Tannenbaum v. Jefferies, LLC

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

ROBERT TANNENBAUM,

Plaintiff,

V. : Case No.: 8:18-cv-487-EAK-CPT

JEFFERIES, LLC,

Defendant.

ORDER

Plaintiff Robert Tannenbaum sues Defendant Jefferies, LLC for fraudulent and

negligent misrepresentation arising out of his $250,000 investment in a now-defunct

biomedical technology start-up, Palmaz Scientific, Inc. (“Palmaz”). (Doc. 1).

Tannenbaum alleges he was duped into the investment by a “high-ranking,” licensed

Investment advisor and account executive with Jefferies, an investment bank and

financial services company tasked with marketing Palmaz’s private placement stock

offerings. According to Tannenbaum, in an effort to secure and retain his investment,

Jefferies’ Freddie Ostrove, during a series of telephone conversations with

Tannenbaum between 2011 and 2015, falsely represented and omitted key details

regarding, among other things, Palmaz’s operational and financial health and stability,

the value, promise, and proprietary nature of its technology, and the existence and

position of certain other of its investors. Tannenbaum says that if Ostrove would’ve

told him the truth about Palmaz, as Ostrove was required to do, he would’ve never

made nor kept his investment in the company.

Jefferies moves to dismiss the complaint. (Doc. 25). As grounds, Jefferies

argues that Tannenbaum’s claims are time-barred; that multiple, necessary elements

of the claims aren’t particularly or plausibly pleaded; and that the claims are, in part,

defective as a matter of law to the extent they rely on supposed omissions (as opposed

to affirmative misrepresentations) by Ostrove. The Court disagrees.

Jefferies first contends that Tannenbaum’s claims are barred by Florida’s four-

year statute of limitations on claims sounding in fraud. Fla. Stat. § 95.11(3)q). But an

assertion that the applicable statute of limitations has lapsed is an affirmative defense,

which a complaint needn’t anticipate or negate. La Grasta v. First Union Sec. Inc.,

358 F.3d 840, 845 (11th Cir. 2004). Only when allegations contained within the

complaint itself conclusively demonstrate, on their face, that an affirmative defense

operates to bar recovery on the plaintiff's claim is it subject to dismissal pursuant to

Rule 12(b)(6). Jones v. Bock, 549 U.S. 199, 214-15 (2007). Here, the allegations aren’t

so conclusive.

Florida’s delayed discovery doctrine states that a fraud claim accrues, for

limitations purposes, “from the time the facts giving rise to a cause of action were

discovered or should have been discovered with the exercise of due diligence.” Fla.

Stat. § 95.031(2)(a). See also Hearndon v. Graham, 767 So. 2d 1179, 1184 (Fla. 2000).

Tannenbaum alleges that he was only able to discover Jefferies’ fraud through a series

of events that transpired between 2015, when certain “distressing news” about Palmaz

began to “leak,” and 2017, when Palmaz ultimately filed for bankruptcy. He also

alleges Jefferies’ superior knowledge regarding Palmaz and its technology, as well as

Jefferies’ heightened duty to speak truthfully to its clients regarding investment facts.

Accepting his allegations as true, Tannenbaum’s claims are timely. Although Jefferies

understandably disputes these allegations, a motion to dismiss isn’t the proper vehicle

to raise such a challenge. See, e.g., Knight v. E.F. Hutton & Co., 750 F. Supp. 1109,

1112 (M.D. Fla. 1990) (Kovachevich, J.) (denying the defendant’s motion to dismiss

the plaintiff's Section 10(b), Rule 10(b)-5, and Florida Securities Investor Protection

Act claims on statute of limitations grounds because whether due diligence would have

led to discovery of the alleged fraud within the limitations period was a fact question

not susceptible to determination on a motion to dismiss). The Court will deny the

motion on this ground.

