Lillard v. Stockton

• Decision Date: 16 June 2003
• Docket Number: No. 01-CV-671-P(J).,01-CV-671-P(J).
• Citation: 267 F.Supp.2d 1081
• Parties: Richard LILLARD, Individually, and as Trustee of the V.W. Lillard Trust dated May 24, 1990, and Lucinda Lillard, Plaintiffs, v. Arthur Filiatrault STOCKTON; Stockton Trust, Inc., Tactical Equity Analytics Management, Inc., Stockton Capital Management Securities, Inc., Capital Equity Resources Management Company, Inc.; and the Dymas Fund, LP, and Dymas Partners, LP, Defendants.
• Court: U.S. District Court — Northern District of Oklahoma

267 F.Supp.2d 1081

Richard LILLARD, Individually, and as Trustee of the V.W. Lillard Trust dated May 24, 1990, and Lucinda Lillard, Plaintiffs, v. Arthur Filiatrault STOCKTON; Stockton Trust, Inc., Tactical Equity Analytics Management, Inc., Stockton Capital Management Securities, Inc., Capital Equity Resources Management Company, Inc.; and the Dymas Fund, LP, and Dymas Partners, LP, Defendants.

No. 01-CV-671-P(J).

United States District Court, N.D. Oklahoma.

June 16, 2003.

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Thomas James McGeady, Logan & Low, Todd E. Kolczun, Logan & Lowry, Vinita, OK, for plaintiffs.

John Maston O'Neal, James A. Ryan, Quarles & Brady Streich Lang LLP, Phoenix, AZ, Rodney Alan Edwards, Robert A. Huffman, Jr., Melissa Mailath, Edwards & Huffman, Tulsa, OK, for defendants.

ORDER AFFIRMING AND ADOPTING THE REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

PAYNE, District Judge.

On April 16, 2003, the United States Magistrate Judge entered his Findings and Recommendation. Plaintiffs filed an objection to the Magistrate Judge's Finding and Recommendation within the time prescribed by law. 28 U.S.C. §636(b)(1); Fed.R.Civ.P. 72(a).

This Court finds the Report nd Recommendation of the Magistrate Judge is support by the record. Therefore, uopn full consideration of the entire record and the issues presented herein, this court finds and orders that the Report and Recomendation entered by the United States Magistrate Judge on April 16, 2003, be AFFIRMED and ADOPTED by this Court as its Findings and Order. Accordingly, this case shall be set for status and scheduling conference by separate order.

REPORT AND RECOMMENDATION

Joyner, United States Magistrate Judge.

                TABLE OF CONTENTS
                I.  RECOMMENDATION REGARDING DEFENDANTS' MOTIONS TO
                DISMISS..............................................................1090
                II.  INTRODUCTION........................................................1090
                A.   BACKGROUND.....................................................1091
                1. THE PARTIES..................................................1091
                2. PLAINTIFFS' INTRODUCTION TO DEFENDANTS................1092
                3. PLAINTIFFS' INVESTMENT INTO THE DYMAS FUND...........1092
                HI.  PLEADING STANDARDS APPLICABLE TO PLAINTIFFS' CLAIMS.......1093
                A. FED. R. CIV. P. 12(B)(6).............................................1093
                B. FED. R. CIV. P. 9(B).................................................1094
                C. THE PRIVATE SECURITIES LITIGATION REFORM ACT
                ("PSLRA") .......................................................1094
                IV.  PERSONAL JURISDICTION ANALYSIS..................................1095
                A. STANDARDS FOR EVALUATING PERSONAL JURISDICTION........1095
                B. ANALYSIS..........................................................1096
                1. DEFENDANT CAPITAL EQUITY'S CONTACTS WITH
                OKLAHOMA..................................................1096
                2. DEFENDANT SCMSI'S CONTACTS WITH OKLAHOMA...........1097
                (A) GENERAL PERSONAL JURISDICTION......................1097
                (B) SPECIFIC PERSONAL JURISDICTION.............. ......1098
                (1) SPECIFIC JURISDICTION OVER CAPITAL EQUITY......1098
                (2) SPECIFIC JURISDICTION OVER SCMSI.................1100
                V.  OTHER DISPOSITIVE ISSUES..........................................1100
                

