Braddock v. Zaycon Foods Llc et al

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM & JOINDER in MOTION TO DISMISS

W.D. Wash.January 26, 2017

MOTION TO DISMISS & JOINDER - i 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Judge Thomas S. Zilly UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE RICHARD BRADDOCK, Plaintiff, vs. ZAYCON FOODS, LLC, a Washington limited liability company; FRANK R. MARESCA, JANE DOE MARESCA and the marital community composed thereof; MICHAEL GIUNTA, JANE DOE GIUNTA and the marital community composed thereof; MIKE CONRAD, JANE DOE CONRAD and the marital community composed thereof; and ADAM KREMIN, JANE DOE KREMIN and the marital community composed thereof, Defendants. No. 2:16-cv-01756-TSZ MARESCA, CONRAD, AND KREMIN’S MOTION TO DISMISS AND JOINDER IN MOTION TO DISMISS BY ZAYCON FOODS AND GUINTA NOTE ON MOTION CALENDAR: Friday, March 3, 2017 Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 1 of 26 MOTION TO DISMISS & JOINDER - ii 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 TABLE OF CONTENTS I. NATURE OF CASE & RELIEF SOUGHT ....................................................................... 1 II. STATEMENT OF FACTS & SCOPE OF RECORD ....................................................... 2 III. ARGUMENT ................................................................................................................... 3 A. The Court does not consider the legal conclusions in Plaintiff’s Complaint. 3 B. The Complaint fails to adequately plead a claim against Maresca, Conrad and Kremin under the Washington State Securities Act (WSSA). ................ 4 1. The Complaint does not allege any facts establishing Maresca, Conrad, and Kremin are “sellers” under the WSSA. .......................... 4 2. The Complaint does not allege the Individual Defendants each made any specific, material misrepresentations in connection with the security Braddock purchased. ............................................................. 6 3. The Complaint fails to allege the Individual Defendants each made specific, separate, material omissions about the security Braddock purchased, and it fails to allege any duty of disclosure. ..................... 7 4. The Complaint fails to plead Braddock reasonably relied on any specific material misrepresentation or material omission by the Individual Defendants. ..................................................................... 10 C. The third and fourth claims in the Complaint should be dismissed because they fail both as a matter of law and fact to allege a WSSA claim for secondary liability against Conrad and Kremin. .......................................... 12 D. Plaintiff’s federal securities claim should be dismissed against the Individual Defendants because the Complaint does not plead a separate federal securities claim under Section 20(a) against Maresca, Conrad, and Kremin individually and the Complaint’s 10b-5 claim fails to state a claim against the Individual Defendants for the same reason it fails against Zaycon. ......................................................................................................... 16 E. The Court should dismiss Plaintiff’s first, second, third and fourth claims with prejudice because leave to amend would be futile. .............................. 18 F. The Individual Defendants are entitled to attorney fees. .............................. 18 IV. CONCLUSION .............................................................................................................. 19 Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 2 of 26 MOTION TO DISMISS & JOINDER - iii 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 TABLE OF AUTHORITIES Cases Page(s) Bell Atlantic Corporation v. Twombly, 550 U.S. 544 (2007) .................................................................................................................... 4 In re Boeing Securities Litigation, 40 F. Supp. 2d 1160 (W.D. Wash. 1998) ................................................................................ 3, 8 Burgess v. Premier Corporation, 727 F.2d 826 (9th Cir. 1984) ....................................................................................................... 4 Burke & Thomas, Inc. v. International Organization of Masters, Mates & Pilots, West Coast & Pacific Region Inland Division, Branch 6, 92 Wash. 2d 762, 600 P.2d 1282 (1979) ................................................................................... 14 Callan v. Motricity Inc., No. C11-1340 TSZ, 2013 WL 195194 (W.D. Wash. Jan. 17, 2013) ............................... 4, 6, 17 Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir. 2011) ................................................................................................... 18 Chiarella v. United States, 445 U.S. 222 (1980) .................................................................................................................... 7 City of Roseville Employees’ Retirement System v. Sterling Financial Corporation, 963 F. Supp. 2d 1092 (E.D. Wash. 2013) ................................................................................ 