Greenpoint Tactical Income Fund v. Pettigrew

GREENPOINT TACTICAL INCOME FUND, et al., Plaintiffs, v. ALLEN PETTIGREW,¹ and DARREN CLAY HALVERSON, Defendants.

Case No. 20-cv-444-pp

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN

February 9, 2021

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS (DKT. NO. 2)

FBI Agents raided the plaintiffs' offices and homes on March 22, 2017, brandishing weapons and seizing documents, computers and other assets. Dkt. No. 1. The government did not charge the plaintiffs with a crime, returning all assets months later. Id. at ¶5. The plaintiffs filed a complaint under Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971), alleging that the defendants violated their civil rights "for the unlawful search and seizure of Plaintiff's homes, offices, private papers, information, communications, and belongings in violation of Plaintiffs' Fourth Amendment rights." Id. at ¶6.

The plaintiffs allege that FBI Special Agent Allen Pettigrew knowingly and intentionally made false statements in the affidavit filed in support of thesearch warrant. Id. at ¶3. The plaintiffs assert that Assistant United States Attorney Darren Halverson "intentionally, knowingly, and recklessly assisted Pettigrew in the preparing and filing of the false statement and representations or material omissions." Id.

The defendants seek dismissal under Fed. R. Civ. P. 12(b)(6) for failure to state a claim, arguing that (1) no implied cause of action arises under Bivens in this context; (2) absolute immunity bars the claims against Halverson; (3) qualified immunity protects Halverson and Pettigrew; and (4) the plaintiffs failed to state a claim for damage to property. Dkt. No. 31. The motion is fully briefed, and on December 3, 2020 the court heard oral argument. Dkt. No. 15. The court will grant the motion.

I. Standard Governing Motion to Dismiss

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed. R. Civ. P. 12(b)(6); Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). When evaluating a motion to dismiss under Rule 12(b)(6), the court accepts as true all well-pleaded facts in the complaint and draws all reasonable inferences from those facts in the plaintiff's favor. AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). To survive a motion to dismiss under Rule 12(b)(6), a complaint 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). "A claim has facial plausibility when the plaintiff pleads factual content that allows a court to draw the reasonable inference that the defendant is liable for the misconductalleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).

II. Facts Alleged in the Complaint

A. The Parties

Plaintiff Greenpoint Tactical Income Fund, LLC is a private investment fund founded in 2013. Dkt. No. 1 at ¶9. It invests in asset classes, including rare gems and fine minerals, intended to hedge against fluctuations in more traditional asset classes. Id. Greenpoint has over 100 individual investors and maintains offices and a vault in Milwaukee. Id.

The other plaintiffs are affiliated with Greenpoint. GP Rare Earth Trading LLC (GP Rare Earth) is a wholly owned subsidiary of Greenpoint and the entity that holds the gem and mineral assets. Id. at ¶10. Greenpoint has two managing members: Chrysalis Financial LLC (Chyrsalis) and Greenpoint Asset Management II, LLC (GAM II). Id. at ¶9. Chrysalis, which is responsible for the day-to-day operations of Greenpoint and GP Rare Earth, is primarily managed by Christopher Nohl. Id. at ¶¶11. 13. GAM II, which is responsible for investor relations, is primarily managed by Michael Hull. Id. at ¶¶12, 14. Bluepoint Investment Counsel, LLC operates as an investment advisory firm providing services to Greenpoint, and is co-owned and managed by Michael Hull. Id. at ¶15.

Defendant Allen Pettigrew works for the FBI as a special agent in the Madison Resident Agency of the Milwaukee Division. Id. at ¶16. DarrenHalverson works as an Assistant United States Attorney in the Western District of Wisconsin. Id. at ¶17.

B. The Search Warrant

The plaintiffs allege that in March 2017, Pettigrew and Halverson prepared warrant applications and affidavits that contained multiple false and/or deliberately misleading representations. Id. at ¶¶18, 19. The plaintiffs allege that Pettigrew and Halverson made the following statements "intentionally, knowingly and recklessly:"

• That offering materials sent to investors placed an "emphasis" on distressed real estate assets rather than gem and mineral assets, which may have misled investors about fund assets or the use of their investments. Dkt. No. 1 at ¶20. The plaintiffs allege that Pettigrew and Halverson had reviewed information, including investor emails and similar communications, that showed that investors were fully aware of the fund's investments in gem and fine mineral assets. Id.

