United States District Court, D. Maryland
David Copperthite, United States Magistrate Judge
Direct Benefits, LLC and Andrew C. Gellene, move this Court
to reconsider its July 10, 2019 Memorandum Opinion and Order
(ECF Nos. 163, 164) denying their Amended Motion for
Permission to File a Fourth Amended Complaint (ECF No. 154),
which sought to reinstate three of Defendant TAC Financial,
Inc.'s outside directors, Rhett McNulty, Clark McNulty,
and Daniel Lindberg, as defendants (the "Motion for
Reconsideration") (ECF No. 173). After considering the
Motion and the response thereto (ECF No. 177), the Court
finds that no hearing is necessary. See Loc.R. 105.6
(D.Md. 2018). For the reasons stated herein, the Court DENIES
Plaintiffs' Motion for Reconsideration.
lawsuit arises out of Plaintiffs' allegations that
Defendant TAC Financial, Inc. ("TAC") engaged in,
inter alia, the illegal and fraudulent sale of
securities, fraud, and breach of warranty in connection with
the negotiation and execution of an Asset Purchase Agreement
("APA") between Plaintiffs and TAC in 2011. ECF No.
77. Plaintiff Direct Benefits, LLC ("DB") is a
limited liability company in the business of providing
prepaid cards to the public. Id. at 4-5, ¶ 4.
Plaintiff Andrew C. Gellene is the president of DB.
Id. at 3, ¶ P2.
October 2010, Mr. Gellene, on behalf of DB, began searching
for a strategic partner to assist DB with establishing and
maintaining financial processing systems. Id. at 4,
¶ 3. In December 2010, Mr. Gellene was referred to TAC
and entered into discussions with TAC's CEO, Roy Eder, to
determine the possibility of a mutually beneficial business
arrangement between the entities. Id. at 5,
¶¶ 6-7. In an introductory call in late December
2010 and a letter of intent in January 2011, Mr. Eder
characterized TAC as a "financial and employee benefit
services company" which provided prepaid cards, mobility
services, an online bill pay program, and affordable health
care programs to customers. Id. ¶ 8. On January
5, 2011, the parties signed a non-disclosure agreement and,
shortly thereafter, TAC proposed that DB become a "Value
Added Reseller" for TAC. Id. at 5-6, ¶ 9.
However, rather than becoming a Value Added Reseller, DB
later requested that TAC consider permitting DB to sell and
transfer its assets and business to TAC in exchange for TAC
providing cash and stock, and TAC agreed to this request.
Id. at 6, ¶ 10. The parties ultimately executed
the APA on April 14, 2011, with TAC agreeing to purchase
DB's principal assets, including 7, 000 prepaid debit
card accounts and computer programming software developed by
DB and Mr. Gellene, and to pay DB $50, 000. Id. at
4, ¶¶ 1-2. TAC also agreed to employ Mr. Gellene as
the vice president of product development for which he would
receive an annual salary in addition to yearly bonuses and
stock options. Id. ¶ 2.
the course of the negotiations, Plaintiffs allege that Mr.
Eder and other officers and employees of TAC, under the
supervision of the Board of Directors, made false,
misleading, and incomplete representations to DB regarding
TAC's business operations, assets, and liabilities to
induce DB to transfer its assets and business. Id.
at 6, ¶ 11. Among other misrepresentations, Plaintiffs
allege that TAC misrepresented the number of revenue
generating cards it had in its portfolio, its gross profit
margin for 2010, its potential for growth, and its projected
revenues. Id. at 6-11, ¶¶ 12-13.
