Maciora v. PMB Helin Donovan LLP
| Decision Date | 20 July 2016 |
| Docket Number | Case No. C16-295-RSM |
| Parties | KENNETH MACIORA, Plaintiff, v. PMB HELIN DONOVAN LLP, et al., Defendants. |
| Court | U.S. District Court — Western District of Washington |
This matter comes before the Court on Defendants PMB Helin Donovan, LLP, Christie Cardwell and Donald McPhee's Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(c), Dkt. #12, and Plaintiff Kenneth Maciora's Motion for Leave to File Second Amended Complaint, Dkt. #13. Defendants argue that Mr. Maciora's claims are frivolous and legally barred. Mr. Maciora opposes Defendants' Motion to Dismiss and moves to Amend his Complaint to add additional claims. Defendants oppose this Motion, arguing that these new claims are futile. For the reasons set forth below, the Court agrees with Defendants, DENIES Plaintiff's Motion to Amend, and GRANTS Defendants' Motion to Dismiss.
Plaintiff Kenneth Maciora brings this action against Defendants PMB Helin Donovan, LLP ("PMB"), Christie Cardwell and Donald McPhee under several causes of action related to securities fraud. Dkt. #2 at 19-26.
Defendant PMB was retained to audit the financial statements of a company called MyECheck prior to the filing of "Form 10" reports and financial statements as required by the Securities Exchange Act of 1934. Id. at ¶¶ 1, 12, 13, 15, 16. PMB partner Chris Cardwell was primarily responsible for MyECheck's audit. Id. at ¶ 8. PMB performed its audit and MyECheck caused the Form 10 and financial statements to be filed with the Securities and Exchange Commission ("SEC"). Id.
According to the Amended Complaint, in August 2015 a "former board member" for MyECheck informed PMB about alleged accounting errors contained within MyECheck's Form 10 and/or financial statements, including that the amount of outstanding shares reflected on the Form 10 was "understated by hundreds of millions of shares." Id. at ¶¶ 16, 22, 23, 33, 34.
Mr. Maciora alleges that he purchased 66,666,666 common stock share of MyECheck from Rod Zalunardo, a former employee of MyECheck. Id. at ¶ 28. The date of this purchase is not alleged. Since October 2015, Mr. Maciora has "repeatedly asked the transfer agent of MyECheck to print his stock certificate and include him on the Shareholder Registrar." Id. In October 2015 and November 2015, Mr. Maciora contacted the Defendants and requested that they cause the Form 10 that was filed with the SEC to be amended to reflect Zalunardo's ownership of MyECheck shares. Id. at ¶ 27.
Mr. Maciora filed his first Complaint in this Court on February 25, 2016. Dkt. # 1. He filed his First Amended Complaint on March 17, 2016. Dkt. # 2. The First Amended Complaint lists the following claims: Violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Exchange Act of 1934; Aiding and Abetting MyECheck's Violations of Section 10(b) and Rule 10b-5 of the Exchange Act of 1934; Violation of Section 10A of the Exchange Act of 1934; Aiding and Abetting Violations of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1, 13a-13, and 12b-20; Aiding and Abetting Violations of Section 13(b) of the Exchange Act of 1934 and Securities Act Rule 13b2-1; and Negligence. Dkt. #2 at 19-26.
"After the pleadings are closed - but within such time as not to delay the trial - any party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). "Analysis under Rule 12(c) is 'substantially identical' to analysis under Rule 12(b)(6) because, under both rules, a court must determine whether the facts alleged in the complaint, taken as true, entitle the plaintiff to a legal remedy." Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012) (citations and internal quotation marks omitted); see also United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1053 (9th Cir. 2011). In making a Rule 12(b)(6) assessment, the court accepts all facts alleged in the complaint as true, and makes all inferences in the light most favorable to the non-moving party. Baker v. Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009) (internal citations omitted). However, the court is not required to accept as true a "legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555(2007)). The complaint "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Id. at 678. This requirement is met when the plaintiff "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The complaint need not include detailed allegations, but it must have "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. Absent facial plausibility, a plaintiff's claims must be dismissed. Id. at 570.
