Sec. & Exch. Comm'n v. Taronis Techs.

• Docket Number: 8:22-cv1939-TPB-AAS
• Decision Date: 31 August 2023
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. TARONIS TECHNOLOGIES, INC. n/k/a BBHC, INC., TARONIS FUELS, INC., SCOTT DAVID MAHONEY, and TYLER BURNETT WILSON, Defendants.
• Court: U.S. District Court — Middle District of Florida

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SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. TARONIS TECHNOLOGIES, INC. n/k/a BBHC, INC., TARONIS FUELS, INC., SCOTT DAVID MAHONEY, and TYLER BURNETT WILSON, Defendants.

No. 8:22-cv1939-TPB-AAS

United States District Court, M.D. Florida, Tampa Division

August 31, 2023

ORDER DENYING “DEFENDANT TYLER B. WILSON'S MOTION TO DISMISS PLAINTIFF'S COMPLAINT”

TOM BARBER UNITED STATES DISTRICT JUDGE

This matter comes before the Court on “Defendant Tyler B Wilson's Motion to Dismiss Plaintiff's Complaint.” (Doc. 34). Plaintiff, the Securities and Exchange Commission (“SEC”), filed a response in opposition. (Doc. 45). After reviewing the motion, response court file, and record, the Court finds as follows:

Background

The SEC initiated this civil enforcement action by filing a 24-count 79-page complaint asserting claims against two corporate entities, Taronis Technologies, Inc. (“Tech”) and Taronis Fuels, Inc. (“Fuels”), and their executive officers, Scott Mahoney and Tyler Wilson for violations of the Securities Act of 1933 (“Securities Act”), the Securities Exchange Act of 1934 (“Exchange Act), the rules and regulations issued thereunder, and the Sarbanes-Oxley Act of 2002 (“SOX”). (Doc 1).^[1]Specifically, as to Wilson, the SEC asserts claims against him in 14 of the 24 counts - six claims of securities fraud and eight claims relating to alleged accounting violations, the filing of false or misleading financial reports, and aiding and abetting violations committed by Fuels - and requests imposition of a permanent injunction against Wilson as well as disgorgement and prejudgment interest, civil monetary penalties, officer and director bars, and reimbursement from Wilson.^[2]

Mahoney held positions as Tech's CEO and a director on its Board of Directors since November 2018, and he served as Tech's CFO and Secretary from December 2016 until November 2018. Mahoney held positions as Fuels' CEO and a director on its Board of Directors from its formation until he resigned on April 2, 2021. Mahoney also briefly served as Fuels' Interim CFO and Treasurer in December 2020. Wilson is a licensed attorney and served as a director on Tech's Board of Directors. He served as Tech's General Counsel from approximately June 2017 to May 6, 2021; its CFO from approximately September 6, 1, 2019 to May 2021; and its Secretary from approximately December 2018 to May 6, 2021. He also served as Fuels' General Counsel from approximately 2018 to May 6, 2021; its CFO from approximately September 1, 2019 to November 4, 2020; and its Secretary from approximately 2018 to May 6, 2021.

Fuels was originally a wholly owned subsidiary of Tech. The companies manufactured and sold fuel and gas products, including a metal-cutting fuel called MagneGas, as well as water conservation and sterilization products. In connection with these products, it manufactured gasification and sterilization units, including its patented Venturi Plasma Arc gasification units. Tech spun off Fuels in December 2019, retaining the water side of the business while transferring the fuel and gas side of the business to Fuels.

Essentially, the SEC alleges that Wilson and Mahoney engaged in a fraudulent scheme to improperly recognize revenue and thereby attract investors: to that end, they knowingly used inaccurate accounting principles, backdated orders, engaged in fake asset transfers between Tech and Fuels, misrepresented contractual relationships, published inaccurate and misleading press releases, and filed inaccurate financial statements. As to Wilson, the SEC specifically alleges that he signed off on inaccurate financial statements, drafted supporting documentation for same, deceptively falsified and backdated orders, and misrepresented Fuels' financial state to its auditing firm. He also supervised the accounting staff and, the SEC argues, is therefore liable for those employees' fraudulent conduct as well. Given his conduct, the SEC alleges that Wilson either knew or was reckless in not knowing of the scheme.

Wilson moves to dismiss the SEC's claims against him. He contends that the complaint should be dismissed because it constitutes a shotgun pleading and because the SEC fails to allege any plausible claims of securities fraud, of aiding and abetting liability, of falsifying reports or lying to accountants, of control person liability, or of a violation of SOX § 304(a).

