ANDERSON v. HOBART FIN. GRP., INC., 2024 NCBC 10

STATE OF NORTH CAROLINA
MECKLENBURG COUNTY
IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
22CVS001520-590
FRANCIS BURTON and JEAN M.
BURTON, individually and on behalf of
their IRA; BEVERLY BYRNES,
individually, on behalf of her IRA, and as
personal representative of KATHERINE
R. GLEASON and her IRA; MICHAEL
FORBIS, individually and on behalf of
his IRA; JAMES LESHOCK and
CAROLYN LESHOCK, individually and
on behalf of their IRA; GARY
OSTRANDER and PAM OSTRANDER,
individually and on behalf of their IRA;
CLIFFORD N. RHODES, individually
and on behalf of his IRA; JAMES
TANGER, individually and on behalf of
his IRA; LARRY BRENT WILSHIRE and
CYNTHIA WILSHIRE, individually and
on behalf of their IRA; and JOSEPH
ZUCKER, individually and on behalf of
his IRA,
Plaintiffs,
v.
HOBART FINANCIAL GROUP, INC.;
HOBART PRIVATE CAPITAL, LLC;
HOBART INSURANCE SERVICES LLC;
LEGACY GFIS & KCI HOLDINGS,
L.L.C.; CHRISTOPHER SCOTT
HOBART; STEVEN ANDREW GREER;
and COREY S. SUNSTROM,
Defendants.
ORDER AND OPINION ON
DEFENDANTS’ MOTION TO
DISMISS PLAINTIFFS’ SECOND
AMENDED COMPLAINT
1. 	THIS 	MATTER 	is 	before 	the 	Court 	on 	the 	21 	June 	2023 	filing 	of
Defendants’ Motion to Dismiss Plaintiffs’ Second Amended Complaint (the “Motion”).
(ECF No. 67 [“Mot.”].) 	Pursuant to Rules 9(b) and 12(b)(6) of the North Carolina
Rules of Civil Procedure (the “Rules”), the Motion requests dismissal with prejudice
Anderson v. Hobart Fin. Grp., Inc., 2024 NCBC 10.

of all seven claims for relief alleged by one or more of the thirteen plaintiffs in the
Second Amended Complaint. (Mot. 1–2; see Second Am. Compl., ECF No. 47 [“SAC”].)
2. 	For the reasons set forth herein, the Court GRANTS in part and DENIES
in part the Motion.
Spengler & Agans, PLLC, by Eric Spengler, and Peiffer Wolf Carr Kane
Conway & Wise, by Jason Kane, for Plaintiffs.
Moore 	& 	Van 	Allen, 	PLLC, 	by 	Mark 	A. 	Nebrig, 	Joseph 	Piligian,
Alexandra Davidson, Christopher D. Tomlinson, and Caroline F. Savini,
for Defendants.
Robinson, Judge.
I. 	INTRODUCTION
3. 	This action arises out of Defendants’ alleged recommendation of unsuitable
investment products to Plaintiffs, who purchased some of those recommended
investments to their financial detriment. Plaintiffs, older adults who were retired or
nearing retirement at the time they made their investments, now allege that the
investments 	Defendants 	recommended 	bore 	undisclosed 	hidden 	fees 	and
commissions and that the unsuitability of those investments ultimately caused
Plaintiffs to collectively lose hundreds of thousands of dollars. 	Plaintiffs primarily
contend that, if Defendants upheld their fiduciary obligations to Plaintiffs, for
example by disclosing 	the information that 	made the investments 	unsuitable,
Plaintiffs would not have entrusted Defendants with their retirement savings.
4. 	The issue before the Court is to consider the metes and bounds of this action
by determining which causes of actions state a claim for Rule 12(b)(6) purposes.

II. 	FACTUAL BACKGROUND
5. 	The Court does not make determinations of fact on motions to dismiss
under Rule 12(b)(6) but only recites those factual allegations of the Second Amended
Complaint that are relevant and necessary to the Court’s determination of the
Motion. 	Gateway Mgmt. Servs. v. Carrbridge Berkshire Grp., Inc., 2018 NCBC
LEXIS 45, at *9 (N.C. Super. Ct. May 9, 2018).
A. 	The Parties
6. 	Francis Burton (“Mr. Burton”) and Jean M. Burton (“Ms. Burton”; together,
the “Burtons”) are residents of Union County, North Carolina. 	(SAC ¶ 2.) 	The
Burtons allege that some Defendants recommended they purchase “unsuitable
Alternative Investments and fixed-index annuities” before 1 February 2012, and that
in 2014 and 2015, the Burtons did purchase some of those investments. (SAC ¶ 2.)
7. 	Beverly Byrnes (“Ms. Byrnes”) is a resident of Mecklenburg County, North
Carolina and the beneficiary of the estate of her mother, Katherine R. Gleason
(“Ms. Gleason”), who died in June 2016. 	(SAC ¶ 3.) 	Ms. Byrnes alleges claims for
relief against Defendants both for herself and on behalf of (1) her Individual
Retirement Account (“IRA”) and (2) Ms. Gleason, as the beneficiary of her estate,
contending that some Defendants recommended unsuitable alternative investments
and fixed-index annuities to Ms. Byrnes and her mother before 1 February 2012.
(SAC ¶ 3.) 	Ms. Byrnes affirmatively alleges that the investment advisor-client
relationship was terminated around March 2013. (SAC ¶ 3.)

8. 	Michael Forbis (“Mr. Forbis”) is a resident of Union County, North Carolina.
(SAC ¶ 4.) He alleges individual claims for relief against Defendants both for himself
and 	on 	behalf 	of 	his 	IRA. 	(SAC 	¶ 4.) 	Mr. 	Forbis 	alleges 	that 	Defendants
recommended he purchase unsuitable alternative investments starting in late 2015.
(SAC ¶ 4.)
9. 	James Leshock (“Mr. Leshock”) and Carolyn Leshock (“Ms. Leshock”;
together, the “Leshocks”) are residents of Union County, North Carolina. (SAC ¶ 5.)
The 	Leshocks 	allege 	that 	Defendants 	recommended 	they 	purchase 	unsuitable
alternative investments starting in April 2014. (SAC ¶ 5.)
10. 	Gary Ostrander (“Mr. Ostrander”) and Pam Ostrander (“Ms. Ostrander”;
together, the “Ostranders”) were residents of Mecklenburg County, North Carolina
but now reside in Manatee County, Florida. (SAC ¶ 6.) The Ostranders allege that
Defendants recommended they purchase unsuitable alternative investments and
fixed-index annuities in late 2012 and early 2013. (SAC ¶ 6.)
11. 	Clifford N. Rhodes (“Mr. Rhodes”) is a resident of Lancaster County, South
Carolina. 	(SAC ¶ 7.) 	He alleges that Defendants recommended he purchase
unsuitable alternative investments and fixed-index annuities starting in 2013.
(SAC ¶ 7.)
12. 	James Tanger (“Mr. Tanger”) is a resident of Mecklenburg County, North
Carolina. (SAC ¶ 8.) He alleges claims for relief against Defendants both for himself
and 	on 	behalf 	of 	his 	IRA. 	(SAC 	¶ 8.) 	Mr. 	Tanger 	alleges 	that 	Defendants
recommended 	he 	purchase 	unsuitable 	alternative 	investments 	and 	fixed-index

annuities 	in 	2014, 	and 	that 	the 	investment 	advisor-client 	relationship 	was
terminated in May or June 2019. (SAC ¶ 8.)
13. 	Larry B. Wilshire (“Dr. Wilshire”) and Cynthia Wilshire (“Ms. Wilshire”;
together, 	the 	“Wilshires”) 	are 	residents 	of 	Lancaster 	County, 	South 	Carolina.
(SAC ¶ 9.) 	They allege claims for relief on their own behalf and for their IRA.
(SAC ¶ 9.) 	In March 2015, according to the Wilshires, Defendants “recommended
unsuitable Alternative Investments to Dr. Wilshire and unsuitable fixed-index
annuities to Ms. Wilshire.” (SAC ¶ 9.)
14. 	Joseph Zucker (“Dr. Zucker”; together with the Burtons, Ms. Byrnes,
Mr. Forbis, the Leshocks, the Ostranders, Mr. Rhodes, Mr. Tanger, and the Wilshires,
“Plaintiffs”) is a resident of Mecklenburg County, North Carolina. 	(SAC ¶ 10.) 	He
alleges claims for relief against Defendants both for himself and on behalf of his IRA.
(SAC ¶ 10.) 	Dr. Zucker alleges that Defendants recommended and sold unsuitable
alternative investments and fixed-index annuities to him from December 2011
through 2013. (SAC ¶ 10.)
15. 	Hobart Financial Group, Inc. (“Hobart Financial”) f/k/a Senior Financial
Planners, 	Inc., 	is 	a 	North 	Carolina 	corporation 	engaged 	in 	“financial 	sales.”
(SAC ¶ 12.) 	Plaintiffs allege that Hobart Financial “does not have a board of
directors” and that it “fails to follow corporate formalities[.]” (SAC ¶ 12.)
16. 	Defendant 	Christopher 	Scott 	Hobart 	(“Mr. Hobart”) 	is 	a 	resident 	of
Mecklenburg County, North Carolina. (SAC ¶ 17.) Mr. Hobart is Hobart Financial’s
president and its sole officer and shareholder. 	(SAC ¶ 12.) 	Mr. Hobart was a

registered broker with the Financial Industry Regulation Authority (“FINRA”) for the
periods 1 January 2002 to 2 February 2012 and 23 September 2015 to 17 April 2019.
(SAC ¶ 17.) Mr. Hobart is a registered investment advisor (“RIA”) with the State of
North 	Carolina 	and 	the 	U.S. 	Securities 	and 	Exchange 	Commission 	(“SEC”).
(SAC ¶ 17.)
17. 	Hobart Private Capital, LLC (“Hobart Capital”) d/b/a Hobart Wealth is a
North 	Carolina 	limited 	liability 	company 	which 	provides 	investment 	advisory
services. 	(SAC ¶ 13.) 	Hobart Capital allegedly provided investment services to
Plaintiffs, and its sole member and manager is Mr. Hobart. 	(SAC ¶ 13.) 	Hobart
Capital was registered with the State from 5 September 2013 to 27 July 2016 and the
SEC beginning on 29 February 2016 through the filing of the Second Amended
Complaint. (SAC ¶ 13.)
18. 	Hobart Insurance Services, LLC (“Hobart Insurance”) is a North Carolina
limited liability company whose sole member and manager is Hobart Financial.
(SAC ¶ 14.) Hobart Insurance is an insurance agency that brokered the sale of fixed-
index 	annuities 	and 	high-commission 	insurance 	products 	to 	certain 	Plaintiffs.
(SAC ¶ 14.)
19. 	Legacy GFIS & KCI Holdings, LLC (“Legacy GFIS”; together with Hobart
Financial, Hobart Capital, and Hobart Insurance, the “Hobart Entities”) is a North
Carolina limited liability company that does largely the same business as Hobart
Financial and Hobart Capital. 	(SAC ¶ 15.) 	Mr. Hobart is the sole member and
manager of Legacy GFIS. (SAC ¶ 15.)

20. 	Each of the Hobart Entities maintains its principal place of business at
7733 Ballantyne Commons Parkway, Suite 101, Charlotte, North Carolina 28277.
(SAC ¶ 16.)
21. 	Steven A. Greer (“Mr. Greer”) is a resident of Union County, North
Carolina. (SAC ¶ 18.) Plaintiffs allege that Mr. Greer has been an RIA with the SEC
since 2011 and the State of North Carolina since 5 September 2013. 	(SAC ¶ 18.)
Mr. Greer was a registered broker with FINRA from 2011 through 17 April 2019 and
was the only FINRA broker employed by the Hobart Entities from 2 February 2012
to 23 September 2015. (SAC ¶ 18.)
22. 	Corey S. Sunstrom (“Mr. Sunstrom”; together with Mr. Hobart, Mr. Greer,
and the Hobart Entities, “Defendants”) is a resident of Mecklenburg County, North
Carolina. 	(SAC ¶ 19.) 	Mr. Sunstrom has been an RIA with the State of North
Carolina since 6 February 2015. (SAC ¶ 19.) Plaintiffs allege that Mr. Sunstrom was
a registered broker with FINRA at all relevant times until 20 February 2018.
(SAC ¶ 19.) 	Mr. Sunstrom registered as an insurance agent with the State on
29 October 2019. (SAC ¶ 19.)
23. 	Plaintiffs allege that “[a]t all relevant times, Mr. Hobart, Mr. Greer, and
Mr. Sunstrom have been employees of the Hobart Entities, and the wrongful acts
complained of . . . were performed in furtherance of the business of the Hobart
Entities.” (SAC ¶ 20.)

B. 	A Brief Background on the Hobart Entities
24. 	Mr. Hobart began his career in the financial industry as an insurance
salesman. (SAC ¶ 24.) In 2004, Mr. Hobart formed Hobart Financial as a “financial
sales” company. (SAC ¶ 12.) Hobart Financial was branded as the “Senior Financial
Planners: The Retirement Professionals,” and later as the “Carolinas’ Retirement and
401(k) Rollover Specialist.” 	(SAC ¶ 25.) 	Based on the allegations in the Second
Amended Complaint, it appears that Hobart Financial grew rapidly from a group of
three employees in 2011 to a group of at least nineteen employees by 2015.
(SAC ¶¶ 28–29.) It appears from the allegations of the Second Amended Complaint
that Mr. Greer was hired to work at Hobart Financial sometime in 2011. 	(See
SAC ¶¶ 18, 28.)
25. 	In its early years, Hobart Financial focused largely on selling insurance
products, including fixed-index annuities, to senior citizens. 	(See SAC ¶¶ 24–26.)
Around 2010 or 2011, Hobart Financial began to offer “certain commissioned,
nontraded securities” including: real estate investment trusts (“REIT(s)”); business
development corporations under the Investment Company Act of 1940 (“BDC(s)”);
and other direct participation program securities (“DPP(s)”; together with REITs and
BDCs, “Alternative Investments”). (SAC ¶ 27.)
26. 	Hobart Capital was formed on 12 July 2013 to provide investment advisory
services, (SAC ¶ 13), and Hobart Insurance was thereafter organized in 2015,
(SAC ¶ 14). 	Plaintiffs allege that Hobart Insurance is an “affiliate” with Hobart
Capital, “under common ownership and control.” (SAC ¶ 38.)

