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Cohen v. Lyle

United States District Court, W.D. Kentucky, Bowling Green Division

February 7, 2014

JEFFREY COHEN, SUSAN COHEN, JEFFREY COHEN, TRUSTEE OF THE BENJAMIN COHEN IRREVOCABLE TRUST OF 1994, and JEFFREY COHEN, TRUSTEE OF THE ABRAHAM COHEN REVOCABLE TRUST OF 1994, Plaintiffs,
v.
SHEF LYLE, LYLE ENERGY PARTNERS, INC., LE BIOMASS PROJECT 1, and LE PROJECT 2007-B, LLC, Defendants.

MEMORANDUM OPINION

THOMAS B. RUSSELL, Senior District Judge.

This matter comes before the Court upon the Motion for Partial Summary Judgment of the Defendants. (Docket No. 18.) Plaintiffs have responded (Docket No. 19), and Defendant has replied (Docket No. 20). This matter is now ripe for adjudication.

Although the initial motion was based upon procedural matters, the parties have also addressed substantive issues in their briefing. Accordingly, the Court will address each.

BACKGROUND

Plaintiffs are investors who were allegedly induced by fraudulent misrepresentations to make loans to Defendant LE Biomass Project 1 ("LE Biomass") and acquire membership units in LE Project 2007-B, LLC ("LE Project"). Count II of Plaintiffs' Complaint alleges that the Defendants committed fraud in connection with the solicitation and sale of securities in LE Project.

According to Plaintiffs' Complaint of December 3, 2012, several of Defendants' alleged false and misleading statements are found in a "Confidential Private Placement Memorandum" (the "Memorandum") dated December 20, 2007. (Docket No. 19-1.) Such statements include:

There are hereby offered Limited Liability Company Units ("Units") in LE Project 2007-B, LLC, a proposed Limited Liability Company, which shall be formed and activated, if at all, under Kentucky law and the Agreement of Limited Liability Company ("Limited Liability Company Agreement"). The LE Project 2007-B, LLC project consists of the drilling of five (5) new wells in Metcalfe County, Kentucky. The wells will be drilled to the Knox formation which is approximately 1600 to 1800 foot in depth.

(Docket No. 19-1. at 21; see also pp. 2, 12, and 13.) Plaintiffs allege that this statement proved false, as the Project neither drilled nor owned any wells.

According to the Complaint, the Defendants represented that wells to be drilled would generate income for Plaintiffs. (Docket No. 1 at 5.) Plaintiffs assert that the Defendants provided forecasts of production, causing Plaintiffs to conclude that they would receive a complete return of their investment in approximately two years. (Docket No. 1 at 5.) Finally, according to Plaintiffs, Defendants represented that the LE Project had been formed as a Kentucky limited liability company ("LLC") and that the wells had been drilled and were producing. (Docket No. 1 at 5.) Plaintiffs argue that the latter representation was buttressed by

Defendants' issuing to Plaintiffs an IRS Schedule K-1 for LE Project 2007-B, LLC and by issuing royalty checks purportedly for oil produced by the wells at issue. (Docket No. 1 at 5.) Defendants contend that Plaintiffs "should have reasonably discovered any alleged fraud within months of the alleged misrepresentation and Plaintiff certainly should have discovered the fraud prior to December 3, 2009 (three years prior to the filing of Plaintiff's Complaint)." (Docket No. 18-1 at 2-3.) Therefore, Defendants assert that Plaintiffs' fraud allegation as to this investment is time-barred. Plaintiffs respond that a genuine issue of material fact exists as to when the fraud should have been discovered. (Docket No. 19 at 1.) They insist that Mr. Cohen was without reason to suspect either that the LLC was never formed, or that the Project owned no wells, until after December 3, 2009, three years prior to this suit's filing. (Docket No. 19 at 2.)

STANDARD

Summary judgment is appropriate where the pleadings, the discovery and disclosure materials on file, and any affidavits show "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

"[N]ot every issue of fact or conflicting inference presents a genuine issue of material fact." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir. 1989). The test is whether the party bearing the burden of proof has presented a jury question as to each element in the case. Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir. 1996). The plaintiff must present more than a mere scintilla of evidence in support of his position; rather, he must present evidence on which the trier of fact could reasonably find for him. See id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)). Mere speculation will not suffice to defeat a motion for summary judgment: "[T]he mere existence of a colorable factual dispute will not defeat a properly supported motion for summary judgment. A genuine dispute between the parties on an issue of material fact must exist to render summary judgment inappropriate." Monette v. ...


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