Yu et al v. Premiere Power LLC et al
Filing
64
OPINION AND ORDER re: 39 MOTION to Dismiss filed by Jerry Jankovic: For the foregoing reasons, Defendant's motion to dismiss for failure to state a claim under Section 10(b) of the Exchange act is DENIED; Defendant's motion to d ismiss for failure to properly plead its state-law fraud claims is DENIED; and Defendant's motion to dismiss for lack of personal jurisdiction is DENIED. The Clerk of Court is directed to terminate Docket Entry 39. The next conference in this matter is scheduled for August 11, 2015, at 4:30 p.m. in Courtroom 618 of the Thurgood Marshall Courthouse. (Signed by Judge Katherine Polk Failla on 8/4/2015) Copies Mailed By Chambers. (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
MOON JOO YU, et al.,
:
:
Plaintiffs,
:
:
:
v.
:
PREMIERE POWER LLC, et al.,
:
:
Defendants. :
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: August 4, 2015
______________
14 Civ. 7588 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
Plaintiffs Moon Joo Yu, Amy J. Yu, and Hee Rak Kim (collectively,
“Plaintiffs”) brought an action in September 2014 against various defendants
affiliated with Premiere Power LLC (“Premiere Power”); in it, Plaintiffs alleged
that they had been defrauded of some $1.65 million as part of a scheme to
repay a judgment that Defendants had incurred as a result of a separate,
earlier fraudulent scheme. Defendant Jerry Jankovic (“Defendant”), proceeding
pro se, moves to dismiss the Amended Complaint for failure to state a claim
under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange
Act”), Pub. L. 73-291, 48 Stat. 881; for failure to plead related state-law fraud
claims with particularity; and for lack of personal jurisdiction. For the reasons
stated below, the motion is denied.
BACKGROUND 1
A.
Factual Background
The Court assumes familiarity with the facts and procedural history set
forth in its prior Order granting Plaintiffs leave to amend the Complaint. (Dkt.
#49). For convenience, the particular allegations relevant to this motion are set
forth below.
Plaintiffs Moon Joo Yu (“Plaintiff Yu”) and Hee Rak Kim (“Plaintiff Kim”)
invested, in total, $1.65 million in Premiere Power, a limited liability company
organized and existing under the laws of the State of Delaware and domiciled
in that state. (Am. Compl. ¶¶ 5, 18). 2 Plaintiffs Moon Joo Yu and Amy J. Yu
are residents of New Jersey, and Plaintiff Hee Rak Kim is a resident of New
1
The facts contained in this Opinion are drawn from the Amended Complaint (“Am.
Compl.”) (Dkt. #52), and are taken as true for purposes of this motion. Faber v. Metro.
Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (when reviewing a complaint for failure to
state a claim, the court will “assume all well-pleaded factual allegations to be true”
(internal quotation marks omitted)). “[B]ecause a motion to dismiss for lack of personal
jurisdiction requires the resolution of factual issues outside the pleadings, the Court
considers other relevant submissions from the parties at this stage.” Elsevier, Inc. v.
Grossman, No. 12 Civ. 5121 (KPF), — F. Supp. 3d —, 2015 WL 72604, at *1 n.1
(S.D.N.Y. Jan. 5, 2015) (internal quotation marks and citations omitted); accord
Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 86 (2d Cir. 2013) (per curiam)
(“[W]e have made clear that a district court may [consider materials outside the
pleadings] without converting a motion to dismiss for lack of personal jurisdiction into a
motion for summary judgment.”). Specifically, the Court will consider the Affirmation of
Jerry Jankovic in Support of Defendant’s Motion to Dismiss (“Jankovic Aff.”). For
convenience, Defendant’s opening brief is referred to as “Def. Br.” (Dkt. #41), and
Plaintiff’s opposition brief is referred to as “Pl. Opp.” (Dkt. #53).
2
Amy J. Yu, the third Plaintiff in this action, is a necessary party because her name
appears on the share certificate issued by Premiere Power. (Am. Compl. ¶ 66 n.6).
However, because she was never approached or solicited by Defendant or any other
Defendant in the instant litigation, she does not feature prominently in the Amended
Complaint.
2
York. (Id. at ¶¶ 10-12). Defendant is a resident of the State of Oklahoma.
(Jankovic Aff. ¶ 2).
1.
Defendant’s Formation of Premiere Power
In 2001, Defendant and Sandra Dyche, a co-defendant in the instant
litigation, established a purported energy plant and casino complex operating
under the name 21st Century Morongo Energy LLC (the “Morongo Project”).
(Am. Compl. ¶ 24). According to the Amended Complaint, the Morongo Project
was created in part for the purpose of paying off an outstanding legal claim
owed to an individual named Thomas Thompson. (Id.). Towards this end, in
2001, Defendant and Dyche fraudulently induced Byung Chul An and Hyang
Ok An (collectively, the “Ans”) to invest $1.2 million in the Morongo Project,
with a promise that they would receive their principal investment back within
one year. (Id. at ¶¶ 25, 27).
