You are on page 1of 30

Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 1 of 20 PageID #: 389

IN THE UNITED STATES DISTRICT COURT


FOR THE SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

LARRY AND LESLIE KAY MCLESKEY; )


DEEPAK NEELAGIRI AND REENA )
GADAGOTTU; ALANANN PROPERTIES, )
LLC; CARLOS HUERTA HOMES IN, LLC; )
LEJ MANAGEMENT, LLC; BN INVEST, )
LLC; GALVESTON, LLC; BKS IN )
PROPERTIES, LLC; DL3 PROPERTIES, )
LLC IN1801; COVENANTAL CORP.; )
1446 MOUNT, LLC; 300 REAL ESTATE )
INVESTMENTS, LLC; FINNLEY INVEST, )
LLC; and AR FINANCIALS, LLC )
)
Plaintiffs, )
)
v. ) Case No. 1:18-cv-02797-WTL-DML
)
MORRIS INVEST and CLAYTON MORRIS, )
)
Defendants. )

MORRIS INVEST’S AND CLAYTON MORRIS’S


REPLY BRIEF IN SUPPORT OF MOTION TO DISMISS

Morris Invest and Clayton Morris (collectively “Morris Defendants”) moved to

dismiss the entirety of Counts II, III, IV, V, VI, and portions of Count I of Plaintiffs’

Amended Complaint with prejudice. See Dkt 26 (“Morris Defendants’ Brief”). The

Plaintiffs filed a response brief, see Dkt. 29 (“Plaintiffs’ Response”), arguing that their

claims should survive. But, for the reasons here and in the Morris Defendants’ Brief,

the Court should grant the Morris Defendants’ Motion to Dismiss the Amended

Complaint. Dkt. 25.


Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 2 of 20 PageID #: 390

ARGUMENT1

1. The Plaintiffs’ breach-of-contract claims fail for multiple reasons.

1.1. Eight of the Plaintiffs’ breach-of-contract claims fail as a matter


of law.

Eight of the contracts at issue expired by their terms because the properties

did not close before the Closing Date. Morris Defendants’ Brief at 7-8. The Plaintiffs

concede the Closing Date is a condition subsequent but argue this is beside the point.

Plaintiffs’ Response at 19-20. The Plaintiffs argue that they alleged the elements of a

breach in their Amended Complaint, and that even if the contracts terminated, the

contracts were either revived or new contracts were created by the action of the

parties in consummating the transactions. Id.

The Plaintiffs’ argument fails for several reasons. First, all the Purchase

Agreements contain written provisions providing that if the sale did not occur before

the Closing Date, there would be no extension of the contract without a writing.2 See,

e.g., Morris Defendants’ Brief, Exh 1, ¶7 (If not sold by the Closing Date, then “this

Agreement shall terminate unless an extension of time is mutually agreed to in

writing.”). The Plaintiffs have not alleged such a writing. Second, all the Purchase

Agreements contain a separate, integration clause providing that the Purchase

Agreement is the only contract dealing with this transaction and that the Purchase

1Although the Plaintiffs addressed the Morris Defendants’ arguments in a non-sequential order, this
Brief will address arguments in the order presented by the Amended Complaint.

2 The Morris Defendants argued the Purchase Agreements are the operative contracts, and the
Plaintiffs have not disputed this point.

2
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 3 of 20 PageID #: 391

Agreement cannot be changed without the parties’ written consent.3 Thus, without

the parties’ written consent, the contracts cannot be extended and no new contracts

can be formed dealing with the subject of the contracts—the sale of property. See

Autohaus Brugger, Inc. v Saab Motors, Inc., 567 F.2d 901, 915 (9th Cir. 1978) (holding

that the parties’ actions did not create an implied contract when the express terms of

the contract prevented an extension or renewal).

Third, the case Plaintiffs cite provides no help. In JKL Components Corp. v.

Insul-Reps, Inc., 596 N.E.2d 945 (Ind. Ct. App. 1992), the issue was whether under

California law, when the term of a contract expired yet the parties believed and acted

like it was still in effect, the court could properly conclude there was an implied

contract between the parties. Id. at 950-951. The Amended Complaint shows that the

parties did not continue acting as though a written contract were in effect, as the

Plaintiffs allege that Oceanpointe and Indy Jax—not Clayton Morris—sold the

properties. Am. Compl. ¶¶32, 37. Thus, unlike in JKL, the original signatories to the

Purchase Agreements did not complete the transactions. Further, not only is the

conduct distinguishable from JKL, but the contract in JKL did not contain the same

provisions here that prohibit changes to the terms without written consent. See JKL,

3 See, e.g., Morris Defendants’ Brief, Exh. 1, ¶21.I (“This Agreement constitutes the sole and only
agreement of the parties and supersedes any prior understandings or written or oral agreements
between the parties respecting the transaction and cannot be changed except by their written
consent.”) (emphasis added). “Generally, where the parties to an agreement have reduced the
agreement to a written document and have stated in an integration clause that the written document
embodies the complete agreement between the parties, the parol evidence rule prohibits courts from
considering parol or extrinsic evidence for the purpose of varying or adding to the terms of the written
contract.” I.C.C. Protective Coatings, Inc. v. A.E. Staley Mfg. Co., 695 N.E.2d 1030, 1035 (Ind. Ct. App.
1998).

3
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 4 of 20 PageID #: 392

596 N.E.2d at 953 (quoting the entirety of the contract’s term provision, with no

language prohibiting changes without written consent).

1.2. The Plaintiffs cannot use a word not found in the contracts—
turnkey—to create obligations outside the scope of the written,
integrated agreements.

The Plaintiffs concede that none of the Purchase Agreements contain

provisions about Tenant Services, Property Management Services, and, for 12 of the

23 Purchase Agreements, Rehab Services. Plaintiffs’ Response at 21. Yet despite this,

the Plaintiffs argue their “turnkey” allegations in the Amended Complaint save them,

as it is possible the parties entered into contracts with such terms at some point.

Plaintiffs’ Response at 21-22.

