In re Stat-Tech Securities Litigation, Civ. A. No. 92-K-1040

• Decision Date: 06 November 1995
• Docket Number: 93-K-308 and 95-K-1367.,92-K-1994,92-K-2441,92-K-2368,Civ. A. No. 92-K-1040
• Citation: 905 F. Supp. 1416
• Parties: In re STAT-TECH SECURITIES LITIGATION.
• Court: U.S. District Court — District of Colorado

905 F. Supp. 1416

In re STAT-TECH SECURITIES LITIGATION.

Civ. A. Nos. 92-K-1040, 92-K-1994, 92-K-2368, 92-K-2441, 93-K-308 and 95-K-1367.

United States District Court, D. Colorado.

November 6, 1995.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Arnold & Porter, Tim Atkeson, Jonathan B. Boonin, Denver, for Plaintiffs Stat-Tech Liquidating Trust, Pro-Active Partners, and Lagunitas Partners.

Rubner & Kutner, P.C., Lee M. Kutner, Wendy S. Wagner, Denver, for Plaintiff Stat-Tech Liquidating Trust.

Clanahan, Tanner, Downing & Knowlton, P.C., Richard L. Shearer, J. David Arkell, Denver, for Plaintiffs VBW Partners and TRW Family Partners.

Davis & Ceriani, P.C., Gary J. Ceriani, John W. Himmelmann, Denver, for Defendant Schneider Securities, Inc.

Krendl, Horowitz & Krendl, Jay S. Horowitz, Kim E. Ikeler, Denver, for Defendant Hayden H. Thompson.

Bader & Villanueva, P.C., Gerald L. Bader, Jr., Steven M. Fader, Denver, attorneys for Defendant Therese M. Lamb.

Rodger Thornton, pro se.

Raynard M. Fenster, pro se.

MEMORANDUM OPINION AND ORDER

KANE, Senior District Judge.

Civil Action No. 92-K-1040 is the lead case in a series of actions arising out of the demise and alleged mismanagement of Stat-Tech Corporation ("Stat-Tech") by its officers and directors. These actions — Nos. 92-K-1040, 92-K-747, 92-K-1994, 92-K-2368, 92-K-2441, 92-K-2442, and 93-K-308 — were reassigned to me by Chief Judge Matsch in February 1995.¹ Due to the number and flux of the actions and motions, stays of proceedings, the withdrawal and substitution of parties and counsel, and the withdrawal of an earlier reference to Magistrate Judge Pringle, the litigation experienced gridlock. Numerous motions to dismiss and/or for partial summary judgment remain unresolved. Pretrial proceedings, including the issuance of a scheduling order to govern discovery, have been stayed pending resolution of the various motions to dismiss.

I called a status conference in March to familiarize myself with the issues and to expedite case management. At the conference's conclusion, I ordered all existing complaints stricken and amended complaints filed. By May 1995, three of the seven original Stat-Tech actions had either settled (Nos. 92-K-2442, professional negligence and aiding and abetting action against securities brokerage firm and individual broker, and 93-K-308, professional negligence action against former Stat-Tech legal counsel) or were not refiled (No. 92-K-747, shareholder class action against the company). Of the four remaining actions, motions to dismiss and/or for partial summary judgment remain pending only in three.²

Ten such motions are now ripe for determination. I deny all but portions of the motion to dismiss filed by defendant Schneider Securities in 92-K-1994.

I. BACKGROUND

Stat-Tech was formed as part of a blind pool merger in November 1988 by Raynard Fenster. Stat-Tech's principal business was the manufacture of electrostatic dissipation devices. Between 1988 and 1991, it is alleged that Fenster, together with his wife and Stat-Tech director Therese Lamb and director Hayden Thompson, engaged in several schemes to defraud Stat-Tech. These alleged schemes included (1) issuing false and misleading 10-Ks, 10-Qs³ and press releases; (2) issuing warrants to each other with little or no consideration and illegally sharing restricted stock; and (3) causing Stat-Tech to issue stock as compensation for their services.

In September 1991, Proactive Partners, L.P. ("Proactive") purchased $1.5 million of Stat-Tech stock in a private placement. The offering document upon which the transaction was based allegedly contained false and misleading information. Rodger Thornton, a securities broker with Schneider Securities, allegedly assisted in bringing Proactive and Stat-Tech together for the deal and received a finder's fee from Fenster. In October 1991, Proactive purchased $1 million of allegedly restricted stock from Stat-Tech outside director Thompson. This transaction was brokered by Fenster and Thornton.

Also in October 1991, Thornton sold $560,000 of Thompson's Stat-Tech stock to Tom Waymire, general manager of VBW Partners, Ltd. (VBW) and TRW Family Partnership, Ltd. (TRW). Waymire, too, alleges the information documents on which he based his decision to purchase Thompson's stock were false and misleading. See generally, Status Report, No. 92-K-1040 (filed March 8, 1995). In December 1991, Stat-Tech's accountant came forward with alleged irregularities indicating the company's previous financial statements had not been audited and were grossly overstated. Fenster was removed from the board of directors and Proactive was given a seat on the board. Stat-Tech formed an investigative committee, which allegedly discovered further problems at the company Id. at 3.

