Janes, Inc et al v. Moates et al
OPINION AND ORDER granting 31 Motion to Dismiss for Failure to State a Claim; denying motions as moot 46 Motion for Extension of Time to File Response/Reply; 50 Motion to Compel; 52 Motion to Continue and 53 Motion to Compel. Signed by Honorable P. K. Holmes, III on January 31, 2014. (sh)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FORT SMITH DIVISION
JANES, INC. and LOREN JANES
Case No. 2:13-CV-02049
WILLIAM J. MOATES; SUNAMERICA ASSET
MANAGEMENT CORP. f/k/a AIG SUN
AMERICA ASSET MGT. CORP.; and
SUNAMERICA CAPITAL SERVICES, INC. f/k/a
AIG SUNAMERICA CAPITAL SERVICES, INC.
OPINION AND ORDER
Currently before the Court is a motion to dismiss (Doc. 31) filed by Defendants SunAmerica
Asset Management Corp., f/k/a AIG SunAmerica Asset Management Corp. (“SAAMCo.”), and
SunAmerica Capital Services, Inc., f/k/a AIG SunAmerica Capital Services, Inc. (“SunAmerica
Capital”). Plaintiffs Janes, Inc. and Loren Janes filed a response in opposition (Doc. 39), to which
SAAMCo. and SunAmerica Capital (collectively the “SunAmerica Defendants”) have replied (Doc.
45). For the reasons set forth herein, the SunAmerica Defendants’ motion to dismiss is GRANTED.
The following facts track the allegations in the complaint1 and must be accepted as true for
purposes of a Rule 12(b)(6) motion. Public Pension Fund Group v. KV Pharm. Co., 679 F.3d 972,
975 (8th Cir. 2012).
Plaintiff Loren Janes is an individual and the registered representative of Plaintiff Janes, Inc.,
a domestic corporation. Prior to the transactions at issue here, Plaintiffs maintained a 401(k)
account with the SunAmerica Defendants under account number 9314932 (the “SunAmerica
Unless otherwise indicated, references to the “complaint” refer to the first amended
complaint (Doc. 21) filed June 12, 2013.
account”). Separate Defendant Moates2 is an individual who, at the time of the dispute, was
employed by the National Planning Corporation (“NPC”)3 as a securities sales person or registered
representative. Id. at ¶¶ 10–11. Plaintiffs also allege that Moates was authorized to act on behalf
of the SunAmerica Defendants. Throughout the complaint, SAAMCo. and Defendant SunAmerica
Capital are referred to interchangeably. However, there are no allegations as to the nature of any
affiliation or relationship between SunAmerica Capital and SAAMCo. Moreover, while Defendant
SAAMCo. is alleged to be a corporation doing business in Arkansas as a broker-dealer, there are no
allegations as to the nature of SunAmerica Capital’s business; in fact, the only specific allegation
regarding SunAmerica Capital is that it was formerly known as AIG SunAmerica Capital Services,
Inc. Id. at ¶ 7.
According to Plaintiffs’ complaint, on December 29, 2010, Moates, acting for himself and
NPC, personally visited Loren Janes and induced Plaintiffs “to invest in securities which was [sic]
issued by SAAMCo. and/or SunAmerica Capital as a 401(k) account and/or mutual fund/money
market account, which account had an account number of 9314932.” Id. at ¶ 11. Plaintiffs further
allege Moates induced them to issue a check for $85,600.00 payable to the Janes, Inc. Defined
Benefit Plan (the “Plan”), “which Moates described as an additional contribution to the existing
account.” Id. At that time, Moates represented to Plaintiffs that the funds would be held in the
SunAmerica account. Contrary to Moates’s statement, Defendants transferred the funds to HR
Administration, Inc. and/or HR Financial Services, Inc. (collectively “HR Administration”),
corporations owned, operated, or otherwise under the control of non-party Robert Hague-Rogers.
Moates is not a party to the instant motion to dismiss.
