Opinion ID: 2544308
Heading Depth: 2
Heading Rank: 3

Heading: Sufficiency of Pleading

Text: Finally, the investors argue on appeal that the trial court erred in dismissing their claims because, they argue, their claims of fraudulent misrepresentation, fraudulent suppression, and securities fraud are stated with particularity as required by Rule 9(b), Ala. R. Civ. P., and because the remaining counts of their third amended complaint state claims upon which relief can be granted and are therefore not subject to dismissal under Rule 12(b)(6), Ala. R. Civ. P. The defendants argue that none of the claims alleged against them are sufficiently pleaded.
The investors asserted their claim of fraudulent misrepresentation against Hinds, Decatur, Kirkland, Gulf Stream, and Jacobsen. Rule 9(b), Ala. R. Civ. P., provides: In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally. The Committee Comments on 1973 Adoption of Rule 9 explain: [T]his special requirement [in Rule 9(b)] as to fraud and mistake does not require every element in such actions to be stated with particularity. It simply commands the pleader to use more than generalized or conclusory statements to set out the fraud complained of. The pleading must show time, place and the contents or substance of the false representations, the fact misrepresented, and an identification of what has been obtained.. . . But knowledge by the defendant of the falsity of the representation and reliance on the representation by the plaintiff can still be generally alleged. ... [I]t should be expected that the courts will strive to find the details necessary for the sufficiency of such a complaint if the pleading gives fair notice to the opposing party . . . . See also Bethel v. Thorn, 757 So.2d 1154, 1158 (Ala.1999). The purpose of this rule is to give fair notice to the opposing party. Winn-Dixie Montgomery, Inc. v. Henderson, 371 So.2d 899, 901 (Ala.1979); see also Kabel v. Brady, 519 So.2d 912, 916 (Ala.1987). In their third amended complaint, the investors allege the following facts regarding Hinds, Decatur, Kirkland and Gulf Stream: 1) that Jacobsen purchased the property for $5,000,000 just days before the July 2005 transaction; 2) that Hinds, Decatur, Kirkland, and Gulf Stream knew and concealed this information from the investors; 3) that this information was entirely under the control of those defendants; 4) that they concealed from and otherwise prevented the investors from discovering the information before, during, and after the purchase of the property; 5) that Hinds and Kirkland obtained an appraisal of the property for $14,000,000 with knowledge that Jacobsen had purchased the property for $5,000,000 only days before; 6) that Hinds and Kirkland reported that the purchase price of the property was $10,000,000; 7) that Bon Harbor purchased the property for $10,000,000 and that Herrick, Katz, and Vance personally guaranteed the $7,500,000 loan from United Bank, and the investors were required to contribute the remaining $2,500,000 toward the transaction; and 8) that the investors did not obtain the property records underlying the July 2005 transaction because they relied on Hinds's and Kirkland's silence and representations regarding the transaction. Based on the foregoing, it is apparent that the investors allege the time of the misrepresentations made by Hinds, Decatur, Kirkland, and Gulf Stream (July 2005), the content of the misrepresentations (that the purchase price of the property was $10,000,000 and the appraised value of the property was $14,000,000), the facts misrepresented (that the value of the property was $5,000,000), the defendant's knowledge of the falsity of the representations (Hinds, Decatur, Kirkland, and Gulf Stream's knowledge that Jacobsen had purchased the property for $5,000,000 only days before the July 2005 transaction), and the result of the misrepresentations (Bon Harbor purchased the property for twice its value; Herrick, Katz, and Vance's personally guaranteed a $7,500,000 loan; and the investors contributed $2,500,000 toward the transaction). The investors did not allege the place where the misrepresentations occurred. However, their third amended complaint included sufficient allegations to place the defendants on notice of the acts complained of; the investors, therefore, satisfied the requirements of Rule 9(b). See VanLoock v. Curran, 489 So.2d 525, 534 (Ala.1986)(While the pleading is perhaps not a model of clarity and specificity, it sufficiently comports with the purpose of Rule 9(b) in that it gives the defendants fair notice of the acts complained of.) The trial court, therefore, erred in dismissing the investors' fraudulent-misrepresentation claim as to Hinds, Decatur, Kirkland and Gulf Stream. Regarding Jacobsen, the investors have alleged only that he sold the property to Bon Harbor for more than he paid for it. It does not appear from the allegations of the third amended complaint that Jacobsen had any direct dealings with the investors or that he misrepresented any material facts to them. Accordingly, the investors have not pleaded their claim of fraudulent misrepresentation against Jacobsen with particularity as required by Rule 9(b). The trial court, therefore, correctly dismissed this claim as to Jacobsen.
