Bancorp International Group et al v. Financial Industry Regulatory Authority, Inc. et al

Filing 45

ORDER granting 8 and 34 Motions to Dismiss. The Clerk shall enter judgment and close the case. Signed by Judge Robert C. Jones on 01/10/2014. (Copies have been distributed pursuant to the NEF - KR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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BANCORP INTERNATIONAL GROUP et al.,
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Plaintiffs,
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vs.
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FINANCIAL INDUSTRY REGULATORY
AUTHORITY et al.,

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Defendants.

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3:13-cv-00170-RCJ-WGC
ORDER

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This is a removed diversity case arising out of the acts and omissions of the Financial

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Industry Regulatory Authority (“FINRA”) and other regulatory organizations. FINRA has moved

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to dismiss, and the other four Defendants have separately moved to dismiss. For the reasons

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given herein, the Court grants the motions.

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I.

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FACTS AND PROCEDURAL HISTORY
Plaintiffs Bancorp International Group, inc. (“Bancorp”) and Douglas R. Caron (a

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stockholder of Bancorp) allege malfeasance and nonfeasance on the part of FINRA and four

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other entities. Between May and August 2005, some person or persons allegedly issued 245

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million shares of counterfeit Bancorp stock certificates. (See Compl. ¶ 21, Apr. 5, 2013, ECF no.

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1-1). The introduction of these false shares coincided with an unexplained increase in trading

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volume of over 2 billion shares, which is 424 times the total of apparent shares and 1892 times

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the total of legitimate shares. (See id. ¶ 22). As a result, Defendant Depository Trust and

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Clearing Corp. (“DTCC”) suspended clearing services for Bancorp on August 11, 2005 (the

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“Global Lock”). (Id. ¶ 23). The SEC announced a temporary suspension of trading on Bancorp’s

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stock on August 31, 2005 to last until September 15, 2005. (See id. ¶ 26). In a separate case then

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pending, a judge of the U.S. District Court for the District of Oklahoma ordered that Bancorp

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issue 245 million shares to replace the counterfeit shares and that various parties would

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compensate Bancorp with cash damages, as part of a settlement agreement. (See id. ¶ 27).

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Bancorp was required to amend its articles of incorporation with the Nevada Secretary of State in

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order to comply, which it did. (See id. ¶ 39(c)–(d)). However, FINRA failed to announce to

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DTCC and its members the change to the CUSIP numbers of Bancorp’s stock, resulting in that

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brokers nationwide also did not change the CUSIP numbers. (See id. ¶ 39(e)). Bancorp’s stock

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began trading publicly again on November 7, 2006, but the SEC halted trading after thirty

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minutes due to “clerical errors” in the CUSIP numbers. (See id. ¶ 39(j)). After four days, the

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SEC delisted Bancorp’s stock from the OTCBB market. (Id.). Plaintiffs allege that FINRA failed

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and continues to fail to sort out the CUSIP SNAFU, and that its failure to do so constitutes

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actionable malfeasance or nonfeasance.

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Plaintiffs sued FINRA, DTCC, Depository Trust Co., National Securities Clearing Corp.,

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and Fixed Income Clearing Corp. in state court on thirteen nominal causes of action: (1)

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injunctive relief;1 (2) fraud; (3) statutory misrepresentation;2 (4) negligence;3 (5) common law

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Plaintiffs identify no statute, so the Court interprets this cause of action to be duplicative
of the common law fraud claim.
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This is not a separate cause of action but a prayer for relief.

The Court interprets this cause of action to be for economic harm caused by professional
negligence, as no personal injury or death is alleged.
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misrepresentation;4 (6) breach of the implied duty of good faith and fair dealing; (7) conversion;

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(8) deceptive trade practices; (9) racketeering; (10) interference with contractual relations; (11)

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interference with prospective economic advantage; (12) declaratory judgment;5 and (13) civil

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conspiracy. Defendants removed and have moved to dismiss.

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II.

LEGAL STANDARDS

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Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the

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claim showing that the pleader is entitled to relief” in order to “give the defendant fair notice of

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what the . . . claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47

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(1957). Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action

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that fails to state a claim upon which relief can be granted. A motion to dismiss under Rule

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12(b)(6) tests the complaint’s sufficiency. See N. Star Int’l v. Ariz. Corp. Comm’n, 720

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F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for

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failure to state a claim, dismissal is appropriate only when the complaint does not give the

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defendant fair notice of a legally cognizable claim and the grounds on which it rests. See Bell

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Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the complaint is

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sufficient to state a claim, the court will take all material allegations as true and construe them in

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the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th

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Cir. 1986). The court, however, is not required to accept as true allegations that are merely

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conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden

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State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). A formulaic recitation of a cause of action

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with conclusory allegations is not sufficient; a plaintiff must plead facts pertaining to his own

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case making a violation plausible, not just possible. Ashcroft v. Iqbal, 556 U.S. 662, 677–79

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This cause of action is synonymous with the fraud claim, as the mens rea alleged
hereunder is intent.
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This is not a separate cause of action but a prayer for relief.
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(2009) (citing Twombly, 550 U.S. at 556) (“A claim has facial plausibility when the plaintiff

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pleads factual content that allows the court to draw the reasonable inference that the defendant is

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liable for the misconduct alleged.”). In other words, under the modern interpretation of Rule

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8(a), a plaintiff must not only specify a cognizable legal theory (Conley review), but also must

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plead the facts of his own case so that the court can determine whether the plaintiff has any

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plausible basis for relief under the legal theory he has specified, assuming the facts are as he

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alleges (Twombly-Iqbal review).