In 2002, the Ans sought return of their investment. (Am. Compl. ¶ 28).
Having used the Ans’ investment to settle Mr. Thompson’s claim, Dyche falsely
represented to the Ans that the Morongo Project was “proceeding according to
plan” and that they simply had to “wait” for the return of their principal. (Id.).
Over the next few years, neither Defendant nor Dyche contacted the Ans to
update them on the status of the Morongo Project, nor did they return any
principal or make any distributions to the Ans. (Id. at ¶ 29).
In 2006, the Ans sued Defendant and Dyche, among others, alleging that
the defendants had defrauded them of their $1.2 million investment. (Am.
3
Compl. ¶ 30). It is alleged that in order to generate money to pay off any
potential judgment obtained by the Ans, Defendant, Dyche, and Defendant’s
son and co-defendant, John Jankovic, created Premiere Power. (Am. Compl.
¶ 32). Defendant subsequently dubbed himself Chairman of the Board and
voting majority member of the company, with Dyche as a member of the Board
of Directors and John Jankovic as Managing Member and CEO. (Id. at ¶ 33).
In 2009, Defendant, along with Dyche and John Jankovic, enlisted codefendants Ana Lee and Annie Kim to help solicit potential investors in
Premiere Power. (Am. Compl. ¶ 34). In return for obtaining investors,
Defendant, Dyche, and John Jankovic told Lee and Kim that they would receive
a “higher percentage of ownership in Premiere Power.” (Id. at ¶ 35).
Defendant, Premiere Power, and John Jankovic also provided a broker’s fee to
Lee and Kim for each investor they obtained. (Id. at ¶ 62).
2.
Plaintiff Yu Invests in Premiere Power
In 2008, Plaintiff Yu met Defendants Lee and Kim through a mutual
acquaintance. (Am. Compl. ¶ 38). In December 2009, after receiving an
invitation from Lee and Kim to “get together socially” while all were travelling in
Korea, Yu was introduced to Dyche. (Id. at ¶¶ 39-40). At this meeting, Dyche,
Lee, and Kim told Yu that if she invested $1.5 million in Premiere Power, she
would be able to receive at least $300,000 annually beginning in the fourth
year of her investment, with the amount received increasing each year
thereafter. (Id. at ¶ 42). Dyche also presented Yu with a copy of the “Premiere
4
Power Preliminary Information Memorandum,” dated September 9, 2009 (the
“PIM”), developed by Defendant and John Jankovic. (Id. at ¶ 43 & Ex. A). The
PIM described an opportunity to invest in a “green-energy project” to develop,
construct, and operate two power plants, one on Comanche Nation Native
American tribal land near Lawton, Oklahoma (the “Comanche Project”), and
another on Osage Nation Native American tribal land near Osage, Oklahoma
(the “Osage Project”). (Id.).
Plaintiffs allege that the PIM was developed by Defendant and John
Jankovic “with the specific intent to defraud potential investors … by having
them rely upon fraudulent and false information regarding the Comanche and
Osage Projects, including but not limited to, the development stage, the
companies and individuals involved, and the financial projections.” (Am.
Compl. ¶ 44). Additionally, the PIM incorporated “numerous false documents”
regarding agreements for funding of the Comanche and Osage Projects, as well
as an agreement with the Osage Tribe to develop a “gas-powered cogeneration
plant.” (Id. at ¶ 43). Despite the representations made in the PIM, the
Comanche and Osage Native American Tribal Nations had never agreed to the
development of power plants on their land. (Id. at ¶ 57). The PIM also
contained the names of various individuals purporting to be members, board
members, and/or advisors to Premiere Power — all of whom denied such
involvement with the company. (Id. at ¶ 54).
5
On December 9, 2009, based in part on the representations made in the
PIM, Plaintiff Yu transferred an amount in South Korean currency equivalent to
$500,000 to Dyche for investment in Premiere Power. (Am. Compl. ¶ 49). On
December 14 and 15, 2009, Yu wired an additional $80,000 and $420,000,
respectively, to Premiere Power’s bank account. (Id. at ¶ 50).
Also in December 2009, Yu attended a presentation concerning Premiere
Power at the offices of Chadbourne & Parke LLP in Manhattan (the
“Chadbourne & Parke Meeting”). (Am. Compl. ¶ 51). John Jankovic, allegedly
at the direction of Defendant, attended the presentation along with Defendants
Dyche, Lee, and Kim. (Id. at ¶¶ 51-52). At the meeting, John Jankovic
provided the false and fraudulent information contained in the PIM he had
developed with Defendant, along with other fraudulent information pertaining
to Premiere Power. (Id. at ¶¶ 52-53). Based on the fraudulent representations
made at this presentation, as well as those made at the meeting in Korea, Yu
invested an additional $500,000, bringing her total investment in Premiere
Power to $1.5 million. (Id. at ¶ 56). 3
3.