27. 	On 30 June 2015, Mr. Sunstrom was hired as an associate wealth advisor.
(SAC ¶ 29.) Plaintiffs allege that “Mr. Hobart, [Mr. Sunstrom,] and Mr. Greer were
primarily responsible for overseeing the process, structure, and management of client
portfolios and accounts for [Defendants].” 	(SAC ¶ 31.) 	By no later than 2017,
Mr. Sunstrom was holding “himself out to clients—including through his email
signature line—as ‘director of financial planning, Hobart Financial’ and as ‘senior
wealth advisor.’ ” (SAC ¶ 31.)
28. 	Mr. Hobart, Mr. Greer, and Mr. Sunstrom performed several roles for the
Hobart Entities. (See SAC ¶ 32.)
29. 	Plaintiffs allege that “Mr. Hobart established [Defendants’] policies and
practices” in recommending “Alternative Investments and fixed-index annuities to
[their] clients[,]” and was directly involved in recommending these to Plaintiffs.
(SAC ¶ 33.)
30. 	Mr. Greer’s role was serving as the registered broker through whom
“substantially all” the Alternative Investment transactions at issue were processed.
(SAC ¶ 34.) 	Mr. Greer also directly participated in recommending the sale of
Alternative 	Investments 	and 	fixed-index 	annuities 	to 	numerous 	Plaintiffs.
(SAC ¶ 35.)
31. 	Plaintiffs 	allege 	that 	Mr. 	Sunstrom’s 	role 	was 	participating 	“in 	the
recommendation of unsuitable Alternative Investments and fixed-index annuities to
several of the Plaintiffs,” including the Burtons, the Ostranders, Mr. Rhodes, and the
Wilshires. (SAC ¶ 36.)

32. 	Legacy GFIS was organized on 26 March 2021. 	(SAC ¶ 15.) 	Plaintiffs do
not allege its precise role in relation to the acts and omissions complained of in the
Second Amended Complaint. (See SAC ¶ 15.)
C. 	Overview of the Financial Products at Issue
33. 	It is well settled that “[w]hen documents are attached to and incorporated
into a complaint, they become part of the complaint and may be considered in
connection with a Rule 12(b)(6) motion without converting it into a motion for
summary judgment.” 	Laster v. Francis, 199 N.C. App. 572, 577 (2009) (citations
omitted). 	The Court may similarly consider documents “specifically referred to[] or
incorporated by reference in the complaint.” Id.
34. 	Various investment and insurance products are at issue in this litigation.
The Court therefore finds it useful to describe the offerings that Defendants allegedly
recommended to Plaintiffs. 	Since the Second Amended Complaint quotes from and
specifically refers to documents attached to the Amended Complaint, the Court
considers some of those documents to explain the investment products at issue
without converting the Motion into one for summary judgment.
35. 	Plaintiffs assert that Defendants knew at all relevant times that the
investments at issue are “unsuitable for retirees and near-retirees with conservative
investment goals.” (SAC ¶ 85.)
36. 	A 2007 Statement of Policy Regarding Real Estate Investment Trusts (the
“Statement of Policy”) issued by the National American Securities Administrators
Association (“NASAA”) describes the qualification and registration requirements for

REITs. 	The Statement of Policy provides that Real Estate Investment Trusts, or
REITs, are corporations, trusts, associations, or other legal entities, excluding a real
estate syndication, “engaged primarily in investing in equity interests in real estate
(including fee ownership and leasehold interests) or in loans secured by real estate or
both[,]” which may be publicly or non-publicly traded. (Am. Compl. Ex. 1 at 4, ECF
No. 34.1 [“Ex. 1”]; SAC ¶ 86.)
37. 	The Statement of Policy further provides that REITs require special
attention in order to determine if an investor can “bear the economic risk of the
investment,” meaning the investor should understand (i) “the fundamental risk of the
investment;” (ii) “the risk that the [shareholder] may lose the entire investment;”
(iii) “the lack of liquidity of REIT [shares];” and (iv) “the restrictions on transferability
of REIT[s.]” (Ex. 1 at 10; SAC ¶ 86.)
38. 	The Statement of Policy also provides that subscription agreements for
REITs are prohibited from including representations that “[t]he SHAREHOLDER
understands or comprehends the risks associated with an investment in the REIT”;
and “[i]n deciding to invest in the REIT, the SHAREHOLDER has relied solely on the
PROSPECTUS, and not on any other information or representations from other
PERSONS or sources.” (Ex. 1 at 12; SAC ¶ 87.)
39. 	According to an 11 January 2013 FINRA Regulatory and Examination
Priorities Letter from Chairman Rick Ketchum, business development corporations,
or BDCs, are
typically closed-end investment companies. 	Some BDCs primarily
invest in the corporate debt and equity of private companies and may

offer attractive yields generated through high credit risk exposures
amplified through leverage. As with other high-yield investments, such
as 	floating-rate/leveraged 	loan 	funds, 	private 	REITs 	and 	limited
partnerships, investors are exposed to significant market, credit[,] and
liquidity risks. 	In addition, fueled by the availability of low-cost
financing, BDCs run the risk of over-leveraging their relatively illiquid
portfolios.
(Am. Compl. Ex. 5 at 2, ECF No. 34.5 [“Ex. 5”].) 	Put simply, “BDCs are closed-end
investment companies that are operated to make investments in small and emerging
businesses and financially troubled businesses.” 	(Am. Compl. Ex. 6 at 8 n.3, ECF
No. 34.6 [“Ex. 6”].)
40. 	Finally, FINRA Regulatory Notice 13-18 describes direct participation
program securities, or DPPs, as “investment programs that provide for flow-through
tax consequences regardless of the structure of the legal entity or vehicle for
distribution. 	DPPs include, among other investment vehicles, real estate programs
that are not structured as REITs.” (Am. Compl. Ex. 3 at 1, ECF No. 34.3 [“Ex. 3”].)
41. 	FINRA Regulatory Notice 15-02 stated that industry practice was to use
the offering price of DPPs as the “per share estimated value during the offering
period, which can continue [for] seven and one-half years. The offering price, typically
$10 per share, often remains constant on customer account statements during this
period,” although various costs and fees may have caused the investments to decrease
in value. (Am. Compl. Ex. 9 at 2, ECF No. 34.9 [”Ex. 9”].) This practice changed on
11 	April 	2016 	by 	FINRA 	Regulatory 	Notice 	15-02, 	which 	required 	increased
transparency. (Ex. 9 at 1; SAC Ex. 8 at 2, ECF No. 55 [“SAC Ex. 8”].)

D. 	Plaintiffs’ Individual Allegations of Defendants’ Misconduct
42. 	Plaintiffs 	allege 	that 	Defendants 	designed 	each 	of 	their 	investment
portfolios and recommended that Plaintiffs purchase the above-described Alternative
Investments and fixed-index annuities. 	(SAC ¶ 30.) 	Plaintiffs further allege that
Defendants consistently held themselves out to present and prospective “clients as a
reputable, trustworthy firm that promised to uphold the highest of standards and to
always act in the client’s best interest.” (SAC ¶ 40.) Plaintiffs allege that Defendants
made numerous oral representations to each of them that Defendants were obligated
to “act in the client’s best interest,” including that “Plaintiff(s) should engage only a
fiduciary, like the Hobart [Entities], because only a fiduciary is obligated to have the
client’s best interests at heart;” and that “Plaintiffs could trust [Defendants were]
complying 	with 	[their] 	fiduciary 	obligations 	by 	recommending 	only 	suitable
investments in an appropriate amount[.]” (SAC ¶¶ 76.a., 76.c., 76.g.)
43. 	The allegations in the Second Amended Complaint largely concern the
recommendation of the investments described herein and the marketing materials
developed by Mr. Hobart and/or the Hobart Entities. 	(SAC ¶¶ 26, 33.) 	The
allegations are particularly focused on whether the marketing materials provided to
Plaintiffs 	“concealed 	and 	misrepresented 	the 	excessive 	fees 	and 	commissions
[Defendants] received from the sale of fixed-index annuities and other insurance
products, while at the same time ‘warning’ clients of the ‘hidden fees’ in mutual
funds.” (SAC ¶ 26.)

44. 	Plaintiffs 	also 	allege 	that 	Defendants 	failed 	to 	provide 	necessary
disclosures 	regarding 	the 	illiquidity 	and 	high 	volatility 	of 	the 	Alternative
Investments they sold. 	(SAC ¶ 129.) 	In fact, Plaintiffs allege that numerous
misrepresentations were made by Defendants when providing investment-related
advice, detailed herein.
45. 	First, Defendants allegedly “misrepresented to each and every Plaintiff that
Alternative Investments were ‘strong and secure’ investments like the walls of a
house.” 	(SAC ¶ 130 (emphasis removed).) 	The “house analogy” was used by
Mr. Hobart to describe the investments as safe, secure, and subject to different types
of risks. (See SAC ¶ 133.) Plaintiffs allege that Mr. Hobart’s analogy went as follows:
At Hobart Financial, we believe you should build your portfolio kind of
like you would build a house. 	A house has three main components:
you’ve got foundation, which is safe and sound; you’ve got the walls,
which need to be strong and secure; and you’ve got the roof, that is
basically subject to different types of risk out there – and needs to be
maintained on that basis. Retirement needs to be the same way.
(SAC ¶ 132 (emphasis removed).) 	Mr. Hobart used the “house metaphor to falsely
minimize, in a simplistic manner, the level of risk associated with Alternative
Investments.” (SAC ¶ 135.)
46. 	The Burtons, Mr. Forbis, the Leshocks, the Ostranders, Mr. Rhodes,
Mr. Tanger, and Dr. Zucker each allege that they received a copy of The Hobart
Financial brochure, Consumer’s Guide to Finding the Right Advice Givers (“Hobart
Brochure”), 	around 	the 	time 	of 	their 	initial 	interactions 	with 	Defendants.
(SAC ¶¶ 44–45, 253, 309, 329, 343, 385, 396, 429.) The Hobart Brochure is a six-part

handout that includes promotional information and materials and a quiz to assess
“risk exposure to bad investments.” (SAC ¶ 45; SAC Ex. 1, ECF No. 48 [“Brochure”].)
47. 	The Second Amended Complaint highlights Defendants’ self-contradictions
in the Hobart Brochure, including that: Defendants recommended potential clients
do their own research on financial matters but that retained clients should sit back
and rely on trusted advisors to make investment decisions on their behalf; clients
should avoid relying on online resources and should view that information “with a
very skeptical eye”; and, Hobart Financial could be trusted as a “real expert” that
“really knows his or her stuff.” 	(SAC ¶¶ 53–54; Brochure 12–13.) 	According to
Plaintiffs, and as discussed more herein, these statements and others support the
Court determining that a fiduciary relationship is adequately pleaded.
48. 	The Hobart Brochure provides that Defendants are “financial fiduciaries
[that] provide advice on an independent, client by client basis. 	We represent the
client, not a company. And we are legally responsible to promote full disclosure and
do what is in the very best interest of our clients[.]” (Brochure 4.)
49. 	Plaintiffs also allege that Defendants’ “policy and practice” was to send a
welcome email to recently engaged clients, similar to the following email sent in
February 2013 by Mr. Hobart:1
We are a specialized group working in a unique environment with a
proprietary process that we’ve developed over the past decade to assist
clients, like you, in achieving their dreams and avoiding the common
pitfalls that can damage a retirement. 	Many of our clients who have
worked with us for years tell us that they always wanted to be
represented by a comprehensive planning group but could never find a
truly holistic financial group focused specifically on designing, building
1 Plaintiffs do not allege to whom this email was sent.

and 	maintaining 	a 	successful 	retirement 	planning 	[sic] 	with 	no
unnecessary fluff or hidden costs. I am your lead financial planner and
I will always remain completely involved with the proper management
and oversight of your money.
(SAC ¶ 61 (emphasis removed).)
50. 	Plaintiffs allege that Defendants “expressly and repeatedly promised” that
financial advice provided to them was “at the level of a fiduciary,” including in
promotional materials, public filings with the SEC, on Defendants’ website, and in
oral and written communications with Defendants. (SAC ¶ 41.) Plaintiffs relied on
Defendants’ 	representations 	that 	they 	were 	fiduciaries 	prior 	to 	entrusting
Defendants with their retirement savings. (SAC ¶ 42.)
1. 	The Burtons
51. 	The Burtons met Defendants in the summer of 2011 at a solicitation dinner,
and around that time, Mr. Hobart warned them against entrusting their retirement
savings to other groups because those groups “did not have the Burtons’ best interests
at heart.” (SAC ¶¶ 251–52.) The Burtons made clear to Defendants that they were
unsophisticated and “conservative investors nearing retirement[.]” (SAC ¶¶ 254–55.)
52. 	Mr. Hobart first sold Alternative Investments and a fixed-index annuity to
the Burtons in 2011. 	(SAC ¶ 256.) 	In late 2011, Mr. Hobart sold Mr. Burton “an
unsuitable fixed-index annuity,” which Mr. Hobart represented “had a guaranteed
return of six percent (6%) and had the ability to grow when the S&P 500 index was
up.” 	(SAC ¶ 258.) 	Mr. Burton alleges that he paid undisclosed fees on that
investment “for an income rider and death benefit[.]” (SAC ¶ 258.)

