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Duncan v. Vantage Corp.

United States District Court, D. Delaware

March 26, 2019

DOUGLAS A. DUNCAN, Plaintiff,
v.
VANTAGE CORPORATION, ET AL., Defendants.

          Catherine A. Gaul, Aaron P. Sayers, Ashby & Geddes, Wilmington, DE; Raymond L. Moss, Michael P. Gilmore, Moss & Gilmore LLP - attorneys for Plaintiff

          Philip A. Rovner, Jonathan A. Choa, Potter Anderson & Corroon LLP, Wilmington, DE; J. Allen Maines, Gregory J. Digel, Caroline Johnson Tanner, Holland & Knight LLP, Atlanta, GA - attorneys for Defendants Brian Askew and Gerald Finegold

          MEMORANDUM OPINION

          NOREIKA, U.S. DISTRICT JUDGE

         Plaintiff Douglas A. Duncan (“Plaintiff or “Duncan”) filed this action on February 20, 2018 (D.I. 1) alleging that Defendants Vantage Corporation (“Vantage”), Vantage Advisory Management, LLC (“VAM”), VF(X) LP (“VF(X)” or “VF(X) LP”), [1] Tradelogix, LLC (“Tradelogix”), Brian Askew (“Askew”), and Gerald Finegold (“Finegold”) (collectively, “Defendants”) alleging violation of 15 U.S.C. § 77l for the sale of unregistered and non-exempt securities (Count 1); Violation of O.C.G.A. § 10-5-20 for the sale of unregistered and non-exempt securities (Count 2); Violation of O.C.G.A. § 10-5-31 (Count 3); Violation of 15 U.S.C. § 77l(a)(2) for misrepresentations in connection with issuance of a security (Count 4); violation of §10b-5 of the Securities and Exchange Act of 1934 and Rule 10b-5 (Securities Fraud) (Count 8); Violation of O.C.G.A. § 10-5-50 et. seq. (securities fraud) (Count 9); and common law claims for breach of fiduciary duty, negligence, accounting and fraud (Counts 5-7 and 10). On March 21, 2018, Defendants moved to dismiss the Complaint. (D.I. 11). In response, on April 11, 2018, Plaintiff filed his First Amended Complaint (“Amended Complaint”), adding certain factual allegations, removing former Count 1, and reasserting the other Counts (now numbered as 1 through 9, instead of 2 through 10). (D.I. 16).

         On April 25, 2018, Defendants filed the present motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, alleging that the Amended Complaint fails to state a claim upon which relief can be granted. (D.I. 19). On May 7, 2018, Defendants Vantage, VAM, VF(X) LP, and Tradelogix (collectively “Debtor Defendants”) filed a Suggestion of Bankruptcy (D.I. 22) stating that the Debtor Defendants had “filed voluntary petitions for relief under chapter 11 of Title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Georgia, ” and suggesting “[p]ursuant to Section 362(a) of the Bankruptcy Code . . . that this action be stayed effective with the bankruptcy proceeding.” The bankruptcy petitions automatically stayed the proceedings against the Debtor Defendants, but not as to defendants Askew and Finegold (“the Individual Defendants”). While the Individual Defendants state in a footnote in their Reply Brief (D.I. 25 at 1, n.1) that they “believe the stay should extend to all Defendants in this case, ” they have not provided the Court with any basis to stay the case beyond the Debtor Defendants. The Court, thus, declines to do so and considers Defendants' motion to dismiss as to the Individual Defendants only. For the reasons set forth below, the motion to dismiss the Amended Complaint as to the Individual Defendants is GRANTED-in-part and DENIED-in-part.[2]

         I. BACKGROUND

         Individual Defendants Askew and Finegold are citizens of the State of Georgia. (D.I. 16 ¶¶ 6-7). According to the Amended Complaint, “Askew is an officer of Vantage Corporation and also serves as a director on Vantage Corporation's Board of Directors” while “Finegold is the President of Vantage Corporation and serves as a director on Vantage Corporation's Board of Directors.” (Id.). Vantage is a Delaware corporation with a principal place of business in Alpharetta, Georgia. (Id. ¶ 2). “VF(X) LP is a Delaware limited partnership” and a subsidiary of Vantage. (Id. ¶ 4). It was formed on February 19, 2016. (Id. ¶ 12).