Jefferies next contends that the complaint lacks the particulars of the alleged

fraud. More specifically, Jefferies argues that the complaint doesn’t “allege the specific

dates of the misrepresentations” but instead “only narrows them to certain individual

months,” violating the heightened pleading requirements of Rule 9(b).' To be sure,

Jefferies interpretation of Rule 9(b) is hyper-technical. And, critically, it’s inconsistent

with the Eleventh Circuit’s more holistic and “relaxed” application of Rule 9(b) in

actions, like this one, alleging a “prolonged, multi-act scheme[].” Burgess v. Religious

Tech. Ctr., Inc., 600 F. App’x 657, 662-63 (11th Cir. 2015). Moreover, specificity

Rule 9(b) applies to both fraudulent and negligent misrepresentation claims. See Inman v. Am.

Paramount Fin., 517 F. App’x 744, 748 (11th Cir. 2013).

under Rule 9(b) doesn’t eliminate the concept of notice pleading. Id. (citing Ziemba

v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001)). Tannenbaum’s

allegations are sufficiently specific to put Jefferies on notice of the alleged fraud and to

permit Jefferies to formulate an informed and full response. Discovery will likely yield

the information Jefferies contends the complaint is lacking. The Court will deny the

motion on this ground.

Similarly, Jefferies contends that Tannenbaum failed to plausibly plead

necessary elements of his claims — namely, materiality, knowledge, and reliance.

Under Florida law, “relief for a fraudulent misrepresentation may be granted only

when the following elements are present: (1) a false statement concerning a material

fact; (2) the representor’s knowledge that the representation is false: (3) an intention

that the representation induce another to act on it; and (4) consequent injury by the

party acting in reliance on the representation.” Johnson v. Davis, 480 So. 2d 625, 627

(Fla. 1985) (citation omitted). The elements of a negligent misrepresentation claim

are essentially the same as those for fraudulent misrepresentation, except that, instead

of knowledge of the falsity of the representation, the plaintiff need only prove that the

representor reasonably should’ve known of the statement’s falsity. C & J Sapp Publ’g

Co. v. Tandy Corp., 585 So.2d 290, 292 (Fla. 2d DCA 1991); Atlantic Nat’l Bank of

Fla. v. Vest, 480 So.2d 1328, 1332 (Fla. 2d DCA 1985). Additionally, unlike a claim

for fraudulent misrepresentation, a claim for negligent misrepresentation requires a

showing that the recipient’s reliance on the erroneous information was justified. Butler

v. Yusem, 44 So. 3d 102, 105 (Fla. 2010).

With respect to materiality, Jefferies completely neglects to address the most

glaring allegations in the complaint: that Ostrove falsely represented (1) that Johnson

& Johnson, a multinational consumer, pharmaceutical, and medical device

corporation, “[had] a piece of the deal” and was looking to increase its already existing

59 million stake in Palmaz, (2) that Ostrove himself had invested his own funds into

the company, and (3) that the company was “well- and efficiently-run,” when, in

reality (at least according to the complaint), neither Johnson & Johnson nor Ostrove

had an existing investment in Palmaz, and the company was effectively insolvent from

a balance sheet perspective, lacked a functional board of directors, and both its founder

and CEO were “extract[ing] millions of dollars of investor funds” from the company

for personal benefit. These allegations, accepted as true, plausibly make out a false

statement of material fact. See, e.g., Burger v. Hartley, 896 F. Supp. 2d 1157, 1174

(S.D. Fla. 2012) (Cohn, J.) (holding that false representation that third-party already

owned $20 million worth of securities in automotive company was material); Bankers

Life Ins. Co. v. Credit Suisse First Boston Corp., 590 F. Supp. 2d 1364, 1369 (M.D.

Fla. 2008) (Kovachevich, J.) (holding that omission of fraudulent assets of the touted

company’s balance sheet, as well as omission of accurate updates of the company’s

financial health, were material). The Court will deny the motion on this ground.

With respect to knowledge, the complaint generally alleges Jefferies knew or

reasonably should’ve known of its false representations and omissions. This is

sufficient at the pleading stage, as “Rule 9(b) permits states of mind, including

knowledge, to be pled generally.” W. Coast Roofing & Waterproofing, Inc. v. Johns

Manville, Inc., 287 F. App’x 81, 88 (11th Cir. 2008) (holding that “conclusory

allegations” that defendant made allegedly false statements “knowing they were false”

was sufficient to avoid dismissal). The Court will deny the motion on this ground.

