Securities And Exchange Commission v. San Francisco Regional Center LLC et al

Filing 128

ORDER by Judge Richard Seeborg denying 101 Motion to Dismiss. (cl, COURT STAFF) (Filed on 5/15/2017)

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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 10 SECURITIES AND EXCHANGE COMMISSION, Plaintiff, United States District Court Northern District of California 11 12 13 14 Case No. 17-cv-00223-RS ORDER DENYING MOTION TO DISMISS v. SAN FRANCISCO REGIONAL CENTER LLC, et al., Defendants. 15 16 17 Defendant Comprehensive Care Of Oakland, L.P. and its general partner, defendant 18 Comprehensive Care Of California, LLC, (collectively, “Compcare”) move to dismiss two of the 19 four claims for relief in the complaint brought against them and numerous other defendants by the 20 Securities and Exchange Commission (“SEC”). Pursuant to Civil Local Rule 7-1(b), the matter is 21 suitable for disposition without oral argument, and the hearing set for May 18, 2017 is vacated. 22 The motion will be denied. 23 The general background of this action has been set forth in a prior order and will not be 24 recounted here. Compcare seeks dismissal of the first two claims for relief, both of which allege 25 violations of §10(b) of the Exchange Act and Rule 10b-5. A prima facie claim for a violation of § 26 10(b) of the Exchange Act and Rule 10b-5 has five elements: “(1) a material misrepresentation or 27 omission of fact, (2) scienter, (3) a connection with the purchase or sale of a security, (4) 28 transaction and loss causation, and (5) economic loss.” Zucco Partners, LLC v. Digimarc Corp., 1 552 F.3d 981, 990 (9th Cir. 2009). The pleading of such claims must also satisfy the particularity 2 requirements of Rule 9 of the Federal Rules of Civil Procedure. See SEC v. Berry, 580 F. Supp. 3 2d 911, 920 (N.D. Cal. 2008).1 Compcare contends the SEC has not pleaded sufficient facts showing that Compcare—as 4 5 opposed to other defendants—engaged in any prohibited conduct, and that the claims against it fail 6 under both Rule 12(b)(1) and Rule 9. Compcare’s argument, however, is premised on 7 disregarding the extensive allegations of conduct undertaken by defendant Thomas Henderson in 8 connection with, and as a manager of, Compcare. In addition to general allegations describing the 9 overall alleged scheme, which included Compcare, paragraphs 58-64, pages 12-15, of the 10 complaint focus on Compcare specifically. Compcare insists these alleged wrongful acts cannot be imputed to it because Henderson United States District Court Northern District of California 11 12 was effectively a “rogue agent” acting adversely to Compcare’s interest. Compcare also points to 13 the rule that in the context of a fraud suit involving multiple defendants, a plaintiff must, at a 14 minimum, “identif[y] the role of [each] defendant [ ] in the alleged fraudulent scheme.” Swartz v. 15 KPMG LLP, 476 F.3d 756, 764-65 (9th Cir. 2007). 16 Compcare’s reliance on limitations on “group pleading” is unavailing. If the allegations 17 regarding Henderson’s conduct taken in connection with Compcare are attributable to it, there is 18 no question that Compcare’s “role” in the scheme is adequately delineated. Because Compcare’s 19 attempt to distance itself from Henderson by declaring him a “rogue” agent does not present an 20 issue that can be adjudicated at the pleading stage, those allegations are indeed attributable to 21 Compcare. Accordingly, the motion to dismiss must be denied. 22 23 24 25 26 27 1 On reply, Compcare acknowledges that the heightened standard for pleading scienter under the Private Securities Litigation Reform Act, 15 U.S.C. § 78u–4(b)(2), does not apply here, where the plaintiff is the SEC. See Berry, 580 F. Supp. 2d at 920-21. ORDER DENYING MOTION TO DISMISS CASE NO. 17-cv-00223-RS 28 2 1 IT IS SO ORDERED. 2 3 4 5 Dated: May 15, 2017 ______________________________________ RICHARD SEEBORG United States District Judge 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 ORDER DENYING MOTION TO DISMISS CASE NO. 17-cv-00223-RS 28 3

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