case 2:11 -cv-10284-jfw-pjw document 22 filed 04/09/12...

WILSHIRE PALiSADES LAW GROUP, P+C, David L Lefkowitz (SBN 127457) Stephen I)-Holz (SRN 83647) 1.337 Ocean Avenue, Suite .A. Santa Monica, CA 90401 1009 Telephone: (310) 3934929 Facsimik: (310) 393-5438 Emai': 121w groupcom Attorneys ibr I1I Piai.:ntifts

UNITED STATES DISTRICT COURT

CENrfRA.L DISTRICT OF CALIFORNIA

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Case 2:11-cv-10284-JFW-PJW Document 22 Filed 04/09/12 of 36 Page ID #:552

DOUGLAS B. NUROCK; 1-'RAN( ESCA STONE, MiCHAEL K M0E2ZL individually and as Trustee of the MICHAEL K. MOEZZI FAMILY TRUST Ui 4/16/2003; NAZANIN M01ZZ1, JOSEPH DAI11 }-JE1MER GREGORY GEISS,

'R(JTHANF DAIII [-JEEMER, individually and. on behalf of all others simihu-iysituated,

Plaintiffs.

vs

PELICAN EYES HOLDING COMPANY .LI..C. a California limited liabitity conpany PELICAN RESCUE, LL', California Lim:it.ed i.iabihty corn

[) iiany;

AMINIS IRADORA DL HO 1fELE, DL SAN JUAN DEL StIR, S A INVE RSIONES INMORI1 JARA DE SAN JUAN DEL SUR SOCIEDAJ3 ANONIMA, INVERSIONES TOGO

DA SOC1FD ANONIMA, JAMES K HANKI A, n idivdu, MiCHAEL J. .EML1N(J, an individual; and DOES 1-10,

Defendants,

Case No. CV 11-10284-OW (PJVx)

FIRST AMENDED COMPLAINT FOR:

Violation of §10(b) of the Securities Exchange Act of 1934 and Rule 10b5 Violation of Section 20(a) of the Securities and Exchange Act of 1934 Violation of §12a)(2) of the Securities Act of 1933 Violation of §25401. of the California Corporations Code Violation of §25041. of the Corporations Code Deceit (Intentional Mis representation) Deceif (Concealment

of Fiduciary Duty Constructive Fraud Breach of Contract Inducing Breach of Contract lntentogal Interference With Prospective Economic Advantage Breach of Contract

(lass Action

Demand for Jury Trial

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FIRST A1ujj) COMPLAINT

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Plaintiffs allege:

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1. This action arises under 18 U.S.C. §§ 1961, 1962 and 1964. This Court

4 has original jurkdiction pursuant to 28 U.S.C. §§ 1331 and 1337.

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2. This Court has supplemental jurisdiction over Plaintiffs' state law claims

6 It under 28 U.S.C. § 1367(a).

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3. Venue is proper in this Court under 18 U.S.C. § 1965 and 28 U.S.C. §

8 1391 because at least one defendant resides, is found, has an agent, or transacts his

9 affairs in the Central District of California, Further, a substantial part of the events

10 or omissions giving rise to the claims pleaded in this Complaint occurred in the

11 Central District of California and at least one defendant may be found in this District.

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Plaintiffs

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4. Plaintiffs Douglas B. Nurock and Francesca Stone both live in South

15 Lake Tahoe, California. In October 2005, the Nurock Plaintiffs purchased a residence

16 for $269,000 from Pelican Eyes Piedras y Olas Sociedad Anonima ("PEPO"). The

17 residence was called Casa Fantasia, and it is located in Phase 2 of the Pelican Eyes

18 Resort ("Resort").

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5. Plaintiffs Michael K. Moezzi. individually and as Trustee of the Michael

20 Moezzi Family Trust IJA 4/16/2003. and Nazanin Moezzi both Jive in Gainesville,

21 Florida. Inearl\ 2006, the \loczii Plaintftk purehased aresidcnce hr 379,000 horn 22 PEPO. The rcidctice wa called Caa Florida. and it is also located in Phase 2 of the

PcI iLtfl L 5 Rcort (Reuit),

ft Plainftk .Iucplt Dahilicittier. (ilccuI\ (ci. and Ruthanc Dahlhciiucr

the 1)ahlheitncr PaintitkH li\e in ;\ti Nia. (ieoraia . :\ c\\urth. (ico1'id. and

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Seneca. Suntli (arulina. tcpccti\cI\ In ()ct( hci H()(, the l)ahhhtcirncr Plaiiiiifk

ttcftHc(l It i idcncc 1" )1 42.0() hunt PLP). I he teidetiee \\H eahed (aa

H

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Case 2:11 -cv- 10284-JFW-PJW Document 22 Filed 04/09/12 of 36 Page ID #:554

1 Verde, and it is also located in Phase 2 of the Pelican Eyes Resort ("Resort").

Defendants ants

7. Defendant Pelican Eyes Holding Company, LLC ("PEW") k a

California limited iiahiii company that has its headquarters in Long Beach.

California. PEHC controls the Resort.

8. Defendant Pelican Rescue, LLC ("PRG") is a California limited liability

company that has its headquarters in Long Beach, California. PRG is the Managing

member of PEHC, and owns approximately 40% of PEHC. PRG and PEHC are

hereinafter collectively referred to as the "Pelican Eyes Companies."

9. Defendant Administradora de Hoteles de San Juan del Sur, S.A.

("ADH") is a company formed under the laws of Nicaragua.

10. Defendant Inversiones Inmobiliara de San Juan del Sur Sociedad

Anonima ("ITS") is a company formed under the laws of Nicaragua.

11. Defendant Inversiones Togo Sociedad Anonima ("Togo") is a company

formed under the laws of Nicaragua.

12. PEHC, the California limited liability company, owns all but one share

of ADH, all but one share of ITS and all but one share of Togo. PEHC thus controls

all three of those entities.

13. Defendant James K. HanLia ("Hankla") is the President and one of the

managing memher of PEHC. Hankla is also one of the mana$in$ members of PRG.

14, Defendant Michael J. Emi in ('Emliiig") k an aeti \ e member of the

State Bar of Ca] ii niia. Fining is a !nana$inc member of PEHC and is ako a

mnammmn member t' PRG.

l. The cpemation that ic the ubjcct nf tbic Complaint !I1\h\e ilan\

participant. but it a cntrH led by 1-lankla. \ Ph the uHtaiitial aid P a cadre 01

!I1!LIC! iiicludiiic. iiiiii )t!iei. Liii] nc ic'h]ectl\cl\. the - III , Idcr

10 , f) I .I I nt I ft are H11,1\\ are of time true namc and capac it ie P tic !)cfdiidaiit

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1 named herein as DOES 1 through 10, inclusive, Plaintiffs are informed and believe

2 md, upon that basis, alleec that each of the Defendants designated as DOES 1

3 through 10 is responsible in some manner for the acts, transactions and occurrences

4 rcL'rred to in this Complaint, and that the daiimcs alleced b Plaintiffs in this

5 Complaint were directly and proximately caused by said Defendants conduct,

6 Plaintiffs will a k leave of Court to amend this Compla iii. to show the true names and

7 capacities of the Defendants designated as DOES I through 10 in this Complaint

8 when they have been ascertained.

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Ii i [Si113 I i III RI &'d

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17. Plaintiffs are informed and believe and, upon that basis, allege that at all

11 relevant times, each of the Defendants was an agent, ser ant, or employee of one or

12 more of the remaining Defendants, was at all times herein mentioned acting within

13 the course and scope of such actual, apparent or ostensible agency or employment and

14 was acting with the permission, knowledge, consent and/or ratification of the other

15 Defendants.

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18. Plaintiffs are informed and believe and, upon that basis, allege that at all

17 relevant times, each of the Defendants herein knew of the breaches of duties owed to

18 Plaintiffs that are described in this Complaint, and gave the other Defendants herein,

19 and each of them, substantial assistance or encouragement to engage in the conduct

20 constituting such breaches of duty. Alternatively, Plaintiffs are informed and believe

21 and, upon that fttis. a! lee that at all rele\ ant times, each of the Defendants herein

cave 1111 hstant a I ass i taiice t the other Dc lendants here iii in \ iolat Inc I he dttt ie they

ed i Plaint 1k, and in doll -I, ak io!ated their u a dat ie to , Plainti 1k.

