Roditi et al v. New River Investments Inc. et al, No. 3:2020cv01908 - Document 80 (S.D. Cal. 2022)
Court Description: ORDER denying 52 Defendants New River Investments, Inc., Roditi & Roditi, LLC, Alberto Roditi, and Guillermo Roditi Dominguez's motion for partial Summary Judgment as to Plaintiffs' First and Second Claims. Signed by District Judge Ruth Bermudez Montenegro on 10/13/2022. (jpp)
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Roditi et al v. New River Investments Inc. et al Doc. 80 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MANUEL RODITI, et al., Plaintiffs, 12 13 Case No.: 3:20-cv-01908-RBM-MSB ORDER DENYING DEFENDANTS NEW RIVER INVESTMENTS, INC., RODITI & RODITI, LLC, ALBERTO RODITI, AND GUILLERMO RODITI DOMINGUEZ’S MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO PLAINTIFFS’ FIRST AND SECOND CLAIMS v. 14 15 16 17 NEW RIVER INVESTMENTS INC., et al., Defendants. 18 [Doc. 52] 19 20 On May 4, 2022, Defendants New River Investments, Inc., Roditi & Roditi, LLC, 21 Alberto Roditi, and Guillermo Roditi (“Defendants”) filed a motion for partial summary 22 judgment (“partial MSJ”). (Doc. 52.) Plaintiffs Manuel Roditi and Venice Bejarano 23 (“Plaintiffs”) filed their opposition to Defendants’ partial MSJ on May 6, 2022. (Doc. 58.) 24 Defendants filed their reply on May 27, 2022. (Doc. 64.) The Court took the matter under 25 submission pursuant to Civil Local Rule 7.1(d)(1). (Doc. 65.) 26 On August 12, 2022, the undersigned issued an order dismissing Roditi & Roditi, 27 LLC, granting in part and denying in part Defendants’ partial MSJ, reserving ruling on 28 Plaintiffs’ first and second causes of action, and ordering supplemental briefing as to 1 3:20-cv-01908-RBM-MSB Dockets.Justia.com 1 whether the alleged wrongdoing is in “connection to the purchase or sale of any security.” 2 (Doc. 72.) Defendants filed supplemental briefing on August 26, 2022 (Doc. 73), and 3 Plaintiffs filed a response on September 9, 2022 (Doc. 77). For the reasons discussed 4 below, Defendants’ partial MSJ as to Plaintiffs’ first and second causes of action for 5 violation of section 10(b), rule 10b–5, and section 20(a) of the Exchange Act is DENIED. 6 I. BACKGROUND 7 Defendant Roditi & Roditi, LLC (“R&R”) is an investment management company. 8 (Doc. 29 at 3.) Alberto Roditi and Guillermo Roditi are the managing directors of R&R. 9 (Id.) Defendant New River Investments, Inc. (“NRI”) is a registered investment advisor 10 and is affiliated with R&R. (Id.) 11 Plaintiffs allege that in or around April 2011, Plaintiffs engaged in an investment 12 relationship and maintained three investment accounts with Defendants through NRI. (Id.) 13 “Plaintiffs’ investments were managed by Defendants via NRI using two custodians: two 14 accounts at TD Ameritrade, and one account at Interactive Brokers.” (Id. at 4.) Over the 15 years, Plaintiffs increased their investment by depositing additional funds with Defendants, 16 and as of March 2019 the net asset value of Plaintiffs’ investment was approximately $2.5 17 million. (Id.) 18 Plaintiffs state they “believed that their investments would be managed suitably, and 19 with an appropriate level of risk based on Plaintiffs’ financial needs.” (Id. at 3.) They 20 allege that at some point during the investment relationship, Defendants began engaging in 21 “risky and reckless investment strategies.” (Id. at 5.) Plaintiffs allegedly requested that 22 Defendants take a more conservative approach, but Defendants continued to exercise risky 23 trading practices. (Id. at 5–6.) By April 3, 2020, “nearly the entirety of Plaintiffs’ 24 Investment Brokers account—$1.1 million—had been lost” and “Plaintiffs’ investment in 25 the Interactive Brokers account was merely $16,444.93. The TD Ameritrade account had 26 a balance of $530,000.” (Id. at 4.) 27 On September 23, 2020, Plaintiffs filed the present action against Defendants. (Doc. 28 1.) Plaintiffs assert five causes of action against Defendants including: (1) violation of the 2 3:20-cv-01908-RBM-MSB 1 Securities Exchange Act of 1934 (“Exchange Act”) section 10(b) and Rule 10b–5, (2) 2 violation of section 20(a) of the Exchange Act, (3) violation of section 25401 of the 3 California Corporation Code, (4) negligent misrepresentation, and (5) breach of fiduciary 4 duty. (See Doc. 29.) 