Latham v. Matthews
| Citation | 662 F.Supp.2d 441 |
| Decision Date | 04 September 2009 |
| Docket Number | C/A No. 6:08-cv-3183-RBH.,C/A No. 6:08-cv-2995-RBH. |
| Parties | Robert A. LATHAM, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. Bill MATTHEWS, Pamela M. Bunes, Robert C. Scherne, Kevin F. Pickard, Lowell T. Harmison, Marvin H. Fink, and Signalife, Inc., Defendants. Darryl K. Roth, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. William R. Matthews, Pamela M. Bunes, Robert C. Scherne, Kevin F., Pickard, Lowell T. Harmison, Marvin H. Fink, and Signalife, Inc., Defendants. |
| Court | U.S. District Court — District of South Carolina |
Daniel S. Haltiwanger, Richardson Patrick Westbrook and Brickman, Barnwell, SC, Joseph P. Guglielmo, Scott and Scott, New York, NY, Terry Edward Richardson, Jr., Richardson Patrick Westbrook and Brickman, Barnwell, SC, Kenneth J. Vianale, Milberg Weiss Bershad Hynes and Lerach, Boca Raton, FL, Arthur L. Shingler, Luis E. Lorenzana, Scott and Scott, San Diego, CA, David R. Scott, Scott and Scott, Colchester, CT, for Plaintiffs.
Susan Pedrick McWilliams, Nexsen Pruet Jacobs and Pollard, John C. Bruton, Jr., Robert Yates Knowlton, Sarah Spruill, Haynsworth Sinkler Boyd, Columbia, SC, Thomas L. Stephenson, William W. Wilkins, Nexsen Pruet, Elizabeth McMillan, Lewis Walter Tollison, III, Tollison Law Firm, Greenville, SC, Jesse Zachary Weiss, Laura Leah Moriaty, Paul Richard Bessette, Greenberg Traurig, Austin, TX, for Defendants.
The above-captioned matter comes before the Court on Defendants' joint and separate motions to dismiss the Plaintiffs' claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.1 Plaintiffs are putative class members in consolidated actions involving alleged violations of federal securities laws and regulations. Defendants are a medical device corporation and certain employees, officers and board members of that corporation.2 For their consolidated class action complaint ("Complaint"), the Plaintiffs have alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.3 15 U.S.C. § 78a et seq.; 17 C.F.R. § 240.10b-5. Briefly stated, the Plaintiffs claim that the Defendants made numerous public statements during the four-year class period regarding the sales, marketability and production status of certain company products, when in fact, they knew that sales orders did not exist and company products were not ready for the market. The Defendants argue that the Plaintiffs' Complaint fails to meet the pleading requirements of Private Securities Litigation Reform Act (the "Reform Act" or "PSLRA"); and that certain of the Plaintiffs' claims are time barred under the statute of limitations. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331. Having carefully considered the pleadings, briefs, supporting affidavits, and oral arguments by the parties, the Court grants in part and denies in part the Defendants' motions.
On August 28, and September 17, 2008, Plaintiffs Robert A. Latham and Darryl K. Roth filed their respective complaints, individually and on behalf of those similarity situated, against Signalife, Inc.4 and various of its officers and board members. (Latham Case, Doc. # 1; Roth Case, Doc. # 1.) On October 28, 2008, class members Byran D. Harris, Mark Taylor and Greg Taylor ("Taylor Signalife Investor Group" or "Plaintiffs") moved to consolidate the actions and for court appointment as lead plaintiffs. (Latham Case, Doc. # 17; Roth Case, Doc. # 10) On November 20, 2008, without opposition, the Court approved the Taylor Signalife Investor Group as lead plaintiff and granted leave to file an amended complaint on the consolidated actions. On December 10, 2008, the Plaintiffs filed their Amended Complaint. (Latham Case, Doc.# 36, "Complaint".) Therein, the Plaintiffs name as defendants: Signalife, Inc., Mitchell J. Stein, Lowell T. Harmison, Pamela M. Bunes, Kevin F. Pickard, Robert C. Scherne, Budimir S. Drakulic and William R. Matthews (collectively "Defendants") Against these Defendants, the Plaintiffs allege two causes of action: violation of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants, and violation of Section 20(a) of the Exchange Act against the individually named defendants.
The specific allegations in the Complaint are set forth more fully below, but generally allege a stock manipulation scheme, coordinated by Defendant Stein and perpetrated by the other individual defendants in their roles as company officers, board members and employees of Signalife. Plaintiffs allege that during the four-year class period the Defendants made false statements and failed to disclose material facts regarding the sales, marketability, and production status of its "revolutionary" heart-monitoring products. These products, primarily the Fidelity 100, were touted to have been market-ready and producing sales for Signalife, when in fact—the Plaintiffs allege—the products were never fully-functional, no sales revenue was produced, and the Defendants had no intentions of producing and selling these products. Plaintiffs further allege that as contrary information became available to the market regarding the development of its products, driving the stock price down, the Defendants would respond with additional false and misleading statements, until eventually it became clear in the absence of expected reassurances by Signalife, that the company had been misleading investors about its products, and the stock price plummeted. All the while, Plaintiffs allege, Defendant Stein had been benefitting both from short sales of the stock prior to the disclosure of bad news, and stock sales as the latest round of good news from Signalife temporarily increased the stock's value.