9,

1e1e\ ant tiiue. each of the Delet huits herein \\as a\\are that each I the thiei

() DeteiidanK. inc!ndinc the DOE DelendanN. planned to eticace iii the mnctn!

coiidtict 111 herein wid that each 1ihie f )c 1 '~

I Ildtilt, herein acieed ith the


1 Defendants. to engage in that conduct and intended that the wrongful conduct alleged

2 Ii herein occur.

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20. Plaintiffs seek to recover the dainaes they sustained as a result of a

5 fraudulent scheme the Defendants conducted. As a result that scheme, Plaintiffs lost

6 real estate worth millions of dollars, all of which wound up in the hands of Defendaiit

7 PEHC. Moreover, in the course of the scheme, Plaintiffs were solicited to (and did)

8 invest in securities offerings by PEHC that sought to raise funds to "rescue" the

9 Resort from its financial problems.

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21. More specifically, PEPO sold a residence called Casa Fantasia to the

11 Nurock Plaintiffs in approximately October 2005. The residence was located in the

12 Resort. A Purchase and Sale Agreement binding under the law of Nicaragua was

13 executed, but that Agreement was never recorded, nor was a deed issued to the

14 Nurock Plaintiffs. Instead, title to the property remained in the hands of PEPO.

15 However, the Nurock Plaintiffs were repeatedly assured that a deed would be shortly

16 forthcoming and would be issued when the process of registering the Resort as a

17 condominium development under Nicaraguan law was completed. The Nurock

18 Plaintiffs took possession of Casa Fantasia and used and enjoyed the residence for

19 several years after they purchased it.

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22. PEPO sold the Moezzi Plaintiffs a reJdence called Casa Florida iii early

21 2006. The residence a located in the Resort. A Ptirchase mid Sale ;\ereeiiieiit

22 biiidin under the la\\ of \icaraeua was e\ecuted. hut that ; ereeluent \v5 iie ci

recorded, nor \\a , a deed kued to the \loezzi Plaintilk. lniead. title to the propert\

iemained iii the hands of PEPO, I Io e ci. the \ loeiii Plaint ilk crc repeated!\

Niied that a deed \ mid he hioi1l\ ioiihcwiiine and onid He kued Micil the

6 pioce iekierine the Reoit a a cndoiiiininni de\ehpinent wider Nicaianaii

Ta\k \\ completed. hue N1()c//1 Phaintilk turk eioa ci Cai FHiida in late


1 2007 and used and enjoyed the residence for several years after they purchased it,

2

23. PEPO sold the Dahllieimer Plaintiffs a residence called Casa Verde in

3 October 2006. The residence was located in the Resort. A Purchase and Sale

4 :\reenieiit bindin under the law of Nicaragua va executed in 2007 for the

5 townhouse, but that Agreement ws never recorded, nor Was a deed issued to the

6 Dahlheimer Plaintiffs, I iiL,, tead, title to the property remained in the hands of PEPO.

7 However, the Dahiheimer Plaintiffs were repeatedly assured that a deed would be

8 shortly forthcoming and would be ksucd when the process of registering the Resort

9 as a condominium development under Nicaraguan law was completed. The

10 Dahiheimer Plaintiffs took possession of Casa Verde in 2008 and used and enjoyed

ii the residence for several years LI!'ter they purchased it.

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24. The Resort experienced increasing financial difficulties, and PRG' s

13 Hankla and Emling were contacted by the Resort's founder Robert Alan "Chris"

14 Berry ("Chris Berry") to seek their assistance in resolving the Resort's financial

15 problems. Hankla and Emling became involved with the Resort in approximately July

16 2009, and about a month later, they and others formed PRG.

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23. The Defendants became aware of the fact that deeds to the residences

18 that had been purchased by Plaintiffs had not been recorded or registered, and

19 concocted a scheme to obtain the real estate owned by Plaintiffs and others. The heart

20 of the scheme was to make a securities offering to potential investors, including I

Plainti fts. which: (i) ackiio Ieded that Plaintifk O\\ ned the ft F( )perties, and (ii) 21 rea'oji'ed them that PRG and PEFIC intended to operate the Resort and take the

necear\ \tep to oHain and eoii cv marketable title to Plaintilk' ieideiiee to them

mnce the\ had allead\ paid tot it In aetnalit\. I)elendaiiN. liile tlle\ \\ cue

olicit III c and ellinc the ecnri1ie \\ Ph ihee lake mcpreentatioii. ecle1l\ otu

Plaint ilk and the cla planned and conpiied to and jmceeded to CHain wneHiip

and cnttmol lall oLdie meal estate in the Reuii. imiclnditto Plaintjlk eidciice and


1 II those of other similarly situated persons. Defendants did not intend to, and never did,

2 11 convey deeds to any of the residences to the P1aiiitiftcla.

3

26. The scheme the Defendants perpetrated to achieve their objective w as

4 to claim to have a promissory note ("Note") that nobody has ever seen for a $193,000

5 debt supposedly owed by PEPO to a corp.nation the Defendants had caused to be

6 formed after they started to "rescue" the Resort. When PEPO defaulted on the

7 supposed Note, Defendants instigated a lawsuit in Nicaragua against PEPO. In the

8 lawsuit, one attorney represented the plaintiff corporation recently formed by the

9 Defendants (the "Plaintiff Corporation"), and another attorney from the same law

10 office represented PEPO - i.e., the party on the other side of the lawsuit! Both

11 attorneys were paid by the same person or entity. PEPO's attorney then caused about

12 $15 million worth of real estate to be transferred to the Plaintiff Corporation

13 noteholder in "satisfaction" of its "$195,000 claim." Included in that real estate were

14 the residences which Plaintiffs had purchased, as well as the residences of other

15 similarly-situated persons. As part of the scheme, no transfer of title was made to the

16 Plaintiffs. The net result is that Plaintiffs paid for the real estate, and now,

17 accordingly to the Defendant "rescuers," Plaintiffs have nothing, while Defendant

18 PEHC owns all of that real estate through various wholly owned subsidiaries.

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GENERAL ALLEGATIONS

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27. Pelican E es Resort was founded in 2003 and k located in San Juan del

2" Stir, Nicai'aua. It is a reovt consistinc of appl'oxinlatel\ 27 acres near the Pacific

l icam'aua. It includes t\\ (I rctauramiN, three imnmiiin pok. lammdcaped

C)!11Hi)I1 IIcH. amid ì\ em - (() mcidcmttial milt. I he Rckni \a iml!tiall\ de\ duped in

20) h\ (hri Bdmm\ a place to ll\ e. amid then e\pamidcd inN) a reurt a triemak amid

2 other iH \\antdd liumne iii the area.


1

Plaintiffs Purchase Their Residences

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28. In 2005. the Nurock Plaintiffs decided to purchase a home in the Reoi't

3 from PEPO for 2(),0O0. The Nicaraguan law firm of Garcia & Bodan ("G&B)

4 rprcciiud PEPO, and provided Plaintiffs with a fully executed Purchac and Sale

5 Agreement for the acquisition of a townhouse in the Rort called Casa Fantasia.

6 Plaintiffs paid PEPO S -2 69,000 in a series of installments, and took possession of the

7 residence in October, 2007.

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29. In 2006, the Moezzi Plaintiffs decided to purchase a home in the Resort

9 from PEPO for $379,000. G&B also represented PEPO in this transaction and

provided the Moezzi Plaintiffs with a fully executed Purchase and Sale Agreement

11 for the acquisition of a townhouse in the Resort called Casa Florida. Plaintiffs paid

12 PEPO $379,000 in a series of installments, and took possession of the residence in

13 November, 2007.

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30. In about 2006, the Dahlheimer Plaintiffs decided to purchase a

15 townhome in the Resort from PEPO for $242,500. G&B also represented PEPO in

16 this transaction and provided the Dahlheimer Plaintiffs with a fully executed Purchase

17 and Sale Agreement for the acquisition of a townhouse in the Resort called Casa

18 Verde. Plaintiffs paid PEPO $242,500 in a series of installments, and took possession

19 of the residence in 2008.