5 On August 12, 2022, the Court dismissed Plaintiff’s third cause of action for 6 violation of the California Corporation Code. (Doc. 72.) Plaintiffs’ first, second, fourth, 7 and fifth causes of action remain. In accordance with the required supplemental briefing, 8 the Court now addresses Plaintiff’s first and second causes of action. 9 II. LEGAL STANDARD 10 Rule 56 of the Federal Rules of Civil Procedure provides that “[a] party may move 11 for summary judgment, identifying each claim or defense—or the part of each claim or 12 defense—on which summary judgment is sought.” FED. R. CIV. P. 56(a). “The court shall 13 grant summary judgment if the movant shows that there is no genuine dispute as to any 14 material fact and the movant is entitled to judgment as a matter of law.” Id. 15 Material facts are those “that might affect the outcome of the suit.” Anderson v. 16 Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is “genuine” 17 if the evidence is such that “a reasonable jury could return a verdict for the nonmoving 18 party.” Id. “[I]n ruling on a motion for summary judgment, the judge must view the 19 evidence presented through the prism of the substantive evidentiary burden.” Id. at 254. 20 The question is “whether a jury could reasonably find either that the [moving party] proved 21 his case by the quality and quantity of evidence required by the governing law or that he 22 did not.” Id. (emphasis omitted). “[A]ll justifiable inferences are to be drawn in [the 23 nonmovant’s] favor.” Id. at 255. 24 The moving party bears the initial burden of demonstrating the absence of any 25 genuine issues of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) 26 (internal quotations omitted). The moving party can satisfy this burden by demonstrating 27 that the nonmoving party failed to make a showing sufficient to establish an element of his 28 or her claim on which that party will bear the burden of proof at trial. Id. at 322–23. If 3 3:20-cv-01908-RBM-MSB 1 the moving party fails to bear the initial burden, summary judgment must be denied and 2 the court need not consider the nonmoving party’s evidence. Adickes v. S.H. Kress & Co., 3 398 U.S. 144, 159–60 (1970). 4 A party opposing a properly supported motion for summary judgment “may not rest 5 upon the mere allegations or denials of his pleading.” Liberty Lobby, 477 U.S. at 248. 6 “Rule 56(e) therefore requires the nonmoving party to go beyond the pleadings and by her 7 own affidavits, or by the depositions, answers to interrogatories, and admissions on file, 8 designate specific facts showing that there is a genuine issue for trial.” Celotex, 477 U.S. 9 at 324 (internal quotations omitted). If the nonmoving party fails to make a sufficient 10 showing of an element of its case, the moving party is entitled to judgment as a matter of 11 law. Id. at 325. The opposing party need not show the issue will be resolved conclusively 12 in its favor. See Liberty Lobby, 477 U.S. at 248–49. All that is necessary is submission of 13 sufficient evidence to create a material factual dispute, thereby requiring a jury or judge to 14 resolve the parties’ differing versions at trial. See id. 15 III. DISCUSSION 16 Defendants claim they are entitled to partial summary judgment on Plaintiffs’ first 17 and second claims for violation of section 10(b), rule 10b–5, and section 20(a) of the 18 Exchange Act (collectively “Exchange Act claims”). (Doc. 52–1 at 8–12.) 19 Section 10(b) of the Exchange Act prohibits the “use or employ, in connection with 20 the purchase or sale of any security, . . . [of] any manipulative or deceptive device or 21 contrivance in contravention of such rules and regulations as the Commission may 22 prescribe . . . .” 15 U.S.C. § 78j(b). “The elements of a section 10(b) claim are (1) a 23 material misrepresentation or omission, (2) scienter, i.e., a wrongful state of mind, (3) a 24 connection to the purchase or sale of a security, (4) reliance, (5) economic loss, and (6) loss 25 causation, i.e., a causal connection between the material misrepresentation and the loss.” 26 Flaxel v. Johnson, 541 F. Supp. 2d 1127, 1136 (S.D. Cal. 2008) (citing Dura Pharm., Inc. 27 v. Broudo, 544 U.S. 336, 341–42 (2005)). 