By June 1992, the company's fortunes had declined seriously enough that it filed for bankruptcy protection. It emerged from Chapter 11 reorganization as the Stat-Tech Liquidating Trust ("Trust"), authorized by Bankruptcy Judge Brooks to continue Stat-Tech's pursuit, jointly with Proactive, of claims against Fenster, Lamb, Thompson, and others. Id.

II. THE MOTIONS TO DISMISS AND/OR FOR PARTIAL SUMMARY JUDGMENT

A. No. 92-K-1040, Trust v. Fenster, Lamb & Thompson

In its 60-page Fourth Amended Complaint in 92-K-1040, plaintiff Trust asserts claims against Fenster, Lamb and Thompson individually and as former officers/directors of Stat-Tech, and against Fenster and Lamb nominally as trustees of a trust created for the benefit of their daughter Jessica Fenster and other unidentified children. Included are claims for violations of federal and state securities laws, common law fraud, breach of fiduciary duty, and negligent misrepresentation. The Trust alleges Fenster, Lamb and Thompson pursued a common scheme to violate federal and state securities laws by misrepresenting Stat-Tech's value and then cashing in on inflated stock prices for their personal financial gain.

Fenster and Lamb both filed motions seeking the dismissal of the Trust's claims. Thompson filed a motion seeking dismissal, or, in the alternative, entry of partial summary judgment against the Trust.

1. Defendant Fenster's Motion to Dismiss

Fenster, who is proceeding pro se, contends the Complaint should be dismissed with prejudice because (1) the Trust lacks "authority, capacity and legal existence" to sue; (2) counsel for the Trust has "demonstrated an unacceptable standard of egregious conduct as it relates to Defendant Fenster"; (3) plaintiff's "use" of Fenster's former legal counsel violated Fenster's constitutional rights; (4) the allegations against Fenster are erroneous; (5) the Complaint fails to state a claim upon which relief can be granted; (6) the claims are time-barred; (7) plaintiff has not been harmed; (8) plaintiff has failed to join necessary parties; and (9) plaintiff lacks standing to claim shareholder consequential damages. Mot. Dismiss Compl. at 2. The motion is deficient in numerous respects.

Fenster fails to allege any facts in support of his motion by affidavit or otherwise. He also fails entirely to provide legal authority for the positions taken. Fenster's second and third arguments regarding egregious conduct and the deprivation of his constitutional rights are premised on Fenster's assertion that the law firm of Arnold & Porter should be disqualified from representing the Trust because it represented Stat-Tech when Fenster was an officer. Judge Matsch has rejected Fenster's assertion twice before: once in denying Fenster's Motion to Disqualify Arnold & Porter and again in denying Fenster's Motion for Reconsideration. See Courtroom Minutes (dated October 8, 1993); Order (denying motion for reconsideration, filed October 22, 1993). A pro se litigant must recognize that repeatedly raising assertions which already have been rejected serves only to diminish his ability to persuade on other issues.

With respect to Fenster's assertion that plaintiff has failed to join indispensable parties, Fenster makes no attempt either to identify the individuals he claims should have been joined or to aver how their absence impedes his ability to protect his interests or subjects him to multiple or inconsistent liabilities. Fenster therefore fails to meet his burden under Fed.R.Civ.P. 12(b)(7) and 19 of showing joinder is necessary. See First Nat'l Bank of Strasburg v. Platte Valley State Bank, 107 F.R.D. 120, 122 (D.Colo. 1985). Fenster's fact-based arguments that the Trust's allegations are erroneous and the Trust has not been harmed are improper grounds upon which to premise a motion to dismiss and will not be considered.

Fenster's remaining arguments regarding the statute of limitations, standing and the sufficiency of the Trust's scienter, damages, and securities fraud allegations will be addressed in my consideration of Lamb's motion to dismiss, in which Fenster purports to join. See Fenster's Reply Supp. Mot. Dismiss (filed June 13, 1995).

2. Defendant Lamb's Motion To Dismiss

Defendant Lamb asserts the Fourth Amended Complaint should be dismissed for the following reasons: (1) the fraud-based claims are not pleaded with particularity as required by Fed.R.Civ.P. 9(b); (2) the alleged misconduct of defendant officers must be imputed to the company itself, thereby barring any claim for fraud under Cenco, Inc. v. Seidman & Seidman, 686 F.2d 449 (7th Cir.1982); (3) the Trust lacks standing to bring a claim under § 10(b) of the 1934 Securities and Exchange Act (the "Act"), Rule 10b-5 or their Colorado statutory analog, C.R.S. § 11-51-604(5)(c); and (4) the securities claims are time-barred under the "one-year/three-year" statute of limitations established by the Supreme Court in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 362, 111 S.Ct. 2773, 2781, 115 L.Ed.2d 321 (1991). With respect to the state common law claims, Lamb also urges me to decline to exercise supplemental...