Avalon Holdings Corp. v. Gentile
| Decision Date | 24 September 2019 |
| Docket Number | 18-CV-8896 (VSB),18-CV-7291 (VSB) |
| Parties | AVALON HOLDINGS CORPORATION, Plaintiff, v. GUY GENTILE and MINTBROKER INTERNATIONAL, LTD., Defendants. NEW CONCEPT ENERGY, INC., Plaintiff, v. GUY GENTILE and MINTBROKER INTERNATIONAL, LTD., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Appearances:
David Lopez
Law Office of David Lopez
Southampton, New York
Miriam Deborah Tauber
Miriam Tauber Law
New York, New York
Adam C. Ford
Robert Seabrook Landy
Counsel for Defendants VERNON S. BRODERICK, United States District Judge:
Plaintiffs Avalon Holdings Corporation ("Avalon") and New Concept Energy, Inc. ("New Concept") bring these two related actions against Defendants Guy Gentile ("Gentile") and MintBroker International, Ltd. ("MintBroker"), seeking disgorgement pursuant to Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), of the short-swing profits that Defendants—who, at the time of the relevant transactions, owned more than 10% of Plaintiffs' stock—purportedly made by purchasing and then selling shares of Plaintiffs' securities within a period of approximately one week. Before me is Defendants' motion to dismiss for improper venue pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure, or alternatively, to dismiss for failure to state a claim pursuant to Rule 12(b)(6). Because I find that venue is proper in this district and Plaintiffs' allegations are sufficient to state a claim, Defendants' motion is DENIED.
1. Background1
Plaintiff Avalon is an Ohio corporation with "principal offices located" in Ohio. (Avalon Compl. ¶ 12.) Plaintiff New Concept is incorporated under Nevada law, but its principal offices are located in Texas. (New Concept Compl. ¶ 3.) Defendant Guy Gentile is a resident of Puerto Rico, who has a "100% pecuniary interest in the proprietary trading activities" of DefendantMintBroker, which is based in the Bahamas.2 (Avalon Compl. ¶¶ 14-15, 17.)
Avalon's Class A Common Stock is publicly held and is traded on the New York Stock Exchange ("NYSE"). (Avalon Compl. ¶ 1.) As of July 27, 2018, there were 3,191,100 outstanding shares of Avalon Class A Common Stock. (Id. ¶¶ 24-25.)
On July 24, 2018, at approximately 2:38 p.m., Defendants purchased 6,200 shares of Avalon's Class A Common Stock; in combination with Defendants' previously acquired shares, this purchase increased Defendants' total holdings of Avalon Class A Common Stock to more than 10% of all outstanding shares. (Id. ¶ 6.)3 During the time period following that July 24 purchase, and ending at approximately 11:45 a.m. on July 31, 2018 (referred to herein as the "Avalon short-swing trading period"), Defendants engaged in 2,331 purchase and sale transactions in Avalon Class A Common Stock, involving approximately 4,700,000 shares. (Id. ¶¶ 6-9.) Specifically, Defendants purchased approximately 2,325,244 shares of Avalon Class A Common Stock and sold approximately 2,351,858 shares. (Id. ¶¶ 37-38.) Because the price of Avalon Class A Common Stock increased dramatically during the Avalon short-swing trading period (from a price of $2.20 per share on July 23, 2018 to a peak of $36.00 per share on July 30, 2018), Defendants derived over $7,000,000 in profits from these transactions. (Id. ¶¶ 31, 39.) On July 31, 2018, at approximately 11:45 a.m., Defendants sold 5,000 shares of Avalon Class ACommon Stock, thereby reducing their ownership to less than 10% of all outstanding shares. (Id. ¶ 7.)
New Concept's Common Stock is publicly held and traded on the NYSE. (New Concept Compl. ¶ 4.) As of June 29, 2018, there were 2,131,935 outstanding shares of New Concept Common Stock. (Id. ¶¶ 14-15.)
On June 29, 2018, at approximately 10:05 a.m., Defendants purchased 23,900 shares of New Concept Common Stock; in combination with Defendants' previously acquired shares, this purchase increased Defendants' total holdings of New Concept Common Stock to more than 10% of all outstanding shares. (Id. ¶ 26.)4 During the time period following that June 29 purchase, and ending at approximately 9:40 a.m. on July 3, 2018 (referred to herein as the "New Concept short-swing trading period"), Defendants engaged in several thousand purchase and sale transactions in New Concept Common Stock. (Id. ¶¶ 26-27.) Because the price of New Concept Common Stock increased dramatically during the New Concept short-swing trading period (from a price of $1.37 per share on June 27, 2018 to $12.75 per share on July 3, 2018), Defendants derived an estimated $6,000,000 in profits from these transactions. (Id. ¶¶ 21, 28.) On July 3, 2018, at approximately 9:40 a.m., Defendants sold 1,400 shares of New Concept Common Stock, thereby reducing their ownership to less than 10% of all outstanding shares. (Id. ¶ 26.)
