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Croix v. Provident Trust Group, LLC

United States District Court, W.D. Texas, Austin Division

December 9, 2019

EDMOND CROIX and ALMA CROIX
v.
PROVIDENT TRUST GROUP, LLC

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          ANDREW W. AUSTIN, UNITED STATES MAGISTRATE JUDGE.

         TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

         Before the Court are Defendant's Motion to Dismiss Plaintiffs' Original Petition (Dkt. No. 8); Plaintiffs' Response (Dkt. No. 10), and Defendant's Reply (Dkt. No. 12). The District Court referred the above motion to the undersigned Magistrate Judge for report and recommendation pursuant to 28 U.S.C. §636(b)(1)(A), Fed.R.Civ.P. 72, and Rule 1(c) of Appendix C of the Local Rules.

         I. GENERAL BACKGROUND

         Plaintiffs Edmond and Alma Croix (together, “Plaintiffs”) are an elderly couple who live in Pflugerville, Texas. Dkt. No. 1-4 ¶¶ 1, 8-10. Defendant Provident Trust Group, LLC (“Provident”) is a trust company that acts as a custodian for certain investment retirement accounts (“IRAs”). Id. ¶ 2; Dkt. No. 7 at 1-2. Plaintiffs allege that Provident negligently failed to verify whether Plaintiffs' financial advisor was legally qualified to conduct transactions in their investment account. As a result, they allege that a man posing as a financial consultant has stolen nearly all of their retirement savings. Plaintiffs allege the following facts. They first met Brett Pittsenbargar in 2009, when acquaintances recommended him to help with Plaintiffs' tax preparations. Id. ¶¶ 11-13. Pittsenbargar represented that he was a financial consultant, specializing in retirement planning and investing. Id. ¶ 11. In fact, Pittsenbargar was not a CPA and he relied on third parties to prepare Plaintiffs' tax returns. Id. ¶ 14. In 2013, Pittsenbargar “began to act a financial planner” for Plaintiffs. Id. ¶ 15. Pittsenbargar called himself a financial consultant, but he does not maintain any licenses or registrations to act in that capacity. Id. ¶ 16. He is not a Registered Investment Advisor with the U.S. Securities and Exchange Commission (“SEC”). Id. ¶ 17. He is not registered with the Financial Industry Regulatory Authority (“FINRA”) or the Texas State Securities Board to act as a securities dealer. Id. ¶ 18.

         When Plaintiffs first began working with Pittsenbargar, they maintained retirement accounts with several established financial institutions, including American Estate and Trust, Thrift Savings Plan, Security Benefits, Accuplan, and Fidelity Investments. Id. ¶ 18. In April 2015, Pittsenbargar directed Plaintiffs to transfer their retirement funds into IRAs maintained by Provident. Id. ¶ 20. Plaintiffs allege that Pittsenbargar's decision to use Provident as a custodian was not random; it was the result of Provident's marketing effort, which “actively solicits the business of investment advisors.” Id. ¶ 21. Alma opened a Traditional IRA account, and Edmond opened both a Traditional IRA and a Roth IRA. Id. ¶ 24. When Plaintiffs opened the accounts, Provident “knew that Pittsenbargar was purporting to act as an investment advisor for Plaintiffs and has responsibility for the investments in their account.” Id. ¶ 25. Provident provided Pittsenbargar with his own login to access the accounts, and communicated with Plaintiffs through emails to Pittsenbargar for “virtually every communication.” Id. ¶ 26.

         “Almost immediately” after Pittsenbargar directed Plaintiffs to move their funds into the Provident IRAs, Pittsenbargar executed three transactions purchasing securities in the Ironbridge Asset Fund, LLC and the Ironbridge Asset Fund 2, LLC (together, “Ironbridge”). Id. ¶¶ 27-28. Pittsenbargar invested a total of $203, 000 of Plaintiffs' funds in Ironbridge through the Provident IRAs. Id. ¶¶ 28-29. Ironbridge was in fact an unregistered security issued by a fund owned by Pittsenbargar, which served as a “feeder fund” for Woodbridge Group of Companies, LLC (“Woodbridge”), a Ponzi scheme now subject to multiple law enforcement actions. Id. ¶¶ 30-31. Woodbridge has filed for bankruptcy in Delaware. Id. ¶ 32. Plaintiffs have “lost their entire investment and stand to recover nothing at all from the Woodbridge bankruptcy.” Id. ¶ 33.

         Plaintiffs allege that Provident caused their losses by failing to inquire as to whether Pittsenbargar had the legal capacity to act as a financial professional. Id. ¶ 34. Plaintiffs also allege that Pittsenbargar “was known” to Provident and that the company “actively solicited” Pittsenbargar's business. Id. ¶¶ 34-35. They allege that as a custodial bank, Provident has “a duty to its customers to inquire as to the legal capacity of known third-party financial professionals to execute transactions in customer accounts.” Id. ¶ 37; see Id. ¶ 35. Provident “breached this duty when it completely failed to inquire as to whether Pittsenbargar, the purported financial processional associated with Plaintiffs' account[, ] was legally entitled to act in that capacity.” Id. ¶ 37. “In fact, Pittsenbargar was not licensed by the SEC as a registered investment advisor, nor was he registered with FINRA or the State of Texas as a seller of securities.” Id. ¶ 39. As a direct result of Provident's breach of its duties to Plaintiffs, Pittsenbargar executed financial transactions in the accounts Plaintiffs maintained with Provident Trust, causing Plaintiffs to lose $203, 000, which comprised virtually all of their retirement savings. Id. ¶ 40.[1]

         Based on these allegations, Plaintiffs assert a single claim of negligence against Provident. Id. ¶¶ 36-40. They seek damages, unspecified equitable relief, and any other relief to which they may be entitled. Id. ¶ 42. Provident moves to dismiss Plaintiffs' claim, asserting (1) the economic loss doctrine bars Plaintiffs' negligence claim; (2) Provident had no common law duty to investigate Plaintiffs' advisors or investments as a matter of law; (3) Provident had no contractual duty to advise Plaintiffs on their advisors or investments; and (4) Plaintiffs fail to plausibly allege that Provide proximately caused their damages. Dkt. No. 7.

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss an action for failure to state a claim upon which relief can be granted. Fed. R. Civ. P.12(b)(6). Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Rule 8 “does not require ‘detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

         A court considering a motion to dismiss must accept “all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.” Martin K. Eby Const. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004). While a court must accept all of the claimant's well-pleaded facts as true, it is not bound to accept as true conclusory allegations or allegations that merely restate the legal elements of a claim. See Chhim v. Univ. of Texas at Austin, 836 F.3d 467, 469 (5th Cir. 2016) (citing Iqbal, 556 U.S. at 678). In short, a claim should only be dismissed if a court determines that it is beyond doubt that the claimant cannot prove a plausible set of facts that support the claim and would justify relief. See Twombly, 550 U.S. at 570. A motion to dismiss pursuant to Rule 12(b)(6) is generally disfavored and rarely granted. Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011). “The court's review is limited to the complaint, any documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint.” Ironshore Europe DAC v. Schiff Hardin, L.L.P., 912 F.3d 759, 763 (5th Cir. 2019) (citing Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010)).

         III. ANALYSIS

         A. ...


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