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Mvp Asset Management (Usa LLC, A Delaware Limited Liability Company v. Steven Vestbirk; Jeff Balliet; Allison Hanslik

March 21, 2013

MVP ASSET MANAGEMENT (USA LLC, A DELAWARE LIMITED LIABILITY COMPANY,
PLAINTIFF,
v.
STEVEN VESTBIRK; JEFF BALLIET; ALLISON HANSLIK;
JIM GRANT; ARK ROYAL ASSET MANAGEMENT, LTD., A BERMUDA LIMITED COMPANY; VESTBIRK CAPITAL MANAGEMENT, LTD., A BERMUDA LIMITED COMPANY;
ARK ROYAL ASSET MANAGEMENT, LLC, A NEVADA LIMITED-LIABILITY COMPANY; ARK DISCOVERY, LLC, A BUSINESS ENTITY OF UNKNOWN FORM;
ARK ROYAL HOLDINGS, LLC, A NEVADA LIMITED-LIABILITY COMPANY;
ARK ROYAL SERVICES, LLC, A NEVADA LIMITED-LIABILITY COMPANY;
ARK ROYAL CAPITAL, LLC, A NEVADA LIMITED-LIABILITY COMPANY;
ARK ROYAL CAPITAL FUNDING, LLC, A NEVADA LIMITED- LIABILITY COMPANY;
ARK ROYAL CAPITAL, INC., A NEVADA CORPORATION;
ARK ROYAL RESOURCES, LLC, A NEVADA LIMITED-LIABILITY COMPANY;
ARK ROYAL ASSURANCE LLC, A NEVADA LIMITED-LIABILITY COMPANY; AND
ARK ROYAL INVESTMENTS, LLC, A NEVADA LIMITED-LIABILITY COMPANY;
DEFENDANTS.



The opinion of the court was delivered by: Garland E. Burrell, Jr. Senior United States District Judge

ORDER

Defendants filed a motion to dismiss Plaintiff's Fourth Amended Complaint ("FAC") under Federal Rule of Civil Procedure ("Rule") 12(b)(6), 12(b)(1), and 12(b)(2). Defendants argue, inter alia, that Plaintiff has failed to state federal securities fraud claims, the Court lacks diversity jurisdiction over Plaintiff's state claims, "Plaintiff . . . has failed to comply with the strict pleading requirements of the Private Securities Litigation Reform Act ("PSLRA") . . . and Rule 9(b)," and "Plaintiff fails to allege the facts necessary to establish personal jurisdiction over Moving Defendants in California." (Defs.' Notice of Mot. and Mot. to Dismiss FAC Pursuant to Rule 12(b)(6), 12(b)(1), and 12(b)(2) ("Defs.' Mot.") 2:22--23, 2:25--3:2, 3:4--6, 4:8--9; ECF No. 128.) Defendants argue dismissal should be with prejudice since "no possible curative allegation remains" by which the Plaintiff could cure the FAC's deficiencies. (Id. 2:23.) Plaintiff opposes the motion. (Pl.'s Opp'n to Defs.' Mot. ("Pl.'s Opp'n"), ECF No. 134.)

I. REQUESTS FOR JUDICIAL NOTICE

Defendants support their dismissal motions with a request "that the Court incorporate by reference into Plaintiff's Complaint and take judicial notice of for purposes of ruling on Defendants' Motion to Dismiss several . . . documents," including a Subscription Agreement. (Defs.' Request for Judicial Notice ("Defs.' RJN") 2:2--4, ECF No. 129.) "[A] court may consider a writing referenced in a complaint but not explicitly incorporated therein if the complaint relies on the document and its authenticity is unquestioned." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). Since Plaintiff does not dispute the authenticity of the referenced Subscription Agreement, and references and quotes from the Subscription Agreement in the FAC, (FAC ¶¶ 51, 59, 71), the Subscription Agreement is considered under the incorporation-by-reference principle.

Defendants also request that the Court take judicial notice of and incorporate into the FAC by reference a Confidential Information Memorandum dated February 2008. (Defs.' RJN 2:11--13.) Plaintiff filed an objection to this request. However, the Confidential Information Memorandum is not necessary to the decision on the motion issued below. Therefore, this document is not considered, and the request for judicial notice is denied.

