Opinion
Case No. 2:02 CV 218 ST
May 5, 2003
ORDER ON DEFENDANTS' MOTIONS TO DISMISS
Before the Court are two Motions to Dismiss, one from Defendants Beedie and Purizer Corp. and the other from Defendants William Kirton, David Derrick, and III Corp, both filed on October 1, 2002. On April 22, 2003, the Court heard oral argument on the Motions to Dismiss,
Each Defendant incorporates and adopt each other's reasonings in the individual Motions to Dismiss. The Court will therefore address the Motions to Dismiss together.
DISCUSSION
In considering a motion to dismiss under Federal Rule of Civil Procedure, Rule 12(b)(6), all well-pleaded factual allegations in the complaint are accepted as true and viewed in the light most favorable to the Plaintiffs as the non-moving party. Sutton v. Utah State School for the Deaf and Blind, 173 F.3d 1226, 1236 (10th Cir. 1999). "A 12(b)(6) motion should not be granted `unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
Additionally, in the "securities fraud context, a plaintiff is held to a strict standard of pleading. . . . Under Rule 9(b), a plaintiff is required to `set forth what is false or misleading about a statement, and why it is false.'" Spiegel v. Tenfold Corp., 192 F. Supp.2d 1261, 1263 (D. Utah 2002) (internal citation omitted). Accepting all of the facts in the light most favorable to the Plaintiffs, the Court finds as follows:
I. PERSONAL JURISDICTION
"`The plaintiff bears the burden of establishing personal jurisdiction over the defendant. Prior to trial however, when a motion to dismiss for lack of jurisdiction is decided on the basis of affidavits and other written materials, the plaintiff need only make a prima facie showing.' We resolve all factual disputes in favor of the plaintiff. . . ." Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1075 (10th Cir. 1995) (internal citation omitted). "`To obtain personal jurisdiction over a nonresident defendant in a diversity action, a plaintiff must show that jurisdiction is legitimate under the laws of the forum state and that the exercise of jurisdiction does not offend the due process clause of the Fourteenth Amendment.'" Soma Medical Intern. v. Standard Chartered Bank, 196 F.3d 1292, 1295 (10th Cir. 1999) (internal citation omitted).
Utah's long-arm statute provides in pertinent part,
[a]ny person . . . who in person or through an agent does any of the following enumerated acts, submits himself . . . to the jurisdiction of the courts of this state as to any claim arising out of or related to: (1) the transaction of any business within this state . . . [or] (3) the causing of any injury within this state whether tortious or by breach of warranty. . . .
Utah Code Ann. § 78-27-24 (1996). Further, the legislature has declared that the long-arm statute must be interpreted broadly "so as to assert jurisdiction over nonresident defendants to the fullest extent permitted by the due process clause of the Fourteenth Amendment to the United States Constitution." § 78-27-22.
The Utah Supreme Court has stated that it "frequently make[s] a due process analysis first because any set of circumstances that satisfies due process will also satisfy the long-arm statute." SII MegaDiamond, Inc. v. American Superabrasives Corp., 969 P.2d 430, 433 (Utah 1998). "The Due Process Clause protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful `contacts, ties or relations.'" Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72 (1985) (internal citation omitted). Accordingly, a "court may exercise personal jurisdiction over a nonresident defendant only so long as there exists `minimum contacts' between the defendant and the forum state." World-Wide Volkswagon Copr. v. Woodson, 444 U.S. 286, 291 (1980).
The "minimum contacts" necessary for specific personal jurisdiction are established "`if the defendant has `purposefully directed' his activities at residents of the forum, and the litigation results from alleged injuries that `arise out of or relate to' those activities.'" Burger King Corp., 471 U.S. at 472 (internal citation omitted). "If the defendant's activities create sufficient minimum contacts, we then consider `whether the exercise of personal jurisdiction over the defendant offends `traditional notions of fair play and substantial justice.'" Soma, 196 F.3d at 1298 (internal citation omitted).
"We therefore examine the quantity and quality of [defendants'] contacts with Utah, including `prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing,' to determine whether the exercise of personal jurisdiction over [defendants] comports with due process." Soma, 196 F.3d at 1298 (internal citation omitted).
Applying the above analysis to this case, the Court finds the Plaintiffs have failed to allege sufficient facts to establish the Court's jurisdiction over defendant David Beedie as an individual ("Beedie"). "Jurisdiction over the representatives of a corporation may not be predicated on jurisdiction over the corporation itself, and jurisdiction over the individual officers and directors must be based on their individual contacts with the forum state." Ten Mile Industrial Park v. Western Plains Service Corp., 810 F.2d 1518, 1527 (10th Cir. 1987). The Plaintiffs have failed to allege facts that Mr. Beedie traveled to Utah, called anyone in Utah, or in any way availed himself to this forum. Plaintiffs' conclusory statement that Mr. Beedie "transacted business in Utah" is not supported by any factual allegations in the Complaint. The Court therefore GRANTS Defendants Motions to Dismiss Mr. Beedie for lack of personal jurisdiction, without prejudice.