Plaintiff Kim Invests in Premiere Power
Plaintiff Kim learned of Premiere Power through his aunt, who had
attended the Chadbourne & Park Meeting. (Am. Compl. ¶ 58). Subsequently,
3
After Plaintiff Yu invested her money in Premiere Power, she received a share certificate
bearing her name and her daughter’s name, showing a 0.6% interest. (Am. Compl.
¶ 66). However, according to the figures set forth in the PIM, they should have received
a 0.75% interest in Premiere Power in exchange for their $1.5 million investment. (Id.).
6
in early 2010, Defendant Lee began visiting Kim to convince him to invest in
Premiere Power, allegedly telling him “that within two years, the Premiere
power plant would be completed and he would receive a very large return on
his investment.” (Id. at ¶ 59). As a result of these fraudulent
misrepresentations, Plaintiff Kim invested $150,000 in Premiere Power. (Id. at
¶ 60).
4.
Plaintiffs Discover the Fraud and Are Further Defrauded
Since investing in Premiere Power, no Plaintiff has received any update,
either written or oral, about their investments or any other company
developments. (Am. Compl. ¶ 67). Yu never had her $1.5 million principal
returned to her — and indeed has received no distributions from Premiere
Power — despite assurances that she would receive her principal back within
the first two years. (Id. at ¶¶ 67-68). Yu also never received a Schedule K-1
from Defendants. (Id. at ¶ 68). 4
In the summer of 2012, concerned about her investment, Plaintiff Yu
approached Defendants Lee and Kim, who also professed to have concerns
about Defendant, Dyche, John Jankovic, and Premiere Power. (Am. Compl.
¶ 69). Subsequently, in the fall of 2012, Yu gave Lee $50,000 to hire an
attorney to determine if the investment in Premiere Power was legitimate. (Id.
at ¶ 70). In 2013, Lee stated to Yu that, in order for Lee to be part of a lawsuit
4
A Schedule K-1 (Form 1120S) is used by corporations to report a shareholder’s share of
a corporation’s income to the IRS. See IRS, Shareholder’s Instructions for Schedule K-1
(Form 1120S), http://www.irs.gov/pub/irs-pdf/i1120ssk.pdf (last visited Aug. 4, 2015).
7
against Defendant, Dyche, John Jankovic, and Premiere Power, Yu needed to
sign an agreement showing that Lee had funded $750,000 of Yu’s $1.5 million
investment. (Id. at ¶ 71). That same year, Yu learned that the attorney they
had ostensibly selected had only received $10,000 of the $50,000 that Yu had
given to Lee for her services, with Lee keeping the remainder of her money for
herself. (Id. at ¶ 72). Around this time, Yu became aware of the judgment that
the Ans had obtained in their lawsuit against Defendant and Dyche comprising
approximately $1.2 million in compensatory damages and $1.2 million in
punitive damages. (Id. at ¶ 75). Given these developments, Yu realized that
the Premiere Power investment was a fraud and that information provided to
her by Defendant, Dyche, John Jankovic, Lee, and Kim was untrue. (Id. at
¶ 73).
Plaintiffs allege that at the direction of Defendant, John Jankovic, and
Dyche, “at least one million dollars” of the money Plaintiffs invested in Premiere
Power was used to settle the judgment obtained by the Ans against Defendant
and Dyche. (Am. Compl. ¶ 76). To date, Plaintiffs have not received a return of
any portion of their investment in Premiere Power. (Id. at ¶ 77).
B.
Procedural Background
Plaintiffs filed the instant action on September 18, 2014. (Dkt. #1). On
February 3, 2015, Defendant, proceeding pro se, filed a motion to dismiss.
(Dkt. #39). On February 26, 2015, Plaintiffs filed a letter motion seeking leave
to amend the Complaint. (Dkt. #47). On March 4, 2015, the Court granted
8
Plaintiffs’ application to file an Amended Complaint, specifying that
Defendant’s motion to dismiss would be construed to move on the Amended
Complaint and that any new arguments made by Defendant in his reply brief
would be construed to have been made in his original motion. (Dkt. #49 at 2).
On March 6, 2015, Plaintiffs filed the Amended Complaint. (Dkt. #52).
Plaintiffs filed their opposition to Defendant’s Motion to Dismiss on March 9,
2015. (Dkt. # 53). To date, Defendant has not filed a reply brief.
DISCUSSION
In his motion, Defendant challenges both the Court’s personal
jurisdiction over him and the adequacy of Plaintiffs’ allegations in the Amended
Complaint. Because Defendant is proceeding pro se, the Court construes his
arguments liberally. See Bertin v. United States, 478 F.3d 489, 491 (2d Cir.
2007) (“We liberally construe pleadings and briefs submitted by pro se litigants,
reading such submissions to raise the strongest arguments they suggest.”