NPC was voluntarily dismissed as a defendant in this action on May 15, 2013.
Plaintiffs further claim that all Defendants knew or should have known that Plaintiffs’ investment
needs and objectives were to hold the funds in question in the existing account, and such funds were
not to be transferred or sold without the express written consent of Plaintiffs. Id. at ¶ 14.
Plaintiffs next allege that on March 24, 2011, Moates, with the cooperation and assistance
of the SunAmerica Defendants and without Plaintiffs’ consent or authorization, caused the balance
of funds held in the SunAmerica account, $157,078.30 (the “balance funds”), to be withdrawn and
transferred to an account controlled and operated by Mr. Hague-Rogers (the “Hague-Rogers
account”).4 According to Plaintiffs, the SunAmerica Defendants permitted and facilitated the
unauthorized transfer of the proceeds5 of the SunAmerica account. When Loren Janes attempted
to retrieve the funds in July or August of 2012, he was informed that substantially all of the proceeds
of the account had been lost or were missing. Mr. Janes was subsequently advised that Mr.
Hague-Rogers defrauded various investors, and Loren Janes was identified as a victim of such fraud.
Plaintiffs filed a complaint in this Court, alleging claims of federal and state securities fraud,
negligence, conversion, and respondeat superior. The Court’s jurisdiction over this matter is based
on § 27 of the Securities Exchange Act of 1934 (“SEA”), which gives federal courts exclusive
jurisdiction over claims arising out of the SEA and its implementing rules and regulations. Plaintiffs
assert claims against the SunAmerica Defendants under §§ 10(b) and 20 of the SEA, and SEC Rule
10b-5.6 The SunAmerica Defendants now move to dismiss Plaintiffs’ complaint on grounds that
It is unclear whether the balance funds were transferred to the same entity and/or account
as the contribution funds.
It appears that Plaintiffs are referring to the withdrawal of the balance funds when they refer
to the “transfer of the proceeds of the account.” (Doc. 21, ¶ 16).
Plaintiffs also attempt to assert some type of claim regarding a violation of SEA rules on
the basis of alleged Financial Industry Regulatory Authority (“FINRA”) rule violations, but the
Plaintiffs cannot satisfy the elements of their federal securities fraud claims or their state-law claims,
and because Plaintiffs failed to plead their fraud claims with sufficient particularity.
Motion to Dismiss
The Court’s inquiry in reviewing the sufficiency of a complaint is necessarily limited,
because “[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is
entitled to offer evidence to support the claims.” Caremark, Inc. v. Coram Healthcare Corp., 113
F.3d 645, 648 (7th Cir. 1997) (citation omitted). “To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007)). In reviewing the complaint, the Court must assume the truth of the factual
allegations and draw all reasonable inferences in favor of the plaintiff. Lustgraaf v. Behrens, 619
F.3d 867, 872–73 (8th Cir. 2010). However, legal conclusions couched as factual allegations are
not entitled to the same presumption of truth, and “[t]hreadbare recitals of the elements of a cause
of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678. “A
claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “[W]here the
Court concludes that the pleadings do not, as a matter of law, set forth facts sufficient to state a claim
upon which relief may be granted, the Court should grant the defendant’s motion to dismiss.” In re
Staffmark, Inc. Sec. Litig., 123 F. Supp. 2d 1160, 1163 (E.D. Ark. 2000).
Court cannot readily discern a cognizable cause of action for securities fraud based on FINRA
violations in the allegations contained in the complaint. However, assuming Plaintiffs do allege a
cognizable claim based on FINRA violations, any such claim is subject to dismissal due to
Plaintiffs’ general failure to allege sufficient facts to state a claim for securities fraud.