Pursuant to Fed. R. Civ. P. 15(a)(2), a "court should freely give leave [to amend] when justice so requires," Fed. R. Civ. P. 15(a)(2). Courts apply this policy with "extreme liberality." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003). Five factors are commonly used to assess the propriety of granting leave to amend: (1) bad faith, (2) undue delay, (3) prejudice to the opposing party, (4) futility of amendment, and (5) whether plaintiff has previously amended the complaint. Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990); Foman v. Davis, 371 U.S. 178, 182 (1962). In conducting this five-factor analysis, the court must grant all inferences in favor of allowing amendment. Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999). In addition, the court must be mindful of the fact that, for each of these factors, the party opposing amendment has the burden of showing that amendment is not warranted. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987); see also Richardson v. United States, 841 F.2d 993, 999 (9th Cir. 1988).
Defendants argue that "there is no private right of action for: violation (sic) Section 17(a) of the Securities Act; violation of Section 10A of the Exchange Act; aiding and abettingsecurities fraud; and/or violation of SEC reporting requirements," because "[o]nly the SEC can bring such claims." Dkt. #12 at 2. Defendants argue that Mr. Maciora's second, third, fourth, and fifth claims, as well as part of his first claim, are thus precluded as a matter of law. Id. Defendants support this argument by citing, inter alia, In re Washington Pub. Power Supply Sys. Sec. Litig., 823 F.2d 1349, 1358 (9th Cir. 1987) (); Central Bank of Denver, N.A. v. First Interstate Bank of Denver, NA., 511 U.S. 164, 191 (1994) (); In re Penn Central Securities Litigation, 494 F.2d 528, 540 (3rd Cir. 1974) (); Lewis v. Sporck, 612 F.Supp. 1316, 1332-33 (N.D.Cal. 1985) (). Id. at 8-9. Defendants argue that:
...Section 10A of the Exchange Act, 15 U.S.C. § 78j-l, provides that certain reporting requirements may be triggered to inform the company and, in certain situations, the SEC, if an auditor becomes aware of an "illegal act" during the course of an audit. There is no private cause of action arising under 15 U.S.C. § 78j-1. See 15 U.S.C. § 78j-1(c); Pub. L. No. 104-67, § 203, 109 Stat. 737, 762 (1995) (). Enforcement for failure to "blow the whistle" lies exclusively with the SEC. Id.
With regard to Section 17(a), Mr. Maciora responds by arguing that "the Ninth Circuit has held on multiple occasions that a private cause of action exists under §17(a)," and that it is "telling that the United States Supreme Court has declined to confront the issue inferring that the decision is much closer to a debate than the Defendants would like this court to believe."Dkt. #24 at 11-12. Mr. Maciora cites to Mosher v. Kane, 784 F.2d 1385 (9th Cir.1986) and Stephenson v. Calpine Conifers II, Ltd., 652 F.2d 808 (9th Cir.1981), as well as several out-of-circuit cases. Id. at 12. With regard to aiding and abetting securities fraud under Section 10(b) and Rule 10b-5, Mr. Maciora argues that finding no private cause of action for aiding and abetting Section 10(b) and Rule l0b-5 "makes no sense if the Defendants are found to be a primary violator of Section 10(b) and Rule 10b-5," and then appears to argue that because Defendants allegedly aided and abetted MyECheck in violating Section 10(b) and Rule 10b-5 they were themselves primary violators of these laws, and that "[i]t is important to note that courts including the Supreme Court have never ruled that a person can't be an aider and abettor of Section 10(b) and Rule 10b-5 of the Exchange Act if they also a primary violator." Id. at 12-13 (). With regard to Section 10A of the Exchange Act, Plaintiff asks the Court to find a private cause of action exists under this section as a matter of first impression, referring to the C...
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