Foxx v. My Vintage Baby, Inc., Case No. 4:12CV593

GEORGE FOXX, Plaintiff, v. MY VINTAGE BABY, INC., et al. Defendants.

Case No. 4:12CV593

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION

December 22, 2014

MEMORANDUM OPINION AND ORDER OF UNITED STATES MAGISTRATE JUDGE

Pending before the Court is Defendants' Motion to Dismiss for Plaintiff's Failure to State a Claim (Dkt. 70). As set forth below, it is GRANTED and Plaintiff's claims are dismissed with prejudice.

Plaintiff George Foxx filed this suit against Defendants alleging gross negligence, intentional or reckless misrepresentation, and general fraud and misrepresentation; he has also claimed punitive damages in his amended complaint. These claims arise from the Plaintiff's loss of investments in an alleged penny-stock scam in My Vintage Baby, Inc. a children's clothing company. He further claims that these shares of stock declined in value due to third party illegal trading practices and that he still holds shares in worthless stock. According to the attachments to Plaintiff's complaint, the Securities and Exchange Commission investigated My Vintage Baby, Inc. and Jessica Wiswall; the SEC did not recommend any action against Defendants, but did file suit against others related to thepromotion of the penny-stock scheme. Dkts. 45- 3- 8.¹

Defendants Jessica Smith Wiswall and My Vintage Baby, Inc. filed their motion to dismiss on May 5, 2014, and Plaintiff filed his response on May 13, 2014. The Court now determines whether Plaintiff has stated any claim upon which relief can be granted.

STANDARD

When reviewing a case under Rule 12(b)(6) of the Federal Rules of Civil Procedure to determine whether a plaintiff has stated a claim, the Court must accept as true all well-pleaded facts contained in the plaintiff's complaint and view them in the light most favorable to the plaintiff. Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). A claim will survive an attack under Rule 12(b)(6) if it "may be supported by showing any set of facts consistent with the allegations in the complaint." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563, 127 S. Ct. 1955, 1969, 167 L. Ed.2d 929 (2007). In other words, a claim may not be dismissed based solely on a court's supposition that the pleader is unlikely "to find evidentiary support for his allegations or prove his claim to thesatisfaction of the factfinder." Id. at 563 n.8.

Although detailed factual allegations are not required, a plaintiff must provide the grounds of her entitlement to relief beyond mere "labels and conclusions," and "a formulaic recitation of the elements of a cause of action will not do." Id. at 555. The complaint must be factually suggestive, so as to "raise a right to relief above the speculative level" and into the "realm of plausible liability." Id. at 555, 557 n.5. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S. Ct. 1955)). For a claim to have facial plausibility, a plaintiff must plead facts that allow the court to draw the reasonable inference that the defendant is liable for the alleged misconduct. Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009). Therefore, "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not shown - that the pleader is entitled to relief." Id. (internal quotations omitted). Fraud claims must also meet the heightened pleading standard of Rule 9(b), under which "a party must state with particularity the circumstances constituting fraud." FED. R. CIV. P. 9(b).

ANALYSIS²

Plaintiff's complaint asserts three claims: "Count I: Gross Negligence;" "Count II: Intentional or Reckless Misrepresentation;" and "Count III: General Fraud and Misrepresentation." See Dkt.45. The Court examines each below.

Plaintiff alleges that Defendants acted with gross negligence, claiming that Defendants knew or should have known of the reckless conduct of third parties engaging in fraudulent activities. Dkt. 45. However, Plaintiff's complaint fails to allege specific acts constituting negligence. "Gross negligence is defined as an entire want of care, which would raise the belief that the act or omission complained of was the result of a conscious indifference to the rights or welfare of the person or persons to be affected by it." Aguirre v. Vasquez, 225 S.W.3d 744, 754 (Tex. App.—Houston [14th Dist.] 2007, no pet.). Gross negligence has both an objective and a subjective component. U-Haul Intern., Inc. v. Waldrip, 380 S.W.3d 118, 137 (Tex. 2012). To establish gross negligence, a plaintiff must show that, "(1) when viewed objectively, the defendant's acts or omissions involved an extreme degree of risk, considering the probability and magnitude of the potential harm to others, and (2) that the defendant had an actual, subjective awareness of the risk involved but nevertheless proceeded with conscious indifference to the rights, safety, or welfare of others." Id.

