Shareff v. Lakebound Fixed Return Fund, LLC,
2013 NCBC 16.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE 09 CVS 9983
HOWARD L. SHAREFF, )
Plaintiff
)
)
v. ) OPINION AND ORDER ON
) MOTIONS TO DISMISS
LAKEBOUND FIXED RETURN FUND, LLC; )
SILVERDEER MANAGEMENT, LLC; )
SILVERDEER, LLC; RICHARD S. )
DECKELBAUM; HOWARD A. JACOBSON; )
VISIONQUEST WEALTH MANAGEMENT, )
LLC and STEPHEN C. PETERS, )
Defendants )
THIS CAUSE, designated a complex business case by Order of the Chief Justice
of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b)
(hereinafter, all references to the North Carolina General Statutes will be to "G.S."), and
assigned to the undersigned Chief Special Superior Court Judge for Complex Business
Cases, is before the court upon Defendant Howard A. Jacobson's Motion to Dismiss or
in the Alternative for Judgment on the Pleadings ("First Jacobson Motion"); Defendant
Howard A. Jacobson's Motion for Judgment on the Pleadings ("Second Jacobson
Motion"); Defendants VisionQuest Wealth Management, LLC, and Stephen C. Peters'
Motion to Dismiss the Complaint ("VisionQuest Motion") and the Motion to Dismiss of
Defendants Lakebound Fixed Return Fund, LLC; SilverDeer Management, LLC;
SilverDeer, LLC; Richard S. Deckelbaum and Howard A. Jacobson ("Lakebound
Motion"); and
THE COURT, having considered the arguments, briefs, other submissions of
counsel and appropriate matters of record concludes that with respect to Plaintiff's
respective Claims for Relief as alleged in the Complaint and Amended Complaint, the
First and Second Jacobson Motions should be DENIED, the Lakebound Motion is
MOOT and, consistent with the court's June 14, 2010 Order, the VisionQuest Motion
should be GRANTED.
McDaniel & Anderson, LLP by L. Bruce McDaniel, Esq. and Law Offices of
James C. White, P.C. by James C. White, Esq. and Michelle M. Walker, Esq. for
Plaintiff.
Kilpatrick Townsend & Stockton, LLP by Hayden J. Silver, III, Esq. and Emily
Moseley, Esq. for Defendants Lakebound Fixed Return Fund, LLC; SilverDeer
Management, LLC; SilverDeer, LLC; Richard S. Deckelbaum.
Defendant Howard A. Jacobson, Esq., Pro Se.
Graebe Hanna & Sullivan, PLLC by Christopher T. Graebe, Esq. for Defendants
VisionQuest Wealth Management, LLC and Stephen C. Peters.
Jolly, Judge.
I.
THE PARTIES
[1] Plaintiff Howard L. Shareff is a citizen and resident of Wake County, North
Carolina.
[2] Defendant Lakebound Fixed Return Fund, LLC ("Lakebound") is a North
Carolina limited liability company with its principal office in Wake County, North
Carolina. At times material to this action, Lakebound was engaged in the real estate
and development business.
[3] Defendant SilverDeer Management, LLC ("SD Management") is a North
Carolina limited liability company with its principal office and place of business in Wake
County, North Carolina. At times material to this action, SD Management was the
manager of Lakebound.
[4] Defendant SilverDeer, LLC ("SilverDeer") is a North Carolina limited
liability company with its principal office and place of business in Wake County, North
Carolina. At times material to this action, SilverDeer was the parent of SD
Management.
[5] Defendant Richard S. Deckelbaum ("Deckelbaum") is a citizen and
resident of Wake County, North Carolina. Deckelbaum organized Lakebound, SD
Management and SilverDeer and, at times material to this action, either directly or
indirectly owned and/or controlled these entities.
[6] Defendant Howard A. Jacobson ("Jacobson") is a citizen and resident of
Wake County, North Carolina. Jacobson organized Lakebound, SD Management and
SilverDeer and, at times material to this action, either directly or indirectly owned and/or
controlled these entities.