(citations and quotation marks omitted)). Even with that liberal construction,
Defendant’s challenges fail.
A.
Defendant’s Motion to Dismiss for Lack of Personal Jurisdiction Is
Denied
1.
Applicable Law
On a motion to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(2), “the plaintiff bears the burden of establishing that the court has
jurisdiction over the defendant.” DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81,
84 (2d Cir. 2001) (citation omitted); accord In re Terrorist Attacks on Sept. 11,
9
2001, 714 F.3d 659, 673 (2d Cir. 2013). “Prior to discovery, a plaintiff
challenged by a jurisdiction testing motion may defeat the motion by pleading
in good faith, legally sufficient allegations of jurisdiction. At that preliminary
stage, the plaintiff’s prima facie showing may be established solely by
allegations.” Dorchester, 722 F.3d at 84-85 (citation omitted); accord In re
Terrorist Attacks, 714 F.3d at 673 (“In order to survive a motion to dismiss for
lack of personal jurisdiction, a plaintiff must make a prima facie showing that
jurisdiction exists.” (citation omitted)). All jurisdictional allegations “are
construed in the light most favorable to the plaintiff and doubts are resolved in
the plaintiff’s favor[.]” A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80
(2d Cir. 1993). However, the court “will not draw argumentative inferences in
the plaintiff's favor,” and need not “accept as true a legal conclusion couched
as a factual allegation.” In re Terrorist Attacks, 714 F.3d at 673 (citations
omitted); accord Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d
50, 59 (2d Cir. 2012).
District courts deciding a motion to dismiss for lack of personal
jurisdiction must engage in a two-part analysis. First, the court must establish
whether there is “a statutory basis for exercising personal jurisdiction,” Marvel
Characters, Inc. v. Kirby, 726 F.3d 119, 128 (2d Cir. 2013); second, the court
must decide whether the exercise of jurisdiction comports with due process,
see Sonera Holding B.V. v. Çukurova Holding A.Ş., 750 F.3d 221, 224 (2d Cir.)
(per curiam), cert. denied, 134 S. Ct. 2888 (2014). In part one of the analysis,
10
the court “applies the forum state’s personal jurisdiction rules” unless a federal
statute “specifically provide[s] for national service of process.” PDK Labs, Inc. v.
Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997) (internal quotation marks
omitted).
2.
Discussion
a.
This Court Has Jurisdiction over Plaintiffs’ Securities
Fraud Claims
Defendant argues in the first instance that this Court lacks jurisdiction
over him for Plaintiffs’ claim under Section 10(b) of the Exchange Act and Rule
10b-5. (Def. Br. 1-3). The Exchange Act permits the exercise of personal
jurisdiction “to the limit of the Due Process Clause of the Fifth Amendment.”
S.E.C. v. Unifund SAL, 910 F.2d 1028, 1033 (2d Cir. 1990). “[U]nder the Fifth
Amendment the court can consider the defendant’s contacts throughout the
United States.” Chew v. Dietrich, 143 F.3d 24, 28 n.4 (2d Cir. 1998).
“The due process test for personal jurisdiction has two related
components: the ‘minimum contacts inquiry’ and the ‘reasonableness’ inquiry.”
Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996).
Applying these tests to a statute that permits jurisdiction to be exercised over
an individual based on his contacts throughout the United States, a court
must first determine whether the defendant has “sufficient contacts” with the
United States to justify the court’s exercise of personal jurisdiction. Id. If such
contacts are found, the court may assert personal jurisdiction so long as “it is
11
reasonable [to do so] under the circumstances of the particular case.” Id. at
568.
A defendant satisfies the minimum contacts requirement when his
conduct in and connection with the United States are such that “he should
reasonably anticipate being haled into court there.” Unifund SAL, 910 F.2d at
1033 (citation omitted). For a defendant to reasonably anticipate a court
having jurisdiction over him, it is essential in each case that there be some act
by which the defendant “purposefully avails [him]self of the privilege of
conducting activities” within the United States, thus “invoking the benefits and
protections of its laws.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475
(1985) (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)).
Here, while some of the alleged fraudulent conduct took place while
Plaintiffs were traveling abroad, Defendant was at all relevant times a resident
of Oklahoma. (Am. Compl. ¶ 14; Jankovic Aff. ¶ 2). This alone satisfies the
minimum contacts requirement. See Mariash v. Morrill, 496 F.2d 1138, 1143
(2d Cir. 1974) (“[W]here, as here, the defendants reside within the territorial
boundaries of the United States, the ‘minimal contacts,’ required to justify the
federal government’s exercise of power over them are present.”); see also Truk
Int’l Fund, LP v. Wehlmann, No. 08 Civ. 8462 (PGG), 2009 WL 1456650, at *2
(S.D.N.Y. May 20, 2009) (“The Individual Defendants are residents of the
United States…. Accordingly, there is no issue as to jurisdiction.”). Although
Defendant argues that this Court’s exercise of jurisdiction is unreasonable, he
12
does so based on the mistaken view that the Court should consider whether
Defendant purposefully availed himself of the privilege of conducting activities
in New York, rather than in the United States. (See Def. Br. 4-5). Defendant
resides within the United States, he conducts business within the United
States, and he should reasonably anticipate being haled into court in the
United States. Accordingly, this Court’s exercise of personal jurisdiction over
Defendant with respect to Plaintiffs’ securities fraud claim is proper. 5
b.
