-RJJ Halpern v. Lightyear Network Solutions, Inc, No. 2:2012cv00340 - Document 21 (D. Nev. 2012)
Court Description: ORDER Granting 5 Defendant's Motion to Dismiss as to Plaintiffs Section 10(b) claim and Plaintiffs negligent misrepresentation in the offer or sale of securities claim. These claims are DISMISSED without prejudice. IT IS FURTHER ORDERED that defendants motion to dismiss plaintiffs claim for fraud in the offer or sale of securities is DENIED AS MOOT because plaintiff voluntarily dismissed this claim. IT IS FURTHER ORDERED that Defendants motion to dismiss as to plaintiffs state law claims is DENIED AS MOOT. Amended Complaint deadline: 10/26/2012. Signed by Judge James C. Mahan on 09/26/2012. (Copies have been distributed pursuant to the NEF - AC)
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-RJJ Halpern v. Lightyear Network Solutions, Inc Doc. 21 1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 7 ALDEN HALPERN, 8 9 2:12-CV-340 JCM (RJJ) Plaintiff(s), 10 v. 11 LIGHTYEAR NETWORK SOLUTIONS, INC., 12 13 Defendant(s). 14 15 ORDER 16 Presently before the court is defendant Lightyear Network Solutions, Inc. fka Libra Alliance 17 Corporation’s (“Lightyear”) motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) 18 and Federal Rule of Civil Procedure 9. (Doc. # 11). Plaintiff Alden Halpern has filed an opposition 19 (doc. # 12), requesting that the court deny the motion to dismiss, and alternatively, grant plaintiff 20 leave to amend should the motion to dismiss be granted. Defendant has replied. (Doc. # 13). 21 I. Background 22 The facts alleged in the complaint establish that the instant dispute centers around shares of 23 Lightyear. (Doc. # 1). On or about June 24, 2009, plaintiff invested $100,000 in Lightyear (then 24 known as LY Holdings, LLC). (Doc. # 1, 2:25). On or about August 27, 2009, plaintiff invested an 25 additional $150,000 after defendant allegedly assured him that he would be able to obtain free 26 trading shares in the company. (Doc. # 1, 2:27). 27 ... 28 James C. Mahan U.S. District Judge Dockets.Justia.com 1 On or about March 11, 2010, defendant changed its name to Libra and plaintiff’s total 2 investment of $250,000 was transferred to Libra. (Doc. # 1, 3:4). On or about that same date, 3 plaintiff was issued 157,406 restricted shares of Libra, with a 12 month restriction. (Doc. # 1, 3:4-5). 4 On or about March 24, 2010, plaintiff was issued 44,019 unrestricted shares. (Doc. # 1, 3:10). 5 On or about June, 2010, plaintiff received the stock certificate for the unrestricted shares and his 6 broker requested that defendant attest to its authenticity. (Doc. # 1, 3:12-14). On or about August 6, 7 2010, defendant confirmed authenticity of the unrestricted shares through its general counsel. (Doc. 8 # 1, 3:15-16). 9 On or about September 13, 2010, plaintiff contends that he received notice that the restricted 10 shares could not be sold or deposited into his brokerage account, and that the unrestricted shares 11 could not be sold because defendant was not DTC1 eligible. (Doc. # 1, 3:20-22). Around March, 12 2011, the restricted shares became unrestricted but plaintiff alleges he was unable to sell them 13 because defendant was not DTC eligible, thus precluding them from being “free trading.” (Doc. # 14 1, 3:23-25). 15 Plaintiff requested defendant buy back the shares at the market value they held on the date 16 plaintiff unsuccessfully attempted to sell them. (Doc. # 1, 3:26-28). Defendant did not respond to 17 the request. (Doc. # 1, 3:28). Plaintiff then registered the shares, but their market value had 18 substantially decreased by that time. (Doc. # 1, 4:1-2). Plaintiff contends that the sole reason he 19 invested in defendant was because defendant assured him the shares would be freely tradable, which 20 the plaintiff maintains requires DTC certification. (Doc. #1). This federal suit now follows. 21 Plaintiff’s complaint contains three claims and three causes of action. These include: (1) 22 fraud in connection with the sale of securities; (2) fraud in the offer or sale of securities; (3) negligent 23 misrepresentation in the offer or sale of securities; (4) unlawful sale of a security by means of a 24 25 26 27 1 DTC refers to the Depository Trust & Clearing Corporation- “a member of the U.S. Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the Securities and Exchange Commission.” Depository Trust & Clearing Corporation, http://www.dtcc.com/about/subs/dtc.php (last visited Sept. 20, 2012). 28 James C. Mahan U.S. District Judge -2- 1 scheme to defraud; (5) fraudulent misrepresentation; and (6) negligent misrepresentation. 2 II. Discussion 3 A. Standard of Review 4 A plaintiff must include a “short and plain statement of the claim showing that the pleader 5 is entitled to relief.” FED. R. CIV. P. 8(a)(2). The statement of the claim is intended to “give the 6 defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atlantic Corp. 7 v. Twombly, 550 U.S. 544, 555 (2007). Pursuant to Rule 12(b)(6), courts may dismiss causes of 8 action that “fail[] to state a claim upon which relief can be granted.” FED. R. CIV. P. 12(b)(6). 