Equity Trust Company et al v. Andrews et al
Filing
37
OPINION: For the foregoing reasons, Defendants' motion to dismiss is granted in part and denied in part. Plaintiffs are granted leave to replead within twenty-one (21) days, and as further set forth in this order. re: 25 MOTION to Dismiss (Notice of Motion). filed by Elizabeth Eiss, Greg Palmer, Dreambuilder Investments, LLC, Peter Andrews. (Signed by Judge Robert W. Sweet on 7/17/2017) (ap)
_
,
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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JULIE WIEDIS and EQUITY TRUST
COMPANY, CUSTODIAN
F/B/O JULIE WIEDIS IRA,
16 Civ. 9254
Plaintiffs,
OPINION
-againstDREAMBUILDER INVESTMENTS,
LLC, PETER ANDREWS, GREG
PALMER and ELIZABETH EISS,
Defendants.
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A P P E A RA N C E S:
Attorneys for Plaintiffs
DIAZ, REUS & TARG, LLP
105 0 Connecticut Avenue, N.W., Suite 500
Washington, D.C. 20036
By:
Richard N. Wiedis, Esq.
Attorneys for Defendants
VERNER SIMON
30 Wall Street, 8th Floor
New York, NY 10005
By:
Paul W. Verner , Esq.
L
1
-J
Sweet, D.J.
Defendants Dreambuilder Investments, LLC ("DBI"), Peter
Andrews
("Eiss")
("Andrews"), Greg Palmer ("Palmer") and Elizabeth Eiss
(collectively, the "Defendants") have moved pursuant to
Federal Rule of Civil Procedure 12(b) (6), Rule 9(b), and the
Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C.
§
78 u-4 (b) (1) - (3) (A), to dismiss the complaint of Plaintiffs
Julie Wiedis
("Wiedis") and Equity Trust Corporation, Custodian
F/B/O Julie Wiedis ("Equity Trust")
(collectively, the
"Plaintiffs") seeking to recover sums alleged due under certain
promissory notes
(the "Complaint").
Based upon the conclusions set forth below, Defendants'
motion to dismiss the securities claim is granted, Defendants'
motion to dismiss the state claims is denied, and Plaintiffs are
granted leave to replead within twenty-one (2 1) days.
Prior Proceedings
On November 30, 2016, Plaintiffs filed their Complaint,
(Dkt. 1), which was amended on December 14, 2016,
(Dkt. 20), and
alleges four causes of action: breach of contract on promissory
notes, common law fraud, and securities fraud in violation of
1
j
-
J
Sections lO(b) and 17(a) of the Securities Act and Rule
10(b)(5).l
The Complaint sets forth the following allegations, which
are assumed true for the purpose of this motion to dismiss. See
Koch v. Christie's Int'l PLC, 699 F.3d 141, 145 (2d Cir. 2012).
Wiedis is a Princeton, New Jersey resident.
(Compl.
~
2.)
Equity Trust is located in Westland, Ohio, and is an Individual
Retirement Account ("IRA") custodian that held retirement
savings Wiedis withdrew to invest with DBI.
( Compl.
~~
3-4. )
Andrews is a New York City resident and the Chief Executive
Officer ("CEO") of DBI.
(Compl.
~
5.) Palmer is a Kingston, New
Hampshire resident and a member of DBI.
(Compl.
~
6.) Eiss is a
New York resident and was DBI's Chief Operating Officer ("COO")
from 2007 to 2012.
(Compl.
~
7.)
In the second half of 2008, Wiedis made loans with DBI,
$50, 000 of which came from her Equity Trust IRA.
(See Compl.
~
11-13.) In exchange for these loans, DBI and Andrews provided
Wiedis with debt security agreements entitled "Promissory Note
1
Plaintiffs have voluntarily dismissed their claim for
securities fraud in violation of Section 17(a) of the Securities
Act. (See Dkt. 35.)
2
1
-
i
and Security Agreement" ("PNSA"), one dated August 8, 2008, in
the amount of $30,000 and another dated November 1, 2008, in the
amount of $20, 000.
(Compl., Exs. 1-2.) These PNSAs had interest
rates of 14 % and 18 % respectively and each had a term of twentyfour months.