[7] Defendant VisionQuest Wealth Management, LLC ("VisionQuest") is a
North Carolina limited liability company and investment adviser, registered under the
North Carolina Investment Adviser Act, with its principal office and place of business in
Wake County, North Carolina. At times material to this action, VisionQuest was an
investment adviser for Plaintiff and was not registered as a broker-dealer with the North
Carolina Secretary of State.
[8] Defendant Stephen C. Peters ("Peters") is a citizen and resident of Wake
County, North Carolina. Peters is the owner and principal of VisionQuest. At times
material to this action, Peters operated as principal in connection with investment advice
provided by VisionQuest. Peters was not registered as a broker-dealer or securities
salesman with the North Carolina Secretary of State.
II.
PROCEDURAL HISTORY
[9] On May 20, 2009, Plaintiff filed a Complaint and Request for Jury Trial
against all Defendants ("Complaint"). The Complaint alleges seven Causes of Action
("Claim(s)"): First Claim – Violation of North Carolina Securities Act by Sale of Securities
by Unregistered Dealers or Salesmen; Second Claim – North Carolina Securities Fraud;
Third Claim – Common Law Fraud; Fourth Claim – Breach of Contract; Fifth Claim –
Violation of North Carolina Investment Adviser Act by Defendants VisionQuest Wealth
Management, LLC and Stephen C. Peters; Sixth Claim – Breach of Fiduciary Duty by
Defendants VisionQuest Wealth Management, LLC and Stephen C. Peters and Seventh
Claim – Punitive Damages.
[10] On July 24, 2009, Lakebound, SD Management, SilverDeer, Deckelbaum
and Jacobson (collectively, "Lakebound Defendants") filed the Lakebound Motion,
pursuant to Rules 9(b) and 12(b)(6) of the North Carolina Rules of Civil Procedure
("Rule(s)").
[11] On August 5, 2009, VisionQuest and Peters (collectively, "VisionQuest
Defendants") filed the VisionQuest Motion, pursuant to Rules 9 and 12(b)(6).
[12] On October 23, 2009, the court heard oral argument on the Lakebound
and VisionQuest Motions. The court granted the VisionQuest Motion as to all Claims
and this Order includes analysis of that decision. At the hearing, the court deferred
ruling on the Lakebound Motion.
[13] On June 29, 2011, Plaintiff filed a voluntary dismissal as to Lakebound,
SD Management, SilverDeer and Deckelbaum.1 Plaintiff's voluntary dismissal left
Jacobson as the only remaining Defendant in this action.
[14] On June 29, 2011, Plaintiff filed a Motion for Leave to Amend his
Complaint.
[15] On August 11, 2011, the court granted Plaintiff's Motion for Leave to
Amend his Complaint, and Plaintiff's Amended Complaint was deemed filed ("Amended
Complaint").
[16] The Amended Complaint contains essentially the same allegations and
Claims that were previously alleged against Jacobson in the Complaint.2 The Amended
Complaint only removes allegations that were previously alleged against Defendants
that had been dismissed from this action.
[17] On September 16, 2011, Defendant Jacobson filed both an Answer to the
Amended Complaint and the First Jacobson Motion. The First Jacobson Motion does
not raise new legal argument, but instead incorporates the entirety of the Lakebound
Motion and Memorandum in Support thereof.
[18] On May 14, 2012, Defendant Jacobson filed the Second Jacobson Motion.
Plaintiff, in his responsive brief to the Second Jacobson Motion, asks this court to strike
the Second Jacobson Motion on the grounds that it is redundant to the First Jacobson
Motion.
1
Consequently, the Lakebound Motion is moot.
2
Specifically, the Amended Complaint contains three Claims: (a) North Carolina Securities Fraud, (b)
Common Law Fraud and (c) Punitive Damages. These Claims and factual allegations in support thereof
were fully briefed in the Lakebound Motion.
