Khoury v. Thota ( 2021 )

Case: 20-20578 Document: 00516001014 Page: 1 Date Filed: 09/01/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
No. 20-20578 September 1, 2021
Lyle W. Cayce
Clerk
Medical Doctor Nabil T. Khoury,
Plaintiff—Appellant,
versus
Medical Doctor Archana Thota; Does 1 through 10,
inclusive; Roes 11 through 20, inclusive; Apollo
Healthcare at Willowbrook, L.L.C.; Willowbrook Med
Properties, L.L.C.,
Defendants—Appellees.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:19-CV-4806
Before Higginbotham, Willett, and Duncan, Circuit Judges.
Per Curiam:*
In this securities fraud case, Dr. Nabil Khoury appeals the dismissal
of his complaint under Rule 12(b)(6) and the Private Securities Litigation
Reform Act (PSLRA), 15 U.S.C. § 78u-4. He also appeals the district court’s
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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denial of leave to amend his complaint. We conclude that the district court
correctly determined that (1) Khoury failed to satisfy the requirements for
pleading securities fraud, and (2) Khoury’s request for leave to amend did
not demonstrate how he would cure the defects in his complaint.
Accordingly, we AFFIRM.
I
In September 2014, Dr. Nabil Khoury attended a presentation by Dr.
Arcana Thota. Thota sought investors for her “premier” nursing facility that
offered “resort-like” care for patients. Thota offered Khoury an opportunity
to invest in a nursing home, Apollo, and Willowbrook Med Properties
(Willowbrook). For each $10,000 he invested in Apollo, Khoury would
obtain a 1% share of Apollo. For each $34,000 he invested in Willowbrook,
Khoury would obtain a 1% share of Willowbrook. After Thota assured Khoury
that the investment was “low risk” and that “[Thota] had already opened
and operated multiple other successful nursing homes on a similar model,”
Khoury decided to invest. In October 2014, Khoury signed operating
agreements for each of the properties and gave Thota two payments: $50,000
for a 5% share of Apollo, and $68,000 for a 2% share of Willowbrook.
A few weeks after his initial investment, and upon Thota’s request,
Khoury signed a personal guaranty for Apollo’s bank loan. The following
year, in December 2016, Khoury and other investors signed a loan
modification agreement for Apollo with the bank. In January 2019, Thota
demanded that Khoury invest an additional $50,000 as part of a “cash call”
to pay taxes for Apollo. Thota informed Khoury that his failure to make the
additional investment would dilute his ownership interest in Apollo while
maintaining the same liability to the bank for his personal guaranty.
At this point, Khoury realized that something was amiss with his
investment. While he paid the $50,000 that Thota demanded, he later
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requested that she return that amount. Thota refused and stated that she had
raised $1,000,000 from Apollo’s investors as part of the cash call. Khoury
later learned that Thota had only raised $665,000 and decided to investigate
Thota and the investment properties. Through conversations with doctors,
administrators, and employees of Apollo, Khoury discovered that he had
invested in a property where patients lacked proper care, bills were often
unpaid, and Medicare regulations were flouted.
Khoury attempted to contact Thota and the bank that held his
personal guaranty. Thota “effectively disappeared” for months after the
cash call but resurfaced after Khoury continued to hound the bank to obtain
information about the guaranty. Khoury met with Thota in May 2019 to voice
his concerns and asked for a copy of the operating agreements and financial
records for the properties. Thota told Khoury to stop contacting the bank,
refused to provide Khoury with verification of his ownership in Apollo and
Willowbrook, and threatened to default on the loan if he called the bank again.
In December 2019, Khoury sued Thota, Apollo Healthcare at
Willowbrook, LLC, Willowbrook Med Properties, LLC, and various
unknown defendants (collectively “Defendants”). He alleged violations of
§ 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange
Commission Rule 10b-5, plus various state law claims. Khoury requested a
declaratory judgment that he has a 5% and 2% ownership interest in Apollo
and Willowbrook, respectively. He also sought damages and injunctive relief.
The Defendants moved to dismiss his securities fraud claims under
Rule 12(b)(6) for failure to state a claim and his state law claims for improper
pleading, untimeliness, or a lack of standing. The Defendants also sought to
dismiss his claim for declaratory judgment based on abstention.
Khoury’s securities fraud claims were based on four allegations of
false representations: (1) Thota’s representation at the investment
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presentation in September 2014 that the investment properties were “low
risk” and “premier” facilities; (2) Thota’s successful efforts in October 2014
to convince Khoury to sign a personal guaranty for the Apollo’s bank loan;
(3) Thota’s successful efforts in December 2016 to convince Khoury and
other investors to sign a loan modification agreement for the bank loan; and
(4) Thota’s January 2019 representation that the cash call had raised
$1,000,000 rather than $665,000. In addition, Khoury added an additional
allegation in his Opposition to the Motion to Dismiss: that in January 2015,
Thota failed to provide Khoury with the promised security.