The Plaintiffs face two fatal obstacles. First, the Plaintiffs are attempting to

embellish the contract obligations in the Purchase Agreements with the use of the

word “turnkey.”4 Yet the word “turnkey” is not found in any of the contracts. The

Amended Complaint’s “turnkey” allegation must give way to the actual terms of the

Purchase Agreements the Morris Defendants submitted. Bogie v. Rosenberg, 705 F.3d

603, 609 (7th Cir. 2013) (“When an exhibit incontrovertibly contradicts the

allegations in the complaint, the exhibit ordinarily controls, even when considering a

motion to dismiss.”). Second, as explained above, the Purchase Agreements’

integration clauses bar any argument that, absent a writing, a separate agreement

4 The Amended Complaint cannot be amended by the Plaintiffs’ Response to supplement these
allegations. See Malone v. Securitas Sec. Servs., No. 13 C 8747, 2015 WL 5177549, at *2 (N.D. Ill. Sept.
3, 2015), aff’d sub nom. Malone v. Securitas Sec. Servs. USA, Inc., 669 F.App’x 788 (7th Cir. 2016)
(“Plaintiff may not attempt to cure deficiencies inherent in a complaint by asserting new facts for the
first time in opposition to a motion to dismiss.”); Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101,
1107 (7th Cir. 1984) (“[I]t is axiomatic that the complaint may not be amended by the briefs in
opposition to a motion to dismiss.”).

4
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 5 of 20 PageID #: 393

between these parties could be entered into at a different point in time related to

these transactions. Thus, regardless when the alleged turnkey statements arose,

either before or after the Purchase Agreements were executed, no new terms could be

added without a writing.

2. The Plaintiffs failure to plead their promissory-estoppel claims with


particularity mandates dismissal, and the Plaintiffs have not properly
pleaded this claim in the alternative.

2.1. The Plaintiffs’ promissory-estoppel claim fails under Rule 9(b).

The Morris Defendants argued in their opening brief that Plaintiffs’

promissory-estoppel claims sounded in fraud and were subject to Rule 9(b)’s

heightened pleading standard. Morris Defendants’ Brief at 11-12. Purporting to

address this, the Plaintiffs reference the six-page table in their response, and say this

shows the particularized allegations. Plaintiffs’ Response at 16. This table does not

contain direct or inferential allegations, let along those made with particularity, of

the material elements for a promissory-estoppel claim. See Precision Cam, Inc. v. Fox

& Fox, No. 1:14-cv-00452, 2015 WL 803552, at *6 (S.D. Ind. Feb. 24, 2015).5 The

Plaintiffs’ table fails to show how the Amended Complaint details the promises to

each Plaintiff, that these were made with the expectation of reliance, that the

Plaintiffs reasonably relied on the promises,6 that the promises were of a definite and

5 The elements of a promissory-estoppel claim are: (1) “ promise by the promissor; (2) made with the
expectation that the promisee will rely thereon; (3) which induces reasonable reliance by the promisee;
(4) of a definite and substantial nature; and (5) injustice can be avoided only by enforcement of the
promise.” Turner v. Nationstar Mortg., LLC, 45 N.E.3d 1257, 1265 (Ind. Ct. App. 2015).

6 The Plaintiffs have alleged that based on certain representations, some Plaintiffs took action. See
Plaintiffs’ Response at 11. But these allegations fail to plausibly show reasonable reliance. For
instance, Plaintiff BN Invest alleges that at some point before April 2017, someone called him about
“hot” properties that required same-day action. Am. Compl. ¶57. BN Invest’s Purchase Agreements,

5
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 6 of 20 PageID #: 394

substantial nature, and that injustice can only be avoided by enforcing the promise.

Neither did their pleading. Accordingly, the promissory-estoppel claims fail for lack

of particularity.

2.2. The Plaintiffs did not plead in the alternative.

The Plaintiffs’ breach-of-contract claims bar their attempt to

contemporaneously bring promissory-estoppel, fraud, conversion, and negligence

claims. Morris Defendants’ Brief at 13-14, 20-21, 22, 25. Despite the Plaintiffs’

argument that they are allowed to plead in the alternative, the Amended Complaint

shows that the Plaintiffs made no attempt to do so.

The Seventh Circuit holds that although plaintiffs “need not use particular

words to plead in the alternative, they must use a formulation from which it can be

reasonably inferred that this is what they were doing,” such as the use of “either-or”

or “if-then” language. Holman v. Indiana, 211 F.3d 399, 407 (7th Cir. 2000) (citing 5

Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure §1282 at 525

(2d ed. 1990)). Claims are not properly pleaded in the alternative if the claim

reasserts all previous allegations. See Llames v. JP Morgan Chase & Co., No. 11 CV

5899, 2012 WL 1032910, at *5 (N.D. Ill. Mar. 23, 2012) (“[A] quasi-contract claim is

not properly pled in the alternative if the claim reasserted all allegations previously

stated, including those alleging the existence of a contract.”); cf. Prudential Ins. Co.

of Am. v. Clark Consulting, Inc., 548 F.Supp.2d 619, 623 (N.D. Ill. 2008) (discussing

Morris Defendants’ Brief, Exhs. 11 & 12, show that BN Invest signed these agreements in May 2017
and April 2018. It is implausible to suggest reasonable reliance on a statement that something requires
same-day action if an action is taken a year after the statement. This analysis is merely representative
of the Plaintiffs’ failures in pleading promissory estoppel.

6
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 7 of 20 PageID #: 395

that a party properly pleaded an alternative theory when the words “in the

alternative” were used and when the alternative count “does not refer to, or

incorporate by reference other allegations referring to, the contract between the

parties”).

The Plaintiffs assert that they have properly pleaded their promissory-

estoppel, negligence, fraud, and conversion claims in the alternative, but nowhere in

the Amended Complaint do the Plaintiffs reference an “either-or” pleading or assert

something “alternatively.” Instead, the first paragraph of every count begins with the

same 13 words: “Plaintiffs incorporate the foregoing paragraphs as if set forth in their

entirety herein.” Am. Compl. ¶¶66, 75, 81, 90, 99, 105. This shows that the Plaintiffs

“did not attempt to plead in the alternative; they clearly pleaded in tandem.” Holman,

211 F.3d at 407. Absent proper alternative pleading, the Plaintiffs’ claims cannot

survive.

3. The Plaintiffs’ Response highlights the pleading deficiencies in


Plaintiffs’ fraud claims.

3.1. The Plaintiffs have not pleaded the required elements of their
fraud claims with 9(b)’s required particularity.

A fair reading of the Plaintiffs’ six-page table highlights the problems with

Plaintiffs’ fraud claims. Every Plaintiff’s entry in this table shows that the “when”

and “where” elements have been inadequately pleaded. Rule 9(f) provides that “[a]n

allegation of time or place is material when testing the sufficiency of a pleading.” Fed.

R. Civ. P. 9(f). Here, the alleged “where” element of each Plaintiff’s fraud claim is the

address of the home(s) that individual purchased. See Morris Defendants’ Brief, Exhs.

7
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 8 of 20 PageID #: 396

1-23. Not only are these allegations nowhere in the Amended Complaint,7 a literal

reading shows the implausibility of the Plaintiffs’ contention that they were deceived

about the state of a home when they allege they were physically present and could

see it. As for the “when” element, the Plaintiffs have only identified general time

periods, i.e., “Oct. or Nov. 2017,” “Jan. 2018,” “March 2018” and “Late 2017.”