[19] While the First Jacobson Motion makes mention of Rule 12(c), the fully-
briefed Lakebound Motion, incorporated in support of the First Jacobson Motion, only
seeks dismissal of Plaintiff's Claims pursuant to Rule 12(b)(6). The Second Jacobson
Motion and accompanying brief seek dismissal of Plaintiff's Claims pursuant to Rule
12(c) exclusively. The court therefore will treat the First Jacobson Motion as having
been made pursuant to Rule 12(b)(6) and the Second Jacobson Motion as having been
made pursuant to Rule 12(c). Accordingly, the court declines Plaintiff's request that it
strike the Second Jacobson Motion and will analyze Jacobson's motions under both a
Rule 12(b)(6) and Rule 12(c) standard.
III.
FACTUAL BACKGROUND
Among other things, the Complaint and Amended Complaint collectively, allege
that:
[20] Prior to February 19, 2008, VisionQuest, through Peters, recommended
an investment in Lakebound to Plaintiff. Peters allegedly represented an investment in
Lakebound to be "safe" due to monies secured by developer deposits, first lien positions
in properties in which Lakebound invested and Peters' direct scrutiny and diligence in
connection with the investment.3
[21] From early December 2007 through January 31, 2008, Defendants,
directly and through their agents, represented the following to Plaintiff: (a) Lakebound
only invested in real estate and would only invest in real estate in which Lakebound
would have a first lien position or better; (b) Lakebound's real estate investments were
3
Compl. ¶ 8.
and would be secured by escrowed builder deposits and (c) there were and would be
established escrow reserve accounts to pay interest to investors.4
[22] Contrary to these representations, (a) Lakebound did not invest in real
estate before or after Plaintiff's investment; (b) Lakebound had no investments that were
secured by builder deposits before Plaintiff's investment or at times material this action
and (c) no escrow accounts were established to pay interest to investors.5
[23] Additionally, Defendants failed to disclose that: (a) Lakebound committed
to purchase SilverDeer Olde Liberty LLC, a development wholly-owned by Deckelbaum
and Jacobson, without a valid and current appraisal and without approval by the
investing members of Lakebound;6 (b) SD Management was wholly-owned by
SilverDeer, which in turn was wholly owned and operated by Deckelbaum and
Jacobson, such that all management fees paid by Lakebound to SD Management
inured to Deckelbaum and Jacobson, along with other benefits referenced in the
Complaint and Amended Complaint;7 (c) there would be no money from Lakebound
available to make interest payments to its investors8 and (d) Defendants had no plans to
furnish Plaintiff accurate financial information concerning Lakebound as required by law
and no intention to provide financial reports and documents as indicated in Defendants'
Private Placement Memorandum.9
[24] On or about February 19, 2008, Plaintiff decided to invest $500,000 in
Lakebound.10 The VisionQuest Defendants, allegedly, received compensation from
4
Id. ¶ 9.
5
Id. ¶ 11.
6
Id. ¶ 11(b).
7
Id. ¶ 11(c).
8
Id. ¶ 11(d).
9
Id. ¶ 11(e).
10
Id. ¶ 18.
Lakebound for the sale of securities to Plaintiff.11 Plaintiff has received nothing from
Defendants in return for his investment.12
IV.
DISCUSSION
[25] As mentioned above, the First Jacobson Motion and the VisionQuest
Motion seek dismissal of the Plaintiff's Claims pursuant to Rule 12(b)(6). When
deciding a Rule 12(b)(6) motion, the well-pleaded allegations of the complaint are taken
as true and admitted, but conclusions of law or unwarranted deductions of facts are not
admitted. Sutton v. Duke, 277 N.C. 94, 98 (1970).
[26] A complaint fails to state a claim upon which relief can be granted when
the complaint, on its face, reveals that (a) no law supports the plaintiff's claim; (b) there
is an absence of facts sufficient to make a good claim or (c) some fact disclosed in the
complaint necessarily defeats the plaintiff's claim. Jackson v. Bumgardner, 318 N.C.
172, 175 (1986). However, a complaint should not be dismissed for failure to state a
claim upon which relief can be granted unless it (a) does not give sufficient notice to the
defendant of the nature and basis of the plaintiff's claim or (b) appears beyond a
reasonable doubt that the plaintiff could not prove any set of facts in support of his claim
that would entitle him to relief. Sutton,
277 N.C. at 108-09.
[27] When deciding a Rule 12(b)(6) motion, the court may consider documents
attached as exhibits and specifically referenced in the complaint, without converting the
motion into one for summary judgment. Oberlin Capital, L.P. v. Slavin, 147 N.C. App.
