Dekle et al v. Global Digital Solutions, Inc. et al

Filing 52

Order denying 35 MOTION to Dismiss Second Amended Complaint. Defendants' answer to the second amended complaint are due by 9/28/2015. Signed by Chief Judge William H. Steele on 9/14/2015. (tgw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
CARL D. DEKLE, et al.,
Plaintiffs,
v.
GLOBAL DIGITAL SOLUTIONS,
INC., et al.,
Defendants.

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CIVIL ACTION 15-0069-WS-C

ORDER
This matter comes before the Court on Defendants’ Motion to Dismiss Second Amended
Complaint (doc. 35). The Motion has been briefed and is ripe for disposition.
I.

Relevant Background.
This action is a commercial dispute arising from the sale of the business interests of

plaintiffs, Brian A. Dekle (“Dekle”)1 and John Ramsay, in a company called North American
Custom Specialty Vehicles, LLC (“Old NACSV”) to defendants in June 2014. Plaintiffs’ claims
fall into two categories. First, plaintiffs maintain that defendants breached the Equity Purchase
Agreement effectuating the sale of Old NACSV by (i) failing and refusing to pay certain cash
consideration to plaintiffs upon the post-closing sale of certain assets; and (ii) failing to use
commercially reasonable efforts to operate the acquired company on a profitable basis and
consistent with historical practices (which purportedly damaged plaintiffs because defendants
were obligated to pay additional consideration to plaintiffs based on the company’s post-closing
performance). Second, plaintiffs bring federal and state claims of securities fraud, alleging that
defendants made false and deceptive statements to induce Dekle and Ramsay to accept a portion
of their compensation for the transaction in the form of newly-issued stock for defendant Global
1

Brian Dekle passed away on June 2, 2015. By Order (doc. 48) entered on August
19, 2015, Carl D. Dekle, as Personal Representative of the Estate of Brian A. Dekle, was
substituted as a party plaintiff herein.

Digital Solutions, Inc. (“GDSI”), rather than in cash (as plaintiffs had originally requested). This
latter category of claims is the focal point of the pending Motion to Dismiss.
Defendants moved for dismissal of plaintiffs’ First Amended Complaint on a plethora of
grounds, many of them targeted specifically at the securities fraud claims asserted as Counts
Three and Four. In the ensuing briefing on that motion to dismiss, plaintiffs volunteered to
replead their securities fraud causes of action to correct any pleading deficiencies that might
exist. On June 5, 2015, the undersigned entered an Order (doc. 29) concluding that the First
Amended Complaint was inadequately pleaded in several respects. In particular, the June 5
Order indicated that plaintiffs had failed to provide the requisite “specific allegations explaining
who made the representation, when it was made, and why it was false or misleading.” (Doc. 29,
at 13.) The June 5 Order further deemed Counts Three and Four not to satisfy the “legal
requirement that plaintiffs asserting a securities fraud claim must plead with particularity facts
establishing scienter as to each allegedly fraudulent representation.” (Id. at 14.) Finally, the
June 5 Order determined that the First Amended Complaint failed to plead the necessary element
of loss causation, which in securities fraud cases requires “proof of a causal connection between
the misrepresentation and the investment’s subsequent decline in value.” (Id.) Notwithstanding
these defects, plaintiffs were authorized to file an amended, corrective pleading.
In the wake of the June 5 Order, plaintiffs timely filed their Second Amended Complaint
(doc. 33). Defendants renewed their Motion to Dismiss (doc. 35), taking aim at Counts Three
and Four on grounds that such claims fail to allege actionable material misrepresentations,
scienter, reasonable reliance by plaintiff Ramsay, or loss causation. By contrast, plaintiffs’
position is that the Second Amended Complaint satisfies all pleading requirements for securities
fraud claims under applicable law.
II.

Analysis.
A.

Plaintiffs Have Alleged Actionable Material Misrepresentations.