II. 15 U.S.C. § 77q(a)
Plaintiffs bring their fourth cause of action under 15 U.S.C. § 77q(a). However, the Tenth Circuit does not recognize a private right of action under Section 17(a). Zink v. Merrill Lynch Pierce Fenner Smith, Inc., 13 F.3d 330, 334 (10th Cir. 1993). Additionally, the Plaintiffs failed to address this claim in their response and the Plaintiffs conceded at the hearing that no private cause of action exists. The Court therefore GRANTS Defendants' Motions to Dismiss the Plaintiffs' fourth cause of action, with prejudice.
III. UTAH UNIFORM SECURITIES ACT
Plaintiffs' sixth cause of action is brought under the Utah Uniform Securities Act. § 61-1-22(1)(a), which reads, in relevant part; "[a] person who offers or sells a security in violation of Subsection 61-1-3(1) . . . or offers, sells or purchases a security in violation of Subsection 61-1-1(2) is liable to the person selling the security to or buying the security from him. . . ."
Defendants contend Plaintiffs have failed to plead Defendants are statutory sellers with the requisite specificity required under Rule 9(b) of the Federal Rules of Civil Procedure. "The issue of whether a party is considered a `seller' under the Utah [Uniform Securities] Act is governed by the same standard as that which applies to claims of primary liability under § 12(2) of the Federal Securities Act of 1933." Wenneman v. Brown, 49 F. Supp.2d 1283, 1290 (D. Utah 1999) (internal citations omitted). Under § 12 of the Federal Securities Act of 1933, the "Plaintiffs must allege facts that support the conclusion that the individual Defendants solicited the purchases and were motivated by a desire to serve their own financial interests." Spiegel v. Tenfold Corp., 192 F. Supp.2d 1261, 1269 (D. Utah 2002). A bald allegation that Defendants solicited purchases is not sufficient. Id.
Here, the Complaint is devoid of factual allegations that the individual Defendants were motivated by a desire to serve their own financial interests. Plaintiffs simply allege that the Defendants aided and abetted the violations. While it is somewhat possible from the Complaint to infer that the Defendants solicited the Plaintiffs' purchases for their own financial gain, this does not meet the higher standards set forth in Rule 9(b). The Court therefore GRANTS Defendants' Motions to Dismiss Plaintiffs' sixth cause of action, without prejudice. Because the Court is dismissing this claim, the Court finds it unnecessary to address Defendants' remaining arguments regarding this claim.
IV. SECTION 12 SECURITIES CLAIMS: STATUTE OF LIMITATIONS
1. 15 U.S.C. § 771 (a)(1) or 12(a)(1)
15 U.S.C. § 77 l(a)(1) prohibits the offer or sale of an unregistered security. The statute of limitations for the claim is one year from the date of the violation, with a three-year statute of repose. 15 U.S.C. § 77m.
The Plaintiffs raise the issue of equitable tolling of the statute of limitations. The Court concludes that equitable tolling does not apply. First, 15 U.S.C. § 77m, clearly distinguishes between § 12(a)(1) and § 12(a)(2) claims. For § 12(a)(2) claims, the statute of limitations period is flexible and depends on the discovery of the misstatement. Under § 12(a)(1), the claim is barred "unless brought within one year after the violation upon which it is based." 15 U.S.C. § 77m. Second, the discovery rule is unjustified in the § 12(a)(1) context because violations are easily uncovered. Whether a security is registered is a matter of public record.
The Court further finds that the Plaintiffs have failed to cite persuasive authority in the Tenth Circuit that the doctrine of equitable tolling applies. Perry v. Robinson, No. 96-6027, 1996 WL 606380, at *3 (10th Cir. 1996), is an unpublished decision and therefore is not binding on the Court. Further, the statement relied upon by the Plaintiffs in Dahl v. Gardner, 583 F. Supp. 1262, 1264 (D. Utah 1984) (stating, "[t]he doctrine of equitable tolling . . . is `read into every federal statute of limitations'"), is overly broad in the context of securities claims. See, e.g., Snyder III v. Newhard, Cook Co., Inc., 764 F. Supp. 612, 618 (D. Colo. 1991) (holding that "equitable tolling is inapplicable to § 12(1) claims."); Lampf, Pleva, Lipkind, Prupis Petigrow v. Gilbertson, 501 U.S. 350, 363-64 (1991) (concluding that equitable tolling does not apply to 10(b) claims).