This Court Has Pendent Jurisdiction over Plaintiffs’
State-Law Claims
Defendant makes similar jurisdictional arguments as to Plaintiffs’ statelaw claims for fraud, fraudulent inducement, civil conspiracy, breach of
fiduciary duty, and unjust enrichment. 6 Having established jurisdiction over
5
Although Defendant did not file a motion to dismiss under Rule 12(b)(3) for improper
venue, the Court will address this issue sua sponte in the interest of completeness, and
to ensure it that construes Defendant’s jurisdictional arguments liberally. Section 27 of
the Exchange Act, 15 U.S.C. § 78aa, is the venue provision specific to the Exchange Act.
It provides for venue in any district where “any act or transaction constituting the
violation occurred.” Id. Where, as here, such an act is based on a Defendant’s
fraudulent representations, “misrepresentations and omissions are deemed to ‘occur’ in
the district where they are transmitted or withheld.” In re Collins & Aikman Corp. Sec.
Litig., 438 F. Supp. 2d 392, 397 (S.D.N.Y. 2006) (internal quotation marks omitted).
Here, the Amended Complaint alleges that the false and fraudulent information
contained in the PIM was provided to Plaintiff Yu and other investors at the
Chadbourne & Parke Meeting in Manhattan, which lies within this District. (Am.
Compl. ¶ 52). Accordingly, the Court finds that venue properly lies in the Southern
District of New York.
6
Although Plaintiffs labeled their eighth claim for relief as an additional “Breach of
Fiduciary Duty” claim, this appears to have been an error. The paragraphs in this
section of the Amended Complaint track the pleading requirements for an unjust
enrichment claim. “Under New York law, a plaintiff asserting a claim of unjust
enrichment must show that [i] the defendant was enriched [ii] at the plaintiff's expense
and that [iii] equity and good conscience require the plaintiff to recover the enrichment
from the defendant.” Bigio v. Coca-Cola Co., 675 F.3d 163, 176 (2d Cir. 2012) (quoting
Giordano v. Thomson, 564 F.3d 163, 170 (2d Cir. 2009)). In their eighth claim for relief,
Plaintiffs allege that due to Defendant’s fraudulent action he was “[i] enriched, [ii] at the
expense of Plaintiffs” and that “[iii] it would be against equity and good conscience to
13
Plaintiffs’ federal claim under the Exchange Act, the Court must determine if it
has pendent personal jurisdiction over Plaintiffs related state-law claims.
“[U]nder the doctrine of pendent personal jurisdiction, where a federal statute
authorizes nationwide service of process, and the federal and state claims
‘derive from a common nucleus of operative fact,’ the district court may assert
personal jurisdiction over the parties to the related state law claims even if
personal jurisdiction is not otherwise available.” In re Fannie Mae 2008 Sec.
Litig., 891 F. Supp. 2d 458, 481 (S.D.N.Y. 2012) (citation omitted) (quoting IUE
AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1056 (2d Cir. 1993).
In the instant action, the state-law claims against Defendant unquestionably
derive from a common nucleus of operative fact, given that both the federal and
state claims are based upon Defendant’s fraudulent actions directed at
Plaintiffs for the purpose of soliciting investments in Premiere Power.
Accordingly, the Court exercises pendent jurisdiction over the state-law claims
and need not reach the question of whether personal jurisdiction over
Defendant as to the state-law claims is otherwise available. See S.E.C. v. ICP
Asset Mgmt., LLC, No. 10 Civ. 4791 (LAK), 2012 WL 204098, at *4 (S.D.N.Y.
Jan. 24, 2012) (“As the [plaintiff] states a claim against [defendant] under the
[federal statute authorizing nationwide service of process], there is no need to
permit Defendant[] to retain the ill-gotten benefits that [he] received from Plaintiffs.”
(Am. Compl. ¶¶ 124-25).
14
consider whether this Court would have personal jurisdiction over the state law
claims[.]”).
B.
Defendant’s Motion to Dismiss for Failure to State a Claim Is Denied
1.
Applicable Law
a.
Motions to Dismiss Under Rule 12(b)(6)
Defendant also challenges the adequacy of Plaintiffs’ pleadings against
him. When considering a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), a court should “draw all reasonable inferences in [the
plaintiff’s] favor, assume all well-pleaded factual allegations to be true, and
determine whether they plausibly give rise to an entitlement to relief.” Faber v.
Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks
omitted). Thus, “[t]o 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
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “While Twombly does not
require heightened fact pleading of specifics, it does require enough facts to
‘nudge [a plaintiff’s] claims across the line from conceivable to plausible.’” In re
Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (quoting Twombly, 550
U.S. at 570). “Where a complaint pleads facts that are ‘merely consistent with’
a defendant’s liability, it ‘stops short of the line between possibility and
plausibility of entitlement to relief.’” Iqbal, 556 U.S. at 678 (quoting Twombly,
550 U.S. at 557). Moreover, “the tenet that a court must accept a complaint’s
15
allegations as true is inapplicable to threadbare recitals of a cause of action’s
elements, supported by mere conclusory statements.” Id. at 663.
b.
Pleading Requirements for Securities Fraud Claims
Section 10(b) of the Exchange Act makes it unlawful to “use or employ, in
connection with the purchase or sale of any security ... any manipulative or
deceptive device or contrivance in contravention of such rules and regulations
as the Commission may prescribe.” 15 U.S.C. § 78j(b). The implementing rule,
Rule 10b-5, provides in turn that it is unlawful “[t]o make any untrue
statement of a material fact or to omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading.” 17 C.F.R. § 240.10b-5. To state a claim for
securities fraud under Section 10(b) and Rule 10b-5, a plaintiff must therefore
adequately plead these six elements: “[i] a material misrepresentation or
omission by the defendant; [ii] scienter; [iii] a connection between the
misrepresentation or omission and the purchase or sale of a security;
[iv] reliance upon the misrepresentation or omission; [v] economic loss; and
[vi] loss causation.” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S.
148, 157 (2008).
“Securities fraud claims are subject to heightened pleading requirements
that the plaintiff must meet to survive a motion to dismiss.” ATSI Commc’ns,
Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007); see also Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). In particular, a
16
complaint alleging securities fraud must meet the requirements of Federal Rule
of Civil Procedure 9(b). See ECA & Local 134 IBEW Joint Pension Tr. of Chi. v.
JP Morgan Chase Co., 553 F.3d 187, 196 (2d Cir. 2009). Rule 9(b) requires that
“[i]n alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Specifically,
Rule 9(b) requires that a complaint “[i] specify the statements that the plaintiff
contends were fraudulent, [ii] identify the speaker, [iii] state where and when
the statements were made, and [iv] explain why the statements were
fraudulent.” ATSI, 493 F.3d at 99 (citation omitted). “Allegations that are
conclusory or unsupported by factual assertions are insufficient.” Id.
A complaint alleging securities fraud must also comply with the pleading
requirements of the Private Securities Litigation Reform Act (the “PSLRA”), 15
U.S.C. § 78u-4(b). See Lewy v. SkyPeople Fruit Juice, Inc., No. 11 Civ. 2700
(PKC), 2012 WL 3957916, at *7 (S.D.N.Y. Sept. 10, 2012) (“Courts must
dismiss pleadings that fail to adhere to the requirements of the PSLRA.”). In
particular, where a plaintiff’s claims depend upon allegations that the
defendant has made an untrue statement of material fact or that the defendant
omitted a material fact necessary in order to make the statements not
misleading, the plaintiff “shall specify 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
17
is formed.” 15 U.S.C. § 78u-4(b)(1). Thus, in order to plead a claim of
securities fraud, plaintiffs “must do more than say that the statements ... were
false and misleading; they must demonstrate with specificity why and how that
is so.” Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004); see also In re
Austl. & N.Z. Banking Grp. Ltd. Sec. Litig., No. 08 Civ. 11278 (DLC), 2009 WL
4823923, at *7 (S.D.N.Y. Dec. 14, 2009).
In addition, a plaintiff pleading scienter in a securities fraud action
“shall, with respect to each act or omission alleged to violate this chapter, 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). “For an
inference of scienter to be strong, ‘a reasonable person [must] deem [it] cogent
and at least as compelling as any opposing inference one could draw from the
facts alleged.’” ATSI, 493 F.3d at 99 (quoting Tellabs, 551 U.S. at 324)
(alteration and emphasis in ATSI).
c.
Pleading Requirements for State-law Fraud Claims
Federal Rule of Civil Procedure 9(b) imposes a heightened pleading
standard on state-law claims alleging fraud. See Loreley Fin. No. 3 Ltd. v. Wells
Fargo Sec., LLC, — F.3d —, No. 13-1476-cv, 2015 WL 4492258, at *26 n.14 (2d
Cir. July 24, 2015) (“While the substantive elements of common-law fraud that
must be proven are a matter of state law, what must be pleaded and with what
level of particularity are governed by Rules 9(b) and 12(b)(6).” (emphases in
original, citation omitted)). Such claims must “state with particularity the
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circumstances constituting fraud.” Fed. R. Civ. P. 9(b). To satisfy Rule 9(b), a
complaint must “allege facts that give rise to a strong inference of fraudulent
intent.” In re DDAVP Direct Purchaser Antitrust Litig., 585 F.3d 677, 693 (2d
Cir. 2009) (quoting Acito v. IMCERA Group, Inc., 47 F.3d 47, 52 (2d Cir. 1995)).
