United States District Court, S.D. New York
JULIE WIEDIS and EQUITY TRUST COMPANY, CUSTODIAN F/B/O JULIE WIEDIS IRA, Plaintiffs,
DREAMBUILDER INVESTMENTS, LLC, PETER ANDREWS, GREG PALMER and ELIZABETH EISS, Defendants.
Attorneys for Plaintiffs DIAZ, REUS & TARG, LLP Richard
N. Wiedis, Esq.
Attorneys for Defendants VERNER SIMON Paul W. Verner, Esq.
W. SWEET U.S.D.J.
Dreambuilder Investments, LLC ("DBI"), Peter
Andrews ("Andrews"), Greg Palmer
("Palmer") and Elizabeth Eiss ("Eiss")
(collectively, the "Defendants") have moved
pursuant to Federal Rule of Civil Procedure 12(b)(6), Rule
9(b), and the Private Securities Litigation Reform Act
("PSLRA"), 15 U.S.C. § 78 u-4(b) (1)-(3) (A),
to dismiss the complaint of Plaintiffs Julie Wiedis
("Wiedis") and Equity Trust Corporation, Custodian
F/B/O Julie Wiedis ("Equity Trust") (collectively,
the "Plaintiffs") seeking to recover sums alleged
due under certain promissory notes (the
upon the conclusions set forth below, Defendants' motion
to dismiss the securities claim is granted, Defendants'
motion to dismiss the state claims is denied, and Plaintiffs
are granted leave to replead within twenty-one (21) days.
November 30, 2016, Plaintiffs filed their Complaint, (Dkt.
1), which was amended on December 14, 2016, (Dkt. 20), and
alleges four causes of action: breach of contract on
promissory notes, common law fraud, and securities fraud in
violation of Sections 10(b) and 17(a) of the Securities Act
and Rule 10(b) (5) .
Complaint sets forth the following allegations, which are
assumed true for the purpose of this motion to dismiss.
See Koch v. Christie's Int'l PLC, 699 F.3d
141, 145 (2d Cir. 2012).
is a Princeton, New Jersey resident. (Compl. ¶ 2.)
Equity Trust is located in Westland, Ohio, and is an
Individual Retirement Account ("IRA") custodian
that held retirement savings Wiedis withdrew to invest with
DBI. (Compl. ¶¶ 3-4.) Andrews is a New York City
resident and the Chief Executive Officer ("CEO") of
DBI. (Compl. ¶ 5.) Palmer is a Kingston, New Hampshire
resident and a member of DBI. (Compl. ¶ 6.) Eiss is a
New York resident and was DBI's Chief Operating Officer
("COO") from 2007 to 2012. (Compl. ¶ 7.)
second half of 2008, Wiedis made loans with DBI, $50, 000 of
which came from her Equity Trust IRA. (See Compl.
¶ 11-13.) In exchange for these loans, DBI and Andrews
provided Wiedis with debt security agreements entitled
"Promissory Note and Security Agreement"
("PNSA"), one dated August 8, 2008, in the amount
of $30, 000 and another dated November 1, 2008, in the amount
of $20, 000. (Compl., Exs. 1-2.) These PNSAs had interest
rates of 14% and 18% respectively and each had a term of
twenty-four months. (Compl. ¶¶ 15-16.) These PSNA
loans were stated by DBI to be collateralized by DBI's
ownership interests in mortgage notes, some of which Wiedis
could access from a DBI online portal. (See Compl.,
October 8, 2008, Wiedis made a loan of $8, 000 with DBI,
which came from her savings. (Compl. ¶¶ 26-27.) In
exchange for this loan, Wiedis received a similar PNSA (the
"$8, 000 PNSA"). (See Compl. ¶ 28.)
The $8, 000 PNSA has similar terms to the other PNSAs, such
as 18% interest rate per annum for a term of twenty-four
months, though it was not allegedly viewable on the DBI
online portal. (See Compl. ¶¶ 27-28;
see Compl. Exs. 4-5.)
2009, prior to either the $30, 000 or $20, 000 PNSA reaching
maturity, DBI "rolled-over" or combined the two
loans into a single $50, 000 PNSA (the "$50, 000
PNSA"). (Compl. ¶ 20.) The $50, 000 PNSA had a term
of two years and an interest rate of 18% per annum. (Compl.
to the Complaint, the purchased Notes had the following
maturity dates: the August 1, 2008, Note matured on September
26, 2010; the October 1, 2008, Note matured on November 22,
2010; the November 1, 2008, Note matured on March 26,
2010; and the May 1, 2009, Note matured on June
15, 2011. (See Compl. ¶¶ 15, 16, 21, 28.)
Wiedis entered into these PNSAs with Defendants, Plaintiffs
allege that the following representations by Defendants were
made knowingly false: that Wiedis never had an actual
enforceable legal right in the supposed collateral securing
the PNSAs, (Compl. ¶¶ 18, 24); that Wiedis would
earn and be paid 18% interest on the PSNAs, (Compl.
¶¶ 20, 76); and that Defendants would pay costs
associated with collection on the PNSAs, including reasonable
attorney's fees, (Compl. ¶¶ 23, 76)
September 2009, DBI changed its loan security structures,
specifically by converting loans in debt owned by DBI into
equity in an investment fund overseen by DBI and others, a
proposal which DBI promised was "secure" and
offered "high-yield returns." (Compl. ¶¶
33, 38; see Compl. ¶¶ 33-40.) In an September 8,
2009, email signed by Andrews and Eiss, Defendants described
some of the DBI changes:
[DBI] is making changes to its investment security structure
and how our investors are secured. These changes are the
result of launching out Distressed Mortgage Fund and the
associated shift in ownership of the assets we manage. Until
now, all assets were solely owned by DBI and could be
directly pledged as security to individual investors. Going
forward, all assets purchased and managed by DBI are owned
jointly by DBI (the majority owner) and our partners in the
fund. As a result, our investors can no longer be
secured directly by individual loans and instead will be
secured by the entity that owns the individual loans.
(Compl. ¶ 34; Compl., Ex. 5.) Plaintiffs allege that,
around October 16, 2009, as part of these changes, Eiss spoke
with Wiedis over the phone and informed Wiedis that she was
required to relinquish her secured interest in the $50, 000
and $8, 000 Notes securing her PNSAs in exchange for shares
in a newly-made fund of unspecified assets. (Compl. ¶
40.) The Complaint does not indicate whether Wiedis accepted
or contracted such an agreement. (See Compl. ¶
allege that Defendants omitted material facts about the new
investment arrangement, including, but not limited to:
details about how Wiedis' money would actually be
invested; when interest payments would be made; how the
payment amounts would be calculated; the number of other
investors who would have prior interests to collecting
payments before Wiedis; and specific details concerning when
and how Wiedis would receive repayment of her investment
principal. (See Compl. ¶ 39.) Plaintiffs
further allege that DBI practices failed to keep true,
complete, and accurate books and records showing assets and
liabilities, including the amounts owned to various
investors. (Compl. ¶ 63.)
2010 through 2014, Plaintiffs point to the following
statements made by Andrews, Palmer, and Eiss which they
allege were false and misleading:
February 12, 2010 (Email from Andrews and Eiss):
"We are also designing a program by which our investors
will be compensated for . . . interest payment delays."
(Compl., Ex. 6);
April 1, 2010 (Email from Andrews and Eiss):
"DBI has continued to maintain its strong performance
into 2010. ...