52, 60-61 (2001).
11
Id.
12
Id. ¶ 24.
A.
VisionQuest Motion
[28] As discussed above, the court previously granted the VisionQuest Motion
from the bench at a prior hearing. The Complaint alleges, as against the VisionQuest
Defendants, violations of the North Carolina Securities Act, fraud, breach of contract,
breach of the North Carolina Investment Advisers Act, breach of fiduciary duty and
punitive damages.
1.
Violation of North Carolina Securities Act
[29] In the First Claim of the Complaint, Plaintiff alleges that the VisionQuest
Defendants are liable to him under G.S. 78A-56 due to violations of G.S. 78A-36.13
Generally speaking, G.S. 78A-36 requires any person who transacts business in North
Carolina as a dealer or salesman of securities to register in accordance with the North
Carolina Securities Act. At issue is whether the VisionQuest Defendants were the
sellers of the securities purchased by Plaintiff so as to bring them within the reach of
G.S. 78A-36.
[30] G.S. 78A-36 has been given a narrow construction by courts in this state.
See, e.g., State v. Clemmons, 111 N.C. App. 569 (1993); State v. Williams,
98 N.C.
App. 274 (1990). Here, there is no allegation that the VisionQuest Defendants actually
sold shares in Lakebound. Further, there is not a sufficient allegation that the
VisionQuest Defendants solicited Plaintiff's investment in Lakebound with the intent to
serve their own financial interests. Therefore, the court CONCLUDES that G.S. 78A-36
13
The Amended Complaint does not include this Claim against Jacobson. Accordingly, the court need
only consider the VisionQuest Motion as to this Claim.
does not apply to the alleged acts of the VisionQuest Defendants as they were not a
"dealer" or "salesman" within the meaning of G.S. 78A-36. Accordingly, the
VisionQuest Motion with regard to this Claim should be GRANTED, and as to the
VisionQuest Defendants this Claim should be DISMISSED.
2.
Fraud Claims
[31] Plaintiff alleges three fraud-based Claims against the VisionQuest
Defendants; the first for violations of G.S. 78A-56 ("Securities Fraud"), the second for
common law fraud ("Common Law Fraud") and the third for violations of G.S. 78C-
38(a)(1) ("Investment Adviser Fraud")14 (collectively, "Fraud Claims").
[32] The court concludes that the Fraud Claims are subject to Rule 9(b), which
requires "[i]n all averments of fraud, duress or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity." A plaintiff may satisfy Rule 9 by
alleging "time, place and content of the fraudulent representation, identity of the person
making the representation and what was obtained as a result of the fraudulent acts or
representations." Terry v. Terry, 302 N.C. 77, 85 (1981).
[33] As to the Claims for Securities Fraud and Common Law Fraud, Plaintiff
alleges that all Defendants, each of them directly and through their agents, made false
statements between early December 2007 and January 31, 2008.15 As such, the
allegations related to these two Claims do not distinguish between the VisionQuest
14
Plaintiff alleges that the VisionQuest Defendants violated G.S. 78C-8(a), 78A-8(d) and 78C-33. The
court notes that G.S. 78A-8(d) and 78C-33 do not exist. These references are deemed typographic
errors, and the court concludes that, based on Plaintiff's arguments, he has solely alleged a violation of
G.S. 78C-38(a).
15
Compl. ¶ 9.
Defendants and the other named Defendants.16 The language of the Complaint does
assign all of the fraudulent representations to each Defendant, but does not alert the
court or the Defendants as to which fraudulent representations each Defendant
allegedly made. Consequently, the court is unable to identify the particular alleged
statements made by the VisionQuest Defendants with regard to Plaintiff's Claims for
Securities Fraud and Common Law Fraud. Further, Paragraph 11(e) of the Complaint
suggests that Plaintiff's Securities Fraud and Common Law Fraud claims are based
upon misrepresentations made by the Lakebound Defendants, not the VisionQuest
Defendants.