Legal Standard

A complaint must contain a short and plain statement of the claim showing that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2). While Rule 8(a) does not demand “detailed factual allegations,” the plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Although a complaint challenged by a motion to dismiss brought under Rule 12(b)(6), Federal Rules of Civil Procedure, need not contain detailed factual allegations, a plaintiff must provide the grounds for his or her entitlement to relief, and “a formulaic recitation of the elements of a cause of action will not do.” Id. at 555 (citation omitted). The court must be able to “draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). Accordingly, only a complaint that states a plausible claim for relief will survive a motion to dismiss. See id. at 679.

When deciding a Rule 12(b)(6) motion, review is generally limited to the four corners of the complaint and any exhibits attached thereto. Fed.R.Civ.P. 10(c); Rickman v. Precisionaire, Inc., 902 F.Supp. 232, 233 (M.D. Fla. 1995). “[A] motion to dismiss should concern only the complaint's legal sufficiency, and is not a procedure for resolving factual questions or addressing the merits of the case.” Am. Int'l Specialty Lines Ins. Co. v. Mosaic Fertilizer, LLC, No. 8:09-cv-1264-T-26TGW, 2009 WL 10671157, at *2 (M.D. Fla. Oct. 9, 2009).

In cases involving fraud, Rule 9(b) requires that the complaint state with particularity the circumstances constituting the fraud or mistake. Fed.R.Civ.P. 9(b) “This particularity requirement is satisfied when a complaint includes ‘facts as to time, place, and substance of the defendant's alleged fraud.'” S.E.C. v. Strebinger, 114 F.Supp.3d 1321, 1329 (N.D.Ga. 2015) (quoting U.S. ex rel. Clausen v. Lab Corp. of Am., Inc., 290 F.3d 1301, 1308 (11th Cir. 2002)). Rule 9(b) provides that a party may allege intent, knowledge, and other conditions of the defendant's mind generally. “Thus, under Rule 9(b), it is sufficient to plead the who, what, when, where, and how of the allegedly false statements and then allege generally that those statements were made with the requisite intent.” Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1237 (11th Cir. 2008) (citations omitted).

Analysis

Wilson moves to dismiss the complaint as a shotgun pleading and for failure to state a claim.^[3]

Shotgun Pleading

Wilson first argues that the Court should dismiss the complaint as a shotgun pleading because it reincorporates the entire factual background into each count and improperly lumps him together with Mahoney. A shotgun pleading is a pleading in which “it is virtually impossible to know which allegations of fact are intended to support which claim(s) for relief” and the defendant therefore cannot be “expected to frame a responsive pleading.” See Anderson v. Dist. Bd. of Tr. of Cent. Fla. Cmty. Coll., 77 F.3d 364, 366 (11th Cir. 1996). The Eleventh Circuit recognizes four primary categories of shotgun pleadings:

(1) complaints containing multiple counts where each count adopts the allegations of all preceding counts, causing each successive count to carry all that came before and the last count to be a combination of the entire complaint

(2) complaints that do not commit the mortal sin of re-alleging all preceding counts but are guilty of the venial sin of being replete with conclusory, vague, and immaterial facts not obviously connected to any particular cause of action (3) complaints that commit the sin of not separating into a different count each cause of action or claim for relief

(4) complaints that assert multiple claims against multiple defendants without specifying which of the defendants are responsible for which actions or omissions, or which of the defendants the claim is brought against

Weiland v. Palm Beach Cnty. Sheriff's Off., 792 F.3d 1313, 1322-23 (11th Cir. 2015).

Upon review, the complaint does not incorporate the allegations of each predecessor count into each subsequent count; it merely reincorporates the general factual allegations into each count. See id. at 1324 (“Weiland's re-alleging of paragraphs 1 through 49 at the beginning of each count looks, at first glance, like the most common type of shotgun pleading. But it is not. ... The allegations of each count are not rolled into every successive count on down the line.”) (internal footnote omitted); Terry v. Interim Healthcare Gulf Coast, Inc., No. 8:18-cv-692-T-33JSS, 2018 WL 1992276, at *2 (M.D. Fla. Apr. 27, 2018) (“A complaint that realleges just the factual allegations and does not re-allege each count, like the Complaint at issue, is different from a typical shotgun pleading and should be treated as such.”). Moreover, although some factual allegations address Mahoney, the complaint does not prevent the Court from determining the sufficiency of each claim or Wilson from framing a response. See U.S. Secs. & Exch. Comm'n v. Ustian, 229 F.Supp.3d 739, 778 (N.D. Ill. 2017) (denying motion to dismiss even though SEC's claims were all based on the same 180 fact paragraphs). Consequently, the motion to dismiss is denied as to this ground.

Sufficiency of the Allegations

Wilson next attacks the sufficiency of...