28 /// 4 3:20-cv-01908-RBM-MSB 1 “In accordance with this statutory authority, the Securities Exchange Commission 2 promulgated Rule 10b–5, which creates a private cause of action for investors harmed by 3 materially false or misleading statements.” Flaxel, 541 F. Supp. 2d at 1136. Rule 10b–5 4 makes it unlawful: 5 6 7 8 9 10 (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b–5. 11 Section 20 of the Exchange Act holds “controlling persons . . . jointly and severally 12 liable for violations of section 10(b) of the [Exchange Act] and Rule 10b–5.” Oregon Pub. 13 Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 603 (9th Cir. 2014). 14 i. Elements One and Two: Material Misrepresentation/Omission & Scienter 15 Here, Defendants contend the Exchange Act claims fail as a matter of law because 16 Plaintiffs are “vaguely pointing the finger at all Defendants for misrepresentations without 17 any evidentiary support.” (Id. at 10.) Specifically, “Plaintiffs could not answer simple 18 questions in their depositions to explain why they are suing the Defendants or what 19 misrepresentations were made by Defendants.” (Id.) 20 Plaintiffs contend there are genuine issues of material fact which preclude summary 21 judgment on Plaintiffs’ Exchange Act claims, citing at least five instances of 22 misrepresentations and/or omissions by Defendants. (Doc. 58 at 11.) First, they allege that 23 “Defendants induced Plaintiffs to move their investments to NRI based on 24 misrepresentations about how Plaintiffs’ funds would be invested.” (Id. at 12.) Plaintiffs 25 originally held an investment account at Oppenheimer, but when Alberto and Guillermo 26 Roditi opened NRI, they “induced Plaintiffs to move their money there.” (Id. at 17.) Both 27 of Plaintiffs’ depositions allege that Alberto Roditi promised Plaintiffs he would invest 28 conservatively, keeping Plaintiffs’ retirement goals in mind. (Id. at 12 (citing Venice 5 3:20-cv-01908-RBM-MSB 1 Depo., at 11:16–12:5; Manual Depo., Vol. II at 141:9–144:8).) Plaintiffs claim they relied 2 on this representation, and “Alberto later traded naked call options without Plaintiffs’ 3 knowledge, leading to liquidation of the [Interactive Brokers] account.” (Doc. 58 at 12.) 4 Second, “Plaintiffs’ liability expert, Lisa Roth, [stated] ‘NRI was required to make 5 full disclosure of all material facts relating to the advisory services it provided,’ including 6 information abouts its services, methods of analysis, and discretionary authority.” (Doc. 7 58 at 13 (citing Doc. 58–1 at 47).) However, the Investment Policy Statement set forth in 8 the Investment Advisory Contract “was unsigned, incomplete, and did not set forth any 9 discernable plan or strategy with respect to Plaintiffs’ funds or the account at NRI.” (Doc. 10 58 at 13); see In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1425 (9th Cir. 1994) (citing 11 In re Apple Computer Sec. Litig., 886 F.2d 1109, 1116 (9th Cir. 1989) (“[a]s a general rule, 12 summary judgment is inappropriate where an expert’s testimony supports the non-moving 13 party’s case”)). 14 Additionally, Plaintiffs claim they were never advised of the substantial risks 15 associated with the investments being made and that Defendants’ failure to advise of such 16 constitutes material omissions of fact. (Doc. 58 at 14.) After sustaining significant losses 17 to the account in January 2020, Alberto Roditi assured Plaintiffs the funds would be 18 invested conservatively, but he proceeded to make risky investments and lost a significant 19 portion of the account. (Id. at 14–15 (citing Manuel Depo., Vol. II 144:2–8, 146:10–19).) 20 Specifically, Plaintiffs state that “Alberto proceeded to double down on the TESLA 21 positions . . . then transferred approximately $215,000 from the [TD Ameritrade] account 22 to the [Interactive Brokers] account, to offset some of the losses incurred from the 23 uncovered TESLA positions.” (Doc. 58 at 17–18 (citing Venice Depo., at 11:21–12:5, 24 15:16–20; Manuel Depo., Vol II at 143:13–16, 143:23–144:8).) Plaintiffs allege Alberto 25 Roditi moved money between Plaintiffs’ accounts without authorization to conceal losses 26 sustained by unauthorized options trades. (Doc. 58 at 15–16 (citing Ex. F at TD00122).) 