Securities – Fraud – Embezzlement of Investment Funds – Negligent Misrepresentation

A negligent misrepresentation claim arising from pre-contractual conduct was not barred by the economic loss rule.

We deny defendants’ motion to partially dismiss plaintiffs’ complaint.

Plaintiffs invested in defendant corporation, based on the representation that the company would use investor funds to develop doctor’s offices and other healthcare properties. Plaintiffs invested several million dollars, documented in eight promissory notes. When plaintiffs stopped receiving payment on their notes, an investigation revealed that individual defendant had redirected the invested funds to a separate company he owned, using the funds for personal purposes.

Plaintiffs filed suit, alleging fraud, breach of contract, and negligent misrepresentation. Defendants moved to dismiss plaintiffs’ negligent misrepresentation claim, arguing that the claim was barred by the economic loss rule and that defendants owed plaintiffs no duty of care.

We deny defendants’ motion to dismiss, finding that plaintiffs’ negligent misrepresentation claim arose from pre-contractual representations that the individual defendant made to induce plaintiffs to invest. Thus, plaintiffs’ claim is wholly separate from the parties’ contracts. We further find that plaintiffs sufficiently alleged that the individual defendant owed a duty to plaintiffs when convincing them to invest.

Denied.

Lipov v. Flagship Healthcare Properties, LLC (Lawyers Weekly No. 020-060-21, 6 pp.) (Adam M. Conrad, J.) Nelson, Mullins, Riley & Scarborough LLP, by David N. Allen, Thomas G. Hooper, and Anna Majestro for plaintiffs; Moore & Van Allen PLLC, by Scott M. Tyler, Joshua D. Lanning, and Raquel Macgregor Pearkes for defendants. 2021 NCBC 60