And, lastly, with respect to reliance, Tannenbaum alleges he actually and

justifiably relied upon Ostrove’s representations and omissions in making and holding?

his investment in Palmaz. In the current procedural posture, the court must assume

that to be the case. Generally, the issue of a party’s reliance is a question of fact not

susceptible to determination on a motion to dismiss. See Hemispherx Biopharma, Inc.

v. Mid-S. Capital, Inc., 690 F.3d 1216, 1229 (11th Cir. 2012) (citation omitted); Ganz

v. Growthink Sec., Inc., No. 9:09-cv-80057-DTKH, 2009 WL 10667793, at *2 (S.D.

Fla. Apr. 20, 2009) (Hurley, S.J.). Tannenbaum’s execution of the parties’ purchase

agreement doesn’t alter this conclusion. See, e.g., Romo v. Amedex Ins. Co., 930

So.2d 643, 651 (Fla. 3d DCA 2006) (holding that issue of whether reliance is justifiable

is a question of fact despite the existence of a disclaimer in the application for

Florida “common law recognizes .. . a claim, in fraud and negligent misrepresentation, called a

‘holding claim.’” Rogers v. Cisco Sys., Inc., 268 F. Supp. 2d 1305, 1312 n.13 (N.D. Fla. 2003)

(Collier, J.) (analyzing Florida law). See also Lopez v. Rica Foods, Inc,, No. 1:06-cv-20710-PCH,

2007 WL 9701145, at *9 (S.D. Fla. Jan. 16, 2007) (Huck. J.) (analyzing Florida law).

imsurance); Hetrick v. Ideal Image Dev. Corp., No. 8:07-cv-871-VMC-TBM, 2008 WL

5235131 at *13 (M.D. Fla. Dec. 13, 2008) (Covington, J.) (analyzing Florida law and

denying summary judgment on claims based on alleged misrepresentations regarding

profitability and resources needed to open a franchise and finding that the issue of

reliance was a question of fact despite the existence of a questionnaire executed by the

plaintiffs in which they affirmatively indicated that no representations had been made

regarding earnings or likely success of the franchise). The Court will deny the motion

on this ground.

Finally, Jefferies contends that, as a matter of law, it had no duty to disclose

certain material information in connection with Tannenbaum’s Palmaz investment

because Ostrove didn’t act in a fiduciary capacity. However, like the issue of reliance,

the existence of a fiduciary relationship under Florida law is generally a fact question. _

Estate of Ayres ex rel. Strugnell v. Beaver, 48 F. Supp. 2d 1335, 1341 (M.D. Fla. 1999)

(Kovachevich, J.). See also Trumpet Vine Investments, N.V._v. Union Capital

Partners I, Inc., 92 F.3d 1110, 1117 (11th Cir. 1996); Roquemore v. Ford Motor Co.,

400 F.2d 255, 260 (Sth Cir. 1968). Discovery will develop an informative factual

record with respect to Tannenbaum’s own investment expertise, his knowledge of

Palmaz, what material information Ostrove did or didn’t omit during his telephone

conversations with Tannenbaum, what Ostrove himself knew, and the nature and

extent of the relationship between Tannenbaum and Ostrove. To the extent

Tannenbaum’s claims rest on alleged omissions by Ostrove, the complaint, as pleaded,

meets the minimum threshold requirements to avoid dismissal. The Court will deny

the motion on this ground.

Having dispensed, in favor of Tannenbaum, with each of Jefferies’ arguments

for dismissal, the motion is accordingly DENIED. The complaint survives. Jefferies

shall answer the complaint no later than November 8, 2019. Further, no later than

November 22, 2019, the parties shall submit a joint amended case management report

with proposed dates for all remaining case dates and deadlines.

ORDERED in Chambers, in Tampa, Florida, wig 2s October, 2019.

□□□

te ELIZABETH A. KOVACHEVIGH_

—=—S JNITED STATES DISTRICT JUDGE>~

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Copies furnished to:

Counsel/Parties of Record