53. 	Mr. Hobart and Mr. Greer also recommended that the Burtons invest in
non-publicly traded REITs, misrepresenting them as “a more stable and secure
investment” that provided “safe, reliable income that would preserve and grow the
principle [sic] forever.” (SAC ¶ 259.)
54. 	The Burtons allege that when they expressed concerns regarding hidden
fees and costs, Mr. Hobart misrepresented the commissions paid to Defendants,
claiming that he had a “compensation arrangement” with the sellers or sponsors of
the individual Alternative Investments.2 (SAC ¶ 264.)
55. 	The 	Burtons 	allege that 	they followed all of 	Defendants’ investment
recommendations. (SAC ¶ 266.) The pair expressed “misgivings” for the first time in
April 	2015 	when 	they 	“asked 	Mr. 	Greer 	to 	get 	them 	out 	of 	the 	Alternative
Investments if their price ever dropped.” (SAC ¶ 267.)
56. 	Mr. Sunstrom recommended and sold the Burtons additional Alternative
Investments on 15 July 2015. (SAC ¶¶ 256, 267.)
57. 	Thereafter, in April 2016, “[t]he Burtons made clear they wanted out of the
investments” after noticing the reported value decreased, but Defendants “insisted”
the 	investments 	were 	suitable 	and that the 	Burtons 	should remain 	invested.
(SAC ¶ 268.) Around the same time, the Burtons started to receive offers to purchase
their Alternative Investments from potential buyers, and “[w]hen the REITs stopped
paying the Burtons dividends, the Burtons were forced to sell the REITs . . . at a loss
2 Plaintiffs further allege that these transactions were laden with concealed conflicts of
interest related to commissions and fees. 	(SAC ¶¶ 90, 92, 114 (noting Defendants had a
“financial incentive” to recommend certain products, which went undisclosed until 2021).)

in order to provide income for themselves.” 	(SAC ¶ 270.) 	The Burtons claim they
“remain stuck with non-traded Alternative Investments” including “BDCA, FS
Energy and Power, and Phillips Edison Grocery Center REIT II[.]” (SAC ¶ 271.)
2. 	Ms. Byrnes
58. 	Following 	an 	introduction 	to 	Hobart 	Financial 	through 	her 	mother,
Ms. Byrnes met with Mr. Hobart on 8 September 2010 to discuss her financial plan.
(SAC ¶¶ 273–74.) Ms. Byrnes alleges that Mr. Hobart recommended she purchase “a
hybrid life insurance and long-term care insurance plan.” (SAC ¶ 274.)
59. 	On 18 October 2010, Ms. Byrnes again met with Mr. Hobart and he
recommended that she open a new IRA and move her 401k to Hobart Financial.
(SAC ¶¶ 276–77.) 	During the meeting, Mr. Hobart discussed the commission and
fees Ms. Byrnes’s previous financial advisor made when she purchased a Prudential
variable annuity. 	(SAC ¶ 279.) 	He recommended that Ms. Byrnes switch from the
Prudential annuity in favor of “a fixed-index annuity issued by Aviva, which
[Mr. Hobart] misrepresented paid more in interest: an ‘8% compounding income
benefit,’ plus an ‘8% upfront bonus.’ ” (SAC ¶¶ 279–80.) Mr. Hobart misrepresented
that Ms. Byrnes would not incur a surrender penalty by selling the Prudential
annuity to purchase the Aviva annuity, and he failed to disclose that he would make
a 10% commission on the purchase—roughly $32,500.00. (SAC ¶ 282.)
60. 	On 4 February 2011, Mr. Hobart alerted Ms. Byrnes that Aviva declined
the transfer. 	(SAC ¶ 283.) 	Ms. Byrnes alleges that Mr. Hobart advised her of “an
even better offer” from Security Benefit, another purveyor of fixed-index annuities,

but that he did not disclose that the better offer from Security Benefit had a surrender
period of ten years. (SAC ¶¶ 284–85.) Mr. Hobart did, however, claim that any loss
from surrendering the Prudential annuity “would be more than made up for by the
better rate of return of the new fixed-index annuity issued by Security Benefit,” which
Ms. Byrnes alleges was untrue. (SAC ¶ 284.)
61. 	Plaintiffs 	allege 	that 	Mr. 	Hobart 	engaged 	in 	similar 	conduct 	with
Ms. Gleason when he convinced her to make two annuity transfers: Mr. Hobart sold
Ms. Gleason a Great American/American Valor II Annuity for $200,000.00 in
December 2006, before engaging in an exchange in September 2009 to replace it in
favor of an RBC Enhanced Choice 12 Annuity; Mr. Hobart then engaged in an
exchange of the replacement annuity in October 2011 in favor of an annuity from
National Western Life Insurance Company. (SAC ¶ 287.)
62. 	On 	at 	least 	one 	occasion, 	Ms. 	Gleason 	sent 	a 	letter 	to 	Mr. 	Hobart
communicating 	that 	“she 	felt 	pressured 	by 	him 	and 	did 	not 	understand 	the
paperwork she was asked to sign.” (SAC ¶ 289.) Ms. Byrnes alleges that she and her
mother were “unsophisticated investors” and “did not understand any of the material
terms of the fixed-index annuities that Mr. Hobart sold to them.” (SAC ¶ 290.)
63. 	In late March or early April 2011, Ms. Byrnes called Mr. Hobart “to ask
questions,” and on 5 April 2011, she received an email in response from Mr. Greer
that “provided little clarity.” 	(SAC ¶ 290.) 	She remained confused, and around
1 February 2012 she met with a different financial advisor who advised her that her
investments may be unsuitable. (SAC ¶ 293.)

64. 	Around July 2012, Ms. Byrnes understood that she had been deceived by
Defendants. 	(SAC 	¶ 293.) 	Ms. 	Byrnes 	nonetheless 	remained 	invested 	with
Defendants, and on 12 September 2012, emailed a list of questions to Mr. Hobart.
(SAC ¶ 294.) 	Rather than responding by email, Mr. Hobart called Ms. Byrnes to
answer some of her questions but not the pointed questions she posed regarding
commissions. (SAC ¶ 295.) Ms. Byrnes followed up in December 2012, but received
“evasive and misleading answers” which resulted in Ms. Byrnes removing her and
her 	mother’s 	investments 	from 	Defendants’ 	supervision 	in 	March 	2013.
(SAC ¶¶ 298–99, 302.)
3. 	Mr. Forbis
65. 	Mr. Forbis was introduced to Defendants in the fall of 2015. (SAC ¶ 308.)
Shortly thereafter, on 3 September 2015, Mr. Forbis received a template letter from
Defendants scheduling an individual meeting with Mr. Greer and Mr. Hobart on
15 September 2015. (SAC ¶ 310.)
66. 	Mr. Forbis searched Google for any lawsuits involving Defendants prior to
engaging Mr. Hobart, and even expressed concern to Mr. Greer about “falling victim
to a Bernie Madoff-like Ponzi scheme[.]” (SAC ¶ 311.) Aiming for retirement within
one year, Mr. Forbis hoped for an investment plan that would “provide reliable
income 	in 	retirement,” 	and 	he 	expressed 	concern 	about 	annuities 	and 	other
investment products that “locked up retirement savings.” (SAC ¶ 313.)
67. 	On 15 October 2015, Mr. Greer made an investment recommendation to
Mr. Forbis that included Alternative Investments, which Mr. Greer described as “safe

and secure investments.” (SAC ¶ 314.) When Mr. Forbis asked whether it would be
difficult to sell the Alternative Investments, Mr. Greer “falsely” responded that he
did not know of any investors having problems selling them. (SAC ¶ 316.) Mr. Greer
also represented that there were no costs or fees associated with the Alternative
Investments. (SAC ¶ 317.)
68. 	Plaintiffs allege that Mr. Forbis was an “unsophisticated investor” and that
he followed Defendants’ recommended investment plan. 	(SAC ¶ 319.) 	Mr. Forbis
alleges that in November 2015, Defendants invested “$425,000 [of his investment
funds] in illiquid and unsuitable Alternative Investments, well in excess of 20% of
Mr. Forbis’s liquid net worth. 	Of this amount, approximately $40,000 came from
Mr. Forbis’s IRA.” (SAC ¶ 319.) Despite reinvesting all dividends in the Alternative
Investments, in April 2016 Mr. Forbis noticed a decrease in the reported principal
value. 	(SAC 	¶ 320.) 	In 	April 	2016, 	Mr. 	Forbis 	determined 	that 	one 	of 	his
investments, which decreased by about $40,000, was “the worst investment he had
ever been sold.” (SAC ¶¶ 320–21.)
69. 	Mr. 	Forbis 	thereafter 	called 	Mr. 	Greer, 	who 	switched 	Mr. 	Forbis 	to
receiving cash dividends from the Alternative Investments in late 2016 or early 2017.
(SAC ¶ 322.) The dividends declined after about one year from $3,000.00 to $800.00
per month. 	(SAC ¶ 322.) 	Mr. Forbis complained to Mr. Greer again in 2017 after
another 	Alternative 	Investment’s 	principal 	declined 	by 	at 	least 	$20,000.00.
(SAC ¶ 323.) Mr. Forbis thereafter began receiving unsolicited offers to purchase his
Alternative Investments “for pennies on the dollar.” (SAC ¶ 324.) For example, one

offer to purchase Mr. Forbis’s shares in an Alternative Investment was for $2.60 per
share, but the investment was reported to be worth $10.66 per share. (SAC ¶ 324.)
70. 	Mr. Forbis remains “stuck” with several of his investments “which have lost
significant amounts of principal.” (SAC ¶ 327.)
4. 	The Leshocks
71. 	The Leshocks were introduced to Defendants in 2014, and on around
10 April 2014, the pair received a letter from Mr. Hobart indicating that he would
serve as their lead financial planner. 	(SAC ¶¶ 328–29.) 	The Leshocks sought “a
conservative, low-risk investment portfolio” and were concerned about their ability to
pay for long-term assisted living or future healthcare services. 	(SAC ¶ 330.) 	The
Leshocks allege that, around this same time, Mr. Hobart represented to them that
Alternative Investments were “safe and secure.” (SAC ¶ 331.)
72. 	The Leshocks allege that, before investing, Defendants misrepresented
several things by (1) “falsely minimiz[ing] limits on the liquidity of the Alternative
Investments”; and (2) suggesting that, if the Leshocks took out a mortgage on their
new residence, rather than paying for the house in cash, the Leshocks could invest
more 	in 	the 	Alternative 	Investments 	and 	average 	a 	twelve 	percent 	return.
(SAC ¶¶ 332, 334.)
73. 	On 15 April 2014, the Leshocks invested $140,000.00—“nearly half their
net worth”—in five Alternative Investments. 	(SAC ¶ 335.) 	The pair allege that
Mr. Hobart did not explain the risks associated with these investments. (SAC ¶ 335.)

The Leshocks reinvested their monthly dividends in the Alternative Investments.
(SAC ¶ 340.)
74. 	In 2016, Mr. Hobart informed the Leshocks of a decline in the value of their
investments, but he explained that it was the result of “a FINRA-mandated reporting
change” and did not reflect an actual loss. (SAC ¶ 336.)
75. 	In June 2020, the Leshocks discovered that their investments were illiquid,
and were “shocked” to learn that they could not sell the Alternative Investments for
their reported value—except for the Global Net Lease investment, which went public
in the intervening six years—because the sale would be at a “significant discount on
their original investment.” (SAC ¶ 337.)
5. 	The Ostranders
76. 	The Ostranders were introduced to Defendants in the fall of 2012 and
communicated their conservative investment goals to Mr. Hobart. (SAC ¶¶ 343, 346.)
77. 	The Ostranders understood from their first meeting with Mr. Hobart that
he was not affiliated with any company that sold investment products. (SAC ¶ 345.)
Mr. Hobart communicated to the Ostranders that Alternative Investments were
“significantly 	less 	risky 	than 	individual 	stocks,” 	and 	“were 	recession 	proof.”
(SAC¶ 347.) 	They allege that Mr. Hobart (1) falsely minimized the liquidity
restrictions 	of 	the 	Alternative 	Investments, 	and 	(2) 	along 	with 	Mr. 	Greer,
misrepresented the commissions and sales load in the Alternative Investments.
(SAC ¶¶ 348–49.)

78. 	On 	6 	February 	2013, 	the 	Ostranders 	met 	with 	Mr. 	Hobart 	prior to
investing. (SAC ¶ 350.) They allege that Mr. Hobart falsely stated that “all fees were
disclosed” and that the Ostranders would be protected from risks associated with
market 	slides 	available 	in 	more 	conservative 	portfolios 	from 	other 	advisors.
(SAC ¶¶ 350–51.) 	The Ostranders allege that before investing they specifically
confronted Mr. Greer and Mr. Hobart “with pointed questions about fees and
commissions,” and that both provided “materially false responses.” (SAC ¶ 349.)
79. 	On 16 April 2013, Mr. Hobart prepared an investment summary for the
Ostranders, recommending that the pair “invest a substantial portion of their
retirement savings in unsuitable fixed-index annuities and Alternative Investments.”
(SAC ¶ 354.) Ms. Ostrander read a prospectus document for one of the recommended
alternative investments, and on 18 April 2013, emailed Mr. Hobart and Mr. Greer
with concerns about the high hidden fees she found. (SAC ¶ 355.) The email read, in
relevant part, as follows:
Another fee question please . . . it was my understanding that we would
not have any fees on [the Alternative Investment], but in looking at the
attached 	page 	from 	their 	prospectus, 	it 	appears 	that 	there 	are
significant fees. 	Are these being waived or will we be incurring these?
They reflect a 10% sales load, which I’m assuming was waived since
there was not a reduction in our initial investment, but please confirm.
Additionally, the 6% annual expense is quite high and I’m hoping we
aren’t subject to that.
(SAC ¶ 355.) 	On 19 April 2013, Mr. Greer responded, copying Mr. Hobart, stating
that the fees would “never” come out of the Ostranders’ pocket or earnings, which
Plaintiffs allege was materially false. (SAC ¶ 356.)