Plaintiffs’ Response at 9-10. With time and place allegations being material to their

claims, they are required to plead them with particularity; they have not done so.

Accord State ex rel. Harmeyer v. Kroger Co., 114 N.E.3d 488, 494 (Ind. Ct. App. 2018)

(“[A]verring the time of the fraud is not a low hurdle, but rather requires the same

level of specificity as any other element required for a fraud allegation.”).

As for the “what” element, every Plaintiff focuses on the Morris Defendants’

offering of “turnkey” properties.8 See Am. Compl. ¶¶52-65. But reading this “what”

element in conjunction with the Plaintiffs’ Amended Complaint establishes the

Plaintiffs knew the properties’ original conditions, that rehabilitation was needed,

and that tenant and property-management services would happen in the future.

Indiana law does not allow fraud claims premised on future conduct. E.g., Sachs v.

Blewell, 185 N.E.856, 858 (Ind. 1933).

7 Again, the Plaintiffs attempt to improperly embellish and amend their Amended Complaint with
their response to the Morris Defendants’ motion to dismiss. The Plaintiffs cannot do this. See n.4,
supra.

8 Plaintiffs use “turnkey” as a shortcut for three paragraphs in their Amended Complaint: that each
Plaintiff purchased property to be used to generate passive income; that the rental property “would be
rehabbed by Morris Invest using the purchase funds”; and that either Clayton Morris or Morris Invest
“would find, screen, and secure tenants for each of the Rental Properties.” Am. Compl. ¶40, 38-39
(emphases added). As discussed in Section 3.2, infra, this turnkey argument focuses on the future
conduct of the Morris Defendants—what the Morris Defendants would do—and cannot be the basis
for fraud.

8
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 9 of 20 PageID #: 397

Also, four Plaintiffs do not allege “how” they received the misrepresentations.

Alanann Properties, LLC; BN Invest, LLC; Galveston, LLC; and 300 Real Estate

Investments, LLC generally allege representations, but they do not specify “how”

these were made. The other Plaintiffs’ “how” elements also generally allege that a

Morris Defendant (or a representative) made a representation via either phone,

email, podcast, Facebook, or appointment. Such general allegations do not plead the

“how” element with particularity. See Winforge, Inc. v. Coachmen, Indus., Inc., No.

1:06-cv-619-SEB-JMS, 2007 WL 854025, at *5 (S.D. Ind. 2007) (noting that without

specifics, the defendants could not be expected to parse through all communications

with Plaintiffs to find what could be considered a misrepresentation).

3.2. The Amended Complaint shows the Morris Defendants alleged


misrepresentations are all future conduct.

Indiana law does not allow fraud claims premised on representations of future

conduct. Sachs v. Blewell, 185 N.E. 856, 858 (Ind. 1933); see Morris Defendants’ Brief

at 18-20. The Plaintiffs argue they have not alleged misstatements promising future

conduct, but statements the Morris Defendants knew were false when they made

them. Plaintiffs’ Response at 17.

The Plaintiffs do not address the argument that allegations of what a person

would or should do are not properly within fraud claims, see, e.g., Maynard v. 84

Lumber Co., 657 N.E.2d 406, 409 Ind. Ct. App. 1992), or that “actionable fraud cannot

be predicated upon a promise to do a thing in the future although there may be no

intention of fulfilling the promise.” Sachs, 185 N.E at 858; see also Tesler v

Miller/Howard Investments, Inc., No. 1:16-cv-000640-TWP-MPB, 2017 WL 2840839,

9
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 10 of 20 PageID #: 398

at *5 (S.D. Ind. July 3, 2017). The only thing Plaintiffs do here is embellish their

Amended Complaint by accusing the Morris Defendants of materially

misrepresenting the nature of an investment product. Plaintiffs’ Response at 17.9

Even taking that argument as true, this is a repackaged “turnkey” argument, which

focuses exclusively on future conduct and cannot be the basis for fraud.

The Plaintiffs reliance on IOM Grain, LLC v. Ill. Crop Improvement Ass’n, Inc.,

No. 1:10-cv-337-TLS, 2015 WL 195988 (N.D. Ind. Jan. 2015); Reginald Martin

Agency, Inc. v. Conseco Med. Ins. Co., 478 F.Supp.2d 1076 (S.D. Ind. 2007); and Ello

v. Brinton, No. 2:14-cv-299-TLS, 2015 WL 7016462 (N.D. Ind. Nov. 10, 2015), is

misplaced, and the cases are distinguishable.

Both IOM Grain, LLC and Reginald Martin Agency, Inc. were decided at the

summary-judgment stage. And the question at summary judgment is not whether the

plaintiff has pleaded a sufficient claim but whether there is a genuine dispute of any

material fact. F.R.C.P. 56(a). In both, the courts found that there was sufficient

evidence to create genuine issues of material fact when the defendants made

unqualified guarantees regarding their present financial conditions and abilities to

perform contracts. IOM Grain, LLC, 2015 WL 195988, at *7-8; Reginald Martin

Agency, Inc., 478 F.Supp.2d at 1090-91. IOM Grain, LLC and Reginald Martin

focused on existing facts, but the Plaintiffs’ allegations against the Morris Defendants

involve future conduct.

9 As shown in footnote 4, the Plaintiffs’ Response cannot embellish or add to the Amended Complaint.

10
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 11 of 20 PageID #: 399

The Plaintiffs also cite Ello v. Brinton, in which the Court denied the motion

to dismiss the plaintiffs’ fraud allegations where the plaintiffs alleged

“misrepresentations concerning past or existing facts—namely, [the business’s]

financial condition and business credentials at the time of the contract negotiations.”

Ello, 2015 WL 7016462, at *3.10

Here, the alleged misrepresentations by the Morris Defendants are premised

on future conduct, not a past or existing fact susceptible to exact knowledge. See

Reginald Martin Agency, Inc., 478 F.Supp.2d at 1089 (noting that a past or existing

fact does not include “statements of opinion, intent, or promises of future conduct”).

Because the Plaintiffs’ claims are founded on future conduct, they cannot survive.

3.3. The Plaintiffs concede they have not alleged fraud claims
distinct or separate from their breach-of-contract claims, and
they have not properly pleaded this claim in the alternative.

The Morris Defendants argued the Plaintiffs’ fraud claims were not distinct or

independent from their breach-of-contract allegations and, thus, could not survive.

Morris Defendants’ Brief at 20-21. Nowhere in the Plaintiffs’ Response is this

argument addressed.11 The only argument Plaintiffs posit is that the fraud claim has

been properly been pleaded in the alternative. See Plaintiffs’ Response at 22-23. As

shown in Section 2.2, though, that’s not the case.