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Defendant Corporations Scheme to Defraud Plaintiffs

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31. On or about Aiiut 12, 2009, PRG a formed nndcr the laws of the

22 State of California.

32. On or about Auut 2. 2)), :\DE[ forincd uIRIcr thc Iaw t

24 IQ till. !)cicidaiit 1Ltiikla iic t it Iiaicl Ith'i ..\DFI c!aiT1 a bc tilL'

O\\ I1CI' H IlldIl\ H titc i'cidcucc in the Rcort.

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On r about \itri 2. 2(X)), US Hriuci uiiicr the !a\\\ H

II J'11111> H bc liH \\ ML'!' H at icat uc III titc Rcu'i. 11111 i

'3•

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I the entity through which many of the Resort operations are conducted.

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34. On or about September 2, 2009, Defendants made a claim that the

3 promissory Note (that nobody has ever seen) existed. The due date on the Note was

4 \iarch 1,2010. The Note reflected that PEPO purportedly owed ADH $195,000. No

5 such debt was in fact owed, and the Note was a fabrication that was part of a scheme

6 to defraud Plaintiffs of their respective interests in Casa Fantasia and in Casa Florida.

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35. On or about September 17, 2009, Togo was formed under the laws of

8 Nicaragua. Togo claims to be the owner of at least one residence in the Resort.

9 ; 36. On or about October 15, 2009, Chris Berry, the President of PEPO, left

10 Nicaragua.

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37. On or about October 24, 2009, Defendant Emling sent an email to

12 various Resort homeowners, including Plaintiff Nurock, in which he stated in

13 pertinent part that "[ojur priority is to get people their deeds and to get the promised

14 houses built."

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38. On or about November 17, 2009 PEHC was formed under the laws of the

16 State of California,

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39. Plaintiffs are informed and believe, and on that basis allege, that in or

18 about November 25, 2009, PRIG, ADH, which was represented by Gladis Maria

19 Zapata Parades, and Hankla met to plan how, among other things, they would oh tai i

20 ownership for PEHC of all of the real estate in the Resort. During the course of that

21 nicct iii. and as part o thcir plan to achic\ c ftc a1arcmciitioned result, thcv provided

22 ajudicial powcr of attorncv to attorney IKatia Grkcll Tijcrino Urnana ("L III all a").

2

40. On orthmit Dcccinhcr 1, 200). Dcicndants HanLia and Enilinc cnt an

2 4 cniail i iNc lliuc\\ ncr' in iNc Rcii. iiiclndin Plaiiiiif I \nitcL. in \\ Inch lIIc\

Ici\cd that. ainoiia thcr ihiiic:

() (a) \ on kin, nicnciaI plan ha lccii h anitizc iNc Hrnici act 1

27

Pcj H pi cc inc lhciii thi ncIi nccl ii ft I Iii \ nId a! N ti a

Case 2: 11-cv-10284-JFW-PJW Document 22 Filed 04/09/12 of 36 Page ID #:561

1

move forward, get deeds to those with homes, build or refund

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unconstructed homes out of the homeowner side of the income. .

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(Emphasis added).

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(b) "The present iWation is that Pelican Rc'ciic LLC now owns most of

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phase one throuh a Nicaragua subsidiary, as a result of agreement with

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the bank and that bank foreclosure process. This is a self contained

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functional property as far as we are concerned. As to phase two, the

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property isprc.sciith' under a lien. This has the advantage ofprevenring

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other outside creditors from having a go at any particular indRiJiuil's

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house. Liider current thinking, we would go ahead andforeclose on that

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part ourselves, and then proceed to make new deals with those

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homeowners, including getting the deeds issued." (Emphasis added).

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41. On or about December 8, 2009, the Pelican Homeowners LLC ("PH")

14 was formed. That entity was an Ohio limited liability company and was to operate as

15 a voice for the homeowners in the Resort.

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42. On or about December 13, 2009, Defendants Hankla, Emling and PRG,

17 among others, sent an email to Plaintiff Nurock and others. In that email, these

18 Defendants stated: "[t]he HOSC and PRG are also working jointly on special projects

19 concerning Phase 2 and other as yet unencumbered PEPO land." (Emphasis added).

20

43. On or about December 22, 2009, the first private placement

21 nicinranduin ("First PPM ") as ksucd by PEHC, control led by 1-lankla aiid Enil in LT

21 (timomi othcr . Among other t h iii. it stated the fol!o inc:

(a) That PFHC \\(kil14 \\itIl PEPO Lint otrinI\ H iiupleiiiciit

24 a ic1ritcU Iii ne plan:

H That the Rcor I Illchtdc(I i\t\-t!\c pri\aielv iu'/ rcHdc!ltia!

() I iit. and that P11k). S.,\. eciItial!\ )\\ ned c\cr\lhine e\cepi the LuiN:

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C Ihat the keit lionki tai'1 H 'i]eOttC jOit]\ e C a1i !ho\\

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I II beginning in December 2009;

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(d) That PEHC antic ipaicd acquiring all of PEPO's assets through a

3 structured transaction by January 2010;

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(e) That the PRGLPEHC restructuring plan included various e Ic mci t ,

5 of which one was to "correct certain legal deficiencies affecting current Unit owners

6 Mid huvcr;'

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(t) That Unit owners will be would be required to participate in a ten

8 year rental plan and in exchange for their participation, Unit owners would receive

9 a deed to their individual Units. (Emphasis added to all); and

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(g) That the Resort net operating income (before allocations to PEHC

11 and Unit owners) was projected to be $835,000 in 2010 and would stabilize at $3.5

12 million in 2014. The PPM also included a table containing "Financial Projections,"

13 a table entitled "Sources and Uses" (of funds), and a table entitled "Investment

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44. In addition to the First PPM, the offering was also comprised of a

16 "Subscription Booklet and Instructions" ("Subscription Agreement"), and the

17 "Operating Agreement of Pelican Eyes Holding Company, LLC ("Operating

18 Agreement)." The Subscription Agreement, provided, among other things, that a

19 Subscriber agreed to purchase units in PEHC "in accordance with" the First PPM and

20 the Operating Agreement.

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45, On or about December 31, 2009, Richard B. Garrett ("Garrctt"). the

Sccictarv of PFHCandaNEmazcr of it. cnt an email to Plaintiff Nurnck and otheis

ill \\ hicil ic ad\ kcd, in pertincnt part, that; "ii n\ctJncnt iii Pclicaii [\c IIOLIiIi$

24

(oIupwi\. IL( uicaii that \HU \\ ill IIa\c harc in [HL ('OIP\\) that o

C\ C1'\ t1iiii that PLP() H\\ iCI 11 1* 1/ i/ic 1.01//11011 0/1/1(0(11(01 /(///f\ (i/HI //icioofpi//i/

() 00 i 111(1/ /01/uI /1/H )// uii ii 0 hioiiic or P1(1/1/il \i/ H Hupha o dcI

46. On ahoiit Jalivar\ 5 . 21ft and LLn(Icrafof pwonaitt to t 11 Eirt FP\I. 1 11

11

Case 2: 11 -cv- 10284-JFW-PJW Document 22 Filed 04/09/12 of 36 Page ID #:563

1 II Moezzi Plaintiffs purchased 50 units in PEHC for $50,000.

2

47, On or about January 19, 2010, and under and pursuant to the First PPM,

3 the Nurock Plaintiffs sent a check for $20,000 to purchase 20 units of PEHC, and

4 thereafter completed the purchase of those units.

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48. On or about January 29, 2010 and subsequently, on about June 8, 2010,

6 and under and pursuant to the First PPM, the Dahiheimer Plaintiffs sent a check for

7 $25,000 to purchase 25 units of PEHC (in January) and $10,000 for an additional 10

8 units.

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49. On or about January 22, 2010, Defendant Hankla, acting on behalf of at

10 least PRG and PEHC, sent an email to residence owners, including Plaintiffs, in

11 which he stated, among other things, that:

12

(a) "At the end of the day, one of two things is going to happen. You

13 are going to get a home with a deed, or you are going to get your

14 money back. If I had to bet, I would bet that you are going to get

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a home with a deed." The email was signed "J. Kirk Hankla,

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Managing Member, Pelican Rescue Group."

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(b) "I think it is time to put a drop dead date on homeowner

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participation because it is the right thing to do for those who have

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invested and to whom I now owe a fiduciary duty."

