Salvani v. ADVFN PLC

• Decision Date: 23 September 2014
• Docket Number: No. 13 Civ. 7082ER.,13 Civ. 7082ER.
• Citation: 50 F.Supp.3d 459
• Parties: Joseph M. SALVANI and JFS Investments, Inc., Plaintiffs, v. ADVFN PLC, a company incorporated under the laws of the United Kingdom, InvestorsHub.com, Inc., and John Doe, known herein as “brkylnrusso,” Defendants.
• Court: U.S. District Court — Southern District of New York

50 F.Supp.3d 459

Joseph M. SALVANI and JFS Investments, Inc., Plaintiffs

v.ADVFN PLC, a company incorporated under the laws of the United Kingdom, InvestorsHub.com, Inc., and John Doe, known herein as “brkylnrusso,” Defendants.

No. 13 Civ. 7082ER.

United States District Court, S.D. New York.

Signed Sept. 23, 2014.

Douglas Richard Dollinger, The Law Offices of Douglas R. Dollinger, P.C. & Associates, White Plains, NY, for Plaintiffs.

James J. McGuire, Thomas & Locicero PL, Tampa, FL, Andrew G. Celli, Emery Celli Brinckerhoff & Abady, LLP, New York, NY, Deanna K. Shullman, Thomas & Locicero PL, Lake Worth, FL, James J. McGuire, Thomas & Locicero PL, Brooklyn, NY, for Defendants.

OPINION AND ORDER

RAMOS, District Judge.

This case arises out of allegedly defamatory statements made on an online message board that caters to members of the securities industry. Plaintiffs Joseph M. Salvani and JFS Investments (together, “Plaintiffs”) allege that Defendant John Doe (“Doe”) made untrue statements regarding Plaintiffs' business on Defendant InvestorsHub.com, Inc.'s (“InvestorsHub”) website. Defendant Doe allegedly accused Salvani of orchestrating a pump and dump scheme by artificially inflating certain stocks and selling them in order to profit at the inflated prices. According to Plaintiffs, this post damaged Plaintiffs' business and caused stock held by them to decline.

Plaintiffs bring suit against Defendant Doe, InvestorsHub, and ADVFN PLC (“ADVFN”), the company that controls InvestorsHub. On October 4, 2013, Plaintiffs filed their original complaint, alleging federal question jurisdiction but bringing claims only under state law. Doc. 1. Plaintiffs filed the Amended Complaint on December 10, 2013, adding claims under Sections 10(b)¹ and 9(a)(4) of the Securities Exchange Act of 1934 (“Exchange Act”) and two additional state law claims not included in the original complaint. Doc. 7. On February 18, 2014, Plaintiffs filed the Second Amended Complaint (“SAC”), alleging the two federal securities law claims as well as the following six claims under state law: (i) defamation; (ii) libel; (iii) tortious interference with contract; (iv) aiding and abetting; (v) intentional infliction of emotional distress; and (vi) a permanent injunction for the removal of the allegedly defamatory post.

Presently before the Court is Defendant InvestorsHub's motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction. Doc. 18. Defendant contends that Plaintiffs' Exchange Act claims are not colorable and that there is therefore no basis for this Court's jurisdiction. For the reasons discussed below, Defendant's motion to dismiss pursuant to Rule 12(b)(1) is DENIED, however, the Court dismisses the SAC sua sponte pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted.²

I. Factual Background

The following facts are based on the allegations in the Second Amended Complaint, which the Court accepts as true for purposes of the instant motion. In re Parmalat Sec. Litig., 477 F.Supp.2d 602, 607 (S.D.N.Y.2007).

Salvani has worked as an investment advisor through his company JFS Investments Inc. for over 25 years. SAC ¶ 20. Until September 5, 2013, Salvani was party to a written consulting agreement with CodeSmart Holdings, Inc. (stock symbol “ITEN”),³ whereby Salvani advised CodeSmart in its dealings with institutions and retail investors. Id. ¶ 22. Salvani received cash and CodeSmart securities under the contract. Id. ¶ 23. The value of the contract was in excess of $3 million. Id. at ¶ 22.

InvestorsHub is a content provider operating under the control of ADVFN. Id. ¶ 28. ADVFN generates revenues from InvestorsHub through the solicitation of paid memberships throughout the United States. Id. ¶ 29. Membership consists of approximately 250,000 accounts, including traders and other securities professionals. Id. InvestorsHub provides a forum for members to post messages seeking public review and comment. Id. According to InvestorsHub, the site is intended as a “forum for serious investors to gather and share market insights in a dynamic environment using an advanced discussion platform.” Id.