Defendants further request judicial notice of additional documents, to which Plaintiff does not object. (Defs.' RJN 2:14--4:9.) Plaintiff also requested judicial notice of documents, to which Defendants do not object. (Pl.'s Request for Judicial Notice, ECF No. 136.) However, since these documents are neither necessary to nor considered in the decision on the motion, these documents are not considered, and these requests for judicial notice are therefore denied.

II. FEDERAL CLAIMS

A. Legal Standards

Decision on Defendants' Rule 12(b)(6) motion requires determining "whether the complaint's factual allegations, together with all reasonable inferences, state a plausible claim for relief." Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1054 (9th Cir. 2011) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678--79 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw a reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

When determining a claim's sufficiency, the court "accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the non-moving party." Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (citing Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008)). However, this tenet "is inapplicable to legal conclusions." Iqbal, 556 U.S. at 678. Further, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 557 (2007)). "In sum, for a complaint to survive a motion to dismiss, the nonconclusory '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).

"To state a claim under § 10(b) . . . , a plaintiff must show that the securities transaction at issue was a securities transaction that is covered by the Exchange Act [the Securities Exchange Act of 1934]." Cascade Fund, LLP v. Absolute Capital Mgmt. Holdings Ltd., No. 08-cv-01381-MSK-CBS, 2011 WL 1211511, at *3 (D. Colo. Mar. 31, 2011) (citing Morrison v. Nat'l Austl. Bank Ltd., 558 U.S. ---, 130 S. Ct. 2869, 2884 (2010)). "Section 10(b) reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States." Morrison, 130 S. Ct. at 2888. Therefore, "the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States. . . . [I]t is parties or prospective parties to those transactions that the statute seeks to 'protec[t].'" Id. at 2884 (quoting Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co., 404 U.S. 6, 10 (1971)). First, "the plaintiff [must] meet[] the threshold inquiry" that the Exchange Act covers the securities transaction. Cascade Fund, LLP, 2011 WL 1211511, at *3 (citing Dura Pharms., Inc. v. Bruoudo, 544 U.S. 336 341 (2005); Sec. & Exch. Comm'n v. Wolfson, 539 F.3d 1249, 1256 (10th Cir. 2008); Adams v. Kinder-Morgan, Inc., 340 F.3d 1038, 1095 (10th Cir. 2003)). Then the "securities fraud complaint under § 10(b) . . . must satisfy the dual pleading requisites of Federal Rule of Civil Procedure 9(b) and the PSLRA." In re VeriFone Holdings, Inc. Sec. Litig., 2012 WL 6634351, at *3 (citing Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990--91 (9th Cir. 2009)).

B. Discussion

Defendants seek dismissal of Plaintiff's Exchange Act claims under Rule 12(b)(6). Plaintiff alleges in its first claim a violation of Section 10(b), and in its second claim control person liability under Section 20(a). (FAC ¶¶ 88-98.) Defendants argue that Plaintiff's allegations do not cure the deficiencies in Plaintiff's prior complaint, which was dismissed in a prior Order. (Order 15:27--16:1, ECF No. 126.) Defendants argue: "As set forth in [the dismissal] Order, '[t]o state a claim under § 10(b) . . . , a plaintiff must show that the securities transaction at issue was a securities transaction that is covered by the Exchange Act.'" (Defs.' Mot. 14:16--18 (quoting Order 9:26--28 (quoting Cascade Fund, LLP v. Absolute Capital Mgmt. Holdings Ltd., 2011 WL 1211511, at *3 (D. Colo. Mar. 31, 2011))).)

"Section 10(b) reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States. . . . [T]he focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States." (Id. 14:20-25 (quoting Order at 10 (quoting Morrison, 130 S. Ct. at 2888, 2884 (citation omitted))).) Further, Defendants argue that "[a] Section 20(b) claim may be dismissed summarily if a plaintiff fails to establish a primary violation of Section 10(b)." (Id. 21:4-5 (citing Order at 12 (citing In re Societe Generale Sec. ...


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