Broyles v. Cantor Fitzgerald & Co. et al

Filing 730

RULING: The Commonwealth defendants' #540 Motion to Dismiss is DENIED in part, and the #552 Motion to Dismiss brought by Jennings and the S&Y Parties #553 Motion to Dismiss are DENIED. Signed by Judge James J. Brady on 6/30/2016. (LLH)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
JOSEPH N. BROYLES, ET AL.
CIVIL ACTION
VERSUS
NO. 10-854-JJB-CBW
CANTOR FITZGERALD & CO, ET AL.
Consolidated with:
JOSEPH N. BROYLES, ET AL.
CIVIL ACTION
VERSUS
NO. 10-857-JJB-CBW
CANTOR FITZGERALD & CO, ET AL.
THIS APPLIES TO CIVIL ACTION NO. 3:10-CV-00857
RULING
This matter is before the Court on several Motions to Dismiss. The first is a Motion to
Dismiss (Doc. 540) brought by the defendants, Commonwealth Advisors, Inc. and Walter Morales
(collectively, the “Commonwealth defendants”). The plaintiffs, the CA Funds,1 filed an opposition
(Doc. 632). The second is a Motion to Dismiss (Doc. 552) brought by defendant, Michael Jennings
(“Jennings”).2 The plaintiffs filed an opposition (Doc. 647). The third is a Motion to Dismiss (Doc.
553) brought by defendants, the S&Y Parties.3 The plaintiffs filed an opposition (Doc. 626), and
the defendants filed a reply brief (Doc. 681). For the reasons stated herein, the Commonwealth

The “CA Funds” includes: CA High Yield Fund, L.L.C.; CA High Yield Offshore Fund, Ltd.; CA Core Fixed Income
Fund, L.L.C.; CA Core Fixed Income Offshore Fund, Ltd.; CA Strategic Equity Fund, L.L.C.; CA Strategic Equity
Offshore Fund, Ltd.; Sand Spring Capital III, Ltd.; Sand Spring Capital III, L.L.C.; and Sand Spring Capital III Master
Fund, L.L.C. Pls.’ Opp’n to Commonwealth Defs.’ Mot. to Dismiss 1 n.1, Doc. 632.
2
Jennings’ motion incorporates by reference the Motion to Dismiss brought by the S&Y Parties (Doc. 553). See
Jennings’ Supp. Mem. 1, Doc. 552-1. Although Jennings’ motion initially brought another basis for dismissal of the
Fourth Amended Complaint, the parties agreed to limit Jennings’ motion to seek dismissal only of the claims alleging
violations of the Louisiana Securities Law and the Delaware Securities Act arising out of the initial Collybus offering.
Jt. Mot. to Clarify & Limit Mot. to Dismiss, Doc. 643.
3
The “S&Y Parties” includes: Stone & Youngberg, L.L.C.; Stifel Financial Corporation; Stifel, Nicolaus & Company,
Inc.; and Anthony Guaimano. S&Y Parties’ Supp. Mem. 1, Doc. 553-1.
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defendants’ Motion to Dismiss (Doc. 540) is DENIED in part,4 and the Motions to Dismiss
brought by Jennings (Doc. 552) and the S&Y Parties (Doc. 553) are DENIED.
The basic facts of this case have been outlined by this Court in several previous rulings,
and will not be reiterated herein. See, e.g., Doc. 274.
I.

STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) provides for dismissal of a complaint for “failure

to state a claim upon which relief can be granted.” “In reviewing a Rule 12(b)(6) motion, the Court
must accept all well-pleaded facts in the complaint as true and view them in the light most
favorable to the plaintiff.” Davis v. Bellsouth Telecomms., Civil Action No. 11-722-FJP-SCR,
2012 WL 2064699, at *1 (M.D. La. June 7, 2012) (citing Baker v. Putnal, 75 F.3d 190, 196 (5th
Cir. 1996)). To survive a motion to dismiss, the complaint must plead “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
When conducting a Rule 12(b)(6) analysis, the court “must limit [its] inquiry to the facts stated in
the complaint and the documents attached to or incorporated in the complaint.” Murray v. Royal
All. Assocs., Civil Action No. 06-617-JJB, 2007 WL 2682849, at *1 (M.D. La. July 10, 2007)
(citation omitted).
II.