Materials to be Considered
In support of their motion, the SunAmerica Defendants submitted two exhibits: a Financial
Industry Regulatory Authority (“FINRA”) broker check report (Doc. 32-1) and an Arkansas
Department of Insurance producer license report (Doc. 32-2). Plaintiffs object to the exhibits,
arguing that the Court should exclude the documents from consideration because they are
unauthenticated hearsay, and if the documents are considered, the Court must convert the motion
to dismiss into a motion for summary judgment and provide Plaintiffs with a reasonable period of
time to conduct discovery.7
The Court will exclude the SunAmerica Defendants’ supporting documentation from
consideration and declines to take judicial notice of the contents of the documents. While some
matters of public record may be appropriate to take into consideration at this stage of the
proceedings, it is not the mere fact that a document is a public record that makes it so; it is the fact
that the information is otherwise an appropriate subject of judicial notice. See Papasan v. Allain,
478 U.S. 265, 269 n.1 (1986) (noting that a court may take judicial notice of matters in the public
record when reviewing a complaint on a motion to dismiss under Rule 12(b)). “Judicial notice of
The Court rejects Plaintiffs’ proposition that it must either exclude the documents or treat
the motion as one for summary judgment. “In this circuit, Rule 12(b)(6) motions are not
automatically converted into motions for summary judgment simply because one party submits
additional matters in support of or opposition to the motion.” Missouri ex rel. Nixon v. Coeur
D’Alene Tribe, 164 F.3d 1102, 1107 (8th Cir. 1999); see also Outdoor Cent., Inc. v.
GreatLodge.com, Inc., 643 F.3d 1115, 1120 (8th Cir. 2011) (courts are not strictly limited to the four
corners of the complaint when ruling on a motion to dismiss for failure to state a claim); Miller v.
Redwood Toxicology Lab., Inc., 688 F.3d 928, 931 n.3 (8th Cir. 2012) (“While courts primarily
consider the allegations in the complaint in determining whether to grant a Rule 12(b)(6) motion,
courts additionally consider ‘matters incorporated by reference or integral to the claim, items subject
to judicial notice, matters of public record, orders, items appearing in the record of the case, and
exhibits attached to the complaint whose authenticity is unquestioned;’ without converting the
motion into one for summary judgment.”) (quoting 5B Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1357 (3d ed. 2004)).
a fact is only to be taken when that fact is not subject to reasonable dispute.” Lustgraaf, 619 F.3d
at 885 (citing Fed. R. Evid. 201(b)(2)). The exhibits are offered here to show that Moates was never
a registered representative or licensed producer for the SunAmerica Defendants, and that Moates
was no longer affiliated with any broker at the time the alleged misrepresentations were made.
(Doc. 32, p. 4). Not only do these propositions contradict the complaint, but Plaintiffs argue in their
response that Moates was an agent of the SunAmerica Defendants. This subjects the issue of
Moates’s relationship or affiliation with the SunAmerica Defendants to reasonable dispute. As such,
it would be inappropriate for the Court to consider these documents in ruling on the instant motion
to dismiss, even though they are matters of public record. See Kushner v. Beverly Enterprises, Inc.,
317 F.3d 820, 830, 832 (8th Cir. 2003) (declining to consider a document offered to prove the truth
of the matters asserted therein, where such matters were in dispute, and noting courts may consider
SEC filings where the documents were required by law to be filed with the SEC and were not
offered to prove the truth of the documents’ contents); cf. Little Gem Life Scis. LLC v. Orphan Med.,
Inc., 537 F.3d 913, 916 (8th Cir. 2008) (holding that district court did not err in considering SEC
filings to obtain background facts, where such facts did not contradict the complaint and were not
critical to the outcome of the motion to dismiss); Brodkorb v. Minnesota, 2013 U.S. Dist. LEXIS
19416, at *10 (D. Minn. Feb. 13, 2013) (agreeing to consider certain matters of public record that
provided relevant background information and did not contradict the complaint).