80. 	Ms. Ostrander followed up with Mr. Greer the same day, asking him to
confirm that the Ostranders would not incur the ten percent sales load. (SAC ¶ 357.)
According to Ms. Ostrander, Mr. Greer called her, “lied to [her,] and confirmed the
Ostranders would not pay the ‘10% sales load,’ otherwise disclosed in the prospectus.”
(SAC ¶ 357; see SAC Ex. 4, ECF No. 51 [“SAC Ex. 4”].) 	On 22 April 2013,
Ms. Ostrander attempted to confirm these representations through an email to
Mr. Hobart, but he did not respond to her email inquiry. (SAC ¶¶ 358–59.)
81. 	The prospectus at issue provides that, “if you invest $100 in shares in this
offering, only $88.50 will actually be invested in the Company.” 	(SAC ¶ 361
(emphasis removed).) But Plaintiffs allege that there were numerous other fees and
expenses that were not disclosed when the Ostranders ultimately invested. 	(See
SAC ¶¶ 362–65.) 	The Ostranders allege that they were “unable to learn the extent
of the embedded fees” in one of their recommended Alternative Investments and were
similarly unable to learn that the “investment recommendations were tainted by
pervasive conflicts of interest related to undisclosed commissions.” (SAC ¶ 366.)
82. 	Between 2013 and May 2019, the Ostranders worked with Mr. Greer and
then Mr. Sunstrom when he joined Hobart Financial. 	(SAC ¶¶ 271–72.) 	The
Ostranders were repeatedly re-assured that decreases in value were not a cause for
concern. 	(See 	SAC 	¶¶ 373–75.) 	Ultimately, 	the 	Ostranders 	purchased 	over
$270,000.00 in investments from Defendants, which they allege was roughly twenty
percent of their savings. (SAC ¶ 371.)

83. 	After two non-traded REITs in which the Ostranders were invested went
public in June 2020, the share price dropped dramatically. 	(SAC ¶¶ 377–78.) 	On
10 July 2020, Mr. Ostrander expressed concern about the drop by email, asking
Mr. Greer “for an accurate valuation of their existing Alternative Investments, which
they never received.” (SAC ¶ 379.)
84. 	The Ostranders, having lost trust in Defendants, ended the relationship
with them in December 2020. (SAC ¶ 380.)
6. 	Mr. Rhodes
85. 	Mr. Rhodes was introduced to Defendants in 2013 when he attended a
solicitation dinner, and he thereafter went to Hobart Financial for a meeting with
Mr. Hobart. 	(SAC ¶¶ 384, 386.) 	Mr. Rhodes had a “moderate/conservative risk
tolerance,” and Mr. Hobart represented that Alternative Investments were “safe and
secure,” emphasizing that Mr. Rhodes would see regular returns. (SAC ¶ 388.)
86. 	That same year, Mr. Rhodes purchased approximately $250,000.00 in
Alternative Investments through Defendants. (SAC ¶ 387.) Mr. Rhodes alleges that
Defendants did not disclose the (1) sales load on the investments or (2) commissions
Defendants received from the sales. 	(SAC ¶ 387.) 	Further, “[a]t all relevant times,
Mr. 	Hobart 	concealed 	the 	illiquidity 	and 	risks 	associated 	with 	Alternative
Investments and recommended that Mr. Rhodes reinvest dividends in the same.”
(SAC ¶ 391.)
87. 	The reported value of Mr. Rhodes’s investments declined in April 2016, but
Mr. Greer reassured him there was nothing to worry about. (SAC ¶ 389.) Later that

year, when the investments did not rebound, Mr. Rhodes sent a letter to Defendants
“complaining” about his investment portfolio. (SAC ¶ 390.)
88. 	Mr. Rhodes alleges that he learned for the first time that he was unable to
sell the Alternative Investments in April 2017 because his CPA said to him, “[w]hat
idiot put an 80-year-old in illiquid REITs?” 	(SAC ¶ 391.) 	Mr. Rhodes thereafter
terminated his relationship with Defendants and transferred his investments to
TD Ameritrade. (SAC ¶ 391.)
7. 	Mr. Tanger
89. 	Mr. Tanger was introduced to Defendants in 2014 and had his first meeting
at Hobart Financial on 14 October 2014. 	(SAC ¶ 394.) 	On 25 November 2014,
Mr. Tanger met with Mr. Greer, who largely served as Mr. Tanger’s primary contact.
(SAC ¶¶ 398, 402.) 	Mr. Tanger communicated to Mr. Greer his conservative
investment goals and his hope to retire in 2016. (SAC ¶ 399.)
90. 	During the November 2014 meeting, Mr. Tanger alleges that Mr. Greer
misrepresented that the Alternative Investments: (1) would be liquid within one to
three years; (2) produced a “stable,” “reliable” divide[n]d; and (3) had no hidden
commissions or fees. (SAC ¶¶ 400–02.) Mr. Tanger trusted Defendants and invested
about $300,000.00 in several Alternative Investments recommended by Defendants.
(SAC ¶ 403.)
91. 	Around 	April 	2016, 	the 	reported 	value 	of 	Mr. 	Tanger’s 	investments
decreased by approximately ten percent. (SAC ¶ 404.) Mr. Greer reassured him that
the decline resulted from “merely a reporting change,” and when Mr. Tanger asked

whether he should sell or make changes to his Alternative Investments, Mr. Greer
said that he “still could not sell the Alternative Investments.” (SAC ¶¶ 404–05.)
92. 	Mr. Tanger alleges that he was never told that the dividends could decrease
or that he could stop receiving dividends altogether. 	(SAC ¶ 407.) 	Until mid-2019,
Defendants reinvested Mr. Tanger’s dividends in the Alternative Investments.
(SAC ¶ 412.)
93. 	Plaintiffs allege that “[b]y late May or early June 2019, Mr. Tanger came to
the conclusion that the Alternative Investments sold to him by [Defendants] were
unsuitable 	investments, 	and 	he 	attempted 	to 	redeem 	his 	shares 	at 	every
opportunity.” 	(SAC ¶ 410.) 	When Mr. Tanger asked Mr. Greer for help liquidating
his Alternative Investments, Mr. Greer allegedly told Mr. Tanger that he was “on his
own.” (SAC ¶ 411.)
8. 	The Wilshires
94. 	The Wilshires met Defendants in 2013 and that same year entrusted
Defendants with “some of their retirement savings” to be invested into a fixed-index
annuity and in Alternative Investments. (See SAC ¶¶ 416–18.) Mr. Hobart invested
$250,000 of Ms. Wilshire’s IRA in a fixed-index annuity, and “around March 2015,
$735,000 of Dr. Wilshire’s profit-sharing retirement account in five Alternative
Investments.” (SAC ¶ 418.)
95. 	The Wilshires allege that Mr. Hobart misrepresented the commissions that
Defendants would receive, informing the Wilshires that the full purchase price for

the relevant investments “would be invested on their behalf, without accounting for
any sales load.” (SAC ¶ 419.)
96. 	Mr. Hobart “passed off” the Wilshires to Mr. Sunstrom after the March 2015
investments. (SAC ¶ 420.) In April 2016, the Wilshires “observed a six-figure decline
in the reported value of the Alternative Investments,” but Mr. Sunstrom reassured
the Wilshires that the investments would rebound. 	(SAC ¶ 421.) 	The Wilshires
continued 	to 	reinvest 	dividends 	in 	the 	Alternative 	Investments 	until 	2018.
(SAC ¶ 422.)
97. 	The Wilshires first began questioning the suitability of their investments
in 2020, when dividends “dried up” and one of the REITs suffered a 2.43:1 reverse
stock split. (SAC ¶ 423.)
98. 	The Wilshires allege that they suffered great loss on their principal in the
Alternative Investments and that they remain stuck with several non-publicly traded
Alternative Investments. 	(SAC ¶ 424.) 	Notwithstanding that the fixed-index
annuity Ms. Wilshire was invested in produced “almost zero return over eight years,”
Plaintiffs allege that it was redeemed for roughly $267,000.00 in April 2021.
(SAC ¶ 425.)
9. 	Dr. Zucker
99. 	Dr. Zucker was introduced to Defendants in late 2011 when he attended
Hobart-sponsored events, and around this same time, met with Mr. Hobart at Hobart
Financial. 	(SAC ¶¶ 428, 431.) 	Mr. Hobart allegedly misrepresented the volatility
and 	income 	generation 	of 	Alternative 	Investments 	and 	fixed-index 	annuities,

describing 	them 	as 	“strong 	and 	secure,” 	as 	he 	did 	with 	the 	other 	Plaintiffs.
(SAC ¶ 431.) 	Mr. Hobart did not disclose that these investment products were
illiquid, instead promising that “if Dr. Zucker followed his direction, he would earn
between $10,000 to $15,000 per month in reliable dividends.” (SAC ¶¶ 432–33.)
100. 	“Dr. 	Zucker 	followed 	Mr. 	Hobart’s 	recommendations 	and, 	from
approximately 	December 	2011 	through 	2013, 	invested 	around 	$1 	million 	in
Alternative Investments and fixed-index annuities.” (SAC ¶ 437.) Prior to investing
with Defendants, Dr. Zucker was invested in a diversified portfolio of mutual funds
and other investments. (SAC ¶ 427.)
101. 	Dr. 	Zucker 	alleges 	that 	he 	did 	not 	understand 	the 	“complicated
terminology” used by Mr. Hobart, and that Mr. Hobart failed to explain any risks that
might be associated with the recommended investments. (See SAC ¶¶ 435–36.)
102. 	In April 2016, when Dr. Zucker’s investments dropped by double-digit
percentages in one month, Defendants reassured him that the drop was the result of
a 	reporting 	change 	and 	that 	the 	value 	of 	the 	investments 	would 	rebound.
(SAC ¶ 438.)
103. 	Mr. Hobart recommended that Dr. Zucker reinvest his dividends into the
Alternative Investments, and Dr. Zucker alleges that he “did not realize” taking cash
dividends was an option until the summer of 2021. (SAC ¶ 439.) Dr. Zucker met with
Mr. Woodrum, a junior financial advisor for Defendants, around the same time he
was advised by Mr. Hobart to reinvest his dividends. 	(SAC ¶ 439.) 	Mr. Woodrum
recommended, however, that Dr. Zucker discontinue reinvesting his dividends and to

sell for a loss, telling him to “get out of these [Alternative Investments], they’re dead.”
(SAC ¶ 439 (modification in original).)
104. 	Dr. Zucker continues to try to liquidate his Alternative Investments but is
unable to sell them because four of the five Alternative Investments he is invested in
still have not gone public. (SAC ¶ 439.)
E. 	The FINRA Disclosure Changes in 2016
105. 	April 2016 appears to be the turning-point for many Plaintiffs. 	(See, e.g.,
SAC ¶¶ 268, 320–21, 336, 389, 404–05, 421, 438.) Nearly all Plaintiffs allege that the
value of their investments declined in April 2016 and that Defendants offered them
reassurances. 	By 	way 	of 	example, 	Defendants 	“continued 	to 	recommend 	the
Plaintiffs hold onto Alternative Investments and reinvest dividends into Alternative
Investments[, 	causing] 	Plaintiffs 	to 	buy 	additional 	shares 	of 	the 	Alternative
Investments for years after April 2016.” (SAC ¶ 193; see infra ¶ 109.)
106. 	Plaintiffs allege that, prior to April 2016, Defendants sold them Alternative
Investments at the “gross offering price,” or the price offered during the initial
offering period. (SAC ¶ 177.) The price was typically $10.00 per share and remained
constant until the offering period concluded. (SAC ¶ 178; supra ¶ 41.)
107. 	On 11 April 2016, the SEC modified NASD Rule 2340—now FINRA
Rule 2231—to require “increased transparency in the reported per-share value of
Alternative 	Investments 	on 	periodic 	statements 	provided 	to 	retail 	investors.”
(SAC ¶ 180.) From that point forward, account statements were required to reflect a
per-share estimated value in the form of (a) the net investment methodology, or

(b) the appraised value methodology. 	(SAC ¶ 181.) 	The rule change also required
account statements to disclose that Alternative Investments “are generally illiquid
and that, even if a customer is able to sell the securities, the price received may be
less than the per-share estimated value[.]” (SAC ¶ 182.)
108. 	On 1 April 2016, just before the effective date of the new rule, Defendants
emailed all their clients that held Alternative Investments, including Plaintiffs.
(SAC ¶ 185.) 	Plaintiffs allege that the email “(a) minimized the impact of the
regulatory 	reporting 	change, 	(b) 	reassured 	[the] 	clients 	that 	the 	Alternative
Investments remained strong and secure investments, and (c) recommended that
[the] 	clients 	continue 	to 	hold 	and 	reinvest 	dividends 	into 	the 	Alternative
Investments.” (SAC ¶ 186.)
109. 	Plaintiffs allege that they received various assurances from Defendants
during this time: the Burtons allege that Mr. Hobart claimed “the value of the
Alternative Investments would rebound when they went public,” (SAC ¶ 268); the
Leshocks were told that, “although it appeared their Alternative Investments had
declined in value, this was simply due to a FINRA-mandated reporting change, not
reflective of a loss,” (SAC ¶ 336); and “Mr. Rhodes communicated with Mr. Greer, who
blamed the change on ‘bookkeepers’ or ‘bean counters’ and assured Mr. Rhodes there
was nothing to worry about—that the value of the Alternative Investments would
rebound,” (SAC ¶ 389).
110. 	Notwithstanding Defendants’ assurances to Plaintiffs and other clients,
Defendants stopped selling Alternative Investments around April 2016. (SAC ¶ 189.)