The Second Amended Complaint identifies at least a half-dozen misrepresentations that
lie at the heart of plaintiffs’ securities fraud claims, to-wit: (i) defendant Richard Sullivan’s
statement “that he had the connections, capital, and other pieces in place to build a turn key
conglomerate military and law enforcement support business” (doc. 33, ¶ 14); (ii) defendants’
statement that GDSI was adding to its Board of Directors a descendant of King Leopold II whose
presence, connections and involvement “would enable GDSI to complete the purchase of

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Remington Outdoor Supply Company” (id., ¶ 16); (iii) defendant Sullivan’s statement that GDSI
“was buying Lawmen’s Safety Supply of North Carolina” (id., ¶ 19(A)); (iv) defendant
Sullivan’s statement that GDSI “would fund NACSV’s production so that operating capital
would be a non-issue” (id., ¶ 19(B )); (v) defendant Sullivan’s statement that GDSI “would fund
NACSV’s marketing” (id., ¶ 19(C)); and (vi) defendant Sullivan’s statement that GDSI “would
purchase a 56,000 square foot facility to enable NACSV to produce command centers” at high
volume (id., ¶ 19(D)).
Defendants object that these alleged misrepresentations are not actionable as securities
fraud because the Second Amended Complaint casts them as mere statements of opinion, without
providing factual allegations demonstrating their objective and subjective falsity. Under federal
securities law, “opinions, predictions and other forward-looking statements … may be actionable
misrepresentations if the speaker does not genuinely and reasonably believe them.” In re Donald
J. Trump Casino Securities Litigation – Taj Mahal Litigation, 7 F.3d 357, 368 (3rd Cir. 1993)
(citations omitted).2 However, the Second Amended Complaint includes sufficient factual
allegations to meet this standard for pleading purposes. For example, plaintiffs allege that
various misrepresentations by defendant Sullivan (i.e., that GDSI would buy Lawmen’s Safety
Supply of North Carolina, that GDSI would purchase a 56,000 square-foot production facility)
were objectively and subjectively false because GDSI lacked the financial means to make such
purchases, and Sullivan knew this to be so at the time he made these statements. And the alleged
misrepresentation concerning King Leopold II’s descendant is not pleaded as a statement of
opinion at all, but rather as a statement of fact that defendants were sharing with plaintiffs in
private, antecedent to “an upcoming public announcement” that this individual was actually
joining the GDSI Board of Directors. (Doc. 33, ¶ 16.) The clear inference from the pleading is
2

See also In re Omnicare, Inc. Securities Litigation, 769 F.3d 455, 470 (6th Cir.
2014) (plaintiff pursuing securities fraud claim based on “soft information” such as a statement
of opinion must “plead facts showing that the statement was made with knowledge of its falsity”)
(citation omitted); City of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 170 (3rd Cir. 2014)
(“Opinions are only actionable under the securities laws if they are not honestly believed and
lack a reasonable basis.”); Reese v. Malone, 747 F.3d 557, 579 (9th Cir. 2014) (explaining that a
statement of belief is actionable under federal securities laws if “(1) the statement is not actually
believed, (2) there is no reasonable basis for the belief, or (3) the speaker is aware of undisclosed
facts tending seriously to undermine the statement’s accuracy”) (citations omitted).

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that this new Board member was identified to plaintiffs as a fait accompli, when in fact no such
arrangement had been reached and this prominent individual never joined GDSI’s Board. In
short, after careful review of plaintiffs’ factual allegations, the Court concludes that the Second
Amended Complaint adequately pleads actionable misrepresentations under federal securities
laws.3
B.

Plaintiffs Have Adequately Alleged Scienter.

To satisfy the scienter element of a § 10(b) claim, a plaintiff must “state with particularity
facts giving rise to a strong inference that the defendant acted with the required state of mind.”
Thompson v. RelationServe Media, Inc., 610 F.3d 628, 633 (11th Cir. 2010) (citing 15 U.S.C. §
78u-4(b)(2)). In the Eleventh Circuit, that required state of mind entails “a showing of either an
intent to deceive, manipulate, or defraud, or severe recklessness.” Id. at 634; see also FindWhat
Investor Group v. FindWhat.com, 658 F.3d 1282, 1299 (11th Cir. 2011) (“Rule 10b-5 requires a
plaintiff to show that the defendant made the material misstatement or omission with the
requisite culpable state of mind, or scienter,” which is “intent to defraud or severe recklessness”)
(citation omitted). To determine the sufficiency of a pleading’s scienter allegations, “the
reviewing court must ask: When the allegations are accepted as true and taken collectively,
would a reasonable person deem the inference of scienter at least as strong as any opposing
inference?” FindWhat, 658 F.3d at 1300 (citations omitted).

