Regnante v. Sec. & Exch. Officials

• Decision Date: 28 September 2015
• Docket Number: No. 14 Civ. 4880(KPF).,14 Civ. 4880(KPF).
• Citation: 134 F.Supp.3d 749
• Parties: James REGNANTE, Plaintiff, v. SECURITIES AND EXCHANGE OFFICIALS, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

134 F.Supp.3d 749

James REGNANTE, Plaintiff,

v.SECURITIES AND EXCHANGE OFFICIALS, et al., Defendants.

No. 14 Civ. 4880(KPF).

United States District Court, S.D. New York.

Signed Sept. 28, 2015.

James Regnante, Forest Hills, NY, pro se.

Rebecca Sol Tinio, U.S. Attorney's Office, New York, NY, for Defendants.

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:

The parties to this litigation agree on certain underlying facts: The case stems from an accounting scandal involving AgFeed Industries, Inc. ("AgFeed"), and, more specifically, AgFeed's agricultural operations in China. Investigation into these accounting irregularities culminated in a March 2014 enforcement action brought against AgFeed by the Securities and Exchange Commission (the "SEC" or "Commission"), which, in turn, yielded an $18 million disgorgement penalty (the "AgFeed Sanction"). After AgFeed sought protection in the Bankruptcy Court, the AgFeed Sanction was disbursed through the company's court-approved reorganization plan.

It is here that the parties diverge. Plaintiff James Regnante claims that pursuant to the Dodd–Frank Wall Street Reform and Consumer Protection Act ("Dodd–Frank" or "Act"), Pub.L. No. 111–203, Title IX, § 922(a), 124 Stat. 1376, 1841 (2010)¹ , the AgFeed Sanction should have been deposited into the Securities and Exchange Commission Investor Protection Fund (the "Fund"), rather than distributed in connection with the bankruptcy proceeding. More importantly, Plaintiff claims that because of information that he provided to the SEC regarding AgFeed, he is entitled to an award under the whistleblower program established by Dodd–Frank. Relatedly, Plaintiff contends that certain official SEC notices regarding the whistleblower program in general, and the AgFeed action in particular, were misleading.

In June 2014, Regnante filed the instant action against various "Securities and Exchange Commission Officials ... to be later named." He subsequently amended the complaint to name Mary Jo White, Andrew Calamari, Patricia Schrage, and Neal Jacobson (collectively, "Defendants"), who are, respectively, the Chairman of the SEC, the Director of the SEC's New York Regional Office, and two senior attorneys at that office.² The Amended Complaint recites claims against Defendants in their "individual and personal capacities" for: (i) violations of both Dodd–Frank and the Fifth Amendment (Count One); (ii) misrepresentations, concealment, and deceit (Count Two); (iii) unjust enrichment (Count Three); and (iv) attorney's fees (Count Four). Defendants have moved to dismiss the Amended Complaint in its entirety. For the reasons set forth in this Opinion, the motion to dismiss is granted.

BACKGROUND ³

A. Factual Background

1. The AgFeed Enforcement Action and Its Resolution

AgFeed was a publically traded agricultural company that maintained operations in both the United States and China. (Am. Compl. ¶ 7). Plaintiff alleges that he notified the SEC, as far back as January 2013, that AgFeed "was a fraud." (Id. at ¶ 8). He further claims that, at his instigation, the SEC launched an investigation into AgFeed, and that from January through March 2013, he provided the Commission with "original information" that enhanced its inquiry. (Id. at ¶¶ 8, 10).

On March 11, 2014, the SEC filed an enforcement action (the "Enforcement Action") against AgFeed and six of its officers, alleging that the defendants had reported fictitious revenues from the company's China operations. (Am. Compl. ¶ 9). Ultimately, the Enforcement Action was resolved when the SEC and AgFeed entered into a settlement in September 2014, pursuant to which the company agreed to pay the $18 million AgFeed Sanction in disgorgement. (See id. at ¶ 11; Tinio Decl., Ex. B). See generally SEC v. AgFeed Indus., Inc., No. 14 Civ. 663 (M.D.Tenn.). Plaintiff claims that without his information, the SEC would not have obtained the AgFeed Sanction in the Enforcement Action. (Am. Compl. ¶ 16).

2. The AgFeed Bankruptcy

Prior to the Enforcement Action, but after Plaintiff is alleged to have alerted the SEC to AgFeed's fraud, AgFeed and a related entity filed for Chapter 11 protection in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Case"). (See Am. Compl. ¶ 10). See generally In re AgFeed USA LLC, No. 13–bk–11761 (BLS) (Bankr.D.Del.). On November 4, 2014, the bankruptcy court confirmed the Revised Second Amended Chapter 11 Plan (the "Plan"), one provision of which permitted a claim by the SEC against AgFeed in the $18 million amount of the AgFeed Sanction. (See Tinio Decl., ¶ 3 and Ex. A). The Plan also provided a mechanism for distributing the AgFeed Sanction to various parties and to an SEC Fairness Fund. (Tinio Decl., Ex. A at 1–2).