III. 	PROCEDURAL BACKGROUND
111. 	The Court sets forth herein only those portions of the procedural history
relevant to its determination of the Motion.
112. 	This action was initiated by sixteen plaintiffs on 1 February 2022 with a
Rule 3 Application. (See ECF No. 3.) On 21 February 2022, the Complaint was filed
by Plaintiffs’ counsel. (ECF No. 4.) On 24 March 2022, this action was designated as
a mandatory complex business case, (ECF No. 1), and it was assigned to the
undersigned on 17 May 2022, (ECF No. 13).
113. 	Following the filing of an Amended Complaint, (ECF No. 9), Defendants
sought dismissal of all claims against them pursuant to Rule 12(b)(6), (ECF Nos. 22–
23). 	After full briefing and a hearing on that motion, (ECF Nos. 29–31), the Court
determined that a more definite statement pursuant to Rule 12(e) was “both
necessary and appropriate,” and therefore Plaintiffs were ordered to file a Second
Amended Complaint that more clearly set forth the facts and claims alleged as to
each Plaintiff against each Defendant, see Baker v. Hobart Fin. Grp., 2023 NCBC
LEXIS 45, at **9–10 (N.C. Super. Ct. Mar. 22, 2023).
114. 	On 1 May 2023, Plaintiffs filed the Second Amended Complaint. (See SAC.)
Plaintiffs allege seven claims for relief against Defendants: (1) breach of fiduciary
duty 	(“Count 	One”), 	(SAC 	¶¶ 444–59); 	(2) 	constructive 	fraud 	(“Count 	Two”),
(SAC ¶¶ 460–67); 	(3) violation 	of 	the North 	Carolina 	Securities 	Act 	(“NCSA”),
N.C.G.S. § 78A-1 et seq. (“Count Three”), (SAC ¶¶ 468–79); (4) violation of the North
Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”), N.C.G.S. § 75-1.1 et

seq. (“Count Four”), (SAC ¶¶ 480–87); (5) fraud (“Count Five”), (SAC ¶¶ 488–96);
(6) professional 	negligence 	(“Count 	Six”), 	(SAC 	¶¶ 497–506); 	and 	(7) 	negligent
misrepresentation (“Count Seven”), (SAC ¶¶ 507–13). As set forth in more detail in
the Second Amended Complaint, most Plaintiffs join in only some claims and seek
relief from only some Defendants. However, all Plaintiffs join in bringing Count Two
for constructive fraud against Defendants. (See SAC ¶ 461.)
115. 	Defendants thereafter filed the Motion, again seeking dismissal of all
claims against them pursuant to Rules 9(b) and 12(b)(6). (See Mot.; Defs.’ Br. Supp.
Mot., ECF No. 73 [“Br. Supp.”].)
116. 	On 16 October 2023, following full briefing on the Motion but prior to the
hearing, Plaintiffs William Baker III, individually, on behalf of his IRA, and as
personal representative of Nancy Baker and her IRA, and Joyce Elizabeth Baker, as
beneficiary to Nancy Baker, voluntarily dismissed with prejudice all claims against
Defendants. (ECF No. 79.)
117. 	The Court held a hearing on the Motion on 24 October 2023 (the “Hearing”),
at which all parties were present and represented through counsel. (See ECF No. 78.)
118. 	The Motion is ripe for resolution.
IV. 	LEGAL STANDARD
119. 	In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court
reviews the allegations in the Second Amended Complaint in the light most favorable
to Plaintiffs. 	See Christenbury Eye Ctr., P.A. v. Medflow, Inc., 370 N.C. 1, 5 (2017).
The Court’s inquiry is “whether, as a matter of law, the allegations of the complaint

. . . are sufficient to state a claim upon which relief may be granted under some legal
theory[.]” 	Harris v. NCNB Nat’l Bank, 85 N.C. App. 669, 670 (1987) (citation
omitted). 	The Court accepts all well-pleaded factual allegations in the relevant
pleading as true. 	See Krawiec v. Manly, 370 N.C. 602, 606 (2018). 	The Court is
therefore not required “to accept as true allegations that are merely conclusory,
unwarranted deductions of fact, or unreasonable inferences.” Good Hope Hosp., Inc.
v. N.C. Dep’t of Health & Human Servs., 174 N.C. App. 266, 274 (2005) (cleaned up).
120. 	Furthermore, the Court “can reject allegations that are contradicted by the
documents attached, specifically referred to, or incorporated by reference in the
complaint.” 	Moch v. A.M. Pappas & Assocs., LLC, 251 N.C. App. 198, 206 (2016)
(citation omitted). The Court may consider these attached or incorporated documents
without converting the Rule 12(b)(6) motion into a motion for summary judgment.
Id. (citation omitted). Moreover, the Court “may properly consider documents which
are the subject of a plaintiff’s complaint and to which the complaint specifically refers
even though they are presented by the defendant.” 	Oberlin Capital, L.P. v. Slavin,
147 N.C. App. 52, 60 (2001) (citation omitted).
121. 	Our 	Supreme 	Court 	has 	observed 	that 	“[i]t 	is 	well-established 	that
dismissal pursuant to Rule 12(b)(6) is proper when ‘(1) the complaint on its face
reveals that no law supports the plaintiff’s claim; (2) the complaint on its face reveals
the absence of facts sufficient to make a good claim; or (3) the complaint discloses
some fact that necessarily defeats the plaintiff’s claim.’ ” 	Corwin v. British Am.
Tobacco PLC, 371 N.C. 605, 615 (2018) (quoting Wood v. Guilford Cty., 355 N.C. 161,

166 (2002)). 	This standard of review for Rule 12(b)(6) motions is the standard our
Supreme Court “uses routinely . . . in assessing the sufficiency of complaints in the
context of complex commercial litigation.” Id. at 615 n.7 (citations omitted).
V. 	ANALYSIS
122. 	Defendants contend that dismissal of all claims with prejudice is proper.
(Mot. 4.) 	Defendants argue that: (1) Counts One, Three, Four, Five, Six, and Seven
fail as to the Leshocks, the Ostranders, Mr. Tanger, the Wilshires, and Dr. Zucker
because those claims are barred by the applicable statute of limitations, and that
Count Two as to Ms. Byrnes is similarly time barred, (Mot. 4–5); (2) Counts Five and
Seven fail as to the Leshocks, the Ostranders, Mr. Tanger, the Wilshires, and
Dr. Zucker because the allegations do not meet the particularized pleading standard
set forth in Rule 9(b), (Mot. 6–7); and (3) the claims alleged otherwise fail to state a
valid cause of action, (Mot. 5). The Court addresses each of these arguments in turn,
beginning with the arguments related to the applicable limitations periods.
A. 	Statute of Limitations Issues
123. 	“A 	statute 	of 	limitations 	can 	provide 	the 	basis 	for 	dismissal 	on 	a
Rule 12(b)(6) motion if the face of the complaint establishes that plaintiff’s claim is
so barred.” Soderlund v. N.C. Sch. of the Arts, 125 N.C. App. 386, 389 (1997) (citation
omitted). “Dismissal pursuant to Rule 12(b)(6) on the grounds that a claim is barred
by the statute of limitations is proper only when all the facts necessary to establish
that the claim is time-barred are either alleged or admitted in the complaint,
construing the complaint liberally in favor of plaintiff.” Lau v. Constable, 2017 NCBC

LEXIS 10, at **10 (N.C. Super. Ct. Feb. 7, 2017) (cleaned up) (citing Fox v. Sara Lee
Corp., 210 N.C. App. 706, 708-09 (2011)).
124. 	The Court begins the statute of limitations analysis by first addressing
Ms. Byrnes’s claim at Count Two, and then turns to Counts One, Three, Four, Five,
Six, and Seven related to the other Plaintiffs.
1. 	Count Two as to Ms. Byrnes
125. 	Defendants contend that Ms. Byrnes’s claim for constructive fraud is time-
barred. 	(Br. Supp. 16.) 	Plaintiffs contend the claim is not time-barred because
Ms. Byrnes did not discover or have reason to know the basis for her claim until
July 2012. 	(Pls.’ Br. Opp’n Mot. 17, ECF No. 76 [“Br. Opp.”] (citing SAC ¶ 293).)
Plaintiffs’ counsel misunderstands the standard.
126. 	“[T]he the limitations period applicable to constructive fraud claims is ten
years[.]” Chisum v. Campagna, 376 N.C. 680, 707 (2021) (citing N.C.G.S. § 1-56(a)).
Thus, a cause of action for constructive fraud, “may not be commenced more than
10 years after the cause of action has accrued.” N.C.G.S. § 1-56(a). “A cause of action
generally accrues when the right to institute and maintain a suit arises.” 	Piles v.
Allstate Ins. Co., 187 N.C. App. 399, 403 (2007) (citation omitted).
127. 	Count Two is based on allegations that Defendants breached a fiduciary
duty owed to Plaintiffs by recommending unsuitable Alternative Investments and
fixed-index annuities for Defendants’ own benefit. (See SAC ¶¶ 462–64.) Therefore,
it appears that the question, for purposes of determining when the limitations period

runs, is when did Defendants recommend that Ms. Byrnes purchase unsuitable
investments?
128. 	Ms. Byrnes met with Mr. Hobart in September and October 2010, and she
alleges that Mr. Hobart made various misrepresentations during that meeting about
expected dividends and his own commissions for certain purchases. (See SAC ¶¶ 274,
276, 282.) 	Further, in February 2011, Mr. Hobart recommended and executed the
annuity transfer for Ms. Byrnes by selling her Prudential variable annuity and
purchasing one from Security Benefit. (See SAC ¶¶ 282–84.)
129. 	Ms. 	Byrnes’s 	mother, 	“Ms. 	Gleason[,] 	wrote 	a 	letter 	to 	Mr. Hobart
evidencing that, on one or more occasion, she communicated to Mr. Hobart that she
felt pressured by him and did not understand the paperwork she was asked to sign.”
(SAC ¶ 289.) Further, in March or April 2011, Ms. Byrnes called Mr. Hobart to ask
questions about her investments, and on 5 April 2011, she received an email from
Mr. Greer providing “little clarity[.]” (SAC ¶ 290.)
130. 	Even reviewing the allegations in the Second Amended Complaint in the
light 	most 	favorable 	to 	Ms. 	Byrnes, 	Defendants’ 	recommendation 	regarding
Alternative 	Investments 	and 	fixed-index 	annuities 	occurred 	on 	or 	around
February 2011 when Mr. Hobart suggested Ms. Byrnes purchase a different fixed-
index annuity and then executed on that advice. 	(See SAC ¶¶ 283, 462.) 	Thus, in
February 2011, the ten-year statute of limitations for Ms. Byrnes’s constructive fraud
claim began to run. 	As for her late mother, Ms. Gleason, it appears that the last
allegation of investment recommendations or advice occurred in October 2011.

(SAC ¶ 287.) 	As noted above, this action was initiated on 1 February 2022. 	(See
supra ¶ 112.) Therefore, over ten years passed between when the limitations period
began to run and when this action was filed.
131. 	The 	Court 	determines 	that 	the 	allegations 	contained 	in 	the 	Second
Amended 	Complaint 	establish 	as 	a 	matter 	of 	law 	that 	Ms. 	Byrnes’s 	claim,
individually and as beneficiary to Ms. Gleason’s estate, is time-barred. The question
is not when Ms. Byrnes knew or should have known of the wrong, but rather when
the act giving rise to the cause of action occurred. 	It was on that date that her
constructive fraud claim accrued.
132. 	Therefore, the Motion is hereby GRANTED in part, and Ms. Byrnes’s claim
under Count Two is hereby DISMISSED with prejudice.3
2. 	Counts 	One, 	Three, 	Four, 	Five, 	Six, 	and 	Seven 	as 	to
Mr. Tanger and Dr. Zucker
133. 	Defendants similarly seek dismissal of Counts One, Three, Four, Five, Six,
and Seven as to Mr. Tanger and Dr. Zucker, contending that Plaintiffs’ counsel
previously conceded in briefing and at oral argument that these two plaintiffs did not
file the claims “within a five-year statute of limitations.” (Br. Supp. 4 n.1; Br. Opp’n
Mot. Dismiss Am. Compl. 35 n.12, ECF No. 29.) 	Defendants argue that this
admission bars Mr. Tanger and Dr. Zucker’s claims, except their constructive fraud
claims. (Br. Supp. 4, 25–27.)
3 “The decision to dismiss an action with or without prejudice is in the discretion of the trial
court.” First Fed. Bank v. Aldridge, 230 N.C. App. 187, 191 (2013).

