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CDG International Corp. v. Q Capital Strategies, LLC

United States District Court, S.D. Florida

January 3, 2018




         THIS CAUSE came before the Court on Defendants, Q Capital Strategies, LLC and Life Settlement Solutions, LLC's Motion to Dismiss Complaint Pursuant to Rule 12(b)(6) [ECF No. 14], filed November 22, 2017. The Court has carefully reviewed the Complaint [ECF No. 1] and its attachments [ECF Nos. 1-1 to 1-3]; the present Motion; Plaintiff, CDG International Corp.'s Memorandum of Law in Opposition to Defendants' Motion to Dismiss [ECF No. 23]; Defendants' Reply [ECF No. 26]; and applicable law. For the reasons explained below, the Motion is granted in part and denied in part.

         I. STANDARD

         The standard governing review of a Rule 12(b)(6) motion is well established. “To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (alteration added) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Although this pleading standard “does not require ‘detailed factual allegations, ' . . . it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. (alteration added) (quoting Twombly, 550 U.S. at 555). Pleadings must contain “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Indeed, “only a complaint that states a plausible claim for relief survives a motion to dismiss.” Iqbal, 556 U.S. at 679 (citing Twombly, 550 U.S. at 556).

         To meet this “plausibility standard, ” a plaintiff must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (alteration added) (citing Twombly, 550 U.S. at 556). “The mere possibility the defendant acted unlawfully is insufficient to survive a motion to dismiss.” Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1261 (11th Cir. 2009) (citation omitted), abrogated on other grounds by Mohamad v. Palestinian Auth., 566 U.S. 449 (2012).

         On a motion to dismiss, a court construes the complaint in the light most favorable to the plaintiff and accepts its factual allegations as true. See Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997) (citing SEC v. ESM Grp., Inc., 835 F.2d 270, 272 (11th Cir. 1988)). Unsupported allegations and conclusions of law, however, will not benefit from this favorable reading. See Iqbal, 556 U.S. at 679 (“While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.”); see also Sinaltrainal, 578 F.3d at 1260 (“[U]nwarranted deductions of fact in a complaint are not admitted as true for the purpose of testing the sufficiency of [a] plaintiff's allegations.” (alterations added; internal quotation marks omitted) (quoting Aldana v. Del Monte Fresh Produce, N.A., Inc., 416 F.3d 1242, 1248 (11th Cir. 2005); other citation omitted)).

         The scope of review on a motion to dismiss under Rule 12(b)(6) is limited to the four corners of the complaint. See Speaker v. U.S. Dep't of Health and Human Servs. Ctrs. for Disease Control and Prevention, 623 F.3d 1371, 1379 (11th Cir. 2010) (citation omitted). Where a plaintiff refers to certain documents in the complaint central to its claim, those documents are considered part of the pleading for the purpose of resolving a motion to dismiss. See Brooks, 116 F.3d at 1369 (citation omitted). Furthermore, the court “may consider an extrinsic document if it is (1) central to the plaintiff's claim and (2) its authenticity is not challenged.” Speaker, 623 F.3d at 1379 (internal quotation marks omitted) (quoting SFM Holdings, Ltd. v. Banc of Am. Secs., LLC, 600 F.3d 1334, 1337 (11th Cir. 2010); other citation omitted).


         A. Plaintiff's Allegations

         According to the Complaint, Defendants orchestrated a scheme to defraud Plaintiff into massively overpaying on the purchase price paid to Defendants to secure life settlement contracts (“LSCs”) on behalf of Plaintiff. (See Compl. ¶ 12). Defendants used their position of trust with Plaintiff and unique expertise to flimflam Plaintiff into paying more than twice what it should reasonably have paid to acquire a portfolio of 12 LSCs, while pocketing the difference between themselves and their co-conspirators and agents. (See id.). Defendants succeeded by using misrepresentations, omissions, and half-truths, including the fraudulent use and manipulation of a series of contracts. (See id.).