The SunAmerica Defendants also ask the Court to take judicial notice of the fact that
SAAMCo. is not now, nor has it ever been, a registered broker-dealer or member of FINRA.8 The
No documentary evidence is offered in support of this proposition. Instead, the
SunAmerica Defendants contend this fact “can be confirmed by searching the company name
through the FINRA broker check search tool located at
http://brokercheck.finra.org/Search/Search.aspx.” (Doc. 32, n.3).
Court declines to take judicial notice of this fact, as the matter is disputed by Plaintiffs and therefore
judicial notice is not appropriate.
After a thorough review of the complaint, the Court has two initial observations. First,
Plaintiffs’ allegations are largely conclusory statements that mirror the language of the applicable
statutory and regulatory provisions. As mentioned above, such statements are not entitled to a
presumption of truth. Iqbal, 556 U.S. at 678. Second, the complaint sets out its allegations in a
rambling format, and Plaintiffs’ multiple claims for relief are lumped together without any
distinction. The lack of any coherent organization makes effective review difficult. The preferred
manner of pleading is to set out the various claims for relief in separate counts. See Fed. R. Civ. P.
10(b) (“If doing so would promote clarity, each claim founded on a separate transaction or
occurrence . . . must be stated in a separate count.”).
Federal Securities Fraud Claims
Plaintiffs allege that all Defendants violated the anti-fraud provisions of § 10(b) of the SEA
and SEC Rule 10b-5. Section 10(b) prohibits the use of “any manipulative or deceptive device or
contrivance in contravention of [SEC rules and regulations]” in connection with the purchase or sale
of any security. 15 U.S.C. § 78j. To state a cognizable claim for fraud under § 10(b), a private
plaintiff must allege conduct by the defendant that is “manipulative or deceptive” within the
meaning of the statute. “[I]n situations not involving a manipulative scheme, the conduct alleged
as fraudulent must include deception, misrepresentation, or nondisclosure to violate § 10(b) or Rule
10b-5. Pross v. Baird, Patrick & Co., 585 F. Supp. 1456, 1458–59 (S.D. N.Y. 1984). Pursuant to
§ 10(b), the SEC promulgated Rule 10b-5, which enumerates three types of prohibited conduct.
Rule 10b-5 “makes it unlawful for any person, in connection with the purchase or sale of any
security, to (a) employ any device, scheme or artifice to defraud, (b) make an untrue statement of
material fact or omit material facts from a statement, or (c) engage in a fraudulent or deceptive
course of business.” Siepel v. Bank of America, N.A., 526 F.3d 1122, 1125 (8th Cir. 2008) (citing
17 C.F.R. § 240.10b-5). Plaintiffs further allege that the SunAmerica Defendants violated § 20 of
the SEA, which extends liability for conduct prohibited by § 10(b) and Rule 10b-5 to any
“controlling person.” Kushner, 317 F.3d at 826.
“To prevail, a § 10(b)/Rule 10b–5 claimant ordinarily must show ‘(1) a material
misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the
misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and (6) loss causation.’” Minneapolis
Firefighters’ Relief Ass’n v. MEMC Elec. Materials, 641 F.3d 1023, 1028 (8th Cir. 2011) (quoting
Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 158 (2008)). The SunAmerica
Defendants challenge the sufficiency of Plaintiffs’ federal securities fraud claims in three respects.
First, they contend that Plaintiffs failed to plead sufficient facts to allege “transaction causation,”
which relates to the element of reliance in the securities fraud context. See Dura Pharm., Inc. v.
Broudo, 544 U.S. 336, 341 (2005) (noting that in the securities fraud context, the element of
reliance is often referred to as “transaction causation”). Second, they argue Plaintiffs failed to allege
that any fraudulent conduct was in connection with the purchase or sale of a security. Third, they
assert generally that Plaintiffs failed to plead their SEA claims with sufficient particularity to meet
the heightened pleading standard of Rule 9(b).