The district court dismissed the 2014 allegations as barred by the five-
year statute of limitations. 28 U.S.C. § 1658(b)(2). The court dismissed the
2016 and 2019 allegations for failure to satisfy the pleading standard of
Rule 9(b) and the PSLRA. The court noted that the 2015 allegation was not
raised in the complaint and that it also failed to satisfy the pleading standard.
The court dismissed the declaratory judgment as unripe. Finally, the district
court dismissed the state law claims since it had disposed of the claims over
which it had original jurisdiction. All of these claims were dismissed without
prejudice. 1
In dismissing the securities fraud claims, the district court took
“judicial notice of a state court proceeding . . . against the defendants by other
purported investors in [Apollo and Willowbrook].” Khoury v. Thota, No.
4:19-CV-4806, 2020 WL 6494986, at *5 (S.D. Tex. Oct. 1, 2020) (footnote
omitted). The district court stated that “the state court proceeding may
reveal additional facts relevant to [Khoury’s] federal securities fraud
1
The district court dismissed with prejudice Khoury’s claims for exemplary
damages, attorney fees, and pre- and post-judgment interest, to the extent that he pleaded
them as independent causes of action rather than as remedies.
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claims,” so it was “in the interests of justice to dismiss these claims without
prejudice.” Id.Khoury appealed the dismissal of his securities fraud claims and
argued that the district court erred in not granting him leave to amend his
complaint because some of his allegations now risk being time-barred if he
were to refile as the district court permitted him to do.
II
Before considering an appeal’s merits, we must confirm that we have
jurisdiction. Casteneda v. Falcon, 166 F.3d 799, 801 (5th Cir. 1999). Even
where the parties have not raised a question of jurisdiction, we must raise it
sua sponte if there is doubt. Id. Here, the jurisdictional question is whether
the district court’s order was a final and appealable order. The district
court’s resolution of the case is arguably ambiguous. While the district court
dismissed all of Khoury’s claims, it did so without prejudice and without
entering a final judgment. Further, the district court noted that its dismissal
without prejudice was motivated by a similar state court proceeding involving
these defendants that “may reveal additional facts relevant to [Khoury’s]
federal securities fraud claims.” Khoury, No. 4:19-CV-4806, 2020 WL
6494986, at *5.
A dismissal without prejudice is appealable where “denial of relief and
dismissal of the case end [the] suit so far as the [d]istrict [c]ourt [is]
concerned.” United States v. Wallace & Tiernan Co., 336 U.S. 793, 794 n.1
(1949). We recently applied this principle to a Rule 12(b)(6) dismissal.
Umbrella Inv. Grp., LLC v. Wolters Kluwer Fin. Servs., Inc., 972 F.3d 710, 712
(5th Cir. 2020) (per curiam). There, we noted that “a judgment dismissing
all claims is a judgment dismissing an action,” which is final and appealable.
Id. While the district court in that case had entered a separate judgment
dismissing the plaintiff’s claims, id., Rule 4 of the Federal Rules of Appellate
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Procedure notes that “[a] failure to set forth a judgment or order on a
separate document when required by Federal Rule of Civil Procedure 58(a)
does not affect the validity of an appeal from that judgment or order.” Fed.
R. App. P. 4(a)(7)(B). Thus, the absence of a final judgment from the
district court does not transform an otherwise appealable order into a non-
appealable one. Moreno v. LG Elecs., USA Inc., 800 F.3d 692, 696–97 (5th Cir.
2015).
Here, the district court dismissed all of Khoury’s claims. The district
court did not give Khoury leave to amend his complaint or offer an indication
that it expected additional filings in this case. Cf. Farber v. La. State Bd. of
Med. Exam’rs, 265 F. App’x 152, 153 (5th Cir. 2008) (per curiam)
(unpublished) (holding that the court lacked appellate jurisdiction where the
district court dismissed the complaint but gave the plaintiff leave to amend
and a deadline to file the amended complaint). Further, to the extent that the
district court’s order “looks both ways” regarding finality, we must read the
order as final and appealable to avoid creating “traps for the unwary in
ambiguous cases.” Umbrella Inv. Grp., 972 F.3d at 712 (internal quotation
omitted). In addition, since Khoury’s complaint contains allegations that
would risk being barred by the statute of limitations if he were to refile his
suit, the dismissal without prejudice may effectively operate as a final
disposition of those claims. See Boazman v. Econ. Lab’y, Inc., 537 F.2d 210,
213 (5th Cir. 1976). Thus, by dismissing all of Khoury’s claims, the district
court demonstrated that this suit had ended so far as it was concerned.