20

50. On or about January 23, 2010, Garrett sent an email to Nurock, among

21 niher, in !iich he advised that PH had entered into a "Development Agreement"

22 with PRIG. Garrett advised, amnii nther thinas. that:

(a) 'ihi N a C{)nt1lct het\\ een Hneo ners and ihe Pelican Rescue

24

LL( that tatc the frdlne\\ niL . \\ rLiii iciiinnh ip and

25 nh!iaatinjis nt caclì cntit\ to the nthei'. It N (fiN aelcelllcnt \\111 ,11

()

cnnliniN Pc!icni Re\c1tc 11C In the uic iiiade tn

-I ho Illcm\ 1CI II the pNI 0nI1CCII11IIC the Ilitwe dC\Clnpnlcnt H the

IN


1 Resort, A copy of the Executive Summary follows this newsletter.

(b) "PRG has committed formally to cooperate with Homeowners and

all Unit Owners and share all material information relating to the

Development. Most significanik. in the Agreement, PRG has

ackno'leJteJ that the uircc ired (and soiiiethiiies poorly

docum 'ii re / laims of the in en ii'ers ofHomeowners, .. are biii Ii, i

obiigatioiix on PEHC." (Emphasis added).

(c) The "Executive Summary" stated in pertinent part that: "PRG has

agreed to secure title to all of the real estate in the development

and to transfer marketable title to Units to i/ic/i' rightfiil owners,"

(Emphasis added).

(d) The "Executive Summary" also stated that: "[w]ith respect to

Phase 2 of the Development, PRG has caused the original lien

placed by BanCentro on that land to be transferred to

Administradora de Hoteles de San Juan del Sur S.A.

("Administradora"). Administradora is a wholly-owned subsidiary

of PEHC. Because the amount of that lien is relatively small, PRG

has proposed that Owners (through Powers of Attorney granted

to trusted representatives in Nicaragua) can contribute their

claims acainst PEPO to Cobraivas S.A. ("Cobranias") in

cx hanc i r shares ofCobrantas ;\diuiiikii'adora \Vjll contrihte

IN claims aeaiiist PEI O H (' hranzas iii c\ch nc tir Of

(iania, t )II receipt of uflicicnt claims. Ni iiia \ ill

conduct a judicial Hcclourc aeainst PEP() and cHain title to

Phase 2. ( o!H(j1O i/I /cc/ 111/c Ic 1/Ic / /IiI iii P/iuc 2 ic I/ic

iie/ii/o/ OaIlcr\ and \ ill tiaiistci the balance of its cal estate to

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()

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another PEHC subsidiary, Inversiones Inmobiliarias de San Juan

2

del Sur (uInversiones). (Emphasis added).

3

51. On or about March 5, 2010, Garrett sent another email to Plaintiff

4 Nu tuck. among others, in which he reported that an informal owners meeting attended

5 by various persons, including Defendants Hankla and Emling, had occurred, and

6 further reported that: "[a] survey team is on site obtaining precise data in older to

7 consolidate each Parcel under our Resort, and this is the first step to aid separating

8 individual unit sites in the process of acquiring deeds to our properties.' (Emphasis

9 added.)

10

52. On or about March 22,2010, Umana, acting as the judicial representative

11 of ADH, filed an action in Nicaragua in which ADH alleged that PEPO had defaulted

12 on the supposed promissory Note, and sought to recover the sum due under that Note.

13

53. Chris Berry was not given notice of the action filed by Umana against

14

15

54. Prior to the filing of the action by ADH against PEPO on the Note,

16 PEPO's attorneys, G&B, appointed attorney Roger Perez Aguilar ("Aguilar") to act

17 for PEPO. At the time Aguilar was appointed, he was working in the same law office

18 as Umana, counsel for Plaintiff ADH.

19 : 55. On or about April 9, 2010, Aguilar appeared in the action and

20 participated in a "Mediation Procedure" for ADH's claim against PEPO. Aauilar

21 aiuiounced. that PEPO did not have the moner to pay oft the 195,000 Note, and

22 instead trantcrrcd to ADH all ot PEPO's ieiiiainin real estate assets a \ve!I as

PlaintilT real estate. This trtiitr a pnpoi'tedlv in atktaetion of the

24 NoIc.

. Ihe ipert\ that \ tilar traiilcrred nchtded iiiill loll" Hdu!Iar \ orth

- 0

t teal estate. mc t hieh had been I ilit and paid lot b\ \ anon tiiited Statc

reidcn nchtdin Plaint ilk and i eiiiber ol the ltii1tilTele,

14


1

57. PEHC paid the attorneys for both ADH and PEPO for their participation

2 in this activity.

3

58. On or about April 22, 2010, the Nurock Plaintiffs sent a check for

4 $20,000.00 to the Pelican Loan Company ("PLC") to purchase 20 shares of its toek.

5 This check was sent because the operators claimed they desperately needed money

6 to help with the "crushing" legacy debt, in order to provide Plaintiffs with a deed to

7 their property.

8

Defendants Disclose That PEHC Owned the Property Which they Had

9 Represented in the First PPM Was Owned by The Plaintiffs and The Class

10

59. On or about February 21, 2011, despite the statements in the First PPM,

11 and in the Development Agreement, Hankla announced at a meeting that all real

12 estate in the Resort was now owned by PEHC, and that no one who had paid money

13 to PEPO to purchase residences in the Resort owned any of those residences.

14

60. On or about March 15, 2011, Defendants issued a second private

15 placement memorandum ("Second PPM"). Among other facts, PEHC asserted in that

16 PPM the following:

17

(a) The Resort was acquired by PRG through a combination of

18 foreclosures and purchases;

19

(b) The interest of PRG in the Resort had now been tranferred to

20

21

(c) Titles were never granted to putative purchasers of individual

22 units, except in a

1

d) 'ftc chisses t PEPO taLehoider. c( 1itiic 01 ho

24 iI1\e1cd in Uh1it Hiii or tm-htiiIt, oi \\ ho Hanel Illofle\. \\eIe Jell ithotit lecouIc:

C)

Ihat a a ren!t of the l(neoii1. IThI IC tied ('aa 1antaia and

() (aa ft )lftkL and

ILit IL a taehohdei like Halittilk here did not tiHcrihe to the

15


1 II offering, it was likely that the residence of the stakeholder would be sold to a third

party by PEHC.

3

61. On or about July 15, 2011, one of PEHC's attorneys. Fernando Medina

4 adiiiittcd in a newspaper interview that the S 195,000 Note \\ a fabricated and was

5 created as part of a scheme to obtain ownership of the residences in the Resort,

6

62. On or about July 22, 2011, Hankla also admitted in a email that the Note

7 was fabricated and that ADH had not lent PEPO $195,000.

8

CLASS ACTION ALLEGATIONS

9

63. Plaintiffs bring this action on behalf of a class of all members of the

10 general public who had purchased real estate located in Phase 2 of the Resort, and

11 who thereafter purchased any of the securities offered in the First PPM but before

12 issuance of the Second PPM.

13

64. Class action procedures here are superior to other available methods for

14 the fair and efficient adjudication of this controversy. Since the damages suffered by

15 each individual class member are relatively small and the controversy involves an

16 international conspiracy, the expense and burden of individual litigation makes it

17 impossible for class members individually to seek redress for the wrongful conduct

18 alleged. The disposition of each persons claims in a class action will provide

19 substantial benefits to both the parties and the Court. The names and addresses of

20 class members are readily obtainable from Defendants files. There is a well-defined

21 community of interest in the questions of law and lict involved in this jiiaUcr.

22

65. The factual nd !cnl questions common to the class prcdomniiiatc over

, 1 ' i!ldi\ idtmaf factuaf r leca] (]ucti(I1. iiic!tidine. \\ ihout ]inhitatiomi. Mictlicr

!)cfeia]amiN eiiaecd in oniHu! conduct \ fiemi tI1e\ pinnied In the Hii PP\1 that

pa rchiaer I re idcnce \\ )U Id ccc c dccd to their ic idciicc and I !icn ccmcI1\

() jwiicd the acqiikiiHii H title H cidcncc iii the Rcii 10Y their ii hcnclit

th1(iC!i thc IHC (I It lcHt 011C Ia)iicatcd I wtc.

