Braddock v. Maresca et al

Filing 31

MINUTE ORDER granting in part and denying in part Defendants Jane Doe Giunta, Michael Giunta, Zaycon Foods LLC's #15 Motion to Dismiss; granting in part and denying in part Defendants Jane Doe Conrad, Mike Conrad, Adam Kremin, Jane Doe Kremin, Frank R Maresca, Jane Doe Maresca's #17 Motion to Dismiss. Any Amended Complaint shall be filed within thirty (30) days of the date of this Minute Order. Authorized by Judge Thomas S. Zilly. (SWT)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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RICHARD BRADDOCK,

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Plaintiff,
C16-1756 TSZ
v.
MINUTE ORDER
ZAYCON FOODS LLC, et al.,

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Defendants.

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The following Minute Order is made by direction of the Court, the Honorable
13 Thomas S. Zilly, United States District Judge:
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(1)
Defendants’ motions to dismiss claims one through four (docket nos. 15 &
17) are GRANTED in part and DENIED in part.1
(2)
As to claim one, Federal Securities Fraud, defendants’ motions are
GRANTED in part and DENIED in part. In addition to the “plausibility” standard, a
complaint raising C.F.R. § 240.10b–5 (“10b-5”) fraud claims must also satisfy the
“particularity” requirement of Federal Rule of Civil Procedure 9(b) and the heightened
pleading requirements of the Private Securities Litigation Reform Act (“PSLRA”). See
WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1047 (9th Cir.
2011). In order to recover damages for violations of 10b–5, a plaintiff must prove “(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)

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Defendants, Maresca, Conrad, and Kremin join in Zaycon and Giunta’s motion, and Giunta
joins arguments advanced in the Reply filed by Maresca, Conrad, and Kremin. All defendants move this
Court to dismiss, pursuant to Fed. R. Civ. P. 12(b)(6), claims one and two of plaintiff’s Complaint.
22 Claims three and four are solely claims against Conrad and Kremin.

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MINUTE ORDER - 1

1 reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss
causation.” Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2407 (2014).
2 Even if a defendant is not a primary violator under the above standard, he or she may be
liable as a “control person,” if a plaintiff can prove (1) a primary violation of federal
3 securities law and 2) that the defendant exercised actual power or control over the
primary violator. Howard v. Everex Systems, Inc., 228 F.3d 1057, 1065 (9th Cir. 2000).
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(i)
As to Maresca, Conrad, Kremin, and Giunta (collectively the
“individual defendants”), defendants’ motions are GRANTED and claim one is
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DISMISSED without prejudice and with leave to amend. Plaintiff’s complaint has
failed to allege with sufficient particularity that the individual defendants “made”
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the misrepresentations and omissions alleged therein, see Gavaldon v. Standard
Chartered Bank International, Inc., No. 16CV590-LAB (MDD), 2017 WL
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766726, at *7 (S.D. Cal. Feb. 28, 2017) (“[T]he complaint alleges affirmative
misrepresentations and deliberately misleading statements by Defendants
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collectively . . . [t]he major defect is that the allegations are made against
Defendants as a group.”), and is likewise devoid of non-conclusory allegations
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demonstrating that the individual defendants are subject to “control person
liability,” see Boilermakers Nat. Annuity Trust Fund v. WaMu Mortg. Pass
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Through Certificates, Series AR1, 748 F. Supp. 2d 1246, 1257 (W.D. Wash. 2010)
(allegations that individuals were officers or directors insufficient to establish
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control person liability absent allegations of “individualized facts” relating to each
defendants’ alleged control).
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As to Zaycon, Zaycon’s motion is GRANTED in part and DENIED

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(ii)
in part.