DISCUSSION
A.

Commonwealth Defendants’ Motion (Doc. 540)

The Commonwealth defendants’ motion seeks dismissal of the claims asserted against
them in the Fourth Amended Complaint for violations of the Louisiana Securities Law relating to
This ruling only addresses the Commonwealth defendants’ “Rule 12(b)(6) and Rule 9(b) Motion to Dismiss the CA
Funds’ Louisiana Blue Sky Law Claims Arising out of the Initial Collybus Offering, Arising out of the CA Funds’
Purchase of the Collybus A-2 Securities from Cantor Fitzgerald and Arising out of the CA Funds’ Purchase of
Securities from Stone & Youngberg.” See Commonwealth Defs.’ Supp Mem. 15–18, Doc. 540-1 (Part II). The
Commonwealth defendants’ “Motion to Dismiss Count Seven for Lack of Jurisdiction and for Res judicata” was
DENIED in a previous ruling. Ruling, Doc. 729.
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the following transactions: (1) the purchase by the CA Funds of Collybus securities in the initial
Collybus offering on November 9, 2007; (2) the purchase by the CA Funds of the A-2 Collybus
bonds in June of 2008 from Cantor Fitzgerald; and (3) the purchase by the CA Funds of securities
from Stone & Youngberg. Commonwealth Defs.’ Supp. Mem. 15, Doc. 540-1. According to the
Commonwealth defendants, the plaintiffs failed to state a claim against them for primary liability
under La. R.S. 51:714(A) because neither defendant was a statutory seller in these transactions. 5
Id. The plaintiffs contend, however, that the Fourth Amended Complaint sufficiently states a claim
against the Commonwealth defendants as statutory sellers that solicited the transactions at issue.
Pls.’ Opp’n to Commonwealth Defs.’ Mot. to Dismiss 7–9, Doc. 632.
For the reasons stated in the plaintiffs’ opposition (Doc. 632), the facts alleged in the Fourth
Amended Complaint are sufficient to plausibly infer that the Commonwealth defendants are
statutory sellers under La. R.S. 51:714(A). Specifically, the Court agrees that a statutory seller is
not limited to someone who transfers title of the securities, but also includes someone who solicits
the securities transactions. Id. at 7; see Pinter v. Dahl, 486 U.S. 622, 623 (1988).6 A solicitor-seller
is someone who “solicit[s] the purchase, motivated at least in part by a desire to serve his own
financial interests or those of the securities owner . . . .” Pinter, 486 U.S. at 623. Here, the plaintiffs
alleged that the Commonwealth defendants solicited the transactions at issue while being
motivated by a financial interest. These facts, taken as true, would render the Commonwealth

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The Commonwealth defendants also seek dismissal of any claim for secondary liability asserted against them based
on the same transactions. Commonwealth Defs.’ Supp. Mem. 15–16, Doc. 540-1. Because the Court finds that the
plaintiffs sufficiently stated a claim for primary liability against the Commonwealth defendants, it will not address
this alternative argument.
6
“Because there is a dearth of law interpreting the definition of seller under the state statute, we look to federal law
interpreting the Louisiana law’s model, Section 12(2) of the Securities Act of 1933.” Heck v. Triche, 775 F.3d 265,
282 (5th Cir. 2014). Although Pinter v. Dahl, 486 U.S. 622 (1988), addressed the application of Section 12(1), the
court’s reasoning was later extended to Section 12(2). See Ins. Co. of N. Am. v. Dealy, 911 F.2d 1096, 1101 (5th Cir.
1990).

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defendants statutory sellers, and therefore the plaintiffs have stated a claim and the Commonwealth
defendants’ motion is DENIED.
B.

