NEEDREPLACE, Civil Action No. 12–cv–07270.

CourtNew York District Court
Writing for the CourtJAMES KNOLL GARDNER
Citation7 F.Supp.3d 502
PartiesLouis ROSSI, Plaintiff v. John QUARMLEY; James Morton, III; and Principia Ventures LLC, Defendants.
Decision Date25 March 2014
Docket NumberCivil Action No. 12–cv–07270.

7 F.Supp.3d 502

Louis ROSSI, Plaintiff
v.
John QUARMLEY; James Morton, III; and Principia Ventures LLC, Defendants.

Civil Action No. 12–cv–07270.

United States District Court, E.D. Pennsylvania.

Filed March 25, 2014


Motion granted.

[7 F.Supp.3d 503]

Neal A. Jacobs, Esq., Joshua A. Gelman, Esq., for Plaintiff.

Howard A. Rosenthal, Esq., for Defendants.


OPINION

JAMES KNOLL GARDNER, District Judge.

This matter is before the court on Defendants' Motion to Dismiss Plaintiff's Amended Complaint. For the following reasons, I grant the motion and dismiss the Complaint.

Plaintiff Louis Rossi brings this action against defendants John Quarmley, James Morton, III and Principia Ventures LLC for violation of the Securities Exchange Act of 1934. 15 U.S.C. §§ 78a–78pp. Specifically, in his Amended Complaint, plaintiff claims that defendants Quarmley and Morton fraudulently manipulated plaintiff into selling them plaintiff's interest in Principia Ventures LLC. He is seeking damages and costs (Counts I to V), a constructive trust (Count VI), and rescission of the purchase agreement and costs (Count VII).

SUMMARY OF DECISION

For the reasons expressed below defendants' motion to dismiss is granted.

Specifically, I grant defendants' motion to dismiss Count I because plaintiff has not alleged that his interest in defendant Principia Ventures LLC was a security, as required to state a claim for a violation of Rule 10b–5 of the Securities Exchange Act of 1934.

Furthermore, because plaintiff has failed to state a federal Securities Exchange Act claim, I grant defendants' motion to dismiss plaintiff's state-law claims in Counts II through VII for lack of subject matter jurisdiction.

JURISDICTION

This court has original jurisdiction over the subject matter of plaintiff's Securities Exchange Act claim based upon federal question jurisdiction pursuant to 28 U.S.C. § 1331. This court has supplemental jurisdiction over plaintiff's pendent Pennsylvania state-law claims pursuant to 28 U.S.C. § 1367.

VENUE

Venue is proper pursuant to 28 U.S.C. § 1391(b) because the events giving rise to these claims occurred in Chester County, Pennsylvania, which is located in this judicial district. See 28 U.S.C. §§ 118, 1391(b).

PROCEDURAL HISTORY

Plaintiff, Louis Rossi, initiated this action on December 12, 2012 by filing a Complaint against defendants John Quarmley, James Morton, III, and Principia Ventures LLC.

[7 F.Supp.3d 504]

On February 11, 2013, defendants filed a motion to dismiss plaintiff's original Complaint.

By Order signed May 23, 2013 and filed May 24, 2013, I granted plaintiff's request to file an amended complaint.

On June 17, 2013 plaintiff filed an Amended Complaint against defendants John Quarmley, James Morton, III, and Principia Ventures LLC. On July 1, 2013 defendants filed the within Defendants' Motion to Dismiss Plaintiff's Amended Complaint.

On July 15, 2013 plaintiff filed his Response in Opposition to Motion to Dismiss Amended Complaint.

Defendants filed a Reply Brief in Support of Defendants' Motion to Dismiss Plaintiff's Amended Complaint on August 5, 2013. On August 6, 2013, plaintiff's filed a Sur–Reply in Opposition to Motion to Dismiss Amended Complaint.

STANDARD OF REVIEW

A claim may be dismissed under Federal Rule of Civil Procedure 12(b)(6) for “failure to state a claim upon which relief can be granted.” A Rule 12(b)(6) motion requires the court to examine the sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 102, 2 L.Ed.2d 80, 84 (1957) (abrogated in other respects by Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Generally, in ruling on a motion to dismiss, the court relies on the complaint, exhibits attached to the complaint, and matters of public record, including other judicial proceedings. Sands v. McCormick, 502 F.3d 263, 268 (3d Cir.2007).