U


1

66. Plaintiffs assert claims that are typical of the entire class, and will fairly

2 II and adequately represent and protect the interests of the class in that Plaintiffs have

3 II no interest aiitaonistic to those of the other members of the Class. Class counsel is

4 conipetent and e\perienced in the prosecution of class action litigation.

S

67. In the prosecution of this action, expenses will be incurred for attorney

6 fees and costs. Such attorney fees and costs are necessary and will inure to the benefit

7 of the members of the class.

8

9

10

(Violation of Section 10(b) of the Securities and Exchange Act of 1934

11

and Rule 10b-5 On Behalf of The Plaintiff Class

12

Against All Defendants)

13

68. Plaintiffs incorporate by reference the allegations contained in

14 Paragraphs 1 through 67 of this Complaint.

15

69. Defendants participated in a plan, scheme and course of conduct which

16 was intended to and did deceive Plaintiffs, enabled Defendants to sell a fraudulent

17 investment to Plaintiffs, and caused them to lose significant funds. In furtherance of

18 this unlawful scheme, plan and course of conduct, Defendants: (a) employed devices,

19 schemes, and artifices to defraud; (b) made untrue statements of material fact and/or

20 omitted to ctate material facts necessary to make the statements not misleading; and

21 (c)erieaed in acts and 1 1 1 -act ices, and a course of bu mess which operated as a fraud

22 and deceit upon the Plaint i ft in the ptirchac of their in \ est merit. in v io lato m of

23 Section I 0(h)'4 the E\challee Act and Rule I ()h-, At Ieat oriie of that conduct k

24 decriNed in ParacrapH 2() to 02 ot ihk ( uup!aint. L)etcndairt PEHC and its

M\ ned at tiliates \DH. uS, and lOGO are heine sued as priniar\ participants iii the

2 (

\\ miutu! and i]!eea! eftiduct chareed herein, arid Detendant PRO, a \\e!I a the

lndi\ iduak. aft' heine sued a nitiol Peion,

' S

17


1

70. Defendants. individually and in concert, directly and indirectly, by the

iic of means or instnimcntilities of interstate commerce and/or of the mails, eneaecd

3 and participited in a continuous course of conduct to misrepresent and coneedi

4 material facts pertaining to the investment which Plaintiffs purchased from

5 Defendants. At least some of that conduct is described in Paragraphs 20 to 62 of this

6 J Complaint.

7

71. The Defendants employed devices, schemes and artifices to defraud, and

8 engaged in acts practices and a course of conduct as alleged herein, in an effort to

9 assure Plaintiffs that, among other things:

10

(a) Plaintiffs' title to their residences in the Resort was assured;

11

(b) Defendants were working to obtain marketable title to Plaintiffs'

12 residences;

13

(c) Defendants would cause marketable title to Plaintiffs' residences

14 to be transferred to Plaintiffs;

15

(d) That a purchase of the securities offered in the First PPM (the

16 "Investment") would assist in the achievement of Defendants' promises to transfer

17 marketable title of their residences to Plaintiffs.

18

72. Defendants failed to disclose that:

19

(a) Their primary objective was to obtain full and complete ownership

20 of the entire Resort, and in particular, all of privately owned residences sold to

21 persons like Plaintiff.,, by PEPO;

22

(h) Tliat they had no intention of ever pi kline dccds to the

2

indi\ idual residence ners. and p rtieularl\ the iers lreirlenee iii Phase 2 of

24

he Re )It:

Ihat to the e\lenl that 111(11\idtlal reidenee \vners (eIeht to

Ntaiii deeds H their reidenee. 1)eleiidant intended to t\ 1HC those ettHrK h\

deIiIiliilepa\I]letIldItu)!lal t1!11)I MIOIIC\ t( Pli}1(:


1

(d) That to the extent that individual residence owners sought to

2 obtain deeds to their residences. Defendants intended to stymie those efforts by

3 demanding large and unreasonable monthly maintenance and utility fec that vastly

4 j exceeded the reasonable cost of those services; and

(e) That there was no reasonable basis for the projections contained

6 in the three tables in the PPM [identified in Paraiaph 43(g) of this Complaint]; and

7

(I) Defendants did not and would not formulate and implement the

8 mechanism for transferring title to Plaintiffs' respective units, and needed capital

9 before they would do so.

10

73. The foregoing omissions, while wrongful in and of themselves, also

11 caused the affirmative statements made by Defendants in the PPM to be misleading.

12

74. As a part of their course of conduct, Defendants made, or participated

13 in making of, untrue statements of material facts and omitting to state material facts

14 necessary in order to make the statements made about the Investment in the light of

15 the circumstances under which they were made, not misleading, as set forth more

16 particularly above, and engaged in transactions, practices and a course of business

17 which operated as a fraud and deceit upon Plaintiffs.

18

75. The Defendants had actual knowledge of the misrepresentations and

19 omissions of material facts set forth herein, or acted with deliberate dlsrccard for the

20 truth, in that it failed to ascertain and to dkclose such facts. Defendants' material

21 n1isrepieentat ions id/oromisioii 'ere done km -m iiigly or deliberately and for the

22 purpose wid effect of concealiii the truth ahout their chemc to obtain eal title to

23

P1 iintitk ildLii nid tlk lfl\tiflLfit [toni Ph tititilk II DLftnd int did not h i\

24 dctwi! Lno\\ lede H the ii i'eieeiititjoii iiid iiiioii dl!eed. the eie

dehibeiite in Htin such klio\\IerIe. I dehiNe1iteI\ i'elriiniit hi in takin

(

iIioe tep ieceir\ to diCo\ ci \\ Itether those UitciiiciiN \\CIC Like or iniIeidin.

H. hi ic!iiice oti the Like i!kI iiiileiJiii titciitciiK iwde H DelihLiiit,

ii-

I-,


Plaintiffs purchased the Investment.

77. At the time of the misrepresental ioiis and omissions. Plaint i ffs were

ianorant of their Oi is it\ and he I ieved them to be true. I-lad P1 ainti Ifs Luown the truth

4 recardina the nature of De1ndants scheme and the In\ estinent. \ hieh was not

disclosed to them, they would not have purchased the Investment.

()

7. By irtue of the loregoina. Defendants have violated Section 1 Oft)) of

7 the Exchane Act, and Rule I Oh-S pi'oniu1ated thereunder.

79. As a direct and proximate result of Defndant's wrongful conduct.

() Plaintiffs suffered daniaes in connection with their purchase of the Investment.

10

I!

SECOND CLAIM FOR RELIEF

12

(Violation of Section 20(a) of the Securities and Exchange Act of 1934

13 On Behalf of The Plaintiff Class Against PRG And The insider Defendants)

14

SO. Plaintiffs incorporate by reference the allegations contained ill

15 Ru agi aphs I thi ough 79 ol this Complanit

16

1. The Securities Exchanae Act of 1934 provides that controlling persons

17 are jointly and severally liable with violators under their control. stating:

l

"Every person ho. directly or indirectly. Controls any person liable

19

under any pl-ovlsloll of this chapter or of any rule or regulation

20

hereu nder shall al s he liable jointly and severally with and to the same

21 e tent as sue h co nt n I led person to any person to horn such contr( I led

person is liable, unless the controllina person acted in good faith and

did Hot directl\ or indirectl\ induce the act or acts constilutin the

74

iolatin n cauc 1 actHiv" IS t SC. Sec. tou.

2. PRG and the liisider I )sesed. direct!\ or I lid trectl\. the actual i''

26

to direct trcaue the di ection of the niaiaicinent and po!icie of PEIIC. the lnidcr

lia\e cuiiol peruii liahi!it\ here hecauc thc\ controlled PH IC and PR(.


II

83. In reliance on the false and misleading statements made by Defendants,

2 II Plaintiffs purchased the Investment.

3

84, At the time of the misrepresentations and omiIons, Plaintiffs were

4 Inoratit of tlicir ftkity and believed them to be true, Had Plaintiffs known the truth

5 rc$arding the nature of Defendants scheme and the Investment, which was not

6 disclosed to them, they would not have purchased the Investment.

