United States District Court, D. Colorado
MICHAEL W. DINNEN, an individual, Plaintiff,
TIMOTHY KNEEN, an individual, MICHAEL ROBERTS, an individual, TIMOTHY FLAHERTY, an individual, CARL VERTUCA, an individual, and PdC, LLC, a Colorado LLC, Defendants.
A. BRIMMER, UNITED STATES DISTRICT JUDGE
matter is before the Court on Defendant's [sic] Motion to
Dismiss Claims in Amended Complaint [Docket No.
The Court has jurisdiction pursuant to 28 U.S.C. § 1331.
claims in this action arise from allegedly false and
misleading statements made by defendants PdC, LLC, Timothy
Kneen, Michael Roberts, Timothy Flaherty, and Carl Vertuca
(“defendants”) to induce plaintiff to invest in a
luxury real estate project in Mexico. Docket No. 55 at 1, ¶
is an investor in defendant PdC, LLC
(“PdC”). Id. at 1, ¶ 1. Plaintiff met
defendants Flaherty and Kneen in 2007. Id. at 6,
¶ 22. In 2008, plaintiff attended a pitch for the
development of a beachfront resort on Xpu-Ha Beach near Playa
del Carmen to be called the Sereno Beach Resort (the
“Sereno project”). Id. at 4, ¶ 12;
6-7, ¶ 22. Defendants told plaintiff at the pitch that
by investing in the Sereno project he could double his money.
Id. at 6-7, ¶ 22. In the summer of 2008,
plaintiff attended a meeting in Denver where defendants made
“representations concerning the use and scope of the
Sereno Project as well as the safety of the
investment.” Id., ¶ 26. At a sales
presentation in 2010, plaintiff was told “that their
investment was ‘safe' and would result in a
doubling of their money.” Id., ¶ 23.
Defendants Flaherty, Kneen, and Roberts participated in the
2010 sales presentation. Id.
point before February 2009, defendants began offering
“B Units” in PdC. Id. at 8, ¶ 27.
On or about February 2, 2009, defendant PdC provided
plaintiff with a Private Placement Memorandum
(“PPM”) describing the B Units offering.
Id., ¶ 28. The PPM described an offering of B
Units that were eligible for a return of up to “one
times” the capital contribution, subject to the
repayment of “bank loans and other administrative
payments and reserves.” See Docket No. 55-1 at
8. The PPM included a table of financial projections that
provided a list of certain anticipated expenses. See
Id. at 12-14. The amended complaint states that these
financial projections were “knowingly misleading,
inaccurate or prepared with reckless disregard for
accuracy.” Docket No. 55 at 10, ¶ 41. The
investment proceeds from the offering of B Units were to be
used for a number of purposes, including the development of
the Sereno project. Id. at 8, ¶ 31.
promoting the B Units, defendants Kneen and Flaherty
represented that “[w]ithin 18-24 months, the investment
would double in value” and that “[c]onstruction
was to begin immediately and everything was ready to
go.” Id. at 12, ¶ 46. According to the
amended complaint, defendants did not disclose that the
planned development exceeded permitting requirements, that
investment proceeds would be used for projects unrelated to
the Sereno project, and that PdC lacked government permission
for the project. Id. at 13, ¶ 48. Plaintiff
invested in the B Units in 2009. Docket No. 55 at 1-2, ¶
1; 8, ¶ 28.
plaintiff invested in the B Units, defendants provided
numerous updates related to the status of the project.
Id. at 14-15, ¶ 53. In April 2010, defendants
stated that they had received a final environmental permit.
Id. On October 13, 2010, defendants stated that the
Sereno project had been granted “the last permit by the
City for the . . . Villas.” Id. The October
13, 2010 email included as an attachment a remodel permit,
not a permit for new construction. Id.
time before December 2010, defendants informed plaintiff that
PdC had partnered with SV Capital, a firm with experience
developing projects like the Sereno project. Id. at
16, ¶ 55. However, at some point before 2014, SV Capital
informed defendants that the Sereno project could not be
completed as planned. Id.
2011, plaintiff gave PdC $120, 106 towards the purchase of a
villa. Id. at 17, ¶ 58. Plaintiff has received
a partial refund of this deposit.
February 2012, plaintiff and other potential investors met
with defendants Flaherty, Kneen, and Vertuca. Id. at
18, ¶ 61. Defendants offered plaintiff the opportunity
to participate in a second round of financing referred to as
the mezzanine loan or “the Mezz.” Id. at
8-14, ¶¶ 27-48; 17-23 at ¶¶ 60-73.