Plaintiffs also allege that TAC misrepresented the number of
members enrolled in its healthcare and automobile insurance
programs and misled Plaintiffs by purporting to be a
"global company" with members in various countries
and territories. Id. at 12, ¶¶ 14-16.
addition to these misrepresentations, Plaintiffs allege that
TAC omitted a number of key facts during the due diligence
process: (1) TAC was experiencing a substantial reduction in
income from its primary revenue source; (2) TAC experienced a
70% decline in card usage from May 2010 to February 2011; (3)
TAC owed debt in an amount exceeding $300, 000 to its card
processing service provider, FIS Global, and was in default
under their agreement; (4) TAC owed debt in an amount
exceeding $180, 000 to its managerial employees; and (5) at
the time of execution of the APA, TAC did not have the
ability to fulfill its obligation to pay DB $50, 000 or to
assume the operating costs of DB's business. Id.
at 13-16, ¶¶ 19-23.
commencing employment with TAC, Mr. Gellene discovered these
alleged misrepresentations and omissions through review of
internal documents. See Id. at 6-14, ¶¶
12-21. On March 26, 2013, Plaintiffs notified TAC of the
alleged misrepresentations and omissions and Mr. Gellene
resigned his employment with TAC. Id. at 35, 39,
¶¶ 110, 131.
original Complaint was filed on April 22, 2013, ECF No. 1,
and amended as of right on May 3, 2013, ECF No. 6. On
February 20, 2014, Judge Russell granted a Motion to Dismiss
as to the "Outside Directors," who are the subjects
of the omitted proposed Fourth Amended Complaint that is
currently at issue. ECF No. 48. At that time, Judge Russell
found that "Plaintiffs have failed to allege officer and
director liability for any of the remaining individual
Defendants. It is well-settled that allegations regarding
fraud against individual defendants requires 'facts
supporting a strong inference of scienter as to each
defendant.'" Id. at 33 (quoting Matrix
Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d
172, 182 (4th Cir. 2009)). On the same day, Plaintiffs filed
a Second Amended Complaint. ECF No. 50. Defendants answered
on March 6, 2014 and, in addition, filed a counterclaim. ECF
April 25, 2014, Plaintiffs filed a Second Motion for Leave to
Amend the Complaint, ECF No. 64, and a Supplement to the
Second Motion, ECF No. 65. Defendants then filed a second
Motion to Dismiss. ECF No. 68. Judge Motz again granted the
Motion to Dismiss as to the Outside Directors and stated:
"[T]he motion to dismiss filed by the Outside Directors
claims against them in the second amended complaint is
granted. Plaintiff[s] ha[ve] not alleged facts that would
establish that the Outside Directors are liable under a
'court control liability' theory." ECF No. 75 at
1. On the same day, Judge Motz granted the Second Motion for
Leave to Amend, ECF Nos. 75, 76, and Plaintiffs filed the
Third Amended Complaint, ECF No. 77. Defendants Eder and TAC
answered the Third Amended Complaint on July 10, 2014. ECF
July 2014 through October 2014, there were various discovery
disputes, conferences with the Court, and other ancillary
matters. On October 31, 2014, Plaintiffs filed a Motion for
Partial Summary Judgment, ECF No. 98, and Defendants Eder and
TAC filed a Cross-Motion for Partial Summary Judgment on
Count III of the Third Amended Complaint on December 1, 2014,
ECF No. 104. On December 3, 2014, Plaintiffs filed the
initial Motion for Leave to File a Fourth Amended Complaint.
ECF No. 105.
February 20, 2015, the Court administratively closed the case
due to a bankruptcy filing by Defendant TAC. ECF No. 125.
Upon Plaintiffs' Motion to Restore Case filed on October
18, 2018, ECF No. 126,  the Court reinstated the action to
active status on March 12, 2019, ECF No. 129.
18, 2019, the Court held a telephone conference call with
counsel and issued a paperless order directing Plaintiffs to
file an Amended Motion to File a Fourth Amended Complaint no
later than June 25, 2019. ECF No. 153. Plaintiffs then filed
the Amended Motion for Permission to File a Fourth Amended
Complaint and supporting documents on June 25, 2019. ECF Nos.
154-58. On June 28, 2019, Defendants Eder and TAC filed a
Motion to Strike Plaintiffs' Amended Motion. ECF No. 160.
In a Memorandum Opinion and Order dated July 10, 2019, this