(Compl.
15-16.) These PSNA loans were stated by
~~
DBI to be collateralized by DBI's ownership interests in
mortgage notes, some of which Wiedis could access from a DBI
online portal.
(See Compl., Exs. 1-2.)
On October 8, 2008, Wiedis made a loan of $8,000 with DBI,
which came from her savings.
(Compl.
~~
26-27.) In exchange for
this loan, Wiedis received a similar PNSA (the "$8,000 PNSA").
(See Compl.
~
28.) The $8,000 PNSA has similar terms to the
other PNSAs, such as 18 % interest rate per annum for a term of
twenty-four months, though it was not allegedly viewable on the
DBI online portal.
(See Compl.
~~
27-28; see Compl. Exs. 4-5.)
In May 2009, prior to either the $30,000 or $20,000 PNSA
reaching maturity, DBI "rolled-over" or combined the two loans
into a single $50,000 PNSA (the "$50,000 PNSA").
(Compl.
~
20.)
The $50,000 PNSA had a term of two years and an interest rate of
18 % per annum.
(Compl.
~
20.)
3
j
According to the Complaint, the purchased Notes had the
following maturity dates: the August 1, 2008, Note matured on
September 26, 2010; the October 1, 2008, Note matured on
November 22, 2010; the November 1, 2008, Note matured on March
26, 2010 2 ; and the May 1, 2009, Note matured on June 15, 2 011.
(See Compl.
~~
15, 16, 21, 28.)
When Wiedis entered into these PNSAs with Defendants,
Plaintiffs allege that the following representations by
Defendants were made knowingly false: that Wiedis never had an
actual enforceable legal right in the supposed collateral
securing the PNSAs,
(Compl.
~~
18, 24); that Wiedis would earn
and be paid 18 % interest on the PSNAs,
(Compl.
~~
20, 76); and
that Defendants would pay costs associated with collection on
the PNSAs, including reasonable attorney's fees,
(Compl.
~~
23, 76).
In September 2009, DBI changed its loan security
structures, specifically by converting loans in debt owned by
2
It is curious that the Complaint expressly states this
Note's maturity date as earlier than twenty-four months after
the effective date of the Note. Based on the language of this
Note, the maturity date is more likely to have been in December
2010. Regardless, choosing between these two dates would result
in the same resolution of the instant motion.
4
DBI into equity in an investment fund overseen by DBI and
others, a proposal which DBI promised was "secure" and offered
"high-yield returns." (Compl. enen 33, 38; see Compl. enen 33-40.)
In an September 8, 2009, email signed by Andrews and Eiss,
Defendants described some of the DBI changes:
[DBI] is making changes to its investment security
structure and how our investors are secured. These
changes are the result of launching out Distressed
Mortgage Fund and the associated shift in ownership of
the assets we manage. Until now, all assets were
solely owned by DBI and could be directly pledged as
security to indi victual investors. Going forward, all
assets purchased and managed by DBI are owned jointly
by DBI (the majority owner) and our partners in the
fund. As a result, our investors can no longer be
secured directly by individual loans and instead will
be secured by the entity that owns the individual
loans.
(Compl.
en 34;
Compl.,
around October
16,
Ex.
200 9,
as
5.)
part
Plaintiffs
of
allege
these
that,
changes,
Eiss
spoke with Wiedis over the phone and informed Wiedis that
she was required to relinquish her secured interest in the
$50,000 and $ 8 ,000 Notes securing her PNSAs in exchange for
shares in a newly-made fund of unspecified assets.
en 40.)
accepted
The
or
Complaint
contracted
does
such
not
an
en 4 o. )
5
indicate
whether
agreement.
(See
(Compl.
Wiedis
Compl.
Plaintiffs allege that Defendants omitted material facts
about the new investment arrangement, including, but not limited
to: details about how Wiedis' money would actually be invested;
when interest payments would be made; how the payment amounts
would be calculated; the number of other investors who would
have prior interests to collecting payments before Wiedis; and
specific details concerning when and how Wiedis would receive
repayment of her investment principal.
(See Compl.
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