Burns v. Stratos et alMOTION TO DISMISS FOR FAILURE TO STATE A CLAIME.D. Pa.March 20, 2017 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA TIMOTHY BURNS, Plaintiff, vs. TROY STRATOS a/k/a Ken Dennis, VENABLE, LLP, DAVID MEYER, Defendants. : : : : : : : : : : : : : : : Case No. 14-cv-2134 ORDER AND NOW, this _____ day of __________________, upon consideration of Defendant Venable LLP’s Renewed Motion to Dismiss Plaintiff’s Complaint (the “Motion”) and the accompanying Memorandum, and any response or reply thereto, and matters subject to judicial notice, it is hereby ORDERED that the Motion is GRANTED WITH PREJUDICE. BY THE COURT: _______________________________________ Hon. Eduardo Robreno, U.S.D.J. Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 1 of 38 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA TIMOTHY BURNS, Plaintiff, vs. TROY STRATOS a/k/a Ken Dennis, VENABLE, LLP, DAVID MEYER, Defendants. : : : : : : : : : : : : : : : Case No. 14-cv-2134 DEFENDANT VENABLE LLP’S RENEWED MOTION TO DISMISS Defendant Venable LLP (“Venable”) hereby moves this Honorable Court, pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the permission granted by the Court at the February 17, 2017 hearing to file this renewed Motion, to dismiss Plaintiff Timothy Burns’s Complaint with prejudice. The grounds in support of this Motion are fully set forth in Venable’s accompanying Memorandum in Support of Renewed Motion to Dismiss Plaintiff’s Complaint, which is incorporated herein by reference. Venable respectfully requests oral argument. DATED: March 20, 2017 Respectfully submitted, /s/ Robert C. Heim ROBERT C. HEIM (PA ID #15758) robert.heim@dechert.com DECHERT LLP Cira Centre 2929 Arch Street Philadelphia, PA 19104-2808 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 2 of 38 (215) 994-4000 (telephone) (215) 994-2222 (facsimile) KEVIN S. ROSEN (pro hac vice) krosen@gibsondunn.com MATTHEW S. KAHN (pro hac vice) mkahn@gibsondunn.com GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue, 45th Floor Los Angeles, CA 90071-3197 (213) 229-7000 (telephone) (213) 229-7520 (facsimile) Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 3 of 38 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA TIMOTHY BURNS, Plaintiff, vs. TROY STRATOS a/k/a Ken Dennis, VENABLE, LLP, DAVID MEYER, Defendants. : : : : : : : : : : : : : : : Case No. 14-cv-2134 MEMORANDUM IN SUPPORT OF DEFENDANT VENABLE LLP’S RENEWED MOTION TO DISMISS PLAINTIFF’S COMPLAINT Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 4 of 38 i TABLE OF CONTENTS Page I. OVERVIEW ......................................................................................................................... 1 II. STATEMENT OF FACTS ................................................................................................... 2 A. The Facebook Fraud .................................................................................................... 2 B. Burns’s Admitted Participation In The Facebook Fraud ............................................. 4 III. LEGAL STANDARD ........................................................................................................... 6 IV. ARGUMENT ........................................................................................................................ 8 A. The Doctrine Of In Pari Delicto Bars All Of Burns’s Claims As A Matter Of Law. . 8 B. Burns Lacks Standing To Assert Any Of His Claims Because He Acted At All Times As ESG’s Agent And Was Injured (If At All) Only Derivatively Through ESG. .... 11 C. All But One Of Burns’s Claims Is Time-Barred. ...................................................... 13 D. All Of Burns’s Claims Fail Because He Does Not Plead Recoverable Damages. .... 15 E. Burns’s Complaint Fails For Numerous Additional Reasons. .................................. 17 All Of Burns’s Claims Fail Because He Does Not Plead Proximate Causation.17 Burns’s Fraud Claim Fails Because He Does Not And Cannot Plead An Intent To Defraud Burns Personally............................................................................ 19 Burns’s Conversion Claim Fails Because He Fails To Plead Any Convertible Property Or Allege That Venable Converted His Property. ............................. 20 Burns’s Breach Of Fiduciary Duty Claim Cannot Proceed In The Absence Of A Predicate Fiduciary Duty. ................................................................................. 21 Burns’s Unfair Competition Claim Fails For Numerous Reasons.................... 22 Burns Fails To State A Claim For Conspiracy And Aiding And Abetting Because He Fails To Plead Actual Damage Or Harm And His Conspiracy Claim Is Also Barred By The Intracorporate Conspiracy Doctrine ............................ 24 Burns Fails To Plead Negligent Misrepresentation For The Same Reasons He Has Not Pleaded Fraud. .................................................................................... 25 V. CONCLUSION ................................................................................................................... 26 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 5 of 38 ii TABLE OF AUTHORITIES Page(s) Cases Algrant v. Evergreen Valley Nurseries Ltd. P’ship, 941 F. Supp. 495 (E.D. Pa. 1996), aff’d, 126 F.3d 178 (3d Cir. 1997)....................................23 Aliota v. Graham, 984 F.2d 1350 (3d Cir. 1993)...................................................................................................12 Ammlung v. City of Chester et al., 494 F.2d 811 (3d Cir. 1974).....................................................................................................14 Argust v. Dick Mackey Gen. Contracting Co., 568 A.2d 255 (Pa. Super. Ct. 1990) .........................................................................................14 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .............................................................................................................6, 19 ATACS Corp. v. Trans World Commc’ns, Inc., 155 F.3d 659 (3d Cir. 1998).....................................................................................................15 B&P Holdings I, LLC v. Grand Sasso, Inc., 114 F. App’x 461 (3d Cir. 2004) .............................................................................................16 Balderston v. Medtronic Sofamor Danek, Inc., 152 F. Supp. 2d 772 (E.D. Pa. 2001), aff’d, 285 F.3d 238 (3d Cir. 2002)...............................13 Balderston v. Medtronic Sofamor Danek, Inc., 285 F.3d 238 (3d Cir. 2002).....................................................................................................22 Banner Life Ins. Co. v. U.S. Bank, NA, 931 F. Supp. 2d 629 (D. Del. 2013) .........................................................................................18 Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985) ...................................................................................................................8 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................................................................6, 19 Berger & Montague, P.C. v. Scott & Scott, LLC, 153 F. Supp. 2d 750 (E.D. Pa. 2001) .......................................................................................21 In re Bernard L. Madoff Inv. Sec. LLC, 721 F.3d 54 (2d Cir. 2013).......................................................................................................10 Blumenstock v. Gibson, 811 A.2d 1029 (Pa. Super. Ct. 2002) .................................................................................22, 24 Bortz v. Noon, 729 A.2d 555 (Pa. 1999) ..........................................................................................................25 Bowers v. T-Netix, 837 A.2d 608 (Pa. Commw. Ct. 2003) ....................................................................................23 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 6 of 38 TABLE OF AUTHORITIES (continued) Page(s) iii Collins & Aikman Corp. v. Stockman, 2010 WL 184074 (D. Del. Jan. 19, 2010), adopted by, 2010 WL 1687795 (D. Del. Apr. 26, 2010). ...................................................................................................................8 Coulter v. Studeny, 522 F. App’x 147 (3d Cir. 2013) ...............................................................................................7 Curran v. M&T Bank Corp., 2014 WL 174424 (M.D. Pa. Jan. 13, 2014) .........................................................................7, 24 Dalrymple v. Brown, 701 A.2d 164 (Pa. 1997) ..........................................................................................................14 Delahanty v. First Pa. Bank, 464 A.2d 1243 (Pa. Super. Ct. 1983) .......................................................................................16 DiCicco v. Willow Grove Bank, 308 F. Supp. 2d 528 (E.D. Pa. 2004) .......................................................................................12 Edward J. DeBartolo Corp. v. Coopers & Lybrand, 928 F. Supp. 557 (W.D. Pa. 1996) ...........................................................................................17 Envtl. Equip. & Serv. Co. v. Wachovia Bank, N.A., 741 F. Supp. 2d 705 (E.D. Pa. 2010) .......................................................................................14 ESG Capital Partners, LP v. Stratos, 828 F.3d 1023 (9th Cir. 2016) .................................................................................................11 ETC Int’l, Inc. v. Curriculum Advantage, Inc., 272 F. App’x 139 (3d Cir. 2008) ...............................................................................................7 eToll, Inc. v. Elias/Savion Advert. Inc., 811 A.2d 10 (Pa. Super. Ct. 2002) ...........................................................................................21 Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007).......................................................................................................7 Fulton Fin. Advisors, N.A. v. NatCity Invs., Inc., 2013 WL 5635977 (E.D. Pa. Oct. 15, 2013)..............................................................................7 Gen. Refractories Co. v. Fireman’s Fund Ins. Co., 337 F.3d 297 (3d Cir. 2003)...............................................................................................24, 25 George v. Rehiel, 738 F.3d 562 (3d Cir. 2013).......................................................................................................7 GMH Associates, Inc. v. Prudential Realty Group, 752 A.2d 889 (Pa. Super. Ct. 2000) ...................................................................................16, 17 Gregg v. Indep. Blue Cross, 2001 WL 1807400 (Pa. Ct. Com. Pl. June 14, 2001) ..............................................................20 Grumet v. Shearson/American Express. Inc., 564 F. Supp. 336 (D.N.J. 1983) ...............................................................................................11 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 7 of 38 TABLE OF AUTHORITIES (continued) Page(s) iv Haggart v. Cho, 703 A.2d 522 (Pa. Super. Ct. 1997) .........................................................................................14 Heffernan v. Hunter, 189 F.3d 405 (3d Cir. 1999).....................................................................................................24 Heritage Surveyors & Eng’rs, Inc. v. Nat’l Penn Bank, 801 A.2d 1248 (Pa. Super. Ct. 2002) .......................................................................................25 Hill v. Ofalt, 85 A.3d 540 (Pa. Super. Ct. 2014) ...........................................................................................13 Hinchliffe v. Option One Mortg. Corp., 2009 WL 1708007 (E.D. Pa. June 16, 2009) ...........................................................................23 Joyce v. Bobcat Oil & Gas, Inc., 2008 WL 919724 (M.D. Pa. Apr. 3, 2008) ..............................................................................18 Joyce v. Erie Ins. Exch., 74 A.3d 157 (Pa. Super. Ct. 2013) ...........................................................................................19 Kapil v. Ass’n of Penn. State Coll. & Univ. Faculties, 470 A.2d 482 (Pa. 1983) ..........................................................................................................14 Kemezis v. Matthew, 2008 WL 5191587 (E.D. Pa. Dec. 10, 2008) .......................................................................7, 24 Klein v. Boyd, 949 F. Supp. 280 (E.D. Pa. 1996) ............................................................................................23 LabMD, Inc. v. Tiversa Holding Corp., 2016 WL 6905963 (W.D. Pa. Oct. 7, 2016) ............................................................................14 Linsey v. E.F. Hutton & Co., 675 F. Supp. 1 (D.D.C. 1987) ....................................................................11, 12, 13, 20, 22, 25 Majer v. Sonex Research Inc., 541 F. Supp. 2d 693 (E.D. Pa. 2008) .......................................................................................18 Mariner Chestnut Partners, L.P. v. Lenfest, 152 A.3d 265 (Pa. Super. Ct. 2016) .........................................................................................14 Marshall v. Fenstermacher, 388 F. Supp. 2d 536 (2005) ...............................................................................................19, 20 Mayer v. Belichick, 605 F.3d 223 (3d Cir. 2010).......................................................................................................7 McKeeman v. Corestates Bank, N.A., 751 A.2d 655 (Pa. Super. Ct. 2000) .........................................................................................20 MFS, Inc. v. DiLazaro, 771 F. Supp. 2d 382 (E.D. Pa. 2011) .......................................................................................12 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 8 of 38 TABLE OF AUTHORITIES (continued) Page(s) v Mineweaser v. Prudential Ins. Co. of Am., 2016 WL 5792778 (W.D. Pa. Oct. 4, 2016) ............................................................................14 Miracle Temple Christian Acad. v. Church Mut. Ins. Co., 2012 WL 1286751 (E.D. Pa. Apr. 16, 2012) .............................................................................7 Monroe v. Mullooley, 2012 WL 4056075 (W.D. Pa. Sept. 14, 2012) .........................................................................10 Moorer v. Hartz Seed Co., 120 F. Supp. 2d 1283 (M.D. Ala. 2000) ..................................................................................12 Moser v. Bascelli, 879 F. Supp. 489 (E.D. Pa. 1995) ............................................................................................10 In re N. Am. Refractories Co., 542 B.R. 350 (Bankr. W.D. Pa. 2015) .......................................................................................6 Neuman v. Corn Exch. Nat’l. Bank & Trust Co., 51 A.2d 759 (Pa. 1947) ............................................................................................................16 Northcraft v. Edward C. Michener Assocs. Inc., 466 A.2d 620 (Pa. Super. Ct. 1983) .........................................................................................20 Official Comm. of Unsecured Creditors of Allegheny Health, Educ. & Research Found. v. PriceWaterhouseCoopers LLP, 989 A.2d 313 (Pa. 2010) ............................................................................................................8 Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340 (3d Cir. 2001).......................................................................................................8 Parker v. Freilich, 803 A.2d 738 (Pa. Super. Ct. 2002) .........................................................................................12 Peterson v. Winston & Strawn LLP, 729 F.3d 750 (7th Cir. 2013) ...................................................................................................10 Phillips v. Selig, 959 A.2d 420 (Pa. Super. Ct. 2008) .........................................................................................24 Pickett v. Am. Ordnance Pres. Ass’n, 60 F. Supp. 2d 450 (E.D. Pa. 1999) .........................................................................................14 Pittsburgh Constr. Co. v. Griffith, 834 A.2d 572 (Pa. Super. Ct. 2003) .........................................................................................20 Powers v. British Vita, P.L.C., 57 F.3d 176 (2d Cir. 1995).......................................................................................................18 Robinson v. Johnson, 313 F.3d 128 (3d Cir. 2002).....................................................................................................15 Rosenberry v. Evans, 48 A.3d 1255 (Pa. Super. Ct. 2012) .........................................................................................12 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 9 of 38 TABLE OF AUTHORITIES (continued) Page(s) vi S. Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Grp. Ltd., 181 F.3d 410 (3d Cir. 1999).......................................................................................................5 Scott v. Purcell, 490 Pa. 109 (1980) ...................................................................................................................12 SEI Corp. v. Norton & Co., 631 F. Supp. 497 (E.D. Pa. 1986) ............................................................................................12 Skipworth v. Lead Indus., Ass’n, 690 A.2d 169 (Pa. 1997) ..........................................................................................................24 Solarchick ex rel. Solarchick v. Metro. Life Ins. Co., 430 F. Supp. 2d 511 (W.D. Pa. 2006) ......................................................................................16 Sovereign Bank v. Valentino, 914 A.2d 415 (Pa. Super. Ct. 2006) .........................................................................................24 State Farm Fire & Cas. Co. v. Bomke, 849 F.2d 1218 (9th Cir. 1988) .................................................................................................10 Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912 (3d Cir. 1999).....................................................................................................18 Subar, Inc. v. Precision Plastics, Inc., 1998 WL 150992 (E.D. Pa. Mar. 27, 1998) .............................................................................16 Swinson v. Dep’t of Corr., 2009 WL 33330 (W.D. Pa. Jan. 5, 2009) .................................................................................24 Toy v. Metro. Life Ins. Co., 863 A.2d 1 (Pa. Super. Ct. 2004), aff’d, 928 A.2d 186 (Pa. 2007) ..........................................14 United States v. Head, 2013 WL 5739095 (E.D. Cal. Oct. 22, 2013) ............................................................................6 Walton v. Johnson, 66 A.3d 782 (Pa. Super. Ct. 2013) ...........................................................................................12 Weston v. Northampton Personal Care, Inc., 62 A.3d 947 (Pa. Super. Ct. 2013) ...........................................................................................13 Wosotowsky v. Metlife Ins. Co., 2013 WL 5918315 (W.D. Pa. Nov. 1, 2013) .......................................................................8, 11 Wosotowsky v. MetLife Ins. Co., No. 12-1805, ECF No. 4 (W.D. Pa. Mar. 11, 2013) ................................................................11 Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425 (Pa. 2004) ..........................................................................................................22 Zerby v. Waltz, 2017 WL 386616 (M.D. Pa. Jan. 27, 2017) .............................................................................14 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 10 of 38 TABLE OF AUTHORITIES (continued) Page(s) vii Statutes 42 Pa. Cons. Stat. § 5524 (3) .........................................................................................................14 42 Pa. Cons. Stat. § 5524 (7) .........................................................................................................14 73 Pa. Cons. Stat. § 201-2 ..............................................................................................................22 73 Pa. Cons. Stat. § 201-3 ..............................................................................................................22 73 Pa. Cons. Stat. § 201-9.2 .....................................................................................................22, 23 Rules Fed. R. Civ. P. 9(b) ..............................................................................................................7, 19, 24 Fed. R. Evid. 201 .............................................................................................................................6 Other Authorities Phonenixville Man Sentenced For Multi-Million Dollar Fraud Scheme, Department of Justice, U.S. Attorney’s Office Eastern District of Pennsylvania (Sept. 16, 2015), https://www.justice.gov/usao- edpa/pr/phonenixville-man-sentenced-multi-million-dollar-fraud-scheme ...............................6 Restatement (Second) of Agency § 374 (1958) .............................................................................12 Restatement (Second) of Torts § 549.............................................................................................17 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 11 of 38 I. OVERVIEW Under pressure to acquire pre-IPO shares of Facebook, Inc. for his investment fund clients so he could replace the monies he had embezzled from them, Plaintiff Timothy Burns misappropriated $11.2 million of his clients’ funds. He did so to make payments to a middle man (Defendant Troy Stratos) who claimed to be able to procure Facebook shares, though Stratos turned out to be a con man. Rather than own up to his misdeeds, Burns compounded them by intentionally concealing the existence of Stratos from his investors and lulling them into believing that he had purchased Facebook shares on their behalf—even though he knew their money had been stolen by Stratos. Burns then admitted to engaging in all of these crimes and others and was sentenced to 60 months in prison for his fraud. Yet he now seeks from defendants commissions on a deal that never, nor could it have ever, occurred. Burns’s claims are barred for at least four reasons. First, the doctrine of in pari delicto, which closes the courthouse doors to admitted wrongdoers like Burns, precludes his claims. Second, Burns lacks standing to assert any claims because the only alleged harm he suffered was derivative of harm to his clients—who sued separately in their own right in California in a case that recently was settled and subsequently dismissed by stipulation. Burns himself was not directly harmed in his personal capacity. Third, all of but one of Burns’s claims is barred by the applicable statutes of limitations. Fourth, the long-established prohibition on “benefit of the bargain” damages in fraud cases—which are the only damages Burns seeks—bars this action as a matter of law. In addition to these four independently fatal infirmities, Burns’s Complaint fails for other independent reasons. All of his claims are doomed by his failure to plead proximate causation. Moreover, he fails to state a claim for each of his seven causes of action: (i) he cannot plead fraud or negligent misrepresentation because he does not and cannot allege that Venable Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 12 of 38 2 intended to defraud him personally; (ii) he fails to plead conversion because he cannot allege any convertible property or that Venable converted his property; (iii) his breach of fiduciary duty claim fails because he cannot plead a predicate fiduciary duty; (iv) he fails to plead conspiracy or aiding and abetting because he cannot allege actual damage or harm; and (v) he cannot state a claim for unfair competition for numerous reasons. II. STATEMENT OF FACTS The heart of Burns’s case is that, in 2011, Stratos allegedly defrauded him in his capacity as the managing agent of the investment company ESG Capital Partners, LP (“ESG”) regarding the purchase of pre-IPO shares of Facebook, Inc. (the “Facebook Transaction”). Burns also alleges that the law firm Venable LLP (“Venable”), by means of its former partner, Defendant David Meyer, played a minor role in Stratos’s fraudulent scheme. The Complaint’s few factual allegations demonstrate, however, that Venable had no real role in the fraudulent transaction. By contrast, Burns himself has pleaded guilty to federal crimes associated with that same fraudulent scheme. A. The Facebook Fraud In January 2011, Burns contacted an intermediary for assistance in purchasing pre-IPO shares of Facebook. (Compl. ¶¶ 14-15.) Burns made this contact on behalf of ESG, for which Burns acted as an agent at all relevant times. (Id. ¶¶ 13, 18-19, 26, 50 & Ex. 1.) The intermediary led Burns to Stratos (allegedly masquerading as “Ken Dennis”) and his company, Soumaya Securities LLC (“Soumaya”). (Id. ¶¶ 24-25.) Venable is not alleged to have been involved at this time. After negotiations, in March 2011 Burns caused ESG to enter into an agreement with Stratos’s company (Soumaya) to purchase Facebook shares “in exchange for millions of dollars of [ESG’s] funds.” (Id. ¶¶ 26, 46-48, 200.) Importantly, Burns’s Complaint contains no Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 13 of 38 3 allegations that Venable participated in any fashion in these March 2011 negotiations. (Id. ¶¶ 44-48, 54.) Burns alleges only that Venable, which previously had represented Stratos on unrelated matters, had helped Stratos form the Soumaya business entity and then later helped Soumaya open certain bank accounts. (Id. ¶¶ 30-32, 35, 106, 151.) The first alleged contact between Burns (as ESG’s agent) and Venable occurred on April 18, 2011—after the Facebook Transaction contract allegedly was finalized—when Burns claims he had a brief telephone call with Venable’s then partner Meyer lasting only “seven minutes.” (Id. ¶¶ 63-64.) On this call, Meyer allegedly told Burns that Venable represented Ken Dennis; that Meyer subjectively understood that Dennis and Soumaya were affiliated with Mexican billionaire Carlos Slim; and that Meyer believed Soumaya (not Venable or Meyer) could act as a middleman to facilitate the purchase of Facebook stock for ESG. (Id. ¶¶ 64-67.) On April 19, 2011, Burns wired $2.8 million of ESG’s funds—Burns never put up his own money in the Facebook Transaction—to Venable’s client trust account and instructed Venable to release ESG’s funds to Soumaya. (Id. ¶¶ 78-80 & Ex. 7.) Venable did as instructed by Burns. (Id. ¶ 81 & Ex. 8.) Burns’s next alleged contact with Venable occurred three months later in July 2011, when Meyer sent Burns (as ESG’s agent) two emails and one letter providing new wire instructions for an additional transfer of ESG’s funds that had been requested by Soumaya—not Venable. After receiving these new wire instructions, Burns wired $7.2 million of ESG’s funds (Id. ¶¶ 118, 128) to Soumaya’s Bank of America account—not to Venable. (Id. ¶¶ 111, 113, 116, 120, 133.) Then, on August 12, 2011, Burns received new wire instructions for a Soumaya UBS account—this time from Soumaya itself, not from Venable. (Id. ¶ 153.) Burns then wired $1.25 million of ESG’s funds to that account. (Id. ¶ 155.) Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 14 of 38 4 The Complaint admits that, beyond two brief phone calls and three pieces of correspondence providing wire instructions, Venable and Meyer had no involvement in the Facebook Transaction. Indeed, the Complaint admits that Burns’s next contact with Venable did not occur until months later in December 2011, when he threatened legal action based on ESG’s having never received Facebook shares. (Id. ¶¶ 162-164.) According to the Complaint, after Burns threatened legal action against Venable and Meyer, he reported the alleged theft of ESG’s funds to the FBI. (Id. ¶ 179.) Then, in March 2014, more than two years after Burns admittedly learned that ESG had been defrauded, Burns initiated this lawsuit. (Id. at 3.) Burns premises his damages theory on the unearned commissions that he allegedly would have been paid by ESG had Stratos delivered Facebook stock as agreed, even though no such stock ever existed and the entire transaction was an acknowledged (by Burns) fraud. (Id. ¶¶ 19, 50.) B. Burns’s Admitted Participation In The Facebook Fraud As Burns’s Complaint admits, he was no mere innocent in Stratos’s scheme to defraud ESG out of millions of dollars. Rather, Burns admits that he “came under indictment” for his role in the fraudulent Facebook Transaction and then pleaded guilty to committing fraud and other federal crimes. (Id. ¶ 181.) Since filing his Complaint, Burns has been sentenced for these admitted crimes and presently is incarcerated. Specifically, on May 22, 2011, the United States Attorney for the Eastern District of Pennsylvania filed a four-count Information against Burns, charging him with wire fraud, mail fraud, and two counts of making a false statement to a financial institution—all in connection with the Facebook Transaction. (See id.; Declaration of Matthew S. Kahn (“Kahn Decl.”), Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 15 of 38 5 Ex. A.) On June 25, 2013, Burns entered a guilty plea to all of these charges.1 The government’s Guilty Plea Memorandum describes the elements of the charges, and Burns has admitted under oath to engaging in all of them. Indeed, Burns admitted that rather than acquiring Facebook shares for ESG investors as he had promised them he would do, he instead “devised a scheme to defraud . . . or willfully participated in such a scheme with knowledge of its fraudulent nature.” (Kahn Decl., Ex. C at 1, 2 (emphasis added).)2 Among other misconduct, Burns admitted to: • Misappropriating $11.2 million of ESG’s funds to make payments to Stratos, an intermediary whose existence Burns intentionally concealed from ESG throughout the Facebook Transaction; Burns’s clients believed he was buying stock for them directly from Facebook sellers. (Id. at 5.) • Embezzling funds from his investors “in anticipation of his receipt of fees and commissions” from the Facebook Transaction. (Id. at 5-6; Compl. ¶ 181.) The Complaint excerpts only this admission—and then attempts to obfuscate it by casually referencing Burns’s “expenditure[s] of client money in anticipation of his receipt of fees and commissions,” i.e., Burns’s embezzlement. (Compl. ¶ 181.) • Failing to disclose the Facebook Transaction fraud to ESG investors and continuing “to lull them into believing that he had purchased Facebook shares on their behalf.” (Kahn Decl., Ex. C at 6.) 1 Burns’s Plea Document was filed under seal. (Kahn Decl., Ex. B.) 2 This Court may take judicial notice of the Information and Guilty Plea Memorandum. See, e.g., S. Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Grp. Ltd., 181 F.3d 410, 426-27 (3d Cir. 1999). Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 16 of 38 6 • Making false representations to a bank (Bancorp Bank ) regarding ESG’s supposed profits from the Facebook Transaction, when he knew that the transaction had never occurred because it was all a fraud. (Id. at 6-7.) Burns is currently incarcerated for these crimes that he committed in connection with the Facebook Transaction. In September 2015, he was sentenced to 60 months in prison. (See Dkt. No. 44 (Letter to Court from Timothy Burns); see also Phonenixville Man Sentenced For Multi- Million Dollar Fraud Scheme, Department of Justice, U.S. Attorney’s Office Eastern District of Pennsylvania (Sept. 16, 2015), https://www.justice.gov/usao-edpa/pr/phonenixville-man- sentenced-multi-million-dollar-fraud-scheme (“DOJ Press Release”).)3 In addition to the prison term, Burns also was ordered to pay restitution of $11,038,923.60, a $400 special assessment, and forfeiture, and his prison term is to be followed by five years of supervised release. (Id.) Despite all this, Burns wants compensation from Venable for the commissions he contends he would have earned from ESG (not from Venable) if his fraudulent scheme had succeeded. Specifically, Burns pleads claims against Venable for fraud, negligent misrepresentation, conversion, breach of fiduciary duty, conspiracy, unfair competition, and aiding and abetting. (Compl. ¶¶ 183-225.) III. LEGAL STANDARD To survive Venable’s Motion, Burns’s Complaint must rise “above the speculative level,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), by pleading “sufficient factual matter . . . to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard asks for more than a sheer possibility that a defendant has 3 This Court may take judicial notice of a government website. See Fed. R. Evid. 201; In re N. Am. Refractories Co., 542 B.R. 350, 361 n.11 (Bankr. W.D. Pa. 2015); United States v. Head, 2013 WL 5739095, at *3 n.2 (E.D. Cal. Oct. 22, 2013) (“The court may take judicial notice of information posted on government websites as it can be ‘accurately and readily determined from sources whose accuracy cannot reasonably be questioned.’”). Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 17 of 38 7 acted unlawfully. Conclusory allegations are insufficient to survive a motion to dismiss.” Coulter v. Studeny, 522 F. App’x 147, 148-49 (3d Cir. 2013) (internal citations removed). Likewise, “naked assertions devoid of further factual enhancement” will not suffice. George v. Rehiel, 738 F.3d 562, 581 (3d Cir. 2013) (vacating order denying motion to dismiss) (internal quotations omitted); see also Mayer v. Belichick, 605 F.3d 223, 229 (3d Cir. 2010) (affirming dismissal and noting that “a court is not required to accept legal conclusions alleged in the complaint”). Burns also must satisfy the heightened pleading standard under Fed. R. Civ. P. 9(b), which applies equally to Burns’s claim for common law fraud and his other claims arising out of the same allegedly fraudulent Facebook Transaction. See Curran v. M&T Bank Corp., 2014 WL 174424, at *8 (M.D. Pa. Jan. 13, 2014) (holding that Fed. R. Civ. P. 9(b) “applies to all cases where the gravamen of the claim is fraud or misrepresentation”); Kemezis v. Matthew, 2008 WL 5191587, at *2 (E.D. Pa. Dec. 10, 2008) (same). Under this exacting pleading standard, a complaint must be dismissed if it does not “state the circumstances of the alleged fraud with sufficient particularity to place the defendant on notice of the precise misconduct with which it is charged.” Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (internal citations omitted). Further, a plaintiff must “plead or allege the date, time and place of the alleged fraud, or otherwise inject precision or some measure of substantiation into a fraud allegation.” Miracle Temple Christian Acad. v. Church Mut. Ins. Co., 2012 WL 1286751, at *3 (E.D. Pa. Apr. 16, 2012). Otherwise, a motion to dismiss for failure to satisfy Fed. R. Civ. P. 9(b) must be granted. See, e.g., ETC Int’l, Inc. v. Curriculum Advantage, Inc., 272 F. App’x 139, 141 (3d Cir. 2008) (affirming dismissal of common law fraud claim where plaintiff failed to allege fraud with sufficient particularity); Fulton Fin. Advisors, N.A. v. Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 18 of 38 8 NatCity Invs., Inc., 2013 WL 5635977, at *6 (E.D. Pa. Oct. 15, 2013) (dismissing conclusorily pleaded fraud claim). IV. ARGUMENT A. The Doctrine Of In Pari Delicto Bars All Of Burns’s Claims As A Matter Of Law. The in pari delicto doctrine “is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality.” Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 306 (1985). The doctrine thus “provides that a plaintiff may not assert a claim against a defendant if the plaintiff bears fault for the claim,” and it is widely recognized under both federal and Pennsylvania law. Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 354 (3d Cir. 2001); see Official Comm. of Unsecured Creditors of Allegheny Health, Educ. & Research Found. v. PriceWaterhouseCoopers LLP, 989 A.2d 313, 331-33 (Pa. 2010). Courts in the Third Circuit often dismiss complaints on in pari delicto grounds at the pleading stage. See, e.g., Lafferty, 267 F.3d at 360; Wosotowsky v. Metlife Ins. Co., 2013 WL 5918315, at *4 (W.D. Pa. Nov. 1, 2013); Collins & Aikman Corp. v. Stockman, 2010 WL 184074, at *7 (D. Del. Jan. 19, 2010), adopted by, 2010 WL 1687795, at *1 (D. Del. Apr. 26, 2010). Here, the Complaint admits that Burns was indicted and then pleaded guilty to four federal crimes connected to the Facebook Transaction. (Compl. ¶¶ 179-181; Kahn Decl., Ex. C.) Thus, contrary to his Complaint’s self-serving portrayal of Burns as a hoodwinked innocent, Burns has admitted under oath to misappropriating ESG’s money in the Facebook Transaction, embezzling more than $5 million, concealing evidence of the Facebook Transaction fraud from ESG, and making knowing misrepresentations to a bank about the fraudulent Facebook Transaction. (Kahn Decl., Ex. C.) Burns also has admitted that, rather than acquiring Facebook Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 19 of 38 9 shares for ESG investors, he “devised a scheme to defraud . . . or willfully participated in such a scheme with knowledge of its fraudulent nature.” (Id. at 1, 2.) To start, Burns has confessed to making knowing misrepresentations to ESG. He admits that he told his ESG investors that the $11.2 million that they provided to capitalize ESG would be used for direct purchases of Facebook shares. In fact, however, he used their money to pay Stratos, an intermediary whose existence he deliberately concealed from ESG throughout the Facebook Transaction. (Id. at 5.) Burns further confessed that, “in anticipation of his receipt of fees and commissions” from the Facebook Transaction, he embezzled more than $5 million from another one of the investment companies he managed in order to purchase a personal shore home in Avalon, New Jersey and to make a down payment on commercial property for himself in Conshohocken, Pennsylvania. (Kahn Decl., Ex. C at 5-6.) As Burns’s own lawyer told this Court just last month, “Burns . . . in the expectation that he was to make a lot of money from the sale of the Facebook stock [to ESG], embezzled money from another fund . . . and he used that money to invest in two properties . . . anticipating the outcome of the Facebook shares that he sold [to ESG].” (Kahn Decl., Ex. D at 7:20-8:2.) In other words, Burns justified stealing from his investors because he believed the Facebook Transaction he was trying to orchestrate through the undisclosed middleman (Stratos) was going to be successful and that he could use that transaction to cover up his embezzlement. Next, even though Burns admits he knew that the Facebook Transaction was a fraudulent scheme, he still “failed to disclose the theft to the [ESG] investors and continued to lull them into believing that he had purchased Facebook shares on their behalf.” (Kahn Decl., Ex. C at 6.) Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 20 of 38 10 Indeed, after he knew that the Facebook Transaction was a fraud, he even “called for additional capital” from investors in another one of the investment companies that he managed. (Id.) And finally, Burns used the Facebook Transaction—which, again, he admits he knew was a scam—to defraud a bank “in order to secure a $6 million loan” to purchase a commercial property. (Id. at 6-7 (“[Burns] falsely represented to Bancorp that his companies had earned approximately $20 million from the sale of Facebook stock . . . when, in fact, he had made no such purchases and profit . . . as he well knew.”).) As a result of these crimes, at the time he filed his Complaint, Burns admitted he would face “sentencing, which will include incarceration and debarment.” (Compl. ¶ 181.) And Burns indeed was sentenced to 60 months in prison on September 16, 2015. (DOJ Press Release.) Thus, Burns’s entire case against Venable based on the Facebook Transaction arises out of and directly relates to his own fraud. In fact, as discussed in more detail below, Burns is seeking as damages the money he claims he would have obtained if his scheme had succeeded. (Compl. ¶¶ 91, 121, 180.) There is not a clearer case for the application of in pari delicto. Burns’s guilty plea alone is sufficient for that doctrine to bar his claims. See, e.g., Monroe v. Mullooley, 2012 WL 4056075, at *2 (W.D. Pa. Sept. 14, 2012) (“[A] guilty plea constitutes an admission to all facts alleged in the indictment.”) (internal quotation omitted); Moser v. Bascelli, 879 F. Supp. 489, 492-93 (E.D. Pa. 1995) (explaining that a “guilty plea constitutes an express concession of guilt, [and] it is construed as a statement against interest admissible in a subsequent proceeding”).4 Accordingly, consistent with other courts that have faced these same circumstances, this Court should dismiss all of Burns’s claims with prejudice. See, e.g., 4 See also In re Bernard L. Madoff Inv. Sec. LLC, 721 F.3d 54, 57-59, 63 (2d Cir. 2013); Peterson v. Winston & Strawn LLP, 729 F.3d 750, 751 (7th Cir. 2013); State Farm Fire & Cas. Co. v. Bomke, 849 F.2d 1218, 1219-20 (9th Cir. 1988). Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 21 of 38 11 Wosotowsky v. MetLife Ins. Co., No. 12-1805, ECF No. 4 at 8-10 (W.D. Pa. Mar. 11, 2013) (holding claim barred under in pari delicto where plaintiff “cannot prove his case without showing he has broken the law or participated in a fraudulent transaction”) (internal quotation and citation omitted) (see Kahn Decl., Ex. E), adopted by, 2013 WL 5918315, at *4 (W.D. Pa. Nov. 1, 2013); Grumet v. Shearson/American Express. Inc., 564 F. Supp. 336, 339-40 (D.N.J. 1983) (holding in pari delicto barred plaintiff from recovering against “tipper” of inside information for losses plaintiff incurred by wrongfully acting on that inside information).5 B. Burns Lacks Standing To Assert Any Of His Claims Because He Acted At All Times As ESG’s Agent And Was Injured (If At All) Only Derivatively Through ESG. The Complaint makes clear that only ESG directly suffered alleged harm here. Only ESG’s money allegedly was stolen by Stratos, not Burns’s money. (Id. ¶¶ 13, 18-19, 26, 50 & Ex. 1.) Unlike his principal (ESG), Burns actually lost nothing. While Burns claims that he lost commissions, that claim is based wholly on the allegation that ESG was defrauded and therefore ESG did not pay Burns (who acted at all times as ESG’s agent and never in his personal capacity) any commissions. Burns does not and cannot allege that Venable owed him commissions, or even that Venable or Meyer knew that he expected to earn commissions based on the Facebook Transaction. All of this is fatal to his Complaint. The case of Linsey v. E.F. Hutton & Co., 675 F. Supp. 1 (D.D.C. 1987), is instructive. There, a church official made unsuccessful investment decisions on behalf of his church. Id. at 2. The official then sued the church’s investment broker, alleging the broker had made false 5 Plaintiff previously argued, incorrectly, that the Ninth Circuit’s decision last year not to apply in pari delicto to bar ESG’s separate lawsuit against Venable, Meyer and Stratos means that this Court should not apply in pari delicto to his Complaint. See ESG Capital Partners, LP v. Stratos, 828 F.3d 1023, 1040 (9th Cir. 2016). Not so. The Ninth Circuit’s ruling (a) was focused on ESG (a party) and not Burns (not a party); and (b) was based solely on the limited record before it, namely, ESG’s pleadings, which did not reflect Burns’s numerous admissions in his complaint here. Id. All of Burns’s fatal admissions are before this Court on this Motion. As demonstrated, those admissions amply support the application of in pari delicto. Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 22 of 38 12 representations, and that the resulting loss in the church’s investment caused the official to be reassigned to a less desirable position within the church at a personal loss of $160,000. Id. The court dismissed the complaint, holding that the broker “owed [the official] no duty personally. [The official] acted solely as an agent . . . and it is well settled that an ‘agent has no action of tort because another has tortiously harmed the principal.’” Id. at 5 (quoting Restatement (Second) of Agency § 374 (1958) (“Restatement”)).6 Thus, “[i]n conformity with the normal tort rule, a servant who . . . suffers economic loss as a result of the principal’s misfortune, tortiously caused by another, has not thereby an action against the other.” Id. (quoting Restatement comment (b)); Moorer v. Hartz Seed Co., 120 F. Supp. 2d 1283, 1289-90 (M.D. Ala. 2000) (relying on Restatement comment (b) in granting in part defendants’ motion for summary judgment, and dismissing plaintiff-manager as an improper party in action for fraud since manager acted solely as company’s agent and any harm done to manager was a consequence of his employment with company and was not cognizable; “The general rule for both contract and tort suits is that an agent has no standing to sue, in his own name, a third party who has allegedly perpetrated some actionable wrong against the principal.”). Burns’s “novel theory of standing” fails here too for the same reasons. Linsey, 675 F. Supp. at 5. The relationships among the parties in Linsey are directly analogous to the relationships among the parties here: Burns is akin to the church official, ESG is akin to the church, and Venable is akin to the broker. Id. Just as in Linsey, any harm Burns allegedly 6 Pennsylvania courts frequently rely on the Restatement. See, e.g., Walton v. Johnson, 66 A.3d 782, 788 (Pa. Super. Ct. 2013); Rosenberry v. Evans, 48 A.3d 1255, 1262 (Pa. Super. Ct. 2012); Parker v. Freilich, 803 A.2d 738, 747 (Pa. Super. Ct. 2002); Scott v. Purcell, 490 Pa. 109, 117 (1980). Further, where a Pennsylvania court has not explicitly adopted a particular Restatement section, Third Circuit courts routinely predict such adoption or otherwise rely on that section, absent any contrary statements from the Pennsylvania Supreme Court. See, e.g., Aliota v. Graham, 984 F.2d 1350, 1358-59 (3d Cir. 1993) (predicting adoption of multiple Restatement sections); MFS, Inc. v. DiLazaro, 771 F. Supp. 2d 382, 456-57 (E.D. Pa. 2011) (relying on Aliota); DiCicco v. Willow Grove Bank, 308 F. Supp. 2d 528, 533-34 (E.D. Pa. 2004) (relying on Restatement); SEI Corp. v. Norton & Co., 631 F. Supp. 497, 501 (E.D. Pa. 1986) (same). Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 23 of 38 13 suffered due to Venable’s alleged conduct is completely derivative of ESG’s investment loss. Burns’s claim is “that [Venable] deceived him, as the investment decision maker, not [ESG].” See id. at 4. But Burns cannot make such a claim because he “was acting merely as the agent of [ESG and] decisions he made were made on behalf of [ESG] . . . . [ESG] was capable of being deceived through its agents, and the cause[s] of action [asserted in the Complaint] thus belong[] to [ESG] and not to its agent [Burns].” See id. Accordingly, Burns lacks standing to sue Venable because all of his alleged harm was suffered only derivatively through ESG. Even taking all of Burns’s allegations as true, as the foregoing authorities make clear, Venable simply did not harm Burns directly or in any cognizable way. Cf. Balderston v. Medtronic Sofamor Danek, Inc., 152 F. Supp. 2d 772, 779 (E.D. Pa. 2001) (dismissing claim for lack of standing where doctor-plaintiff sought to recover for personal injury that was derivative of injury to patients), aff’d, 285 F.3d 238 (3d Cir. 2002); Weston v. Northampton Personal Care, Inc., 62 A.3d 947, 957-59 (Pa. Super. Ct. 2013) (holding claims brought in limited partners’ individual capacities were not viable because injury was to partnership); Hill v. Ofalt, 85 A.3d 540, 548 (Pa. Super. Ct. 2014) (“[A] shareholder does not have standing to institute a direct suit for a harm that is peculiar to the corporation and that is only indirectly injurious to the shareholder . . . To have standing to sue individually, the shareholder must allege a direct, personal injury—that is independent of any injury to the corporation . . . .”) (quotation marks and alterations omitted). C. All But One Of Burns’s Claims Is Time-Barred. Burns’s claims for fraud, negligent misrepresentation, conversion, breach of fiduciary duty, conspiracy, and aiding and abetting are all governed by a two-year statute of limitations. Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 24 of 38 14 42 Pa. Cons. Stat. §§ 5524 (3) (conversion), (7) (tortious conduct including fraud).7 It is well- established that “[t]he statute of limitations begins to run as soon as the right to institute and maintain a suit arises.” Dalrymple v. Brown, 701 A.2d 164, 167 (Pa. 1997) (citation omitted); Argust v. Dick Mackey Gen. Contracting Co., 568 A.2d 255, 257 (Pa. Super. Ct. 1990) (“The true test in determining when a cause of action arises or accrues is to establish the time when the plaintiff could have first maintained the action to a successful conclusion.” (quoting Kapil v. Ass’n of Penn. State Coll. & Univ. Faculties, 470 A.2d 482, 485 (Pa. 1983))). The statute of limitations on Burns’s claims began to run no later than when he admits he learned the truth behind Stratos’s fraud and “exposed” the Facebook Transaction scheme in December 2011 (and the statute plainly began to run even before then). (Compl. at 36.); see Haggart v. Cho, 703 A.2d 522, 526 (Pa. Super. Ct. 1997) (“The statute begins to run when the injured party possesses sufficient critical facts to put him on notice that a wrong has been committed and that he need investigate to determine whether he is entitled to redress.”) (internal quotations omitted); Pickett v. Am. Ordnance Pres. Ass’n, 60 F. Supp. 2d 450, 454 (E.D. Pa. 1999) (stating rule that under Pennsylvania law, limitations period on fraud claim begins to run when “the plaintiff learns or reasonably should have learned through the exercise of due diligence of the existence of the claim”). Indeed, Burns admits that in December 2011 he 7 See also, e.g., Toy v. Metro. Life Ins. Co., 863 A.2d 1, 7 (Pa. Super. Ct. 2004) (applying Pennsylvania’s two- year statute of limitation to fraud claim), aff’d, 928 A.2d 186 (Pa. 2007); LabMD, Inc. v. Tiversa Holding Corp., 2016 WL 6905963, at *10 (W.D. Pa. Oct. 7, 2016) (applying Pennsylvania’s two-year statute of limitation to negligent misrepresentation claim); Mineweaser v. Prudential Ins. Co. of Am., 2016 WL 5792778, at *5 (W.D. Pa. Oct. 4, 2016) (applying Pennsylvania’s two-year statute of limitation to breach of fiduciary duty claim); Zerby v. Waltz, 2017 WL 386616, at *11 (M.D. Pa. Jan. 27, 2017) (“The statute of limitations governing a civil conspiracy claim parallels the statute of limitations for the underlying substantive offense ‘most closely related to that which the defendants were alleged to have conspired to commit.’” (quoting Ammlung v. City of Chester et al., 494 F.2d 811, 814 (3d Cir. 1974))); Envtl. Equip. & Serv. Co. v. Wachovia Bank, N.A., 741 F. Supp. 2d 705, 727 (E.D. Pa. 2010) (“[C]ourts examining Pennsylvania law generally apply a two-year statute of limitations on aiding and abetting claims.”); Mariner Chestnut Partners, L.P. v. Lenfest, 152 A.3d 265, 277 (Pa. Super. Ct. 2016) (applying Pennsylvania’s two-year statute of limitation to conversion claim). Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 25 of 38 15 “threatened” Venable “with legal action,” believed “that the Meyer/Venable representations of the proceeding ten (10) months were knowingly false when made,” and even “went to the FBI and disclosed what Venable, Meyer and Stratos had done in the Facebook scheme.” (Id. ¶¶ 164, 172, 179.) Yet despite all this, Burns failed to file his Complaint here until March 2014—more than two years after discovering the facts underlying his claim. The “Third Circuit Rule” permits a statute of limitations defense to be raised on a motion to dismiss if “the time alleged in the statement of a claim shows that the cause of action has not been brought within the statute of limitations.” Robinson v. Johnson, 313 F.3d 128, 135 (3d Cir. 2002). The Court should apply this rule and dismiss Burns’s time-barred claims with prejudice on this basis as well.8 D. All Of Burns’s Claims Fail Because He Does Not Plead Recoverable Damages. As noted above, Burns asserts only one alleged injury in this case: the loss of the prospective fees and commissions that he says he would have earned from ESG had the fraudulent Facebook Transaction been consummated. (Compl. ¶¶ 180-181.) Thus, he seeks as damages alleged fees and commissions that were “[the] benefit from an agreement” that he had negotiated with ESG’s investors. (Id. ¶ 180.) Under Pennsylvania law, however, Burns cannot recover these “benefit of the bargain” damages. Expectation damages, or benefit of the bargain damages, are a remedy for breach of contract and are intended to place the injured party back in the position it would have been had the contract been performed. ATACS Corp. v. Trans World Commc’ns, Inc., 155 F.3d 659, 669 (3d Cir. 1998). In contrast, compensatory damages are a remedy for fraud and other torts and 8 The only claim that may not be time-barred is Burns’s unfair competition claim, but as demonstrated below, that claim fails for numerous independent reasons. Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 26 of 38 16 are intended to compensate the injured party for the actual, out-of-pocket loss caused by the tortious conduct. As the Pennsylvania Supreme Court has held: “[i]n an action for deceit or fraud in Pennsylvania, the plaintiff can recover only ‘his actual loss’ and not ‘the value of his bargain.’” Neuman v. Corn Exch. Nat’l. Bank & Trust Co., 51 A.2d 759, 766 (Pa. 1947) (citation omitted); B&P Holdings I, LLC v. Grand Sasso, Inc., 114 F. App’x 461, 466 (3d Cir. 2004) (“Under Pennsylvania law, in an action based on fraud, the measure of damages is actual loss and not the benefit, or value, of that bargain.” (quoting Delahanty v. First Pa. Bank, 464 A.2d 1243, 1257 (Pa. Super. Ct. 1983))) (emphasis added) (internal quotations omitted). As a federal court applying Pennsylvania law has explained: “[t]ort victims are compensated for loss and injury suffered, not for falsely promised but unrealized gain . . . A party cannot lose what she does not or will not have, and cannot be compensated for a loss not suffered.” Solarchick ex rel. Solarchick v. Metro. Life Ins. Co., 430 F. Supp. 2d 511, 516 (W.D. Pa. 2006) (emphasis added). Accordingly, courts applying Pennsylvania law routinely reject claims like Burns’s for “benefit of the bargain” damages in fraud actions. In GMH Associates, Inc. v. Prudential Realty Group, for example, a Pennsylvania court held that, even assuming a purchaser successfully prosecuted its fraud claims against a commercial real estate vendor, the purchaser could not recover damages of over $20 million for lost profits, which represented an award for expectation damages. 752 A.2d 889, 905 (Pa. Super. Ct. 2000). Similarly, in Solarchick, the court held that plaintiffs alleging fraud in the sale of insurance policies were entitled only to their actual loss, not the full value of the promised policies. Solarchick, 430 F. Supp. 2d at 516 (applying Pennsylvania law). See also Subar, Inc. v. Precision Plastics, Inc., 1998 WL 150992, at *1-3 (E.D. Pa. Mar. 27, 1998) (finding that plaintiff “did not have a cognizable fraud claim” where its only damages would have been benefit of the bargain damages). Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 27 of 38 17 The rule that a plaintiff can recover only “his actual loss” in fraud actions is particularly applicable in cases like this one that “involve claims against defendants who were not parties to the underlying agreement.” Edward J. DeBartolo Corp. v. Coopers & Lybrand, 928 F. Supp. 557, 566 (W.D. Pa. 1996). Where, as here, a plaintiff (Burns) sues a defendant (Venable) for fraud and seeks as damages the benefit of a bargain between the plaintiff and another party (ESG), “the Pennsylvania Supreme Court would adopt comment g to section 549 of the Restatement of Torts and restrict recovery of actual damages for fraud against a third party to out-of-pocket losses.” Id. at 565-67 (refusing to allow stock purchasers to recover “benefit of the bargain” damages against accounting firm because accounting firm was not party to agreement from which plaintiffs sought to benefit and benefit of the bargain damages should be limited to “the situation where the plaintiff has made a bargain with the defendant” (citing Restatement (Second) of Torts § 549, comment (g))). Here, Burns does not and cannot allege he suffered any “actual loss”; he paid nothing out of his own pocket. Because Burns’s damages here consist entirely of a benefit of his bargain with ESG investors (see, e.g., Compl. ¶ 180)—a bargain to which Venable was not a party—Burns is claiming damages against Venable that Pennsylvania law does not permit. “The only manner of damages available for [Burns] in [this] action for fraud is actual loss, and not [the] benefit of the bargain” arising out of the Facebook Transaction. See GMH, 752 A.2d at 905 (emphasis added). Burns has failed to plead any “actual loss,” and thus he has failed to plead recoverable damages against Venable. E. Burns’s Complaint Fails For Numerous Additional Reasons. All Of Burns’s Claims Fail Because He Does Not Plead Proximate Causation. Even if Burns had alleged compensable damages (he has not, as demonstrated), his claims nevertheless must be dismissed because he fails to plead facts showing that such damages Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 28 of 38 18 were proximately caused by anything Venable did. Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912, 935 (3d Cir. 1999); Majer v. Sonex Research Inc., 541 F. Supp. 2d 693, 712 (E.D. Pa. 2008); Banner Life Ins. Co. v. U.S. Bank, NA, 931 F. Supp. 2d 629, 634 (D. Del. 2013) (dismissing five Pennsylvania law counterclaims where defendant failed to plead proximate causation); Joyce v. Bobcat Oil & Gas, Inc., 2008 WL 919724, at *14 (M.D. Pa. Apr. 3, 2008) (dismissing negligent misrepresentation claim for failing to plead proximate causation). The chain of events alleged in the Complaint confirms that Venable’s alleged misconduct was too remote from Burns’s purported injury to have been the proximate cause. The following alleged material causal events occurred between Venable’s alleged actions in April and July 2011 and Burns’s December 2011 loss of an opportunity to earn commissions: (1) at Stratos’s request, Burns wired several tranches of ESG’s funds to Stratos; (2) then, independent of anything Venable is alleged to have done, Stratos failed to deliver Facebook shares to ESG; and (3) then, Burns chose to report his own misconduct to the FBI. (Compl. ¶ 181.) Burns’s attempt to blame Venable for his unearned commissions thus collapses under the weight of its own attenuated and analytical infirmity. See, e.g., Steamfitters Local Union No. 420, 171 F.3d at 930 (dismissing claim because “the tortured path that one must follow from the [defendants’] alleged wrongdoing to . . . the plaintiffs’ claims [represents] precisely the type of indirect claims that the proximate cause requirement is intended to weed out”); Powers v. British Vita, P.L.C., 57 F.3d 176, 189 (2d Cir. 1995) (existence of two intervening causes precluded defendants’ actions from being proximate cause of plaintiff’s injuries). Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 29 of 38 19 Burns’s Fraud Claim Fails Because He Does Not And Cannot Plead An Intent To Defraud Burns Personally. The elements of a fraud claim under Pennsylvania law, all of which must be pleaded with particularity under Fed. R. Civ. P. 9(b), are: (1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) the resulting injury was proximately caused by the reliance. Joyce v. Erie Ins. Exch., 74 A.3d 157, 166-67 (Pa. Super. Ct. 2013). Here, Burns’s fraud claim must be dismissed because he has failed to plead either Venable’s or Meyer’s intent to mislead Burns personally (as contrasted to any purported intent to mislead ESG or to mislead Burns as ESG’s agent). Where a plaintiff asserts fraudulent misrepresentation without showing that the defendant intended to mislead the plaintiff into reliance on the misrepresentation, the defendant is entitled to judgment as a matter of law. Marshall v. Fenstermacher, 388 F. Supp. 2d 536, 550 (2005) (dismissing plaintiff’s fraud claim where she failed to “allege that the purported misrepresentations . . . were made for the purpose of gaining [plaintiff’s] reliance thereon”). Here, Burns merely recites the legal conclusion that Venable and Meyer “inten[ded]” to deceive him personally without pleading any facts in support of this assertion. (Compl. ¶ 189.) This failure dooms his fraud claim. Marshall, 388 F. Supp. 2d at 550. In fact, any allegation of an intent to deceive Burns personally would be implausible. See Twombly, 550 U.S. at 555; Iqbal, 556 U.S. at 678. According to the Complaint’s conclusory allegations, Venable, Meyer and Stratos stole money from ESG, not Burns personally. (Compl. ¶¶ 180, 188, 190.) It was ESG’s funds (not Burns’s) that were sent to Venable’s client trust account and various banks; ESG’s funds (not Burns’s) that allegedly were used to pay Venable’s Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 30 of 38 20 bills; and ESG’s funds (not Burns’s) that allegedly were misappropriated by Stratos. (Id. ¶¶ 78, 118, 155, 180.) While the Complaint thus theoretically could be read to plead a legal conclusion that Venable had an intent to deceive Burns in his capacity as agent for ESG, it cannot and does not plausibly plead that Venable or Meyer had an intent to deceive Burns personally. This latter intent is what Burns must plead for him to state a claim for fraud in his personal capacity, as his Complaint vainly attempts to do. See, e.g., Linsey, 675 F. Supp. at 4-5 (dismissing claim because only principal, and not agent, could have been deceived); Marshall, 388 F. Supp. at 550 (dismissing claim where plaintiff could not allege defendant intended to deceive her personally). Burns’s Conversion Claim Fails Because He Fails To Plead Any Convertible Property Or Allege That Venable Converted His Property. To state a claim for conversion, Burns must allege that Venable took his property away from him. McKeeman v. Corestates Bank, N.A., 751 A.2d 655, 659 n.3 (Pa. Super. Ct. 2000) (defining “conversion” under Pennsylvania law as “the deprivation of another’s right of property in, or use or possession of, a chattel, or other interference therewith, without the owner’s consent and without lawful justification”). The only possible such “property” of Burns that the Complaint identifies is the unearned commissions claimed by Burns (Compl. ¶ 180), but this is insufficient to plead conversion for at least two independent reasons. First, unearned commissions are not property capable of being converted. To successfully plead conversion, a plaintiff must allege that he had “actual or constructive possession of a chattel at the time of the alleged conversion.” Pittsburgh Constr. Co. v. Griffith, 834 A.2d 572, 581 (Pa. Super. Ct. 2003) (emphasis added). Indeed, “conversion action[s] must be limited to chattels of an existing nature, i.e., those whose existence is ascertainable by some concrete proof.” Gregg v. Indep. Blue Cross, 2001 WL 1807400, at *6 (Pa. Ct. Com. Pl. June 14, 2001) (citing Northcraft v. Edward C. Michener Assocs. Inc., 466 A.2d 620, 628 (Pa. Super. Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 31 of 38 21 Ct. 1983)) (emphasis added). Thus, unpaid fees can only be the subject of a conversion action if they are actually “due and owed” to the plaintiff at the time of the alleged conversion. See Berger & Montague, P.C. v. Scott & Scott, LLC, 153 F. Supp. 2d 750, 753-54 (E.D. Pa. 2001) (emphasis added). Here, Plaintiff alleges only that he expected to receive commissions based on certain events that never happened (nor could they have happened because the commissions were predicated on the consummation of a fraudulent transaction). (Compl. ¶¶ 19, 26, 180.) Thus, Burns has no property on which to base his conversion claim. Second, even if he had property capable of being converted, Burns never alleges that Venable possessed that property or took it away from him. Burns admits that “Plaintiff’s clients”—not Burns—“were the lawful and beneficial owner” of the allegedly converted funds. (Id. ¶ 204.) Indeed, he makes only the legally irrelevant allegation that Defendants converted “Plaintiff’s clients’ funds.” (Id. (emphasis added).) Burns does not (nor can he) allege that any portion of these funds were his commissions. Thus, his conversion claim fails. Burns’s Breach Of Fiduciary Duty Claim Cannot Proceed In The Absence Of A Predicate Fiduciary Duty. Under Pennsylvania law, a fiduciary duty is created by either a particular fiduciary relationship (e.g., an agency relationship) or as a result of a “special relationship” that is “characterized by overmastering influence on one side or weakness, dependence, or trust, justifiably reposed on the other side.” eToll, Inc. v. Elias/Savion Advert. Inc., 811 A.2d 10, 21- 23 (Pa. Super. Ct. 2002) (internal quotations omitted). Burns pleads nothing supporting the existence of a fiduciary relationship between Venable and him personally under either standard; he pleads only legal conclusions. (Compl. ¶¶ 85, 187, 208.) Burns cannot cure this deficiency by asserting that Venable owed “Burns and his clients” a fiduciary duty by briefly holding ESG’s Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 32 of 38 22 funds. (Id. ¶ 84.) Holding ESG’s funds cannot make Venable a fiduciary of Burns personally. Cf. Linsey, 675 F. Supp. at 5. The breach of fiduciary duty claim thus must be dismissed. Burns’s Unfair Competition Claim Fails For Numerous Reasons. Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) is a consumer protection statute that makes unlawful various “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce,” such as advertising goods with the intent not to sell them as advertised and making repairs to real property that fall below the agreed standard. 73 Pa. Cons. Stat. §§ 201-2, 201-3. The statute affords a private right of action to a “person who purchases . . . goods or services primarily for personal, family or household purposes.” Id. The remaining elements of the claim are coextensive with a claim for common law fraud. Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 438 (Pa. 2004); Blumenstock v. Gibson, 811 A.2d 1029, 1034 (Pa. Super. Ct. 2002). Burns’s allegations against Venable fail to state a claim under the UTPCPL for at least five independent reasons. First, Burns himself (as opposed to ESG) purchased nothing, and thus the Complaint does not and cannot allege that Burns was a “purchaser.” See 73 Pa. Cons. Stat. § 201-9.2. At most, the Complaint alleges that Burns tried to purchase Facebook stock on ESG’s behalf. (See Compl. ¶¶ 13, 18-19, 26, 50). In other words, Burns served as ESG’s “purchasing agent.” Under the UTPCPL, however, a “purchasing agent” does not have standing to sue “on his own behalf for personal losses.” See, e.g., Balderston v. Medtronic Sofamor Danek, Inc., 285 F.3d 238, 240-42 (3d Cir. 2002) (upholding dismissal of doctor’s UTPCPL claim where doctor served as patients’ purchasing agent and was not pursuing claims on their behalf, but rather sought damages for losses he personally sustained). Second, Burns does not have standing to assert a UTPCPL claim against Venable because he does not and cannot allege that he (or more accurately, ESG) attempted to purchase anything Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 33 of 38 23 from Venable. See 73 Pa. Cons. Stat. § 201-9.2. The Complaint alleges that Burns attempted to purchase Facebook stock from Stratos—not from Venable or Meyer. (See Compl. ¶¶ 25-26, 46- 48.) “Pennsylvania and federal courts interpret the [UTPCPL] to require the allegation that the parties stand in some buyer-seller relation.” Klein v. Boyd, 949 F. Supp. 280, 284-85 (E.D. Pa. 1996); Bowers v. T-Netix, 837 A.2d 608, 613-14 (Pa. Commw. Ct. 2003) (dismissing UTPCPL claim and holding that plaintiff was “statutorily precluded from bringing a private cause of action under the UTPCPL against the Department [of Corrections]” where plaintiff “did not purchase telephone services from the Department”) (emphasis in original). Thus, to the extent that Burns attempted to purchase Facebook stock for ESG from Stratos, his claim would lie against Stratos, not Venable or Meyer. Third, the Complaint does not and cannot allege that Burns (or ESG) purchased “goods or services.” See 73 Pa. Cons. Stat. § 201-9.2. The term “goods and services” as used in the UTPCPL, does not apply to securities such as shares of stock. Algrant v. Evergreen Valley Nurseries Ltd. P’ship, 941 F. Supp. 495, 499-500 (E.D. Pa. 1996) (“This Court concludes that [the UTPCPL] does not cover sales of securities.”), aff’d, 126 F.3d 178 (3d Cir. 1997). Because Burns’s claim is based on the alleged sale of securities, it cannot give rise to a private action under the UTPCPL. Fourth, the Complaint does not and cannot allege that any “purchases” were for “personal, family, or household purposes.” 