The investors asserted their claim of fraudulent suppression against Gulf Stream, Kirkland, Decatur, Hinds, and Jacobsen. The elements of a claim of fraudulent suppression are: `(1) a duty on the part of the defendant to disclose facts; (2) concealment or nondisclosure of material facts by the defendant; (3) inducement of the plaintiff to act; (4) action by the plaintiff to his or her injury.' Freightliner, L.L.C. v. Whatley Contract Carriers, L.L.C., 932 So.2d 883, 891 (Ala.2005) (quoting Lambert v. Mail Handlers Benefit Plan, 682 So.2d 61, 63 (Ala.1996)). This claim must be pleaded with particularity under Rule 9(b). Regarding a duty to disclose, the investors allege 1) that Hinds and Kirkland, as managers of Bon Harbor, had a duty to disclose material facts regarding the July 2005 transaction to the investors; 2) that Decatur and Gulf Stream, as members of Bon Harbor, had a duty to disclose material facts regarding the July 2005 transaction to the investors; 3) that Hinds, Decatur, Kirkland, and Gulf Stream had fiduciary relationships with the investors under which they had a duty to disclose material facts regarding the July 2005 transaction to the investors; and 4) that the investors entrusted Hinds and Kirkland with the negotiation of the July 2005 transaction based on their superior experience and knowledge. As to Jacobsen, the investors have not alleged that he had any duty to disclose information to them. Therefore, the investors have not sufficiently pleaded their claim of fraudulent suppression against Jacobsen. As to Hinds, Decatur, Kirkland, and Gulf Stream, as discussed above, the parties argue extensively regarding the merits of the question whether these defendants owed a duty to disclose to the investors or had any fiduciary relationship with them. As stated above, at this stage of the litigation we must consider only whether the investors have stated any set of facts upon which they may possibly prevail. See Nance, supra. Considering the allegations listed above, the investors have sufficiently alleged that these defendants had dutiesarising from their status as managers, members, and fiduciariesto disclose information to DGB, as a member of Bon Harbor, and to Herrick, Katz, and Vance, as guarantors of the United Bank loan. Regarding the concealment or nondisclosure of material facts by Hinds, Decatur, Kirkland, and Gulf Stream, the investors allege 1) that Jacobsen had obtained funds from Bon Harbor before he purchased the property; 2) that Hinds and Kirkland used Bon Harbor funds for their own purposes; 3) that Jacobsen purchased the property for $5,000,000 just days before Bon Harbor purchased it from him for $10,000,000; 4) that the defendants knew of these facts and that the information was entirely in the control of the defendants; and 5) that the defendants concealed from and otherwise prevented the investors from discovering the information before, during, and after the transaction. The investors have therefore alleged that Hinds Decatur Kirkland and Gulf Stream concealed material facts regarding the July 2005 transaction from them. Regarding whether these defendants induced the investors to act, the investors allege that they participated in the July 2005 transaction and that they did not obtain the property records underlying the transaction because they relied on the actions, silence, and representations of Hinds, Decatur, Kirkland, and Gulf Stream. Finally, regarding whether the investors acted to their injury, they allege that Bon Harbor purchased the property for twice its value, that Herrick, Katz, and Vance personally guaranteed the $7,500,000 Union Bank loan, and that the investors contributed $2,500,000 to the transaction. The investors, therefore, have alleged each element of their fraudulent-suppression claim against Hinds, Decatur, Kirkland, and Gulf Stream with particularity as required by Rule 9(b). Therefore, the trial court correctly dismissed the fraudulent-suppression claim as to Jacobsen but erred in dismissing that claim as to Hinds, Decatur, Kirkland, and Gulf Stream.