Liability under § 10(b)
The SunAmerica Defendants’ first argument is that Plaintiff failed to adequately plead
“transaction causation,” or reliance. In a private cause of action under § 10(b), the plaintiff must
plead and prove reliance upon a defendant’s deceptive acts to ensure that there is a proper
connection between the defendant’s misrepresentation and the plaintiff’s injury. Erica P. John
Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179, 2184–85 (2011); see also Stoneridge, 552 U.S. at 159
(“Reliance by the plaintiff upon the defendant's deceptive acts is an essential element of the § 10(b)
private cause of action. It ensures that, for liability to arise, the requisite causal connection between
a defendant's misrepresentation and a plaintiff's injury exists as a predicate for liability.”) (quotation
omitted). “The traditional (and most direct) way a plaintiff can demonstrate reliance is by showing
that he was aware of [a defendant’s] statement and engaged in a relevant transaction . . . based on
that specific misrepresentation.” Erica P. John Fund, 131 S. Ct. at 2184–85. A defendant who does
not make a specific oral or written statement, but otherwise engages in a course of conduct that is
deceptive, may be subject to liability under § 10(b) or Rule 10b-5 if the plaintiff relied upon the
defendant’s deceptive acts. Stoneridge, 552 U.S. at 158–159.
Plaintiffs allege that the SunAmerica Defendants engaged in deceptive conduct by helping
Moates make unauthorized transfers out of Plaintiffs’ SunAmerica account. The complaint mentions
two unauthorized transfers: the transfer of $85,600.00 to HR Administration, and the withdrawal of
the balance funds and transfer to the Hague-Rogers account. A “relevant transaction” is the
purchase or sale of a security. The only allegation that could be construed as Plaintiffs—or anyone
else— engaging in the purchase or sale of a security is the allegation that they provided Moates with
a check for $85,600.00. Because the unauthorized transfers occurred after the alleged securities
purchase, Plaintiffs cannot show that they engaged in any relevant transactions based on any
deceptive conduct attributable to the SunAmerica Defendants. Furthermore, Plaintiffs do not allege
that the SunAmerica Defendants made any misstatements or omissions, and they cannot be directly
liable for any of Moates’s misstatements or omissions.9 Under these circumstances, Plaintiffs cannot
show that they relied upon any of the SunAmerica Defendants’ deceptive acts in the decision to
purchase or sell securities. Therefore, Plaintiffs cannot establish the element of reliance as to
SAAMCo. or SunAmerica Capital. The Court finds that Plaintiffs failed to state a claim for relief
against the SunAmerica Defendants under § 10(b) or Rule 10b-5.
Control Person Liability under § 20
Plaintiffs also bring claims against the Sunamerica Defendants as “control persons” under
§ 20 of the SEA. Section 20 creates joint and several liability for persons who control the activities
of a person who violates the SEA. 15 U.S.C. § 78t. A claim based on liability as a “control person”
under § 20 is a derivative claim, so there must first be a primary violation under § 10(b). In re
Hutchinson Tech., Inc. Sec. Litig., 536 F.3d 952, 961 (8th Cir. 2008); see also Lustgraaf, 619 F.3d
at 874 (“[A]bsent a primary violation, a claim for control-person liability must fail.”). Although
Plaintiffs failed to allege a claim that the SunAmerica Defendants are primarily liable, they may be
subject to secondary liability if Plaintiffs state a claim against Moates under § 10(b). The
SunAmerica Defendants argue that Plaintiffs failed to plead a primary violation by a controlled
person, and they also contest Moates’s status as a person subject to their control . As such, the Court
must address the sufficiency of Plaintiffs’ claims against Moates, even though he is not a party to
the instant motion.
“Transaction Causation” or Reliance
The allegations against Moates, like those against the SunAmerica Defendants, allege he
“Section 10(b) . . . imposes liability only on a person who makes a material misstatement
or omission, not on a person who aids in making the misstatement or omission.” McAdams v.
