Factual Allegations in Trust’s Complaint Not Sufficient to Deny Defendant’s Motion to Dismiss
February 24, 2022, District of Kansas – Defendants Blue Consulting, LLC and Daniel Alberto Blue moved to dismiss all claims asserted against them in the adversary complaint filed by Sharon L. Stolte, in her capacity of Liquidating Agent of Emporia Property Group, LLC Liquidating Trust.
The facts of the case as specified in the Court’s opinion are: Debtor Emporia Property Group, LLC raised equity to purchase and renovate a hotel in Emporia, Kansas, through solicitation of capital from individual investors. The investments were evidenced by promissory notes, represented to be secured by the hotel. Unfortunately, the venture was not successful, and the hotel was sold during Debtor’s Chapter 11 case for far less than needed to make the investors whole. Accordingly, the Trust sought to recover these losses from many defendants, including Blue Consulting, a member of Debtor, and Daniel Blue, the managing member of Blue Consulting, under common law causes of action for “fraudulent concealment”, conversion, and unjust enrichment.
The Trust contended that Daniel Blue and others solicited at least $6,028,750.00 from approximately 140 individuals in 35 states, evidenced by promissory notes. The Trust further claimed that from 2016 to 2018, Daniel Blue contacted numerous individuals and allegedly presented them with an opportunity to invest money with Debtor and promised them that they would become investors in the hotel. The Trust also alleged that Daniel Blue and Blue Consulting allegedly benefitted financially from the funds received pursuant to the promissory notes. Blue Consulting and Daniel Blue moved to dismiss all claims against them, alleging that the complaint is unclear about which specific claims are asserted against them.
The Court found that the allegations of the complaint did not include factual allegations raising a right to relief above the speculative level and failed to state claims for relief that are plausible on their face. The Court found that there is no allegation of negotiation of contractual terms between the investors and the Defendants, a circumstance where bargaining power and expertise would be relevant. The Court also found that there is no allegation of a fiduciary relationship between the investors and the Defendants. The Court further concluded that Counts I through VIII and X through XII did not name either Blue Consulting or Daniel Blue as defendants; Count XIII, XIV, XV – “fraudulent concealment”, conversion, unjust enrichment failed to allege a claim upon which relief can be granted against Defendants Blue Consulting or Daniel Blue.
The Court gave 42 days to the Trust to file an amended complaint and supplement the facts alleged in the complaint, failing which the Court will dismiss Defendants Blue Consulting and Daniel Blue from the adversary proceeding.
Stolte v. Blue Consulting, LLC (In re Emporia Prop. Grp., LLC), 2022 Bankr. LEXIS 460