By Ben Suter
A Motion to Dismiss the Complaint for failure to state a claim upon which relief may be granted is denied, because defendants failed to demonstrate that the plaintiffs’ complaint was barred by the doctrine of assumption of risk.
Ginzkey vs. National Securities Corp., No. C18-1773 RSM, U.S. Dist. LEXIS 95402 (W.D. Wash., 6/6/19).
The Court denies the Defendant’s motion to dismiss for failure to state a claim upon which relief may be granted, finding that Plaintiffs had pled sufficient factual matter to support claims for negligence and unjust enrichment.
Defendant National Securities Corporation (“NSC”) is a registered broker-dealer headquartered in Seattle. Plaintiffs James Ginzkey, Richard Fitzgerald, Charles Cerf, and Barry Donner (collectively “Plaintiffs”) used NSC’s services to purchase investments in a company called Beamreach that produced solar panels for residential and commercial use. NSC acted as both the primary placement agent and exclusive broker/dealer for the Beamreach Offerings. NSC was paid a commission of 10% of whatever it sold. The total capital raised by NSC in the Beamreach Offerings was approximately $34.5 million. The Series D and D-1 Offerings were presented to investors through private placement memoranda (“PPMs”). In each Beamreach PPM, NSC made warnings to investors about the high-risk nature of investing in Beamreach. In all of the Beamreach Offerings, NSC described the Beamreach investments as having a “high degree of risk.”
Plaintiffs allege they relied on NSC’s “approval of the Beamreach Offerings for sale” to make their investments in Beamreach. On February 9, 2017, Beamreach filed for Chapter 7 bankruptcy, citing a “catastrophic cash flow situation.” Plaintiffs filed this putative class action on December 10, 2018, asserting claims of negligence and unjust enrichment. NSC moved to dismiss the complaint under FRCP 12(b)(6). NSC argues that Plaintiff’s claims were barred under the doctrine of assumption of risk, as it had fully warned Plaintiffs of all of the risks, as evidenced by the text of the PPMs. The Court disagrees, finding that the allegations in the Complaint and the disclosures in the PPMs are not identical. For example, Plaintiffs allege that Beamreach had retained bankruptcy counsel prior to the November 2016 offering, and that NSC should have inquired into and disclosed Beamreach’s bankruptcy plans.
Further, Plaintiffs rightfully pointed out that FINRA Rule 2111.05 obligated NSC to investigate Beamreach and disclose information beyond what was contained in the PPM’s. These FINRA rules showed that NSC had a duty to Plaintiffs sufficient to support a common law negligence claim, and the Complaint sufficiently alleged that NSC had breached that duty. The Court finds that NSC was “jumping ahead” by arguing about the sufficiency of warnings and what a reasonable jury could conclude in this case; such arguments are improper on a Rule 12(b)(6) motion to dismiss. Accordingly, the Court finds that Plaintiffs pled sufficient factual matter to support claims for negligence and unjust enrichment and denies NSC’s motion to dismiss.
(SOLA Ref. No. 2019-25-04)
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