Because the district court’s order is appealable, we have jurisdiction.
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III
On appeal, Khoury presents two issues: (1) whether the district court
erred in dismissing his complaint under Rule 12(b)(6), and (2) whether the
district court erred in denying him leave to amend. We review a Rule 12(b)(6)
dismissal de novo and view the facts in the light most favorable to the
plaintiff. Retana v. Twitter, Inc., 1 F.4th 378, 380 (5th Cir. 2021). We review
the denial of leave to amend for abuse of discretion. McKinney v. Irving Indep.
Sch. Dist., 309 F.3d 308, 312 (5th Cir. 2002).
A
The district court dismissed Khoury’s securities fraud claims based
on misrepresentations from 2014 as time barred. A plaintiff must file a claim
for securities fraud within five years of the violation. 28 U.S.C. § 1658(b)(2).
The five-year statute of limitations acts as an “unqualified bar” to actions
that are filed untimely and “giv[es] defendants total repose after five years.”
Merck & Co. v. Reynolds, 559 U.S. 633, 650 (2010). Khoury’s complaint
alleges misrepresentations in September and October 2014. He did not file
his complaint until December 2019, after the five-year period had expired.
Thus, the district court correctly dismissed his claims based on those 2014
misrepresentations.
The district court dismissed the remainder of Khoury’s securities
fraud claims due to insufficient pleading. To state a claim of federal securities
fraud under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5,
“a plaintiff must allege, in connection with the purchase or sale of securities,
(1) a misstatement or an omission (2) of material fact (3) made with scienter
(4) on which plaintiff relied (5) that proximately caused [the plaintiff’s]
injury.” ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 348 (5th Cir.
2002) (internal quotation omitted). Because the heightened pleading
standard of Rule 9(b) applies to these fraud claims, a plaintiff must also
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“specify the statements contended to be fraudulent, identify the speaker,
state when and where the statements were made, and explain why the
statements were fraudulent” to survive a motion to dismiss. Id. at 350(quoting Nathenson v. Zonagen, Inc., 267 F.3d 400, 412 (5th Cir. 2001)).
His claims based on representations from 2016 and 2019 were
properly dismissed. 2 Khoury states that, in 2016, Thota “convinced [him]
and other investors to sign a loan modification agreement with the bank.”
Khoury does not point to any statement regarding this event that was
misleading or specify the contents of that statement. His allegation regarding
the loan modification agreement therefore fails to satisfy the heightened
pleading statement for securities fraud. See Tchuruk, 291 F.3d at 349–50. His
allegation regarding Thota’s 2019 cash call is similarly deficient. Khoury’s
complaint does not specify any misrepresentation made by Thota prior to his
contribution of additional money. While he states that Thota initially told
him that she had raised $1,000,000 from the cash call but later learned that
she had “only raised $665,000,” this representation took place after he had
paid her the requested amount. A statement made after the plaintiff has
already invested is not one on which the plaintiff relied when deciding to
invest. His allegation regarding the cash call thus does not satisfy the
requirements of § 10(b) and Rule 10b-5. See id. at 348 (noting that a plaintiff
must allege that the misrepresentation was one “on which plaintiff relied”).
In his opposition to the Defendants’ motion to dismiss, Khoury
introduced an additional allegation regarding an event in January 2015 where
Thota failed to provide the operating agreements for the purchased
securities. Since the job of the district court on a motion to dismiss is to
2
Like the district court did below, we assume without deciding that these
allegations were made in connection with the purchase or sale of a security and fall under
§ 10(b) and Rule 10b-5. Khoury, No. 4:19-CV-4806, 2020 WL 6494986, at *4 n.7.
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“assess[] the legal sufficiency of the complaint,” matters not presented in the
complaint cannot save it if it is otherwise insufficient. See Servicios Azucareros
de Venezuela, C.A. v. John Deere Thibodeaux, Inc., 702 F.3d 794, 806 (5th Cir.
2012) (emphasis added).
Thus, the district court correctly dismissed Khoury’s securities fraud
allegations under Rule 12(b)(6).
B
Khoury contends that the insufficiencies in his complaint would have
been rectified if the district court had granted leave to amend. He claims that
the district court’s failure to do so constitutes abuse of discretion because his
claims now risk being time-barred. This argument is unavailing.