3. The Dodd–Frank Whistleblower Program

Among other things, Dodd–Frank established the Fund to compensate participants in the Act's newly formed whistleblower program. (Am. Compl. ¶ 15; see 15 U.S.C. § 78u–6). Plaintiff avers that pursuant to Dodd–Frank, Defendants were required to deposit the AgFeed Sanction into the Fund. (Am. Compl. ¶ 12).⁴ Although not entirely clear from the face of the Amended Complaint, Plaintiff appears to allege that the distribution of the AgFeed Sanction through the Plan in the Bankruptcy Case was an "unlawful diversion" from the Fund that "benefits lawyers at the expense" of whistleblowers. (Id. at ¶ 13). In other words, Plaintiff asserts that Defendants improperly placed the AgFeed Sanction into "funds [that lawyers] control"—presumably through the distribution mechanisms established in the Plan—rather than the Fund. (Pl. Opp. 12).⁵ Plaintiff reported this alleged malfeasance to the SEC on three separate occasions, and even endeavored to alert the President of the United States to the purported improprieties involving the AgFeed Sanction. (Am. Compl. ¶¶ 14, 18).

Plaintiff also alleges that as a consequence of a number of public statements from the SEC, which he attributes to Defendants in this litigation, Plaintiff believed that he was entitled to a monetary award under the Dodd–Frank whistleblower program. (Am. Compl. ¶ 28). According to Plaintiff, notwithstanding the SEC's public statements, Defendants "had no intentions of paying Plaintiff any award." (Id. ). Significantly, however, Plaintiff does not allege that he has filed a claim for a whistleblower award pursuant to the procedures set forth in Dodd–Frank and its implementing regulations, nor does he allege that any claim for an award has been rejected by the SEC. Instead, Plaintiff hopes through this litigation to effect the transfer of the AgFeed Sanction to the Fund, after which Plaintiff intends to "file[ ] a claim against the Fund and collect 30% of the $18 million dollars, which will amount of $5,460,000, if eligible." (Id. at ¶ 23).

B. Procedural Background

Plaintiff commenced this action on June 30, 2014. (Dkt. # 1). He filed the Amended Complaint, the operative pleading, on November 14, 2014. (Dkt. # 17). The gravamen of the Amended Complaint concerns the application of Dodd–Frank's whistleblower program to the AgFeed Sanction, from which Plaintiff discerns four separate causes of action. Count One alleges violations of the Fifth Amendment as well as Dodd–Frank and its associated regulations. These violations are premised on Defendants' failure to transfer the AgFeed Sanction to the Fund and Plaintiff's contention that he is entitled to a whistleblower award. (Am. Compl. ¶ 25). Count Two asserts that Defendants misrepresented material facts, concealed material facts, and engaged in deceit. Specifically, Plaintiff alleges that Defendants "[through] public advertisements falsely and deliberately misrepresented and deceived the Plaintiff into believing that an award awaits him if he complie[d] with the Whistleblower laws[.]" (Id. at ¶¶ 27–28). Count Three is styled as a claim for unjust enrichment, by which Plaintiff claims that Defendants "unjustly enrich[ed] the lawyers involved in the Agfeed case at the expense of Plaintiff." (Id. at ¶ 30). Finally, Count Four seeks attorney's fees pursuant to 42 U.S.C. § 1988. (Id. at ¶ 32).

On February 18, 2015, Defendants filed the instant motion to dismiss. (Dkt. # 27–30). Plaintiff filed his opposition on April 28, 2015. (Dkt. # 36). The motion was fully submitted on May 20, 2015, when Defendants filed their reply. (Dkt. # 37).

DISCUSSION

A. Motions to Dismiss Under Fed.R.Civ.P. 12

1. Motion to Dismiss Under Fed.R.Civ.P. 12(b)(1)

"It is a fundamental precept that federal courts are courts of limited jurisdiction and lack the power to disregard such limits as have been imposed by the Constitution or Congress." Durant, Nichols, Houston, Hodgson & Cortese–Costa, P.C. v. Dupont, 565 F.3d 56, 62 (2d Cir.2009)(internal quotation marks omitted). In that regard, "a district court may properly dismiss a case for lack of subject matter jurisdiction under Rule 12(b)(1)if it lacks the statutory or constitutional power to adjudicate it." Aurecchione v. Schoolman Transp. Sys., Inc., 426 F.3d 635, 638 (2d Cir.2005)(internal quotation marks omitted); accord Sokolowski v. Metro. Transp. Auth., 723 F.3d 187, 190 (2d Cir.2013). A "plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists." Makarova v. United States, 201 F.3d 110, 113 (2d Cir.2000).

In resolving a Rule 12(b)(1)motion to dismiss, "[t]he court must take all facts alleged in the complaint as true and draw all reasonable inferences in favor of [the] plaintiff, but jurisdiction must be shown affirmatively, and that showing [may] not [be] made by drawing from the pleadings inferences favorable to the party asserting it." Morrison v. Nat'l Bank Ltd., 547 F.3d 167, 170 (2d Cir.2008)(internal citation and quotation marks omitted). Moreover, where subject matter jurisdiction is contested, a district court is permitted to consider evidence outside the pleadings, such as affidavits and exhibits. See Zappia Middle East Constr....