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Yao v. Carillon Tower/Chicago LP

United States District Court, N.D. Illinois, Eastern Division

July 12, 2019

LINA DOU, TINGYANG SHAO, YIXUAN TAO, XIUQUIN XING, EMMY GO, YANMING WANG, SHIYANG XIAO, LIHONG ZHAN, GELI SHI, and YING YAO, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
CARILLON TOWER/CHICAGO LP, FOREFRONT EB-5 FUND ICT LLC, TIZI LLC D/B/A LOCAL GOVERNMENT REGIONAL CENTER OF MINORS, TD BANK NA, SYMMETRY PROPERTY DEVELOPMENT II LLC, FORDHAM REAL ESTATE LLC, AND JEFFREY L. LAYTIN, Defendants.

          ORDER

          Charles P. Kocoras, United States District Judge.

         Before the Court is Defendant Carillon Tower/Chicago L.P. (“Carillon”), Forefront EB-5 Fund (ICT) LLC (“Forefront”), Symmetry Property Development II LLC (“Symmetry”), and Jeffrey Laytin's (“Laytin”) (collectively, the “Carillon Defendants”)[1] motion to dismiss the Plaintiffs' First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the motion is denied.

         STATEMENT

         The underlying facts in this case are detailed in our prior opinion.[2] For purposes of this motion, the Court accepts as true the facts from the amended complaint. Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). All reasonable inferences are drawn in the Plaintiffs' favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).

         On April 16, 2019, the Carillon Defendants filed the instant motion to dismiss the amended complaint pursuant to Federal rule of Civil Procedure 12(b)(6). This type of motion “tests the sufficiency of the complaint, not the merits of the case.” McReynolds v. Merrill Lynch & Co., 694 F.3d 873, 878 (7th Cir. 2012). Plaintiffs need not provide detailed factual allegations, but they must provide enough factual support to raise their right to relief above a speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A claim must be facially plausible, meaning that the pleadings must “allow…the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The claim must be described “in sufficient detail to give the defendant ‘fair notice of what the…claim is and the grounds upon which it rests.'” E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. At 555). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, ” are insufficient to withstand a 12(b)(6) motion to dismiss. Iqbal, 556 U.S. at 678.

         The Plaintiffs' amended complaint articulates six counts against the Carillon Defendants: (1) Count I for violations of the Securities Exchange Act, under 15 U.S.C. §78j; (2) Count II for violations of the Illinois Securities Act; (3) Count VII for fraud; (4) Count III for breach of contract; (5) Count IV for breach of fiduciary duty; and (6) Count IX for appointment of a third-party administrator.[3] The Carillon Defendants have filed the instant motion seeking dismissal of all counts. We evaluate each in turn.

         I. Sufficiency of Count I Federal Securities Exchange Act Claim

         Rule 10b-5 “forbids making any untrue statement of a material fact or…omitting to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading…in connection with the purchase or sale of any security.” Howe v. Shchekin, 238 F.Supp.3d 1046, 1051 (N.D. Ill. 2017). “The canonical elements of a claim under § 10(b) of the Securities Exchange Act…and Rule 10b-5 are falsehood in connection with the purchase or sale of securities, scienter, materiality, reliance, causation, and loss.” Schleicher v. Wendt, 618 F.3d 769 (7th Cir. 2010). Such a claim is subject to the heightened pleading standard of Rule 9(b), meaning that the complaint must be stated with particularity. Fed.R.Civ.P. 9(b). However, the Private Securities Litigation Reform Act (“PSLRA”) imposed further pleading requirements on Rule 10b-5 claims. Specifically, “the PSLRA instructs that the complaint shall specify each statement alleged to have been misleading…and the reason or reasons why the statement is misleading.” Howe, 238 F.Supp.3d at 1051-52. Further, the complaint must “give rise to a strong inference that the defendant acted with the required state of mind.” Id. at 1052.

         The Plaintiffs have adequately alleged a breach of the Securities Exchange Act. The Plaintiffs argue that the Carillon Defendants allegedly induced them via the Holdback Trigger clause to make this deal attractive to investors in the first place. By relying on this clause, the Plaintiffs' understanding was that their money would be released only when “the project plan was formally submitted to the Commissioner.” However, the investors' funds were allegedly released before the formal submission of the project plans. Indeed, the Plaintiffs plausibly claim that the alleged purpose of the Holdback Trigger clause was to induce the Plaintiffs into investing, while giving the impression that their money would be safeguarded.

         Moreover, the Plaintiffs have adequately pleaded scienter. The Carillon Defendants are allegedly an associated entity that played a role in enabling the release of the money in contravention of the Holdback Trigger clause. The Plaintiffs' allegations are clear: the Carillon Defendants “knowingly and with scienter fraudulently inserted the Holdback Trigger … with no intention of honoring it.” While subsequent discovery may prove otherwise, the Plaintiffs have adequately asserted Count I for the present motion.

         II. Sufficiency of Count II Illinois Securities Act Claim

         The elements of claims under Sections 12F and 12G of the Illinois Securities Act “substantially overlap with those of a 10b-5 claim.” Frankfurt v. Mega Entm't Group, II, No 15 CV 667, 2018 U.S. Dist. LEXIS 8640, *19 (N.D. Ill. 2018). “A plaintiff must demonstrate that the defendant (1) made a misstatement or omission of material fact, (2) in connection with the purchase or sale of securities, (3) upon which the plaintiff relied.” Id. at *19-20.

         Based on our analysis in Count I, we find that the Plaintiffs have adequately pled a violation under the Illinois Securities Act.

         III. Sufficiency of ...


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