Carlos Huerta Homes IN, LLC v. Morris Invest, LLC

CARLOS HUERTA HOMES IN, LLC, Plaintiff, v. MORRIS INVEST, LLC, CLAYTON MORRIS, Defendants.

No. 1:19-cv-02653-JRS-TAB

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

June 19, 2020

Order on Motion to Dismiss (ECF No. 18)

Invoking this Court's diversity jurisdiction, Plaintiff Carlos Huerta Homes IN, LLC ("Huerta Homes" or "Plaintiff") brings various common law claims against Morris Invest, LLC and Clayton Morris (collectively, "Defendants"). (Compl., ECF No. 1.) Huerta Homes, an entity owned by Carlos Huerta, purchased a dilapidated single-family home in Indianapolis from Defendants. Plaintiff purchased the home as an investment property, intending to lease it and collect rent. Plaintiff alleges that Defendants failed to fulfill their obligations by not rehabilitating the property, not securing tenants for the property, and not managing the property, leaving Plaintiff with an uninhabitable home. Huerta Homes brings the following causes of action: breach of contract, promissory estoppel, fraud/deception, conversion, negligence, and a violation of the Indiana Deceptive Sales Consumer Act ("IDCSA").

Defendants now move to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. For the following reasons, Defendants' Motion to Dismiss (ECF No. 18) is denied in part and granted in part.

I. Background¹

Plaintiff's Complaint alleges that Clayton Morris is a co-founder and owner of Morris Invest. (Compl., ECF No. 1 at 2.) Morris formed Morris Invest to "help individuals attain financial freedom and grow their personal wealth through passive income." (Id.) Morris, through Morris Invest, creates podcasts, YouTube videos, and blogs in which he discusses real estate and promotes its real estate program to potential investors. (Id. at 4.) The program is marketed as a three-step wealth building plan. (Id.) First, Morris Invest holds a thirty-minute phone consultation with prospective investors to learn about their investment goals. (Id.) Next, the prospective investor selects one of the properties offered by Morris Invest. (Id.) Lastly, Morris handles the rehabilitation of the property, finds and secure tenants, and sells the property to the investor in a "rent-able" condition. (Id. at 4-5.) All the investor has to do is collect rent from the property. (Id. at 5.)

In late 2017, after watching Clayton Morris's videos on YouTube, Mr. Huerta visited the Morris Invest website and scheduled a call with its representatives. (Id. at 9.) Mr. Huerta was then contacted by Morris Invest representatives James Frederico, Clayton Morris, and Nicole Morris, who told him that as a part of its "turnkey" program, Mr. Huerta could purchase a property in Indianapolis and within 60 days itwould be rehabilitated and rented out. (Id.) Mr. Huerta lives in Prior Lake, Minnesota. (Id. at 2.) On December 17, 2017, the Mr. Huerta purchased a recommended property at 871 West 25th Street, Indianapolis, Indiana for $49,000, inclusive of rehab costs. (Id. at 9.) In November 2018, after unsuccessfully trying to get in touch with Defendants about the status of his property, Mr. Huerta drove to Indianapolis. (Id.) Mr. Huerta found that no rehabilitation work had been done on the property, and a tenant was living there paying $600 a month. Mr. Huerta had not received any of the rent money. (Id.) Mr. Huerta then spoke with Clayton Morris, who promised Mr. Huerta that he would take care of the problem. (Id.)

Plaintiff later learned that different entities, Oceanpointe Investments Limited ("Oceanpointe") and BlueSky, were responsible for rehabilitating and renting out the property, and that Defendants were only marketers. (Id. at 5-7.) The Complaint incudes an excerpt of an email from "clayton@morrisinvest.com" that reads: "Yes sir we have many LLC's that we use to hold our acquisitions before rehab. And [Oceanpointe] is just one of them we own."

Defendants attach the Purchase Agreement ("Agreement") to its Brief in Support of its Motion to Dismiss. The Agreement does not contain any terms referencing rehabilitation of the property, nor any tenant related or property management services.

II. Legal Standard

To survive a motion to dismiss for failure to state a claim, a plaintiff must allege "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). In considering a Rule 12(b)(6) motion to dismiss,the court takes the complaint's factual allegations as true and draws all reasonable inferences in the plaintiff's favor. Orgone Capital III, LLC v. Daubenspeck, 912 F.3d 1039, 1044 (7th Cir. 2019). The Court need not "accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286 (1986).

