The opinion of the court was delivered by: Joan N. Ericksen United States District Judge
Asserting claims under the Securities Exchange Act of 1934 and the Minnesota Securities Act, Ron Yary, Kenneth Resnick, Marion Resnick, and Irving Braverman (collectively, Plaintiffs) brought this action against Stuart Voigt. They also asserted claims of fraud and negligent misrepresentation, constructive fraud and breach of fiduciary duty, breach of contract, equitable and promissory estoppel, and unjust enrichment. The case is before the Court on Voigt's Motion to Dismiss Plaintiffs' Amended Complaint. For the reasons set forth below, the Court grants in part and denies in part the motion.
In 1992 or 1993, Voigt began lending money to Jeffrey Gardner for individual real estate transactions. In 1998, Gardner organized Assured Financial, LLC (Assured), whose business plan indicated that Assured would provide financing to companies engaged in residential building construction and land development. Voigt was chairman of Assured's board.
Kenneth Resnick and Voigt have been friends since 1973. In 2002, Voigt informed Kenneth Resnick of an investment opportunity with Assured. After subsequent discussions with Voigt, Kenneth Resnick agreed to invest in Assured. In June 2002, Kenneth Resnick wired funds to Assured. In exchange, he received a 2-year promissory note from Assured and a personal guarantee that Voigt had signed.
Voigt and Marion Resnick, Kenneth Resnick's mother, were also friends. In May or June 2002, Voigt agreed to review Marion Resnick's investment portfolio and to advise her as to whether it was properly invested. He advised her to invest in Assured. In June 2002, Marion Resnick wired funds to Assured. In exchange, she received a 2-year promissory note and a personal guarantee that Voigt had signed. Later, in 2003 or 2004, Marion Resnick invested additional funds in Assured.
In September 2004, Kenneth Resnick and Marion Resnick received letters that informed them that they could either liquidate their investments in Assured or transfer their investments to Hennessey Financial, LLC (Hennessey). Gardner organized Hennessey in 1999, and the company engaged in mezzanine financing.*fn2 Voigt was on its financial advisory board. Kenneth Resnick asked whether he and his mother should transfer their Assured investments to Hennessey, and Voigt advised him that they should. Marion Resnick transferred her Assured investment to Hennessey, and she received a 2-year promissory note dated October 1, 2004, from Hennessey. She made additional investments in Hennessey in November 2004, late 2005, and 2007. Kenneth Resnick also transferred his Assured investment to Hennessey. He received a 2-year promissory note dated November 1, 2004, from Hennessey. He made additional investments in Hennessey in late 2005, 2006, and 2007. Voigt repeatedly told Kenneth Resnick and Marion Resnick that their investments in Assured and Hennessey were safe and secure.
Voigt and Yary have been friends since 1970. In the summer of 2003, Yary talked to Kenneth Resnick, who mentioned his investment in Assured through Voigt. Within two months, Yary called Voigt and asked about investing with Voigt. Voigt solicited Yary to invest in Hennessey in several telephone conversations between August 2003 and April 2004. Voigt agreed to personally guarantee Yary's investment. On January 27, 2004, Yary sent a check to Hennessey. In exchange, he received a 5-year debenture dated January 28, 2004. Later, Yary received financial disclosures from Voigt, but Yary never received an executed personal guarantee from Voigt. Voigt told Yary that Hennessey was a very safe investment.
Braverman has been a friend of Marion Resnick for more than 50 years. In the fall of 2006, he learned from her about her and her son's investments. Later, Braverman asked Kenneth Resnick to speak to Voigt about the possibility of investing in Hennessey. Kenneth Resnick called Voigt, who indicated that Braverman could invest in Hennessey. In early September 2006, Braverman met Voigt, Gardner, and an employee of Hennessey. Gardner and the employee gave a sales presentation, Voigt indicated that he would "back up" Braverman's investment, and Voigt told Braverman not to worry about a warning in a private placement memorandum that Braverman had received from Gardner and the employee. Later that month, Braverman invested funds in Hennessey. In exchange, he received a 2-year subordinated debenture. The next month, Braverman invested additional funds, and he received a superseding 2-year subordinated debenture. Voigt told Braverman that an investment in Hennessey was safe and secure.
By April 2007, Voigt had seen documents that indicated Hennessey was experiencing significant losses and could fail. By late 2007, Hennessey was experiencing severe financial difficulties. By 2008, Hennessey was making interest payments to investors not from profits from mezzanine lending but from new principal investments.
Plaintiffs received letters from Hennessey dated May 1, 2008. The letters indicated that Hennessey faced challenges from the decline of the real estate market and the near collapse of the credit markets, that Hennessey had made progress in pursuing solutions to the challenges, that Hennessey's goal remained above market returns for its investors, and that Hennessey's primary goal, given market conditions, was to protect the future of Hennessey and its investors.
Plaintiffs received letters dated May 14, 2008, from Hennessey. The letters indicated that Hennessey's senior lender had stopped all investor payments and accruals as of May 1, was discontinuing financing, and was seizing Hennessey's assets. The letter indicated that Gardner continued to look for refinancing solutions and that all investments would be lost if Gardner's efforts to obtain additional financing for Hennessey proved unsuccessful.
Upon receiving the May 14 letter, Kenneth Resnick called Voigt about the investments he and his mother had made. Voigt stated that Hennessey was developing a plan to avoid significant losses to their investments. In the following few weeks, Kenneth Resnick talked to Voigt on a daily basis. Voigt reassured Kenneth Resnick that a plan was being developed that would prevent them from losing their investments.