                A. FAILURE TO STATE A CLAIM UNDER THE 1934 ACT FOR
                UNLAWFUL MISREPRESENTATIONS OR OMISSIONS IN
                VIOLATION OF SECTION 10(B)/RULE 10B-5......................1100
                1. OVERVIEW.....................................................1100
                2. FAILURE TO SATISFY FED. R. CIV. P. 9(B) STANDARDS
                FAILURE TO PLEAD FRAUD WITH PARTICULARITY
                UNDER RULE 9(B) AND THE PSLRA..........................1102
                3. FAILURE TO PLEAD FACTS SHOWING DEFENDANTS
                ACTED WITH THE REQUISITE STATE OF MIND
                (SCIENTER) PURSUANT TO THE PSLRA......................1107
                4. NO ALLEGATION OF LOSS CAUSATION.........................1109
                B. STATE LAW FRAUD CLAIMS INSUFFICIENT UNDER FED. R
                CIV. P. 9(B).......................................................1110
                1. ALLEGATION OF MISREPRESENTATIONS AND OMISSIONS
                IN VIOLATION OF 71 OKLA. STAT. § 408(A)(2).................1110
                2. ACTUAL FRAUD................................................1111
                3. CONSTRUCTIVE FRAUD........................................1112
                C. NO PRIVATE RIGHT OF ACTION UNDER SECTION 17(A) OF
                THE 1933 ACT....................................................1113
                D. SALE OF UNREGISTERED SECURITIES............................1114
                1.   FAILURE TO PLEAD FACTS SUPPORTING A CLAIM THAT
                DEFENDANTS WERE NOT PROPERLY EXEMPT FROM
                REGISTRATION UNDER THE 1933 ACT OR OKLAHOMA
                LAW..........................................................1114
                (A) FEDERAL SECURITIES CLAIMS BARRED BY THE
                ONE-YEAR STATUTE OF LIMITATIONS..................1114
                (B) STATE LAW CLAIMS PREEMPTED UNDER NMSIA.........1115
                E. FAILURE TO PLEAD SUFFICIENT FACTS TO SUPPORT A
                CLAIM FOR BREACH OF FIDUCIARY DUTY......................1116
                F. FAILURE TO PLEAD SUFFICIENT FACTS TO SUPPORT A
                CLAIM FOR NEGLIGENCE.......................................1118
                G. PLAINTIFFS' CLAIMS HAVE ABATED DUE TO FAILURE TO
                PROPERLY SERVE DEFENDANTS, WITH THE EXCEPTION
                OF THE DYMAS FUND, L.P., WITHIN THE 120-DAY PERIOD
                REQUIRED BY FED. R. CIV. P. 4(M) ..............................1120
                H. PLAINTIFFS CANNOT STATE A CLAIM FOR CONTROL PERSON
                LIABILITY AGAINST ARTHUR STOCKTON BECAUSE THEY
                FAILED TO PROPERLY ALLEGE A VIOLATION OF
                SECURITIES LAWS BY ANY OF THE DEFENDANTS..............1120
                1. FEDERAL LAW SECURITIES VIOLATIONS UNDER THE 1934
                ACT (SECTION 10(B)/RULE 10B-5) AND THE 1933 ACT FOR
                SALE OF UNREGISTERED SECURITIES......................1120
                (A) CONTROL PERSON LIABILITY UNDER THE 1934 ACT......1121
                (B) CONTROL PERSON LIABILITY UNDER THE 1933 ACT......1121
                2. STATE LAW SECURITIES VIOLATIONS FOR UNLAWFUL
                MISREPRESENTATIONS OR OMISSIONS AND THE SALE
                OF UNREGISTERED SECURITIES............................1122
                (A) STATE LAW VIOLATIONS FOR UNLAWFUL
                MISREPRESENTATIONS OR OMISSIONS.................1122
                (B) STATE LAW VIOLATIONS FOR THE SALE OF
                UNREGISTERED SECURITIES............................1123
                VI.  RECOMMENDATION...................................................1123
                VII.  OBJECTIONS...........................................................1123
                