7

85. By virtue of the foregoing, Defendants have violated Section 20 of the

8 Exchange Act.

9

86. As a direct and proximate result of Defendants wrongful condut,

10 Plaintiffs suffered damages in connection with their purchase of the Investment.

11

12

THIRD CLAIM FOR RELIEF

13

(Violation of Section 12(a)(2) of the Securities Act of 1933

14

On Behalf of The Plaintiff Class Against All Defendants)

15



17

88. Section 12(a)(2) of the 1933 Act provides that:

18

(a) Any person who... offers or sells a security... [by use of interstate

19

commerce or the mails] by . . . means of a prospectus or oral

20

communication, which includes an untrue statement of a material fact or

21

onliN to statct material fact neceary in order to make the statemenI,

22

ill the lizht of the circtimstartccs under Mildi they were made, not

11111 ear1ine the pufthaer not Lno\k I jig Of ueh untruth cro!nHion . and

24 \\ H IuiI I J1( )t 1HLnn t he hitrdeii pio f that he d H not Lno\\. and in

the eere e l rei nahle care could not have fiO\\ ii. H neh tintrutli

() i i1Ni(n. Hall he liahle. uhjeet t nHeetioii Ht of thH eetioii, to

the pern ptirehiaine tieIi eeurit\ from hum, \\ H nia\ ue either at Ia\\

\__j•


1

or in equity in any court of competent jurisdiction, to recover the

2

consideration paid for such security with interest thereon, less the

3

amount of any income received thereon, upon the tender of such

4

security, or for damages if he no longer owns the security.

5 15 U.S.C.A. § 771 (West).

6

89. As alicced above, Defendants offered and sold securities to the Plaintiff

7 Class by means of an offering memorandum which included misrepresentations and

8 I omissions of material facts.

9

90. Defendants' fraudulent scheme, misrepresentations and omissions caused

10 I Plaintiffs to invest and to lose their investments and their homes.

11

12

FOURTH CLAIM FOR RELIEF

13

(Violation of Corporations Code §25401 By The Plaintiff Class

14

Against PEHC)

15



17

92. Section 25501 of the California Corporations Code provides in substance

18 that any person who violates Corporations Code § 25401 shall be liable to the person

19 who purchases a security from him or sells a security to him, who may sue either for

20 rescission or for damages (if the plaintiff or the defendant, as the case may be, no

21 !oiicr owns the security). Section 2401 maL's it unlawful "for any pcioii to offer

22 or sd! i cciirity" by nicnnc ofuntruc titcmcnts oroinissroiis ofmatcrial tct. wlicrc

23

ilic cHcr \\ auc or \\ a ncHicnt iii LiIin to hc arc that it rcprcciittion

24 \\CIC i1!caIIHd.

Dctci1mt ccinincndcd Lwd 1()ld tlic 111% C ' , 1111,2111 to PLtiiititl tsCol

() Ufl()fl 111itCplC "CH tttl)I t I Id )[1 o rat. iiic]urtiii thoc I1!ccLth\c.

tnJ 'ticuiwl\ 111 Ptt tiipI 20- 02)t this ('npLtiut. III Id icHc!\ audi\\ !l!\


1 participated in the fraudulent scheme alleged above. As such, they violated Section

2 25401, The Defendairts inadc the false and misleading statements without exercising

3 II reasonable care to determine the truth or falsity of the statements.

4

94. As a proximate and foreseeable result, Plaiiitiffs have suffered damages,

5 J in an amount to be proven at trial.

6

7

FIFTH CLAIM FOR RELIEF

8

(Violation of Corporations Code §25504.1 By The Plaintiff Class

9

Against All Defendants Except PEHC)

10



12

96. Section 25504.1 of the Corporations Code provides that any person who

13 "materially assists" in a violation of section 25401 of that Code, with intent to induce

14 a person to rely on a knowing misrepresentation or omission, is jointly and severally

15 liable with any other person liable for a violation of section 25401 of that Code.

16

97. The Insider Defendants, by the conduct alleged above, materially

17 assisted PEHC in selling the Investment to Plaintiffs by false and misleading

18 statements, including those alleged above, and particularly in Paragraphs 20 to 62 of

19 this Complaint. When they did so, they intended to induce Plaintiffs to rely on

20 representations known to be false or micleading.

21

98. As a pro\imate and f iesceah!c result, Plaintiffs ha\c uI'Lered dan tees,

including lncc of much of their ret ireluent Iiind. and other compensator\ atid

coiisequeiiil daiiiaee. in an aiiiouirt to he i° en at trial.

24

!i\1FI (1;Vl\I IOR_RElJEI'

2

(1)eccit BN Intentional Misrepresentation \gaint Defendant:

1. PII-l( and The I nider Defendants By The Plaintiff Class)

\


1 99. Plaintiffs incorporate by reference the allegations contained in

2 Pai -agr,il)lis 1 through 98 of this Complaint.

3

100, Defendant PEf-IC rnadc the representations of fact set forth above,

4 includiini iii Paragraphs 37 and 40 through 51 of this Complaint.

101. The representations specified above, including those in Paragraphs 37

6 and 40 to 51 of this Complaint, were false.

7

102. Defendants, and each of them, knew that the representations set forth

8 above, including those in Paragraphs 37 and 40 to 51 of this Complaint, were false

9 when they made them.

10

103. Defendants, and each of them, intended that at least Plaintiffs rely on the

11 representations set forth above, including those identified in Paragraphs 37 and 40 to

12 51 of this Complaint, in considering whether to purchase the Investment.

13:

104. Plaintiffs in fact, relied upon the representations of Defendants that are

14 identified above, including those in Paragraphs 37 and 40 to Slof this Complaint, and

15 purchased the Investment. Plaintiff's reliance upon the representations identified

16 above, including in Paragraphs 37 and 40 to 51 of this Complaint, was reasonable.

17

105. Plaintiffs were harmed as a direct and proximate result of their reliance

18 on the false representations set forth above, including those identified in Paragraphs

19 37 and 40 to 51 of this Complaint, and each of such representations because they

20 purchased the Investment. If Defendants had disclosed that they never intended to

21 provide legally inar1etab1e title to Casa Fantasia or to Casa Florida. Plaintilk ould

')l not have purchased the lin cstiuciit.

I n6. The C( ) iid net dccri hcd here iii coii1 it ute "oppress u n. ti'aud r mia I ice

24 a tIie tcrin arc dclined in (ivil (dc and Plai Ill ilk are thcrchrc entitled

to pnnlli\ e dali 1re in an alliouiit aecordine H prof. Plaintilk are intorined and

2 ( hc!ie\ C. and vred upon ILICh jut n llkn and heliet. alIce that:

a) the cndnct deerihed herein cuititutine ppre]ol1. rand

Case 2:

1

2

3

4

11-cv-10284-JFW-PJW Document 22 Filed 04/09/12 of 36 Page ID #:576

malice was committed by one or more officers, directors, or managing agents of

Defendant PEHC who acted on behalf of Defendant PE}-1C; or

(b) The conduct described herein coiititudng oppression, fraud or

malice was authorized by one or more officers, directors, or Inanagin acnts of

5

6

(c) One or more officers, directors, or managing agents of Defendant

7 PEHC knew of the conduct constituting malice, oppression, or fraud and adopted or

8 approved that conduct after it occurred.

9

10

SEVENTH CLAIM FOR RELIEF

11

(Deceit By Concealment Against Defendants Hankla and PEHC

12

By The Plaintiff Class)

13



15

108. Defendant Hankla was in a fiduciary relationship with Plaintiffs, and so

16 admitted in his January 22, 2010 email to them and other homeowners in the Resort.

17 109. Defendant PEHC, and all DOES, among other things:

18

(a) Intentionally failed to disclose important facts to Plaintiffs.

19 Specifically, Defendants failed to disclose their intent to obtain ownership of all of

20 the Resort including Plaintiffs' residences, and failed to disclose that they had created

21 a fabricated proinkorv note that the\ planned to use a a N chicle to obtaiti such

22 uwnerIup through the use of a itaudu lent foreclosure;

23

(b) Dteled ontc tacN to Plaintilk but il1tentuu1aI\ failed to

24 dHcHe Hher iiiiputant iacN. i tiue the lic uIe they did make decepil\e.