"[I]f a plaintiff pleads facts that show its suit [is] barred . . . , it may plead itself out of court under a Rule 12(b)(6) analysis." Orgone Capital, 912 F.3d at 1044 (quoting Whirlpool Fin. Corp. v. GN Holdings, Inc., 67 F.3d 605, 608 (7th Cir. 1995)); Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013) (quoting Hamilton v. O'Leary, 976 F.2d 341, 343 (7th Cir. 1992)) (on a motion to dismiss "district courts are free to consider 'any facts set forth in the complaint that undermine the plaintiff's claim'"). "When a complaint fails to state a claim for relief, the plaintiff should ordinarily be given an opportunity . . . to amend the complaint to correct the problem if possible." Bogie, 705 F.3d at 608. Nonetheless, leave to amend need not be given if the amended pleading would be futile. Id.; see also Foman v. Davis, 371 U.S. 178, 182 (1962).

III. Discussion

A. Breach of Contract

Defendants argue that Plaintiff's breach of contract claim must be dismissed because the Agreement has expired by its own terms, the Agreement does not contain any rehabilitation, tenant related, or property management obligations, and because Morris Invest is not a party nor a signatory to the Agreement. In response, Plaintiff argues that even though the parties closed on the property eleven days after the closing deadline, (see Purchase Agreement, ECF No. 18-1 at 3 ("[t]he closing of the sale .. . shall be on or before 12/06/2017 . . . or this Agreement shall terminate unless an extension of time is mutually agreed to in writing")), the parties went forward with the purchase of the property and conducted themselves as though the contract were still in force. Plaintiff also argues that Defendants' obligation to rehabilitate the property and provide tenant and property management services are implicit in Defendants' statements that it was selling Plaintiff a "turnkey" property, meaning that the property was habitable, managed, and had tenants in place. Lastly, Plaintiff argues that Morris Invest cannot disclaim liability because Plaintiff has "pleaded facts supporting an inference that Clayton Morris's signature of the purchase agreement was permitted and/or ratified by Morris Invest, and that Morris Invest accepted the benefits of the act." In reply, Defendants argue that Plaintiff cannot embellish the contractual obligations in the Agreement with the use of the word "turnkey" which does not appear in the Agreement. Defendants maintain that the terms of the Agreement are clear and unambiguous, rendering any extrinsic evidence inadmissible to add to, vary, or explain the terms of the contract.

The Court may consider the Agreement in ruling on Defendants' Motion to Dismiss. See Fed. R. Civ. Pr. 10(c) ("A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes."); Mueller v. Apple Leisure Corp., 880 F.3d 890, 895 (7th Cir. 2018) (noting that it is "well-settled in this circuit that documents attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim."). Further, "[w]hen an exhibit incontrovertibly contradicts the allegations in the complaint, theexhibit ordinarily controls, even when considering a motion to dismiss." Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013).

Turning first to Morris Invest's argument that it is neither a party nor a signatory to the Agreement and therefore cannot be held liable in a breach of contract action, the Court disagrees. It is a fundamental principle of agency law that "[t]he acts of an agent, within the scope of the authority delegated to him, are deemed the acts of the principal. Whatever he does in the lawful exercise of that authority is imputable to the principal, and may be proven without calling the agent as a witness." Vicksburg & M. R. Co. v. O'Brien, 119 U.S. 99, 104 (1886). Plaintiff has pleaded sufficient facts supporting the inference that Clayton Morris signed the agreement as an agent of Morris Invest. The Complaint alleges that Clayton Morris is a co-founder and owner of Defendant Morris Invest. (Compl., ECF No. 1 at 2.) The Complaint also makes several factual allegations that Morris Invest was involved in the real estate program that forms the basis of this lawsuit. (See Id. at 4) ("Morris Invest lures potential investors by advocating its program through blogs, YouTube videos, and a podcast"); (Id.) ("Morris Invest persuades investors to participate in its program by claiming to have been founded on a three-step wealth building plan"); (Id. at 5) ("Plaintiff was told by Defendants that Morris Invest would handle everything pertaining to the Rental Properties"). Moreover, Morris Invest is named in and benefits from the Agreement. The Agreement contains a non-disparagement clause, which states: "Buyer agrees to not make any statement whether written or oral, that disparage, defame or otherwise libel Morris Invest or any of its affiliated companies or any of itscurrent or former employees." (Agreement, ECF No. 19-1 at 4.) The Complaint's allegations that Morris Invest marketed and facilitated the real estate...