Section 8-6-19(a)(2), Ala.Code 1975, grants the buyer of a security a right of action against a seller who sold the security by means of any untrue statement of a material fact or any omission to state a material fact. This Court has stated: [A] claim of a violation of § 8-6-19(a)(2), Ala.Code 1975, requires (1) a sale or an offer to sell a security (2) by means of a false statement or omission (3) of material fact and (4) the ignorance of the buyer as to the untruth or omission. Blackmon v. Nexity Fin. Corp., 953 So.2d 1180, 1191 (Ala.2006). This claim must be pleaded with particularity under Rule (b). The investors asserted their claim of securities fraud against Hinds, Decatur, Kirkland, and Gulf Stream. In their briefs on appeal, the investors maintain that this claim relates to DGB's purchase of a 40% interest in Bon Harbor in June 2005. It is unclear whether a claim under § 8-6-19(a)(2) may arise from the sale of an interest in an LLC. Moreover, the investors have not alleged any false statement or omission of material fact by Hinds, Decatur, Kirkland, or Gulf Stream relating to DGB's purchase of an interest in Bon Harbor. The investors, therefore, have not stated a claim of securities fraud upon which relief can be granted, and the trial court did not err in dismissing the claim.
The investors asserted a claim of shareholder oppression against Hinds, Decatur, Kirkland, and Gulf Stream. In their brief on appeal, the investors cite only § 10-12-21(h), Ala.Code 1975, and a legal treatise to support their contention that the trial court erred in dismissing that claim. Section 10-12-21(h) states only that [a] member shall discharge the duties to a member-managed company and its other members under this chapter or under the operating agreement and exercise any rights consistently with the obligation of good faith and fair dealing. The investors have not cited any Alabama authority showing that § 10-12-21(h) applies to Hinds, Decatur, Kirkland, or Gulf Stream, or that § 10-12-21(h) supports a claim of shareholder oppression. Nor have the investors cited any authority showing that the allegations of their third amended complaint adequately state such a claim. This Court has stated: Rule 28(a)(10), Ala. R.App. P., requires that arguments in an appellant's brief contain `citations to the cases, statutes, other authorities, and parts of the record relied on.' Further, `it is well settled that a failure to comply with the requirements of Rule 28(a)(10) requiring citation of authority in support of the arguments presented provides this Court with a basis for disregarding those arguments.' State Farm Mut. Auto. Ins. Co. v. Motley, 909 So.2d 806, 822 (Ala.2005) (citing Ex parte Showers, 812 So.2d 277, 281 (Ala.2001)). This is so, because ` it is not the function of this Court to do a party's legal research or to make and address legal arguments for a party based on undelineated general propositions not supported by sufficient authority or argument. ' Butler v. Town of Argo, 871 So.2d 1, 20 (Ala. 2003) (quoting Dykes v. Lane Trucking, Inc., 652 So.2d 248, 251 (Ala.1994)). Jimmy Day Plumbing & Heating, Inc. v. Smith, 964 So.2d 1, 9 (Ala.2007) (emphasis added). Because the investors have not complied with the requirements of Rule 28(a)(10), Ala. R. Civ. P., we will not consider their arguments as to this claim, and we affirm the trial court's dismissal of this claim.
The investors allege a claim of breach of fiduciary duty against Hinds, Decatur, Kirkland, and Gulf Stream. In Bank of Red Bay v. King, 482 So.2d 274 (Ala.1985), a fiduciary or confidential relationship was defined: `A confidential relationship is one in which one person occupies toward another such a position of adviser or counselor as reasonably to inspire confidence that he will act in good faith for the other's interests, or when one person has gained the confidence of another and purports to act or advise with the other's interest in mind; where trust and confidence are reposed by one person in another who, as a result, gains an influence or superiority over the other; and it appears when the circumstances make it certain the parties do not deal on equal terms, but, on the one side, there is an overmastering influence, or, on the other, weakness, dependence, or trust, justifiably reposed; in both an unfair advantage is possible. It arises in cases in which confidence is reposed and accepted, or influence acquired, and in all the variety of relations in which dominion may be exercised by one person over another. `15A C.J.S. Confidential (1967).' 482 So.2d at 284. See also K & C Dev. Corp. v. AmSouth Bank, N.A., 597 So.2d 671, 675 (Ala.1992). As discussed above, the investors have sufficiently alleged the existence of fiduciary relationships with these defendants. The investors further allege that these defendants breached their fiduciary duties by misrepresenting information to and concealing information from the investors, by using Bon Harbor funds for their own purposes, and by proceeding with the July 2005 transaction despite knowledge of the actual value of the property. Finally, the investors allege that they were injured as a result of these defendants' actions because Bon Harbor purchased the property for twice its value, Herrick, Katz, and Vance guaranteed the $7,500,000 United Bank loan, and the investors contributed $2,500,000 toward the July 2005 transaction. Based on the foregoing, the investors have stated a claim of breach of fiduciary duty upon which relief may be granted, and the trial court erred in dismissing the claim.