134. 	“A judicial admission is a formal concession which is made by a party
[(usually through counsel)] in the course of litigation for the purpose of withdrawing
a particular fact from the realm of dispute.” Outer Banks Contractors, Inc. v. Forbes,
302 N.C. 599, 604 (1981); see Aspen Specialty Ins. Co. v. Nucor Corp., 2022 NCBC
LEXIS 134, at **16 (N.C. Super. Ct. Nov. 8, 2022).
135. 	In its Order and Opinion Requiring Plaintiffs to File a Second Amended
Complaint, the Court wrote that “Plaintiffs’ Amended Complaint should itself reflect
this concession. In other words, if Plaintiff recognizes that its claim is barred by the
applicable statute of limitations, Plaintiff should not bring the claim.” (ECF No. 43.)
136. 	The concession by Plaintiffs’ counsel that these claims are untimely entitles
Defendants to dismissal of those claims, as Plaintiffs did not respond to the assertion
in the briefing and have therefore not met their burden of demonstrating that the
limitations period has yet to run. 	See McFee v. Presley, 2023 NCBC LEXIS 173, at
**9–10 (N.C. Super. Ct. Dec. 28, 2023) (dismissing a claim at summary judgment
because plaintiff’s counsel conceded at the hearing that the claim was untimely).
137. 	As a result, the Motion is GRANTED in part as to all of Mr. Tanger and
Dr. Zucker’s claims, except for Count Two, and those claims are hereby DISMISSED
with prejudice.
3. 	Counts One, Three, Five, Six, and Seven as to the Leshocks,
the Ostranders, and the Wilshires
138. 	The Court next turns to Defendants’ argument that the Leshocks, the
Ostranders, and the Wilshires’ claims, as applicable, under Counts One, Three, Five,
Six, and Seven fail because those claims are barred by the applicable statute of

limitations. (See Mot. 4–5.) The Court addresses Count Four separately in the next
section, as it is subject to a different limitations period. (See infra § V.A.4.)
139. 	The Leshocks and the Ostranders allege claims for relief under Count One
and Count Six, each of which has a three-year statute of limitations. Scott & Jones,
Inc. v. Carlton Ins. Agency, Inc., 196 N.C. App. 290, 297 (2009) (statute of limitations
for a negligence claim); Lau, 2019 NCBC LEXIS 71, at *22 (statute of limitations for
a breach of fiduciary duty claim). The same Plaintiffs, joined by the Wilshires, bring
Counts 	Three, 	Five, and Seven, which similarly 	have a 	three-year statute 	of
limitations. 	N.C.G.S. 	§§ 1-52(9), 78A-56(f) 	(limitations 	periods 	for 	fraud 	and
violations of the NCSA, respectively); Guyton v. FM Lending Servs., 199 N.C. App. 30,
35 (2009) (statute of limitations for negligent misrepresentation claim).
i. 	Count Six: Professional Negligence
140. 	Plaintiffs have not offered, and the Court has not located, any authority to
support the legal proposition that a professional negligence claim exists in North
Carolina for the negligent acts of investment advisors. 	See Aldridge v. Metro. Life
Ins. Co., 2019 NCBC LEXIS 116, at *137 (N.C. Super. Ct. Dec. 31, 2019).
141. 	North Carolina General Statutes § 1-52 imposes a three-year statute of
limitations for negligence actions, Scott & Jones, 196 N.C. App. at 297, which accrue
when the wrong giving rise to the right to bring suit is committed, “even though the
damages at that time [may] be nominal and the injuries cannot be discovered until a
later date[,]” Harrold v. Dowd, 149 N.C. App. 777, 781 (2002); see Carpenter v. N.C.

Dep’t of Health & Human Servs., 2023 N.C. App. LEXIS 52, at *8 (2023) (unpublished)
(following the rule stated in Harrold).
142. 	Plaintiffs allege that their negligence claim arises out of Defendants’ failure
to: (1) investigate the recommended securities or have any reasonable basis for
recommending 	Alternative 	Investments 	to 	Plaintiffs; 	(2) 	perform 	investment
advisory services with the requisite knowledge, skill, and judgment; and (3) stop the
reinvestment 	of 	dividends 	in 	the 	Alternative 	Investments. 	(SAC 	¶¶ 502–04.)
Plaintiffs 	allege 	that 	the 	“last 	wrongful 	act 	or 	omission” 	did 	not 	occur 	until
1 February 2019. 	(SAC ¶ 505.) 	Thus, Plaintiffs’ negligence claim is based on
Defendants’ conduct at the initial sale of the investments and the reinvestment of
dividends thereafter, if the relevant plaintiff elected to reinvest dividends in their
Alternative Investments.
143. 	Defendants argue that 	the wrongful conduct alleged—recommending and
selling the Alternative Investments—ceased by 2016 at the latest, based on the
allegations in the Second Amended Complaint. (Br. Supp. 5 (citing SAC ¶ 189).)
144. 	The Second Amended Complaint states that the Leshocks reinvested
monthly dividends in recommended investments, (SAC ¶ 340), but the Ostranders
took cash dividends, (SAC ¶ 373). Plaintiffs further allege that Defendants last gave
investment advice or recommendations to the Leshocks in 2016, (SAC ¶ 336), and to
the Ostranders on 2 August 2017 at the latest, (SAC ¶ 374). Notwithstanding these
allegations, 	Plaintiffs 	argue 	that the 	continuing wrong 	doctrine 	protects 	their
negligence claim from dismissal.

145. 	“Our Supreme Court has recognized the continuing wrong doctrine as an
exception to the general rule that a claim accrues when the right to maintain a suit
arises.” Babb v. Graham, 190 N.C. App. 463, 482 (2008) (citing Williams v. Blue Cross
Blue Shield of N.C., 357 N.C. 170, 178–79 (2003)). 	Under the continuing wrong
doctrine, the statute of limitations does not begin to run until the unlawful act ceases.
Soft Line, S.p.A. v. Italian Homes, LLC, 2015 NCBC LEXIS 6, at **13 (N.C. Super.
Ct. Jan. 16, 2015) (citing Marzec v. Nye, 203 N.C. App. 88, 94 (2010)).
146. 	However, the continuing wrong doctrine is not easily invoked. Id. For the
doctrine to apply, Plaintiffs—who raised this exception—must show that Defendants
“continuously committed unlawful acts, not merely that there were continual ill
effects from an original unlawful act.” Id. (citing Marzec, 203 N.C. App. at 94).
147. 	Plaintiffs argue that Defendants’ reinvestment of dividends serves as the
continuing wrong. 	(Br. Opp. 26.) 	However, the Ostranders took cash dividends.
Thus, the last act by Defendants potentially giving rise to the Ostranders’ negligence
claim occurred on 2 August 2017 when Mr. Sunstrom assured the Ostranders to “stay
the course with Alternative Investments.” 	(SAC ¶ 375.) 	Three years following
2 August 2017 	was 	2 	August 	2020—nearly 	six 	months 	before 	this 	action 	was
initiated.
148. 	Therefore, the Court GRANTS in part the Motion as to the Ostranders’
claim for relief under Count Six and that claim is hereby DISMISSED with
prejudice.

149. 	The Leshocks, however, allege that they reinvested dividends through at
least 2020. 	(SAC ¶ 340.) 	Reading the allegations in the light most favorable to
Plaintiffs, the Court determines that the Leshocks’ negligence claim under Count Six
is not time-barred. 	See Piles, 187 N.C. App. at 405 (where there are allegations in
the complaint sufficient to support an inference that the limitations period has not
expired, it is error to find that claims are time-barred). Therefore, the Court DENIES
in part the Motion as to the Leshocks’ claim for relief alleged under Count Six.4
ii. 	Count Three: Violations of the NCSA
150. 	The Leshocks, the Ostranders, and the Wilshires each allege violations of
the NCSA under Count Three.
151. 	While claims for violations of the NCSA are subject to a three-year statute
of limitations,
[g]enerally, the suit must be initiated within five years following the sale
or the rendering of the investment advice regardless of when the
plaintiff discovered the violation. 	However, where the plaintiff alleges
that the defendant acted fraudulently or deceitfully in concealing a
violation of the NCSA . . . , a discovery rule applies, and the five-year
limitation does not necessarily bar the plaintiff’s ability to bring the
claim.
Aldridge, 2019 NCBC LEXIS 116, at *55.
152. 	Defendants contend that all sales of securities occurred no later than 2015.
(Br. Supp. 6.) 	Thus, they argue that Count Three is barred since this action was
initiated more than five years later. (Br. Supp. 6.)
4 This determination is without prejudice to application of the statute of limitations with
respect to this claim at a later stage of the litigation on a more developed record.

153. 	However, the Leshocks, the Ostranders, and the Wilshires allege that
Defendants actively concealed their violations of the NCSA, including through their
untrue statements and omissions regarding the Alternative Investments. 	(Br.
Opp. 27–28; SAC ¶¶ 472, 474.) 	Therefore, at this time, the Court cannot conclude
from the face of the Second Amended Complaint that Plaintiffs’ NCSA claims are
time-barred.
154. 	Therefore, the Court DENIES in part the Motion as to the Leshocks, the
Ostranders, and the Wilshires’ claim under Count Three.5
iii. 	Counts One, Five, and Seven
155. 	Defendants seek dismissal of Counts One, Five, and Seven, arguing that
even with the benefit of the discovery rule, Plaintiffs’ claims are untimely. (Br. Supp.
7.)
156. 	Claims for breach of fiduciary duty, fraud, and negligent misrepresentation
are each subject to a three-year statute of limitations that begins to run when the
claimant knew, or by exercising due diligence should have known, of the facts
constituting the basis for the claim. 	Lau, 2019 NCBC LEXIS 71, at *22 (breach of
fiduciary duty); Forbis v. Neal, 361 N.C. 519, 524–25 (2007) (fraud); Guyton, 199 N.C.
App. at 35 (quoting Barger v. McCoy Hillard & Parks, 346 N.C. 650, 666 (1997)) (“A
claim for negligent misrepresentation does not accrue until two events occur: first,
the claimant suffers harm because of the misrepresentation, and second, the claimant
discovers the misrepresentation.” (cleaned up)).
5 This determination is without prejudice to application of the statute of limitations with
respect to this claim at a later stage of the litigation on a more developed record.

157. 	Under the discovery rule, the limitations period begins to run when a
plaintiff “first becomes aware of facts and circumstances that would enable him to
discover the defendant’s wrongdoing in the exercise of due diligence.” Doe v. Roman
Catholic Diocese, 242 N.C. App. 538, 543 (2015) (citing Toomer v. Branch Banking &
Tr. Co., 171 N.C. App. 58, 66 (2005)). 	Even where there is a special relationship
between plaintiffs and defendants, this duty of inquiry begins “when an event occurs
to ‘excite [the aggrieved party’s] suspicion or put her on such inquiry as should have
led, in the exercise of due diligence, to a discovery of the [claim].’ ” Forbis, 361 N.C.
at 525 (quoting Vail v. Vail, 233 N.C. 109, 117 (1951) (modifications in original)).
158. 	In this case, the allegations do not admit facts that would properly permit
the Court to determine as a matter of law that the claims are time-barred.
159. 	The Leshocks and the Ostranders’ claims at Counts One, Five, and Seven
are based on allegations that Defendants: (1) recommended unsuitable Alternative
Investments and fixed-index annuities; (2) concealed and misrepresented conflicts of
interest that impacted their recommendations; and (3) concealed and misrepresented
the 	material 	terms 	of 	the 	Alternative 	Investments 	and 	fixed-index 	annuities,
including fees, liquidity, and income generation. (SAC ¶¶ 455–57, 490–94, 510.) The
Wilshires join only in Counts Five and Seven on the same bases. (SAC ¶¶ 489, 508.)
160. 	Defendants contend that no later than 2017, Plaintiffs were armed with
sufficient information to discover, with due diligence, the misrepresentations at issue.
(Br. Supp. 8.) Defendants direct the Court’s attention to their April 2016 disclosure

of the NASD rule change as the inquiry-triggering event. 	(Br. Supp. 8 (citing
SAC ¶¶ 336, 421); see also SAC ¶ 374.)
161. 	However, the Ostranders allege that they did inquire and in turn received
a false response because Mr. Sunstrom continued to recommend that they “stay the
course” with their Alternative Investments. 	(SAC ¶ 375.) 	The Wilshires also
inquired further, alleging that when they observed the decline, Mr. Sunstrom
reassured them that their investments would recover. (SAC ¶ 421.) Plaintiffs argue
that the “April 2016 email continued Defendants’ pattern and practice of concealing
the material risks, liquidity restrictions, and embedded fees in the Alternative
Investments.” (Br. Opp. 24 (citation omitted).)
162. 	Reading the allegations in the light most favorable to Plaintiffs, the Court
determines that Plaintiffs have sufficiently met their burden of demonstrating, at
this preliminary stage, that these claims were filed within the applicable limitations
period. 	(Br. Opp. 23–24 (citing SAC ¶¶ 336–37, 380–81).) 	To determine otherwise
would 	require 	the 	Court 	to 	perform 	a 	more 	fact-intensive 	inquiry 	that 	is
inappropriate at this stage. See Beam v. Sunset Fin. Servs., 2019 NCBC LEXIS 56,
at **35 (N.C. Super. Ct. Sept. 3, 2019) (“Whether Plaintiffs need to prove that [they]
could not have discovered Defendant’s actionable conduct earlier is a question for a
different day, and presumably one for the factfinder or for the Court on a more
developed record.”).

163. 	Therefore, the Court DENIES in part the Motion to the extent it seeks
dismissal of Counts One, Five, and Seven on the basis that the claims are time-
barred.6
4. 	Count 4: Violations of the UDTPA
164. 	The Wilshires allege violations of the UDTPA in Count Four. Defendants
seek dismissal of that claim, arguing that it was not timely filed. (See Br. Supp. 7.)
165. 	Violations of the UDTPA have a four-year statute of limitations measured
from when a plaintiff should have discovered the misconduct giving rise to a claim.
N.C.G.S. § 75-16.2; Nash v. Motorola Commc’ns & Elec., 96 N.C. App. 329, 331–32
(1989).
166. 	Count 	Four 	is 	premised 	on 	Defendants’ 	alleged 	misrepresentations
regarding the terms of the fixed-index annuities they sold to some Plaintiffs.
(SAC ¶¶ 482–84.) 	Because the claim appears to be premised on Plaintiffs’ fraud
claim, and the Court has already determined that claim is not ripe for dismissal based
on the statute of limitations defense, Count Four is similarly not ripe for dismissal,
at least based on timeliness. See Nash, 96 N.C. App. at 331–32.
167. 	Therefore, the Court DENIES in part the Motion to the extent it seeks
dismissal of Count Four on the basis that the claim is untimely.7
6 This determination is without prejudice to the raising of the defense at a later stage on a
more developed record.
7 This determination is without prejudice to the raising of the defense at a later stage on a
more developed record.

