United States District Court, W.D. Texas, Austin Division
REPORT AND RECOMMENDATION OF THE UNITED STATES
W. AUSTIN, UNITED STATES MAGISTRATE JUDGE.
HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE
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
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.
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.
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.
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.
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.
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
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.”
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)).