73 Pa. Cons. Stat. § 201-9.2; Hinchliffe v. Option One Mortg. Corp., 2009 WL 1708007, at *4 (E.D. Pa. June 16, 2009) (rejecting UTPCPL claim where loan was for business purposes). Any attempted purchase of Facebook stock would have been for ESG’s business purposes and cannot give rise to a UTPCPL claim. Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 34 of 38 24 Fifth, as demonstrated above, Burns fails to plead common law fraud, which independently requires dismissal of the UTPCPL claim. See Blumenstock, 811 A.2d at 1034. Burns Fails To State A Claim For Conspiracy And Aiding And Abetting Because He Fails To Plead Actual Damage Or Harm And His Conspiracy Claim Is Also Barred By The Intracorporate Conspiracy Doctrine Burns has failed to plead each element of his claims for conspiracy9 and aiding and abetting10 with particularity under Fed. R. Civ. P. 9(b). See Curran, 2014 WL 174424, at *8 (holding that Fed. R. Civ. P. 9(b) “applies to all cases where the gravamen of the claim is fraud or misrepresentation”); Kemezis, 2008 WL 5191587, at *2 (same). In particular, as demonstrated above, Burns has not alleged actual damage or harm because he has not identified any compensable damage caused by Venable’s conduct. See Swinson v. Dep’t of Corr., 2009 WL 33330, at *13-14 (W.D. Pa. Jan. 5, 2009) (dismissing multiple civil conspiracy claims where plaintiff “fail[ed] to allege actual legal damages”). In addition, under the intracorporate conspiracy doctrine—which provides that “an entity cannot conspire with one who acts as its agent”—Venable and Meyer cannot have conspired with their alleged clients Stratos and Soumaya. See, e.g., Gen. Refractories Co. v. Fireman’s Fund Ins. Co., 337 F.3d 297, 313-14 (3d Cir. 2003) (applying Pennsylvania law on intracorporate conspiracy doctrine and affirming dismissal with prejudice of conspiracy claim against attorneys); Heffernan v. Hunter, 189 F.3d 405, 407 (3d Cir. 1999) (affirming dismissal 9 The elements are “(1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage.” Phillips v. Selig, 959 A.2d 420, 437 (Pa. Super. Ct. 2008). 10 Pennsylvania courts address civil aiding and abetting claims under the “concert of action” theory. Sovereign Bank v. Valentino, 914 A.2d 415, 422 (Pa. Super. Ct. 2006). Thus, “for harm resulting to a third person from the tortious conduct of another, one is subject to liability if he does a tortious act in concert with the other or pursuant to a common design with him.” Skipworth v. Lead Indus., Ass’n, 690 A.2d 169, 174 (Pa. 1997). Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 35 of 38 25 under Pennsylvania law of claim that attorneys conspired with client pursuant to intracorporate conspiracy doctrine “because defendants acted within the attorney-client relationship”). Indeed, the Third Circuit has instructed that the reasons for applying the intracorporate conspiracy ban are “even more compelling” in the attorney-client context than in others “given that counsel’s conduct within the scope of representation is regulated and enforced by disciplinary bodies established by the courts.” Gen. Refractories, 337 F.3d at 313 (internal quotations omitted). Thus, even where an attorney’s conduct would “violate the canons of ethics,” so long as it is within the scope of representation it is exempted from a conspiracy charge. Id. at 314 (holding that the intracorporate conspiracy doctrine applies to attorney’s conduct despite allegations that the conduct was “outrageous” and motivated by an “illegitimate purpose”). Burns Fails To Plead Negligent Misrepresentation For The Same Reasons He Has Not Pleaded Fraud. Negligent misrepresentation requires particularized allegations of (1) a misrepresentation of a material fact; (2) made under circumstances in which the speaker ought to have known its falsity; (3) with an intent to induce another to act on it; and (4) which results in injury to a party acting in justifiable reliance on the misrepresentation. Bortz v. Noon, 729 A.2d 555, 561 (Pa. 1999); Heritage Surveyors & Eng’rs, Inc. v. Nat’l Penn Bank, 801 A.2d 1248, 1252 (Pa. Super. Ct. 2002). To have standing to bring this claim under Burns’s theory that he himself was harmed in his personal capacity, Burns must allege that Venable or Meyer induced him personally to do something. See, e.g., Linsey, 675 F. Supp. at 4-5 (dismissing claim based on alleged negligent misrepresentation because only principal, and not agent, could have been deceived). Yet, as with his fraud claim, Burns entirely fails to allege facts demonstrating any intent by Venable or Meyer Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 36 of 38 26 to induce him personally to do anything (as opposed to inducing him to act in his capacity as ESG’s agent). Thus, he fails to plead negligent misrepresentation. V. CONCLUSION For the foregoing reasons, Burns’s Complaint should be dismissed with prejudice. His claims fail for multiple, independent reasons. Further, the Complaint makes binding admissions that are fatal to his allegations, and even if given leave to amend he could plead no facts that would overcome the deficiencies in the Complaint. DATED: March 20, 2017 Respectfully submitted, /s/ Robert C. Heim ROBERT C. HEIM (PA ID #15758) robert.heim@dechert.com DECHERT LLP Cira Centre 2929 Arch Street Philadelphia, PA 19104-2808 (215) 994-4000 (telephone) (215) 994-2222 (facsimile) KEVIN S. ROSEN (pro hac vice) krosen@gibsondunn.com MATTHEW S. KAHN (pro hac vice) mkahn@gibsondunn.com GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue, 45th Floor Los Angeles, CA 90071-3197 (213) 229-7000 (telephone) (213) 229-7520 (facsimile) Attorneys for Defendant Venable LLP Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 37 of 38 Case 2:14-cv-02134-ER Document 49 Filed 03/20/17 Page 38 of 38 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA TIMOTHY BURNS, Plaintiff, vs. TROY STRATOS a/k/a Ken Dennis, VENABLE, LLP, DAVID MEYER, Defendants. : : : : : : : : : : : : : : : Case No. 14-cv-2134 DECLARATION OF MATTHEW S. KAHN IN SUPPORT OF VENABLE LLP’S RENEWED MOTION TO DISMISS I, Matthew S. Kahn, declare as follows: 1. I am an attorney licensed to practice in the State of California. I have been admitted pro hac vice to the Eastern District of Pennsylvania in this case. I am a partner in the law firm of Gibson, Dunn & Crutcher LLP, counsel for Defendant Venable LLP (“Venable”) in the above-captioned action. I make this Declaration in support of Venable’s Renewed Motion to Dismiss Plaintiff’s Complaint. Based on my work as counsel for Venable in this matter I have personal knowledge of the facts set forth in this Declaration and, if called as a witness, could and would testify competently thereto. Case 2:14-cv-02134-ER Document 49-1 Filed 03/20/17 Page 1 of 3 2 2. Attached hereto as EXHIBIT “A” is a true and correct copy of the Information filed on May 22, 2013, in the Eastern District of Pennsylvania, in a criminal action captioned United States of America v. Timothy D. Burns, Criminal No. 13-253, which I caused to be downloaded from the PACER system on March 20, 2017. 3. Attached hereto as EXHIBIT “B” is a true and correct copy of excerpts of the docket accessed from the Eastern District of Pennsylvania on March 20, 2017, in a criminal action captioned United States of America v. Timothy D. Burns, Criminal No. 13-253, which I caused to be downloaded from the PACER system on March 20, 2017. 4. Attached hereto as EXHIBIT “C” is a true and correct copy of the Guilty Plea Memorandum filed on June 25, 2013, in the Eastern District of Pennsylvania, in a criminal action captioned United States of America v. Timothy D. Burns, Criminal No. 13-253, which I caused to be downloaded from the PACER system on March 20, 2017. 5. Attached hereto as EXHIBIT “D” is a true and correct copy of excerpts of the Transcript of Rule to Show Cause Hearing, dated February 17, 2017, in this action, which the court transcriber delivered to me by electronic correspondence on February 28, 2017. 6. Attached hereto as EXHIBIT “E” is a true and correct copy of a report and recommendation issued by the Honorable Magistrate Judge Maureen P. Kelly of the Western District of Pennsylvania on March 11, 2013 in an action captioned Wosotowsky v. MetLife Ins. Co., No. 12-1805, which I caused to be downloaded from the PACER system on March 20, 2017. Case 2:14-cv-02134-ER Document 49-1 Filed 03/20/17 Page 2 of 3 Case 2:14-cv-02134-ER Document 49-1 Filed 03/20/17 Page 3 of 3 EXHIBIT A Case 2:14-cv-02134-ER Document 49-2 Filed 03/20/17 Page 1 of 12 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA UNITED STATES OF AMERICA : DATE: MAY 22, 2013 v. : CRIMINAL NO.: 13– TIMOTHY D. BURNS : VIOLATIONS: 18 U.S.C. § 1341 (mail fraud – 1 count) : 18 U.S.C. § 1343 (wire fraud – 1 count) 18 U.S.C. § 1014 (loan fraud–2 counts) : Notice of Forfeiture INFORMATION COUNT ONE THE UNITED STATES ATTORNEY CHARGES THAT: At all times material to this information: 1. Defendant TIMOTHY D. BURNS of Phoenixville was a businessman whose office was in Conshohocken, all in the Eastern District of Pennsylvania. 2. Defendant TIMOTHY D. BURNS owned and operated businesses including one that provided bill paying and concierge services to wealthy clients, and another that provided financial management services to a different set of clients. BURNS was the sole owner of these businesses and others. 3. In 2011, it appeared that Facebook, Inc., the owner of the social network known as “Facebook,” would become a publicly traded company. 4. Some of defendant TIMOTHY D. BURNS’ friends and clients learned that a large financial services company planned to purchase and sell of shares of Facebook prior to any public offering of the stock. Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 1 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 2 of 12 5. At some time in the winter of 2011, that financial services company withdrew from brokering Facebook stock. Some of defendant TIMOTHY D. BURNS’ clients and their associates, however, remained interested in buying Facebook shares before it was available as a publicly traded stock. Defendant BURNS stepped in and offered to make the purchases for them. It was defendant BURNS’ intention to earn money from the transactions several different ways: he would take a fee at the time of the purchase, he would take a small percent of the growth in the value of the shares for a period of two years after the shares were publicly traded, and he planned to make purchases for his own account. 6. To the end of purchasing Facebook shares before they were offered publicly, defendant TIMOTHY D. BURNS formed a limited partnership hereafter called “Fund I.” Defendant BURNS issued a prospectus for Fund I. It was a limited partnership and investors were limited partners, in which their interests were a function of the amount of money they invested. 7. By in or about March 2011, defendant TIMOTHY D. BURNS raised from about 50 investors approximately $13,000,000 to purchase Facebook shares. 8. Initially, through an intermediary internet site , defendant TIMOTHY D. BURNS negotiated to purchase about 500,000 shares at $27 each through a Facebook employee known here as D.W. On or about March 21, 2011, defendant TIMOTHY D. BURNS called the capital from Fund I investors to close the deal. However, just before closing, D.W. changed his mind and walked away from the deal. It was defendant BURNS’ understanding that D.W. wanted a higher price for the shares. The deal fell through. 9. Shortly thereafter, the intermediary told defendant TIMOTHY D. BURNS 2 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 2 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 3 of 12 that he had found 2,000,000 shares of Facebook that BURNS could buy for $27 per share. The person who defendant BURNS was told controlled the shares was known as “Ken Dennis.” This name was a pseudonym for a man named T.S. 10. Through the intermediary internet site, defendant TIMOTHY D. BURNS was introduced to T.S. T.S. represented that for an advance fee of approximately $11.2 million, he would provide defendant TIMOTHY D. BURNS with 20 million Facebook shares. 11. Defendant TIMOTHY D. BURNS created a second limited partnership entity for the purpose of selling shares of Facebook and issued a prospectus for it, as he had for the first. This second partnership was called Fund II. . THE SCHEME 12. From on or about May 15, 2007, to on and about September 12, 2012, defendant TIMOTHY D. BURNS devised and intended to devise a scheme to acquire Facebook and other similar social media company stock shares and to obtain money and property valued in total just under $20 million, by means of false and fraudulent pretenses, representations and promises. MANNER AND MEANS It was part of the scheme that: 13. Defendant TIMOTHY D. BURNS used money he converted from his Family Services clients in an attempt to acquire Facebook and other similar social media shares to sell to willing investors. 14. Defendant TIMOTHY D. BURNS used Fund I money from investors to 3 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 3 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 4 of 12 pay a fee to acquire Fund II and other Facebook shares, without any disclosure to Fund I investors. 15. In advance of any closing of the purchase of any Facebook shares, defendant TIMOTHY D. BURNS spent over approximately $4 million of Fund II funds to buy a shore home in Avalon, New Jersey. 16. In advance of any closing of the purchase of any Facebook shares defendant TIMOTHY D. BURNS used Fund II funds to make a down payment on a commercial property in Conshohocken, Pennsylvania for his personal investment inventory. 17. After defendant TIMOTHY D. BURNS learned that he had been defrauded of and had lost the $11.2 million he paid from Fund I to acquire Facebook shares from T.S., he called for the capital from Fund II investors. 18. On or about April 12, 2012, in the Eastern District of Pennsylvania and elsewhere, defendant TIMOTHY D. BURNS for the purpose of executing such scheme and attempting to do so, caused to be placed in an authorized depository for mail matter and to be delivered by mail to T.H. B. according to the directions thereon mail matter, that is, a purported “K1” statement for the year 2011, fraudulently purporting to reflect a purchase by T.H.B. of Facebook shares. In violation of Title 18, United States Code, Section 1341. 4 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 4 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 5 of 12 COUNT TWO THE UNITED STATES ATTORNEY FURTHER CHARGES THAT: 1. Count One, paragraphs 1 through 11 and 13 through 17 are incorporated as if set forth here. 2. On or about October 3, 2011, in the Eastern District of Pennsylvania and elsewhere, defendant TIMOTHY D. BURNS for the purpose of executing the scheme described above, and attempting to do so, caused to be transmitted by means of wire communication in interstate commerce sounds and signals, that is, the wire transfer of $4,198,654.02 from PNC Bank in Pennsylvania to the Sturdy Stone Harbor Bank in New Jersey, funds which he told victims would be used to purchase stock but which he instead used to purchase a family shore house on Pelican Drive, Avalon, New Jersey. In violation of Title 18, United States Code, Section 1343. 5 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 5 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 6 of 12 COUNT THREE THE UNITED STATES ATTORNEY FURTHER CHARGES THAT: 1. Count One, paragraphs 1 through 11 and 13 through 17 are incorporated as if set forth here. 2. The Bancorp Bank is a federally insured financial institution. 3. On or about January 12, 2012, in Philadelphia, in the Eastern District defendant TIMOTHY D. BURNS knowingly made and caused to be made to The Bancorp Bank a false statement for the purpose of influencing the actions of the bank upon a loan, that is, a loan in the amount of $6,000,000 to purchase a commercial building at 125 East Elm Street, Conshohocken, Pennsylvania, in that defendant BURNS falsely represented to Bancorp executives that his companies had earned approximately $20 million from the sale of Facebook stock, $8.6 million of which was his profit on the transaction, when, in fact, he had made no such purchases and profit, but had been defrauded, as he well knew, of $11.2 million that he had paid to T.S. All in violation of Title 18, United States Code, Section 1014. 6 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 6 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 7 of 12 COUNT FOUR THE UNITED STATES ATTORNEY FURTHER CHARGES THAT: 1. Count One, paragraphs 1 through 11 and 13 through 17 are incorporated as if set forth here. 2. The Bancorp Bank is a federally insured financial institution. 3. On or about September 12, 2012, in Philadelphia, in the Eastern District defendant TIMOTHY D. BURNS knowingly made and caused to be made to The Bancorp Bank a false statement for the purpose of influencing the actions of the bank upon a loan, that is, a loan in the amount of $1,500,000 to purchase a commercial building at 125 East Elm Street, Conshohocken, Pennsylvania, in that defendant BURNS falsely represented to Bancorp executives that his companies had earned approximately $20 million from the sale of Facebook stock, $8.6 million of which was his profit on the transaction, when, in fact, he had made no such purchases and profit, but had been defrauded, as he well knew, of $11.2 million that he had paid to T.S. All in violation of Title 18, United States Code, Section 1014. 