B. 	Claims Which Require Rule 9(b) Particularity
168. 	Rule 9 requires that claims for fraud and negligent misrepresentation be
pleaded with particularity. 	N.C.G.S. § 1A-1, Rule 9(b); Value Health Sols. Inc. v.
Pharm. Research Assocs., 385 N.C. 250, 265–66 (2023). 	“A pleader meets the
requirements of [Rule 9] when its fraud claim alleges the ‘time, place, and content of
the fraudulent representation, identity of the person making the representation, and
what was obtained as a result of the fraudulent acts or representations.’ ” Lawrence
v. UMLIC-Five Corp., 2007 NCBC LEXIS 20, at **6 (N.C. Super. Ct. June 18, 2007)
(citing Bob Timberlake Collection, Inc. v. Edwards, 176 N.C. App. 33, 39 (2006)).
“Mere generalities and conclusory allegations of fraud will not suffice.” 	Sharp v.
Teague, 113 N.C. App. 589, 597 (1994).
1. 	Count Five: Fraud
169. 	Plaintiffs 	must 	allege 	the 	five 	essential 	elements 	of 	a 	fraud 	claim:
“(1) [f]alse representation or concealment of a material fact, (2) reasonably calculated
to deceive, (3) made with intent to deceive, (4) which does in fact deceive, [and]
(5) resulting in damage to the injured party.” 	Ragsdale v. Kennedy, 286 N.C. 130,
138 (1974) (citing Pritchard v. Dailey, 168 N.C. 330, 332 (1915)). 	In addition,
Plaintiffs’ reliance on the fraudulent misrepresentation “must be reasonable.” Forbis,
361 N.C. at 527 (citing Johnson v. Owens, 263 N.C. 754, 757 (1965)). Reliance is not
reasonable if a plaintiff exercising reasonable diligence fails to make any independent
investigation as to the truth of the assertion. Calloway v. Wyatt, 246 N.C. 129, 134–
35 (1957).

170. 	The Leshocks and the Ostranders each allege claims for relief under Count
Five against the Hobart Entities, Mr. Hobart, and Mr. Greer. (SAC ¶¶ 489.b.–c.) The
Wilshires allege a claim for relief under Count Five against the Hobart Entities,
Mr. Hobart, and Mr. Sunstrom. (SAC ¶ 489.e.)
i. 	The Leshocks
171. 	The Leshocks allege two false representations in detail: (1) that “[i]n
meetings at the Hobart Headquarters in April 2014, Mr. Hobart represented the
Alternative Investments were safe and secure investments, like the walls of [a]
house[,]” (SAC ¶ 331); and (2) that
Mr. Greer completed a “suitability checklist,” prior to the sale of
Alternative Investments to the Leshocks. 	The document lists the
“surrender periods and percentages” of redemption allowed for each of
five Alternative Investments. In the document, Hobart represented the
Alternative Investments had “limited liquidity,” but only because there
was to be “no redemption in year 1” for each of the Alternative
Investments. 	Hobart misrepresented in writing that, at the end of the
first year, each Alternative Investment was fully redeemable at a price
equal to or greater than 90% “of share value,” with some of the
Alternative Investments, such as Griffin Capital Essential Asset REIT,
to be redeemable at 92.5% of net asset value (“NAV”) after year 1, 95%
after year 2, 97.5% after year 3, and 100% after year 4[,]
(SAC ¶ 332). However, neither statement is pleaded with sufficient particularity.
172. 	While the first statement contains the approximate time, place, content of
the representation, and identity of the person making the representation, the
Leshocks 	do 	not 	allege 	what 	was 	obtained 	as 	a 	result 	of 	the 	fraudulent
representation. Even if the Court were to presume or infer that Defendants obtained
the Leshocks’ investment, there is also no allegation that the Leshocks exercised

reasonable 	diligence 	to 	independently 	investigate 	the 	truth 	of 	this 	assertion.
Therefore, the allegation does not meet Rule 9(b)’s specificity requirements.
173. 	As for the second statement, Plaintiffs fail to provide the time and place of
the alleged representation, stating only that it occurred “prior to the sale of
Alternative Investments to the Leshocks.” (SAC ¶ 332.) In addition, once again there
is no allegation of reasonable diligence on the part of the Leshocks to investigate the
truth of the representations by Mr. Greer and Mr. Hobart. Rule 9(b) is not satisfied.
See Martin Communs., LLC v. Flowers, 2021 NCBC LEXIS 30, at **17 (N.C. Super.
Ct. Mar. 31, 2021) (the Second Amended Complaint is “devoid of any allegations that
Plaintiff[s] even attempted to investigate the veracity of Defendants’ statements”).
174. 	Therefore, the Court GRANTS in part the Motion, and Count Five as to the
Leshocks is hereby DISMISSED with prejudice.
ii. 	The Ostranders
175. 	The 	Ostranders 	allege 	several 	representations 	that 	satisfy 	Rule 9(b),
including the following:
In 	a 	pre-investment 	meeting 	on 	around 	February 	6, 	2013, 	the
Ostranders expressly asked Mr. Hobart whether fees paid to the Hobart
Financial Advisory Team were “disclosed or embedded.” 	Mr. Hobart
falsely responded that all fees were disclosed, including as related to
Alternative Investments, specifically. While Mr. Hobart disclosed that
one fixed-index annuity carried a 0.95% fee, he falsely claimed there was
“no fee received by Hobart” for the sale of the fixed-index annuity.
(SAC ¶ 350.) 	The Ostranders’ allegations regarding Ms. Ostrander’s interactions
with Mr. Hobart and Mr. Greer in April 2013, (see SAC ¶¶ 355–59; SAC Ex. 4), as

well as the couple’s April 2016 communications with Mr. Sunstrom, (SAC ¶ 374),
meet the heightened pleading requirements of Rule 9.
176. 	But Defendants argue that the Ostranders’ reliance on these statements
was unreasonable. (Br. Supp. 25.) Defendants contend that “Ms. Ostrander clearly
read and understood the prospectus and its plain language terms regarding the
disputed ‘sales load,’ and therefore her reliance on Mr. Greer was unreasonable as a
matter of law.” (Br. Supp. 25 (internal citations omitted).)
177. 	In response, Plaintiffs argue that “Mr. Greer and Mr. Hobart expressly
misrepresented the ‘sales load’ and excessive commissions they received,” contending
that it would be improper to charge the Ostranders with knowledge of the discrete
meaning of terms in a prospectus, particularly when Ms. Ostrander questioned the
meaning and was met with materially false responses. 	(Br. Opp. 20–21; see also
SAC ¶ 366 (Defendants “effectively convinced Ms. Ostrander that her eyes had not
seen what she thought they had seen in the prospectus document” (emphasis in
original)).)
178. 	Unlike the Leshocks, Ms. Ostrander alleges that she read the prospectus
for one of the Alternative Investments and asked questions about the fees described.
(SAC ¶ 355.) 	Mr. Greer’s response indicated that fees would not come out of her
“pocket or earnings” and she would not pay the fees described in the prospectus for
the investment. (SAC ¶¶ 356–57.)
179. 	Upon a careful review of the Second Amended Complaint, there are
sufficient allegations that the Ostranders made a reasonable inquiry into Defendants’

representations. 	The pair allege that they attempted to investigate the veracity of
Defendants’ statements but were met with inaccurate responses. 	These allegations
are sufficient to pass the Rule 12(b)(6) stage. The reasonableness of their reliance on
Defendants’ misrepresentations is best determined later in the litigation. See Collier
v. Bryant, 216 N.C. App. 419, 435 (2011).
180. 	Therefore, the Court DENIES in part the Motion to the extent it seeks
dismissal of the Ostranders’ claim under Count Five.
iii. 	The Wilshires
181. 	The 	Wilshires 	allege 	one 	false 	representation 	by 	Defendants 	which
attempts the specificity required by Rule 9(b):
Mr. Hobart misrepresented Hobart’s commissions, otherwise hidden in
the 	fixed-index 	annuities 	and 	Alternative 	Investments, 	by
misrepresenting to the Wilshires that the full amount of the purchase
price (for the fixed-index annuity and the Alternative Investments,
respectively) would be invested on their behalf, without accounting for
any sales load.
(SAC ¶ 419.)
182. 	While this allegation contains the content of the representation and the
identity of the person making the representation, Plaintiffs do not allege the
approximate time and place of the representation or what was obtained as a result of
it. Even if the Court were to presume or infer that Defendants obtained a commission
and fees, there is no allegation of reasonable diligence on the part of the Wilshires to
independently investigate the truth of the assertion. 	Therefore, the allegation fails
to state a claim for fraud.

183. 	Accordingly, the Court GRANTS in part the Motion and Count Five as to
the Wilshires is hereby DISMISSED with prejudice.
2. 	Count Seven: Negligent Misrepresentation
184. 	“It has long been held in North Carolina that ‘[t]he tort of negligent
misrepresentation occurs when (1) a party justifiably relies (2) to his detriment (3) on
information prepared without reasonable care (4) by one who owed the relying party
a duty of care.’ ” Simms v. Prudential Life Ins. Co. of Am., 140 N.C. App. 529, 532
(2000) (quoting Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200,
206 	(1988)). 	The 	question 	of 	justifiable 	reliance 	in 	an 	action 	for 	negligent
misrepresentation is “analogous to that of reasonable reliance in fraud actions[.]” See
Marcus Bros. Textiles, Inc. v. Price Waterhouse, LLP, 350 N.C. 214, 224 (1999).
185. 	Count Seven is based on Defendants’ alleged breach of the duty of care “in
preparing information for Plaintiffs regarding the Alternative Investments and fixed-
index annuities.” 	(SAC ¶¶ 509–10.) 	Based on this allegation alone, the Court is
unable to determine what information Defendants prepared that Plaintiffs take issue
with.
186. 	Both the Leshocks and the Wilshires’ claims for fraud under Count Five
failed, in part, because neither couple alleged reasonable reliance. Therefore, to the
extent 	Plaintiffs 	attempt 	a 	claim 	for 	negligent 	misrepresentation 	based 	on 	a
statement or statements negligently made, their claims similarly fail. Therefore, the
Court GRANTS in part the Motion and DISMISSES with prejudice Count Seven as
to the Leshocks and the Wilshires.

187. 	As to the Ostranders, their negligent misrepresentation claim sufficiently
alleges the misrepresentation of material facts about the investments. 	However,
Plaintiffs do not allege with Rule 9(b) specificity the information that was deficiently
prepared or that they undertook an inquiry into the veracity of the information. As
a result, the Motion is GRANTED in part as to the Ostranders and this claim is
DISMISSED with prejudice.
C. 	Sufficiency of the Allegations for the Remaining Claims
188. 	Having dealt with the statute of limitations issues and whether certain
claims meet the heightened specificity required by Rule 9, the Court now turns to
whether Plaintiffs’ remaining claims sufficiently state a claim.
1. 	Counts 	One 	and 	Two: 	Breach 	of 	Fiduciary 	Duty 	and
Constructive Fraud
189. 	Defendants seek dismissal of Plaintiffs’ breach of fiduciary duty claim
arguing, in relevant part, that no fiduciary relationship existed between any Plaintiff
and one or more of the Defendants. (Br. Supp. 10–12.)
190. 	“A claim for breach of fiduciary duty requires the existence of a fiduciary
relationship.” White v. Consol. Planning, Inc., 166 N.C. App. 283, 293 (2004). “The
relation . . . extends to any possible case in which a fiduciary relation exists in fact,
and in which there is confidence reposed on one side, and resulting domination and
influence on the other.” 	Id. at 293 (quoting Abbitt v. Gregory, 201 N.C. 577, 598
(1931)). “A fiduciary relationship can be created either by law (de jure), or in fact (de
facto).” 	Beam, 2019 NCBC LEXIS 56, at **8–9. 	Defendants contend that we have
neither here.

i. 	Existence of a Fiduciary Duty
191. 	Defendants’ counsel argues that Defendants were brokers, not RIAs, for the
investments at issue. (Br. Supp. 10.) Defendants further argue that no de jure duty
is available to Plaintiffs under North Carolina law. 	(Br. Supp. 10.) 	In response,
Plaintiffs argue only that Defendants “provided individualized investment advice to
Plaintiffs” at all times, directing the Court to White v. Consol. Planning, Inc., 166
N.C. App. 283 (2004), and a case that supports federal RIAs being a fiduciary to their
clients, Transamerica-Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11, 17 (1979); (Br.
Opp. 4).
192. 	In Hart v. First Oak Wealth Mgmt., LLC, this Court explicitly recognized
that “an investment adviser ‘is a fiduciary and has a duty to act primarily for the
benefit of its clients.’ ”8 2022 NCBC LEXIS 81, at **29 (N.C. Super. Ct. July 28, 2022)
(quoting 18 N.C. Admin. Code 06A.1801(a) (2022)). 	There, plaintiff alleged that
defendants were registered investment advisors and the Court concluded that,
pursuant to 18 N.C. Admin. Code 06A.1801(a), defendants owed plaintiff a fiduciary
duty as a matter of law. 	Id. at **30–31 (citing SEC v. Capital Gains Rsch. Bureau,
Inc., 375 U.S. 180, 201 (1963)). This Court has similarly recognized that “status as a
federally registered investment advisor . . . would create a fiduciary duty as a matter
of law.” 	Charlotte-Mecklenburg Hosp. Auth. v. Wachovia Bank, 2010 NCBC LEXIS
50, at *6 (N.C. Super. Ct. July 26, 2010).
8 While miniscule in the Court’s overall consideration of the Motion, there appears to be
inconsistent spelling of “advisor” and “adviser” in our State’s caselaw. Notwithstanding that
fact, there does not appear to be a material difference between the two words as used in our
caselaw, and rather that the spellings may be used interchangeably.