Khoury failed to amend his complaint as of right and failed to properly
request leave to amend from the district court. Under Rule 15(a), a party can
amend its pleading within “21 days after service of a motion under Rule
12(b).” Thus, upon receiving the Defendants’ Motion to Dismiss, Khoury
had the opportunity to cure the defects in his complaint that the Defendants
raised. Instead, he chose to stand on his complaint and argued that it already
satisfied the pleading requirements.
After the expiration of the 21-day period, Khoury could “amend [his]
pleading only with the opposing party’s written consent or the court’s
leave.” Fed. R. Civ. P. 15(a)(2). While a “court should freely give leave
when justice so requires,” a party must first ask the district court for leave to
amend. Id.; United States ex rel. Willard v. Humana Health Plan of Tex., Inc.,
336 F.3d 375, 387 (5th Cir. 2003) (“A party who neglects to ask the district
court for leave to amend cannot expect to receive such a dispensation from
the court of appeals.”). To make a sufficient request for leave to amend,
Khoury did not need to make a formal motion, but “bare request[s] in an
opposition to a motion to dismiss—without any indication of the particular
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grounds on which the amendment is sought—do[] not constitute a motion
within the contemplation of Rule 15(a).” Willard, 336 F.3d at 387 (quotation
and internal citation omitted).
Khoury’s requests to the district court for leave to amend were limited
to several perfunctory statements in his opposition to the Defendants’
Motion to Dismiss. 3 These statements at times suggested that he sought
leave to amend and at other points indicated that he would request leave to
amend at a later point. Compare Plaintiff’s Opposition to Motion to Dismiss
at 11 (“To the extent the Court wishes further specifics, leave to amend
should be given.”), with id. at 12 (“Plaintiff will seek leave to amend this
Complaint regardless of the outcome of this Motion . . . .”). These mixed
signals could have led the district court to believe that Khoury would formally
seek leave to amend if the Defendants’ motion was granted. To the extent
that Khoury’s statements were clear enough to indicate that he requested
3
Five different requests in Khoury’s Opposition to the Motion to Dismiss could
be construed as attempts to seek leave to amend. First, when discussing the factual basis
for his belief that Thota’s 2014 statements constituted fraud, he concluded by stating that
he had “more than met the applicable standard under Rules 8 and 9, and the PSLRA” but
that “leave to amend should be given” if the district court wanted “further specifics.”
Plaintiff’s Opposition to Motion to Dismiss at 11. Second, when discussing the 2019 cash
call, Khoury noted that “[t]o the extent further facts need to be pled on this front, they can
be—and Plaintiff should be given a chance to do so.” Plaintiff’s Opposition to Motion to
Dismiss at 12. Third, in response to the Defendants’ claim that Khoury needed to include
additional parties for his declaratory relief, he stated that he “will seek leave to amend this
Complaint regardless of the outcome of this Motion. . . . Leave to amend to do so should
be granted.” Plaintiff’s Opposition to Motion to Dismiss at 12. Fourth, his discussion of
his request for injunctive relief included a comment that he would explain his failure to seek
a TRO “in an amended pleading if necessary.” Plaintiff’s Opposition to Motion to Dismiss
at 13. Fifth, Khoury concluded his Opposition by stating that he “asks that this Motion be
denied, or that he be given leave to amend.” Plaintiff’s Opposition to Motion to Dismiss at
14. He also included a request for leave to amend for his Opposition itself, noting that he
“will seek leave of Court to supplement [his Opposition] as necessary to ensure that all
argument [sic] are fulsomely presented.” Plaintiff’s Opposition to Motion to Dismiss at 1.
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leave, they failed to specify how he would amend his complaint to address its
defects. Khoury stated that he can provide “further specifics,” but he does
not explain how those specifics would cure the problems in the complaint.4
Without addressing the insufficiencies in his complaint, granting Khoury
leave to amend would be futile.
Given the unclear nature of his statements in his Opposition and the
lack of specificity of his request for leave to amend, the district court did not
abuse its discretion by failing to give Khoury leave to amend his complaint.
See Goldstein v. MCI WorldCom, 340 F.3d 238, 255 (5th Cir. 2003) (holding
that the district court did not abuse its discretion where “the plaintiffs did
not demonstrate to the court how they would . . . cure the pleading defects
raised by the defendants”).
IV
The district court did not err in dismissing Khoury’s complaint and
denying leave to amend. We therefore AFFIRM the judgment of the district
court.
4
The sole request that indicated how Khoury would amend the complaint related
to his claim for declaratory relief, which the district court dismissed as unripe. Khoury does
not challenge the dismissal of that claim on appeal. Further, the request to amend that claim
does not address the ripeness issue and thus would not cure the defect with that claim.
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