RKJ Prevails on Behalf of Manufacturer of Self-Brewing Equipment Against Claims for Violations of Florida Securities Laws and Fraud
Adam Rabin and Lauren Johnson, with its co-counsel Fred Cunningham and Matthew Christ, recently secured the dismissal of securities registration and fraud claims asserted against its client, third-party defendant Brew First, Inc. (“Brew First”), which is a manufacturer of kegs and tap machines that allow customers to brew their own beer, hard seltzer, and wine. The Southern District of Florida case is styled Matthew Hayden v. Steven F. Urvan v. Brew First, Inc., Case No. 21-cv-82051 (“Action”) and remains pending between the plaintiff and defendant.
In the Action, the plaintiff sued the defendant over a contractual fee that defendant contended he was not obligated to pay. In addition to answering the plaintiff’s claims, however, the defendant asserted third-party claims against Brew First for securities fraud (§ 517.301, Fla. Stat.); failure to register as an “issuer” or “dealer” (§ 517.12, Fla. Stat.); and direct and vicarious liability for common law fraud. The claims arose from an investment the defendant’s company made in Brew First in 2018, allegedly in reliance upon representations and omissions that plaintiff and Brew First made about Brew First’s financial condition.
Brew First filed a motion to dismiss all defendant’s third-party claims against it. As to the securities registration claims–which were filed in 2022—Brew First argued, in part, that the two-year statute of limitations (§ 95.11(4)(e), Fla. Stat.) barred defendant’s claims. Specifically, Brew First argued that its investment documents, which were sent to defendant in 2018, expressly state that Brew First was not registered because they were exempt from registration requirements. Thus, it argued defendant knew the facts giving rise to the registration claims when the investment was made in 2018. In response, Defendant argued that Brew First was mischaracterizing his claims because he was not claiming that Brew First sold unregistered securities, but instead that Brew First acted as an unregistered dealer and issuer of securities and, therefore, he did not know the facts giving rise to his claims at the time of the investment. The Court, however, rejected defendant’s argument, holding that defendant knew that Brew First had treated the entire investment transaction as exempt—including that Brew First itself was exempt from registration–and, therefore, he was on notice of registration claims more than two years before he filed them. Accordingly, the Court dismissed with prejudice defendant’s registration claims.
In addition, as to defendant’s claim for securities fraud, Brew First argued that defendant lacked standing to sue Brew First for securities fraud because: (1) a separate entity made the investment in Brew First and privity is required between the investor and the issuer, and (2) the separate entity could not assign its claim to defendant. Defendant argued the entity that invested in Brew First lawfully assigned its claims to defendant pursuant to an exception in the Brew First investment documents. The Court held that defendant did not properly plead the privity required pursuant to an exception to the prohibition on assignments. Thus, the Court dismissed defendant’s securities fraud claim without prejudice.
As to defendant’s claims for direct and vicarious liability for common law fraud, Brew First argued that the claims should be dismissed because defendant failed to allege the false statements with particularity, such as who made the statements, what the statements were, precisely when the statements were made, and where/how they were made. The Court agreed that defendant’s fraud claims were not adequately alleged, dismissing these claims without prejudice.
When defendant did not timely file an amended third-party complaint against Brew First, the Court’s dismissal of the securities fraud and common law fraud claims ripened to a dismissal with prejudice. Therefore, all claims against Brew First were successfully terminated.
After final judgment is entered on all of the claims in the case, Brew First intends to move for prevailing party attorney’s fees and costs against defendant.
