United States District Court, District of Columbia
For STEVE BRATTAIN, TUNC KIVANC, ANGELO PASARETTA, GURKAN US, Plaintiffs: Christopher M. Brown, LEAD ATTORNEY, Meaghan E Hearn, ACKERMAN BROWN, PLLC, Washington, DC.
For AKIN ALCITEPE, Defendant: Akin M. Alcitepe, LEAD ATTORNEY, BAILEY LAW, PC, Washington, DC; Lewis I. Askew, Jr., LEAD ATTORNEY, GRAVES, HORTON, ASKEW & JOHNS, LLC, Washington, DC.
For ANTOINE S. KHOURY, A.S. KHOURY & ASSOCIATES P.C., Defendants: Haig V. Kalbian, LEAD ATTORNEY, Aaron W. Knights, KALBIAN HAGERTY LLP, Washington, DC.
DEBORAH. A. ROBINSON, United States Magistrate Judge.
MEMORANDUM OPINION AND ORDER
Plaintiffs Steve Brattain, Tunc Kivanc, Angelo Pasaretta, and Gurkan Us commenced this action against Defendants Akin Alcitepe, Pablo Henrich, Antoine Khoury, A.S. Khoury & Associates P.C., Jorge Lobo, Mustafa Poyraz, and a John Doe, " seeking compensatory and punitive damages for [a]ctual [f]raud, [c]onstructive [f]raud, [c]onspiracy, [c]onspiracy to [d]efraud,
[m]alpractice, [n]egligence, [g]ross [n]egligence, [v]iolations of the Securities Act of 1933 and [v]iolations of the Securities Act of 1934 committed by the Defendants."  Complaint (Document No. 1) ¶ 1.
This matter was referred to the undersigned United States Magistrate Judge for all purposes. See Notice of Consent to Proceed before a United States Magistrate Judge for All Purposes (Document No. 34); Order Referring Case to Magistrate Judge for All Purposes (Document No. 35). Pending for determination by the undersigned are Defendant Akin Alcitepe's Motion to Dismiss Plaintiff[s'] Complaint Counts I, II, III, VIII, XIII, XVII, XVII, XXI, XXII, and L (" Defendant Alcitepe's Motion" ) (Document No. 12) and Defendants' Antoine S. Khoury and A.S. Khoury & Associates P.C.'s Motion to Dismiss Plaintiffs' Complaint (" Khoury Defendants' Motion" ) (Document No. 32). On August 9, 2012, the undersigned conducted a hearing with respect to both motions. 08/09/2012 Minute Entry. Upon consideration of the motions, the memoranda in support thereof and in opposition thereto, the arguments of counsel at the hearing, and the Plaintiffs' complaint, the court will grant in part Defendant Alcitepe's motion, and will grant in part the motion of Defendants Khoury and A.S. Khoury & Associates.
Defendants Mustafa Poyraz, Pablo Henrich, and Jorge Lobo began a business venture, called " Fusion Cuisine," " to open and operate Morso Restaurant" in the Georgetown neighborhood of the District of Columbia. Complaint ¶ 16. The three " agreed to purport and maintain" tat the restaurant was their " primary business objective" ; however, their " true objective" was to defraud investors through " fraudulent funding and stock purchase agreements." Id. ¶ ¶ 17-18. They retained Defendant Antoine Khoury, an accountant, who agreed to assist them. Id. ¶ ¶ 8, 20. Defendant Khoury " prepared documents necessary to form, register, and incorporate the entity that would become Fusion Cuisine," through his accounting firm, Defendant A.S. Khoury & Associates. Id. ¶ ¶ 9, 21. They purchased " fixtures, furniture, and [a] liquor license," from another Georgetown restaurant, and leased property located at 3277 M Street, N.W., in the District of Columbia. Id. ¶ ¶ 24-25. In an effort to further provide legitimacy to their undertaking, the Defendants then enlisted Defendant Akin Alcitepe, an attorney who at the time worked at Howrey, LLP, to
serve as Fusion Cuisine's general counsel. Id. ¶ ¶ 6, 27.