Based upon the above, the Court finds the Plaintiffs' claim is time-barred. Plaintiffs originally filed their Complaint on March 15, 2002. In the Complaint, Plaintiff alleged the subject securities purchases occurred between about June 1999 and May 2000. Thereafter, in the Amended Complaint, the Plaintiffs allege the subject securities purchases occurred between about May 1999 to May 2000. The claim is therefore time-barred, as the statute of limitations on the latest of Plaintiffs' purchases expired by May of 2001.
Therefore, the Court dismisses Plaintiffs' second cause of action, with prejudice. As such, the Court finds it is unnecessary to address the remaining arguments with regard to this claim.
Additionally, the Court finds that even if equitable tolling applied, Plaintiffs' 12(a)(1) claim would be barred under the concept of inquiry notice, discussed below.
2. Section 12(a)(2) Section 10(b)
In Plaintiffs' third cause of action, they seek relief under 15 U.S.C. § 771 (a)(2) and in the fifth cause of action, they seek relief under sections 10(b). 15 U.S.C. § 771 (a)(2) proscribes oral or written false statements and omissions made in the context of the initial offering. The statute of limitations for 771(a)(2) is "one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence." 15 U.S.C. § 77m. Under this rule, the one year period begins to run as soon as the Plaintiffs have sufficient facts to put them on "inquiry notice." Caprin v. Simon Transportation Services, 112 F. Supp.2d 1251, 1259 (D. Utah 2000). To determine whether the Plaintiffs were put on inquiry notice, "a court must first determine whether an investor has been `put on `inquiry notice' of possible misrepresentations.' Secondly, the court must then ascertain when a reasonably diligent investor would have discovered the facts underlying the alleged fraudulent activity, thus triggering the statute of limitations." Id. (internal citation omitted). The one year statute of limitations and determination of inquiry notice applies similarly to Section 10(b) claims. Sterlin v. Biomune Systems, 154 F.3d 1191, 1195-1203 (10th Cir. 1998).
The Court further finds that the determination of whether the Plaintiffs were put on inquiry notice in this case is a proper question of law. See, e.g., Caprin v. Simon Transportation Services, 112 F. Supp.2d 1251 (D. Utah 2000); Sterlin v. Biomune Systems, 154 F.3d 1191 (10th Cir. 1998).
From the face of the Amended Complaint, the Court finds that the Plaintiffs were put on inquiry notice by (1) the June 12, 2000, Rescission Offer's announcement that the Bioxide company may have sold stock in violations of securities laws; (2) by the fact that, after the Plaintiffs received the Rescission Offer, all of the Plaintiffs attempted to have the Defendants repurchase the stock; and (3) when Plaintiff Goodwin discovered in late 2000 that the project had experienced difficulties. The Court finds the combination of the above facts created sufficient "storm warnings" to put a reasonable investor on notice of the possibility of fraudulent activity. Further, the Court finds that a reasonable inquiry would have uncovered facts underlying the Securities Act claims that Plaintiffs have purported to assert.
Accordingly, the one year statute of limitations was triggered on or about June 12, 2000. The Plaintiffs filed their Complaint on March 15, 2002. As such, the claim is time-barred and the Court GRANTS Defendants' Motions to Dismiss Plaintiffs' third and fifth causes of action, with prejudice. The Court further finds it is unnecessary to deal with Defendants' remaining arguments.
V. RICO 18 U.S.C. § 1961, et seq.
Plaintiffs' seventh cause of action alleges violations of the RICO Act, 18 U.S.C. § 1961, et seq. To plead a violation of RICO, Plaintiffs must allege "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985). The particularity requirements of Rule 9(b) apply to RICO claims. Farlow v. Peat, Marwick, Mitchell Co., 956 F.2d 982, 989 (10th Cir. 1992).
The Plaintiffs' allegations under its RICO claim fail to meet the pleading requirements of Rule 9(b). Plaintiffs make conclusory allegations of "mail fraud" and "wire fraud" but fail to plead specific mail or wire fraud violations. The Plaintiffs do not allege with specificity how, when, and where each defendant actually committed fraud or participated in the alleged fraudulent scheme and criminal activity.