3

In so determining, the Court considers and rejects defendants’ argument that the
alleged misrepresentations lack particularity because they fail to identify the specific plaintiff to
which each statement was made. (Doc. 35, at 11.) Defendants cite no authority for such a
pleading requirement, and the Court is aware of none. See FindWhat Investor Group v.
FindWhat.com, 658 F.3d 1282, 1296 (11th Cir. 2011) (enumerating pleading requirements for
misrepresentations in securities fraud context, but omitting mention of any necessity that the
audience or recipient of the alleged misrepresentation be pleaded with particularity). Moreover,
it appears to make no difference for securities fraud liability whether both plaintiffs were the
direct recipients of the alleged misrepresentations, or whether those statements were made to one
plaintiff or other (or to their legal representative or agent). In other words, it would appear that
Dekle’s claims for securities fraud would be equally valid whether the alleged fraudulent
statements were made to him directly, to his lawyer, or to his business partner. The same is true
of plaintiff Ramsay. Either way, plaintiffs’ pleading reflects that they were aware of and relied
on defendants’ misrepresentations (known by defendants to be false) that induced them to accept
GDSI stock in the Old NACSV transaction when they otherwise would not have done so.

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Defendants argue that the Second Amended Complaint flunks the scienter requirement
because it lacks “any credible allegations regarding GDSI’s or Sullivan’s supposed motives.”
(Doc. 35, at 13.) After careful examination of the Second Amended Complaint taken as a whole,
the Court disagrees. Plaintiffs’ pleading alleges that Dekle wanted the sale of Old NACSV to be
an all-cash deal, but that defendants “attempted to induce, and later succeeded in inducing,
Plaintiffs to accept newly-issued GDSI stock as part consideration.” (Doc. 33, ¶ 12.) To do so,
the Second Amended Complaint alleges, defendant Sullivan deceived Dekle with grandiose
assurances of GDSI’s financial abilities and standing, all the while knowing that GDSI’s “socalled business plan was nothing but smoke and mirrors.” (Id., ¶ 13.) The well-pleaded facts
relating to the specific alleged misrepresentations and defendants’ knowledge of their falsity
corroborate the inference that defendants acted with intent to defraud plaintiffs (i.e., with the
requisite scienter).
Nowhere is this inference clearer than with respect to the misrepresentation concerning
King Leopold II’s descendant becoming a GDSI board member. The well-pleaded allegations of
the Second Amended Complaint reflect that this statement was made during a conference call in
which GDSI and Sullivan were endeavoring to persuade plaintiffs to accept GDSI stock as
partial compensation for the sale of Old NACSV; that this “private announcement” was false;
that defendants knew it to be so; that defendants told plaintiffs a public announcement was
imminent (it was not); and that defendants encouraged plaintiffs to accept GDSI stock because of
the “stock price bump” that would occur when the public announcement was made. (Doc. 33, ¶
16.) These allegations, taken in the context of all other allegations in the Second Amended
Complaint, raise an inference that defendants were knowingly lying to plaintiffs to try to trick
them into accepting GDSI stock as part of the payment for the sale of Old NACSV. That
inference is at least as strong as any opposing inference; therefore, the element of scienter is
adequately pleaded in the Second Amended Complaint.4
4

Two points in defendants’ Reply warrant further discussion. First, defendants
insist that merely alleging that defendant Sullivan knew GDSI lacked the financial ability to
engage in some of the activities he told plaintiffs were in the offing is not probative of scienter.
Rather, defendants assert that plaintiffs must plead facts “explaining why GDSI did not have the
financial ability to implement expansion plans, and why and how Sullivan would have been
aware of that information.” (Doc. 49, at 5-6.) Financial ability or inability is a provable fact. It
is not necessary for plaintiffs to plead or prove the reasons for any such financial inability on
(Continued)
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C.

Plaintiffs Have Adequately Alleged Reliance by Ramsay.

Defendants next call into question the sufficiency of the Second Amended Complaint’s
allegations concerning reliance. This argument centers on plaintiff Ramsay, as defendants
maintain that “[p]laintiffs have failed to allege any such reliance on these statements by
Ramsay.” (Doc. 35, at 14.)
It is a correct statement of law that reliance is an element of plaintiffs’ securities fraud
claims. See, e.g., Meyer v. Greene, 710 F.3d 1189, 1194 (11th Cir. 2013) (“a plaintiff in a § 10(b)
suit must demonstrate reliance – that is, that he or she actually relied upon the alleged
misrepresentation”). “The traditional (and most direct) way a plaintiff can demonstrate reliance
is by showing that he was aware of a company’s statement and engaged in a relevant transaction
– e.g., purchasing common stock – based on that specific misrepresentation.” Id. (citation

