Alpine 4 Holdings Inc. v. Finn Mgmt. GP
| Decision Date | 21 April 2022 |
| Docket Number | CV-21-01494-PHX-SPL |
| Parties | Alpine 4 Holdings Incorporated, et al., Plaintiffs, v. Finn Management GP LLC, et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
Before the Court are Defendants Finn Management GP LLC and Fin Capital Management LLC's Motion to Dismiss (Doc. 35) and Plaintiffs' Second Motion to Conduct Jurisdictional Discovery (Doc. 37). The Motions have been fully briefed, and the Court now rules as follows.
Alpine 4 Holdings, Inc. (“Alpine 4”) is a Delaware corporation headquartered and doing business in Arizona. (Doc. 1 ¶ 1). It is a holding company for several subsidiary businesses and is a publicly traded corporation. (Doc. 1 ¶¶ 15, 16). On August 31, 2021, Alpine 4 and four of its shareholders (collectively “Plaintiffs”) filed a Complaint alleging securities fraud, tortious interference with prospective business expectancy, and defamation against Defendants Finn Management GP LLC and Fin Capital Management LLC (collectively the “Finn Defendants”) and Defendant Grizzly Research, LLC (“Grizzly”). (Doc. 1). Plaintiffs allege that each Defendant made false statements about Alpine 4 and “either invested in motivated other investors to invest in, and/or set off an intentional frenzy of short selling Alpine 4 stock to put downward pressure on the market price.”[1] (Doc. 1 ¶ 69). The Finn Defendants have no apparent direct relationship to Grizzly, and the facts underlying Plaintiffs' claims against the parties are distinct. This Order therefore focuses only on the allegations against the Finn Defendants.
The Finn Defendants are both Delaware limited liability companies. (Doc. 1 ¶¶ 6, 7; Doc. 35-1 ¶ 4). Plaintiffs allege that the Finn Defendants conduct business collectively as “Fin Capital.” (Doc. 1 ¶ 8). Plaintiffs allege that the Finn Defendants posted a variety of false or misleading statement about Alpine 4 on Twitter to encourage readers to short sell its stock, driving down Alpine 4's stock value. (Doc. 1 ¶¶ 26-35, 64).
On January 24, 2022, the Finn Defendants filed their Motion to Dismiss, arguing that the claims against them should be dismissed for lack of subject matter jurisdiction, lack of personal jurisdiction, and improper venue. (Doc. 35). On February 23, 2022, Plaintiffs filed a Motion to Conduct Jurisdictional Discovery, requesting limited discovery on the personal jurisdiction issue. (Doc. 37). The issues raised in the Motions will be addressed in turn.
Federal Rule of Civil Procedure (“FRCP”) 12(b)(1) “allows litigants to seek the dismissal of an action from federal court for lack of subject matter jurisdiction.” Kinlichee v. United States, 929 F.Supp.2d 951, 954 (D. Ariz. 2013) (internal quotation marks omitted). “A motion to dismiss for lack of subject matter jurisdiction under FRCP 12(b)(1) may attack either the allegations of the complaint as insufficient to confer upon the court subject matter jurisdiction, or the existence of subject matter jurisdiction in fact.” Renteria v. United States, 452 F.Supp.2d 910, 919 (D. Ariz. 2006); see also Edison v. United States, 822 F.3d 510, 517 (9th Cir. 2016). “When the motion to dismiss attacks the allegations of the complaint as insufficient to confer subject matter jurisdiction, all allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Renteria, 452 F.Supp.2d at 919. “When the motion to dismiss is a factual attack on subject matter jurisdiction, however, no presumptive truthfulness attaches to the plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the existence of subject matter jurisdiction in fact.” Id. “A plaintiff has the burden of proving that jurisdiction does in fact exist.” Id.
The only asserted basis for subject matter jurisdiction is federal question jurisdiction.[2] The Finn Defendants argue that the Court lacks subject matter jurisdiction because §§ 9(d) and 10(a) of the Securities Exchange Act of 1934 (the “Act”) do not create a private right of action; because Plaintiffs have not pled a cognizable securities fraud claim under § 10(b) of the Act or under Securities Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. 240.10b-5; and because absent the securities fraud claim under federal law, the Court cannot exercise jurisdiction over the remaining state-law claims.
