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Murray v. Provident Trust Group, LLC

United States District Court, D. Nevada

December 18, 2019

NOEL C. MURRAY, et al., Plaintiffs,



         I. SUMMARY

         Plaintiffs Noel C. Murray, Swarna Perera, and Joyce Friedman seek to represent a class of investors who lost substantial amounts of money they were saving for retirement when they invested in the Woodbridge real-estate Ponzi scheme through their self-directed individual retirement accounts (“SDIRAs”). Plaintiffs filed this action against Defendant Provident Trust Group, who provided custodial and administrative services for Plaintiffs' SDIRAs. Defendant has moved to dismiss Plaintiffs' remaining contract claim (the “Motion”) in the First Amended Complaint (“FAC”).[1] (ECF No. 49.) For the reasons explained below, the Court will grant Defendant's Motion as to Plaintiff Friedman and deny the Motion as to Plaintiffs Murray and Perera.


         The Court incorporates by reference the background section in its prior order (ECF No. 45 at 2-3) and does not recite it here. In that order, the Court dismissed all claims in the initial complaint with prejudice, but granted Plaintiffs leave to file an amended complaint to assert a breach of contract claim based on the allegation that “Defendant impermissibly commingled funds.” (ECF No. 45 at 7.) Defendants now move to dismiss this claim.


         A court may dismiss a plaintiff's complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A properly pled complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed factual allegations, it demands more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555.) “Factual allegations must be enough to rise above the speculative level.” Twombly, 550 U.S. at 555. Thus, to survive a motion to dismiss, a complaint must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (internal citation omitted). And it must contain either direct or inferential allegations concerning “all the material elements necessary to sustain recovery under some viable legal theory.” Twombly, 550 U.S. at 562 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1989) (emphasis in original)).

         In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply when considering motions to dismiss. First, a district court must accept as true all well-pled factual allegations in the complaint; however, legal conclusions are not entitled to the assumption of truth. See Iqbal, 556 U.S. at 678-79. Mere recitals of the elements of a cause of action, supported only by conclusory statements, do not suffice. See id. at 678. Second, a district court must consider whether the factual allegations in the complaint allege a plausible claim for relief. See Id. at 679. A claim is facially plausible when the plaintiff's complaint alleges facts that allow a court to draw a reasonable inference that the defendant is liable for the alleged misconduct. See Id. at 678. Where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has “alleged-but it has not show[n]-that the pleader is entitled to relief.” Id. at 679 (internal quotation marks omitted). This is insufficient. When the claims in a complaint have not crossed the line from conceivable to plausible, the complaint must be dismissed. See Twombly, 550 U.S. at 570.


         Defendant's Motion contends that Plaintiffs have not shown a breach of contract (ECF No. 49 at 11-12) and, in any event, Plaintiffs' contract claim is barred by an exculpatory clause (id. at 14). The Court disagrees with Defendant's first argument but agrees with its second argument only as to Plaintiff Friedman's claim. The Court will only permit Plaintiffs Murray and Perera's claim to proceed.

         “A breach of contract claim requires a plaintiff to show: (1) the existence of a valid contract; (2) a breach by the defendant; and (3) damage because of the breach.” Kerr v. Bank of Am., N.A., No. 3:15-cv-306-MMD-WGC, 2016 WL 54670, at *2 (D. Nev. Jan. 5, 2016) (citations omitted). Here, neither party questions the existence of a contract. Instead, the parties dispute whether Defendant breached Article III(1) (the “Article”), which is identical in both 2012 and 2017 Agreements[2] and reads:

No part of the custodial account funds may be invested in life insurance contracts, nor may the assets of the custodial account be commingled with other property except in a common trust fund or common investment fund (within the meaning of section 408(a)(5)).

(ECF Nos. 46-2, 46-3 (emphasis added).)

         Defendant argues that Woodbridge-not Defendant-commingled the proceeds of sales securities, which Defendant had no duty to prevent. (ECF No. 46 at 12.) Plaintiffs counter that Defendant commingled investor assets by knowingly signing documents that contemplated the pooling of investor funds into loans to third parties (ECF No. 52 at 10-11). Defendant also argues that Plaintiffs' funds ceased to be “assets of the custodial account” when Defendant purchased Woodbridge securities per Plaintiffs' instructions. (ECF No. 46 at 11.) Plaintiffs rebut that ...

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