9 Courts must “accept all factual allegations in the complaint as true.” Tellabs, Inc. v. Makor 10 Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). However, “[t]o survive a motion to dismiss, a 11 complaint must contain sufficient factual matter . . . to state a claim to relief that is plausible on its 12 face.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Although “not akin to a ‘probability 13 requirement,’” the plausibility standard asks for more than a sheer possibility that a defendant has 14 acted unlawfully. Id. 15 Rule 9 provides that for a party to allege fraud, he “must state with particularity the 16 circumstances constituting fraud . . . . Malice, intent, knowledge, and other conditions of a person’s 17 mind may be alleged generally.” FED. R. CIV. P. 9(b). Assertions of fraud must include “the who, 18 what, when, where, and how” of the misconduct alleged. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 19 1097, 1106 (9th Cir. 2003). Rule 9 serves several purposes, including: (1) providing defendants with 20 adequate notice so they are able to defend the charge and deter plaintiffs from filing complaints “‘as 21 a pretext for the discovery of unknown wrongs’; (2) to protect those whose reputation would be 22 harmed as a result of being subject to fraud charges; and (3) to ‘prohibit [ ] plaintiff[s] from 23 unilaterally imposing upon the court, the parties and society enormous social and economic costs 24 absent some factual basis.’” Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) 25 (quoting In re Stac Elecs. Sec Litig., 89 F.3d 1399, 1405 (9th Cir. 1996)(citation omitted)). 26 ... 27 ... 28 James C. Mahan U.S. District Judge -3- 1 B. Analysis 2 (1) Fraud in Connection with the Sale of Securities 3 To state a claim under Section 10(b), a plaintiff “must prove (1) a material misrepresentation 4 or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or 5 omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; 6 (5) economic loss; and (6) loss causation.” Thompson v. Paul, 547 F.3d 1055, 1061 (9th Cir. 2008) 7 (quoting Stoneridge Inv. Partners, LLC v. Scientific–Atlanta, 552 U.S. 128 S.Ct. 761 (2008)). 8 “At the pleading stage, a complaint stating claims under section 10(b) and Rule 10b–5 must 9 [also] satisfy the dual pleading requirements of FRCP 9(b) and the Private Securities Litigation 10 Reform Act of 1995 (“PSLRA”).” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 989 (9th 11 Cir. 2009). The PSLRA states that “the complaint shall specify each statement alleged to have been 12 misleading [and] the reason or reasons why the statement is misleading.” 15 U.S.C. § 78u-4. 13 Plaintiff’s claim does not satisfy the Stoneridge standard for a section 10(b) claim under the 14 heightened pleading requirements of Rule 9. Plaintiff fails to allege facts with sufficient particularity 15 and specificity necessary to meet the pleading standard for fraud causes of action. Instead, the 16 allegations mirror the type of “formulaic recitations” that the Supreme Court criticized in Twombly. 17 See Twombly, 550 U.S. at 555. Plaintiff fails to name the parties involved in the alleged initial 18 communication or specify their position of responsibility, and also omits when and through what 19 method the misrepresentation occurred. 20 21 22 23 24 25 In addition, the more specific claim regarding the representation by defendant’s general counsel cannot satisfy the pleading standard because that correspondence would not have been the initial information relied upon by plaintiff, as it occurred long after the investments were made. Because plaintiff’s allegations lack the “the who, what, when, where, and how” of the alleged fraud, the claim must fail. See Vess, 317 F.3d at 1106. (2) Fraud in the Offer or Sale of Securities 26 27 28 James C. Mahan U.S. District Judge Plaintiff, in his reply to defendant’s motion to dismiss, voluntarily dismisses his claim for fraud in the offer or sale of securities. Thus, the court turns to the next claim in plaintiff’s complaint. -4- 1 (3) Negligent Misrepresentation in the Offer or Sale of Securities 2 “Fraud can be averred by specifically alleging fraud, or by alleging facts that necessarily 3 constitute fraud (even if the word ‘fraud’ is not used).” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 4 1097, 1105 (9th Cir. 2003). “Fraud is . . . an ‘essential element’ of a negligent misrepresentation 5 claim.” Scaffidi v. United Nissan, 425 F. Supp. 2d 1159, 1169 (D. Nev. 2005). Further, “Rule 9 6 applies to actions brought under the federal securities laws.” Yourish v. California Amplifier, 191 7 F.3d 983, 993 (9th Cir. 1999). 