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Green v. Beer

October 29, 2009

ALLAN GREEN, HANA GREEN, WHITE BUFFALO, LLC, DEAN JANSSEN, KATHLEEN JANSSEN, JAMES MICHAEL DUNIGAN, NENA M. DUNIGAN, ABILENE TRADING, LLC, CHRIS C. MALETIS, III, SUSAN E. MALETIS, JAMES D. INGSTAD, VICTORIA S. INGSTAD, THOMAS E. INGSTAD, FARGO TRADING, LLC, AND TEI TRADING, LLC, PLAINTIFFS,
v.
ANDREW D. BEER AND SAMYAK C. VEERA, DEFENDANTS.



The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.

OPINION AND ORDER ON MOTION FOR RECONSIDERATION AND MOTION TO SEVER PLAINTIFF GROUPS

I. Introduction

Plaintiffs, thirteen individuals and four limited liability corporations, filed suit against Defendants Andrew D. Beer ("Beer") and Samyak C. Veera ("Veera"), alleging unjust enrichment, breach of fiduciary duty, fraud, negligent misrepresentation, and civil conspiracy. Defendants allegedly promoted a tax-shelter scheme, called the "COINS Strategy." They allegedly advised Plaintiffs that the investment scheme would generate real profits and provide tax-related benefits. The strategy did not perform as promised. The IRS disallowed Plaintiffs' claimed tax savings that were originally assured by Defendants, and required Plaintiffs to pay substantial settlements.

The Court dismissed Plaintiffs' claims of breach of fiduciary duty, fraud, negligent misrepresentation, and civil conspiracy by Order dated February 22, 2007. (D.E. 26.) Plaintiffs amended their complaint, alleging unjust enrichment, fraud, and civil conspiracy ("Amended Complaint"). (D.E. 28.) Defendants moved to dismiss the fraud claim pursuant to Federal Rule of Civil Procedure ("Rule") 9(b) and Rule 12(b)(6), and Veera moved to dismiss the unjust enrichment claim pursuant to Rule 12(b)(6). (D.E. 31.) The Court denied Defendants' motions by Order dated March 30, 2009 ("March 2009 Order"). The Court determined that Plaintiffs' claims of direct fraud and of indirect fraud based on a theory of civil conspiracy were sufficiently pleaded. The Court agreed with Defendants that Plaintiffs failed to sufficiently plead Defendants' vicarious liability for fraud based on a theory of agency.

On June 10, 2009, Defendants requested leave to move for dismissal of Plaintiffs' claims in light of the Supreme Court's decision in Ashcroft

v.

Iqbal, 129 S.Ct. 1937 (2009), which was decided several weeks after the March 2009 Order was issued. Defendants argue that Iqbal represents an intervening change of controlling law with respect to pleading standards pursuant to Rules 8 and 9(b). They submit that the March 2009 Order denying the motion to dismiss all claims is inconsistent with applicable law post-Iqbal. The Court construed the request as one to move for reconsideration.*fn1 (D.E. 65.) In the alternative, Defendants seek to sever the claims of the separate Plaintiff groups pursuant to Rule 21 on the grounds that: (1) their claims do not meet the requirements for permissive joinder of parties set forth in Rule 20(a)(1); and (2) severance is necessary to prevent substantial prejudice to Defendants and to promote judicial economy.

For the reasons discussed below, Defendants' motion for reconsideration of the March 2009 Order is DENIED.*fn2 The motion to sever the claims of Plaintiff groups is also DENIED.

II. Motion for Reconsideration of March 2009 Order

A. Legal Standard

1. Rule 54(b) Motion for Revision of Pre-Judgment Order

Under Rule 54(b), a court's order or decision "is subject to revision at any time before the entry of judgment." Fed. R. Civ. 54(b). A party may request such revision by filing a motion for reconsideration.

Rule 54(b) revisions should be limited to instances in which "there is an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent a manifest injustice." Official Comm. of the Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 167 (2d Cir. 2003). Where there is an arguable "intervening change of controlling law," the Court should consider whether the change justifies a departure from the "law of the case" and revision of a previous decision. Pescatore v. Pan Am. World Airways, 97 F.3d 1, 6 (2d Cir. 1996). "Cogent" or "compelling" reasons must exist to justify such action. See Doe v. New York City Dep't of Soc. Servs., 709 F.2d 782, 789 (2d Cir. 1983). "It is not enough . . . that [a party] could now make a more persuasive argument" under more recent case law. Fogel v. Chestnutt, 668 F.2d 100, 109 (2d Cir. 1981). A court must instead have a "clear conviction of error with respect to a point of law on which its previous decision was predicated." Id. (internal quotation marks omitted).

It is therefore necessary to determine whether the claimed change of controlling law since the issuance of the March 2009 Order constitutes a "cogent" or "compelling" reason to reconsider and revise the Court's decision.

2. Pleading Requirements Post-IQBAL

a. Rule 8 Pleading Requirement

In Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court provided considerable guidance as to the pleading requirements for a civil plaintiff. To meet the Rule 8 requirement of providing "a short and plain statement of the claim showing that the pleader is entitled to relief," the factual allegations in the complaint must be sufficient "to raise a right to relief above the speculative level." Id. at 555. In May 2009, Iqbal clarified the pleading standards discussed in Twombly. The Supreme Court identified "[t]wo working principles [that] underlie [the] decision in Twombly." Iqbal, 129 S.Ct. at 1949. See also Harris v. Mills, 572 F.3d 66, 71-72 (2d Cir. 2009) (applying Twombly's "plausibility standard" as clarified by the "two working principles" set forth in Iqbal); Bilello v. JPMorgan Chase Ret. Plan, No. 07-7379, 2009 WL 2461005, at *5-6 (S.D.N.Y. Aug. 12, 2009) (same).

The first principle provides that, although "a court must accept as true all of the allegations contained in a complaint," that "tenet" "is inapplicable to legal conclusions," and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S.Ct. at 1949. The second principle states that "only a complaint that states a plausible claim for relief survives a motion to dismiss" and "[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.

The Twombly pleading standard was largely reiterated by the Supreme Court in its Iqbal decision. To survive a motion to dismiss, a complaint must still "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. at 1949 (quoting Twombly, 550 U.S. at 570) (emphasis added). "Facial plausibility" is established when a "plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556) (emphasis added).

b. Rule 9(b) Pleading Requirement for Fraud Claim

There is a heightened pleading requirement for averments of fraud such that a "party must state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b); see also Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004). The same rule provides that "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). Yet, as the Supreme Court made clear in Iqbal, these latter elements of a fraud claim must nevertheless meet basic Rule 8 pleading standards:

"[G]enerally" is a relative term. In the context of Rule 9, it is to be compared to the particularity requirement applicable to fraud or mistake. Rule 9 merely excuses a party from pleading [those elements] under an elevated pleading standard. It does not give him license to evade the less rigid -- though still operative -- strictures of Rule 8. And Rule 8 does not empower respondent to plead the bare elements of his ...


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