Braverman's son contacted Voigt immediately after Braverman received the May 14 letter. The son demanded that Voigt honor his personal guarantee of Braverman's investment. Voigt denied personally guaranteeing the investment.
Marion Resnick called Voigt after receiving the May 14 letter. Voigt told her that a plan was being developed that would keep her investment safe.
Yary contacted Voigt after receiving the May 14 letter. Voigt stated that he stood to lose a substantial investment and that he was in the same position as Yary and the other Plaintiffs. Voigt reassured Yary that a plan was being developed that would prevent the loss of their investments.
Plaintiffs received letters dated June 6, 2008. The letters stated that Hennessey would be dissolved and that no payments to unsecured creditors would be made. The letter also mentioned a reorganization plan in which unsecured creditors will receive preferred shares in a publicly traded entity.
After receiving the June 6 letter, Kenneth Resnick told Voigt that they needed an attorney to look out for their life savings as the reorganization plan was being developed. Voigt responded that a lawyer, Todd Duckson, was negotiating with Hennessey's senior lender, that Duckson was a fine lawyer, and that Duckson was looking out for the interests of investors like them. Voigt stated that he had recently talked to Duckson for three hours about the solution. Kenneth Resnick conveyed Voigt's assurances to Marion Resnick and Braverman.
A day or two later, Voigt told Kenneth Resnick that he had talked to Duckson. Voigt mentioned an investor meeting at which Gardner would present to investors the solution to Hennessey's financial problem. Voigt stated that the plan involved putting $10 million into a public company and investors receiving stock valued at $4.00 to $4.50 per share.
Plaintiffs received letters dated June 12, 2008. The letters announced a meeting scheduled to take place on June 25, 2008, when a reorganization plan would be presented. The plan anticipated unsecured creditors receiving preferred shares in a publicly traded entity with initial capital of $10 million. The plan announced in the June 12 letter was essentially the same as the plan that Voigt had recently described to Kenneth Resnick.
Kenneth Resnick personally attended the June 25 meeting. Marion Resnick listened to the meeting via telephone. Yary listened and watched a presentation via the Internet. At the meeting, Gardner presented the reorganization plan and informed investors that, upon execution of a subscription agreement, they would receive shares in a publicly traded company with $10 million in financing. The shares would be valued at $4.00 per share, the number of shares received by each investor would correspond to the amount that Hennessey owed the investor, and the new company would pay a dividend of approximately 2.5% of each investor's investment. Gardner stated that this plan was the only opportunity to recover any assets and that the alternative was an unsatisfied judgment.
After the June 25 meeting, Yary asked Voigt whether he should sign the subscription agreement, Voigt advised Yary to sign it, and Yary did so. Kenneth Resnick also asked Voigt whether he and his mother should sign the agreement. Voigt told him that the agreement represented the only chance of recovery. Kenneth Resnick and Marion Resnick signed the agreement. Braverman also signed the agreement. The agreement included a release of Hennessey and its affiliates from claims related to the prior relationship with the subscriber.
The new company in which Plaintiffs received shares, Jaguar Financial Corporation, had little to no assets. Its financing never approached the figure, $10 million, stated at the June 25 meeting. It was never a publicly traded company, and its shares have no value.
In ruling on a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court accepts the facts alleged in the complaint as true and grants all reasonable inferences in favor of the plaintiff. See Crooks v. Lynch, 557 F.3d 846, 848 (8th Cir. 2009). Although a pleading is not required to contain detailed factual allegations, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570).
The court "generally may not consider materials outside the pleadings," but "[i]t may . . . consider some public records, materials that do not contradict the complaint, or materials that are 'necessarily embraced by the pleadings.'" Noble Sys. Corp. v. Alorica Cent., LLC, 543 F.3d 978, 982 (8th Cir. 2008) (quoting Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)). Asserting that they are embraced by the pleadings, Voigt submitted copies of the Jaguar Financial subscription agreement and Schedule D to his income tax returns from 2007 to 2009 in support of his motion to dismiss. The subscription agreement is embraced by the Amended Complaint; the schedules are not. The Court declines to consider the schedules. See Fed. R. Civ. P. 12(d); Kushner v. Beverly Enters., Inc., 317 F.3d 820, 831 (8th Cir. 2003) ("When deciding a motion to dismiss, a court may consider the complaint and documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading." (internal quotation marks omitted)).
Voigt asserts that Plaintiffs released all claims against Hennessey and its affiliated parties, including Voigt, pursuant to the release contained in the Jaguar Financial subscription agreement. Release is an affirmative defense. Fed. R. Civ. P. 8(c)(1). Nevertheless, it may provide the basis for a dismissal pursuant to Rule 12(b)(6) under certain circumstances. Citibank Global Mkts., Inc. v. Rodriguez Santana, 573 F.3d 17, 23 (1st Cir. 2009) ("Release is an affirmative defense, and such a defense will support a motion to dismiss only where it is (1) definitively ascertainable from the complaint and other sources of information that are reviewable at this stage, and (2) the facts establish the affirmative defense with certitude." (citations omitted)); cf. Noble Sys. Corp. v. Alorica Cent., LLC, 543 F.3d 978, 983 (8th Cir. 2008) ("If an affirmative defense such as a privilege is apparent on the face of the complaint, however, that privilege can provide the basis for dismissal under Rule 12(b)(6)."). But see Deckard v. Gen. Motors Corp., 307 F.3d 556, 560 (7th Cir. 2002) ("A motion to dismiss was improper since release is an affirmative defense, and the existence of a defense does not undercut the adequacy of the claim." (citation omitted)). ...