A claim must be dismissed for lack of subject matter jurisdiction if the statute on which it is based does not create a private right of action. See In re Digimarc Corp. Derivative Litig., 549 F.3d 1223, 1229 (9th Cir. 2008). Here, Plaintiffs' securities fraud claim first cites to § 9(d) of the Act:
It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange to effect, alone or with one or more other persons, a manipulative short sale of any security. The Commission shall issue such other rules as are necessary or appropriate to ensure that the appropriate enforcement options and remedies are available for violations of this subsection in the public interest or for the protection of investors.
15 U.S.C. § 78i(d). No Court has previously considered whether § 9(d) creates a private right of action. Notably, § 9(f) expressly creates a private right of action for those injured by a violation of § 9(a), (b), or (c)-but not for those injured by a violation of § 9(d). See 15 U.S.C. § 78i(f).
Plaintiffs make two arguments in favor of a private right of action, neither of which are convincing. First, Plaintiffs argue that § 27(a) of the Act-which provides that district courts have exclusive jurisdiction in actions “brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder”-shows that the Court has subject jurisdiction. 15 U.S.C. § 78aa(a). But as the text of the statute makes clear, § 27(a) does not create a private right of action for every provision of the Act; it merely gives the district courts exclusive jurisdiction in the enforcement of any private rights of action arising from those provisions. In other words, if a provision of the Act does not create a private right of action, § 27(a) cannot confer jurisdiction. See Touche Ross & Co. v. Redington, 442 U.S. 560, 577 (1979) (). Second, Plaintiffs argue that § 21(d)(9)-which states that the SEC's authority to seek disgorgement does not “alter[ ] any right that any private party may have to maintain a suit for a violation of this Act”-clarifies that there is a private right of action under § 9(d). 15 U.S.C. § 78u(d)(9). Again, not so. That provision does not create any private rights of actions; it merely clarifies that it does not alter any rights created by other sections of the Act.
Finding no express cause of action, the Court must determine whether § 9(d) implies a private right of action-that is, “whether Congress intended to create such a right of action without explicitly saying so.” Scientex Corp. v. Kay, 689 F.2d 879, 881 (9th Cir. 1982). Courts consider four factors in this inquiry:
(1) whether the plaintiff is “one of the class for whose especial benefit the statute was enacted”; (2) whether there is “any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one”; (3) whether an implied private cause of action for the plaintiff is “consistent with the underlying purposes of the legislative scheme”; and (4) whether the cause of action is “one traditionally relegated to state law so that it would be inappropriate to infer a cause of action based solely on federal law.”
Logan v. U.S. Bank Nat'l Ass'n, 722 F.3d 1163, 1170 (9th Cir. 2013) (quoting Cort v. Ash, 422 U.S. 66, 78 (1975)). Congressional intent is the “supreme factor, ” which the other three factors may be used to decipher. Id. at 1171; see Lil'Man in the Boat, Inc. v. City & Cnty. of San Francisco, 5 F.4th 952, 958 (9th Cir. 2021).
The fact that § 9(f) expressly creates a private right of action for violations of § 9(a)-(c) but not for § 9(d) makes it clear that Congress did not intend to provide a private right of action for violations of § 9(d). 15 U.S.C. § 78i(f); see Scientex Corp., 689 F.2d at 882-83 (). Congress could very easily have added subsection (d) to the list of subsections for which there is a private right of action, but it chose not to do so. See Touche Ross & Co., 442 U.S. at 572. The only reasonable conclusion is that Congress had no intention to allow for private enforcement of § 9(d).
Other considerations further support this conclusion. Rather than using rights-creating language that might suggest the statute was enacted for the benefit of certain plaintiffs, § 9(d) uses prohibitory language. See Lil'Man in the Boat, Inc., 5 F.4th at 95960. There is no long-standing history of recognizing a cause of action under § 9(d) as no court has ever done so. See Touche Ross & Co., 442 U.S. at 577 n.19. And in the time since the Supreme Court last recognized an implied private right of action in the Securities Exchange Act, it has “adhered to a stricter standard of the implication of private causes of action.” Id. at 578. Accordingly, the Court...
To continue reading
Request your trial