Only subscription members of InvestorsHub who have accepted the website's “Terms of Service” may post on its message boards. Id. ¶ 31. The Terms of Service require that members refrain from uploading, sharing, posting, or otherwise distributing or facilitating distribution of any content that is, inter alia, “unlawful, threatening, abusive, harassing, defamatory, libelous, vulgar, hateful, deceptive, fraudulent, invasive of another's privacy, [or] tortious ....” Id. ¶ 32. However, InvestorsHub is not obligated by its Terms of Service to remove any content that does not comply with the Terms or other rules of conduct for the site, or that is “otherwise harmful, objectionable, or inaccurate, or clearly detracts from the value of the community, as determined in [its] sole judgment ....” Id. ¶ 33. InvestorsHub is aware of policy violations by members but does not disclaim the accuracy of such posts or otherwise advise the public that the posts are not “adopted” by the site. Id. ¶ 35. Instead, InvestorsHub claims that it is “not responsible for any failure or delay in removing such Content,” and only removes content if it chooses to do so. Id. ¶ 36.

InvestorsHub uses moderators to screen posts in order to remove what it decides to be offensive conduct. Id. ¶ 63. InvestorsHub's User and Moderator Handbook states that the moderators “promote the civil exchange of on-topic dialog that complies with the iHub's Terms of Service” and “help foster an environment that promotes and encourages posting of ALL opinions and information about companies, regardless of the bullish or bearish sentiment of the posts, and to be the site's first line of defense in ensuring [it] remain [s] free of spam, vulgarity, and personal attacks.”

Id. ¶¶ 64, 65 (emphasis omitted). There are more than 17,000 active boards on the InvestorsHub site, of which approximately 6,800 have at least one moderator. Id. ¶¶ 67–68. Over 4,300 InvestorsHub members volunteer as moderators on one or more boards. Id. ¶ 68.

According to the SAC, InvestorsHub has encouraged, developed, and created a “lawless no-man's land” through the adoption of content-specific banners, such as “Most Shady OTC/PK CEO's (CROOK),” “Fighting the Crooked CEO[s] and /or the MM's that HELP THEM,” “Crooks, Frauds, Liars, and Banksters,” and “Crooked's Den of Self Actualization.” Id. ¶ 70. These banners intentionally invite comment, and, according to Plaintiffs, are intended to “expose the targeted individuals to hatred, contempt, ridicule and obloquy.” Id. ¶¶ 61, 70. The banners are published without disclaimers. Id. ¶ 61. According to Plaintiffs, all InvestorsHub members are on notice that the provider is under no obligation to remove posts—no matter the content—and agree that the site will be immune from liability. Id. ¶ 71.

The alleged unlawfulness of the InvestorsHub posts has increased user activity, which has encouraged national financial institutions to advertise on the site. Id. ¶ 74. These advertisements increase awareness about InvestorsHub and generate additional income for the site. Id.

The Post by brklynrusso

On September 5, 2013, Defendant Doe (operating under the InvestorsHub screenname “brklynrusso”) posted the following message to a forum entitled “CodeSmart Holdings, Inc. (ITEN)”:⁴

salvani was a former broker barred from the financial industry. He now gets “consulting” jobs with OTC bulliten board co's that have no other means to raise money so he goes out w/ his cronies(brokers he knows) that promote the stock. How he gets paid? The brokers are given restricted stock which they subsequently sell he gets paid off with cash in a bag. The stock usually collapses w/ little value once they have exited. Just google Joe Salvani:

http://www.forbes.com/forbes/1998/0504/6109174s1.html he works with this group out on LI and a broker Daniel welsh or walsh from garden state securities who also get stock in all of salvanis deals, they get stock as an advisor for pretty much doing nothing....its a total joke and im shocked the sec hasn't knocked on their door yet.

as for ITEM, 35k rev losing 2mil ayr w/ a 50mil mkt cap....you tell me if this is a real px at 4? pump n dump at its best

SAC ¶ 38 (emphasis omitted).

Defendant Doe was, and may still be, a paying member of InvestorsHub and an investor in CodeSmart. Id. ¶ 39. Plaintiffs allege that Doe posted the comments with the intention of injuring Plaintiff Salvani and manipulating CodeSmart's stock price, and that Doe knew that his post would be published by InvestorsHub and read by traders and other securities professionals. Id. ¶ 39, 40. InvestorsHub disseminated Doe's post without disclaimer, and with the knowledge that it would be read by traders and other securities professionals to have this effect. Id. ¶ 41.

Plaintiffs assert that Doe's statements were known to be false when made. Id. ¶ 43. First, Salvani has not been barred by the financial industry, and there are no orders or judgments against Salvani or JFS Investments issued by the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, or any court of competent jurisdiction. Id. ¶¶ 52, 53. Second, Salvani is not involved in a pump and dump scheme involving “brokers he knows.” Id. ¶ 54. Salvani is not, and has never claimed to be, a broker. Id. ¶ 55. He did not participate in any of the illegal activity alleged in Doe's post. Id.

Doe's post has appeared on InvestorsHub since September 5, 2013, and rapidly spread across Wall Street through media and subscriber-based news services. Id. ¶¶ 42, 56.

On September 5, 2013, Salvani discovered Doe's post and made a written demand to InvestorsHub for its removal. Id. ¶ 57. Salvani informed the site that the comments were unlawful and defamatory. Id. On September 9, 2013, David Lawrence...