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With regard to Zaycon’s alleged omissions, the motion is GRANTED
without prejudice and with leave to amend. Plaintiff alleges many omissions in
his Complaint. The omissions alleged are of three categories: (1) omissions in
Zaycon’s Second Amended and Restated Operating Agreement (“Operating
Agreement”), dated November 1, 2012, (as amended) (see e.g. ¶42-46); (2)
omissions regarding Conrad’s personal bankruptcy and Conrad and Kremin’s
former business (see e.g. ¶49 a-f), and (3) generally plead omissions (see e.g. ¶47).
As to the alleged omissions in the Operating Agreement, the Court finds that they
are merely a restatement of the misrepresentations plaintiff alleges the agreement
contained and therefore need not be separately considered. As to the alleged
omissions regarding Conrad’s personal bankruptcy and Conrad and Kremin’s
former business, plaintiff has failed to allege facts demonstrating that any of the
defendants had a duty to disclose the information. See, e.g., City of Roseville
Emps. Ret. Sys. V. Sterling Fin. Corp., 963 F. Supp. 2d 1092, 1109 (E.D. Wash.
2013) (“[W]hen a plaintiff relies on an omission of fact as evidence of falsity, the
plaintiff cannot simply show that the omission was material; instead, the plaintiff

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MINUTE ORDER - 2

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must show that the omission actually renders other statements misleading.” (citing
In re Rigel Pharmaceuticals, Inc. Securities Litigation, 697 F.3d 869, 880 n. 8 (9th
Cir. 2012))). Lastly, as to the generally plead omissions plaintiff alleges, they are
pled without particularity and only in a conclusory fashion.

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As to Zaycon’s alleged misrepresentations in the Operating Agreement, the
motion is DENIED. Plaintiff alleges, with sufficient particularity, that material
misrepresentations existed in the Operating Agreement; further, the Complaint
alleges facts supporting a “strong inference” that Zaycon acted with the requisite
scienter; and adequately alleges that the misrepresentations in the Operating
Agreement were in connection with the sale of a security, that plaintiff relied on
the misrepresentations, that economic loss resulted, and that economic loss was
caused by the alleged misrepresentations in the Operating Agreement.
(3)
Defendants’ motions as to claim two, for violation of RCW 21.20.010, are
GRANTED in part and DENIED in part. In order to establish liability for violation of
RCW 21.20.010, a plaintiff must prove that defendants “made material
misrepresentations or omissions about the security, and [that Plaintiff] relied on those
misrepresentations or omissions.” Stewart v. Estate of Steiner, 122 Wn. App. 258, 264
(2004). As with federal securities fraud, if a defendant is not liable as a primary violator,
he may be subject to joint and several liability if he “directly or indirectly controls a
seller” who violates RCW 21.20.010 or “materially aids in the transaction.” RCW
21.20.430(3); see also Swartz v. Deutsche Bank, 2008 WL 1968948, at *23 (W.D. Wash.
May 2, 2008).
(i)
As to the individual defendants, defendants’ motions are
GRANTED, and claim two, as it relates to those defendants, is DISMISSED
without prejudice and with leave to amend. Plaintiff’s complaint has failed to
allege with sufficient particularity that the individual defendants “made” any of
the misrepresentations and omissions alleged and offers, at best, only conclusory
allegations that the individual defendants “directly or indirectly” controlled
Zaycon or “materially aid[ed] in the transaction,” see Swartz, 2008 WL 1968948
at *23.
(ii)
As to Zaycon, Zaycon’s motion is DENIED. Plaintiff has pled with
particularity that Zaycon made misrepresentations about a security, specifically the
misrepresentations in the Operating Agreement, and that plaintiff relied on those
misrepresentations.

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(4) Conrad’s motion to dismiss claim three and Kremin’s motion to dismiss
claim four are GRANTED and the claims are DISMISSED as duplicative. Plaintiff
21 alleges, in claims three and four, that Conrad and Kremin violated the “civil liabilities”
portion of the WSSA, RCW 21.20.430. RCW 21.20.430, however, does not itself
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MINUTE ORDER - 3

1 proscribe conduct, it simply creates a private right of action to sue for, inter alia,
violations of RCW 21.20.010. As such, claims three and four are coextensive with claim
2 two, which alleges that all of the defendants violated RCW 21.20.010.
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(5)
Any Amended Complaint shall be filed within thirty (30) days of the date
of this Minute Order.

(6)
5 record.
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The Clerk is directed to send a copy of this Minute Order to all counsel of

Dated this 21st day of April, 2017.
William M. McCool
Clerk

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s/Karen Dews
Deputy Clerk

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MINUTE ORDER - 4