GDSI’s part. If (as plaintiffs have alleged) GDSI promised plaintiffs that it was going to do
certain things it knew it was financially incapable of doing, then that is evidence of scienter. As
for Sullivan’s awareness, the Second Amended Complaint alleges that he “is, and was at all
times pertinent hereto, President, CEO, and Chairman of the Board of Defendant GDSI and was
in a position to, and did control, GDSI.” (Doc. 33, ¶ 4.) Defendants apparently contend that no
reasonable person could infer that a company’s controlling executive would have knowledge of
the company’s financial constraints. Such an argument is unpersuasive at the pleadings stage.
To the contrary, a reasonable (and, indeed, strong) inference may be drawn from the Second
Amended Complaint that GDSI’s President, CEO and Chairman of the Board would be keenly
aware of the company’s financial status and inability to engage in the bombastic expansion plans
he was describing to entice plaintiffs to accept company stock as compensation. Second,
defendants’ argument in the Reply that “Plaintiffs have simply alleged no personal motive for
Richard Sullivan to commit securities fraud” (doc. 49, at 7) misses the mark. The Second
Amended Complaint reflects that GDSI (of which Sullivan was President, CEO and Chairman)
was purchasing Old NACSV from plaintiffs, who wanted an all-cash deal. Convincing plaintiffs
to accept purportedly worthless GDSI stock in lieu of some of the cash would enable GDSI
(Sullivan’s company) to save money on the transaction. The allegations of motive are clear. To
be sure, defendants are free to vigorously contest those allegations as this case moves forward.
What they cannot successfully do at the pleadings stage, however, is argue that those allegations
are so farfetched that they do not adequately plead scienter. Besides, plaintiffs were certainly not
required to plead that Sullivan had some “personal motive” for the alleged fraud separate and
apart from the anticipated benefit to the company he heads and controls. Defendants identify no
case authority supporting the proposition that scienter cannot be established absent proof that the
particular defendant stood to profit personally from the deception. A person can intend to
defraud someone else even if the direct financial beneficiary of the fraud will be that person’s
company, rather than the person himself or herself.

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omitted). The current iteration of plaintiffs’ complaint adequately pleads that form of reliance
with regard to plaintiff Ramsay. The Second Amended Complaint identifies the alleged
misrepresentations made by defendants, indicates that “Plaintiffs did not realize the fraudulent
nature or falsity of these representations,” and alleges that “[t]he misrepresentations caused the
Plaintiffs to accept stock rather than cash as partial payment of the purchase price.” (Doc. 33, ¶
20.) Such allegations are facially adequate to plead reliance. A fair reading of the Second
Amended Complaint is that plaintiff Ramsay was aware of the misrepresentations, that he did not
know they were false, and that he accepted GDSI stock as partial payment for the sale of Old
NACSV in reliance on same.5 The reliance element is satisfactorily pleaded.
D.

Plaintiffs Have Adequately Alleged Loss Causation.

Defendants’ final incursion against the securities fraud claims pleaded in the Second
Amended Complaint relates to loss causation. “The loss causation element of a Rule 10b-5
claim requires that the defendant’s fraud be both the but-for and proximate cause of the
plaintiff’s later losses.” FindWhat, 658 F.3d at 1309 (emphasis added). Thus, “[t]he plaintiff
must show that the defendant’s fraud – as opposed to some other factor – proximately caused his
claimed losses.” Id. This concept is distinct from reliance or transactional causation (i.e., that
plaintiffs would not have accepted GDSI stock shares as payment absent the alleged fraud). In
the words of the Eleventh Circuit, “[w]hile reliance focuses on the front-end causation question
of whether the defendant’s fraud induced or influenced the plaintiff’s stock purchase, loss
causation provides the bridge between reliance and actual damages.” Id. at 1311 (citation and
internal quotation marks omitted). Simply put, then, the loss causation element requires proof of
5

Defendants’ reliance argument for dismissal of the Second Amended Complaint
appears to reformulate their contention that the pleading fails to state a claim unless it identifies
misrepresentations communicated directly to plaintiff Ramsay, rather than his business partner or
his lawyer. Again, defendants have identified neither legal authority nor persuasive reasoning to
support the proposition that a plaintiff cannot assert viable securities fraud claims unless the
challenged misrepresentations were made to him directly, much less that some kind of
heightened pleading requirement attaches in that scenario. The Second Amended Complaint
alleges that defendants repeatedly, intentionally lied to Dekle and plaintiffs’ counsel to trick
plaintiffs into accepting GDSI stock as part of the purchase price, and that plaintiffs relied on
those misrepresentations in agreeing to do so. Defendants have not shown such allegations to be
legally inadequate with regard to either the misrepresentation or the reliance elements of a
securities fraud claim under federal or Alabama law.

