This case is not published in a printed volume and its disposition appears in a table in the reporter.
Stephen A. Bucaria, J.
Separate motions by defendants, Burt Williams, Doug Manner and Greg Avra [Sequence #001]; Otto Welper, Dan Morris, Viking International Petroleum, L.P., and Welper & Associates, Inc. [Sequence #002]; Buckley & Associates, LLP [Sequence #003]; J. Paul Mueller, Jr., Joseph P. Mueller, Patty Puig Mueller, Michelle Mueller Moffit, Joseph P. Mueller, Ltd., Mueller-Puig Family Properties, Ltd., Mueller Exploration, Inc., Clinical Research Services, Inc., MPJ-5, Inc., and Mueller Energetics Corp. (collectively referred to herein as the "Mueller Defendants") [Sequence #004]; and, Porter & Hedges, LLP [Sequence #005], pursuant to CPLR 3211(a)(8), for an Order, dismissing plaintiff, Bruce Glenn's complaint on the grounds that the Court lacks in personam jurisdiction over them, are all determined as hereinafter set forth.
This case allegedly arises from a financial fraud apparently orchestrated solely for the purpose of fleecing money from unsophisticated investors, including the plaintiff, Bruce Glenn. Plaintiff alleges in his complaint that this fraud involved the offer and sale of unregistered securities, and was principally engineered by the promoters and managers of defendant, SBPartners LLC ("SBP"), a Florida based limited liability company with offices in New York. Plaintiff alleges that SBP was a newly formed limited liability company, yet it was pitched by its promoters as an industry-recognized oil exploration company offering exclusive investment opportunities to "certain select private investors" (Complaint, 1).
Plaintiff alleges that SBP's prospectus, containing false information and numerous misrepresentations, was sent to a select group of unsophisticated and unaccredited investors, promoting the venture and encouraging the purchase of SBP securities. Plaintiff further alleges that a series of telephone conversations and personal visits from an SBP principal would follow during which the SBP unregistered private securities were solicited and sold (id., 2).
Plaintiff alleges that, according to the prospectus, and as later represented by SBP principals, in conversations and personal visits to the small class of potential investors, including the plaintiff, SBP's business was identifying and leasing "probable production" properties from its impressive list of oil industry partners and contacts. Based upon the representation of the use of cutting edge technology and a team of in-house experts, SBP guaranteed that these properties would yield an oil and gas supply, which SBP would extract and then pay a large return on any investment (id., 3). Instead, plaintiff alleges, SBP and its promoters and managers defrauded those investors, including himself, by misappropriating investor funds by (among other means) purchasing worthless or highly speculative lease interests and fictitious and/or value-less services from companies owned by SBP promoters, officers and/or managers. However, because these acquisitions and services were fraudulent, worthless or otherwise deficient, SBP never produced any profits, and the SBP securities purchased by investors remained worthless (id., 4). Plaintiff alleges that SBP's managers and promoters, nevertheless, told investors that SBP wells were in fact producing oil, and that, in order to ensure continued production, additional securities should be purchased, and additional investments made. This induced further investment from unsophisticated investors, and resulted in further losses to those investors. In short, plaintiff alleges that SBP and its principals and managers ran a classic "Ponzi scheme", selling unregistered securities with misrepresentations and false information, resulting in a fraud and misrepresentation on investors, and a loss of all investments (id., 5).
Plaintiff alleges that he became a victim of this scheme, having been induced to invest $475,000.00 in unregistered securities of SBP, but because SBP's promoters, managers and professional advisors shrouded it in an elaborate and layered cloak of legitimacy, plaintiff claims that he did not discover the truth until his investment was already appropriated and lost.
Plaintiff's complaint asserts three categories of claims: (1) claims premised on the fraudulent conduct or conduct of direct responsibility of the architects and promoters of the fraud; (2) claims premised on conduct that aided and abetted those with direct responsibility or conduct amounting to negligence; and, (3) claims premised on professional liability as a result of negligent acts.
Plaintiff alleges that the defendants associated with the first category of claims, namely, James Bona, J. Paul Mueller, Jr., Otto Welper, Dan Morris, Mueller Exploration, Inc., Mueller Energetics Corp., and Viking International Petroleum, LP, were responsible for creating, promoting and benefitting from SBP's scheme and the fraud and misrepresentation that accompanied its formation. Plaintiff refers to these defendants as the "Promoter Defendants" (id., 8).
Plaintiff's second category of claims is against SBP principals, managers and advisors, whose overt actions and conduct intentionally or unintentionally facilitated the Promoter Defendants' wrongful conduct and fraudulent scheme. This category of defendants includes Margarette Shim, Diane Kaern, Michael Kaern, Burt Williams, Doug Manner and Greg Avra. Plaintiff claims that these defendants were actively recruited to manage and contribute in marketing SBP to investors, to solicit investments, to give the venture the appearance of a risk-management component, and to cloak the fraud and misrepresentations in the credibility of their names and expertise. Plaintiff refers to these defendants as the "Manager Defendants" (id., 9).
Finally, the third category of claims is against SBP's independent outside professional firms that affiliated with SBP but failed to fulfill their professional responsibilities to its investors. This category of defendants includes certified public accounting firm, defendant Buckley & Associates, LLC, SBP's outside legal counsel, defendant, Porter & Hedges, LLC., and SBP's promoter, manager and general counsel, Margarette Shim. Plaintiff refers to these defendants as the "Professional Defendants" (id., 10).
As against the Professional Defendants, plaintiff asserts professional liability on grounds of negligence and negligent misrepresentation. Plaintiff claims, upon information and belief, that defendants Buckley & Associates, LLC, Margarette Shim and Porter & Hedges, LLC, each knew that they were being identified within the offering prospectus as SBP's accountants and legal counsel, and that they consented to being identified and publicized as such. Plaintiff alleges that it was their affiliation that gave potential investors, including the plaintiff, peace of mind, as it was intended, and the illusion that their investment would be watched over and safe, and that the information in the prospectus could be relied upon. Plaintiff claims that the SBP prospectus was targeted to select investors, establishing sufficient proximity to approach a privity relationship and require these defendants to answer for injury in tort (id., 10).
Plaintiff seeks, through this action, to recover his direct losses under various New York common law theories, including fraud, aiding and abetting fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and negligence, as well as under certain Texas securities statutes.
With the exception of defendants SBPartners, LLC, James Bona, Margarette Shim, Diane Kaern and Michael Kaern, the remaining defendants make these pre-answer motions for an order dismissing the complaint pursuant to, inter alia, CPLR 3211(a)(8) on the ground that the Court lacks in personam jurisdiction over them.
Sequences 001, 003 and 005
On their motions, non-domiciliary individual defendants, Burt Williams, Doug Manner and Greg Avra [Motion Sequence 001] (collectively referred to herein as "Williams"), as well as non-domiciliary corporate defendants, Buckley & Associates [Motion Sequence 003] (referred to herein as "Buckley") and Porter & Hedges, LLP [Motion Sequence 005] (referred to ...