II. Procedural History
On August 13, 2018, Avalon filed a complaint against Gentile and MintBroker, alleging violations of Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78p(b), and seeking disgorgement of all of Defendants' short-swing profits. (Doc. 1.)5 Avalon filed an amended complaint on September 28, 2018. (Doc. 19.) On the same day, New Concept filed a complaint that also alleged a violation of § 16(b) of the Exchange Act against both Defendants, (No. 18-cv-8896, ECF No. 1), as well as a Statement of Relatedness, which explained that both actions arose "from a pattern of unlawful securities trading [, the execution of trades resulting in unlawful short-swing profits] by the same Defendants," (No. 18-cv-8896, ECF No. 3). Plaintiffs further explained that "[i]n both cases, Defendants realized significant profits using the same (or a substantial[ly] similar) manipulative trading system, by which the Defendants also became statutory 'insiders' of both Plaintiffs." (Id.) On October 6, 2018, I accepted the New Concept action as related to the Avalon action.
On December 27, 2018, Defendants filed the instant motion6—along with a memorandum of law and a declaration with supporting exhibits—seeking dismissal of Plaintiffs' claims pursuant to Rule 12(b)(3) for improper venue, or in the alternative, pursuant to Rule 12(b)(6) for failure to state a claim. (Docs. 27-30.)7 On December 31, 2018, Plaintiffs requested limited discovery with respect to the venue issues raised in Defendants' motion. (Doc.23.) Specifically, Plaintiffs requested inspection of all trade tickets, brokerage confirmations, and statements for all purchase and sale transactions by Defendants that occurred during the respective short-swing trading periods in an effort to conclusively confirm that Defendants' trades occurred in this district. (Id.) Defendants submitted a letter in opposition to Plaintiffs' discovery request on January 8, 2019. (Doc. 25.) On January 9, 2019, I denied Plaintiffs' request for limited discovery and noted that I "intend[ed] to rule on that aspect of Defendants' motion to dismiss . . . on the basis of the parties' papers." (Doc. 26.) Plaintiffs filed their opposition to the motion to dismiss, along with two supporting appendices, on January 29, 2019. (Doc. 32.) Defendants submitted their reply on February 12, 2019. (Doc. 33.)
III. Motion to Dismiss for Improper Venue
The legal standard for a motion to dismiss for improper venue is the same as the standard for a motion to dismiss for lack of personal jurisdiction. See Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353, 355 (2d Cir. 2005). "When a defendant challenges either the jurisdiction or venue of the court, the plaintiff bears the burden of showing that both are proper." Casville Invs., Ltd. v. Kates, No. 12 Civ. 6968(RA), 2013 WL 3465816, at *3 (S.D.N.Y. July 8, 2013) (citing DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001); Savoy Senior Hous. Corp. v. TRBC Ministries, 401 B.R. 589, 596 (S.D.N.Y. 2009)). "Absent an evidentiary hearing, the plaintiff need only make a prima facie showing that venue is proper." Sepanski v. Janiking, Inc., 822 F. Supp. 2d 309, 313 (W.D.N.Y. 2011) (citing Gulf Ins. Co., 417 F.3d at 355). " Concesionaria DHM, S.A. v. Int'l Fin.Corp., 307 F. Supp. 2d 553, 555 (S.D.N.Y. 2004) (quoting EPA ex rel. McKeown v. Port Auth., 162 F. Supp. 2d 173, 183 (S.D.N.Y. 2001)).
Defendants contend that, pursuant to 28 U.S.C. § 1391, venue is not proper in this district because none of the underlying events on which either the Avalon or the New Concept actions are premised occurred here. (See Defs.' Br. 9-12.)8 However, I find that Defendants' alleged trading of Plaintiffs' stock on the NYSE provides a basis for venue in this district.
As an initial matter, Defendants fail to apply the appropriate legal standard in conducting their venue analysis. Defendants ignore the specific venue statue, 15 U.S.C. § 78aa, which governs securities actions. "Section 1391 governs 'venue generally,' that is, in cases where a more specific venue provision does not apply." Atl. Marine Constr. Co. v. U.S. Dist. Court for W. Dist. of Tex., 571 U.S. 49, 55 n.2 (2013). However, in actions pursuant to the Exchange Act—including claims alleging violations of § 16(b)—venue is governed by 15 U.S.C. § 78aa. See SST Glob. Tech., LLC v. Chapman, 270 F. Supp. 2d 444, 452 (S.D.N.Y. 2003) (); see also C.R.A. Realty Corp. v. Gold Reserve Corp., No. 88 CIV. 4297 (MP), 1988 WL 144752, at *1 (S.D.N.Y. Sept. 14, 1988) (analyzing § 16(b) claim under § 78aa). Section 78aa provides that a...
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