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“a causal connection between the misrepresentation and the investment’s subsequent decline in
value.” Meyer, 710 F.3d at 1195.6
The Second Amended Complaint directly alleges that the alleged misrepresentations were
the but-for cause of plaintiffs’ losses (i.e., that Dekle and Ramsay never would have accepted
GDSI stock at all if not for defendants’ lies and deception). (Doc. 33, ¶¶ 20-21.) The pleading
further alleges that the GDSI stock price fell from $0.35 per share to $0.04 per share. (Id., ¶ 27.)
In accordance with the FindWhat / Meyer line of authorities, the loss causation element requires
plaintiffs to plead and prove a causal connection between the complained-of misrepresentations
and the GDSI stock price decline. Defendants’ position is that plaintiffs have failed to do so.
In their Response, plaintiffs point to allegations of but-for causation (which is
analytically distinct from loss causation, as shown above) and allegations that GDSI failed to use
commercially reasonable efforts to run New NACSV (the acquired company) and repudiated the
purchase agreement (both of which are inapposite to whether there is a causal link between the
alleged misrepresentations and the ensuing collapse of GDSI’s stock price). (Doc. 47, at 7-8.)
These arguments misapply the concept of loss causation in the securities fraud context. Again,
what is relevant (and what plaintiffs must prove) as to the loss causation element is that
defendants’ misrepresentations were causally connected to the decline of GDSI’s stock price, not
whether (i) plaintiffs relied on the misrepresentations in agreeing to accept GDSI shares as
payment or (ii) GDSI operated the acquired business poorly. See, e.g., Loos v. Immersion Corp.,
762 F.3d 880, 887 (9th Cir. 2014) (“Ultimately, a securities fraud plaintiff must prove that the
defendant’s misrepresentation was a ‘substantial cause’ of his or her financial loss.”);
6

Loss causation provides an integral check and balance to the securities fraud
statutory scheme. After all, the purpose of securities statutes is “not to provide investors with
broad insurance against market losses, but to protect them against those economic losses that
misrepresentations actually cause.” Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 345,
125 S.Ct. 1627, 161 L.Ed.2d 577 (2005); see also Meyer, 710 F.3d at 1196 (“[T]hough § 10(b) is
designed to protect against fraud, it is not a prophylaxis against the normal risks attendant to
speculation and investment in the financial markets, and loss causation therefore ensures that
private securities actions remain a scalpel for defending against the former, while not becoming a
meat axe exploited to achieve the latter.”). In a nutshell, then, the loss causation element
“attempts to distinguish cases where the misrepresentation was responsible for the drop in the
share’s value from those in which market forces are to blame.” Ray v. Citigroup Global
Markets, Inc., 482 F.3d 991, 995 (7th Cir. 2007).

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Bricklayers and Trowel Trades Int’l Pension Fund v. Credit Suisse Securities (USA) LLC, 752
F.3d 82, 97 (1st Cir. 2014) (loss causation requires shareholders “to show a connection between
CSFB’s deceptive practices and the drop in AOL’s stock price”).
Notwithstanding the foregoing, the undersigned’s reading of the Second Amended
Complaint confirms that loss causation is adequately pleaded therein. There are multiple
avenues for establishing loss causation in securities fraud cases. One method is by alleging that
“when the ‘relevant truth’ about the fraud began to leak out or otherwise make its way into the
marketplace, it caused the price of the stock to depreciate and, thereby, proximately caused the
plaintiff’s economic harm.” Public Employees Retirement System of Mississippi, Puerto Rico
Teachers Retirement System v. Amedisys, Inc., 769 F.3d 313, 320 (5th Cir. 2014); Damian v.
Montgomery County Bankshares, Inc., 981 F. Supp.2d 1368, 1383 (N.D. Ga. 2013) (loss
causation may be satisfied by allegations “that the share price of the security at issue fell
significantly after the truth became known”). The Second Amended Complaint advances just
such a theory of loss causation. Indeed, this pleading alleges the following: (i) the decline in
GDSI’s stock price resulted when “GDSI’s and Sullivan’s misleading, fraudulent or other
wrongful statements [were] discovered by the market” (doc. 33, ¶ 8); (ii) GDI’s stock price
“collapsed when the market realized that GDSI’s business plan was a sham” (id., ¶ 18); and (iii)
“Plaintiffs had seen their stock value decline from $0.35 per share to $0.04 per share and
otherwise realized that they had been defrauded into accepting stock in a failing business” (id., ¶
27). Thus, plaintiffs’ theory, as articulated in the Second Amended Complaint, is that defendants
made various misrepresentations to them concealing that GDSI’s business plan was “smoke and
mirrors” and that the company was “failing.” When the marketplace discovered the truth (i.e.,
that GDSI’s business plan was a “sham” and that the business was “failing”), plaintiffs allege,
the stock price fell precipitously. These allegations supply the requisite causal connection
between the purported misrepresentations and plaintiffs’ economic losses, so as to satisfy the loss
causation element.
In their Reply, defendants contend that such allegations fail to plead loss causation
because “Plaintiffs do not provide any concrete explanations as to how these representations had
any effect on the stock price.” (Doc. 49, at 10.) Defendants overstate the pleading burden for
loss causation in securities fraud cases. In discussing this burden, the Supreme Court opined that
“it should not prove burdensome for a plaintiff who has suffered an economic loss to provide a