S&Y Parties’ Motion (Doc. 553)7

The S&Y Parties’ motion seeks dismissal of claims asserted against them in the Fourth
Amended Complaint for violations of the Louisiana Securities Law and Delaware Securities Act8
relating to the initial Collybus offering. S&Y Parties’ Supp. Mem. 1, Doc. 553-1. According to the
S&Y Parties, the plaintiffs failed to state a claim against them for secondary liability under La.
R.S. 51:714(B) because they did not materially participate in the sale.9 Id. at 10–11. Specifically,
the S&Y Parties argue that the plaintiffs did not allege a “substantial causal connection between
the culpable conduct of [the S&Y Parties] and the harm to the plaintiff,”10 nor did they allege any
direct contact11 between the S&Y Parties and the plaintiffs with regard to the initial Collybus
offering. Id. The plaintiffs argue, however, that the Fourth Amended Complaint sufficiently states
a claim against the S&Y Parties as material participants because the S&Y Parties had “extensive
and vital involvement” in the relevant transaction. Pls.’ Opp’n to S&Y Parties’ Mot. to Dismiss
8–9, Doc. 626 (internal quotation omitted).
For the reasons stated in the plaintiffs’ opposition (Doc. 626), the facts alleged in the Fourth
Amended Complaint are sufficient to plausibly infer that the S&Y Parties materially participated

The Court’s analysis of the S&Y Parties’ motion (Doc. 553) applies equally to Jennings’ motion. See Jennings’
Supp. Mem., Doc. 552 (incorporating by reference Doc. 553 without providing any separate arguments); Pls.’ Opp’n
to Jennings’ Mot. to Dismiss 2, Doc. 647 (incorporating by reference its opposition to the S&Y Parties’ motion).
8
The Court has previously ruled that Louisiana law applies to the plaintiffs’ Blue Sky Law claims because “there is
no actual conflict between Delaware and Louisiana securities law[.]” Broyles v. Cantor Fitzgerald & Co., No. CIV.A.
10-854-JJB, 2014 WL 6886158, at *7 (M.D. La. Dec. 8, 2014). Accordingly, this ruling only addresses the plaintiffs’
claims under Louisiana law, with the understanding that the two statutes are coextensive.
9
The S&Y Parties also seek dismissal of any claim for primary liability asserted against them with regard to the initial
Collybus offering. S&Y Parties’ Supp. Mem. 6–10, Doc. 553-1. The plaintiffs concede, however, that they are not
asserting a claim against the S&Y Parties for primary liability for this transaction. Pls.’ Opp’n to S&Y Parties’ Mot.
to Dismiss 6 & 6 n.20, Doc. 626. Accordingly, the Court will not address this argument.
10
S&Y Parties’ Supp. Mem. 10, Doc. 553-1 (quoting Foley v. Allard, 427 N.W.2d 647, 651 (Minn. 1988)).
11
Id. (citing Benton v. Merrill Lynch, No. 3:06-00105, 2007 WL 735696, at *4 (E.D. Ark. Mar. 7, 2007)).
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in the securities sale under La. R.S. 51:714(B). The Court has reviewed the cases cited by both
parties and finds the plaintiffs’ cited cases more persuasive. The Court disagrees with the S&Y
Parties’ interpretation of “material participation” to require a direct contact between the alleged
participator and the plaintiff. See S&Y Parties’ Supp. Mem. 10, Doc. 553-1 (citing Benton v.
Merrill Lynch, No. 3:06-00105, 2007 WL 735696, at *4 (E.D. Ark. Mar. 7, 2007)). Such an
interpretation would narrow the scope of secondary liability beyond what is contemplated under
La. R.S. 51:714(B).
Here, the plaintiffs allege that the S&Y Parties were substantially involved with the
plaintiffs prior to the initial Collybus sale in a manner that effected the information provided to the
investors. If taken as true, these facts would render the S&Y Parties material participants under
either of the remaining standards articulated by the parties—substantial causal connection or
importance of the involvement. Therefore, the plaintiffs have stated a claim and the S&Y Parties’
motion is DENIED.
III.

CONCLUSION
For the reasons stated above, the Commonwealth defendants’ Motion to Dismiss (Doc.

540) is DENIED in part, and the Motions to Dismiss brought by Jennings (Doc. 552) and the
S&Y Parties (Doc. 553) are DENIED.
Signed in Baton Rouge, Louisiana, on June 30, 2016.

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

JUDGE JAMES J. BRADY
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

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