McCord, 584 F.3d 1111, 1114 (8th Cir. 2011).
engaged in deceptive conduct by making unauthorized transfers. For the same reasons Plaintiffs
failed to state a claim based on unauthorized transfers against the SunAmerica Defendants, Plaintiffs
failed to state a claim based on unauthorized transfers against Moates. However, the complaint also
alleges Moates engaged in other deceptive conduct. Specifically, Plaintiffs allege Moates falsely
represented to Plaintiffs that the $85,600.00 would be held in the SunAmerica account, and he failed
to tell them that the funds would be transferred to HR Administrators.
The Court finds that Plaintiffs failed to allege any reliance on Moates’s statement and/or
omission. Plaintiffs allege that Moates’s statement was made in person to Mr. Janes at the time of
the relevant transaction, so Plaintiffs were clearly aware of Moates’s representation that the
$85,600.00 would be held in the SunAmerica account. However, Plaintiffs do not allege that they
purchased or sold a security based on that specific representation. Even if Plaintiffs had alleged that
they purchased a security based on Moates’s statement, Plaintiffs otherwise failed to state a claim
against Moates under § 10b or Rule 10b-5, as discussed below. Accordingly, allowing Plaintiffs
leave to amend to allege reliance would be futile.
Fraud in Connection with the Purchase or Sale of a Security
The SunAmerica Defendants challenge Plaintiffs’ allegations by denying that the
SunAmerica account is a “security” under the SEA and arguing that Plaintiffs have only alleged an
attempt to purchase a security, which is not covered under § 10(b). They further argue that Plaintiffs
failed to plead sufficient facts that the alleged fraudulent conduct was “in connection with” the
purchase or sale of a security.
Plaintiffs’ complaint only alleges a purchase, not a sale. Under the SEA, “[t]he terms ‘buy’
and ‘purchase’ each include any contract to buy, purchase, or otherwise acquire.” 15 U.S.C. §
78c(a)(13). The only potential purchase is Plaintiffs’ additional contribution to the Plan. The
complaint refers to other transactions involving transfers of funds between various accounts, but
moving funds from one account to another is not a purchase, and there are no allegations that any
securities were bought, sold, or otherwise traded as a part of these transfers. While the Court must
construe the complaint liberally in Plaintiffs' favor, the Court cannot discern facts where none are
According to the complaint, the alleged fraud involved the purchase or sale of a security
because Moates induced Plaintiffs “to invest in securities which was [sic] issued by SAAMCo.
and/or SunAmerica Capital as a 401(k) and/or mutual fund/money market account.” (Doc. 21, ¶ 11).
Plaintiffs do no allege that the SunAmerica account contains assets that are securities; instead, they
argue that the account itself is a security.10 The Court agrees with the SunAmerica Defendants that
the SunAmerica account, itself, is not within the definition of a “security” under the SEA.11
Plaintiffs argue that a 401(k) account is within the SEA’s definition of a “security” as a
“group or index of securities.” (Doc. 39, p. 12, citing 15 U.S.C. § 78(c)(a)(10)).
The SEA defines a “security” as follows:
The term “security” means any note, stock, treasury stock, security future,
security-based swap, bond, debenture, certificate of interest or participation in any
profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any
collateral-trust certificate, preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate, certificate of deposit for a
security, any put, call, straddle, option, or privilege on any security, certificate of
deposit, or group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into on a
national securities exchange relating to foreign currency, or in general, any
instrument commonly known as a “security”; or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, or warrant or right
to subscribe to or purchase, any of the foregoing; but shall not include currency or
any note, draft, bill of exchange, or banker's acceptance which has a maturity at the
time of issuance of not exceeding nine months, exclusive of days of grace, or any
renewal thereof the maturity of which is likewise limited.