" Fusion Cuisine was authorized to issue 5,000 shares," of which Defendants Poyraz, Lobo, and Henrich " collectively controlled 55%." Id. ¶ ¶ 22-23. On May 19, 2009, Plaintiff Tunc Kivanc entered into an agreement with Defendants Poyraz and Lobo, under which he would obtain twenty-percent ownership in Fusion Cusine " in exchange for an investment totaling no less than $150,000.00, but no more than $180,000.00." Id. ¶ ¶ 35-36. Plaintiff Kivanc entered into this agreement after Defendants Poyraz, Henrich, and Lobo assured him that " the business was sound," and after Defendant Poyraz agreed to grant him access to the venture's finances. Id. ¶ ¶ 32-34. On May 21, 2009, Plaintiff Kivanc and Defendant Poyraz " entered into a Conditional Promise . . . under which Plaintiff Kivanc could request his investment be returned to him." Id. ¶ 40. At the May 21 meeting, Defendants Poyraz and Lobo " falsely" told Plaintiff Kivanc that Fusion Cuisine " owned the liquor license associated with" the leased property. Id. ¶ 43. Plaintiff Kivanc invested in Fusion Cuisine, and also " entered into a Non-Cancellable Commercial Equipment Lease Agreement as a guarantor" for the restaurant. Id. ¶ ¶ 45-46, 55. When Plaintiff Kivanc later met with Defendants Alcitepe and Poyraz at Defendant Alcitepe's office, the following year, they " confirmed that Plaintiff Kivanc had invested a total of approximately $168,000 into Fusion Cuisine." Id. ¶ 106. Unbeknown to Plaintiff Kivanc, Defendants also entered into agreements with other, non-party, investors, one obtaining a 10% ownership in Fusion Cuisine in exchange for $75,000, and another obtaining a 4% interest in exchange for $30,000. Id. ¶ ¶ 47, 51, 56, 59.
In December 2009, the landlords of their leased property served a notice to vacate because rent was $107,520 in arrears. Id. ¶ 62. Defendants " purposefully concealed" the notice from Plaintiff Kivanc. Id. ¶ 62. In January 2010, Plaintiff Angelo Pasaretta loaned Defendant Poyraz $6,000 for the restaurant, and entered into an agreement with Defendants Poyraz and Lobo by which he obtained a 15% ownership interest in Fusion Cuisine in exchange for a $50,000 investment. Id. ¶ ¶ 64, 67. Defendants concealed the other investors and the notice to vacate from Plaintiff Pasaretta, and likewise concealed Plaintiff Pasaretta's investment from Plaintiff Kivanc. Id. ¶ ¶ 69, 70. In February 2010, Plaintiff Pasaretta loaned an additional $19,000 to Defendant Poyraz based on Defendants Poyraz and Lobo's representations that additional funding was needed to prepare for the restaurant's opening. Id. ¶ ¶ 74-77.
On March 9, 2010, the landlords of their rental property filed suit in the Superior Court of the District Columbia against Fusion Cuisine and Defendants Poyraz, Lobo, and Henrich for $189,000 in unpaid rent. Id. ¶ 79. Defendant Alcitepe entered his appearance on behalf of Fusion Cuisine. Id. Defendants concealed this lawsuit from Plaintiffs Kivanc and Pasaretta. Id.
