facts "accept[s] as true all
allegations in the complaint and draw[s] all reasonable
inferences in favor of the non-moving party."
Connecticut v.
Am. Elec. Power Co., Inc., 582 F.3d 309, 320 (2d Cir. 2009)
(citation omitted)
i
see also Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179
(2007) .
Plaintiff alleges that in 2002 she sought to transfer and
consolidate her 401k from her former employer with her other
retirement savings.
Compl. ~~ 16-17.
According to Plaintiff,
she approached Berson for advice, based upon their approximately
12-year long accountant-client relationship.
Id.
~~
15, 17.
Berson recommended that Plaintiff take advantage of an
2
opportunity to invest in Daremy Court, which guaranteed returns
of 12 percent annually, and assured Plaintiff that any principal
invested in Daremy Court would be uprotected from losses, that
the investment had no fixed term and that Plaintiff could
liquidate her investment at any time."
Id. ~ 18.
As Plaintiff
alleges, Berson then suggested that Plaintiff not only invest
her entire combined retirement savings in Daremy Court, but also
additional funds to make the minimum $50,000 investment; and
further represented that he made investments of his own in
Daremy Court.
Id.
~~
19, 21.
Plaintiff further alleges that
Berson assured Plaintiff that her investment would be safe.
~
20.
Id.
Based upon those representations, Plaintiff alleges that
on August 23, 2002, she rolled over to Daremy Court her IRA and
401k in an amount totaling nearly $25,000, id. ~ 23; and that on
October 9, 2002, she made two additional contributions of
approximately $18,000 and $25,000, respectively, id.
~
24.
The Complaint alleges that at the time Plaintiff made the
October 9 contributions, she learned of a second fund, Daremy
Court XIV, Inc.
Compl. ~ 25.
The existence of that fund only
came to light when Plaintiff was apprised that the additional
$25,000 contribution was being rolled into Daremy Court XIV.
Plaintiff alleges that upon receipt of that information she
contacted Berson.
Id.
Berson explained that tax consequences
necessitated the separate investment and assured Plaintiff that
3
Daremy Court XIV afforded the same investment protections as
Daremy Court, including the 12 percent annual return--regardless
of market performance--and the principal protection.
Id.
Plaintiff alleges that for two years, from 2002 through
2004, she received monthly account statements from Daremy Court
showing a 12 percent annualized return, but that in 2004, she
contacted Berson to request withdrawal of part of her
investment.
~~
Compl.
27, 28, 29.
Berson allegedly informed
Plaintiff that there was a three-month waiting period for
liquidation, contrary to his prior representations, but
regardless, advised her not to withdraw any money because it was
not "fiscally prudent" and because she would be prevented from
re-investing in Daremy Court or Daremy Court XIV (collectively,
the "Funds").
Id.
~
27.
Berson counseled Plaintiff to obtain a
home equity loan because it would carry a lower interest rate.
Plaintiff followed Berson's advice and obtained a home equity
loan, on which she allegedly still makes payments today.
Id.
The Complaint alleges that Plaintiff continued to attempt
to liquidate part of her investment:
in 2006, Plaintiff sought
to liquidate the $25,000 investment in Daremy Court XIV (and was
informed of a three-month waiting period), Compl.
~
29, and in
2008, after continuously requesting to liquidate her investments
in both Funds, Berson admitted that all of Plaintiff's money was
invested with Miller, a hedge fund manager who had, according to
4
Berson, invested all of Plaintiff's money in a company that
owned and operated a trading platform, id. ~ 30.
Berson
provided a number of facts about the company, but at bottom,
told her that Plaintiff could expect her money returned "in a
matter of weeks."
Id.
Plaintiff alleges that finally, on January 6, 2009, after
she had made repeated inquiries into the status of her
investments, Berson disclosed that he had turned over
Plaintiff's investments to TCC.
Compl.
~
31.
TCC was allegedly
a company managed by Miller, who in turn invested that money
with SFG Financial Corporation, a company with a trading
platform that was supposed to trade in the foreign exchange
market.
Id.
Berson told Plaintiff that within two weeks the
platform through which TCC was investing Plaintiff's money would
be profitable, and made further representations about Miller and
TCC's investments and the timing on the return of her
investment.
Id.
Plaintiff alleges that after repeated calls to
Berson regarding the return of her investment, he stopped
returning her calls.
Id.
~
33.
In November 2009, Plaintiff alleges that she attempted to
transfer the entirety of her investments out of the Funds to no
avail.
Id.
This action followed.
5
DISCUSSION
liTo survive dismissal, the plaintiff must provide the
grounds upon which his claim rests through factual allegations
sufficient 'to raise a right to relief above the speculative
level.'"
ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87,
98 (2d Cir.2007)
("ATSI")
(citation omitted).