[34] As to Plaintiff's Claim for Investment Adviser Fraud, the court concludes
that the Complaint lacks sufficient specificity to state a claim upon which relief may be
granted. Other than the generalized factual allegations discussed above, Plaintiff
alleges that the VisionQuest Defendants recommended an investment in Lakebound as
"safe" when, "[i]n truth and fact, it was not safe."17 These allegations are insufficient to
satisfy the requirements of Rule 9.
[35] Taken as a whole, Plaintiff's allegations fail to state a Claim for Securities
Fraud, Common Law Fraud or Investment Adviser Fraud against the VisionQuest
Defendants. Accordingly, the VisionQuest Motion with regard to these Claims should
be GRANTED, and as to the VisionQuest Defendants these Claims should be
DISMISSED.
16
See, e.g., id. ¶¶ 30, 31, 34-37, 53.
17
Id. ¶ 8.
3.
Breach of Contract
[36] Plaintiff's Fourth Claim alleges Breach of Contract against the VisionQuest
Defendants. Plaintiff alleges that the VisionQuest Defendants had a contractual
relationship with Plaintiff,18 pursuant to which VisionQuest was to be his investment
adviser for compensation on or after January 15, 2008. However, the Complaint makes
no allegation that the investment adviser contract between Plaintiff and the VisionQuest
Defendants was breached.19 Instead, the Breach of Contract Claim appears to be
targeted at the contract between Plaintiff and Lakebound.20 In the absence of any
allegation of a breached contract between the VisionQuest Defendants and Plaintiff, this
Claim must fail. Accordingly, the VisionQuest Motion with regard to Plaintiff's Breach of
Contract Claim should be GRANTED, and as to the VisionQuest Defendants this Claim
should be DISMISSED.
4.
Breach of Fiduciary Duty
[37] Without determining the question of whether Plaintiff has properly alleged
the existence of a fiduciary duty, the court concludes that Plaintiff has failed to allege
facts demonstrating a breach of any purported fiduciary duty by the VisionQuest
Defendants. Here, Plaintiff has alleged that Peters represented to him that an
investment in Lakebound was "safe" as a result of the monies secured by developer
deposits, first lien positions in properties and Peters' direct scrutiny and diligence in
18
Pl. Mem. Resp. Mot. Dismiss 10.
19
Furthermore, Plaintiff's responsive brief in opposition to the VisionQuest Motion makes no specific
reference to a breach by VisionQuest with regard to the investment adviser contract with Plaintiff. Id.
20
Compl. ¶¶ 39-40.
connection with the investment.21 Plaintiff alleges that, contrary to Peters'
representation, the investment was not safe because there were no first lien positions,
investments were not secured by deposits and there were no escrow accounts for
interest established.22 Even assuming a fiduciary duty existed, the court concludes that
Plaintiff's limited allegations relative to the VisionQuest Defendants do not demonstrate
a breach of fiduciary duty by either of them. Based upon the foregoing, the court
concludes that Plaintiff has not stated a claim for breach of fiduciary duty by the
VisionQuest Defendants. Accordingly, the VisionQuest Motion with regard to this Claim
should be GRANTED, and as to the VisionQuest Defendants this Claim should be
DISMISSED.
5.
Punitive Damages
[38] The court's conclusion that all underlying Claims against the VisionQuest
Defendants should be dismissed, leaves no basis upon which punitive damages could
be granted. Accordingly, the VisionQuest Motion with regard to this Claim should be
GRANTED, and as to the VisionQuest Defendants this Claim should be DISMISSED.
B.
First Jacobson Motion – Rule 12(b)(6)
[39] The Amended Complaint alleges three causes of action against Defendant
Jacobson: First Claim – North Carolina Securities Fraud; Second Claim – Common Law
Fraud and Third Claim – Punitive Damages (collectively, "Amended Claims").
21
Id. ¶ 8.
22
Id.