The following date, March 10, 2010, Plaintiff Pasaretta loaned an additional $3,000 to Defendants Poyraz, Lobo, and Henrich. Id. ¶ 80. On March 15, 2010, he entered into a subsequent agreement, by which he would lend $75,000 to Fusion Cuisine, would obtain an additional 36% ownership interest upon Defendants Poyraz, Lobo, and Henrich's failure to repay his loan, and would have authority to approve expenditures during the loan period. Id. ¶ ¶ 81, 82. Pursuant to the agreement, Plaintiff Pasaretta obtained an additional 36% of Fusion Cuisine's shares after Defendants Poyraz and Lobo failed to repay the loan. Id. ¶ 87. On April 26, 2010, Plaintiff Pasaretta loaned Defendants Poyraz,
Lobo, and Henrich an additional $20,000 after they represented they were unable to purchase the liquor license from the landlords because of their overdue rent. Id. ¶ 91. On April 29, 2010, Defendants, through Defendant Alcitepe's negotiations, obtained a consent-judgment in the lawsuit brought by their landlord. Id. ¶ ¶ 93-94, 96. Plaintiffs were still unaware of the lawsuit, and the disposition. Id. ¶ 96.
In May 2010, Plaintiffs Gurkan Us and Steve Brattain entered into an agreement with Defendant Poyraz, whereby they each received a 12.5% ownership interest in Fusion Cuisine in exchange for a combined investment of $200,000. Id. ¶ ¶ 98, 102. Defendants concealed the consent judgment and the involvement of the other investors from Plaintiffs Us and Brattain. Id. ¶ 105.
On May 26, 2010, Morso Restaurant opened; however, it closed one week thereafter, after the chef resigned. Id. ¶ 107. Plaintiffs Us and Brattain entered into an agreement with Fusion Cuisine, on June 30, 2010, " for the purpose of entering into a stockholders' agreement." Id. ¶ 108. That day, unbeknown to Plaintiffs, Defendant Alcitepe faxed bankruptcy forms to Defendant Poyraz. Id. ¶ 110. Fusion Cuisine eventually filed for Chapter 11 bankruptcy on July 1, 2011. Id. ¶ 114.
In total, after entering into the various investment agreements with Plaintiffs and other non-party investors, Defendants had sold 165% of Fusion Cuisine's shares. Id. ¶ 103, 125. However, " Defendants failed to issue stocks, or cause stocks to be issued," id. ¶ ¶ 53, 61, 71, 89, 104, and did not provide Plaintiffs with any investment or ownership documentation in response to their requests, id. ¶ ¶ 122-24. Additionally, Plaintiffs were provided false financial records, id. ¶ ¶ 111-112, and, despite their inquiries, were never told that Fusion Cuisine initiated bankruptcy proceedings, id. ¶ ¶ 114, 117, 119.
Plaintiffs commenced this action seeking compensatory damages " totaling no less than" $610,757.39 and punitive damages " totaling no less than" two million dollars. Complaint at 42. Plaintiffs' complaint includes twenty-seven counts alleging actual fraud, constructive fraud, five counts of conspiracy, five counts of conspiracy to defraud, four counts of malpractice, four counts of negligence, four counts of gross negligence, violations of section 12 of the Securities Act of 1933, violations of section 17 of the Securities Act of 1933, and violations of section 10 of the Securities Exchange Act of 1934.  Defendant Akin Alcitepe " move[d] to dismiss all claims asserted against him in Plaintiffs' Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure." Defendant Alcitepe's Motion at 1-2. Defendants Antoine Khoury and A.S. Khoury & Associates P.C. (" Khoury Defendants" ) moved to " dismiss Plaintiffs' Complaint with prejudice." Khoury Defendants' Motion (Document No. 32) at 1. Plaintiffs oppose both motions, and ask that each motion be denied. In the alternative, they ask that they be permitted to file an amended complaint as to the counts for which the court is inclined to dismiss. Plaintiffs' Response to Defendant Alcitepe's Motion to Dismiss Plaintiffs' Complaint Counts I, II, II, VII, XII, XVII, XVII, XXI, XXII, and L (" Opposition to Defendant Alcitepe's Motion" ) (Document No. 30) at 21; Plaintiffs' Response
to Defendants Khoury and A.S. Khoury & Associates Motion to Dismiss Plaintiffs' Complaint (" Opposition to Khoury Defendants' Motion" ) ...