10The Ello court noted that past or existing facts are those which “at the time they are uttered are
susceptible to exact knowledge.” Ello, 2015 WL 7016462, at *3 (quoting Reginald Martin Agency, Inc.,
478 F.Supp.2d at 1089).

11By failing to address this, the Plaintiffs have waived the argument. See Firestone Fin. Corp. v. Meyer,
796 F.3d 822, 825 (7th Cir. 2015) (“[A] party generally forfeits an argument or issue not raised in
response to a motion to dismiss.”); Goodwin v. Teamsters General Local Union No 200, Case Nos. 17-
CV-1377 & 17-CV-1378, 2018 WL 1175168, at *4 (E.D. Wis. Mar. 6, 2018) (collecting and quoting case
law on waiver).

11
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 12 of 20 PageID #: 400

4. The Amended Complaint and Plaintiffs’ Response show that a contract


was in place and that the money at issue is not a special chattel.

4.1. The Plaintiffs’ do not dispute a contract was in place.

Indiana does not allow conversion claims alongside breach-of-contract claims.

See Morris Defendants’ Brief at 22. The Plaintiffs say this argument is not fatal as

they have properly pleaded their claims in the alternative. Plaintiffs’ Response at 22-

23. As shown in Section 2.2, supra, that is not the case.

4.2. The money at issue here is not a special chattel.

The Plaintiffs’ allegations in the Amended Complaint do not show determinate

sums that were entrusted to the Morris Defendants for the purpose of rehabilitation,

as the Plaintiffs only alleged general figures for the properties’ purchases. Morris

Defendants’ Brief at 22-23.

Plaintiffs argue that the Amended Complaint properly pleads the elements of

a special chattel, Plaintiffs’ Response at 24, and that the “Plaintiffs also pleaded the

precise dollar amount converted by Defendants.” Id. (citing Am. Compl. at ¶¶52-65).

The Plaintiffs’ conversion claims are based on the alleged funds for rehabilitation.

Am. Compl. ¶92. The Amended Complaint does not give “the precise dollar amount”

for rehabilitation, but generally alleges the purchase price of each property and that

this figure is “inclusive of rehab costs.” See Am. Compl. ¶¶52-65. Thus, rehabilitation

costs are a portion of each property’s purchase price, but Plaintiffs fail to identify that

12
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 13 of 20 PageID #: 401

exact, determinate portion. Without the elements of a special chattel alleged, the

Plaintiffs’ conversion claims must be dismissed.12

5. The Plaintiffs have not pleaded a source of duty such that the Morris
Defendants could be liable for negligence, and the Plaintiffs’
negligence claims are barred by the economic-loss doctrine.

5.1. The Plaintiffs have not pleaded a source of the Morris


Defendants’ alleged duties.

It is “well settled that absent a duty, there can be no breach.” Rogers v. Martin,

63 N.E.3d 316, 321 (Ind. 2016). And “whether a duty exists is a question of law for

the court to decide.” Id. Here, the Plaintiffs have merely posited conclusory

allegations that the Morris Defendants owed the Plaintiffs a whole host of duties. See

Am. Compl. ¶¶100, 102. The Morris Defendants argued that these allegations were

properly read as claiming negligent retention, hiring, and supervision, and that the

Plaintiffs’ claim could not succeed because it failed to allege an employer-employee

relationship. See Morris Defendants’ Brief at 24-25. The Plaintiffs said this failed to

take into account certain alleged duties. Plaintiffs’ Response at 25-26.

The Plaintiffs fail to alleged facts sufficient to create a duty. In fact, the

Plaintiffs here argue that “[t]he facts alleged . . . support an inference that Defendants

owed a duty to Plaintiffs to take steps to ensure that Plaintiffs received that which

12The Plaintiffs’ case law does not change this pleading failure. In Desert Buy Palm Springs, Inc. v.
DirectBuy, Inc., No. 2:11-CV-132 RLM, 2012 WL 2130558 (N.D. Ind. June 12, 2012), the Plaintiff did
not plead an abstract figure as the basis of its conversion claim. Id. at *4. The plaintiff pleaded precise,
exacts amounts—down to the number of cents—that the defendant had converted: $129,293.01;
$13,464.52, $22,258.53, and a specific sum what of determinate renewal fees. Id. And in Dayton v. Fox
Rest. Venture, LLC, No:1:16-CV-02109-LJM-MJD, 2017 WL 286788 (S.D. Ind. Jan. 23, 2017), the court
did not analyze whether the tips that were allegedly converted were a determinate sum, instead it
only looked at whether the tips were entrusted for a certain purpose. Id. at *3-4. As the Desert Buy
plaintiff pleaded specific figures and the Dayton court did not analyze whether this tip amount was a
determinate sum, the Plaintiffs’ case law has no application here.

13
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 14 of 20 PageID #: 402

they purchased from Defendants[.]” Plaintiffs’ Response at 25. If this truly is

Plaintiffs’ argument, it fails for the reasons in Section 5.2, infra, as the negligence

claim would be barred by the economic-loss doctrine.

To the extent that the Plaintiffs rely on Tri-Professional Realty, Inc. v.

Hillenburg, 669 N.E.2d 1064 (Ind. Ct. App. 1996), for the proposition that the Morris

Defendants owed the Plaintiffs a duty, that argument is misplaced. In Tri-

Professional Realty, Inc., the question was whether a real-estate broker owed a duty

to a third-party buyer in a real-estate transaction to not misrepresent the land at sale

and the broker’s authority to sell. See id. at 1067-69. In holding that the real-estate

broker had a duty to the third party, the court noted that “[t]he profession’s own code

of ethics and standards provides that realtors shall not offer for sale or advertise

property without authority,” and so a duty here was foreseeable. Id. at 1068. The

Morris Defendants are not real-estate brokers, and the Morris Defendants were not

alleged to be real-estate brokers. The Plaintiffs have not alleged facts which give rise

to a duty.

5.2. The economic-loss doctrine bars negligence claims where the


plaintiff is seeking damages involving the benefit of the bargain.

The Plaintiffs contend that because the Morris Defendants have argued that

the Purchase Agreements do not contain provisions obligating them to “rehabilitate

the properties, identify tenants, screen tenants, secure tenants, manage the rental

properties, and provide rent checks to Plaintiffs,” the Morris Defendants are

14
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 15 of 20 PageID #: 403

judicially estopped from raising the economic-loss doctrine.13 Despite Plaintiffs’

contention, judicial estoppel does not apply. Rather, the Morris Defendants are forced

to respond to the Plaintiffs’ ever-shifting arguments about the source of the

contractual obligations. On the one hand, the Plaintiffs allege these obligations arise

from the Purchase Agreements. Am. Compl. ¶¶67-68. But, on the other hand, the

Plaintiffs concede these obligations are not in the Purchase Agreements and now

argue that they are turnkey obligations without identifying the contract which gives

rise to the obligations. Plaintiffs’ Response at 20-21. No matter the source, the

Plaintiffs allege that these are contract obligations; thus, the economic-loss doctrine

applies.