23 Speeiiiea!!\. Detndaiit stated thai hue ille\ planned to ue k)reelu1Ite to htain

() O\\ iieilup )l real estate at the Rert, the\ Jailed H dicloe that \ueh real eiate

included Piainiilk e\idcIlce:

1_ \' JNT

21


1

(c) Intentionally failed to disclose important facts that were known

2 only to them which Plaintiffs could not have discovered. Specifically, Defendants

3 failed to disclose that while they were assuring residence owners that they planiied

4 to obtain and convey title to the res idences purchacd by Plaintiffs, and would respect

5 the ov iiecsliip rights of unit owners like Plaintiffs, they planned and were in the

6 J process of carrying out a scheme to wipe out Plaintiffs' ownership interests through

7 the use of a fraudulent foreclosure scheme;

8

(d) Actively couccaled important facts from Plaintiffs. Specifically,

9 Defendants concealed that they planned to and were carrying out a scheme to

10 eliminate Plaintiffs as owners of Casa Fantasia and Casa Florida, respectively.

11 110. Plaintiffs did not know of the concealed facts set forth above, including

12 those identified in Paragraph 109 of this Complaint.

13 111. Defendants intended to deceive Plaintiffs by concealing facts, including

14 those identified in Paragraph 109 of this Complaint.

15

112. Plaintiffs reasonably relied on Defendants' deception as described above,

16 including in Paragraph 109 of this Complaint.

17 113. Plaintiffs were harmed by Defendants' deception, including that

18 described in Paragraph 109 of this Complaint, because they purchased the Investment.

19

114, Defendants' concealment of the facts set forth above, including those

20 described in Paragraph 109 of this Complaint, was a substantial factor in causing

21 Plaiiiti!k harm.

22 115. The conduct dcenbed herein contittitc "opprescion, fraud or malice"

n ihoc tcrm arc dciincd iii Civil Code 294. and Plaintilk arc therefore entitled.

i pun it I\ c danc in an amount aecordine to pond. PLuini ii k arc tLlrthcr iii toruiied

and hclic\c. and HHcd upon nch III t muali)II and Pellet. ailcec that

a I eouidiiet dceriNcd herein cntitntine ppicun. rand or

na lice \\ a C ( unin it ied H nc r uii nc dficcr. U I rccior, r I innate inc aecnis

2


1 Defendant PEHC who acted on behalf of Defendant PEHC; or

2

(b) The conduct described herein constituting oppression, fraud or

3 malice was authorized by one or more officers, directors, or managing agents of

4 1 Defendant PEHC; or

5

(c) One or more officers, directors, or managing agents of Defendant

6 PEHC knew of the conduct constituting malice, oppression, or fraud and adopted or

7 approved that conduct after it occurred.

8

9

EIGHTH CLAIM FOR RELIEF

10 (Breach of Fiduciary Duty Against All Defendants

11 By The Plaintiff Class)

12



14 117. By virtue of his position, conduct and representations in connection with

15 the Resort, and by his own admission, Hankla owed a fiduciary duty to Plaintiffs.

16 118. By the conduct described above, including in Paragraphs 20-62 of this

17 Complaint, Hankla breached his fiduciary duty to Plaintiffs.

18

119. Hankla's breach of fiduciary duty was a substantial factor in causing

19 Plaintiffs harm,

20

120. The conduct described herein constitutes "oppression, fraud or malice"

21 b) Hankla as those tcrim diC defined in Civil Code §3294, and Plaintiffs are therefore

22 cut iried to punitive damages in an amount according to proof.

\l\Tt-.l CL A IM I()R Ri;LIL1

( (onst ructi C Lratid :giiJist All I)efcndants BN The Plaintiff Class

-0 121. PLtiiiiitt !l1c)l'pIItc N\ ic!ciciicc thc ICIti()!1 ciitincd iii

27 I tIiiuIi 12()I tIi(ip!iiit

i


1

122. By virtue of his position, conduct and representations in connection with

2 the Resort, and by his own adniision, Hankla owed a fiduciary duty to Plaintiffs.

3

123. By the conduct described above, including in Paragraphs 20-62 of this

4 Cornphtiat, Hankla breached his egal and equitable duties to Plaintiffs.

5

124. Hankla's breach of his legal and equitable duties to Plaintiffs was a

6 substantial factor in causing Plaintiffs harm.

7

125. The conduct described herein constitutes "oppression, fraud or malice"

8 by Hankla as those terms are defined in Civil Code §3294, and Plaintiffs are therefore

9 entitled to punitive damages in an amount according to proof.

10

11

TENTH CLAIM FOR RELIEF

12

(Breach of Contract Against PEHC By The Plaintiff Class)

13



15

127. The First PPM constituted an agreement between PEHC and the Plaintiff

16 Class that PEHC would:

17

(a) Perform the promises it made in the First PPM, including the

18 obligation it recognized to provide deeds to Plaintiffs for their residences;

19

(b) Act with good faith and fair dealing toward its investors, including

20 the Plaintiffs and the Plaintiff Class. This obligation of good faith included, among

21 other things. i) PEHC's honoring of its cornmitinentto investors, including Plaintiffs

andihe Plaintiff Class. to secure and protect the home O\\ iierhip of the Plaintiffs aiid

the (Ia: di to undertake the \\ork prelilninar\ tasks necearv to perhriii such

and (iii) 111 to underiniiie iN cnumitlnenK b eekiu to iiiime ieuu

tit)aiicial tCHhi Wid coiidit ioi1 ii 1(cli )hliati()li.

() 12. PE1-I( Nreached the aieeineut h undeitakiii the clieiiie deciihed

ah(\e t() depri\e Plaintilk and tie (la )I 111CH . IwIlic k uerliip, a pped i


1 securing and protecting it.

2

129. P1aintiff, performed all covenants and conditions of the arecment which

3 the) v crc required to perform.

4

130. Asa result of PEHC' s breach, Plaintiffs s u tiered da miire s in the amount

of their Investments and the loss of their properties.

6

7 ELEVENTH CLAIM FOR RELIEF

8 (Inducing Breach of Contract

9 Against All Defendants By The Plaintiff Class)

10 131. Plaintiffs incorporate by reference the allegations contained in


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132. Each member of the Plaintiff class had a contract with PEPO for the

13 purchase of a residence in the Resort.

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133. Each of the Defendants knew of these contracts with PEPO.

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134. Defendants intended to disrupt the performance of these contracts by

16 engaging in at least the conduct described in Paragraphs 20 through 62 of this

17 Complaint.

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135. Defendants' conduct described herein prevented performance of the

19 contracts between PEPO and Plaintiffs and/or made performance of these contracts

20 more expensive or difficult.

21 136. Defendants' conduct NN a a substantial factor in causing Plairiti ifs harm,

22 More specifically, the scheme described in Paiaraphs 20 thronh 62 of this

23 Coiupktint. and the conduct in \vhih De1eiRku1t enaied in furtherance out, eaued

24 Plaintiff's 1( , an interest lhe\ had iii the reidence lhe\ laid arced to pnrehae

fl -mil PEPO. a eli I, the miiünev they had paid to PIIPO for uchi reidence.

1 7. Ihe emiduet decrihed herein c ntitute ppmen)n. fraud r malice"

ilaae temmfl are defined in (d\ It (ode 21)4. amid Plimintilk are therefore entitled

\ \ Ii

-fl)


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to punitive damages in an amount according to proof.

TWELFTH CLAIM FOR RELIEF

(Intentional Interference With Prospective Economic Advantage

Against All Defendants By The Plaintiff Class)

138, Plaintiffs incorporate by reference the allegations contained in

Paragraphs 1 through 137 of this Complaint.

139. Each member of the Plaintiff class was in an economic relationship with

PEPO that probably would have resulted in an economic benefit to Plaintiffs.

Specifically, Plaintiffs had entered into Purchase and Sales Agreements with PEPO,

paid PEPO funds in connection with those agreements, and had legal and/or equitable

interests in the land and/or residences that were the subject of those Purchase and

Sale Agreements.

140. Defendants knew of these relationships Plaintiffs had with PEPO.

141. Defendants intended to disrupt these relationships by foreclosing on the

land and/or residences of the Plaintiff class, and in particular, those residences located

in Phase 2 of the Resort.