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“Generally, a district court may not consider any material beyond the pleadings in ruling
on a Rule 12(b)(6) motion. However, material which is properly submitted as part of the

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complaint may be considered on a motion to dismiss.” Hal Roach Studios, Inc. v. Richard Feiner

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& Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (citation omitted). Similarly, “documents

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whose contents are alleged in a complaint and whose authenticity no party questions, but which

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are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6)

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motion to dismiss” without converting the motion to dismiss into a motion for summary

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judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). Moreover, under Federal Rule

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of Evidence 201, a court may take judicial notice of “matters of public record.” Mack v. S. Bay

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Beer Distribs., Inc., 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district court

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considers materials outside of the pleadings, the motion to dismiss is converted into a motion for

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summary judgment. See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir.

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2001).

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III.

ANALYSIS

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A.

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First, FINRA first correctly notes that as a self-regulatory organization, i.e., the successor

Absolute Immunity

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entity to NASD, it is absolutely immune from money damages for any acts or omissions related

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to its regulatory function. See P’ship Exch. Sec. Co. v. Nat’l Assn. of Sec. Dealers, Inc., 169 F.3d
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606, 608 (9th Cir. 2009); Sparta Surgical Corp. v. Nat’l Assn. of Sec. Dealers, Inc., 159 F.3d

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1209, 1213 (9th Cir. 1998) (“We . . . hold that a self-regulatory organization is immune from

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liability based on the discharge of its duties under the [Securities] Exchange Act [of 1934].”). In

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opposition, Plaintiffs argue that the facts of the present case are more egregious than the facts of

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the cited cases. But the respective merits of the cases are inapposite to whether FINRA was

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acting in its regulatory capacity in both instances, and it clearly was.

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B.

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Second, FINRA is correct that, even if not covered by absolute immunity, there is no

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No Private Cause of Action

private cause of action to compel or prevent actions by FINRA related to its regulatory authority.

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See Sparta Surgical Corp., 159 F.3d at 1213 (“It is undisputed, even by [the plaintiff], that a

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party has no private right of action against an exchange for violating its own rules or for actions

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taken to perform its self-regulatory duties under the [Securities Exchange] Act [of 1934]. Thus,

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to the extent that [the plaintiff] seeks private relief for NASD or NASDAQ’s breach of their own

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rules, its claims are barred.” (citation omitted)). All claims here arise out of FINRA’s

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performance of its self-regulatory duties. Again, Plaintiffs’ arguments in opposition that the facts

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of the present case are more egregious than the facts of the cited cases are unavailing.

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C.

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Third, all Defendants ask the Court to dismiss under the statutes of limitations. The

Statutes of Limitations

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Court grants the motions on this basis, as well. The last act or omission complained of occurred

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on November 7, 2006, when FINRA delisted Bancorp’s stock, over six years before Plaintiffs

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filed the present lawsuit in state court on March 7, 2013. (See Compl. 1, 12). The parties do not

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appear to dispute that Nevada law governs the statutes of limitations in this diversity action. The

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conversion, fraud, breach of fiduciary duty, and interference claims have three-year statutes of

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limitations. See Nev. Rev. Stat. § 11.190(3)(c) (property torts such as conversion, interference

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with contractual relations, and interference with prospective economic advantage); id.
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§ 11.190(3)(d) (fraud-based torts, including breach of fiduciary duty); Stalk v. Mushkin, 199 P.3d

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838, 841–42 (Nev. 2009) (holding that business-interference-type claims are a species of

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property torts for the purpose of the statute of limitations); Nev. State Bank v. Jamison Family

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P’ship, 801 P.2d 1377, 1382 (Nev. 1990) (holding that a breach of fiduciary duty is a species of

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fraud for the purpose of the statute of limitations). The negligence claim, which is likely

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intended to be a professional negligence claim, as no physical injury or death but only economic

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harm is alleged, must be viewed as a species of property tort with a three-year statute of

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limitations. See Nev. Rev. Stat. § 11.190(3)(c). The common law civil conspiracy and deceptive

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trade practices claims have four-year statutes of limitations. See Nev. Rev. Stat. § 11.220; id.

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§ 11.190(2)(d). The RICO claim has a five-year limitations period. See id. § 207.520. The

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implied covenant of good faith and fair dealing claim, which is not sufficiently pled in any case,

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because no contract is pled, would have a four- or six-year statute of limitations, depending upon

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whether the underlying contract were oral or written. See id. § 11.190(1)(b), (2)(c). The facts

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giving rise to the running of these statutes of limitation appear on the face of the Complaint,

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obviating any need for Defendants to separately prove the statutes have run. See Jablon v. Dean

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Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980) (“If the running of the statute is apparent on the

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face of the complaint, the defense may be raised by a motion to dismiss.”).

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As a final matter, the Court notes that the District of Oklahoma court presumably retains

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jurisdiction to enforce its previous order, which order Plaintiffs cite so widely in their briefs.

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That is the route for Plaintiff to seek a remedy for any ongoing harm arising out of failure to

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comply with that order.

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CONCLUSION
IT IS HEREBY ORDERED that the Motions to Dismiss (ECF Nos. 8, 34) are
GRANTED.

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IT IS FURTHER ORDERED that the Clerk shall enter judgment and close the case.

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IT IS SO ORDERED.

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Dated this 10th day of December, 2013.
Dated this 10th day of January, 2014.

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_____________________________________
ROBERT C. JONES
United States District Judge

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