8 Plaintiff’s claim is “sounded” in fraud and should be held to the higher pleading standard of 9 Rule 9. See Vess, 317 F.3d at 1104. Additionally, plaintiff’s claim of negligent misrepresentation is 10 brought under the Securities Act, to which Rule 9 applies. See Yourish, 191 F.3d 983 at 993. As 11 explained above, plaintiff’s complaint is vague and fails to specify who made the representation, 12 when and where the representation was made, or how it was made. Accordingly, the court finds that 13 this claim fails to sufficiently meet the pleading standard of Rule 9. 14 (4) Other Causes of Action 15 16 17 18 In addition to the above claims, plaintiff asserts three state law causes of action against defendant for unlawful sale of a security by means of a scheme to defraud, fraudulent misrepresentation, and negligent misrepresentation. 19 Plaintiff’s federal securities law claims ((1) fraud in connection with the sale of securities; 20 (2) fraud in the offer or sale of securities; and (3) negligent misrepresentation in the offer or sale of 21 securities) provide the sole basis for federal subject matter jurisdiction in this case. Having dismissed 22 the claims over which the court had original jurisdiction, the court exercises its discretion to decline 23 supplemental jurisdiction over plaintiff’s remaining state law causes of action. 28 U.S.C. § 24 1367(c)(3) (“The district courts may decline to exercise supplemental jurisdiction over a [state-law] 25 claim [if] . . . the district court has dismissed all claims over which it has original jurisdiction.”) 26 (emphasis added); see also Wade v. Regional Credit Association, 87 F.3d 1098, 1101 (9th Cir. 1996) 27 (holding that “where a district court dismisses a federal claim, leaving only state claims for 28 James C. Mahan U.S. District Judge -5- 1 resolution, it should decline jurisdiction over the state claims and dismiss them without prejudice.”); 2 see also United Mine Workers of America v. Gibbs, 383 U.S. 715, 726 (1966) (“Needless decisions 3 of state law should be avoided both as a matter of comity and to promote justice between the parties, 4 by procuring for them a surer-footed reading of applicable law.”) 5 C. Leave to Amend 6 7 8 9 10 11 12 13 In the opposition to defendant’s motion to dismiss, plaintiff requested leave to amend. (Doc # 10, 16:15-16). Under Rule 15(a)(2) leave to amend is to be “freely given when justice so requires.” FED. R. CIV. P. 15. In general, amendment should be allowed with “extreme liberality.” Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001) (quoting Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990)). Absent a showing of an “apparent reason” such as undue delay, bad faith, dilatory motive, prejudice to the defendants, futility of the amendments, or repeated failure to cure deficiencies in the complaint, leave to amend should be granted. Moore v. Kayport Package Express, Inc., 885 F.2d 531, 538 (9th Cir. 1989). 14 Accordingly, the court shall afford plaintiff an opportunity to amend his complaint. The court 15 16 17 18 19 20 reminds plaintiff that if he chooses to amend his complaint, he must comply with the requirements of Local Rule 15-1 and attach the proposed amended complaint to a motion to amend pleadings. Additionally, if the amended complaint is similarly deficient, the court may conclude that further leave to amend would be futile. III. Conclusion 21 Plaintiff has failed to state a claim upon which relief could be granted in his federal securities 22 claims. Plaintiff will be given leave to amend. Should he choose to amend, plaintiff shall plead to 23 the higher standard of Rule 9. 24 25 26 27 In light of the foregoing, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that defendant’s motion to dismiss (doc. # 11) be, and the same hereby is, GRANTED as to plaintiff’s Section 10(b) claim and plaintiff’s negligent misrepresentation in the offer or sale of securities claim. These claims are 28 James C. Mahan U.S. District Judge -6- 1 dismissed without prejudice. 2 IT IS FURTHER ORDERED that defendant’s motion to dismiss plaintiff’s claim for fraud 3 in the offer or sale of securities, (doc. # 11) be, and the same hereby is, DENIED AS MOOT because 4 plaintiff voluntarily dismissed this claim. 5 IT IS FURTHER ORDERED that defendant’s motion to dismiss as to plaintiff’s state law 6 claims (doc. # 11) be, and the same hereby is, DENIED AS MOOT as this court declines at present 7 to exercise supplemental jurisdiction over plaintiff’s state law claims. 8 LASTLY, IT IS FURTHER ORDERED that plaintiff, if he chooses to amend his complaint, 9 file the motion to amend, attaching the proposed amended complaint, within thirty (30) days of the 10 11 date of this order. DATED September 26, 2012. 12 13 UNITED STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 James C. Mahan U.S. District Judge -7-
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