7 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 7 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 8 of 12 NOTICE OF FORFEITURE THE UNITED STATES ATTORNEY FURTHER CHARGES THAT: 1. As a result of the violations of Title 18, United States Code, Sections 1341, 1343, and 1014, set forth in this indictment, defendant TIMOTHY D. BURNS shall forfeit to the United States of America all property, real or personal, constituting proceeds of the offenses and any property traceable thereto, including, but not limited to: A. The following real property: i. 23 Pelican Drive, Avalon, New Jersey, or any proceeds of its sale; ii. 125 East Elm Street, Conshohocken, Pennsylvania, or any proceeds of its sale; iii. 26 Meredith Road, Phoenixville, Pennsylvania, or any proceeds of its sale; B. All of the following personal property in which defendant TIMOTHY D. BURNS has any right, title or interest or any proceeds thereof: i. Penn Liberty Bank 1. Account No. ending 3280, in the name of Timothy Burns and Claire Burns, 2. Account No. ending 4973, in the name of Timothy Burns and Claire Burns, 3. Account No. ending 1478, in the name of Timothy Burns and Claire Burns, 4. Account ending 0173, in the name of ESG Capital Partners GP, LTD, 5. Account ending 1205, in the name of ESG Capital Partners GP, LLC, 8 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 8 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 9 of 12 6. Account ending 1213, in the name of ESG Capital Partners, LP, 7. Account ending 1437, in the name of 23 Pelican, LLC, 8. Account ending 1494, in the name of 125 E. Elm Partners, 9. Account ending 2286, in the name of ESG Capital Partners IV, LP, 10. Account ending 6569, in the name of ESG Coldstream, LP, 11. Account ending 9621, in the name of ESG, 12. Account ending 2906, in the name of ESG, 13. Account ending 3012, in the name of ESG, 14. Account ending 3301, in the name of ESG, 15. Account ending 3665, in the name of ESG, 16. Account ending 4507, in the name of ESG Reality Partners, 17. Account ending 2039, in the name of ESG; ii. PNC Bank 1. Account No. ending 6456, in the name of Timothy Burns and Claire Burns. 2. Account No. ending 8208, in the name of the Burns Trust, 3. Account ending 8195, in the name of ESG Capital Partners GP, LTD., 4. Account ending 8179, in the name of ESG Capital Partners II, LP; iii. Fidelity Investments 1. Account No. ending 1741, in the name of Timothy Burns and Claire Burns, 2. Account No. ending 3660, in the name of Timothy Burns and Claire Burns, 3. Account No. ending 9511, in the name of Timothy Burns and Claire Burns, 4. Account No. ending 2656, in the name of ESG Capital Partners, LP, 6. Account No. ending 5334, in the name of ESG Wealth Management; iv. Hartford Investments Account in the name of Timothy David Burns v. Facebook, Inc. stock, in which Timothy Burns or the Burns Trust has any right, title, or interest. 9 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 9 of 10Case 2:14-cv-02134-ER Document 49-2 3 0 7 10 of 12 vi. Twitter stock, in which Timothy Burns or the Burns Trust has any right, title, or interest. vii. Any proceeds of claims filed in the Eastern District of California relating to purported stock sales by T.S. or the sum of 19,638,923.60 in U.S. currency. 2. If any of the property subject to forfeiture, as a result of any act or omission of the defendants: (a) cannot be located upon the exercise of due diligence; (b) has been transferred or sold to, or deposited with, a third party; (c) has been placed beyond the jurisdiction of the Court; (d) has been substantially diminished in value; or (e) has been commingled with other property which cannot be divided without difficulty; it is the intent of the United States, pursuant to Title 18, United States Code, Section 982, incorporating Title 21, United States Code, Section 853(p), to seek forfeiture of any other property of the defendant up to the value of the property subject to forfeiture including without limitation the following personal property: 1. 244 Bella Lane, King of Prussia, Pennsylvania, 2. 26 Meredith Road, Phoenixville, Pennsylvania, to the extent that the property is not otherwise forfeitable as proceeds. All pursuant to Title 18, United States Code, Section 982(a)(2). __________________________________ ZANE DAVID MEMEGER UNITED STATES ATTORNEY 10 Case 2:13-cr-00253-LDD Document 15 Filed 05/22/13 Page 10 of 10ase 2:14-cv 2134 ER Document 49-2 Filed 03/20/17 Page 11 of 12 " IN THE UNITED STATES DISTRICT COURT FOR Tl-IE EASTERN DISTRICT OF PENNSYLVANIA ~ if,, INFORMATION f& ~:, ,: I Ji,, '.~B . NATION FORM to be used by counsel to indi a the category of the case for the purpose . of assi nment to a ro riate calendar. ev- t..t;3 Address of Plaintiff: 615 Chestnut Street, Suite 1250, Philadelphia, PA 19106-4476 Post Office: Philadelphia County: Philadelphia City and State of Defendant: Phoenixville. PA County: Chester Register number: n/a Place of accident, incident, or transaction: Eastern District of Pennsylvania Post Office: Philadelphia County: Philadelphia RELATED CASE, IF ANY: Criminal cases are deemed related when the answer to the following question is "yes". Does this case involve a defendant or defendants alleged to have participated in the same action or transaction, or in the same series of acts or transactions, constituting an offense or offenses? YES/NO: yes Case Number: 13-20 Misc. Judge: Legrome D. Davis (Pre-Indictment Criminal Forfeiture) CRIMINAL: 1. () 2. () 3. () 4. () 5. () (Criminal Category - FOR USE BY U.S. ATTORNEY ONLY) Antitrust Income Tax and other Tax Prosecutions Commercial Mail Fraud Controlled Substances Violations of 18 U.S.C. Chapters 95 and 96 (Sections 1951-55 and 1961-68) and Mail Fraud other than commercial 6. (X) General Criminal 18 U.S.C. § 1341 (mail fraud- 1 count); 18 U.S.C. § 1343 (wire fraud- 1 count); 18 U.S.C. § 1014 (loan fraud- 2 counts); Notice of Forfeiture (U.S. ATTORNEY WILL PLEASE DESIGNATE PARTICULAR CRIME AND STATUTE CHARGED TO BE VIOLATED AND STATE ANY PREVIOUS CRIMINAL NUMBER FOR SPEEDY TRIAL ACT TRACKING PURPOSES) DATE: .j"..-J.J-/3 File No. 2013R00032 U.S. v. Timothy D. Bums Case 2:13-cr-00253-LDD Document 15-1 Filed 05/22/13 Page 1 of 1Case 2:14-cv- 2134-ER Document 49-2 Filed 03/20/17 Page 12 of 12 EXHIBIT B Case 2:14-cv-02134-ER Document 49-3 Filed 03/20/17 Page 1 of 7 CLOSED,INDI United States District Court Eastern District of Pennsylvania (Philadelphia) CRIMINAL DOCKET FOR CASE #: 2:13−cr−00253−LDD−1 Case title: USA v. BURNS Other court case number: 13−mc−20 related to Magistrate judge case number: 2 13−mj−00053 Date Filed: 05/22/2013 Date Terminated: 09/22/2015 Petitioner THE BANCORP BANK TERMINATED: 09/22/2015 represented byCHARLES F. FORER ECKERT SEAMANS CHERIN & MELLOTT LLC TWO LIBERTY PLACE 22ND FL 50 SOUTH 16TH STREET PHILADELPHIA, PA 19102 215−851−8406 Fax: 215−851−8383 Email: cforer@eckertseamans.com LEAD ATTORNEY ATTORNEY TO BE NOTICED Petitioner STEPHEN A. SHELLER TERMINATED: 03/25/2014 represented byKIMBERLY APONTE BORDEN SHELLER PC 1528 WALNUT ST 3RD FL PHILADELPHIA, PA 19102 215−790−7300 Email: kaponte@sheller.com TERMINATED: 03/21/2014 LEAD ATTORNEY Designation: Retained Petitioner SANDRA SHELLER TERMINATED: 03/25/2014 represented byKIMBERLY APONTE BORDEN (See above for address) TERMINATED: 03/21/2014 LEAD ATTORNEY Designation: Retained Petitioner PENN LIBERTY BANK TERMINATED: 09/22/2015 represented byCRAIG H. FOX FOX AND FOX ATTORNEYS AT LAW 706 ONE MONTGOMERY PLAZA AIRY AND SWEDE STREETS NORRISTOWN, PA 19401−4852 610−275−7990 Fax: 610−275−2866 Email: cfox@foxandfoxlaw.com ATTORNEY TO BE NOTICED Case: 2:13-cr-00253-LDD As of: 03/20/2017 01:31 PM EDT 1 of 10Case 2:14-cv-02134-ER Document 49-3 Filed 0 /20/17 Page 2 of 7 Assigned to: HONORABLE LEGROME D. DAVIS Defendant (1) TIMOTHY BURNS TERMINATED: 09/22/2015 represented byTIMOTHY BURNS #68890−066 SCI SCHUYLKILL P.O. BOX 759 MINERSVILLE, PA 17954 PRO SE THOMAS A. BERGSTROM BUCHANAN INGERSOLL & ROONEY PC 50 S. 16TH ST STE 3200 TWO LIBERTY PLACE PHILADELPHIA, PA 19102 215−665−3955 Email: thomas.bergstrom@bipc.com LEAD ATTORNEY ATTORNEY TO BE NOTICED Designation: Retained UBEL G. VELEZ 24 WILMONT MEWS P.O. BOX 3287 WEST CHESTER, PA 19381−3287 610−431−0809 Email: uvelezlawo@gmail.com LEAD ATTORNEY ATTORNEY TO BE NOTICED Designation: CJA Appointment LISA A. MATHEWSON THE LAW OFFICES OF LISA A MATHEWSON LLC 123 S BROAD ST STE 810 PHILADELPHIA, PA 19109 215−399−9592 Fax: 215−600−2734 Email: lam@mathewson−law.com TERMINATED: 06/06/2013 Designation: Retained Pending Counts Disposition 18:1341 − MAIL FRAUD (1) 18:1341 − MAIL FRAUD (1s) SEALED 18:1343 − WIRE FRAUD (2) 18:1343 − WIRE FRAUD (2s) SEALED 18:1014 − LOAN FRAUD (3−4) 18:1014 − LOAN FRAUD (3s−4s) SEALED Highest Offense Level (Opening) Felony Case: 2:13-cr-00253-LDD As of: 03/20/2017 01:31 PM EDT 2 of 10Case 2:14-cv-02134-ER Document 49-3 Filed 0 /20/17 Page 3 of 7 Terminated Counts Disposition None Highest Offense Level (Terminated) None Complaints Disposition COMMITTED INTERSTATE WIRE FRAUD IN AN AMOUNT IN EXCESS OF $1 MILLION BY MISAPPROPRIATION OF FUNDS ENTRUSTED TO HIM BY CLIENTS AND OTHERS AND HAS USED THESE FUNDS TO ENABLE HIM TO PURCHASE REAL AND PERSONAL PROPERTY IN VIOLATION OF TITLE 18:1343 Movant THE HANOVER INSURANCE COMPANY TERMINATED: 09/22/2015 represented byANNE NICOLE STOVER STRADLEY RONON STEVENS & YOUNG LLP 2600 ONE COMMERCE SQUARE PHILADELPHIA, PA 19103 215−564−8088 Email: nstover@stradley.com ATTORNEY TO BE NOTICED SAMUEL J. ARENA , JR. STRADLEY, RONON, STEVENS & YOUNG 2600 ONE COMMERCE SQUARE PHILADELPHIA, PA 19103−7098 215−564−8093 Fax: 215−564−8120 Email: sarena@stradley.com ATTORNEY TO BE NOTICED Plaintiff USA represented byKAREN L. GRIGSBY U.S. ATTORNEY'S OFFICE 615 CHESTNUT ST. STE 1250 PHILADELPHIA, PA 19106 215−861−8572 Email: karen.grigsby@usdoj.gov LEAD ATTORNEY ATTORNEY TO BE NOTICED Designation: Assistant US Attorney NANCY E. POTTS U.S. ATTORNEY'S OFFICE 615 CHESTNUT STREET SUITE 1250 PHILADELPHIA, PA 19106−4476 Case: 2:13-cr-00253-LDD As of: 03/20/2017 01:31 PM EDT 3 of 10Case 2:14-cv-02134-ER Document 49-3 Filed 0 /20/17 Page 4 of 7 215−861−8673 LEAD ATTORNEY ATTORNEY TO BE NOTICED PAMELA FOA ASSISTANT U.S. ATTORNEY 615 CHESTNUT STREET SUITE 1250 PHILA, PA 19106−4476 TEL 215−861−8260 Fax: 215−861−8618 Email: pamela.foa@usdoj.gov TERMINATED: 06/12/2013 Date Filed # Docket Text 01/15/2013 1 COMPLAINT as to TIMOTHY BURNS (1). (macsl, ) (mac, ). [2:13−mj−00053] (Entered: 01/15/2013) 01/15/2013 2 MOTION AND ORDER AS TO TIMOTHY BURNS THAT THIS MATTER IS SEALED AND IMPOUNDED UNTIL FURTHER ORDER OF THE COURT OR UNTIL NOTIFIED BY THE U.S. ATTORNEY'S OFFICE, ETC. Signed by MAGISTRATE JUDGE L. FELIPE RESTREPO on 1/15/13.1/15/13 Entered. (macsl, ) (mac, ). [2:13−mj−00053] (Entered: 01/15/2013) 01/18/2013 3 NOTICE of Lis Pendens by USA as to TIMOTHY BURNS (macsl, ) [2:13−mj−00053] (Entered: 01/18/2013) 01/18/2013 4 NOTICE of Lis Pendens by USA as to TIMOTHY BURNS (macsl, ) [2:13−mj−00053] (Entered: 01/18/2013) 01/18/2013 5 NOTICE of Lis Pendens by USA as to TIMOTHY BURNS (macsl, ) [2:13−mj−00053] (Entered: 01/18/2013) 01/22/2013 Arrest of TIMOTHY BURNS (mac, ) [2:13−mj−00053] (Entered: 01/23/2013) 01/23/2013 6 NOTICE OF ATTORNEY APPEARANCE FILED BY LISA A. MATHEWSON appearing for TIMOTHY BURNS (mac, ) [2:13−mj−00053] (Entered: 01/23/2013) 01/23/2013 7 Minute Entry for proceedings held before MAGISTRATE JUDGE THOMAS J. RUETER: Initial Appearance/PC/PTD as to TIMOTHY BURNS held on 1/22/13. The stipulated to probable cause. The Government and Defense have agreed to conditions of release. See attached Conditions of Release Order. Signed by Judge Thomas J. Rueter.Court Reporter ESR.(mac, ) [2:13−mj−00053] (Entered: 01/23/2013) 01/23/2013 Surety Bond Entered as to TIMOTHY BURNS in amount of $ 100,000 secured by property with agreement to forfeit property attached (mac, ) [2:13−mj−00053] (Entered: 01/23/2013) 01/23/2013 8 ORDER SETTING CONDITIONS OF RELEASE AS TO TIMOTHY BURNS (1)THAT DEFENDANT IS RELEASED ON BAIL IN THE AMOUNT OF $100,000 SECURED BY PROPERTY WITH THE FOLLOWING CONDITIONS OUTLINED HEREIN. Signed by MAGISTRATE JUDGE THOMAS J. RUETER on 1/22/13.1/23/13 Entered and Copies E−Mailed. (mac, ) [2:13−mj−00053] (Entered: 01/23/2013) 01/23/2013 9 Letter from AUSA Unsealing Complaint as to TIMOTHY BURNS (mac, ) [2:13−mj−00053] (Entered: 01/23/2013) 01/23/2013 10 NOTICE Regarding United States Passport for Criminal Defendant as to TIMOTHY BURNS (mac, ) [2:13−mj−00053] (Entered: 01/23/2013) 02/19/2013 11 Consent MOTION for Extension of Time to Indict Pursuant to 18 USC Section 3161(h)(7)(A) by USA as to TIMOTHY BURNS. (FOA, PAMELA) [2:13−mj−00053] (Entered: 02/19/2013) 02/20/2013 12 Arrest Warrant Returned Executed on 1/22/13 in case as to TIMOTHY BURNS. (mac, ) [2:13−mj−00053] (Entered: 02/21/2013) Case: 2:13-cr-00253-LDD As of: 03/20/2017 01:31 PM EDT 4 of 10Case 2:14-cv-02134-ER Document 49-3 Filed 0 /20/17 Page 5 of 7 02/21/2013 13 ORDER AS TO TIMOTHY BURNS THAT THE TIME IN WHICH AN INDICMENT MUST BE FILED IN THE ABOVE ACTION IS CONTINUED FOR A PERIOD OF FORTY−FIVE (45) ADDITIONAL DAYS BEYOND THE LAST DATE WHICH WOULD OTHERWISE BE REQUIRED UNDER THE SPEEDY TRIAL ACT. Signed by MAGISTRATE JUDGE M. FAITH ANGELL on 2/21/13.2/22/13 Entered and Copies E−Mailed. (mac, ) [2:13−mj−00053] (Entered: 02/22/2013) 04/05/2013 14 MOTION for Extension of Time to Indict by USA as to TIMOTHY BURNS. (FOA, PAMELA) [2:13−mj−00053] (Entered: 04/05/2013) 05/22/2013 15 INFORMATION as to TIMOTHY BURNS (1) count(s) 1, 2, 3−4. (Attachments: # 1 Designation Form) (jwl, ) (Entered: 05/24/2013) 06/04/2013 16 NOTICE OF ATTORNEY APPEARANCE THOMAS A. BERGSTROM appearing for TIMOTHY BURNS, CERTIFICATE OF SERVICE. (BERGSTROM, THOMAS) Modified on 6/5/2013 (ke, ). (Entered: 06/04/2013) 06/05/2013 17 MOTION to Withdraw as Attorney by Lisa A. Mathewson as to TIMOTHY BURNS. (MATHEWSON, LISA) (Entered: 06/05/2013) 06/06/2013 18 NOTICE OF HEARING as to TIMOTHY BURNS Plea Agreement Hearing set for Tuesday, June 25, 2013 at 10:00 AM in COURTROOM 6−A before HONORABLE LEGROME D. DAVIS. (dc,) (Entered: 06/06/2013) 06/06/2013 19 ORDER AS TO TIMOTHY BURNS THAT LISA A. MATHEWSON'S MOTION TO WITHDRAW AS COUNSEL (DOC. #17) IS GRANTED. Signed by HONORABLE LEGROME D. DAVIS on 6/6/2013.6/6/2013 Entered and Copies E−Mailed. (tomg, ) (Entered: 06/06/2013) 06/07/2013 20 NOTICE OF ATTORNEY APPEARANCE NANCY E. POTTS appearing for USA. (POTTS, NANCY) (Entered: 06/07/2013) 06/11/2013 21 UNCONTESTED MOTION FOR ENTRY OF A STIPULATED ORDER FOR RESTRAINT OF ASSETS PURSUANT TO 18 U.S.C. § 981(a)(1)(C), AND 28 U.S.C. § 2461(c). INCORPORATING 21U.S.C. § 853(e)(1)(A) by USA as to TIMOTHY BURNS. (FOA, PAMELA) (Entered: 06/11/2013) 06/12/2013 22 NOTICE of withdrawal of appearance of Pamela Foa by USA as to TIMOTHY BURNS (FOA, PAMELA) (Entered: 06/12/2013) 06/13/2013 23 CONSENT ORDER FOR RESTRAINT OF ASSETS PURSUANT TO 18:981(a)(1)(C) AND 28:2461(c) INCORPORATING 21:853(e)(1)(A) AS TO TIMOTHY BURNS. Signed by HONORABLE LEGROME D. DAVIS on 6/13/2013.6/13/2013 Entered and Copies E−Mailed. (tomg, ) (Entered: 06/13/2013) 06/19/2013 24 SUPERSEDING INFORMATION as to TIMOTHY BURNS (1) count(s) 1s, 2s, 3s−4s. (tomg, ) (Additional attachment(s) added on 6/19/2013: # 1 Designation Form) (tomg, ). (Entered: 06/19/2013) 06/25/2013 25 Minute Entry for proceedings held before HONORABLE LEGROME D. DAVIS RE: ARRAIGNMENT/ENTRY OF PLEA as to TIMOTHY BURNS (1) held on 6/25/2013. Court Reporter ESR. (ap, ) (kk, ). Modified on 12/3/2014 (kk, ). (Entered: 06/25/2013) 06/25/2013 26 Plea Document as to TIMOTHY BURNS (ap, ) (kk, ). (Entered: 06/25/2013) 06/25/2013 27 Waiver of Indictment as to TIMOTHY BURNS (FILED UNDER SEAL) (ap, ) (kk, ). Modified on 12/3/2014 (kk, ). (Entered: 06/25/2013) 06/25/2013 28 JUDICIAL DOCUMENT AS TO TIMOTHY BURNS. Signed by HONORABLE LEGROME D. DAVIS on 6/25/2013.6/25/2013 Entered and Copies Mailed. (ap, ) (kk, ). (Entered: 06/25/2013) 06/25/2013 29 Plea Memorandum by USA and Certificate of Service as to TIMOTHY BURNS (POTTS, NANCY) (Entered: 06/25/2013) 06/26/2013 30 Consent MOTION for Order Partially Releasing Assets Subject to Court's June 13, 2013 Order by USA as to TIMOTHY BURNS. (POTTS, NANCY) (Entered: 06/26/2013) Case: 2:13-cr-00253-LDD As of: 03/20/2017 01:31 PM EDT 5 of 10Case 2:14-cv-02134-ER Document 49-3 Filed 0 /20/17 Page 6 of 7 04/21/2016 89 MOTION for Extension of Time to File Response/Reply to the Section 2255 Petition by USA as to TIMOTHY BURNS. CERTIFICATE OF SERVICE. (POTTS, NANCY) Modified on 4/22/2016 (ap, ). (Entered: 04/21/2016) 04/25/2016 90 ORDER as to TIMOTHY BURNS THE UNITED STATES ATTORNEY'S OFFICE FOR THE EASTERN DISTRICT OF PENNSYLVANIA SHALL FILE ITS RESPONSE TO PETITIONER'S PRO−SE MOTION TO VACATE, SET ASIDE, OR CORRECT SENTENCE UNDER 28 U.S.C. § 2255 ON OR BEFORE JUNE 10, 2016. Signed by HONORABLE LEGROME D. DAVIS on 4/25/2016.4/26/2016 ENTERED AND COPIES E−MAILED.