Dewald v. Black Tusk Global, LLC

Background

Jerome W. Dewald, proceeding without a lawyer, sued Black Tusk Global, LLC, Broad Pine Capital, LLC, and Stephen Inglis. He asserted federal securities-law claims, as well as state-law claims for breach of contract, breach of the duty of good faith and fair dealing, and common-law fraud.

Dewald alleged that Inglis proposed that he invest in a broker-dealer then known as Richman Group Securities. Dewald invested $22,500 and signed an unsecured convertible promissory note on August 16, 2016. The note provided for conversion of the investment into a membership interest in Broad Pine Capital, or repayment if the contemplated closing did not occur or an application to the Financial Industry Regulatory Authority was withdrawn. Inglis personally guaranteed the note on behalf of Black Tusk.

On April 23, 2018, Dewald and Inglis, on behalf of Black Tusk, signed a subscription agreement granting Dewald a 14.0625 percent membership interest in Broad Pine. The agreement stated that the interest was issued through conversion and surrender of the note. Dewald alleged that he received no documentation proving his membership interest and that Inglis gave him misleading updates about the entity. After Dewald received an email stating that an application had been withdrawn and that Broad Pine would be dissolved, he alleged that the defendants failed to return his investment.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plead enough facts to state a legally sufficient claim.

Federal Securities Claims

The court dismissed Dewald’s claims under Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5. Securities-fraud claims must identify the allegedly misleading statements, explain why they were misleading, and plead facts supporting the required fraudulent state of mind. The court found that Dewald’s allegations generally asserted that the defendants made false statements or omitted material information but did not identify the particular statements, explain why they were false or misleading, or show whether the allegations concerned the 2016 note, the 2018 subscription agreement, or both.

The court also dismissed Dewald’s control-person claim against Inglis under Section 20(a) of the Exchange Act. That claim depended on adequately pleading an underlying violation of Section 10(b), which Dewald had not done.

The court dismissed the claims under Sections 5 and 12(a)(1) of the Securities Act because Dewald did not adequately plead that the defendants used interstate communications or the mail in connection with the offer or sale. The court noted that the complaint merely stated that the defendants used interstate commerce and gave no details about how the investment was solicited or completed. The court also dismissed the Section 15 control-person claim because it depended on a successful Section 5 claim.

State-Law Claims and Amendment

After dismissing all of the federal claims, the court declined to exercise supplemental jurisdiction, meaning authority to decide related state-law claims, over Dewald’s contract, good-faith-and-fair-dealing, and common-law-fraud claims. The court therefore did not decide the merits of those state-law claims.

Because Dewald was representing himself and might be able to correct the pleading deficiencies with additional facts, the court allowed him to amend if he had a good-faith basis to do so.

Disposition

Judge Ronnie Abrams granted the defendants’ motion to dismiss without prejudice to amendment. Dewald was required to file any amended complaint by September 3, 2021. The order stated that failure to file an amended complaint by that date would result in dismissal of the case with prejudice.