         The Amended Complaint alleges that Askew met with Plaintiff in Georgia and communicated through mail, email, text messages, and the telephone to solicit investments in Vantage and VF(X) LP. (Id. ¶¶ 13-14). In February of 2016, “Plaintiff purchased 476.962702 Class A shares in Vantage” for $1, 000, 000 and in August of that year invested $3, 000, 000 in VF(X) LP. (Id. ¶¶ 15-16). The Amended Complaint alleges that “Plaintiff made these investments and purchased Vantage Corporation stock and VF(X) LP interests as a result of direct misrepresentations and omissions made to him by Askew and others acting on behalf of Askew, Vantage Corporation and/or VF(X) LP.” (Id. ¶ 17). Plaintiff further alleges that at the time of these communications, Askew was acting on behalf of Vantage and its subsidiaries, was within the scope of his positions therein, was authorized to act on behalf of Vantage and its subsidiaries, and “received direct or indirect compensation for his role in soliciting investments in Vantage Corporation and VF(X) LP.” (Id. ¶¶ 18-19). As to Finegold, Plaintiff contends that he “was (i) a director, officer and/or control person of Vantage Corporation, (ii) a manager and/or control person of Vantage Advisory Management LLC, the general partner of VF(X) LP, and/or (iii) a control person of Askew under Section 15 of the 1933 Act, 15 U.S.C. § 77o and the Georgia Securities Act, Ga. Code Ann. §10-5-58(d) - (g).” (Id. ¶ 20)

         Plaintiff alleges the stock in Vantage and interests in VF(X) LP are each a “security” as defined in the Securities Act of 1933, 15 U.S.C. § 77b and the Georgia Securities Act, Ga. Code Ann. §10-5-2 and were neither registered with, nor exempt from, registration pursuant to the Federal or Georgia securities acts. (Id. ¶¶ 21-22). Plaintiff further alleges that, at the time of the offering, “Askew was not registered as a securities salesperson or an investment advisor” in Georgia. (Id. ¶ 24). Additionally, the Amended Complaint states that “[b]efore Plaintiff purchased Vantage Corporation stock, Askew assured Plaintiff that 70% of his investment was to be placed in a segregated account for the benefit of each investor” and “[b]efore Plaintiff subscribed $3, 000, 000 to obtain VF(X) LP interests, Askew . . . assured Plaintiff that they had already successfully raised significant funds for VF(X) LP and that there were other limited partners” but in reality “Plaintiff's investment represented over 70% of the limited partnership interests, which Plaintiff did not learn until he received his K-1 after March 21, 2017.” (Id. ¶¶ 26-27).

         In February 2016, Plaintiff alleges that he received an email written by Askew outlining Vantage's equity gains since inception and stating “[f]orget about all the other opportunity that comes from all the other areas. When you know the market and really know how to trade . . . the opportunity to exploit it and profit is enormous. Imagine the profits over the next 20 years. It should be a no brainer.” (Id. ¶ 28). Plaintiff contends that he relied “on these representations and other oral and written representations made by Askew regarding their past investment performance and investor returns” when deciding to purchase Vantage stock and VF(X) LP interests. (Id. ¶ 29). Moreover, the Amended Complaint alleges that Askew represented that “Vantage Corporation was raising funds for a general partnership structure, ” “[Plaintiff] would become a general partner of a Vantage Corporation related entity, ” “Vantage Corporation's systems and strategies had reached a level of maturity and stability to invest significantly large amounts of capital, ” and “Vantage Corporation held 100% ownership of all the proprietary software and systems and intellectual property needed for its business model.” (Id. ¶¶ 32-33, 37). Plaintiff contends that “Askew knowingly made these false representations to induce Plaintiff's investment and to convince him not to sell his investment, ” and that Plaintiff bought and held those investments in reliance thereon. (Id. ¶¶ 38-39).

         The Amended Complaint alleges that Plaintiff's funds were never placed into segregated accounts, he never became a general partner of a Vantage related entity, and Vantage “did not own the purported proprietary software and system or intellectual property needed for the business model presented to Plaintiff, ” but instead relied upon software owned by a company called TradeVue, LCC (“TradeVue”), whose “sole and managing member” is Askew. (Id. ¶¶ 31, 36, 39-40). Plaintiff alleges that, after he made his investment, Vantage purchased the software and intellectual property from TradeVue for $2, 447, 853, which resulted in “Askew receiv[ing] all or a significant portion of the[] funds.” (Id. ¶ 41). Plaintiff alleges that he “has made multiple inquiries to understand the sources and uses of his investment” but “Vantage Corporation and Askew have refused to supply [him] with information regarding the use of his investment in Vantage Corporation.” (Id. ¶¶ 42-43). Plaintiff contends that despite his reasonable diligence, he “did not discover Defendants' misrepresentations until after February 20, 2017.” (Id. ¶ 43). The Amended Complaint alleges that on June 23, 2017, following the discovery of Defendants' misrepresentations, Plaintiff sent a letter to Askew revoking his entire interest in VF(X) LP and subsequently received two payments totaling $2, 854, 368.37. (Id. ¶ 44). The Amended Complaint contends that Plaintiff “has already tendered his VF(X) LP interests” and with the Amended Complaint “tenders back his Vantage Corporation stock to Defendants.” (Id. ¶ 46).