(kk, ) (Entered: 04/26/2016) 04/25/2016 ***Set/Reset Deadlines re Motion or Report and Recommendation in case as to TIMOTHY BURNS 85 MOTION to Vacate/Set Aside/Correct Sentence (2255) under 28 U.S.C. 2255 ( Civil Action 16−1346.). RESPONSES DUE BY 6/10/2016. (kk, ) (Entered: 04/26/2016) 05/17/2016 91 SEALED TRANSCRIPT of Proceedings as to TIMOTHY BURNS held on 9/16/2015, before Judge LEGROME DAVIS. (kk, ) (Entered: 05/18/2016) 05/17/2016 92 SEALED TRANSCRIPT of Proceedings as to TIMOTHY BURNS held on 8/3/2015, before Judge LEGROME DAVIS. (kk, ) (Entered: 05/18/2016) 06/10/2016 93 RESPONSE IN OPPOSITION TO DEFT'S MOTION TO VACATE, SET ASIDE OR CORRECT SENTENCEfiled by USA. CERTIFICATE OF SERVICE. (kk, ) (Entered: 06/14/2016) 06/10/2016 94 SEALED EXHIBIT by USA as to TIMOTHY BURNS. (FILED UNDER SEAL)(kk, ) (Entered: 06/14/2016) 06/10/2016 95 SEALED MOTION by USA as to TIMOTHY BURNS. CERTIFICATE OF SERVICE. (FILED UNDER SEAL) (kk, ) (Entered: 06/14/2016) 06/16/2016 96 SEALED ORDER as to TIMOTHY BURNS (1). Signed by HONORABLE LEGROME D. DAVIS on 6/16/2016.6/17/2016 ENTERED AND COPIES MAILED. (FILED UNDER SEAL)(kk, ) (Entered: 06/17/2016) 07/29/2016 97 USM−285 FORM RETURNED EXECUTED ON 11/4/2015 RE: ASSEST DISPOSAL − FOF as to TIMOTHY BURNS (kk, ) (Entered: 07/29/2016) 09/13/2016 98 ORDER AS TO TIMOTHY BURNS THAT UBEL G. VELEZ IS APPOINTED TO REPRESENT DEFENDANT TIMOTHY BURNS IN ALL FUTURE MATTERS PERTAINING TO THE ABOVE CAPTIONED MATTER. Signed by HONORABLE LEGROME D. DAVIS on 9/13/2016.9/14/2016 Entered and Copies E−Mailed. (kk, ) Modified on 9/14/2016 (ke, ). (Entered: 09/14/2016) 09/16/2016 99 CJA 20 AS TO TIMOTHY BURNS: APPOINTMENT OF ATTORNEY for TIMOTHY BURNS. Signed by HONORABLE LEGROME D. DAVIS on 9/13/2016.9/16/2016 Entered and Copies E−Mailed. (kk, ) (Entered: 09/16/2016) 12/27/2016 100 Ex Parte MOTION to Appoint Expert by TIMOTHY BURNS. (Attachments: # 1 Text of Proposed Order)(VELEZ, UBEL) (Entered: 12/27/2016) 12/29/2016 101 NOTICE OF ATTORNEY APPEARANCE KAREN L. GRIGSBY appearing for USA. (GRIGSBY, KAREN) (Entered: 12/29/2016) 12/30/2016 102 Memorandum by TIMOTHY BURNS In Support of His Motion to Vacate, Set Aside or Correct Sentence (Attachments: # 1 Certificate of Service)(VELEZ, UBEL) (Entered: 12/30/2016) 01/04/2017 103 SEALED ORDER as to TIMOTHY BURNS (1). Signed by HONORABLE LEGROME D. DAVIS on 1/3/2017.1/5/2017 ENTERED AND COPIES MAILED. (FILED UNDER SEAL)(kk, ) (kk, ). (Entered: 01/05/2017) Case: 2:13-cr-00253-LDD As of: 03/20/2017 01:31 PM EDT 10 of 10 2:14-cv- 2134-ER Document 49-3 Filed 03/20/17 Page 7 of 7 EXHIBIT C Case 2:14-cv-02134-ER Document 49-4 Filed 03/20/17 Page 1 of 9 1 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA UNITED STATES OF AMERICA : v. : CRIMINAL NO. 13-253 TIMOTHY D. BURNS : GUILTY PLEA MEMORANDUM I. INTRODUCTION The defendant, Timothy D. Burns, is charged in a four-count superseding information with one count each of mail and wire fraud, and two counts of making a false statement to a bank, in violation of Title 18, United States Code, Sections 1341, 1343, and 1014. These charges arise from the defendant's involvement in a scheme to defraud clients, investors, and a bank in connection with certain investments and loans. II. PLEA AGREEMENT Pursuant to the written guilty plea agreement, the defendant will plead guilty to all four counts of the superseding information. A copy of the plea agreement will be forwarded to the Court in advance of the guilty plea hearing. III. ELEMENTS OF THE OFFENSES Count One - 18 U.S.C. § 1341 (mail fraud) 1. The defendant devised a scheme to defraud or to obtain money or property by materially false or fraudulent pretenses, representations or promises, or omissions, concerning a material fact, or willfully participated in such a scheme with knowledge of its fraudulent nature; Case 2:13-cr-00253-LDD Document 29 Filed 06/25/13 Page 1 of 8ase 2:14-cv 2134 ER Document 49-4 Filed 03/20/17 age 2 of 9 2 2. The defendant did so with the intent to defraud; and 3. That in advancing, furthering, or carrying out the scheme, the defendant used the mails or caused the mails to be used. Count Two - 18 U.S.C. § 1343 (wire fraud) 1. The defendant devised a scheme to defraud or to obtain money or property by materially false or fraudulent pretenses, representations or promises, or omissions, concerning a material fact, or willfully participated in such a scheme with knowledge of its fraudulent nature; 2. The defendant did so with the intent to defraud; and 3. That in advancing, furthering, or carrying out the scheme, the defendant transmitted any writing, signal, or sound by means of a wire, radio, or television communication in interstate commerce or caused the transmission of any writing, signal, or sound of some kind by means of a wire, radio, or television communication in interstate commerce. Counts Three and Four - 18 U.S.C. § 1014 (false statement to a bank) 1. The defendant knowingly made or caused to be made a false statement or report to a bank; 2. The false statement or report was made for the purpose of influencing the bank's action on a loan application or decision concerning whether to continue extending credit; and 3. The bank was then insured by the Federal Deposit Insurance Corporation. Case 2:13-cr-00253-LDD Document 29 Filed 06/25/13 Page 2 of 8ase 2:14-cv 2134 ER Document 49-4 Filed 03/20/17 age 3 of 9 3 IV. MAXIMUM SENTENCE (STATUTORY) The Court may impose the following statutory maximum sentences: for Count One (mail fraud), 20 years of imprisonment, three years of supervised release, a $250,000 fine, and a $100 special assessment; Count Two (wire fraud), 20 years of imprisonment, three years of supervised release, a $250,000 fine, and a $100 special assessment; and on each of Counts Three and Four (false statement to a bank), 30 years of imprisonment, five years of supervised release, a $1,000,000 fine, and a $100 special assessment. In addition, probation is not an available sentence for Counts Three and Four, each of which is a Class A felony. TOTAL MAXIMUM SENTENCE: 100 years of imprisonment, a mandatory term of some imprisonment, five years of supervised release, a $2.5 million fine, and a $400 special assessment. Full restitution of as much as $19,638,923.60 also shall be ordered. Forfeiture of all proceeds from the offenses also may be ordered. The defendant further understands that supervised release may be revoked if its terms and conditions are violated. When supervised release is revoked, the original term of imprisonment may be increased by up to three years, per count of conviction. Thus, a violation of supervised release increases the possible period of incarceration and makes it possible that the defendant will have to serve the original sentence, plus a substantial additional period, without credit for time already spent on supervised release. V. EVIDENCE IN SUPPORT OF THE ALLEGATIONS If this case were to proceed to trial, the government would introduce competent evidence which would prove that from May 15, 2007, to September 12, 2012, the defendant participated in a scheme to defraud clients, investors, and a bank in connection with certain investments and loans. At all relevant times Timothy Burns was a businessman whose office Case 2:13-cr-00253-LDD Document 29 Filed 06/25/13 Page 3 of 8ase 2:14-cv 2134 ER Document 49-4 Filed 03/20/17 age 4 of 9 4 was in Conshohocken, Pennsylvania. Burns owned and operated several businesses, including one, Family Office, that provided bill paying and concierge services to wealthy clients, and another that provided financial management services to a different set of clients. The defendant was the sole owner of these businesses. In 2010, it appeared that Facebook, Inc., the owner of the online social network known as “Facebook,” would become a publicly traded company. Some of the defendant’s friends and clients learned that a large financial services company planned to purchase and sell shares of Facebook prior to any public offering of the stock. However, at some time in late 2010, that financial services company withdrew from brokering Facebook stock. Some of Burns’ clients and their associates remained interested in buying Facebook shares before it was available as a publicly traded stock. The defendant stepped in and offered to make the purchases for them. It was Burns’ intention to earn money from the transactions in several different ways: he would take a fee at the time of the purchase, he would take a small percent of the growth in the value of the shares for a period of two years after the shares were publicly traded, and he planned to make purchases for his own account. In order to purchase Facebook shares before they were publicly offered, Burns formed a limited partnership known as “Fund I.” Defendant Burns issued a prospectus for Fund I. It was a limited partnership, and investors were limited partners. Their interests were a function of the amount of money they invested. By approximately March 2011, the defendant raised from about 50 investors approximately $13 million to purchase Facebook shares. Initially, through an intermediary internet site, Burns negotiated to purchase about 500,000 shares at $27 each through a Facebook employee whose initials are D.W. On March 21, 2011, the defendant called the capital from Fund I investors to close the deal. However, just Case 2:13-cr-00253-LDD Document 29 Filed 06/25/13 Page 4 of 8ase 2:14-cv 2134 ER Document 49-4 Filed 03/20/17 age 5 of 9 5 before closing, D.W. changed his mind and walked away from the deal. It was Burns’ understanding that D.W. wanted a higher price for the shares. The deal fell through. Shortly thereafter, the intermediary told the defendant that he had found two million shares of Facebook that the defendant could buy for $27 per share through an individual known as “Ken Dennis.” Unbeknownst to Burns at the time, this was a pseudonym for an individual whose true name is Troy Stratos, who is charged elsewhere. Through the intermediary internet site, Burns was introduced to Stratos. Stratos represented that for an advance of approximately $11.2 million, he would provide Burns with 20 million Facebook shares. The defendant created a second limited partnership entity for the purpose of buying shares of Facebook and issued a prospectus for it, as he had for the first. This second partnership was called Fund II. In order to pay the $11.2 million to Stratos, the defendant used Fund I money from investors, which he did not disclose to the Fund I investors. The defendant had represented to those investors that their money would be used for direct purchases of Facebook shares, and had not told them it would be used to pay the intermediary he knew as “Dennis.” In advance of any closing for the purchase of Facebook shares, the defendant spent approximately $4 million of Fund II investor money to buy a personal family shore home on Pelican Drive in Avalon, New Jersey. On October 3, 2011, in order to close on his purchase of the Pelican Drive property, the defendant caused a wire transfer of $4,198,654.03 from PNC Bank in Pennsylvania to the Sturdy Savings Bank in Stone Harbor, New Jersey, which was derived from funds which he told victims would be used to purchase stock. [Count Two] Also in advance of any closing for the purchase of Facebook shares, Burns used Fund II money to make a down payment on a commercial property on East Elm Street in Case 2:13-cr-00253-LDD Document 29 Filed 06/25/13 Page 5 of 8ase 2:14-cv 2134 ER Document 49-4 Filed 03/20/17 age 6 of 9 6 Conshohocken, Pennsylvania, for his personal investment portfolio. No later than December 2011, the defendant learned that Stratos had misappropriated the $11.2 million, failed to acquire any Facebook shares, and defrauded Burns. After the defendant learned that, he nonetheless called for additional capital from Fund II investors. On January 12, 2012, in order to secure a $6 million loan to purchase the Elm Street property, the defendant falsely represented to The Bancorp Bank (“Bankcorp”) that his companies had earned approximately $20 million from the sale of Facebook stock, $8.6 million of which was his profit on the transaction, when, in fact, he had made no such purchases and profit, but had been defrauded, as he well knew, of $11.2 million that he had paid to Stratos. [Count Three] Beginning in approximately 2008 and continuing through January 2012, the defendant misappropriated approximately $1.5 million from his Family Office clients. He used the stolen money to pay his businesses’ operating expenses, his personal expenses, and to purchase the Elm Street property for himself. Even after he learned that the $11.2 million of Fund I investor money had been stolen by Stratos, the defendant failed to disclose the theft to the investors and continued to lull them into believing that he had purchased Facebook shares on their behalf. On or about April 12, 2012, in furtherance of his scheme, the defendant caused to be mailed to a Fund I investor whose initials are T.H.B. a purported “K1” statement for the year 2011, fraudulently purporting to reflect a capital balance when in fact there was none due to the theft. [Count One] On September 12, 2012, in order to secure a $1.5 million “line of credit” or loan modification to the original $6 million Bankcorp loan, which was also secured by the Elm Street property, once again the defendant falsely represented to Bancorp that his companies had earned Case 2:13-cr-00253-LDD Document 29 Filed 06/25/13 Page 6 of 8ase 2:14-cv 2134 ER Document 49-4 Filed 03/20/17 age 7 of 9 7 approximately $20 million from the sale of Facebook stock, $8.6 million of which was his profit on the transaction, when, in fact, he had made no such purchases and profit, but had been defrauded, as he well knew, of $11.2 million that he had paid to Stratos. Bankcorp was, at all times, insured by the Federal Deposit Insurance Corporation. [Count Four] In total, the defendant misappropriated from his clients and investors, and obtained through fraud from Bankcorp, just under $20 million. Respectfully submitted, ZANE DAVID MEMEGER United States Attorney s/ Nancy E. Potts NANCY E. POTTS Assistant United States Attorney Case 2:13-cr-00253-LDD Document 29 Filed 06/25/13 Page 7 of 8ase 2:14-cv 2134 ER Document 49-4 Filed 03/20/17 age 8 of 9 8 CERTIFICATE OF SERVICE I certify that a copy of the foregoing was filed electronically, is available for viewing and downloading from the Electronic Case Filing system, and was served by electronic filing and first class U.S. mail upon: Thomas A. Bergstrom, Esq. Buchanan Ingersoll & Rooney, PC Two Liberty Place 50 S. 16th Street, Suite 3200 Philadelphia, PA 19102-2555 DATE: June 25, 2013 s/ Nancy E. Potts ______ Nancy E. Potts Assistant United States Attorney Case 2:13-cr-00253-LDD Document 29 Filed 06/25/13 Page 8 of 8ase 2:14-cv 2134 ER Document 49-4 Filed 03/20/17 age 9 of 9 EXHIBIT D Case 2:14-cv-02134-ER Document 49-5 Filed 03/20/17 Page 1 of 8 Case 2:14-cv-02134-ER Document 49-5 Filed 03/20/17 Page 2 of 8 Case 2:14-cv-02134-ER Document 49-5 Filed 03/20/17 Page 3 of 8 Case 2:14-cv-02134-ER Document 49-5 Filed 03/20/17 Page 4 of 8 Case 2:14-cv-02134-ER Document 49-5 Filed 03/20/17 Page 5 of 8 Case 2:14-cv-02134-ER Document 49-5 Filed 03/20/17 Page 6 of 8 Case 2:14-cv-02134-ER Document 49-5 Filed 03/20/17 Page 7 of 8 Case 2:14-cv-02134-ER Document 49-5 Filed 03/20/17 Page 8 of 8 EXHIBIT E Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/17 Page 1 of 12 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA JOHN D. WOSOTOWSKY, ) Plaintiff, ) Civil Action No. 12-1805 ) vs. ) Judge Joy Flowers Conti/ ) Magistrate Judge Maureen P. Kelly METLIFE INSURANCE CO., INC.; ) METLIFE SECURITIES, INC., ) Defendants. ) REPORT AND RECOMMENDATION I. RECOMMENDATION It is respectfully recommended that pursuant to the screening provisions of the Prison Litigation Reform Act, Plaintiff’s Complaint be dismissed before being served upon the Defendants because the Complaint fails to state a claim upon which relief can be granted. II. REPORT John D. Wosotowsky (“Plaintiff”) is currently incarcerated in the United States Penitentiary at Hazleton, which is located in Preston County, West Virginia. Plaintiff was convicted in the United States District Court for the Western District of Pennsylvania for mail fraud and filing a false tax return. Plaintiff was a financial adviser who stole investment funds from his clients. He was an agent and employee of the Defendants, MetLife Insurance Company, Inc. and MetLife Securities, Inc. (“Defendants” or “MetLife”). Plaintiff has sued the Defendants for “negligent supervision.” Essentially, Plaintiff is complaining that Defendants failed to supervise his sales and marketing activities and that this negligent supervision “greatly contributed to his fraud.” Plaintiff seeks to invoke this Court’s diversity jurisdiction, citing to 28 U.S.C. § 1332. ECF No. 1. However, Plaintiff fails to allege the citizenship of the parties Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 1 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 2 of 12 2 and thus, fails to state a claim under the Court’s diversity of citizenship jurisdiction. Alternatively, even if he were to adequately allege the complete diversity of the parties, the two year statute of limitations bars this suit. In addition, the Pennsylvania legal doctrine of “in pari delicto” bars this suit. As such, the Complaint should be dismissed prior to being served pursuant to the screening provisions of the Prison Litigation Reform Act (“PLRA”). A. RELEVANT PROCEDURAL AND FACTUAL HISTORY Plaintiff is proceeding pro se and in forma pauperis (“IFP”). The factual allegations at the heart of Plaintiff’s Complaint are as follows. Plaintiff worked as a stock broker and financial planner from 1984 to 2010. ECF No. 1-3 at 1. Plaintiff was employed by the Defendants as an agent and registered representative from September 11, 2000, until May 5, 2010. Apparently, Defendants terminated Plaintiff’s employment on May 5, 2010. Plaintiff was indicted in October 2011. He later pleaded guilty to mail fraud and filing a false income tax return. On February 14, 2012, he was sentenced by Judge Maurice B. Cohill, Jr., of this Court to be imprisoned for a total term of ninety-seven (97) months. Plaintiff alleges that during his employment with the Defendants, it was their responsibility to supervise him. He claims that if he was properly supervised, his fraud should have been detected much earlier. Plaintiff asserts a series of allegations against the Defendants. First, Plaintiff complains that during his employment with the Defendants, they conducted only “sporadic and improper audits,” and that they caused confusion with compliance forms faxed to Plaintiff. Second, beginning in 2005, the Defendants permitted Plaintiff to work out of his home, in Monaca, Pennsylvania, rather than out of the Defendants’ District Office, which is Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 2 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 3 of 12 3 located in Pittsburgh, resulting in very little face to face supervision of Plaintiff. ECF No. 1-1 at 1. Third, Plaintiff also complains that the Defendants were aware of Plaintiff’s private company called “Equity I & R” through which Plaintiff perpetrated the fraud on his clients but that the Defendants did nothing to check on Equity I & R’s operations until Plaintiff came under investigation of the authorities in May, 2010. ECF No. 1-1 at 1 to 2. Fourth, Plaintiff admits that in 2006, as part of his fraud, he changed the addresses of several of his victims to one central address in Cranberry, Pennsylvania, which Plaintiff controlled. Plaintiff complains that the Defendants were responsible for verifying the legitimacy of these address changes, and apparently did not. Id. at 2. Fifth, Plaintiff asserts that the Defendants reimbursed all of the victims of his fraud and, that during Plaintiff’s criminal proceedings Defendants “did not contest there [sic] lack of supervision.” Id. Sixth, Plaintiff also asserts that in May, 2010, he was diagnosed as a pathological gambler in addition to suffering from drug and alcohol addiction. Plaintiff complains that the Defendants should have known about Plaintiff’s addictions but because of their allegedly negligent supervision, they did not. Id. Lastly, Plaintiff contends that “his lack of impulse control coupled with MetLife’s [i.e., the Defendants’] indifference and negligent supervision caused an environment that greatly contributed to his fraud. . . . If properly supervised and observed[,] the fraud should have been detected years earlier and corrective action would have been taken.” Id. As relief, Plaintiff demands from the Defendants “restitution [in the] amount of $2,218,292.37 plus damages and costs.” Id. Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 3 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 4 of 12 4 B. APPLICABLE LEGAL PRINCIPLES In the Prison Litigation Reform Act ("PLRA"), Pub. L. No. 104-134, 110 Stat. 1321 (1996), Congress adopted major changes affecting civil rights actions brought by prisoners, in an effort to curb the increasing number of frivolous and harassing law suits brought by persons in custody. The PLRA permits courts to screen complaints filed by prisoners and dismiss them before they are served if the complaints fail to state a claim or are frivolous or malicious. See Santana v. United States, 98 F.3d 752, 755 (3d Cir. 1996). Because Plaintiff is a prisoner who has been granted IFP status, the screening provisions of the PLRA apply. See 28 U.S.C. §1915(e) (“[n]otwithstanding any filing fee, or any portion thereof, that may have been paid [by a prisoner granted IFP status], the court shall dismiss the case at any time if the court determines that – (A) the allegation of poverty is untrue; or (B) the action or appeal – (i) is frivolous or malicious; (ii) fails to state a claim on which relief may be granted; or (iii) seeks monetary relief against a defendant who is immune from such relief.”). In performing the Court’s mandated function of sua sponte review of complaints under 28 U.S.C. § 1915(e), to determine if they fail to state a claim upon which relief can be granted, a federal district court applies the same standard applied to motions to dismiss under Federal Rule of Civil Procedure 12(b)(6). See, e.g., Brodzki v. Tribune Co., 481 F.App’x 705 (3d Cir. 2012) (applying Rule 12(b)(6) standard to claim dismissed under 28 U.S.C. § 1915(e)(2)); Courteau v. United States, 287 F.App’x 159, 162 (3d Cir. 2008) (“the legal standard for dismissing a complaint for failure to state a claim pursuant to § 1915A is identical to the legal standard employed in ruling on 12(b)(6) motions.”). Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 4 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 5 of 12 5 As the United States Supreme Court explained in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), a complaint may properly be dismissed pursuant to Fed. R. Civ. P. 12 (b)(6) if it does not allege “enough facts to state a claim to relief that is plausible on its face.” Id. at 570 (rejecting the traditional 12 (b)(6) standard set forth in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Under this standard, the court must, as a general rule, accept as true all factual allegations of the complaint and all reasonable inferences must be viewed in the light most favorable to plaintiff. Angelastro v. Prudential-Bache Securities, Inc., 764 F.2d 939, 944 (3d Cir. 1985). In addition to the complaint, courts may consider matters of public record and other matters of which a court may take judicial notice, court orders, and exhibits attached to the complaint when adjudicating a motion to dismiss under Rule 12(b)(6). Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1385 n.2 (3d Cir. 1994). Moreover, under the 12(b)(6) standard, a “court need not . . . accept as true allegations that contradict matters properly subject to judicial notice or by exhibit.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9 th Cir. 2001), amended by, 275 F.3d 1187 (9 th Cir. 2001). The Court need not accept inferences drawn by plaintiff if they are unsupported by the facts as set forth in the complaint. See California Pub. Employee Ret. Sys. v. The Chubb Corp., 394 F.3d 126, 143 (3d Cir. 2004) (citing Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir. 1997)). Nor must the court accept legal conclusions set forth as factual allegations. Bell Atlantic Corp., 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). The question to be resolved is: whether, taking the factual allegations of the Complaint, which are not contradicted by the exhibits and matters of which judicial notice may be had, and taking all reasonable inferences to be drawn from those uncontradicted factual allegations of the Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 5 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 6 of 12 6 complaint, are the “factual allegations . . . enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true even if doubtful in fact[.]” Bell Atlantic Corp. v. Twombly, 550 U.S. at 555. Or put another way, a complaint may be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted if it does not plead "enough facts to state a claim to relief that is plausible on its face." Id. at 570. Furthermore, because Plaintiff is pro se, courts accord an even more liberal reading of the complaint, employing less stringent standards when considering pro se pleadings than when judging the work product of an attorney. Haines v. Kerner, 404 U.S. 519 (1972). C. DISCUSSION 1. Plaintiff fails to allege the requisite diversity of citizenship of the parties. Plaintiff fails to allege his own citizenship, merely alleging his residency. ECF No. 1-1 at 1 (Plaintiff is a “resident of Monaca”). Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192, 207 n.24 (3d Cir. 2007) (“Domicile is what matters for the purposes of determining citizenship; residence is different: A difference between the concepts of residence and domicile has long been recognized.”). Plaintiff also fails to specifically allege the citizenship of each Defendant. Because Plaintiff fails to allege the citizenship of all parties, this action, based, as it is, on diversity of citizenship should be dismissed. See, e.g., Kissi v. Gillespie, 348 F.App’x 704, 705 (3d Cir. 2009) (“A plaintiff invoking a federal court's diversity jurisdiction bears the burden of stating ‘all parties' citizenships such that the existence of complete diversity can be confirmed.’”) (quoting Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210, 222 n.13 (3d Cir. 1999)); Scott v. LTS Builders LLC, Civ. No. 1:CV- Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 6 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 7 of 12 7 10-581, 2010 WL 4530153, at *1 (M.D.Pa., Nov. 2, 2010) (“Since they are invoking our diversity jurisdiction, Plaintiffs have the burden of establishing it by alleging the citizenship of all parties.”). 2. The Complaint is time-barred. Even if Plaintiff could allege the complete diversity of citizenship as is required under 28 U.S.C. § 1332, the Complaint should still be dismissed because it is time-barred. A federal district court may sua sponte raise the statute of limitations in screening a complaint so long as the statute of limitations defect is apparent from the face of the complaint. See, e.g., Dellis v. Corrections Corp. of America, 257 F.3d 508, 511 (6 th Cir. 2001); Tate v. United States, 13 F.App’x 726 (9 th Cir. 2001). As the United States Court of Appeals for the Third Circuit explained, a “federal court exercising diversity jurisdiction is obliged to apply the substantive law of the state in which it sits, and substantive law includes statutes of limitations.” McGowan v. Univ. of Scranton, 759 F.2d 287, 290 (3d Cir. 1985) (citations omitted). Pennsylvania’s statute of limitations for negligent supervision claims is two years. See, e.g., Agere Systems Inc. v. Advanced Environmental Technology Corp., 552 F.Supp.2d 515, 523 (E.D. Pa. 2008) (statute of limitations in Pennsylvania for negligent supervision is two years) (citing Matthews v. Roman Catholic Diocese of Pittsburgh, 2004 WL 2526794, 67 Pa. D. & C.4th 393 (Pa.Com.Pl. 2004)); Toy v. Metropolitan Life Ins. Co., 863 A.2d 1, 14 (Pa.Super. 2004) (Pennsylvania statute of limitations for negligent supervision is two years), aff’d, 928 A.2d 186 (Pa. 2007). The statute of limitations requires that a complaint be filed within its time limits from the time a cause of action accrues. See Sprint Communications Co., L.P. v. F.C.C., 76 F.3d 1221, 1226 (D.C. Cir. 1996). Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 7 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 8 of 12 8 In the instant Complaint, Plaintiff alleges that the Defendants negligently supervised him while he was their employee. However, as set forth on the first page of the Complaint, Plaintiff was employed by the Defendants only from September 11, 2000 until May 5, 2010. ECF No. 1- 1 at 1. Hence, the latest that the Defendants could have engaged in negligent supervision of Plaintiff and the latest date that Plaintiff’s cause of action accrued, was May 5, 2010. Applying the two year statute of limitations, the latest that Plaintiff could have initiated an action for negligent supervision was May 5, 2012. Plaintiff’s Complaint is deemed filed on December 6, 2012. It should be noted that the Complaint makes clear that Plaintiff was aware, at the latest, in 2006, that the Defendants were allegedly supervising him in a negligent manner, when he changed the addresses of some clients without permission and that Defendants were “responsible for verifying the legitimacy of these changes” but that they did not, which then enabled Plaintiff to divert funds from the clients. ECF No. 1-1 at 2. Even though Plaintiff had to know of the allegedly negligent supervision early on in his fraudulent activities and surely, he knew of such no later than the date of his termination on May 5, 2010, he did not “file” the current Complaint until, at the earliest, December 6, 2012, the date whereon he signed both his IFP application and his Complaint. See Cromwell v. Keane, 27 F.App’x 13 (2d Cir. 2001) (for prisoner mail box rule, a prisoner is deemed to file his pleading on the date which he hands it to prison officials for mailing; in the absence of evidence as to when this is, the court should deem the date whereon the prisoner signed his IFP application as the date whereon he handed his pleading to the prison officials). See also Richardson v. Diagnostic Rehabilitation Center, 836 F.Supp. 252, 254 (E.D. Pa. 1993) (“While a complaint Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 8 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 9 of 12 9 accompanied by an i.f.p. motion is usually not deemed ‘filed’ until leave to proceed in forma pauperis is granted or the filing fee is paid, the filing of the motion tolls the applicable statute of limitations.”). Hence, Plaintiff’s Complaint, deemed filed on December 6, 2012, is more than seven months beyond the applicable two-year statute of limitations for the last acts of negligent supervision that had occurred on May 5, 2010. Accordingly, the Complaint should be dismissed as it is time-barred on its face. 3. The Doctrine of “In Pari Delicto” Bars this Case. In the alternative, even if this case is not time-barred and even assuming as true that the Defendants were negligent in supervising Plaintiff, the Pennsylvania legal doctrine of “in pari delicto” bars Plaintiff from bringing this action. Under Pennsylvania law, the doctrine of “in pari delicto” “which literally means ‘of equal fault,’ is one of the common-law doctrines fashioned to assure that transgressors will not be allowed to profit from their own wrongdoing. Thus, a party is barred from recovering damages if his or her losses are substantially caused by activities in which the law forbade him or her to engage.” Standard Pennsylvania Practice, § 79:11. This is a longstanding doctrine in Pennsylvania law. See, e.g., Slater v. Slater, 74 A.2d 179 (Pa. 1950). This doctrine clearly bars Plaintiff’s current case because, in order to succeed in his suit, Plaintiff must show that the acts of the Defendants caused him injury. Minnich v. Yost, 817 A.2d 538, 541 (Pa.Super. 2003) (“It is axiomatic that the elements of a negligence-based cause of action are a duty, a breach of that duty, a causal relationship between the breach and the resulting injury, and actual loss.”). In this case, the injury that Plaintiff seeks to establish is that he was permitted or caused to engage in criminal behavior allegedly due to the negligent Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 9 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/17 Page 10 of 12 10 supervision by the Defendants. ECF No. 1-1 at 2 (“Mr. Wosotowsky contends that his lack of impulse control coupled with MetLife’s indifference and negligent supervision caused an environment that greatly contributed to his fraud.”). Pennsylvania law forbids Plaintiff from maintaining such an action. As the Pennsylvania Supreme Court explained: “if he [plaintiff] cannot prove his case without showing he has broken the law or participated in a fraudulent transaction, the court will not assist him.” Slater v. Slater, 74 A.2d at 181. Here, Plaintiff cannot prove his case of negligent supervision, without proving he engaged in fraud. Accordingly, this case must be dismissed because under the Pennsylvania doctrine of in pari delicto, Plaintiff is barred from bringing this suit as “the court will not assist him.” Id. III. CONCLUSION For the foregoing reasons, the Complaint should be dismissed pre-service for failure to state a claim upon which relief can be granted. In accordance with the Magistrate Judges Act, 28 U.S.C. § 636(b)(1), and Local Rule 72.D.2, the parties are permitted to file written objections in accordance with the schedule established in the docket entry reflecting the filing of this Report and Recommendation. Objections are to be submitted to the Clerk of Court, United States District Court, 700 Grant Street, Room 3110, Pittsburgh, PA 15219. Failure to timely file objections will waive the right Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 10 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 11 of 12 11 to appeal. Brightwell v. Lehman, 637 F.3d 187, 193 n. 7 (3d Cir. 2011). Any party opposing objections may file their response to the objections within fourteen (14) days thereafter in accordance with Local Civil Rule 72.D.2. Respectfully submitted, s/Maureen P. Kelly MAUREEN P. KELLY UNITED STATES MAGISTRATE JUDGE Date: March 11, 2013 cc: The Honorable Joy Flowers Conti United States District Judge John D. Wosotowsky 33179-068 USP Hazelton P.O. Box 2000 Bruceton Mills, WV 26525 Case 2:12-cv-01805-JFC-MPK Document 4 Filed 03/11/13 Page 11 of 11Case 2:14-cv-02134-ER Document 49-6 Filed 03/20/ 7 Page 12 of 12