When reviewing a motion made under Federal Rule of Civil Procedure 12(b)(6), the Court must "accept all well-pleaded allegations in the plaintiff's complaint as true and draw all reasonable factual inferences from those facts in the plaintiff's favor." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir.1999). The plaintiff's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007). "[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Twombly, 127 S.Ct. at 1969. A complaint attacked by a motion to dismiss will survive if it contains "enough facts to state a claim to relief that is plausible on its face." Id. at 1974; see also, Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir.2008); Self v. Norfolk Southern Corp., No. 07-1242, 2008 WL 410284, at *1 (4th Cir. February 13, 2008) (unpublished).
In 2002, Signalife's predecessor is formed for the purpose of developing a heart-monitoring system. (Compl. ¶ 3.) On September 19, 2002, Steven O. Sparks became a member of Signalife's board of directors, and assumed duties as CEO. (Signalife Defs.' Mo. Dismiss, p. 3.) Sparks left the company a month later, in October 2002, and was replaced by Marvin H. Fink. (Compl. p. 6, n. 6.)
On February 20, 2004, Signalife made the first of thirty-six public statements the Plaintiffs allege were materially false or misleading. (Compl. ¶¶ 44-83.) The Plaintiffs allege that after this first statement was made, touting the production status of its "revolutionary" flagship product, the company's stock "climbed from $3.65 to $8.20." (Compl. ¶ 46.)
Around this same time, Signalife was engaged in a lawsuit with its former CEO, Steven Sparks. On June 23, 2004, in response to a lawsuit filed by Signalife seeking declaratory relief on its contractual obligations, Sparks filed certain cross-claims against the company. (Signalife Defs.' Mo. Dismiss, Ex. 3, SEC Form SB-2/A.) On July 26, 2004, the company informed investors in SEC filings of the existence of the lawsuit and Sparks' cross-claims. Id. On September 15, 2004, Sparks amended his cross-claims and alleged numerous instances of improper conduct on the part of Signalife and Mitchell Stein.5 Included in these allegations were claims that Stein, who was neither an officer, director or shareholder of the company, personally controlled Signalife and was running it without supervision from its board or officers as a stock manipulation scheme. (Compl. ¶ 34.) Sparks further questioned the commercial viability of the company's flagship product, the Fidelity 100. (Signalife Defs.' Mo. Dismiss, Ex. 4.)
From December 2004 through March 2006, the Plaintiffs' contend that Signalife made numerous other materially false or misleading statements that caused the stock price to rise again. (Compl. ¶¶ 48-59.) Included in these statements were information regarding a multi-year marketing and sales agreement with Rubbermaid Medical Solutions ("Rubbermaid"), whereby Rubbermaid would be responsible for all marketing and sales efforts for a "nationwide rollout" of company products. Id. at ¶ 55.) Under the terms of the parties' marketing agreement, Rubbermaid paid Signalife $2,000,000.00 in return for a 35% commission on sales of the products. (Signalife Defs.' Mo. Dismiss, Ex. 24.)
On March 30, 2006, Marvin Fink, Signalife's next consecutive CEO, also engaged in litigation against the company. (Signalife Defs.' Mo. Dismiss, Ex. 13, p. 20.) The company again informed investors of this lawsuit in SEC filings. Id. On July 11, 2006, Fink filed an amended complaint,6 where he alleged that Stein exerted improper influence over the company and its board and officers and was defrauding investors. Id. at Ex. 14.
From July 2006 until January 2007, Plaintiffs alleged that Signalife issued another round of public...
To continue reading
Request your trial
-
Haigler v. Dozier (In re Dozier Fin., Inc.)
...begins to run when the fraud is discovered or should have been discovered by the exercise of due diligence." Latham v. Matthews , 662 F.Supp.2d 441, 450 (D.S.C. 2009) (citing Brumbaugh v. Princeton Partners , 985 F.2d 157, 162 (4th Cir. 1993) ). The Complaint fails to include on its face al......
-
U.S. Sec. & Exch. Comm'n v. e-Smart Techs., Inc.
...revenue, a reasonable investor would likely find this information material in making an investment decision.” Latham v. Matthews, 662 F.Supp.2d 441, 461 (D.S.C.2009). Under that logic, the 10–KSB misrepresentations, which concealed the fact that e-Smart had no product, would be material. Th......
-
Sec. & Exch. Comm'n v. E-Smart Techs., Inc.
...of large “contract orders” important. See e –Smart I , 31 F.Supp.3d at 81, 2014 WL 945816, at *7 (quoting Latham v. Matthews, 662 F.Supp.2d 441, 461 (D.S.C.2009) ) (explaining that a reasonable investor would likely find information about whether a company had “ ‘sales orders that would pro......
-
Brown v. China Integrated Energy, Inc.
...was operating at full capacity, and that it was selling tens of thousands of tons of biodiesel each quarter. See Latham v. Matthews, 662 F.Supp.2d 441, 460 (D.S.C.2009) (finding allegations sufficient to plead falsity where “Signalife appears to be telling its investors on March 25, 2008, t......