15 U.S.C. § 78c(a)(10).
Plaintiffs make two arguments regarding the alleged purchase of a security. First, they
maintain that the relevant transaction was more than a mere attempted purchase because “Moates
did represent to Plaintiff, Janes, Inc., that a contribution to the existing security account issued by
SunAmerica would be purchased and a different security was purchased instead.” (Doc. 39, p. 10)
(emphasis in original). As argued and as alleged, Plaintiffs made an additional contribution to the
Plan. There are no allegations that the contribution funds were used to acquire a security. Second,
Plaintiffs contend that “it is alleged that Moates . . . sold to Janes, Inc. an ‘option’ to purchase a
further interest in the existing account, but had the secret intention to misdirect the funds, and not
honor the ‘option’.” (Doc. 39, pp. 10–11). This argument misconstrues the meaning of an “option”
and lacks any support from the allegations. There is no indication that Moates sold Plaintiffs an
option. Furthermore, the complaint is devoid of any allegations regarding Moates’s intent.12
In order to conclude that Plaintiffs state a claim under § 10b, the Court must not only infer
that an “additional contribution” to a pre-existing retirement plan qualifies as the purchase of a
security, but also conclude that Moates engaged in deceptive conduct in connection with this
purchase. Assuming arguendo that Plaintiffs purchased a security, the critical question becomes
whether the alleged misrepresentation and omission were “in connection with” that purchase.
While the “in connection with” requirement is construed broadly by the SEC, it is given a
more narrow construction in private Rule 10b-5 actions. Siepel v. Bank of Am., N.A., 526 F.3d 1122,
1126 (8th Cir. 2002). As mentioned above, Plaintiffs have not alleged any form of reliance on
Moates’s statement and/or omission in their decision to purchase a security. The statement and its
corresponding omission relate to the ultimate disposition of funds, not to the nature of the security
The lack of allegations as to scienter are addressed in more depth below in the discussion
of Plaintiffs’ failure to plead with the requisite particularity.
or its value. The Court cannot find that Plaintiffs have alleged the requisite connection between the
alleged fraud and the purchase.
Even when construing the complaint in Plaintiffs’ favor, the Court cannot conclude that
Plaintiffs have sufficiently alleged any fraudulent conduct in connection with the purchase or sale
of a security within the meaning of § 10(b). Although Moates did not file a motion to dismiss, the
Court will sua sponte dismiss the § 10(b) claim against Moates for failure to state a claim. See Smith
v. Boyd, 945 F.2d 1041, 1042 (8th Cir. 1991) (holding that “a district court sua sponte may dismiss
a complaint under Rule 12(b)(6) as long as the dismissal does not precede service of process”).
Since the Court has dismissed Plaintiffs’ § 10(b) claims against all Defendants, there is no
predicate offense upon which control person liability can be based. Therefore, Plaintiffs’ claims
under § 20 must also be dismissed.
Failure to Allege Fraud with Particularity
The SunAmerica Defendants argue Plaintiffs’ complaint fails to meet the heightened
pleading requirements of Federal Rule of Procedure 9(b). Under Rule 9(b), “[i]n all averments of
fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.”
Fed. R. Civ. P. 9(b). However, to satisfy the pleading requirements for their SEA claim, Plaintiffs’
complaint must not only meet the standard of Rule 9(b), it must also satisfy the special pleading
requirements for securities fraud claims adopted by Congress under the Private Securities Litigation
Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(b).
Under the PSLRA, the complaint must identify “each statement alleged to have been
misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the
statement or omission is made on information and belief, the complaint shall state with particularity
all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). “The circumstances of the fraud
must be stated with particularity, including such matters as the time, place and contents of false
representations, . . . [t]his means the who, what, when, where, and how.” Public Pension, 679 F.3d
at 980 (internal quotations and citations omitted). It is not enough to allege that fraud has occurred;
rather, to meet the PSLRA’s falsity requirement, “a complaint must not only indicate that false
statements were made, but must [also] indicate why the alleged misstatements were false when
made.” Lustgraaf, 619 F.3d at 874. Also, “the complaint must state with particularity facts giving
rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. §
78u-4(b)(2). “[A]n inference of scienter must be more than merely plausible or reasonable—it must
be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs,
Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007).