The economic-loss doctrine states that “damage from a defective product or

service may be recoverable under a tort theory if the defect causes personal injury or

damage to other property, but contract law governs damage to the product or service

itself and purely economic loss . . . .” Indianapolis- Marion County Pub. Library v.

Charlier Clark & Linard, P.C., 929 N.E.2d 722, 728 (Ind. 2010). Put differently

“contract is the sole remedy for the failure of a product or service to perform as

expected.” KB Home Ind. Inc. v. Rockville TBD Corp., 928 N.E.2d 297, 304 (Ind. Ct.

App. 2010). If the plaintiff is seeking damages involving the benefit of the bargain, or

other matters governed by contract law, the economic loss doctrine will bar a

negligence claim, id. at 305, as “[a] buyer’s desire to enjoy the benefit of his bargain

is not an interest that tort law traditionally protects.” Id.

13The Plaintiffs also argue they have properly pleaded the negligence claim in the alternative. As
shown in Section 2.2, that’s not the case.

15
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 16 of 20 PageID #: 404

To the extent there is any doubt that Plaintiffs are seeking the benefit of the

bargain through their negligence claim, the Plaintiffs put that to rest in their

response brief. The Plaintiffs say that the facts they have alleged “support an

inference that Defendants owed a duty to Plaintiffs to take steps to ensure that

Plaintiffs received that which they purchased from Defendants. . . . Defendants wholly

failed to deliver to Plaintiffs the benefit of their bargain.” Plaintiffs’ Response at 25-

26 (emphasis added). The Plaintiffs are seeking a contractual remedy, and that is not

recoverable under a negligence theory. The negligence claim is barred by the

economic-loss doctrine.

6. The Plaintiffs’ Response attempts to impermissibly embellish the


Amended Complaint in a futile attempt to bring it within the Indiana
Deceptive Consumer Sales Act’s grasp, but it fails.

6.1. The Plaintiffs do not address the argument that the transactions
were not for one of the statute’s enumerated categories.

The Plaintiffs allege that “[e]ach purchase and sale of a Rental Property is a

‘consumer transaction’ within the meaning of the Indiana Deceptive Consumer Sales

Act.” Am. Compl. ¶106. The Morris Defendants argued that the transactions here

were not primarily for personal, familial, charitable, agricultural, or household

purposes; thus, they were not “consumer transactions.” Morris Defendants’ Brief at

26. Instead of addressing this argument, the Plaintiffs argue that “Defendants have

not pointed this Court to any authority providing that the purchaser of an investment

property or investment program is not a consumer, as defined by the statute.”

16
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 17 of 20 PageID #: 405

Plaintiffs’ Response at 28.14 Because the Plaintiffs failed to identify which statutorily

enumerated purpose they are invoking, they have waived the issue.15

The Plaintiffs cite Watkins v. Alvey, 549 N.E.2d 74 (Ind. Ct. App. 1990), for the

proposition that “plaintiffs, who had been persuaded by defendants to invest in what

later turned out to be a pyramid scheme, could properly bring suit under the IDCSA.”

Plaintiffs’ Response at 29. But the question in Watkins was not whether the

transactions in question were “consumer transactions,” but whether the promotor of

a pyramid scheme could be a statutory “supplier.” Watkins, 549 N.E.2d at 77.

Here, the Morris Defendants focus on the “consumer transaction” alleged in

the Amended Complaint. Am. Compl. ¶106. The Plaintiffs’ Response does not address

this argument. And, because “the purchase and sale of a Rental Property” is the only

consumer transaction the Plaintiffs have alleged in their Amended Complaint (¶106),

the alleged conduct does not fall within the Indiana Deceptive Consumer Sales Act.

6.2. In addition, the real property transactions here are exempt from
the IDCSA.

The statute specifically exempts these types of real-property transactions from

a private right of action under the statute. Morris Defendants’ Brief at 26-27. Instead

of addressing the alleged transactions here—the “purchase and sale of a Rental

Property,” Am. Compl. ¶106—the Plaintiffs focus on the alleged deceptive acts. The

Plaintiffs argue that “[t]he deceptive act at issue under this claim is not the sale of

14This is not the question here, as “consumer” is not a defined term in the Indiana Deceptive Consumer
Sales Act. See Ind. Code §24-5-0.5-2. The question, as raised in the Morris Defendants’ Brief, is whether
the alleged transaction here is a statutorily defined “consumer transaction.”

See n.11, supra, for case law on forfeiting or waiving an argument not raised in response to a
15

motion to dismiss.

17
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 18 of 20 PageID #: 406

the property itself. . . . Instead, the alleged deceptive act is Defendants’ sale to Plaintiff

[sic] of a ‘turnkey’ investment product.” Plaintiffs’ Response at 29-30. Again, this does

not respond to the Morris Defendants’ transaction-based argument. To the extent the

Plaintiffs attempt to say that the transactions for “rehabilitation of the properties,

location of tenants, and provision of property management services” bring their claim

under the IDCSA’s scope, this impermissibly embellishes the allegations in their

Amended Complaint.16 See Plaintiffs’ Response at 30.

Lastly, the Plaintiffs argue that the Rehab Services, Tenant Services, and

Property Management Services are akin to construction contracts. Plaintiffs’

Response at 30. The Plaintiffs cite three cases for the proposition that construction

contracts are within the scope of the IDCSA, see id. at 30-31, and all three are

distinguishable. In McKinney v. State, 693 N.E.2d 65 (Ind. 1998), Pierce v. Drees, 607

N.E.2d 726 (Ind. Ct. App. 1993) and Captain & Co. v. Stenberg, 505 N.E.2d 88 (Ind.

Ct. App. 1987), the courts were addressing whether pure construction contracts were

“transactions in real property” as defined by the statute.17

In McKinney, the Indiana Supreme Court held that construction contracts

were not “transactions in real property”; thus, construction-contract claims could be

brought under the statute. McKinney, 693 N.E.2d at 70-71 (discussing Pierce and

Stenberg, and noting neither case involved the purchase of real estate). In holding

this, the McKinney court noted that the construction contracts at issue did not involve

16 See n.4, supra for cases discussing that a plaintiff may not embellish or amend the complaint in
response to a motion to dismiss.
17 See McKinney, 693 N.E.2d at 70; Pierce, 607 N.E.2d at 727; Stenberg, 505 N.E.2d at 92 for

descriptions of the contracts at issue.

