Opinion
Civil Action No. DKC 2000-2704
September 4, 2001
MEMORANDUM OPINION
Presently pending and ready for resolution in this securities fraud case is Defendants' motion to dismiss. The issues are fully briefed and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, Plaintiff's complaint will be dismissed for lack of standing unless she produces the alleged June 26, 1994 irrevocable stock power supported by affidavit no later than September 14, 2001.
The claims against Emmet A. Larkin Company, Inc. were dismissed with prejudice by stipulation. The claims against United Stock Transfer, Inc. were dismissed without prejudice for failure to serve process.
Background
Plaintiff, Lea J. Uhre, asserts in her unverified complaint that her husband, Curtis B. Uhre, purchased shares of Pierce International, Inc., between 1990 and 1992 which he transferred to her on June 26, 1994 "by irrevocable stock power." Pl. Compl. at ¶ 13. On or about September 8, 1999, Donson Brooks, a representative of Salomon Grey, called Mr. Uhre, offering to sell 500 shares of Nathaniel Energy Corporation. Allegedly to facilitate the purchase, Defendant Brooks "fraudulently" induced plaintiff to sell 27,000 shares of Pierce, "by knowingly misinforming plaintiff that the price of Pierce International stock had recently decreased by 50 percent, that the company was mismanaged and would be out of business soon, and that the stock would be worthless within six months." Pl. Compl. at ¶ 16. The complaint also alleges failures, in the face of duty, to advise plaintiff of other facts, including a cease and desist injunction against Brooks.
Standard of Review
Defendants have labeled their motion as a Rule 12(b)(6) challenge. Standing, however, is more properly assessed under Rule 12(b)(1), as a challenge to subject matter jurisdiction. Haase v. Sessions, 835 F.2d 902, 906 (D.C. Cir. 1987) (citing Bender v. Williamsport Area School Dist., 475 U.S. 534, 541 (1986)). Thus, the standing aspect of the motion will be analyzed under subsection (b)(1). Such a challenge may take two forms: a facial challenge to the allegations in the complaint or a factual challenge. Beatty v. United States Food and Drug Administration, 12 F. Supp.2d 1339, 1342 (S.D.Ga. 1997). The first burden on a plaintiff is to allege facts sufficient to show standing. Even if that hurdle is crossed, however, a defendant may challenge the assertions in a motion to dismiss:
The other aspects of the motion to dismiss are secondary and will not be addressed in this memorandum. If Plaintiff comes forward with evidence to support her standing, the court will then address the remaining arguments.
The distinction is important, for only a Rule 12(b)(6) motion is capable of being converted to a motion for summary judgment. Wilson-Cook Medical, Inc. v. Wilson, 942 F.2d 247, 252 (4th Cir. 1991).
A Rule 12(b)(1) motion can challenge the substance of a complaint's jurisdictional allegations in spite of its formal sufficiency by relying on affidavits or any other evidence properly before the court. "It then becomes necessary for the party opposing the motion to present affidavits or any other evidence necessary to satisfy its burden of establishing that the court, in fact possesses subject matter jurisdiction." St. Clair [v. City of Chico, 880 F.2d 199] at 201 [(9th Cir.), cert. denied, 493 U.S. 993 (1989)].
New Mexicans for Bill Richardson v. Gonzales, 64 F.3d 1495, 1499 (10th Cir. 1995). Here, Defendant has provided evidence challenging subject matter jurisdiction and contends that Plaintiff has not and cannot produce a document sufficient to confer standing, namely the "June 26, 1994 irrevocable stock power." Pl. Compl. at ¶ 13.
Contrary to Plaintiff's assertion, it is not necessarily sufficient, even at this stage of the litigation, to rest solely on unsupported assertions in a complaint:
For purposes of ruling on a motion to dismiss for want of standing, both the trial and reviewing courts must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party. E.g. Jenkins v. McKeithen, 395 U.S. 411, 421-422 (1969). At the same time, it is within the trial court's power to allow or to require the plaintiff to supply, by amendment to the complaint or by affidavits, further particularized allegations of fact deemed supportive of plaintiff's standing. If, after this opportunity, the plaintiff's standing does not adequately appear from all materials of record, the complaint must be dismissed.
Warth v. Seldin, 422 U.S. 490, 501-02 (1975) (quoted in Haase, 835 F.2d at 906). When faced with a Rule 12(b)(1) motion to dismiss, the burden of proving subject matter jurisdiction is on the plaintiff, since she is the party asserting jurisdiction. Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir., 1982).
Analysis
Salomon Grey Financial Corporation, Kyle B. Rowe, Paul Koupas, and Donson Gene Brooks all move to dismiss the claims against themselves primarily on the ground that Plaintiff was not a seller or purchaser of the securities at issue. The absence of ownership deprives Plaintiff of standing to bring the securities actions and defeats her other claims as well. It is a well settled requirement that a plaintiff must be a purchaser or seller of securities in order to have standing under Section 10(b) of the Securities and Exchange Act and Rule 10b-5. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975) (holding that only actual purchasers or sellers had standing to bring private damages actions); Advanced Resources Int'l Inc. v. Tri-Star Petroleum Co., 4 F.3d 327, 331-33 (4th Cir. 1993).
Plaintiff's opposition acknowledges the correctness of the legal parameters set forth by Defendants. She disputes their applicability, however, and reiterates the allegations in the complaint asserting that she is the owner of the stock by virtue of the June 26, 1994 irrevocable stock power and, alternatively, that she was the equitable owner, about which Defendants allegedly knew. She still has not produced the alleged June 26, 1994 irrevocable stock power. Therefore, it is not at all clear, as Plaintiff asserts it is, that the Defendants knew that Plaintiff's husband was merely acting as her agent. Unless Plaintiff comes forward with evidentiary support for her assertion of standing pursuant to an "irrevocable stock power," the complaint is subject to dismissal. See Warth, 422 U.S. at 501-02 (requiring Plaintiff to supply additional material supportive of Plaintiff's standing). Plaintiff must submit the evidence in an amendment to the complaint no later than September 14, 2001.
Conclusion
For the foregoing reasons, an order will be entered directing Plaintiff to submit an amended complaint, verified, and containing documentary evidence of her right to pursue each cause of action or the complaint will be dismissed.
ORDER
For the reasons stated in the foregoing Memorandum Opinion, it is this ___ day of September, 2001, by the United States District Court for the District of Maryland, ORDERED that:
1. The motion of Salomon Grey Financial Corporation, Kyle B. Rowe, Paul Koupas, and Donson Gene Brooks to dismiss BE, and the same hereby IS, GRANTED UNLESS:
2. Plaintiff produces the alleged irrevocable stock power supported by affidavit and files an Amended Complaint no later than September 14, 2001; and
3. The clerk will transmit copies of the Memorandum Opinion and this Order to counsel for all parties.