Opinion
3:02-CV-0023-P
April 12, 2002
MEMORANDUM OPINION AND ORDER
Now before the Court are:
1. Defendants Garry Weber, Glenn Nowlin, and Weber Investment Corporation's Motion to Dismiss for Lack of Subject Matter Jurisdiction, filed January 17, 2002;
2. Defendant Susan Slovak's Motion to Dismiss Pursuant to Rules 12(b)(1) and 12(b)(6), filed January 28, 2002; and
3. Plaintiff's Motion to Strike the Answer of Garry Weber, Glenn Nowlin and Weber Investment Corporation and Motion to Dismiss, filed February 6, 2002.
Also before the Court is Defendant Garry Weber, Glenn Nowlin and Weber Investment Corporation's Response to Motion for Judgment on the Pleadings, filed February 15, 2002. However, the Court does not have a record of such a motion pending before it. If Plaintiff did file such a motion, it would be denied as moot because the Court now grants Defendants' motions to dismiss the Complaint.
After considering the parties briefing and arguments, and the applicable law, the Court GRANTS Defendants Weber, Nowlin, and WIC's Motion to Dismiss for Lack of Subject Matter Jurisdiction, GRANTS Defendant Slovak's Motion to Dismiss Pursuant to Rules 12(b)(1) and 12(b)(6), and DENIES Plaintiff's Motion to Strike.
I. Factual Background
Plaintiff Terry Don Rader brings this Complaint against three individuals and corporation. Rader worked with the individual Defendants at the Defendant corporation. The Securities and Exchange Commission (SEC) investigated a fraudulent scheme involving the inflation of certain stock prices. Rader was criminally prosecuted and was fined and incarcerated for his role in the scheme. Plaintiff argues that the Defendants were also involved in the fraud, and brings this Complaint pursuant to the securities law apparently in an attempt to require Defendants to share in the blame for the fraud.
II. Legal Standards — Motion to Dismiss
An action must be dismissed if it appears that the Court does not possess subject matter jurisdiction over the plaintiffs claims. Fed.R.Civ.P. 12(b)(1). Importantly, the burden of establishing subject matter jurisdiction rests on the plaintiff as the party invoking jurisdiction. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377, 114 S.Ct. 1673, 1675, 128 L.Ed.2d 391 (1991).
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint when Defendant shows that Plaintiff has failed to state a claim for which relief can be granted. A motion to dismiss for failure to state a claim is viewed with disfavor and should rarely be granted. See Kaiser Aluminum Chemical Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982). Under the rule of Conley v. Gibson, 355 U.S. 41 (1957), a claim should not be dismissed 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." Conley, 355 U.S. at 45-46. The Court must render its decision taking the complaint in the light most favorable to the plaintiff and taking its allegations as true. Baker v. Purnal, 75 F.3d 190, 196 (5th Cir. 1996). The Court limits its inquiry to whether plaintiff is entitled to offer evidence to support claims and does not address whether plaintiff will ultimately prevail on the merits. Johnson v. Dallas Ind. School Dist., 38 F.3d 198, 199 (5th Cir. 1994). However, dismissal is proper when "even the most sympathetic reading of [the] pleadings uncovers no theory and no facts that would subject the present defendants to liability." Jacquez v. Procunier, 801 F.2d 789, 791-92 (5th Cir. 1986).
III. Plaintiff's Claims
Defendants move to dismiss Plaintiff's Complaint in its entirety. Plaintiff cites four statutory bases of authority for his Complaint. None of these form a viable basis for a claim against Defendants.
This statute, cited by Plaintiff, governs "discrimination against neutral Americans in time of war." Plaintiff can allege no claim based upon this statute. The Court presumes that the Plaintiff attempts to rely upon the Securities Act of 1933, 15 U.S.C. § 77a et seq. Plaintiff's substantive securities claims will be discussed below.
B. 15 U.S.C. § 78
There is no 15 U.S.C. § 78. The Court presumes that Plaintiff attempts to rely upon the Securities Act of 1934, 15 U.S.C. § 78a et seq. Plaintiff specifically refers to sections of the 1934 Act which are discussed below.
C. Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
Plaintiff tries to bring claims pursuant to these statutes. Section 10(b) of the Exchange Act states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange . . .
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.15 U.S.C. § 78j(b). The Exchange Act includes stocks within its definition of "securities." 15 U.S.C. § 78c(a)(10).
Plaintiff alleges that Defendants were involved in a fraudulent scheme regarding the sale of stocks. However, Plaintiff's allegations never provide a jurisdictional basis for this Court. "In order to state a claim under section 10(b) of the 1934 Act and Rule 10b-5, a plaintiff must allege in connection with the purchase or sale of securities (1) a misstatement or an omission (2) of material fact (3) made with scienter (4) on which plaintiff relied (5) that proximately caused [the plaintiffs'] injury." Nathenson v. Zonagen, 267 F.3d 400, 406-07 (5th Cir. 2001) (internal quotations and citations omitted).
While Plaintiff has alleged a fraudulent scheme which included himself and the Defendants, he has not plead any facts to support the initial requirement: a purchase or sale of stocks. Although the alleged scheme involved the sale of stocks, Plaintiff himself was not the purchaser of such stocks. "It is axiomatic that the purchase or sale of securities by a plaintiff is a jurisdictional prerequisite to the maintenance of a claim for damages under Section 10(b) and Rule 10-b and the failure to allege such requires a dismissal of the action as a matter of law." Reid v. Hughes, 578 F.2d 634, 636 (5th Cir, 1978).
Plaintiff alleges that he and Defendants were engaged in the buying and selling of stocks, and the misstatements and omissions occurred through these sales and purchases. However, Plaintiff did not buy stocks from Defendants, nor did he rely upon Defendants' misstatements or omissions in any way that caused him damage. Plaintiff admits a role in the fraudulent scheme. His role in the scheme, and his fines and incarceration, are not a damage recoverable through these securities laws.
Therefore, this Court lacks subject matter jurisdiction to consider Plaintiff's claims. Accordingly, Defendants' Motions to Dismiss are GRANTED and Plaintiff's Complaint must be DISMISSED in its entirety.
IV. Plaintiff's Motion to Strike
Defendants may bring a motion to dismiss prior to answering a complaint. Fed.R.Civ.P. 12(b). Therefore, Defendants' motions are properly before the Court and Plaintiff's motion must be DENIED.
Conclusion
For the foregoing reasons, Defendants' Motions to Dismiss are GRANTED and Plaintiff's Motion to Strike is DENIED.
It is so ordered.