18
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 19 of 20 PageID #: 407

existing structures but new builds. Id. at 71.The Court said that unlike with the sale

of existing structures, in “which a consumer is at liberty to inspect for defects, the

promise to build a structure forces consumers to rely on a variety of representations

that the builder is far more capable of evaluating.” Id. The Court then held that the

“sale of an existing structure” will normally be a “transaction in real property,”

exempting it from the statute. Id. at 70-71.

Here, the alleged “consumer transactions” are the purchases and sales of

existing structures. Am. Compl. ¶106. As shown in Section 1.2, supra, none of the

Purchase Agreements contained Tenant Services, Property Management Services,

and, for 12 of the 23, Rehab Services. These are pure real-property transactions and

exempted from the statute. And, to the extent the remaining 11 Purchase Agreements

contain Rehab Services, these are not obligations to build or reconstruct a new house

or structure like in McKinney, Pierce, and Stenberg;18 these are obligations to

renovate already-existing structures. Such transactions are “transactions in real

property” and exempted from the IDCSA. McKinney, 693 N.E.2d at 70-71.

6.3. The Plaintiffs’ claim fails to meet 9(b)’s particularity standard.

The Morris Defendants noted that McKinney holds that certain claims brought

under the Indiana Deceptive Consumers Act were subject to heightened pleading

requirements. See Morris Defendants’ Brief at 26 n.14. For the reasons described in

Part 3 of the Morris Defendants’ Brief and in Sections 2.1 and 3.1 here, the Plaintiffs

have failed to plead their claim with the requisite particularity.

18 McKinney, 693 N.E.2d at 70; Pierce, 607 N.E.2d at 727; Stenberg, 505 N.E.2d at 92.

19
Case 1:18-cv-02797-WTL-DML Document 33 Filed 04/11/19 Page 20 of 20 PageID #: 408

CONCLUSION

For the above reasons and the reasons set forth in the Morris Defendants’ Brief,

this Court should dismiss the entirety of Counts II, III, IV, V, and VI, and portions of

Count I of Plaintiffs’ Amended Complaint with prejudice.

Respectfully submitted,

/s/ David J. Hensel


David J. Hensel, #15455-49
Amanda L.B. Mulroony, #30051-59
Timothy W. Walters, #35401-79
HOOVER HULL TURNER LLP
111 Monument Circle, Suite 4400
PO Box 44989
Indianapolis, IN 46244-0989
Tel: (317) 822-4400
Fax: (317) 822-0234
dhensel@hooverhullturner.com
amulroony@hooverhullturner.com
twalters@hooverhullturner.com

Counsel for Defendants Morris Invest


and Clayton Morris

CERTIFICATE OF SERVICE

I hereby certify that on April 11, 2019, a copy of the above was filed

electronically. Service of this filing will be made on all ECF-registered counsel by

operation of the Court’s electronic-filing system. Parties may access this filing

through the Court’s system.

/s/ David J. Hensel

David J. Hensel
Amanda L.B. Mulroony
Timothy W. Walters
HOOVER HULL TURNER LLP

20
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 1 of 10 PageID #: 409

IN THE UNITED STATES DISTRICT COURT


FOR THE SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

LARRY AND LESLIE KAY MCLESKEY; )


DEEPAK NEELAGIRI AND REENA )
GADAGOTTU; ALANANN PROPERTIES, )
LLC; CARLOS HUERTA HOMES IN, LLC; )
LEJ MANAGEMENT, LLC; BN INVEST, )
LLC; GALVESTON, LLC; BKS IN )
PROPERTIES, LLC; DL3 PROPERTIES, )
LLC IN1801; COVENANTAL CORP.; )
1446 MOUNT, LLC; 300 REAL ESTATE )
INVESTMENTS, LLC; FINNLEY INVEST, )
LLC; and AR FINANCIALS, LLC )
)
Plaintiffs, )
)
v. ) Case No. 1:18-cv-02797-WTL-DML
)
MORRIS INVEST and CLAYTON MORRIS, )
)
Defendants. )

MORRIS INVEST’S AND CLAYTON MORRIS’S REPLY


IN SUPPORT OF MOTION TO SEVER OR DISMISS
AMENDED COMPLAINT FOR MISJOINDER OF PLAINTIFFS

This Court should correct the Plaintiffs’ improper party joinder. To the extent

that this Court does not dismiss Counts II, III, IV, V, VI, and portions of Count I as

to all Plaintiffs with prejudice,1 the Court should sever or dismiss without prejudice

each remaining Plaintiff in order for that Plaintiff to file an individual complaint for

any remaining claim(s).

1For the reasons stated in Defendants’ Brief in Support of Partial Motion to Dismiss Plaintiffs’
Amended Complaint Pursuant to Rules 12(B)(6) and 9(B) (Dkt. 26) and contemporaneously-filed
Reply in Support of Partial Motion to Dismiss Plaintiffs’ Amended Complaint, the majority of
Plaintiffs’ claims should be dismissed with prejudice.
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 2 of 10 PageID #: 410

The Plaintiffs’ “consolidated” lawsuit2 does not comport with the dual

requirements of Rule 20. The Plaintiffs in this lawsuit are four individuals and 12

entities (owned by 22 individuals, without any overlapping ownership), amounting

to sixteen Plaintiffs, or fourteen distinct ownership groups that each purchased 1-2

different properties from three different entities who have not been named as

defendants in this lawsuit. They do not “assert any right to relief jointly, severally,

or in the alternative with respect to or arising out of the same transaction,

occurrence, or series of transactions or occurrences” nor is there “any question of

law or fact common to all plaintiffs [that] will arise in the action.” Fed. R. Civ. P.

20(a)(1). Furthermore, joinder here does not comport with fundamental fairness and

would result in prejudice to the Morris Defendants.

A. Plaintiffs’ claims do not arise out of the same series of


transactions or occurrences.

In order for Plaintiffs to proceed in a joined action, their claims must arise out

of “the same transaction, occurrence, or series of transactions or occurrences.” Fed.

R. Civ. P. 20(a)(1)(A). If not, joinder is improper and the inquiry ends. See Barner v.

City of Harvey, No. 95 C 3316, 2003 WL 1720027, at *4 (N.D. Ill. Mar. 31, 2003) (court

“need not address” the common question of law or fact requirement where the “first

prong of Fed.R.Civ.P. 20(a) has not been satisfied”). The Plaintiffs here should be

severed because their claims do not arise out of the same series of transactions or

2 The Plaintiffs purport that their suit is “consolidated” pursuant to Federal Rule of Civil Procedure
42, see Dkt. 20 at ¶ 27, yet they have taken it upon themselves to proceed with one complaint and a
single action rather than file separate suits and obtain leave of court to consolidate any or all parts
of the actions.