The heightened pleading standards of the PSLRA require a modified analysis of a motion
to dismiss under 12(b)(6). Although the Court must continue to assume the truth of all factual
allegations, the Court must “disregard ‘catch-all’ or ‘blanket’ assertions that do not live up to the
particularity requirements of the [PSLRA].” Fla. State Bd. of Admin. v. Green Tree Fin. Corp., 270
F.3d 645, 660 (8th Cir. 2001). Also, while Plaintiffs are still entitled to all reasonable inferences that
may be drawn from the allegations in the complaint, the PSLRA requires the Court to also consider
plausible opposing inferences. Tellabs, 551 U.S. at 314 (“[T]o determine whether a complaint's
scienter allegations can survive threshold inspection for sufficiency, a court . . . must engage in a
comparative evaluation; it must consider, not only inferences urged by the plaintiff, . . . but also
competing inferences rationally drawn from the facts alleged.”).
The Court finds that Plaintiffs failed to meet the heightened pleading requirements of either
Rule 9(b) or the PSLRA. The circumstances surrounding the fraud are not alleged with sufficient
particularity, and the complaint lacks any allegation of scienter. As such, the Court will grant the
SunAmerica Defendants’ motion on the alternative grounds that it fails to meet the pleading
requirements of Rule 9(b) and the PSLRA.
State Law Claims
Plaintiffs have asserted several state law claims against all Defendants, including violation
of state securities laws and common law claims of negligence, conversion, and respondeat superior.
The SunAmerica Defendants move the Court to dismiss each of these claims under Rule 12(b)(6)
for failure to state a claim. Since the Court’s jurisdiction is based on § 27 of the SEA and the Court
has dismissed all of Plaintiffs’ SEA claims, the Court now declines to exercise supplemental
jurisdiction over the remaining state law claims. See 28 U.S.C. § 1367(c)(3) (authorizing a district
court to decline to exercise supplemental jurisdiction if the court has dismissed all claims over which
it has original jurisdiction).
Leave to Amend
“Although leave to amend should ordinarily be granted, a party should at least show how
the complaint could be amended to save a meritless claim.” Siepel, 526 F.3d at 1127–28. Plaintiffs
assert that they should be given leave to amend their complaint; however, they have not shown how
the complaint could be amended to cure the aforementioned defects. Accordingly, Plaintiffs’ request
for leave to amend is denied as futile.
The complaint fails to allege sufficient facts to plausibly state a claim against the
SunAmerica Defendants or Moates under § 10(b), § 20, or Rule 10b-5 for securities fraud, and also
fails to allege fraud with the requisite particularity. Also, Plaintiffs did not establish how their
complaint could be amended to cure any pleading defects, and therefore allowing leave to amend
the complaint would be futile.
For the reasons set forth above, IT IS HEREBY ORDERED that the SunAmerica
Defendants’ motion to dismiss (Doc. 31) is GRANTED, and Plaintiffs’ federal securities law claims
against all Defendants are DISMISSED WITHOUT PREJUDICE pursuant to Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim upon which relief may be granted.
IT IS FURTHER ORDERED that because Plaintiffs’ federal claims forming the basis for
this Court’s jurisdiction have been dismissed without prejudice, Plaintiffs’ remaining state law
claims for negligence, conversion, respondeat superior, and violation of state securities laws are
DISMISSED WITHOUT PREJUDICE, as the Court declines to exercise supplemental jurisdiction
over these claims.
IT IS FURTHER ORDERED that this case is DISMISSED WITHOUT PREJUDICE.
Judgment will be entered accordingly.
IT IS FURTHER ORDERED that all other pending motions in this action are DENIED AS
IT IS SO ORDERED this 31st day of January, 2014.
/s/P. K. Holmes, III
P.K. HOLMES, III
CHIEF U.S. DISTRICT JUDGE
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