Defendants argue that Plaintiff has not alleged an act or omission that involves an extreme degree of risk, or an actual subjective awareness of a risk followed by an act with conscious indifference to the rights, safety, or welfare of others. Dkt. 70. The Court agrees.

Plaintiff alleges that Jessica Smith Wiswall was "joined at the hip" (Dkt. 45 at ¶49) to those involved in the misrepresentation and fraud, but there are no specific acts alleged sufficient to show that Defendants were acting with an objective extreme degree of risk or with subjective awareness of the risk. Such conclusory allegations are insufficient to survive 12(b)(6) scrutiny. The Court also notes that Plaintiff's own complaint attaches an email that Defendant sent to the responsible thirdparties, saying "our stock price has drastically dropped in the last week. I am getting numerous threatening faxes, emails and calls from very upset shareholders. They are accusing us that we must be doing something criminal . . . I am at a loss." Dkt. 45, Ex. 4. The materials before the Court are insufficient to state any facts that would show that Defendants had an actual, subjective awareness of the risk involved but nevertheless proceeded with conscious indifference. Defendants' motion is granted as to gross negligence, and "Count I: Gross Negligence" is dismissed.

Plaintiff's Count II is "Intentional or Reckless Misrepresentation." There is no recognized independent civil cause of action for "intentional or reckless misrepresentation" under Texas law. Texas law, and federal courts like this Court applying Texas law, do recognize claims for negligent misrepresentation and fraud. Viewing the allegations in a light most favorable to Plaintiff and taking into consideration his pro se status, the Court thus construes Plaintiff's "reckless misrepresentation" claim as a claim of negligent misrepresentation.

Plaintiff's Count III is "General Fraud and Misrepresentation." Again, there is no recognized cause of action for "general fraud and misrepresentation" under Texas law. Viewing the allegations in a light most favorable to Plaintiff and taking into consideration his pro se status, the Court thus construes Plaintiff's "intentional misrepresentation" claim and "general fraud and misrepresentation" claim as a claim of common law fraud.

Under Texas law, a claimant alleging negligent misrepresentation must show the following: (1) the representation is made by a defendant in the course of his business, or in a transaction in which the defendant has a pecuniary interest; (2) the defendant supplies "false information" for the guidance of others in their business; (3) the defendant did not exercise reasonable care orcompetence in obtaining or communicating the information; and (4) the plaintiff suffers a pecuniary loss by justifiably relying on the representation. Biggers v. BAC Home Loans Serv., LP, 767 F. Supp. 2d 725, 734 (N.D. Tex. 2011) (quoting Sloane, 825 S.W.2d at 442) (internal quotations omitted); see also Verdin v. Fed. Nat'l Mortgage Ass'n, 540 Fed. App'x 253, 255 (5th Cir. 2013).

To assert a claim of fraud under Texas law, a plaintiff must allege that: (1) a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. Flaherty & Crumrine Preferred Income Fund, Inc., 565 F.3d 200, 212 (5th Cir. 2009) (citing Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)). Further, to state a claim for fraud or mistake in federal court, a plaintiff must state with particularity the circumstances constituting fraud or mistake. FED. R. CIV. P. 9(b). "At a minimum, Rule 9(b) requires that a plaintiff set forth the 'who, what, when, where, and how' of the alleged fraud." U.S. ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997); see also Carroll v. Fort James Corp., 470 F.3d 1171, 1174 (5th Cir. 2006) ("In cases concerning fraudulent misrepresentation and omission of facts, Rule 9(b) typically requires the claimant to plead the type of facts omitted, the place in which the omissions should have appeared, and the way in which the omitted facts made the representations misleading.") (citing United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 381 (5th Cir. 2004) (citing 2 James W. Moore, et al., Moore's Federal Practice § 9.03[1][b] at 9-18 through 9-19 (3d ed. 2003))). Rule 9(b) governs the pleadingrequirements for negligent misrepresentation claims when the "fraud...