Additionally, the Plaintiffs cannot rely upon allegations of securities fraud to establish a violation of RICO. 18 U.S.C. § 1964 (c) states, "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court . . . except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962." Plaintiffs' claimed violations of RICO are predicated upon the incorporation of their previous allegations in the First Amended Complaint, which only involved claims of securities fraud. The RICO allegations in Plaintiffs' seventh cause of action are conclusory and unsupported by specific factual allegations of fraud and criminal activity. Accordingly, the Court GRANTS Defendants' Motions to Dismiss Plaintiffs' seventh cause of action without prejudice. The Court finds it is not necessary to address Defendants' remaining RICO arguments.
VI. CIVIL VIOLATIONS of § 76-10-1601. et. seq.:
In Plaintiffs' eighth cause of action, they plead violations of Utah Code Ann. § 76-10-16-1601, referred to as the Pattern of Unlawful Activity Act ("UPUA"). "The party alleging violation of UPUA must show that (1) the defendant is engaged in a pattern of unlawful activity and (2) the defendant is involved in an enterprise." Holbrook v. Master Protection Corp., 883 P.2d 295, 302 (Utah App.Ct. 1994). Additionally, as Plaintiffs concede, for purposes of a motion to dismiss, the construction of the Federal RICO Act and the Utah Pattern of Unlawful Activity Act are the same. Bradford v. Moench, 670 F. Supp. 920, 928 (D. Utah 1987).
The Court finds the Plaintiffs have failed to plead that the Defendants were involved in an enterprise as required by the heightened standard of Rule 9(b). Accordingly, the Court GRANTS Defendants' Motions to Dismiss the eighth cause of action, without prejudice.
VII. COMMON LAW CLAIMS:
1. Common-Law Fraud
With respect to Plaintiffs' common-law fraud claim, such a claim must be plead with particularity. Lochhead v. Alacano, 697 F. Supp. 406, 414 (D. Utah 1988). The Court finds the Plaintiffs have failed to allege their common-law fraud claim with the required particularity. In cases where there are multiple defendants, such as the present case, "each defendant is entitled to know precisely what it is the plaintiff claims he did wrong." Cook v. Zions First Nat. Bank, 645 F. Supp. 423, 424 (D. Utah 1986). The Plaintiffs have not set forth the time, place, content, and manner of each Defendants' alleged material misrepresentations. The Plaintiffs simply allege the "Defendants, individually or collectively, participated in or made each of the misrepresentations. . . ." The Court therefore GRANTS Defendants' Motions to Dismiss the tenth cause of action, without prejudice.
2. Civil Conspiracy
With respect to Plaintiffs' civil conspiracy claim, while such a cause of action is not subject to Rule 9(b) pleading requirements, such charges cannot be "general or conclusory, but must contain specific factual allegations." Lochhead, 697 F. Supp. at 417. The Plaintiffs have failed to allege a factual basis for its civil conspiracy claim. As such, the Court GRANTS Defendants' Motions to Dismiss Plaintiffs ninth cause of action, without prejudice.
3. Breach of Contract
"'The elements of a prima facie case for breach of contract are (1) a contract, (2) performance by the party seeking recovery, and (3) breach of the contract by the other party, and (4) damages.'" Campbell, Maack Sessions v. Debry, 38 P.3d 984, 991 (Utah Ct.App. 2001). The Plaintiffs allege each of the elements. While there may be questions of fact that need to be addressed in connection with the breach of contract claim, such as whether and to what extent a contract existed between the Plaintiffs and Defendants, the Court finds the Plaintiffs have met their pleading requirements. The Defendants' Motions to Dismiss Plaintiffs' first cause of action is therefore DENIED.
4. Remaining Claims
With respect to Plaintiffs remaining common law claims the Court finds the Plaintiffs have sufficiently put the Defendants on notice of the claims. Further, the Defendants have failed to demonstrate in what way, if any, the claims are specifically deficient.
VIII. SUPPLEMENTAL JURISDICTION
A district court may decline supplemental jurisdiction when the "court has dismissed all claims over which it has original jurisdiction." 28 U.S.C.A. § 1367(c)(3) (1993). The Court has dismissed all of Plaintiffs' claims over which it had original jurisdiction. The only remaining claims are Plaintiffs' state law claims. Because these claims deal solely with state law, they are better left to the jurisdiction of the state courts.
CONCLUSION
The Court GRANTS Defendants.' Motion to Dismiss Plaintiffs' sixth, seventh, eight, ninth, and tenth causes of action, without prejudice. Plaintiffs second, third, fourth, and fifth causes of action are dismissed with prejudice. The Court DENIES Defendants' Motions to Dismiss the remaining claims. The Court further GRANTS Defendants' Motions to Dismiss David Beedie for lack of personal jurisdiction, without prejudice. The Court declines supplemental jurisdiction over the remaining state law claims.
SO ORDERED.