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Sollberger v. Wachovia Securities

June 30, 2010


The opinion of the court was delivered by: Andrew J. Guilford United States District Judge


This case involves an alleged Ponzi scheme. Plaintiff Kurt Sollberger ("Plaintiff") filed a Complaint, and the Court granted motions to dismiss filed by multiple Defendants, finding that Plaintiff failed to state valid claims. (Doc. 74.) The Court identified the shortcomings in the Complaint, and gave Plaintiff a chance to amend his pleading.

Plaintiff filed a First Amended Complaint ("FAC"). Multiple Defendants, including Wachovia Securities, LLC, et al. ("Wachovia"), Morgan Keegan & Company, Inc. ("Morgan Keegan"), and Janney Montgomery Scott, LLC ("JMS" or "Janney") filed three more Motions to Dismiss ("Defendants' Motions"), which are the subject of this Order.

Before the Court could rule on Defendants' Motions, Plaintiff filed a "Motion for Leave to File Proposed Second Amended Complaint" ("Plaintiff's Motion"). Plaintiff's Motion asks the Court to accept a Second Amended Complaint ("SAC"), but the SAC has no federal claims, which would deprive the Court of subject matter jurisdiction over this case.

Many Defendants oppose Plaintiff's Motion. They argue that the FAC fails to correct the original Complaint's deficiencies. They further argue that leave to file the proposed SAC should not be granted because (1) it was filed after the deadline to amend a pleading in the Court's scheduling order, and (2) it would be futile both because it fails to state a claim and because it removes the Court's jurisdiction. The Court DENIES Plaintiff's Motion, GRANTS Defendants' Motions with leave to amend the negligence claim but without leave to amend any other claim, and DISMISSES this case for lack of jurisdiction.


The facts in this Section are taken from Plaintiff's Complaint. As it must for these Motions, the Court assumes factual allegations to be true.

This case is based on a "fraudulent investment Ponzi scheme known as the 90% Loan Program, also known as the ESOP-QRP Loan program[.]" (FAC ¶ 1.) The scheme was run by an entity known as Optech Limited ("Optech"), which was controlled by another entity called Derivium Capital, LLC ("Derivium"). Plaintiff was a victim of this scheme, and he was advised by Defendant SCS Management, Inc., which has not filed a motion to dismiss. (FAC ¶¶ 78-79.) Some details of this scheme are described in the Court's Order dismissing Plaintiff's original Complaint, and these details need not be reproduced here. (See Doc. 74 at 2-3.)

Plaintiff asserts claims numbered as follows: (1) breach of contract; (2) breach of fiduciary duty; (3) aiding and abetting breach of fiduciary duty; (4) negligence; (5) fraud and conspiracy to commit fraud; (6) aiding and abetting fraud; (7) violation of the Securities Act (8) violation of California Corporate Code § 25504; (9) conversion. Defendants now seek to dismiss the FAC. Plaintiff seeks leave to file a proposed Second Amended Complaint, which would eliminate certain claims, change certain allegations, remove the Court's basis for subject matter jurisdiction, and cut the pleading's size from 135 pages to 38 pages.



Plaintiff seeks leave to amend his complaint under Federal Rule of Civil Procedure 15(a). But the Court issued a scheduling order on January 11, 2010 that said, "[a]bsent exceptional circumstances, any motion to join another party or to amend a pleading shall be filed and served within 60 days of the date of this Order." (Doc. 53.) Plaintiff's Motion was not filed within 60 days of the January 11 Order.

A party attempting to amend a pleading after the date specified in a scheduling order must first satisfy the "good cause" standard of Federal Rule of Civil Procedure 16(b). See Coleman v. Quaker Oats Co., 232 F.3d 1271, 1294 (9th Cir. 2000); Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992) (finding the "extraordinary circumstances" scheduling order standard as rigorous as the "good cause" standard under 16(b)). "Unlike Rule 15(a)'s liberal amendment policy which focuses on the bad faith of the party seeking to interpose an amendment and the prejudice to the opposing party, Rule 16(b)'s 'good cause' standard primarily considers the diligence of the party seeking the amendment." Johnson, 975 F.2d at 609.

When evaluating whether a party was diligent, the Ninth Circuit has determined that "the focus of the inquiry is upon the moving party's reasons for modification. If that party was not diligent, the inquiry should end." Id. at 610. A finding of "carelessness is not compatible with a finding of diligence and offers no reason for a grant of relief." Id. at 609. Only after the moving party proves that it was diligent in seeking an amendment should a court apply the standard under Rule 15 to determine if the amendment is proper. Id. at 608.