[40] The First Jacobson Motion seeks dismissal of Plaintiff's Amended Claims
based on nearly identical grounds as the VisionQuest Motion – failure to satisfy
particularized pleading requirements of Rule 9.23
[41] However, Plaintiff's Amended Claims against Defendant Jacobson, as
they are alleged in the Amended Complaint, are distinguishable from the fraud-based
Claims as initially alleged in the Complaint against the VisionQuest Defendants.
[42] Most notably, the allegations of the Amended Complaint are alleged solely
against Defendant Jacobson. Thus, the alleged misrepresentations are particularly
assigned to Defendant Jacobson alone, not fatally generalized against a group of
multiple defendants, as was the case in the Complaint.
[43] Further, the Amended Complaint identifies two written documents, which
contain the specific content of the alleged false representations and concealment of
material facts made by Defendant Jacobson.24 Those documents are identified as the
Lakebound Operating Agreement and Private Placement Memorandum, which were
prepared by Defendant Jacobson for the purpose of selling interests in Lakebound.25
[44] The crux of Plaintiff's Amended Claims is that the representations in the
Private Placement Memorandum were fraudulent and designed to induce Plaintiff to
invest in Lakebound.26 Further, Defendant Jacobson was Lakebound's promoter and
arguably most familiar with Lakebound's investment history and strategy. In essence,
Defendant Jacobson specifically is alleged to be at the center of the fraudulent scheme
complained of by Plaintiff.
23
Mot. Dismiss Defs. Jacobson 1; Mem. Supp. Mot. Dismiss Def. Jacobson 4-6.
24
Am. Compl. ¶¶ 5, 7, 10.
25
Id. ¶¶ 3, 5.
26
Id. ¶¶ 7, 9.
[45] Accordingly, the court concludes that Plaintiff has sufficiently stated fraud-
based Claims upon which relief can be granted against Defendant Jacobson under the
standards of Rule 12(b)(6). Consequently, Plaintiff has also properly stated a Claim for
punitive damages based upon fraud under G.S. 1-15D. As such, the First Jacobson
Motion should be DENIED.
C.
Second Jacobson Motion – Rule 12(c)
[46] A motion for judgment on the pleadings should not be granted unless the
moving party clearly establishes that there are no remaining issues of material fact and
that the moving party is entitled to judgment as a matter of law. Am. Bank & Trust Co.
v. Elzey, 26 N.C. App. 29, 32 (1975). Further, "[w]hen a party moves for judgment on
the pleadings, he admits the truth of all well-pleaded facts in the pleading of the
opposing party and the untruth of his own allegations insofar as they are controverted
by the pleadings of the opposing party." Pipkin v. Lassiter,
37 N.C. App. 36, 39 (1978)
(citing Gammons v. Clark,
25 N.C. App. 670 (1975)).
[47] As discussed above, in his Amended Complaint Plaintiff has made
sufficiently detailed allegations in support of the Amended Claims stated against
Defendant Jacobson. Accepting the well-pleaded allegations of the Amended
Complaint as true, the court concludes that Defendant Jacobson is not entitled to
judgment as a matter of law as to any of Plaintiff's Amended Claims. Therefore, the
Second Jacobson Motion should be DENIED.
NOW THEREFORE, based upon the foregoing, it hereby is ORDERED that:
[48] Defendants VisionQuest Wealth Management, LLC, and Stephen C.
Peters' Motion to Dismiss the Complaint is GRANTED, and all Claims in this civil action
against Defendants VisionQuest Wealth Management, LLC and Stephen C. Peters are
DISMISSED.
[49] The Motion to Dismiss of Defendants Lakebound Fixed Return Fund, LLC;
SilverDeer Management, LLC; SilverDeer, LLC; Richard S. Deckelbaum and Howard A.
Jacobson is MOOT and no further ruling from this court is necessary.
[50] Defendant Howard A. Jacobson's Motion to Dismiss or in the Alternative
for Judgment on the Pleadings is DENIED.
[51] Defendant Howard A. Jacobson's Motion for Judgment on the Pleadings is
DENIED.
This the 6th day of March, 2013.