27 To establish a claim under section 10(b) and rule 10b–5, “a plaintiff must show that 28 the [defendant’s] statements were misleading as to a material fact.” Phila. Fin. Mgmt. of 6 3:20-cv-01908-RBM-MSB 1 San Francisco, LLC v. DJSP Enters., 572 F. App’x 713, 716 (11th Cir. 2014) (quoting 2 Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988)). A misrepresentation is material “if there 3 is a substantial likelihood that, under all the circumstances, a reasonable investor would 4 consider it important in reaching an investment decision.” Ins. Underwriters Clearing 5 House, Inc. v. Natomas Co., 184 Cal. App. 3d 1520, 1526 (Ct. App. 1986) (quoting 6 Greenapple v. Detroit Edison Co., 468 F. Supp. 702, 708 (S.D.N.Y. 1979), aff’d, 618 F.2d 7 198 (2d Cir. 1980)). 8 Moreover, a 10b–5 claim requires scienter, which is a “mental state embracing intent 9 to deceive, manipulate, or defraud.” In re Silicon Graphics, 183 F.3d 970, 975 (9th Cir. 10 1999) (internal citations omitted); see In re Read–Rite Corp., 335 F.3d 843, 846 (9th Cir. 11 2003); see also Lipton, 284 F.3d 1027, 1035 n. 15 (9th Cir. 2002) (“[s]cienter is an 12 essential element of a § 10(b) or Rule 10b–5 claim”); see also Nursing Home Pension 13 Fund, Local 144 v. Oracle Corp., 380 F.3d 1226, 1229 (9th Cir. 2004). “Plaintiffs can 14 establish scienter by proving either actual knowledge or recklessness.” Baker v. SeaWorld 15 Ent., Inc., 423 F. Supp. 3d 878, 942 (S.D. Cal. 2019) (internal citations omitted). However, 16 in a securities action, “[m]ateriality and scienter are both fact-specific issues which should 17 ordinarily be left to the trier of fact.” In re Apple Computer Sec. Litig., 886 F.2d 1109, 18 1113 (9th Cir. 1989); see also Provenz v. Miller, 102 F.3d 1478, 1489 (9th Cir. 1996) 19 (“[g]enerally, scienter should not be resolved by summary judgment”). “The court must 20 deny a defendant’s motion for summary judgment on intent ‘unless all reasonable 21 inferences that could be drawn from the evidence defeat the plaintiff’s claims.’” Baker, 22 423 F. Supp. 3d at 942 (quoting Provenz, 102 F.3d at 1489). 23 Reviewing Plaintiffs’ deposition testimony, coupled with the expert report of Lisa 24 Roth, the Court finds that there are genuine issues of material fact regarding whether 25 Defendants made material misrepresentations and/or omissions in violation of section 26 10(b), rule 10b–5, and section 20(a) of the Exchange Act and that such questions cannot 27 be resolved by this motion. 28 /// 7 3:20-cv-01908-RBM-MSB 1 ii. Element Three: Connection with a Purchase or Sale of Security 2 Defendants also contend summary judgment is appropriate because they did not sell 3 the securities at issue, thus negating the third element of the section 10(b) claim. 4 Defendants argue “Plaintiffs’ claims at issue are generally about a failure to [advise] of 5 risks, not some misrepresentation or failure to disclosure [sic] in connection with the sale 6 because Defendants do not sell the securities.” (Doc. 52–1 at 11–12.) Defendants allege 7 they facilitated the trades as investment advisors, and did not receive any commission or 8 compensation for the transactions in Plaintiffs’ accounts. (Id.) 9 To support their argument on summary judgment, Defendants cite to Section 25017 10 of the Corporation Code which defines “sale” or “sell” as the sale of or disposition of a 11 security “for value.” (Id. at 12 (quoting CAL. CORP. CODE § 25017 (West).) Defendants 12 also cite to Falkowski v. Imation Corp. and explain that “[u]nder the Ninth Circuit 10(b) 13 cases, a misrepresentation is ‘in connection with’ the purchase or sale of securities if there 14 is ‘a relationship in which the fraud and the stock sale coincide or are more than tangentially 15 related.’” (Doc 52–1 at 8 (quoting Falkowski, 309 F.3d 1123, 1131 (9th Cir. 2002).) 