Here, Plaintiff does not even address the standard of Rule 16(b) or the "extraordinary circumstances" standard set forth in the Court's scheduling order. The Court finds that Plaintiff has not established good cause for leave to amend or extraordinary circumstances.

Moreover, the proposed SAC would strip the Court of subject matter jurisdiction over this case, which is apparently Plaintiff's goal. Indeed, Plaintiff does not even make any jurisdictional allegations in the SAC under the heading "Jurisdiction, Venue and Parties." (See SAC ¶¶ 6-12.) And further, many of the claims in the SAC, Plaintiff's third attempt at pleading, still would fail to survive a motion to dismiss.

Before concluding on Plaintiff's Motion, the Court notes that Plaintiff's claim for negligence in the FAC is dismissed with leave to amend, as is discussed in detail in Section 3. Further, Plaintiff's proposed SAC removes any basis for federal jurisdiction, and Plaintiff has stated that he wishes to pursue this case in state court rather than federal court.

Plaintiff's Motion is DENIED.


Defendants argue that the FAC should be dismissed for multiple reasons. The Court agrees.

Acourt should dismiss a complaint when its allegations fail to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A complaint need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "'[D]etailed factual allegations' are not required." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007)). The Court must accept as true all factual allegations in the complaint and must draw all reasonable inferences from those allegations, construing the complaint in the light most favorable to the plaintiff. Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993).

But the complaint must allege "sufficient factual matter, accepted as true, to 'state a claim that is plausible on its face.'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1940 (citing Twombly, 550 U.S. at 556). A court should not accept "threadbare recitals of a cause of action's elements, supported by mere conclusory statements," Iqbal, 129 S.Ct. at 1940, or "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences," Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Dismissal without leave to amend is appropriate only when the Court is satisfied that the deficiencies of the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003).

2.1 Plausibility and Particularity

Rule 8(a) requires sufficient facts supporting a plausible claim. Rule 9(b), which governs cases that sound in fraud, requires particularity. The concepts are somewhat related, but the FAC is neither sufficiently specific in any of its claims nor sufficiently particular in its fraud-based claims.

Concerning specificity, the Ninth Circuit has explained that, "to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). Such factual content is absent here.

Plaintiff's FAC alleges that Defendants are co-conspirators in a scheme to defraud Plaintiff, so that Defendants may "receive huge fees . . . for themselves." (FAC¶ 43.) The conspiracy, Plaintiff alleges, was done "on such a colossal scale" that it "could not have been perpetrated against investors . . . without the intentional participation of" Defendants. (FAC ¶ 42.)

There is no doubt that humans are capable of treacherous acts, as are large corporate institutions. But allegations of such treachery cannot be the basis for a lawsuit without also alleging sufficiently specific factual content.

Here, Plaintiff's factual allegations do not establish any more than Defendants being passive financial institutions that were used by the actual wrongdoers to store and transfer money. Plaintiff tries to mask this by peppering his complaint with buzzwords like "concealment" and "fraudulent." (See, e.g., FAC ¶¶ 100-01, 106, 138.) But without more, those words are legal conclusions.

Plaintiff argues that the FAC should survive based on reasonable inferences from the facts alleged. It is not for the Court to gauge the credibility of Plaintiff's allegations at this stage, but the facts do not support the inferences Plaintiff makes. The closest Plaintiff gets to showing the Defendant did anything wrong are his allegations that Defendants did not catch certain "red flags" that, according to Plaintiff, should have notified Defendants "that the sales they were clearing were likely improper." (See, e.g., FAC ¶ 149.) These allegations fall short of being sufficient factual content to suggest with sufficient specificity that Plaintiff is entitled to relief from Defendants.

The FAC lacks the required specificity.

Further, the FAC's fraud-based claims lack sufficient particularity. For Plaintiff's claims that sound in fraud, the FAC's allegations must be "accompanied by 'the who, what, when, where, and how' of the misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). Plaintiff "must set forth more than the neutral facts necessary to identify the transaction. [They] must set forth what is false or misleading about a statement, and why it is false." Id. at 1006 (quoting Decker v. GlenFed, Inc., 42 F.3d 1541, 1548 (9th Cir. 1994)). They must also allege facts permitting a reasonable inference of scienter. Plaintiff fails to meet this heightened standard.

As Plaintiff's FAC is neither plain nor specific, it fails under Rule 8(a). His fraud-based claims ...

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