In other words,
"a complaint must contain sufficient factual matter, accepted as
true, to 'state a claim to relief that is plausible on its
face.'"
Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949,
173 L.Ed.2d 868 (2009)
(quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 554, 570 (2007)); see also S. Cherry St., LLC v.
Hennessee Group LLC, 573 F.3d 98, 103-04 (2d Cir. 2009)
(applying the Iqbal standard in the securities fraud context) .
Claims of securities fraud under the Exchange Act are also
subject to heightened pleading requirements under Federal Rule
of Civil Procedure 9(b).
See ECA & Local
IBEW Joint Pension
Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 196 (2d Cir.
2009).
Specifically, the Rule 9(b)
"particularity" requirement
mandates that a complaint "(1) specify the statements that the
plaintiff contends were fraudulent,
(2) identify the speaker,
(3) state where and when the statements were made, and
(4) explain why the statements were fraudulent."
ATSI, 493 F. 3d
at 99. "Allegations that are conclusory or unsupported by
factual assertions are insufficient."
6
Id.
To state a claim for securities fraud in violation of
Section 10(b) and Rule 10b- 5, "plaintiffs must allege that [the
defendants]
facti
\ (1) made misstatements or omissions of material
(2) with scienter;
sale of securitiesi
(3) in connection with the purchase or
(4) upon which plaintiffs relied; and
(5) that plaintiffs' reliance was the proximate cause of their
injury.'"
Lentell v. Merrill Lynch & Co., 396 F.3d 161, 172 (2d
Cir. 2005).
As discussed above, for purposes of this motion, the Court
accepts as true that Plaintiff lost money in connection with the
purchase or sale of a security and that Berson made a variety of
statements to Plaintiff that were materially false and
misleading.
The leap that Plaintiff asks this Court to make is
that the statements made by Berson about Miller or TCC can
actually be attributed to Miller or TCC.
In other words, the
Complaint is devoid of allegations that Berson was speaking at
the behest of Miller or TCC.
See, e.g., Pension of Univ. of
Montreal v. Banc of Am., 446 F. Supp. 2d 163, 179 (S.D.N.Y.
2006).
It may be that Berson, on his own, without the
involvement of Miller or TCC made the alleged statements to
Plaintiff.
Or, it may be that TCC itself made statements to
Berson it knew and intended would be conveyed to Plaintiff.
What is clear on the face of the Complaint as it stands today is
the total lack of any statements by Miller or TCC to Plaintiff.
7
Under those circumstances, dismissal is warranted.
See Wright
v. Ernst & Young LLP, 152 F.3d 169, 175 (2d Cir. 1998)
i
see also
Lentell, 396 F.3d at 172.
Lacking any statements attributable to Miller or TCC,
Plaintiff cannot allege any facts amounting to scienter by
Miller or TCC.
against them.
That, too, is fatal to Plaintiff's claims
Tellabs, 551 U.S. at 313.
In an apparent attempt to supplement the allegations in the
Complaint, Plaintiff refers to (i) an action brought by the
Acting Attorney General of New Jersey against Miller and TCC for
violations of New Jersey's blue sky lawsi and (ii) a finding of
liability against Berson for securities fraud in a wholly
unrelated action that previously was before Judge Stephen C.
Robinson, Merrill Herman & Sharron Dupler v. David Berson, et
al., No. 07 Civ. 10263 (S.D.N.Y.) (closed Jan. 29, 2010).
The
law is clear, however, that a plaintiff cannot amend a complaint
with information contained in an opposition to a motion to
dismiss.
In re Livent, Inc. Noteholders Sec. Litig., 151 F.
Supp. 2d 371, 432 (S.D.N.Y. 2001).
Thus, the Court does not
recognize anything contained in those two publicly filed
documents as "factual" allegations that could amend Plaintiff's
complaint.
For the foregoing reasons, Plaintiff's First Claim for
Relief under Section 10(b) against Miller and TCC is dismissed.
8
This Court declines to exercise supplemental jurisdiction
over the remaining state law claims but notes that they also
likely would not survive any legal analysis given the lack of
allegations against TCC and Miller.
Accordingly, it is hereby
ORDERED that defendant Miller and TCC's motion to dismiss
the Complaint is GRANTED.
It is FURTHER ORDERED that the Complaint is dismissed
without prejudice in its entirety against defendants Miller and
TCC.
It is FURTHER ORDERED that any amended complaint setting
forth a sufficient basis to allege liability against Miller and
TCC must be filed no later than fifteen (15) days from the date
of entry of this Memorandum Opinion & Order.
Plaintiff's
failure to do so within the requisite time frame will result in
dismissal of the Complaint against TCC and Miller with
prejudice.
The Clerk of the Court is directed to terminate the motion
(Dkt. No. 18).
SO ORDERED:
Dated:
New York, New York
December~, 2011
KATHERINE B. FORREST
United States District Judge
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