U.S. Sec. & Exch. Comm'n v. E-Smart Techs., Inc.
| Decision Date | 01 March 2013 |
| Docket Number | Civil Action No. 11–895 (JEB). |
| Citation | 926 F.Supp.2d 231 |
| Parties | U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. E–SMART TECHNOLOGIES, INC., et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
OPINION TEXT STARTS HERE
Kenneth John Guido, Jr., U.S. Securities & Exchange Commission, Washington, DC, for Plaintiff.
Robert J. Rowen, pro se.
AMENDED MEMORANDUM OPINION AND ORDER
The Securities and Exchange Commission filed this suit against e-Smart Technologies, Inc., three other companies, and five individuals, asserting numerous violations of the securities laws. One of those individuals, Defendant Robert J. Rowen, has now filed a Motion to Dismiss, contending that this Court has no jurisdiction over him, that venue is improper here, and that the SEC's Complaint is legally insufficient. Finding Rowen not to prevail on any of his arguments, the Court will deny the Motion.
The SEC alleges that e-Smart is a technology business engaged in selling an identification-verification system called a “smart card.” Compl., ¶ 16. Among its various misdeeds, e-Smart is alleged to have “engaged in an unregistered offering of millions of shares of its securities in violation of Section 5 of the Securities Act.” Id., ¶ 61. This was accomplished through a sham “convertible loan scheme.” Id., ¶ 64.
From 2005–07, Defendant Rowen and two other individuals “solicited investors to purchase e-Smart stock” and “were paid a 5–10% commission ... for each sale of e-Smart shares they facilitated.” Id., ¶ 75. “Rowen accomplished at least 20 transactions which brought in over $350,000 and sold over 4.5 million e-Smart shares.” Id., ¶ 78. At the time, Rowen was not “registered with the Commission as a broker-dealer or associated with a registered broker-dealer.” Id., ¶ 79. As a result, the two counts of the Complaint against Rowen allege that he violated the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c), by selling unregistered securities, see Compl., ¶¶ 90–93, and violated the Exchange Act, 15 U.S.C. § 78 o(a), by selling securities without being registered as a broker or dealer. Compl., ¶¶ 113–15.
Rowen filed his Motion to Dismiss on July 8, 2011. After initial briefing had been completed, the Court asked for supplemental briefs on the applicability of the recent D.C. Circuit decision on venue in SEC v. Johnson, 650 F.3d 710 (D.C.Cir.2011). The matter is now ripe for decision.
To survive a motion to dismiss under Fed.R.Civ.P. 12(b)(2), a plaintiff bears the “burden of establishing a factual basis for the [Court's] exercise of personal jurisdiction over the defendant.” Crane v. New York Zoological Society, 894 F.2d 454, 456 (D.C.Cir.1990) (citation omitted). To meet this burden, a plaintiff “must allege specific facts connecting the defendant with the forum.” Capital Bank Int'l Ltd. v. Citigroup, Inc., 276 F.Supp.2d 72, 74 (D.D.C.2003) (citing Second Amendment Foundation v. U.S. Conference of Mayors, 274 F.3d 521, 524 (D.C.Cir.2001)). In determining whether a basis for personal jurisdiction exists, “factual discrepancies appearing in the record must be resolved in favor of the plaintiff.” Crane, 894 F.2d at 456 (citation omitted). Unlike with a motion to dismiss under Rule 12(b)(6), the Court “is free to consider relevant materials outside the pleadings” in deciding whether to grant a motion to dismiss for lack of jurisdiction.” United States v. Smithfield Foods, Inc., 332 F.Supp.2d 55, 59–60 (D.D.C.2004).
When presented with a motion to dismiss for improper venue under Rule 12(b)(3), the Court “accepts the plaintiff's well-pled factual allegations regarding venue as true, draws all reasonable inferences from those allegations in the plaintiff's favor, and resolves any factual conflicts in the plaintiff's favor.” Pendleton v. Mukasey, 552 F.Supp.2d 14, 17 (D.D.C.2008) (citing Darby v. U.S. Dep't of Energy, 231 F.Supp.2d 274, 276–77 (D.D.C.2002)). The Court need not, however, accept the plaintiff's legal conclusions as true, Darby, 231 F.Supp.2d at 277, and may consider material outside of the pleadings. Artis v. Greenspan, 223 F.Supp.2d 149, 152 (D.D.C.2002) (citing Land v. Dollar, 330 U.S. 731, 735 n. 4, 67 S.Ct. 1009, 91 L.Ed. 1209 (1947)). “Because it is the plaintiff's obligation to institute the action in a permissible forum, the plaintiff usually bears the burden of establishing that venue is proper.” Freeman v. Fallin, 254 F.Supp.2d 52, 56 (D.D.C.2003); 15 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3826, at 258 (2d ed. 1986 & Supp. 2006) (). To prevail on a motion to dismiss for improper venue, however, “the defendant must present facts that will defeat the plaintiff's assertion of venue.” Khalil v. L–3 Commc'ns Titan Grp., 656 F.Supp.2d 134, 135 (D.D.C.2009) (citation and internal quotation marks omitted). Unless there are “pertinent factual disputes to resolve, a challenge to venue presents a pure question of law.” Williams v. GEICO Corp., 792 F.Supp.2d 58, 62 (D.D.C.2011).