         The life settlement industry generates a secondary market for life insurance policies; in this way, a policyholder who no longer wants a policy can sell it for a lump-sum payment in exchange for the right to the policy's death benefits. (See Id. ¶ 13). Persons engaged in the business of purchasing or transferring policies must generally be licensed or lawfully permitted to engage in the business. (See Id. ¶ 14). Those licensed persons are known as life settlement providers. (See id.). Defendants are life settlement providers licensed to engage in these transactions in 20 states, and they hold themselves out as experts in the life settlement industry. (See Id. ¶¶ 14-15).

         Plaintiff was formed in Nevada on behalf of an Italian investment group (the “Italians”) and was to serve as the vehicle for the Italians to purchase a portfolio of life settlement contracts. (See Id. ¶ 16). The reason the Italians wanted to so invest is because a bank had advised them it would issue them a loan based on a favorable percentage of the face value of the life insurance portfolio of life settlement policies. (See Id. ¶ 17). After meeting with the bank and financial consulting firm, The 8th Sarl, James Meulemans of The 8th lobbied the Italians so they would purchase LSCs from Defendants. (See Id. ¶¶ 18-19). Meulemans told them The 8th would be working with Defendants to secure the best portfolio of life settlement agreements so the Italians could use the contracts as collateral to secure the loan from the bank. (See Id. ¶ 19). These representations were made to Massimo Giorgilli, Francesca Terrinoni, and Marco Gianni. (See id.).

         In February 2015, but before February 17, 2015, the Italians decided to pursue the acquisition of the LSCs using the services of The 8th and Defendants. (See Id. ¶ 20). On February 17, the Italians incorporated Plaintiff on instructions from The 8th and Defendants. (See id.). On February 26, 2015, Plaintiff signed a master contract with Defendants for the purchase through Defendants of LSCs. (See Id. ¶ 21; see also Compl. Ex. 1[1] [ECF No. 1-1] 1- 11[2]). The master contract contains as exhibits the format of the future contracts Plaintiff would be signing with either Defendant for the purchase of future specific individual life settlement policies. (See Compl. ¶ 23).

         Plaintiff thereafter signed 12 such agreements (“PLSCs”) with Defendants, eight with Q Capital and four with Life. (See Id. ¶¶ 23-24; see also Compl. Exs. 2 & 3). As part of the master contract, Plaintiff was required to appoint Defendants as its agents to secure the LSCs that would eventually become the PLSCs. (See Compl. ¶ 26). This was done through written Agency Appointments. (See id.).

         The master contract contained an Attachment C that set forth the eligibility requirements for the LSCs Defendants were to secure for Plaintiff. (See Id. ¶ 27; Compl. Ex. 1, 11). In connection with the master contract, on February 26, 2015, Plaintiff also signed a disclosure document titled, “Client Profile.” (See Compl. ¶ 28; Compl. Ex. 3 [ECF No. 1-3] 2-17). Between February 17 and February 26, 2015, Defendants, through their CEO Steven Shapiro and The 8th, who at all times acted as Defendants' agent, represented to Plaintiff they would secure an appropriate portfolio of LSCs for one million dollars, at the best possible price to Plaintiff. (See Compl. ¶ 29).

         In the life settlement industry, when representing others as undisclosed agents for the purchase of LSCs, life settlement providers generally have agreed upon a top price the client principal will pay for an LSC. (See Id. ¶ 33). Assuming the life settlement provider secures the LSC within the agreed upon price range, it uses the client's money it is holding in escrow to pay the purchase price to the seller and associated costs. (See id.). The life settlement provider makes its money either on a set commission or in the spread between what it secures the LSC for at auction and the acquisition price its client's principal agreed it would pay for the policy. (See Id. ¶ 34). The life settlement industry depends on: the integrity and reliability of the information used to determine the acquisition price for the client's purchase of the LSC and the particularized skill and expertise of the person making the decision; as well as the timely (before completion of the transaction) and accurate disclosure to the client/principal by the life settlement provider of the purchase price paid to secure the LSC at auction. (See Id. ¶ 35).