The investors state a claim of civil conspiracy against Hinds, Decatur, Kirkland, Gulf Stream, and Jacobsen based on an alleged conspiracy among them to commit the . . . intentional torts alleged in their third amended complaint. This Court has stated: `Alabama recognizes [civil conspiracy] as a substantive tort.' Purcell Co. v. Spriggs Enters., Inc., 431 So.2d 515, 522 (Ala.1983). `In essence, civil conspiracy is a combination of two or more persons to do: (a) something that is unlawful; [or] (b) something that is lawful by unlawful means.' Id. See also Eidson v. Olin Corp., 527 So.2d 1283, 1285 (Ala. 1988). `In a conspiracy, the acts of coconspirators are attributable to each other.' Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 476, 700 N.E.2d 859, 868 (1998). Ex parte Reindel, 963 So.2d 614, 621 n. 11 (Ala.2007). A civil conspiracy claim operates to extend, beyond the active wrongdoer, liability in tort to actors who have merely assisted, encouraged, or planned the wrongdoer's acts. 16 Am.Jur.2d Conspiracy § 57 (2009). A plaintiff alleging a conspiracy must have a valid underlying cause of action. [ Drill Parts & Serv. Co. v. Joy Mfg. Co., 619 So.2d 1280 (Ala.1993).] `[A] conspiracy claim must fail if the underlying act itself would not support an action.' Triple J Cattle, Inc. v. Chambers, 621 So.2d 1221, 1225 (Ala.1993). Callens v. Jefferson County Nursing Home, 769 So.2d 273, 280 (Ala.2000). Based on these principles, the defendants argue that, because the investors' underlying claims were dismissed, the trial court also correctly dismissed their claim of civil conspiracy. We have previously concluded that the trial court erred in dismissing the investors' claims of fraudulent misrepresentation and fraudulent suppression as they relate to Hinds, Decatur, Kirkland, and Gulf Stream. The investors allege that those defendants agreed and worked together, with Jacobsen, to knowingly misrepresent information to and conceal material facts from the investors. The investors, therefore, have alleged that this combination of persons and entitiesHinds, Decatur, Kirkland, Gulf Stream, and Jacobsenagreed and acted together to engage in unlawful conduct that injured the investors. Because the investors have alleged valid underlying causes of action and because acts of coconspirators are attributable to each other, see Reindel, supra, the investors have stated a claim of civil conspiracy upon which relief may be granted against each of these defendants. Accordingly, the trial court erred in dismissing this claim.
The investors state a negligence claim against Hinds and Kirkland. In any negligence case, the plaintiff bears the burden of proving the existence of a duty owed by the defendant, a breach of that duty, causation, and damage. Glass v. Birmingham Southern R.R., 905 So.2d 789, 794 (Ala.2004). The investors allege that Hinds and Kirkland, as managers of Bon Harbor and individuals to whom the investors had entrusted the negotiations culminating in the July 2005 transaction, owed a duty of care with respect to that transaction; that Hinds and Kirkland breached that duty of care by going forward with the July 2005 transaction with knowledge that the value of the property was less than the investors were required to pay; and that the investors were injured by Hinds and Kirkland's conduct in that they contributed $2,500,000 toward the July 2005 transaction and Herrick, Katz, and Vance personally guaranteed the $7,500,000 United Bank loan. Accordingly, the investors have stated a claim of negligence upon which relief may be granted, and the trial court erred in dismissing this claim.
In their brief on appeal, the investors do not cite any authority to support their argument that the trial court erred in dismissing their claim for an accounting and dissolution of Bon Harbor. As noted above, Rule 28(a)(10), Ala. R. Civ. P., requires that appellants support their arguments with citations to authority. `[I]t is not the function of this Court to do a party's legal research or to make and address legal arguments for a party based on undelineated general propositions not supported by sufficient authority or argument.' Jimmy Day Plumbing, 964 So.2d at 9 (quoting Butler v. Town of Argo, 871 So.2d 1, 20 (Ala.2003), quoting in turn Dykes v. Lane Trucking Inc., 652 So.2d 248, 251 (Ala.1994)). Because the investors have failed to comply with the requirements of Rule 28(a)(10) as to this claim, we will not consider their arguments and we affirm the trial court's dismissal of this claim. We note, however, that the resolution of the remaining claims in this proceeding on remand may give rise to new facts and circumstances that are compatible with a renewal of the matters made the basis of this claim.