16 In contrast, Plaintiffs contend the transactions at issue fall squarely within the 17 circumstances contemplated by Falkowski v. Imation Corp., which provides the “purchase 18 or sale of a security [includes] any contract to buy or sell a security” and the “alleged 19 misrepresentation ‘must relate to the nature of the securities, the risks associated with their 20 purchase or sale, or some other factor with similar connection to the securities 21 themselves.’” (Doc. 58 at 15–16 (quoting Falkowski, 309 F.3d at 1129–31).) “Although 22 neither Rule 10b–5 nor [section] 10(b) expressly creates a private right of action, [the 23 Supreme Court] has held that ‘a private right of action is implied under [section] 10(b).’” 24 Janus Cap. Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011) 25 (quoting Superintendent of Ins. of N.Y. v. Bankers Life & Casualty Co., 404 U.S. 6, 13, n. 26 9 (1971)); see Shell v. Hensley, 430 F.2d 819, 827 (5th Cir. 1970) (explaining private causes 27 of action are recognized under rule 10b–5 of the Exchange Act); see also Basic Inc., 485 28 U.S. at 230–31. It is Plaintiff’s position that “Defendant’s misrepresentations coincide and 8 3:20-cv-01908-RBM-MSB 1 touch the purchase and sale of securities and therefore satisfy the element under The 2 Exchange Act.” (Doc. 77 at 3.) 3 The Court finds that the allegations against Defendants are sufficient to be 4 considered “in connection with” the purchase or sale of securities. See Arrington v. Merrill 5 Lynch, Pierce, Fenner & Smith, Inc., 651 F.2d 615, 619 (9th Cir. 1981) (finding that 6 “defendants were guilty of fraud ‘in connection with’ the sale of securities, where the 7 account executive misrepresented to plaintiffs the risks of buying securities on margin in a 8 declining market”); see also S.E.C. v. Zandford, 535 U.S. 813, 822 (2002) (finding that the 9 plaintiffs “were injured as investors through respondent’s deceptions, which deprived them 10 of any compensation for the sale of their valuable securities” and that “[t]hey were duped 11 into believing respondent would ‘conservatively invest’ their assets in the stock market and 12 that any transactions made on their behalf would be for their benefit”). 13 Moreover, the Supreme Court has noted that “[s]ection 10(b) must be read flexibly, 14 not technically and restrictively.” Superintendent of Ins. of State of N. Y., 404 U.S. at 12; 15 see Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151 (1972) (noting that 16 “Congress intended securities legislation enacted for the purpose of avoiding frauds to be 17 construed ‘not technically and restrictively, but flexibly to effectuate its remedial 18 purposes’”) (quoting Sec. & Exch. Comm’n v. Cap. Gains Rsch. Bureau, Inc., 375 U.S. 19 180, 195 (1963)); Zandford, 535 U.S. at 825 (explaining “the securities transactions and 20 breaches of fiduciary duty coincide. Those breaches were therefore ‘in connection with’ 21 securities sales within the meaning of § 10(b)”). 22 Here, Plaintiffs allegedly requested that Defendants take a more conservative 23 approach, but Defendants continued to exercise risky trading practices. (Doc. 29 at 5–6.) 24 Both of Plaintiffs’ depositions allege that Alberto Roditi promised Plaintiffs he would 25 invest conservatively, keeping Plaintiffs’ retirement goals in mind, but “Alberto later 26 traded naked call options without Plaintiffs’ knowledge, leading to liquidation of the 27 [Interactive Brokers] account.” (Doc. 58 at 12 (citing Venice Depo., at 11:16–12:5; 28 Manual Depo., Vol. II at 141:9–144:8).) Thus, the alleged conduct is sufficient to be 9 3:20-cv-01908-RBM-MSB 1 considered “in connection with” the purchase or sale of securities. Therefore, the Court 2 concludes Defendants did not meet their burden of proving entitlement to judgment as a 3 matter of law with respect to Plaintiffs’ Exchange Act claims. 4 IV. CONCLUSION 5 For the foregoing reasons Defendants’ partial MSJ is DENIED as to Plaintiffs’ first 6 and second causes of action for violation of section 10(b), rule 10b–5, and section 20(a) of 7 the Exchange Act. 8 9 IT IS SO ORDERED. DATE: October 13, 2022 10 11 12 13 _____________________________________ HON. RUTH BERMUDEZ MONTENEGRO UNITED STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 3:20-cv-01908-RBM-MSB
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