Defendants represented that the Mezz “would permit the
acquisition of 11 acres of beachfront property.”
Id. The second property (“Sereno II”)
was adjacent to the beachfront property already owned by PdC
(“Sereno I”). Id.
offering the Mezz, defendants did not disclose, among other
things, that the Sereno II property was subject to a lien
filed by Hoteles Turisticos Unidos, S.A.
(“Hotusa”), that defendants had other financial
difficulties, that defendants still had not obtained permits
to develop Sereno I, or that investor money was being used to
pay for defendants “marketing, travel, living.”
Id. at 19-20, ¶ 64. On May 9, 2012, defendants
emailed a letter agreement and letter of intent to plaintiff
regarding investment in the Mezz, to be made to PdC through a
“vehicle described as ‘the RM Funding Group,
LLC.'” Id. at 21, ¶ 66. Plaintiff
wired $250, 000 to PdC after receiving the letter agreement.
Id. at 22, ¶ 68.
after plaintiff wired his funds to PdC, defendants provided
plaintiff with seven contracts “that laid out a
transaction structure [of the Mezz] where Mr. Dinnen would
have an equity interest in a single purpose LLC, RM Funding
LLC.” Id. at 22, ¶ 69.
the Mezz offering, defendants continued to offer upbeat
assessments of the Sereno project. Id. at 23-24,
¶ 74. In August 2014, defendants held a conference call
wherein they disclosed that PdC had been involved in
unsuccessful litigation with Hotusa regarding the Sereno II
property, resulting in a $6, 000, 000 lien on the Sereno II
property with priority over the Mezz funding. Id. at
24-25, ¶ 78. Defendants have yet to obtain permits to
develop the Sereno project, and plaintiff states that he has
not “received a single penny” from his
investments. Id. at 1-2, ¶ 1.
April 19, 2016, plaintiff filed suit. Docket No. 1.
Plaintiff's amended complaint, filed on October 4, 2016,
contains eight claims for relief: fraud; negligent
misrepresentation; negligence; misrepresentations and
omissions in violation of the Securities Exchange Act of 1934
(“Exchange Act”), 15 U.S.C. §§ 78a, et
seq.; control person liability under the Exchange Act; unjust
enrichment; civil conspiracy; and a request for an
accounting. Docket No. 55.
court's function on a Rule 12(b)(6) motion is not to
weigh potential evidence that the parties might present at
trial, but to assess whether the plaintiff's complaint
alone is legally sufficient to state a claim for which relief
may be granted.” Dubbs v. Head Start, Inc.,
336 F.3d 1194, 1201 (10th Cir. 2003) (citations omitted). In
doing so, the Court “must accept all the well-pleaded
allegations of the complaint as true and must construe them
in the light most favorable to the plaintiff.”
Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215
(10th Cir. 2007) (quotation marks and citation omitted). At
the same time, however, a court need not accept conclusory
allegations. Moffett v. Halliburton Energy Servs.,
Inc., 291 F.3d 1227, 1232 (10th Cir. 2002).
“[s]pecific facts are not necessary; the statement need
only ‘give the defendant fair notice of what the claim
is and the grounds upon which it rests.'”
Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per
curiam) (quoting Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 555 (2007)) (omission marks, internal quotation
marks, and citation omitted). The “plausibility”
standard requires that relief must plausibly follow from the
facts alleged, not that the facts themselves be plausible.
Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir.
“where the well-pleaded facts do not permit the court
to infer more than the mere possibility of misconduct, the
complaint has alleged - but it has not shown - that the
pleader is entitled to relief.” Ashcroft v.
Iqbal, 556 U.S. 662, 679 (2009) (internal quotation
marks and alteration marks omitted). Thus, even though modern
rules of pleading are somewhat forgiving, “a complaint
still must contain either direct or inferential allegations
respecting all the material elements necessary to sustain a
recovery under some viable legal theory.”
Bryson, 534 F.3d at 1286 (quotation marks and
Plaintiff's Section 10(b) Claim (Fourth Claim for
Section 10(b) of the Exchange Act, it is unlawful for any
person “[t]o use or employ, in connection with the
purchase or sale of any security . . . any manipulative or
deceptive device or contrivance in contravention of such
rules and regulations as the [SEC] may prescribe.” 15
U.S.C. § 78j(b). SEC Rule 10b-5 provides that it is
unlawful for any person
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under