Loftin v. QA Investments LLC (Lawyers Weekly No. 15-15-0415, 22 pp.) (James Gale, C.J.) 2015 NCBC 41
Holding: Where plaintiff alleges that (1) the defendant investment firm – QA – and other defendants agreed to conceal the nature of their Foreign Leveraged Investment Program (FLIP) from plaintiff; (2) FLIP was a tax shelter marketed and administered by QA and an accounting firm; (3) QA, the accounting firm and others entered into an agreement to devise, design, facilitate, promote, and sell the FLIP product, knowing that the product was fraudulent; and (4) QA relied on the accounting firm and a law firm to justify the tax treatment of the transactions that QA undertook to implement FLIP, plaintiff has adequately alleged a civil conspiracy.
The court grants QA’s motion to dismiss plaintiff’s claims of negligent misrepresentation claim and unfair trade practices. Otherwise, the motion is denied. Plaintiff is directed to file an amended complaint.
Although the accounting firm and the law firm have been dismissed from this action, the court has not found clear precedent requiring the dismissal of a conspiracy claim against one conspiracy member after the other members have been dismissed with prejudice.
In support of his fraud claim, plaintiff alleges that part of his agreement with QA included a guarantee that QA must follow all applicable tax laws and regulations; thus, plaintiff’s pleading might support a relationship of trust and confidence, placing QA under an obligation to disclose any material facts of which it was aware. Plaintiff alleges that QA became aware of FLIP’s adverse tax implications and that it elected not share those implications with plaintiff. If such a relationship is proven, a fraud claim may arise from either an affirmative statement or a failure to make a statement that should have been made.
Plaintiff alleges that he relied on QA and the other defendants because of their reputations in the industry. He further alleges that QA represented that it would serve as advisor and guardian over his interests with respect to the FLIP transactions and that QA represented to him that their relationship was a confidential one. These allegations are minimally adequate to state a claim for breach of fiduciary duty.
Plaintiff’s allegations are not limited to QA’s mechanical completion of the transactions implementing FLIP. He also alleges that QA assisted in creating FLIP and continued to implement it after developing misgivings about its tax effect for the purpose of participating in the overall profits of a potentially fraudulent scheme. Therefore, QA may have enjoyed a benefit adequate to sustain plaintiff’s constructive fraud claim.
Representations in a contract that create an obligation do not give rise to a claim for negligent misrepresentation when that obligation is not performed. Any representations by QA must have been made beyond those promises stated in the parties’ investor advisory agreement. The complaint does not allege that QA failed to exercise due care when making any affirmative statement to plaintiff; therefore, plaintiff’s negligent misrepresentation claim fails.
Although the court has found no support for QA’s contention that a general “investment services” role constitutes a “learned profession” under G.S. Chapter 75, this action does not meet the “commerce” requirement of Chapter 75 because it falls within the securities transaction exception.
The original complaint was filed in 2003 and amended in 2006. Since that time, the accounting firm and the law firm have been dismissed as defendants. The court directs plaintiff to further amend his complaint and requests that he do so in a manner that eliminates allegations that are no longer necessary in light of these defendants’ dismissal and in a manner to facilitate a determination of how the facts alleged apply to the remaining defendants.
Motion granted in part and denied in part.