2
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 3 of 10 PageID #: 411

occurrences.

The nature of the Plaintiffs’ claims make clear that each Plaintiff’s allegations

involve different series of transactions: separate-and-distinct real-estate purchases

spanning a year-long timeframe, with unique facts relating to each individual

Plaintiff’s claims and alleged damages. Plaintiffs’ claims do not involve the purchase

of identical products and identical damages. Cf. Monon Tel. Co. v. Bristol, 218 F.R.D.

614, 616 (N.D. Ind. 2003) (permitting joinder of satellite signal piracy claims where

defendants purchased signal theft devices from single distribution center) (Pls. Resp.

at 7). Plaintiffs’ claims revolve around the negotiation, interpretation, execution, and

obligations related to 23 separate contracts for 23 separate real-estate transactions

involving properties purchased from three different entities (none of whom were

named as defendants). See Defs. Br. at 2-4, 6 (Dkt. 28); Am. Compl. ¶ 36, ¶¶ 52-65

(Dkt. 20). There are distinct Purchase Agreements for each transaction, with varying

terms and conditions. Defs. Br. at 6 (Dkt. 28). Some Purchase Agreements contain

terms regarding rehab, others do not. Id. Establishing breach and damages (e.g.

rehab work that was to have been completed and was not) will involve individualized

discovery and proof. Id. at 6-8 (Dkt. 28).

Furthermore, each Plaintiff had separate, individual interactions and

communications with the Morris Defendants leading up to each property purchase

which form the bases for each Plaintiff’s claims. Various Plaintiffs dealt with various

people and via different means of communication. See Am. Compl. ¶¶ 52-65 (Dkt. 20).

The sixteen Plaintiffs have not alleged any single written communication containing

3
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 4 of 10 PageID #: 412

a misrepresentation on which they collectively claim to have relied, or alleged that

Morris representatives were directed to make (or did make) a standardized “pitch”

regarding any of the properties eventually purchased by any plaintiff. Cf. McLernon

v. Source Intern., Inc., 701 F. Supp. 1422, 1425-26 (E.D. Wis. 1988) (claims must arise

from a uniform written misrepresentation or plaintiffs must allege that sales persons

were directed to make a standardized misrepresentation in order for joinder to be

proper) (Pls. Resp. at 5).3 Here, Plaintiffs have alleged – without requisite specificity

to survive the pleading requirements of Rule 9(b) – separate, individual

communications with various representatives of Morris Invest spanning a year-long

time period involving at least 23 different pieces of real estate. Am. Compl. ¶¶ 52-65.4

Neither this nor Plaintiffs’ repeated and conclusory use of the words “scheme” or

“Ponzi scheme” in their Amended Complaint is sufficient to join plaintiffs under Rule

20. Insolia v. Philip Morris Inc., 186 F.R.D. 547, 549 (W.D. Wis. 1999) (“Rule 20

demands more than the bare allegation that all plaintiffs are victims of a fraudulent

scheme . . . there must be some indication that each plaintiff has been induced to act

by the same misrepresentation.”); Garner v. Bank of Am. Corp., No. 2:12-CV-02076-

PMP, 2014 WL 1945142, at *4 (D. Nev. May 13, 2014) (“While Plaintiffs here allege

in some detail an overarching conspiracy and coordinated conduct . . . Plaintiffs’

claims nevertheless will entail individualized inquiry, such as what representations

3To the extent the Plaintiffs generally allege individual conversations involving “turnkey” rental
properties, “turnkey” is a non-actionable future event and not a term of any Agreement. See Defs.
Reply in Support of Motion to Dismiss at 8 n.8, 9–11.

4One Plaintiff alleges that he was told at some point that properties required “same-day action.” Am.
Compl. ¶ 57 (Dkt. 20).

4
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 5 of 10 PageID #: 413

were made to them by their respective loan officers and whether each Plaintiff

justifiably relied on those alleged misrepresentations.”).

Plaintiffs’ reliance on pattern-and-practice employment law cases where there

are allegations of “company-wide policies” and “systems of decision-making” is also

misplaced. See Rochlin v. Cincinnati Ins. Co., No. IP00-1898CHK, 2003 WL

21852341, at *13 (S.D. Ind. July 8, 2003) (Pls. Resp. at 5-6, 8); Mosley v. General

Motors Corp., 497 F.2d 1330, 1332 (8th Cir. 1974) (Pls. Resp. at 4, 8); Hohlbein v.

Heritage Mut. Ins. Co., 106 F.R.D. 73, 78–79 (E.D. Wis. 1985) (Pls. Resp. at 7). See

also Delgado v. Directv, Inc., No. 114CV01722SEBDML, 2016 WL 1043725, at *13

(S.D. Ind. Mar. 16, 2016) (FLSA joint employer claims involving identical contracts)

(Pls. Resp. at 6-7). In employment cases, “[a] majority of courts have found that

allegations of a pattern and practice of discrimination are sufficient to satisfy both

the same transaction and common questions requirements of Rule 20(a).” Barner v.

City of Harvey, No. 95 C 3316, 2003 WL 1720027, at *2 (N.D. Ill. Mar. 31, 2003). But

see Elliott v. USF Holland, Inc., No. NA 01-159-C H/H, 2002 WL 826405, at *1 (S.D.

Ind. Mar. 21, 2002) (“Where employees at different facilities allege similar types of

discriminatory acts but at different times and/or by different supervisors, joinder is

often denied.”).

Such is not the case where multiple plaintiffs complaining about misconduct

regarding separate-and-distinct real-estate transactions attempt joinder. Garner v.

Bank of Am. Corp., No. 2:12-CV-02076-PMP, 2014 WL 1945142, at *4 (D. Nev. May

13, 2014) (severing plaintiffs alleging misconduct with respect to distinct loan

5
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 6 of 10 PageID #: 414

transactions with different lenders secured by different Nevada properties); Visendi

v. Bank of Am., N.A., 733 F.3d 863, 870 (9th Cir. 2013).5 Nor is the “same transaction

or series of transactions” element met where, as here, causation and damages

evidence will involve individualized inquiries – e.g. what rehab work was promised

but not completed and whether tenants were placed in a property (combined with the

status of each property prior-to and following a tenant’s occupancy). See, e.g., Insolia

v. Philip Morris Inc., 186 F.R.D. 547, 550 (W.D. Wis. 1999).