         Defendants' scheme to defraud Plaintiff centered on making sure Plaintiff was never provided a copy of any of the underlying LSCs Defendants secured for Plaintiff's account, despite each PLSC specifically requiring the Defendants provide Plaintiff a copy of the LSC before Defendants could access Plaintiff's escrowed funds to complete the transactions. (See Id. ¶ 38). Had Plaintiff timely received copies of the LSCs, it would have seen the acquisition price it paid Defendants was two to three times the amount Defendants paid at auction. (See id.). Defendants' scheme “was elaborate in that they and The 8th, working together and at the direction of Defendants, would engage in an elaborate kabuki dance with Plaintiff[, ] feigning an elaborate non-existent auction process . . . to cause Plaintiff to continuously jack up the acquisition price to be paid Defendants for the PLSC well in excess of the price that Defendants and The 8th knew would be successful at auction.” (Id. ¶ 39 (alterations added)). The playacting was repeated for each of the 12 PLSCs Plaintiff purchased through Defendants (see Id. ¶ 40), resulting in Plaintiff grossly overpaying on each of 11 PLSCs it purchased through Defendants (see Id. ¶ 49).

         The master contract, Client Profile, PLSCs, and the Agency Appointment were props to camouflage that Plaintiff was 100 percent reliant on Defendants; that is, Defendants owed Plaintiff a fiduciary duty not to use their position of trust with Plaintiff to their benefit at Plaintiff's expense. (See Id. ¶ 50). This fiduciary relationship arises from Defendants' expressed expertise in the life settlement industry; their monopoly of information and flow of information to Plaintiff; and their access to Plaintiff's confidential business information and needs, directly or through The 8th. (See id.). Notwithstanding any statements in the documents that Plaintiff was charged with seeking its own independent due diligence in arriving at a purchase price, Plaintiff relied solely on Defendants' expertise and flow of information. (See Id. ¶ 51).

         Defendants sought to manipulate other provisions of the documents to insulate themselves from liability for non-compliance with the contracts and accomplish the overall fraud they were perpetrating on Plaintiff. (See Id. ¶ 52). For example, each PLSC calls for a “Verification Certificate, ” or Plaintiff's certification that Defendants have complied with their obligations under the PLSCs, such as Plaintiff receiving from Defendants all information it was supposed to get to make informed decisions regarding the purchases. (See Id. ¶ 53; Compl. Ex. 1, 12-114; Compl. Ex. 2, 1-145). In at least 11 of the PLSCs, Defendants procured the LSCs after Plaintiff executed the Verification Certificates - in other words, the LSCs did not exist at the time Plaintiff is supposed to have signed off on receiving them. (See Compl. ¶ 54).

         Despite their contractual obligation to do so, Defendants avoided providing Plaintiff with the underlying LSCs until May 2017, when Plaintiff demanded the policies in writing. (See Id. ¶ 57; Compl. Ex. 3, 68-71). On October 11, 2017, Plaintiff sent Defendants a written demand for rescission of the 12 PLSCs they tricked Plaintiff into buying at inflated prices. (See Compl. ¶ 58). Defendants have refused. (See Id. ¶ 59).

         Plaintiff brings four claims for relief. Count 1 is titled “Rescission, ” and seeks rescission together with reimbursement of the premium amounts Plaintiff paid on each of the policies to keep them current. (See Id. ¶¶ 60-64). Count 2 is titled “Fraud, ” and it demands damages in the amount overpaid for the 12 PLSCs, together with punitive damages. (See Id. ¶¶ 65-67). Count 3 is titled “Breach of Fiduciary Duty, ” and it similarly seeks damages for the amounts overpaid as well as punitive damages. (See Id. ¶¶ 68-70). Count 4 is for “Breach of Contract, ” and it seeks damages in the amounts overpaid as a result of Defendants' material breach of the master contract and PLSCs related to the preparation and filling out of Verification Certificates for Plaintiff to sign, without first securing and delivering to Plaintiff the underlying, executed LSCs. (See Id. ¶¶ 71-74).

         B. The Motion

         Defendants move to dismiss all counts of the Complaint on the basis Plaintiff fails to state plausible claims for relief. (See generally Mot.). In particular, ...

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