RECOMMENDATION REGARDING DEFENDANTS' MOTIONS TO DISMISS

Now before the undersigned United States Magistrate Judge are several Motions to Dismiss filed by Defendants in the above-titled action. Defendants Capital Equity Resources Management Company, Inc. ("Capital Equity") and Stockton Capital Management Securities, Inc. ("SCMSI") filed Motions to Dismiss pursuant to Fed.R.Civ.P. 12(b)(2), asserting lack of personal jurisdiction in Oklahoma. [Doc. Nos. 25-1, 26-1]. Capital Equity and SCMSI additionally move to dismiss all claims against them pursuant to Fed. R.Civ.P. 12(b)(6), the Private Securities Litigation Reform Act ("PSLRA"), and Fed.R.Civ.P. 9(b). [Doc. Nos. 25-1, 26-1]. Defendants The Dymas Fund, L.P. ("Dymas Fund"), Tactical Equity Analytics Management, Inc. ("TEAM"), Stockton Trust, Inc. ("Stockton Trust"), and Arthur F. Stockton ("Stockton"), similarly move to dismiss all claims against them pursuant to Fed.R.Civ.P. 12(b)(6), the PSLRA, and Fed.R.Civ.P. 9(b). [Doc. Nos. 4-1, 27-1, 30-1]. Defendant Dymas Partners, L.P. ("Dymas Partners") has been dismissed from this action without prejudice. [Doc. No. 49]. Plaintiffs have admitted that no such entity by the name Dymas Partners, L.P. exists.

Defendants' motions to dismiss were referred to the undersigned United States Magistrate Judge for Report and Recommendation. [Doc. No. 50]. The undersigned has reviewed the parties' briefs and exhibits, relevant case law, and heard oral arguments on the motions to dismiss on April 11, 2003. Accordingly, the undersigned recommends that the District Court GRANT IN PART AND DENY IN PART Defendants' Motions to Dismiss. [Doc. Nos. 4-1, 25-1, 26-1, 27-1, 30-1]. Specifically, the undersigned has recommended that the District Court grant Defendants' motions to dismiss all of Plaintiffs' claims as against all Defendants, with the exception of the following: (1) Plaintiffs' claim against Individual Defendant Arthur Stockton for breach of fiduciary duty/inappropriate investment advice; and (2) Plaintiffs' claim against Defendant Arthur Stockton for negligence. Additionally, the undersigned has recommended that Plaintiffs' claim for violation of federal securities law under the 1933 Act for the sale of unregistered securities be dismissed without prejudice, and leave granted to amend Plaintiffs' Complaint, in order for Plaintiffs to set forth details of ongoing purchases and facts specifying what unregistered securities were bought or sold so as to fall within the applicable one-year statute of limitations. The undersigned also recommends that Plaintiffs' claim of control person liability for violation of the 1933 Act in the sale of unregistered securities be dismissed without prejudice because Plaintiffs' potential to amend their Complaint and set forth details bringing their claim within the one-year statutory period may impact the control person liability analysis.

INTRODUCTION

Plaintiffs Richard Lillard, individually and as trustee of the V.W. Lillard Trust, dated May 24, 1990, and Lucinda Lillard bring this action to recoup losses sustained after they pursued certain investments, including investment in a "hedge fund" known as The Dymas Fund Limited Partnership ("Dymas Fund"). In their Complaint filed September 10, 2001, Plaintiffs raise several causes of action, including:

(1) Breach of Fiduciary Duty (inappropriate investment advice);

(2) Sale of Unregistered Securities;

(3) Securities Fraud under Section 10(b) of the Securities Exchange Act/Rule 10b-5 (alleged misrepresentations and omissions); (4) Alleged misrepresentations and omissions in violation of Section 17(a) of the Securities Act of 1933 (the "1933 Act");

(5) Violation of 71 Okla....