The particularity requirement of Rule 9(b) “serves to ‘provide a defendant with
fair notice of a plaintiff’s claim, to safeguard a defendant’s reputation from
improvident charges of wrongdoing, and to protect a defendant against the
institution of a strike suit.’” Rombach 355 F.3d at 171 (quoting O’Brien v. Nat’l
Property Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991)).
2.
Discussion
a.
Plaintiffs State a Claim Under Section 10(b) of the
Exchange Act and Rule 10b-5
i.
Plaintiffs Adequately Allege Defendant’s
Misrepresentations
Defendant challenge the misrepresentation and scienter elements of
Plaintiff’s securities fraud claim. First, he argues that Plaintiffs “failed to assert
what representations were made by Defendant Jerry Jankovic” to them
regarding Premiere Power as a “genuine investment opportunity.” (Def. Br. 8).
This is not so. The Amended Complaint alleges that Defendant “authored” and
“developed” the PIM, which Plaintiffs claim contained “numerous false
documents” and “fraudulent and false information” regarding the Comanche
and Osage Projects that were intended to mislead potential investors, including
Plaintiffs. (Am. Compl. ¶¶ 43-44). Moreover, they provide detailed factual
allegations as to why the information was false, including an allegation that
19
most of the individuals listed as members, board members, equity owners, and
advisors disclaimed involvement with Premiere Power and were not aware of
their purported positions in the company. (Id. at ¶¶ 55-56). Further, the
Amended Complaint points out that the PIM claimed to use “ESA Engineering”
as a service provider, despite the latter company having been dissolved
approximately two years prior to the date appearing on the PIM. (Id. at ¶ 43
n.2). Accordingly, the Court finds that Plaintiffs have adequately pleaded their
claim under Section 10(b)(5) with respect to the requisite misrepresentations by
Defendant.
ii.
Plaintiffs Adequately Allege Scienter
Defendant also argues that the Plaintiffs “failed to establish that he acted
with the required scienter” for a claim under Section 10(b) because they have
not demonstrated that Defendant possessed a “mental state embracing intent
to deceive, manipulate or defraud.” (Def. Br. 9 (quoting South Cherry Street,
LLC v. Hennessee Group, LLC, 573 F.3d 98, 108 (2d Cir. 2009))).
Again the Court disagrees. To demonstrate an intent to deceive,
manipulate, or defraud, Plaintiffs can show either “[i] that defendants had the
motive and opportunity to commit fraud, or [ii] strong circumstantial evidence
of conscious misbehavior or recklessness.” ECA, 553 F.3d at 198. To show
motive and opportunity, Plaintiffs must allege that Defendant “benefitted in
some concrete and personal way from the purported fraud.” Id. (quoting Novak
v. Kasaks, 216 F.3d 300, 307-08 (2d Cir. 2000)). “Motives that are common to
20
most corporate officers, such as the desire for the corporation to appear
profitable and the desire to keep stock prices high to increase officer
compensation, do not constitute ‘motive’ for purposes of this inquiry.” Id.
Plaintiffs have met this burden through several allegations in the
Amended Complaint. First, as Chairman of Premiere Power, Defendant directly
benefited from the misstatements made in the PIM, as Plaintiffs relied on the
representations set forth therein in making their decision to invest. (Am.
Compl. ¶ 47). Moreover, the allegations in the Amended Complaint
demonstrate a personal and concrete motive for doing so: Defendant’s need to
generate money to pay off a $2.4 million settlement obtained by the Ans
against him and others for their roles in the fraudulent Morongo Project
scheme. (Id. at ¶¶ 32, 75). Accordingly, this Court finds that Plaintiffs have
adequately pleaded scienter, and have therefore stated a claim under Section
10(b) of the Exchange Act.
3.
Plaintiffs Have Pleaded the Fraud Claims with Sufficient
Particularity
Defendant further contends that Plaintiffs fail to satisfy the pleading
requirements of Rule 9(b) “with regard to the four (4) causes of action alleged
against Defendant.” (Def. Br. 6). By the Court’s count, the Amended
Complaint alleges six causes of action against Defendant. The heightened
pleading requirements of Rule 9(b) apply to Plaintiffs’ federal claim under
Section 10(b) as well as to their state-law claims for fraud, fraudulent
inducement, breach of fiduciary duty, and unjust enrichment. See Krys v.
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Pigott, 749 F.3d 117, 129 (2d Cir. 2014) (“In asserting claims of fraud —
including claims for aiding and abetting fraud or a breach of fiduciary duty
that involves fraud — a complaint is required to plead the circumstances that
allegedly constitute fraud ‘with particularity.’”); Benefield v. Pfizer Inc., — F.