Except as provided in Federal Rule of Civil Procedure 9, a complaint is sufficient if it complies with Rule 8(a)(2), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Rule 8(a)(2) does not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face. Twombly, 550 U.S. at 570, 127 S.Ct. at 1974, 167 L.Ed.2d at 949.1

In determining whether a complaint is sufficient, the court must accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading, the plaintiff may be entitled to relief. Fowler, 578 F.3d at 210 (citing Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir.2008)). Although “conclusory” or “bare-bones allegations” will not survive a motion to dismiss, Fowler, 578 F.3d at 210, a complaint may not be dismissed merely because it appears unlikely that the plaintiff can prove those facts or will ultimately prevail on the merits. Phillips, 515 F.3d at 231. Nonetheless, to survive a Rule 12(b)(6) motion, the complaint must provide “enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element.” Id. at 234 (quoting Twombly, 550 U.S. at 556, 127 S.Ct. at 1965, 167 L.Ed.2d at 940) (internal quotations omitted).

The court is required to conduct a two-part analysis when considering a Rule 12(b)(6) motion. First, the factual matters

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averred in the complaint, and any attached exhibits, should be separated from legal conclusions asserted. Fowler, 578 F.3d at 210. Any facts pled must be taken as true, and any legal conclusions asserted may be disregarded. Id. at 210–211.

Second, the court must determine whether those factual matters averred are sufficient to show that the plaintiff has a “plausible claim for relief”. Id. at 211 (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. at 1950, 173 L.Ed.2d at 884).

Ultimately, this two-part analysis is “context-specific” and requires the court to draw on “its judicial experience and common sense” to determine if the facts pled in the complaint have “nudged [plaintiff's] claims” over the line from “[merely] conceivable [or possible] to plausible.” Iqbal, 556 U.S. at 679–680, 129 S.Ct. at 1949–1951, 173 L.Ed.2d at 884–885.

A well-pled complaint may not be dismissed simply because “it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.” Twombly, 550 U.S. at 556, 127 S.Ct. at 1965, 167 L.Ed.2d at 940–941 (internal quotations omitted).

FACTS

Accepting all the facts alleged in plaintiff's Amended Complaint as true, as I am required to do pursuant to the above standard of review, the pertinent facts construed in the light most favorable to plaintiff are as follows.

Plaintiff and defendants Quarmley and Morton (the “Venture Group”) have been associated in various business endeavors together since 1997, operating under the trade name Principia Partners.2 Each member of the Venture Group served as a producing manager and shared in the responsibilities of running Venture Group businesses.3

On January 30, 2003, plaintiff and defendants Quarmley and Morton entered into Principia Ventures LLC Operating Agreement (“Agreement”), forming a limited liability company.4 Principia Ventures LLC was formed with a purpose of engaging “in the business of owning and managing manufacturing and service businesses, and any other activity necessary, appropriate, desirable or incidental thereto.” 5

The Agreement stated that defendant Quarmley would be the Managing Member of the LLC and that defendant Morton would be the Secretary.6 The Agreement further stated that plaintiff, Mr. Quarmley, and Mr. Morton would each have a one-third interest in Principia Ventures LLC and a one-third share in any net profits or net profits on sale.7

On March 24, 2003, Principia Ventures LLC entered into an Operating Agreement for Highwood USA LLC.8 Highwood USA LLC's initial members were Principia Ventures LLC, Highwood UK, and Kinsley Investments LLC.9 Defendants Quarmley and Morton both held officer positions within Highwood USA LLC whereas plaintiff concentrated his efforts in running the Venture Group's other businesses such as Principia Partners, which in turn provided

[7 F.Supp.3d 506]

funding for Principia Ventures LLC.10

After Principia Ventures LLC entered into the Operating Agreement for Highwood USA LLC, Mr. Robert Kinsley loaned Principia Ventures LLC $1,000,000.00 to be used “for the business of Highwood USA [LLC]; personally guaranteed by Rossi, Quarmley and Morton” and then loaned an additional $1,000,000.00 more over the next couple years.11 Kinsley deferred payment on such loans until 2006.12

Principia Ventures LLC began making payments on the loans in 2006.13 Principia Ventures LLC

was able to make these monthly payments to Kinsley only from funds generated by the work of its principals: Rossi and Morton. Rossi and Morton were working in the business trading as Principia Partners and it was their hard work that resulted in funds for Principia Ventures to make the payments on the Kinsley loans.14

In November 2008, Principia Ventures LLC was unable to make its November monthly loan payment to Mr. Kinsley.15 Defendants Quarmley and Morton told plaintiff that the missed payment was a default and that Mr. Kinsley may exercise his remedies to have the loan paid in full immediately.16

Defendants Quarmley and Morton decided to use the opportunity of the missed payment to impose a cash-call seeking $328,500.00, which required the members of Principia Ventures LLC to use individual resources to supplement Principal Ventures LLC's capital.17 Though there may have...

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