Rule 12(b)(6) provides for the dismissal of an action where a complaint fails “to state a claim upon which relief can be granted.” When the sufficiency of a complaint is challenged under Rule 12(b)(6), the factual allegations presented in it must be presumed true and should be liberally construed in plaintiff's favor. Leatherman v. Tarrant Cty. Narcotics & Coordination Unit, 507 U.S. 163, 164, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993). The notice pleading rules are “not meant to impose a great burden on a plaintiff,” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 347, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005), and he or she must thus be given every favorable inference that may be drawn from the allegations of fact. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 584, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although “detailed factual allegations” are not necessary to withstand a Rule 12(b)(6) motion, Twombly, 550 U.S. at 555, 127 S.Ct. 1955, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal quotation omitted). Plaintiff must put forth “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Though a plaintiff may survive a 12(b)(6) motion even if “recovery is very remote and unlikely,” Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citing Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)), the facts alleged in the complaint “must be enough to raise a right to relief above the speculative level.” Id. at 555, 127 S.Ct. 1955.
Rowen relies on three separate grounds in bringing this Motion. First, he claims that he “is not subject to the personal jurisdiction of this court.” Mot. at 3. Second, he asserts that venue in the District of Columbia is improper, which should yield a dismissal or a transfer to “the District Court nearest to Mr. Rowen's residence.” Id. Third, he maintains that “[t]he complaint is defective and insufficient in failing to show with any degree of specificity as to how Mr. Rowen is alleged to have violated any law.” Id. The Court will address each in turn.
The SEC alleges that Rowen violated the Securities Act, 15 U.S.C. §§ 77e(a) and (c), and the Exchange Act, 15 U.S.C. § 78 o(a). Compl., ¶¶ 90–93, 113–15. He argues that the pled violations have nothing to do with the District of Columbia, thus depriving this jurisdiction of minimum contacts with—and, hence, jurisdiction over—him. His interpretation of the law of personal jurisdiction is too narrow. The aforementioned statutes provide for very broad service of process. See § 78aa () (emphasis added); § 77v(a) (same). Congress “uses language permitting service ‘wherever the defendant may be found,’ ” when it “intends to permit nationwide personal jurisdiction.” Dynegy Midstream Services v. Trammochem, 451 F.3d 89, 95–96 (2d Cir.2006) (citing § 78aa as example) (further citation omitted). Numerous circuits have “uniformly held that ‘[w]hen the personal jurisdiction of a federal court is invoked based upon a federal statute providing for nationwide or worldwide service, the relevant inquiry is whether the respondent has had sufficient minimum contacts with the United States.’ ” SEC v. Carrillo, 115 F.3d 1540, 1543 (11th Cir.1997) (quoting In re Application to Enforce Admin. of Subpoenas of SEC v. Knowles, 87 F.3d 413, 417 (10th Cir.1996)) (emphasis added); see also Warfield v. Alaniz, 569 F.3d 1015, 1029 (9th Cir.2009) (). Rowen never denies his contacts with the United States as a whole; indeed, he would have difficulty so doing since he lives in California. His argument on personal jurisdiction thus cannot prevail.
The SEC's argument as to venue is not as straightforward. Under both the Securities Act and the Exchange Act, venue is proper “in the district wherein the defendant is found or is an inhabitant or transacts business.” 15 U.S.C. §§ 78aa, 77v(a). Those provisions are clearly not applicable here for this California-based Defendant. The statutes, however, have other venue options. Under the former, venue also lies “in the district where the offer or sale took place, if the defendant participated therein.” § 77v(a). Under the latter, it also lies “in the district wherein any act or transaction constituting the violation occurred.” § 78aa.
In SEC v. Johnson, the D.C. Circuit reversed the...
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