         II. LEGAL STANDARD

         A complaint must contain “‘a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554-55 (2007) (citing Conley v. Gibson 355 U.S. 41, 47 (1957); Fed.R.Civ.P. 8(a)(2)). When dismissal is sought under Rule 12(b)(6), the court conducts a two-part analysis. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, the court separates the factual and legal elements of a claim, accepting “all of the complaint's well-pleaded facts as true, but [disregarding] any legal conclusions.” Id. at 210-11. Second, the court determines “whether the facts alleged in the complaint are sufficient to show . . . a ‘plausible claim for relief.'” Id. at 211 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). A claim is facially plausible where “plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Id. Further, “[t]he complaint must state enough facts to raise a reasonable expectation that discovery will reveal evidence of [each] necessary element” of a plaintiff's claim. Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008) (internal quotations omitted).

         “The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). The court may grant a motion to dismiss only if, after “accepting all well pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, [the] plaintiff is not entitled to relief.” Id. “In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputed authentic documents if the complainant's claims are based upon these documents.” Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010).

         III. DISCUSSION

         The motion to dismiss argues that the Amended Complaint: (1) fails to state a claim against Finegold; (2) fails to state a claim under Section 12 of the Securities Act of 1933; (3) fails to state a claim under the Georgia Securities Act; (4) fails to state a claim for breach of fiduciary duty; (5) fails to state a claim for negligence; (6) fails to plead federal securities fraud claim with the requisite scienter; (7) fails to plead state and common law fraud claims with specificity as required by Fed. R. Civ. P 9(b); (8) improperly pleads an accounting; and finally that (9) to the extent that the Court dismisses the federal law claims, it should not exercise supplemental jurisdiction over the state law claims.

         A. Defendant Finegold

         The Individual Defendants argue that Finegold must be dismissed because the Amended Complaint “contains no factual allegations that connect Finegold to Plaintiff's claims” and “sets forth zero facts to support Plaintiff's claim that . . . Finegold [is] liable for Askew's alleged actions under the doctrine of respondeat superior.” (D.I. 20 at 6-7). Plaintiff counters that the Amended Complaint sufficiently alleges that Feingold “either (i) participated in the acts, (ii) is a control person with respect to Askew, and/or (iii) is responsible for Askew's conduct under the doctrine of respondeat superior. See Am. Compl. ¶¶ 3, 4, 7, 19, 20, 25, 52, 59, 67, 76, 85, 102, 113, 122.” (D.I. 24 at 6).

         Finegold is mentioned in five paragraphs of the Amended Complaint, which are set out in full below:

3. Vantage Advisory Management LLC is a Delaware limited liability company. According to the Confidential Private Offering Memorandum for VF(X), LP, Brian Askew and Gerald Finegold are the sole owners of Vantage Advisory Management, LLC and thus control Vantage Advisory Management, LLC. Upon information and belief, Vantage Advisory Management, LLC was formed as the investment advisor firm for Vantage Corporation's asset management division.
7. Gerald Finegold (“Finegold”) is a citizen of the State of Georgia. Upon information and belief, Finegold is the President of Vantage Corporation and serves as a director on Vantage Corporation's Board of Directors.
20. Upon information and belief, at the time that Askew offered for sale and sold Plaintiff the Vantage Corporation stock and VF(X) LP interests, Gerald Finegold was (i) a director, officer and/or control person of Vantage Corporation, (ii) a manager and/or control person of Vantage Advisory Management LLC, the general partner of VF(X) LP, and/or (iii) a control person of Askew under Section 15 of the 1933 Act, 15 U.S.C. § 77o and the Georgia Securities Act, O.C.G.A. § 10-5-58 (d)-(g).
25. Based upon information from the public records of Broker Check maintained by the Financial Industry Regulatory Authority (“FINRA”), Askew and Finegold were experienced in the investment advisory and securities business and until 2003 had been previously registered as principals and 50-50 co-owners of a Georgia based broker-dealer registered with the U.S. Securities & Exchange Commission (“SEC”) and FINRA known as Quantum Trading. Askew and Feingold claim to have been in the securities business and worked together as registered brokers and securities salesmen at now defunct Bear Stearns prior to 2002. Finegold and Askew claim to have been partners since 1992 in running their own hedge fund, broker dealer and electronic trading firm. Askew claims to have been, since ...

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