The Plaintiffs here are not properly joined in a single action because their

claims do not arise out of the same transaction, occurrence, or series of transactions

or occurrences within the meaning of Rule 20. Accordingly, this Court should require

each Plaintiff (or discrete ownership group) to file individual complaints for any

remaining claim(s).

B. Plaintiffs’ claims do not involve common questions of fact or


law.

Joinder is improper not only because Plaintiffs’ claims do not arise out of the

same series of transactions, see generally Defs. Br. at 5-8 and Part A, supra, but also

separately because Plaintiffs’ claims do not involve common questions of fact or law

sufficient to render joinder proper under Rule 20. Although each Plaintiff asserts the

same causes of action against the Morris Defendants, “Rule 20(a) requires more” than

“Plaintiffs merely alleg[ing] that Defendants violated the same laws in comparable

ways.” Visendi, 733 F.3d at 870 (affirming severance of plaintiffs and concluding that

5Plaintiffs incorrectly state that Visendi and Garner involved severance of defendants. Pls. Resp. at
6. Rather, each court concluded that plaintiffs must bring separate suits.

6
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 7 of 10 PageID #: 415

Plaintiffs did not present any question of law or fact common to all plaintiffs). Here,

like the Visendi plaintiffs, Plaintiffs claims against the Morris Defendants involve

varied dealings, separate transactions, separate agreements, and separate and

unrelated properties. Id. “Nothing unites all of these Plaintiffs but the superficial

similarity of their allegations and their common choice of counsel.” Id. Further, the

claims that the Plaintiffs assert - e.g. breach of contract, fraud, negligence – each

require particularized factual analysis. Id. (“the three claims that Plaintiffs now

assert – invalid assignment, mistake, and negligence – each require particularized

factual analysis.”). Plaintiffs’ respective claims deal with different pieces of property,

different transactions, different agreements, different interactions with

representatives of Morris Invest, different proof to establish liability, and different

damages. There is no question of law or fact common to all plaintiffs sufficient to meet

the permissive joinder requirement of Rule 20(a)(1)(B).

C. Joinder violates fundamental fairness and results in prejudice


to Defendants.

Even where the dual requirements of Rule 20(a) are met, a Court may

nevertheless decline to entertain joinder if it does not “comport with the principles of

fundamental fairness” or if it “would create prejudice, expense or delay[.]” Chavez v.

Ill. State Police, 251 F.3d 612, 632 (7th Cir. 2001) (quotations omitted). See also

Coleman v. Quaker Oats Co., 232 F.3d 1271, 1296 (9th Cir. 2000) (even if Rule 20’s

requirements are met, a court must examine whether joinder serves the principles of

fundamental fairness). Here, Plaintiffs do not meet the dual requirements of Rule

20(a). Assuming arguendo they did, joinder violates principles of fundamental

7
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 8 of 10 PageID #: 416

fairness and would result in prejudice to the Morris Defendants.

First, the Plaintiffs took it upon themselves to present their Complaint and

Amended Complaint to this Court as “consolidated” under Rule 42. See Compl. ¶ 28

(Dkt. 1) and Am. Compl. ¶ 27 (Dkt. 20). In doing so, the Plaintiffs (1) side-stepped the

more-stringent requirements of Rule 20 and ignored the distinction between joinder

and consolidation, (2) ignored that there never were multiple actions over which the

Court exercised its discretion to consolidate,6 and (3) avoided paying requisite filing

fees associated with initiating a civil action in this District Court. The Plaintiffs’

disregard for procedural rules, standards and the cost of the administration of justice

is neither fair to Defendants nor this Court.

Second, Plaintiffs argument regarding hypothetical, alleged duplicative

discovery or discovery disputes does not support permissive joinder. Evidence will

vary with respect to any Plaintiff’s surviving claim(s), and so necessarily will

discovery and discovery responses. Plaintiffs’ counsel may ultimately serve multiple

“identical” discovery requests on Defendants, but relevant information is going to

vary widely for each of the Plaintiffs given the different interactions, different

transactions, different properties, and different alleged liability and damages.

Finally, “[j]udicial resources are wasted, not conserved, when a jury is

subjected to a welter of evidence relevant to some parties but not others. Confusion

can lead to prejudice when there are inadequate assurances that evidence will be

weighed against the appropriate party and in the appropriate context.” Insolia, 186

6 Whether it may be proper to consolidate separate actions under Federal Civil Procedure Rule 42(a)
for any purpose is a hypothetical not presently before the Court.

8
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 9 of 10 PageID #: 417

F.R.D. at 551. No limiting instruction will be able to correct the jury confusion and

prejudice to the Morris Defendants that will result from a jury having to parse

through different contracts, different communications between different Plaintiffs

and Morris representatives (and others) leading up to each property closing, different

statuses of home rehabs, and different tenant issues relating to each respective

property. See Coleman, 232 F.3d at 1296 (“even the strongest jury instructions could

not have dulled the impact of a parade of witnesses, each recounting his contention

that defendant [was liable to each]” (quotation omitted)). Here, the prejudice to the

Morris Defendants created by a “parade” of disgruntled homebuyers and the

possibility of factual and legal confusion by the jury clearly outweigh any purported

duplicative discovery. See id. at 1296-97 (plaintiffs’ argument that severing cases led

to duplicative discovery did not outweigh the potential prejudice to defendant created

by the “parade” of disgruntled plaintiff witnesses and the possibility of factual and

legal confusion by the jury).

CONCLUSION

For all the reasons stated in the Morris Defendants’ initial brief and above,

this Court should sever or dismiss without prejudice all claims but those of the first-

named McLesky Plaintiffs, to the extent any Plaintiff’s claim(s) survive the Morris

Defendants’ Motion to Dismiss Pursuant to Rule 12(b)(6) and 9(b).

9
Case 1:18-cv-02797-WTL-DML Document 34 Filed 04/11/19 Page 10 of 10 PageID #: 418

Respectfully submitted,

/s David J. Hensel
David J. Hensel, #15455-49
Amanda L.B. Mulroony, #30051-49
Timothy W. Walters, #35401-79
HOOVER HULL TURNER LLP
111 Monument Circle, Suite 4400
PO Box 44989
Indianapolis, IN 46244-0989
Tel: (317) 822-4400
Fax: (317) 822-0234
Counsel for Morris Invest and Clayton Morris

CERTIFCATE OF SERVICE

I hereby certify that on April 11, 2019, a copy of the above was filed

electronically. Service of this filing will be made on all ECF-registered counsel by

operation of the Court’s electronic-filing system. Parties may access this filing

through the Court’s system.

/s David J. Hensel
David J. Hensel
Amanda L.B. Mulroony
Timothy W. Walters
HOOVER HULL TURNER LLP

1003782

10