142. As more fully pleaded herein, various Defendants engaged in wrongful

conduct through the claims pleaded against them in this Complaint:

(a) All Defendants violated the Securities Exchange Act of 1934, as

more fully pleaded in Plaiuitiik First Claim 1r Relief hcuciii:

b; PRO and the J iisidell-Defcn(kti -its violated the Securities Exchange

Act t 19$4,

inoic fully lcticd in Pktiiitifk' Sccnnd ('laiin for Rclict hcrcin:

(c All F)c Lint \ ioLttcd tlic SccuiriticAei&f 133, as nioic tul!\

plcicd in 1)1,1 lilt ilk' iluid Claim Hr Relief' hciciii:

(di \ Hlaicd the ('aliHriiia ( pra1c Sccuriiic Law more

rull\ Icadcd iii PLiiiitilk Lcuiitli(laiin HrRclicf;

I UNT


1 (e) All Defendants except PEHC and PRG violated the California

2 Corporate Securities Law, as more fully pleaded in Plaintiffs' Fifth Claim for Relief;

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(0 PEHC committed deceit under California law, as more fully

4 pleaded in Plaintiffs' Si\t}l Claim for Relief;

5 (g) PEHC and Hankla committed deceit under California law, as more

6 fully pleaded in Plaintiffs' Seventh Claim for Relief;

7 (h) Hankla breached his fiduciary duty to Plaintiffs, as more fully

8 pleaded in Plaintiffs' Eighth Cla i in for relief;

9 (i) Hanida committed constructive fraud under California law against

10 Plaintiffs, as more fully pleaded in Plaintiffs Ninth Claim for Relief;

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(j) All Defendants induced a breach of contract between Plaintiffs

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13 143. The aforementioned relationships Plaintiffs had with PEPO were

14 disrupted. In particular, the legal/and or equitable interests Plaintiffs had in the land

15 and/or the residences located in Phase 2 were purportedly extinguished, and

16 Defendants claimed that they now owned all of the property in the resort, including

17 Plaintiffs residences. Plaintiffs' opportunity to obtain deeds for the residences they

18 had paid PEPO for was, according to Defendants, eliminated.

19 144. Plaintiffs were harmed by the loss of their interests in the land and/or

20 residences located in Phase 2 of the Resort.

21 145. The \\rom1i11l conduct of the Dcic'nclants described herein va a

22 uhtantial factor in causing the afore iiicritioiicd harni to Plaintiffs.

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146. Thc cuiItict !ccrihc1 licrciii )nt1ttitc pprcin. tuaud orrnalftc'

a 111c 1c1'I11 ai'c dcl mcd in (i\ 11 (dc and Haintilk aic thcrchnc ciiiiiled

25 to flnniti\C ftiiiac ii) Wi iiiiniit accidiii L, 1( fTh)l.

(

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2 (Breach of Contract Against PRG, Hankla, and Emling

3 By The Plaintiff Class)

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147. Plaintiffs incorporate by reference the allegations containcd in

Paragraphs 1 through 146 of this Complaint.

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148. PRG and PH ("Homeowners"), a group which included plaintiffs,

7 entered into an agreement, entitled "Development Agreement" ("DA") whereby, inter

8 a/ia, PRO agreed to use best efforts to settle "title to the Units and [transfer] insurable

9 title to such Units to the respective owners." The homeowner Plaintiffs here went

10 along with the DA because, among other things, its stated purpose was to "secure for

11 the members of Homeowners clear legal title to their respective Units..." Among the

12 promises made to Homeowners in the DA was a plan for securing legal title for

13 Plaintiffs, as part of PH, in their respective properties.

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149. Plaintiffs, as members of PH, were the acknowledged and intended third

15 party beneficiaries of the DA. For example, in paragraph C of the DA, it states that

16 PH was "formed to represent the interests of persons owning individual dwelling

17 units" in the Resort. Plaintiff Nurock repeatedly has requested a signed copy of the

18 DA from the individual defendants, but their assurances that they would provide it

19 to him have gone unfulfilled.

20 150. PRG breached the DA by, among other things, undertaking the scheme

21 dccribcd above to deprive Plaintiffs and the C1ioo of their home ownership, as

2 2 oppo'ed to securing and protecting title for them in their i ,cspcctiN e pmpertie.

151. In addition. PRG. Nankla. and Endine. ihrouh their cinniiuieathn

24 \\ ith Plaint ilk leadine up to and at the I nue ot the F iit Otleriiig. go uiikcd Plaint ill

and aerced that ii Plaintilk in etcd in the Eiit Otteiiii. tlie\ \\ould -, et the deeds

to iheii iepecti\ e till W , .

27 15 2. l)elendant hieaeiied the aHieiiieiitioned aieeiiieiit hv, iiiiie thei

I ( &


1 things, undertaking the scheme described above to deprive Plaintiffs and the Class

2 of their home ownership, as opposed to securing and protecting title for them in their

3 respective properties.

4

153. Plainiiffs performed all covcnants and conditions of the agreements

5 which they were required to perform.

6 154. As a result of Defendants' breach, Plaintiffs siiftcred damages in the

7 amount of their Investments and the loss of their properties.

8

9

PRAYER FOR RELIEF

10

WHEREFORE, Plaintiffs, on behalf of all others similarly-situated, pray for

11 judgment and relief on all causes of action as follows:

12 1. An Order Certifying the Plaintiff Class;

13 2. Compensatory and consequential damages, in an amount to be proven

14 at trial;

15 3, Rescission and/or recessionary damages, where allowed by law;

16 4. Attorneys' fees as permitted by law;

17 5. Costs of this suit;

18 6. Pre-judgment and post-judgment interest; and

19 7, Such other and further relief as the Court may deem necessary or

20 appropriate.

21 22 DATED: April 9, 2012

WILS I-FIRE PALISADES LAW GROUP, P.C.

23 I

"4 By:— L)avid I.

fi -\IF Plaicitt 2 (


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DEMAND FOR JURY TRIAL

2 Plaintiffs hereby demand a trial by jury.

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4 DATED: April 9, 2012 WILSHIRE PALISADES LAW GROUP, P.C.

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By: DaN id I. Lefkowitz

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Attorneys for All Plaintiffs

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INF


I J ($I] I] A1 M [

I STATE OF CALIFORNIA 1 ss.

COUNTY OF LOS ANGELES

I am employed in the County of Los Angeles, State of California by Wilshire Palisades Law Group, P.C. ("WPLG"). WPLG's business address is 1337 Ocean Avenue. Suite A. Santa Monica, California 90401-1009. I am over 18 years of age and I am not a party to this action,

On April 9, 2012 I transmitted from Santa Monica, California, the documents identified below:

PLAINTIFFS' FIRST AMENDED COMPLAINT

The foregoing document was addressed to the persons listed on the "Service List" which is attached hereto and incorporated herein by reference. Those addresses are the last office addresses given by those persons in the most recent document filed in this action and served upon WPLG.

X (BY U.S. MAIL) I placed a true copy in a sealed envelope addressed as indicated above on the above-mentioned date. I am familiar with the firm's practice of collection and processing correspondence for delivery by an overnight delivery carrier. Pursuant to that practice, envelopes placed for collection at designated locations during designated hours are delivered with a fully completed airway bill, under which all delivery charges are paid by Wilshire Palisades Law Group that same day in the ordinary course of business.

X (BY E-MAIL) I personally c-mailed to each party indicated above a copy of the aforesaid document.

I declare under penalty of perjury under the laws of the State of California that the above is true and correct.

Executed on April 9, 2012 at Santa Monicw California.

Liiiic ku\\ 1lI'I

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SERVICE LIST

Douglas B. Nurock, et at. v. Pelican Eyes Holding Company, He, et al. U.S. District Court - Central District of California Casc No, CV 1 l-10284-JFW (PJWx)

Attornes for Defendants Pelican Eyes Holding Company LLC, Pelican Rescue LLC, James K. Hankla, Michael J. Emting:

Joseph E. Porter III Law Offices of Joseph E. Porter III 206 3rd Street Seal Beach, CA 90740 [email protected]

Michael J. Emling Emling Forensis PC 333 S. Anita Dr. Suite 300 Orange, CA 92868 [email protected]

()

case 2:11 -cv-10284-jfw-pjw document 22 filed 04/09/12...

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