• That paragraphs 18 and 20 of Pettigrew's affidavit suggested that a sampling of thirty appraisals obtained by Greenpoint were "purported to be completed by" James Zigras or William Metropolis but that they were unsigned, implying—falsely, according to the plaintiffs—that Zigras or Metropolis may not have completed the appraisals. Id. at ¶21. The plaintiffs allege that through the search warrant, Pettigrew had obtained access to the emails of Nohl (manager of Chyrsalis) and other employees involved in the valuation process and knew that Zigras and Metropolis had prepared the appraisals. Id.

• That the Pettigrew affidavit said the appraisal reports prepared by Metropolis (Metropolis prepared twenty-one of the thirty appraisal reports) "did not specify the valuation type for the fund" and therefore did not identify whether the appraisals were for fair market value or some other basis for valuation (such as replacement costs). Id. at ¶22. The plaintiffs allege that Pettigrew falsely and misleadingly omitted the fact that Nohl had instructed Metropolis by email to provide fair market value appraisals. Id.

• That the Pettigrew affidavit implied that Nohl "improperly influenced the valuation of assets by Metropolis" because in response to a July 3-4, 2015 email request for an appraisal, Metropolis wrote to Nohl, "also please give an idea of what you might need for numbers." Id. at ¶23. The plaintiffs allege that the affidavit claims that this showed that Metropolis was seeking inappropriate and biased input on the valuations, and that the affidavit neglected to state that on July 4, 2015, Nohl had responded to Metropolis, declining to provide any input into the valuations. Id.

• That the affidavit stated that Greenpoint underinsured the mineral assets and stated that "the reported unrealized gains of the gems and minerals held by GP Rare Earth are entirely uninsured," implying that Greenpoint did not believe that its assets were worth what the valuations reflected. Id. at ¶24. The plaintiffs claim that "[o]n information and belief," Pettigrew reviewed insurance documents (including underwriting notes) demonstrating that from December 17, 2015 through at least January 6, 2016, Jewelers Mutual Insurance Company was processing a quote to insure the full value of all assets and that the reason the full value was not insured was that Jewelers Mutual required additional security measures to be installed before it would insure the additional value. Id.

• That the affidavit quoted the December 17, 2015 Jewelers Mutual Underwriting Authority Notes as stating that a terminated employee of GP Rare Earth, William Tumler, said that he was no longer with the company "due to unethical and possible illegal activities" and that "new inventory was inflated and may be a set for a claim or misleading investors." Id. at ¶25. The plaintiffs claim that Pettigrew did not disclose that Jewelers Mutual had contemporaneously performed its own expert review of GP Rare Earth's holdings on December 8 and 9, 2015, and was willing to provide quotes for increased coverage and to continue insuring GP Rare Earth's collection, indicating that it did not credit Tumler's statements and that it had knowledge to the contrary. Id.

The plaintiffs allege that [o]n the basis of the false and misleading Pettigrew Affidavit and other, similar affidavits, this Court and others found probable cause and issued search warrants. Id. at ¶28.

C. Warrant Execution

On March 22, 2017, federal agents raided Greenpoint, GP Rare Earth, Chyrysalis, Bluepoint Investment Counsel, LLC, GAM II and the homes of Hull and Nohl. Id. at ¶1. The FBI seized "thousands of documents as well as computers, gems, fine minerals, and other materials" and "practically the entire fine gem and mineral collection of [GP Rare Earth]." Id. at ¶29. The plaintiffs allege that the seizure prevented Greenpoint and GP Rare Earth from engaging in transactions regarding their gem and fine mineral assets and restricted their ability to conduct business. Id. at ¶30. The plaintiffs allege that they had to spend money to obtain the return of their assets and defend against the investigation. Id. at ¶2. They assert that on March 31, 2017, the U.S. Attorney's Office, through Halverson, "failed to follow this Court's rules for maintaining search warrant affidavits under seal," and that as a result, Pettigrew's affidavit "became public and its false and misleading allegations became the subject of an article in the Milwaukee Journal-Sentinel." Id. at ¶32. They assert that "allowing the Pettigrew Affidavit to become public was a violation of [U.S. Attorney's Office] and/or [Department of Justice] policy and procedure." Id. The plaintiffs assert that the article raised investor questions, which prompted the plaintiffs to communicate with investors regarding the raids; they say that those communications became the subject of inquiry by Halverson, "leading to additional grand...