Supp. 3d —, No. 14 Civ. 3394 (JPO), 2015 WL 1958929, at *10 (S.D.N.Y.
May 1, 2015) (“[Where] the basis for the alleged unjust enrichment claim is …
fraudulent conduct[,] Plaintiffs cannot avoid the heightened pleading
requirement of Federal Rule 9(b) by casting their fraud claim as one for unjust
enrichment.”); Dexia SA/NV v. Bear, Stearns & Co., 929 F. Supp. 2d 231
(S.D.N.Y. 2013) (holding that a plaintiff asserting claim for fraudulent
inducement under New York law in federal courts must satisfy the heightened
pleading requirements for fraud claims under the Federal Rules of Civil
Procedure). As this Court has already determined that Plaintiffs have
adequately pleaded the securities fraud claim, the Court will address the
argument that the claims for fraud, fraudulent inducement, breach of
fiduciary duty, and unjust enrichment have not been pleaded with
particularity. 7
7
Plaintiffs’ civil conspiracy claim, the remaining claim against Defendant, is subject to
the more liberal pleading standard of Rule 8(a). See Amusement Indus., Inc. v. Stern,
693 F. Supp. 2d 327, 355 n.15 (S.D.N.Y. 2010) (rejecting the “argument that the
elements of the civil conspiracy must comply with the particularity requirements of Fed.
R. Civ. P. 9(b)”). Although Defendant did not move to dismiss this claim, as separate
from the primary torts, the Court addresses this claim for the sake of completeness.
“With respect to the conspiracy elements, great leeway should be allowed the pleader,
since by the nature of the conspiracy, the details may not be readily known at the time
of pleading.” Id. at 355. Given this leeway, and the more liberal pleading standard, the
Court finds the allegations regarding a civil conspiracy to be sufficient at this stage.
22
Defendant contends that the Amended Complaint contains “absolutely
no alleged facts against Jerry Jankovic that would rise to the particularity
requirements set out in F.R.C.P. 9(b).” (Def. Br. 7). To support his contention,
Defendant argues that the Amended Complaint fails specifically to “state what
actions and/or statements were made by Defendant Jerry Jankovic,” and
instead makes “a blanket imputation of actions allegedly performed by some
Defendants to all Defendants.” (Id.).
Again, the Court disagrees with Defendant’s characterization of the
allegations in the Amended Complaint. Plaintiffs have alleged that Defendant
authored the PIM that accompanied their private offering of shares in Premiere
Power; that it contained containing false and fraudulent information designed
to induce investment; and that Plaintiffs partially relied on these
representations in making their investment. (Am. Compl. ¶¶ 44, 47, 49, 54).
These allegations sufficiently identify the time, place, and speaker of the
representations. See Ouaknine v. MacFarlane, 897 F.2d 75, 80 (2d Cir. 1990)
(“[R]eference to an offering memorandum satisfies 9(b)’s requirement of
identifying time, place, speaker, and content of the representation where, as
here, defendants are insiders … participating in the offer of securities.”)
Moreover, as required by Rule 9(b), Plaintiffs have not only identified the
content of the representations, but they have also specified precisely why
certain statements in the PIM were fraudulent. First, they point out that
various individuals identified in the PIM as being owners, board members, and
23
advisors to Premiere Power — including leaders in the power plant industry —
have denied such involvement in the company. (Am. Compl. ¶¶ 53-54).
Second, they allege that the PIM contained a purported “agreement with the
Osage Tribe to develop a 110 megawatt gas-powered cogeneration plant,” but
that the Osage Tribe had never agreed to allow their land to be used for the
development of power plants. (Id. at ¶¶ 43, 57). Third, Plaintiffs point out
that the PIM identifies ESA Engineering as a service provider, but that the
company had already dissolved in 2007. (Id. at ¶ 43 n.3). Accordingly, the
Court finds that the state-law claims for fraud, fraudulent inducement, breach
of fiduciary duty, and unjust enrichment in the Amended Complaint satisfy
the particularity requirements of Rule 9(b).
CONCLUSION
For the foregoing reasons, Defendant’s motion to dismiss for failure to
state a claim under Section 10(b) of the Exchange act is DENIED; Defendant’s
motion to dismiss for failure to properly plead its state-law fraud claims is
DENIED; and Defendant’s motion to dismiss for lack of personal jurisdiction is
DENIED. The Clerk of Court is directed to terminate Docket Entry 39. The
next conference in this matter is scheduled for August 11, 2015, at 4:30 p.m.
in Courtroom 618 of the Thurgood Marshall Courthouse.
SO ORDERED.
Dated:
August 4, 2015
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
A copy of this Order was mailed by Chambers to:
Jerry Jankovic
7914 East 106th Street
Tulsa, OK 74133
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