United States District Court, M.D. Florida, Tampa Division
Elizabeth A. Kovachevich, Judge
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.
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
first contends that Tannenbaum's claims are barred by
Florida's four-year statute of limitations on claims
sounding in fraud. Fla. Stat. § 95.1 l(3)(j). 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 plaintiffs 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.
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 plaintiffs 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.
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 Fed.Appx. 657, 662-63
(11th Cir. 2015). Moreover, specificity under Rule 9(b)
doesn't eliminate the concept of notice pleading.
Id. (citing Ziemba v. Cascade Infl 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.
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).
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 $9 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 "extracting] 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.
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 Fed.Appx. 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.
lastly, with respect to reliance, Tannenbaum alleges he
actually and justifiably relied upon Ostrove's
representations and omissions in making and
holdinghis 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 Hemisphere 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 insurance); 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.
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 Avres
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 L Inc., 92
F.3d 1110, 1117 (11th Cir. 1996): Roquemore v. Ford Motor
Co., 400 F.2d 255, 260 (5th 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.
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.