193. 	Plaintiffs allege that Mr. Hobart, Mr. Greer, and Mr. Sunstrom were RIAs
with the State of North Carolina. 	(SAC ¶¶ 17–19.) 	Further, Mr. Hobart and
Mr. Greer were RIAs with the SEC. 	(SAC ¶¶ 17–18.) 	Plaintiffs also alleged that
Mr. Hobart, Mr. Greer, and Mr. Sunstrom’s wrongful acts complained of were at all
times performed in furtherance of the business of the Hobart Entities. (SAC ¶ 20.)
194. 	Therefore, 	Plaintiffs 	have 	sufficiently 	alleged 	that 	Defendants 	are
fiduciaries de jure. See Hart, 2022 NCBC LEXIS 81, at **31 n.3 (“Both the individual
adviser and the firm with which the adviser works may be registered investment
advisers and, as a result, concurrently owe fiduciary duties to clients.”) (citing SEC
v. Bolla, 401 F. Supp. 2d 43, 61 (D.D.C. 2005)).
195. 	Furthermore, and regardless of whether a de jure fiduciary duty exists
under the allegations in the Second Amended Complaint, Plaintiffs allege sufficient
facts to support an allegation that a de facto fiduciary relationship existed between
them and Defendants.
196. 	“The standard for finding a de facto fiduciary relationship is a demanding
one: Only when one party figuratively holds all the cards—all the financial power or
technical information, for example—have North Carolina courts found that the
special circumstance of a fiduciary relationship has arisen.” 	Lockerman v. S. River
Elec. Mbrshp. Corp., 250 N.C. App. 631, 636 (2016) (cleaned up) (quoting S.N.R.
Mgmt. Corp. v. Danube Partners 141, LLC, 189 N.C. App. 601, 613 (2008)).
197. 	In Aldridge v. Metro. Life Ins. Co., the Court declined to infer the existence
of a de facto fiduciary duty where plaintiffs failed to allege sufficient control—i.e.,

that defendants figuratively held all the cards. 	2019 NCBC LEXIS 116, at *69–71.
In making that determination, the Court considered whether plaintiffs pleaded:
(1) lack 	of 	financial 	sophistication 	or 	another 	vulnerability; 	(2) 	any 	sort 	of
“domination” by Defendants over Plaintiffs; or (3) that Defendants held all of
Plaintiffs’ “ ‘technical information’ such that they had to rely exclusively on their
investment advisors’ advice and actions.” 	Id. at *70. 	The pleadings there lacked
allegations of each characteristic, ultimately resulting in the Court determining that
no de facto fiduciary duty existed. Id. at *70–71.
198. 	Here, 	Plaintiffs 	allege 	that 	they 	lacked 	financial 	sophistication, 	(Br.
Opp. 9), and that they were “vulnerable seniors,” (SAC ¶ 89). 	Plaintiffs also allege
that Defendants required them “to sign voluminous paperwork to effectuate the sale
of the Alternative Investments, without providing copies of the signed documents to
any of Plaintiffs[,]” (SAC ¶ 154), and none of them “actually received a prospectus
document from [Defendants], except for the Ostranders[,]” (SAC ¶ 155). 	While the
allegations do not demonstrate that Defendants withheld all financial information,
which would result in Plaintiffs’ being forced to rely exclusively on Defendants for
advice and action, the allegations do appear to state that Defendants withheld at
least some crucially important financial documents.
199. 	The 	allegations 	go 	on: 	the 	Hobart 	Financial 	website 	provided 	that
Defendants were “legally obligated, as an RIA, to act in the very best interest of our
clients,” (SAC ¶ 72 (emphasis removed)); Defendants orally represented to at least
some Plaintiffs that they “paid more for professional licenses and professional

liability insurance than other financial advisors, due to the increased obligations
assumed by [Defendants] as a fiduciary[,]” (SAC ¶ 76.d.); and none of the Plaintiffs
would have invested with Defendants if they had truthfully disclosed that the firm
was only acting as a “financial salesperson” with no obligation to act in their clients’
best interest, (SAC ¶ 77). 	Similar allegations of Defendants’ representations and
conduct is littered throughout the Second Amended Complaint, demonstrating how
pervasive their practice of holding themselves out as a fiduciary was to their business.
200. 	Plaintiffs are, under the relevant allegations of the Second Amended
Complaint, properly considered unsophisticated investors who were operating with
less than complete information and relied on Defendants’ reputation as a safe, secure
investment company that always represented it was acting in Plaintiffs’ best interest
and without conflicts of interest. See Edwards v. Vanguard Fiduciary Tr. Co., 2018
NCBC LEXIS 237, at *20–21 (N.C. Super. Ct. Dec. 21, 2018).
201. 	Reviewing the allegations in the light most favorable to Plaintiffs, it
appears to the Court that Plaintiffs’ allegations are sufficient at the Rule 12(b)(6)
stage to plead the existence of a de facto fiduciary relationship.
ii. 	Breach of the Fiduciary Duty
202. 	Moreover, the Leshocks and the Ostranders each allege that the Hobart
Entities, 	Mr. Hobart, and Mr. 	Greer breached fiduciary 	duties 	owed to 	them.
Defendants respond that Plaintiffs fail to allege facts amounting to an actionable
breach. (Br. Supp. 13–14.)

203. 	Plaintiffs allege that Defendants breached their duty by: (1) recommending
unsuitable investments to Plaintiffs, as they were retirees or near-retirees who were
poorly suited to illiquid, volatile investments with hidden fees and commissions; and
(2) concealing and misrepresenting conflicts of interests in their recommendations
and the material terms of the Alternative Investments and fixed-index annuities.
(SAC ¶¶ 455–57.)
204. 	The Court concludes that the Leshocks and Ostranders’ allegations of
breach are sufficient at this stage. Accordingly, the Court DENIES the Motion to the
extent it seeks dismissal of Count One as to the Leshocks and the Ostranders.
iii. 	Count Two: Constructive Fraud
205. 	All Plaintiffs join in alleging a claim for relief under Count Two.
206. 	“The primary difference between pleading a claim for constructive fraud
and one for breach of fiduciary duty is the constructive fraud requirement that the
defendant benefit himself [through the breach.]” 	White, 166 N.C. App. at 294. 	The
receipt of the improper benefit must be alleged for each defendant individually. See
Trail Creek Invs. LLC v. Warren Oil Holding Co., LLC, 2023 NCBC LEXIS 70,
at **30–32 (N.C. Super. Ct. May 9, 2023); White, 166 N.C. App. at 294.
207. 	“The benefit sought by the defendant must be more than a continued
relationship with the plaintiff.” 	Sterner v. Penn, 159 N.C. App. 626, 631 (2003)
(cleaned up) (citing Barger, 346 N.C. at 667). 	Further, “payment of a fee to a
defendant for work done by that defendant does not by itself constitute sufficient

evidence 	that 	the 	defendant 	sought 	his 	own 	advantage 	in 	the 	transaction.”
NationsBank v. Parker, 140 N.C. App. 106, 114 (2000) (emphasis added).
208. 	The 	Court 	has 	determined 	that 	Plaintiffs 	sufficiently 	alleged 	that
Defendants owed them a fiduciary duty and that Plaintiffs have adequately alleged
breaches of that duty. 	Thus, the remaining question for the Court is whether
Plaintiffs have adequately alleged that Defendants also sought to benefit themselves
through the purported breach of that duty.
209. 	The answer is yes. 	The Second Amended Complaint is replete with
allegations that the fees and commissions associated with the investment products
recommended to Plaintiffs were excessive and undisclosed—the benefit Defendants
allegedly sought through their breach. (See SAC ¶ 464.)
210. 	Defendants 	characterize 	Plaintiffs’ 	argument 	as 	boiling 	down 	“to 	an
allegation that the commission on the investments sold to them was higher than
Plaintiffs think it should have been, not that Defendants manufactured a way to take
a commission greater than what the investment provided.” (Defs.’ Reply Br. 11, ECF
No. 77 [“Reply”].) Defendants misunderstand Plaintiffs’ allegations.
211. 	While Plaintiffs do contend that the fees associated with the investments
were “excessive,” they also allege that they did not know there were commissions
associated with the investments because Defendants either failed to disclose that
information, or they actively misrepresented that there would be no fees associated
with the investments. 	(See SAC ¶¶ 258, 264, 317, 349, 355, 366, 400–02.) 	These
allegations distinguish this case from the line of cases relied on by Defendants

holding that receipt of fees for work done is insufficient. 	(Reply 11 (citations
omitted).)
212. 	Plaintiffs allege more than mere payment of a fee to Defendants for work
done. 	They allege that, in addition to Defendants’ typical fee, Defendants received
other fees and commissions that Plaintiffs were told either would not come from the
funds intended for investing or would not be incurred at all. 	There is an important
difference between (1) receiving all financial documents and being able to review that
information for fees and commissions assessed, and (2) being told that there are no
commissions and fees being deducted from your investment. 	The latter is what
Plaintiffs allege happened to them.
213. 	Defendants unsuccessfully attempt to align the allegations in this case with
the allegations in the Court of Appeals’ decision in Sterner v. Penn. There, the Court
held that an allegation that plaintiff’s money “was traded through defendants and
that defendants financially benefitted via commissions on sales transactions.” 	159
N.C. App. at 632. 	The Court determined there that this was insufficient “to show
that defendants sought to benefit themselves by taking unfair advantage of plaintiff.”
Id.; Cf. Long Bros. of Summerfield, Inc. v. Hilco Transp., Inc., 268 N.C. App. 377, 385
(2019) (determining 	that 	where 	a 	crucial 	financial 	document 	was 	omitted, 	a
constructive fraud claim could arise out of defendant preventing plaintiff’s access to
that information prior to the transaction which resulted in a benefit to defendant).
Sterner is easily distinguishable from the facts alleged here.

214. 	Plaintiffs allege that the fees received by Defendants were manipulated in
the form of oral and email misrepresentations. 	Plaintiffs were thus prevented from
accessing crucial information about the investment transactions prior to investing.
At this stage, the Court must accept the allegations as true and make all reasonable
inferences in favor of Plaintiffs. 	While the receipt of commissions or a standard fee
alone would typically be insufficient to support a constructive fraud claim, allegations
that 	Defendants 	received 	undisclosed 	or 	actively 	misrepresented 	fees 	and
commissions are sufficient for the claim to survive at this stage.
215. 	Therefore, the Court DENIES the Motion to the extent it seeks dismissal
of Count Two.
2. 	Count Three: Violations of the NCSA
216. 	The Leshocks, the Ostranders, and the Wilshires each allege violations of
the NCSA in Count Three.
217. 	When claims under the NCSA are based on allegations of fraud in the sale
of investments, the allegations must be pleaded with particularity. 	Bucci v. Burns,
2017 NCBC LEXIS 83, at *11 (N.C. Super. Ct. Sept. 14, 2017). 	Where claims for
fraud and negligent misrepresentation have been dismissed and the conduct with
respect to alleged violation of the NCSA is the same, the NCSA claims are likely
similarly deficient. Id.
218. 	Such is the case here. Defendants argue that “Plaintiffs’ claim for violations
of the NCSA is predicated on the same behavior as Plaintiffs’ fraud claim—that
Defendants made fraudulent misrepresentations or omissions in connection with the

sale of Fraud Plaintiffs’ investments—and likewise fails to satisfy the heightened
pleading requirements of Rule 9(b).” (Mot. 6; see also Br. Supp. 27.)
219. 	The Court determines that Defendants’ argument is well-grounded as it
relates to the Leshocks and Wilshires’ claims. For the same reasons that their fraud
and negligent misrepresentation claims fail for lack of specificity, their NCSA claim
similarly fails.
220. 	The Ostranders’ fraud claim, however, survives dismissal, and Defendants
have not raised arguments regarding why the Ostranders’ claim under the NCSA
should be treated differently. (Br. Supp. 27; Reply 14–15.)
221. 	Therefore, the Court DENIES in part the Motion as to the Ostranders’
claim under Count Three, but GRANTS in part the Motion as to the Leshocks and
the Wilshires’ claims. 	The Leshocks and the Wilshires’ claims under Count Three
are hereby DISMISSED with prejudice.
3. 	Count Four: Violations of the UDTPA
222. 	Only the Wilshires have a claim remaining under Count Four.
223. 	Defendants argue that, “[b]ecause the UDTPA claim is based on purported
fraudulent misrepresentations, it also must satisfy the heightened pleading standard
of Rule 9(b).” (Br. Supp. 27.) The Court agrees that the Wilshires’ claim for violations
of the UDTPA is derivative of the fraud claim. 	See Silverdeer, LLC v. Berton, 2013
NCBC LEXIS 21, at **28–29 (N.C. Super. Ct. Apr. 24, 2013).
224. 	Given that the Wilshires’ claim for fraud was dismissed herein, and that
their claim for violations of the UDTPA concerns the same behavior, the Court

likewise GRANTS in part the Motion and DISMISSES the Wilshires’ claim with
prejudice.
4. 	Count Six: Professional Negligence
225. 	Only the Leshocks have a remaining claim under Count Six. 	Defendants
make no arguments regarding dismissal of this claim, other than the statute of
limitations defense already addressed herein. (See Br. Supp. 4; but see Br. Opp. 29.)
The Court has previously determined that the Leshocks’ negligence claim survives
Defendants’ statute of limitations defense at this stage. (Supra ¶ 148.) Therefore, to
the extent the Motion requests dismissal of this claim as it remains, the Motion is
DENIED.
VI. 	CONCLUSION
226. 	THEREFORE, for the foregoing reasons, the Court hereby GRANTS in
part and DENIES in part the Motion as follows:
a. 	The Motion is DENIED in part as to: the Leshocks and Ostranders’
claims for breach of fiduciary duty under Count One; all Plaintiffs’ claims
for constructive fraud under Count Two, except as to Ms. Byrnes; the
Ostranders’ claims for violations of the NCSA under Count Three and fraud
under Count Five; and the Leshocks’ claim for negligence under Count Six.
b. 	Except as expressly denied, the Motion is otherwise GRANTED as
set forth more fully above, and those claims are hereby DISMISSED with
prejudice.

227. 	The 	Case 	Management 	Order, 	(ECF 	No. 	35 	[“CMO”]), 	sets 	various
deadlines for the parties to conduct discovery in this matter. The Court clarifies that
the “second phase” of discovery, lasting seven months, shall begin upon entry of this
order. 	(CMO 7.) 	Thus, the close of all discovery shall be 23 September 2024, and
thirty days thereafter the parties shall file any post-discovery dispositive motions.
(CMO 7, 12.)
IT IS SO ORDERED, this the 26th day of February, 2024.
/s/ Michael L. Robinson
Michael L. Robinson
Special Superior Court Judge
for Complex Business Cases