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defendant with some indication of the loss and the causal connection.” Dura Pharmaceuticals,
Inc. v. Broudo, 544 U.S. 336, 347, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005). Appellate courts
have generally not imposed any heightened pleading requirement as to loss causation, but have
instead deemed it sufficient for a plaintiff to allege that the share price fell when the truth
became known. See, e.g., Spitzberg v. Houston American Energy Corp., 758 F.3d 676, 687 (5th
Cir. 2014) (“the Supreme Court explicitly declined to address whether any heightened pleading
requirement applies to” loss causation element, and statute “does not indicate that it imposes any
heightened standard, or make any mention of a ‘particularity’ requirement with respect to loss
causation”); Loos, 762 F.3d at 887 (“[a]t the pleading stage … the plaintiff need only allege that
the decline in the defendant’s stock price was proximately caused by a revelation of fraudulent
activity,” such as by alleging that “the market learned of and reacted to the fraud”) (citations and
internal marks omitted); WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d
1039, 1053 (9th Cir. 2011) (“A plaintiff can plead loss causation by alleging that the share price
fell significantly after the truth became known, or by alleging that the content of the omissions
caused his or her loss.”). By alleging that GDSI’s stock price fell after the market became aware
of the truth concerning the state of GDSI’s business, plaintiffs have adequately pleaded loss
causation. Accordingly, the Second Amended Complaint withstands defendants’ Rule 12(b)(6)
challenge with respect to loss causation.7

7

That said, plaintiffs may face a difficult task in proving (as opposed to pleading)
loss causation. At trial, plaintiffs must show that the economic losses of which they complain
(i.e., the plummeting value of their GDSI stock shares) “were attributable to the revelation of the
fraud and not the myriad other factors that affect a company’s stock price.” Bricklayers and
Trowel Trades, 752 F.3d at 95 (citation omitted); see also Dura, 544 U.S. at 343 (lower stock
price “may reflect, not the earlier misrepresentation, but changed economic circumstances,
changed investor expectations, new industry-specific or firm-specific facts, conditions, or other
events, which taken separately or together account for some or all of that lower price”);
FindWhat, 658 F.3d at 1310 (“The plaintiff must show that the defendant’s fraud – as opposed to
some other factor – proximately caused his claimed losses.”); Ray, 482 F.3d at 994-95 (“If the
plaintiff cannot prove ‘loss causation’ – that is, the fact that the defendant’s actions had
something to do with the drop in value – then the claim must fail.”). In the absence of corrective
disclosures (which are not alleged to have been made), plaintiffs may be hard-pressed to
demonstrate how and when the marketplace became aware of the “relevant truth,” and to show
that the decline in GDSI’s stock price was caused by such a revelation, as opposed to more
general market forces. However, these questions of proof are properly reserved for another day.
(Continued)
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III.

Conclusion.
For all of the foregoing reasons, Defendants’ Motion to Dismiss Second Amended

Complaint (doc. 35) is denied. Defendants are ordered to file their Answer(s) to the Second
Amended Complaint on or before September 28, 2015.
DONE and ORDERED this 14th day of September, 2015.
s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE

For now, it suffices to find – as the Court does – that plaintiffs have adequately alleged loss
causation to defeat defendants’ Rule 12(b)(6) Motion.

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