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Rs-Anb Fund, Lp v. Kms Spe LLC

April 16, 2012

RS-ANB FUND, LP,
PLAINTIFF/COUNTERDEFENDANT,
v.
KMS SPE LLC, LIZ AIR 6 LLC, JERALD M. SPILSBURY, KINGSTON PROPERTIES L.P., MIKE KINGSTON, PAUL E. AVERY, BERT BOECKMANN AND JANE BOECKMANN, TRUSTEES OF THE BOECKMANN FAMILY REVOCABLE TRUST, ANDARY
INVESTMENTS 2 LLC AND RGRCM LLC, DEFENDANTS/COUNTERCLAIMANTS.
KMS SPE, LLC, PLAINTIFF/COUNTERDEFENDANT,
v.
RS-ANB FUNDS, LP, DEFENDANT/COUNTERCLAIMANT.
RS-ANB FUND, LP,
PLAINTIFF,
v.
DAVID ORVILLE KINGSTON, DEFENDANT.



The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court

MEMORANDUM DECISION AND ORDER

INTRODUCTION

The Court has before it the following motions: (1) Defendant David Kingston and Kingston Properties, LP.'s Motion to Dismiss (Dkt. 140), (2) Defendant KMS SPE LLC's Joinder in David Kingston and Kingston Properties, LP.'s Motion to Dismiss (Dkt. 142), and (3) all remaining Defendants' Joinder in David Kingston and Kingston Properties, L.P.'s Motion to Dismiss (Dkt. 143).

Defendant Kingston Properties, LP renews its Rule 12(b)(6) motion as to Plaintiff's Securities Exchange Act fraud claim, its Idaho Securities Act fraud claim, and its fiduciary-duty claims (Claims 1, 2, 4, and 7 of the amended complaint), and to dismiss the balance of Case No. 4:11-cv-00175-BLW under Rule 12(b)(1) for lack of subject-matter jurisdiction, if the 10b-5 claim is dismissed. In addition, David Orville Kingston moves to dismiss the amended adversary complaint RS filed on December 5, 2011, as plaintiff in Case No. 4:11-mc-07113-BLW (Docket No. 128). Defendant KMS SPE LLC joins in Kingston Properties' motion to dismiss as to the federal and state securities fraud claims. All remaining defendants also join in Kingston Properties' motion to dismiss the lead case in its entirety under Rule 12(b)(1).

The Court has reviewed the parties' submissions and determined that oral argument will not significantly assist the decisional process. For the reasons set forth below, Kingston Properties' Motion to Dismiss is granted in part and denied in part, and all joinder requests in Kingston Properties' Motion are granted. David Kingston's Motion to Dismiss the amended Adversary Complaint will be granted. As to the dismissed claims, the Court finds that RS has been afforded sufficient opportunity to amend its complaint, and that any further amendments would be futile; therefore, these claims are dismissed with prejudice.

RS shall file an amended complaint asserting only claims not dismissed below, so that the complaint conforms to this decision.

BACKGROUND

The facts of this case are as stated in the previous Memorandum Decision and Order issued in this case on November 7, 2011 (Dkt. 116), and need not be repeated at length here.

In sum, Plaintiff RS-ANB Fund, LP (RS) asserts federal and state securities fraud claims against David Kingston, in the Adversary Complaint, and against Kingston Properties (Properties) and KMS SPE LLC (KMS) in this case (the lead case). RS alleges that these parties fraudulently concealed the insolvency of David Kingston, who holds a controlling interest in each, so as to induce RS into purchasing a 25% interest in a failed bank's commercial construction loan portfolio. Additionally, RS brings fiduciary duty claims against David Kingston, and against "all defendants" in Claims Four and Seven of this case.

This Court previously dismissed RS's federal securities claims primarily because RS "failed to plead falsity and scienter with adequate particularity" under the heightened pleading standards applicable to fraud. Order dated Nov. 7, 2011 at 17, Dkt. 116. The parallel state securities fraud claim was dismissed because the Complaint failed to allege a compensable loss under the Idaho Securities Act. Id. at 17. The Court also dismissed the fiduciary duty claims brought against Kingston Properties because the Complaint failed to allege even the existence of a fiduciary duty in Kingston Properties toward RS, much less that any such duty was breached. Id. at 20.

Similarly, the Court found that the Adversary Complaint failed to allege facts establishing the existence of a fiduciary relationship between David Kingston and RS.

Id. at 20-21. Ultimately, the Court dismissed all four of the claims brought against David Kingston in the Adversary Complaint for all these same reasons. Id. at 23.

In response to these setbacks, RS provided this Court with an Amended Complaint (Dkt. 131) and an Amended Adversary Complaint (Dkt. 128). All Defendants again seek dismissal of the fraud and fiduciary duties claim asserted against them, respectively, for failure to state a claim for which relief can be granted, and all Defendants named in the lead case seek dismissal of all the claims therein for lack of subject matter jurisdiction should the federal securities fraud claim be dismissed (Dkts. 140, 142, and 143).

LEGAL STANDARD

Federal Rule of Civil Procedure 8(a) (2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While a complaint attacked by a Rule 12(b)(6) motion to dismiss "does not need detailed factual allegations," it must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id. at 570. A claim has facial plausibility 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. at 556. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.' " Id. at 557.

In a more recent case, the Supreme Court identified two "working principles" that underlie Twombly. See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Id. "Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 1950. Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. Id. "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.

A dismissal without leave to amend is improper unless it is beyond doubt that the complaint "could not be saved by any amendment." Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009) (issued 2 months after Iqbal).1 The Ninth Circuit has held that "in dismissals for failure to state a claim, a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Cook, Perkiss and Liehe, Inc. v. Northern California Collection Service, Inc., 911 F.2d 242, 247 (9th Cir. 1990). The issue is not whether plaintiff will prevail but whether he "is entitled to offer evidence to support the claims." Diaz v. Int'l Longshore and Warehouse Union, Local 13, 474 F.3d 1202, 1205 (9th Cir. 2007)(citations omitted).

Under Rule 12(b)(6), the Court may consider matters that are subject to judicial notice. Mullis v. United States Bank, 828 F.2d 1385, 1388 (9th Cir. 1987). The Court may take judicial notice "of the records of state agencies and other undisputed matters of public record" without transforming the motions to dismiss into motions for summary judgment. Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 866 (9th Cir. 2004). The Court may also examine documents referred to in the complaint, although not attached thereto, without transforming the motion to dismiss into a motion for summary judgment. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).

ANALYSIS

1. Rule 10b-5

To establish a valid claim under Rule 10b--5, RS must satisfy five elements: "(1) a material misrepresentation or omission of fact, (2) scienter, (3) a connection with the purchase or sale of a security, (4) transaction and loss causation, and (5) economic loss." In ...


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