8, 9 Clegg v. Cult Awareness Network, 18 F.3d 752 (9th Cir. 1994) ......................................................................................................... 3 In re Coinstar Inc. Securities Litigation, 2011 WL 4712206 (W.D. Wash. 2011) ...................................................................................... 6 Goel v. Jain, 259 F.Supp.2d 1128 (W.D. Wash. 2003) .................................................................................... 7 Haberman v. Washington Public Power Supply System, 109 Wash.2d 107, 131,744 P.2d 1032 (1987) ............................................................................. 5 Hines v. Data Line Systems, Inc. 114 Wash.2d 127, 787 P.2d 8 (1990) .............................................................................. 4, 10, 12 ITI Internet Services, Inc. v. Solana Capital Partners, Inc., No. C05-2010Z, 2006 WL 1789029 (W.D. Wash. June 27, 2006) ..................................... 10, 17 Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 3 of 26 MOTION TO DISMISS & JOINDER - iv 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135, 144 (2011)) ....................................................................................................... 6, 7 King County, Washington v. Merrill Lynch & Co., Inc., No. 2:10-cv-01156-RSM, 2012 WL 2389991 (W.D. Wash. June 25, 2012) .......................... 13 Kinney v. Cook, 159 Wash.2d 837, 154 P.2d 206 (2007) ...................................................................................... 7 Kittilson v. Ford, 93 Wash.2d 223, 608 P.2d 264 (1980) ........................................................................................ 4 Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) ...................................................................................................................... 8 In re Metropolitan Securities Litigation, 532 F. Supp. 2d 1260 (E.D. Wash. 2007) .................................................................................... 6 MGIC Indemnity Corporation v. Weisman, 803 F.2d 500 (9th Cir. 1986) ....................................................................................................... 3 Middlesex Retirement System v. Quest Software Inc., 527 F. Supp. 2d 1164 (C.D. Cal. 2007) ..................................................................................... 17 Nuveen Quality Income Municipal Fund Inc. v. Prudential Equity Group, LLC, 262 Fed. App’x. 822, 825 (9th Cir. 2008) ................................................................................. 10 Oklahoma Firefighters Pension & Retirement System v. IXIA, 50 F. Supp. 3d 1328, 1354-55 (C.D. Cal. 2014) ....................................................................... 17 Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681 (9th Cir. 2011) ..................................................................................................... 13 Reese v. Malone, 747 F.3d 557 (9th Cir. 2014) ..................................................................................................... 17 In re Rigel Pharmaceuticals, Inc. Securities Litigation, 697 F.3d 869 (9th Cir. 2012) ....................................................................................................... 8 Somerset Communications Group, LLC v. Wall to Wall Advertising, Inc., No. C13-2084-JCC, 2014 WL 1794676 (W.D. Wash. May 6, 2014) ........................................ 4 Stewart v. Estate of Steiner, 122 Wash. App. 258, 93 P.3d 919 (Div. 1, 2004) ............................................................... 10, 11 Stiley v. Block, 130 Wash.2d 486 925 P.2d 194 (1996) ..................................................................................... 13 Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 4 of 26 MOTION TO DISMISS & JOINDER - v 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Tellabs, Inc., v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) .................................................................................................................. 17 Tumelson Family Limited Partnership v. World Financial News Network, 242 Fed. App’x. 385 (9th Cir. 2007) ......................................................................................... 12 West Coast, Inc. v. Snohomish County, 112 Wash. App. 200, 48 P.3d 997 (Div. 1, 2002) ..................................................................... 13 Zucco Partners, LLC v. Digimarc Corporation, 552 F.3d 981 (9th Cir. 2009) ..................................................................................................... 16 Statutes Washington State Securitites Act (WSSA) ......................................... 1, 2, 4, 5, 7, 10, 11, 12, 13, 15 Washington Revised Code 21.20.010 ............................................................................................... 4 Washington Revised Code 21.20.010(2) ........................................................................................... 7 Washington Revised Code § 21.20.010(2) .................................................................................. 9, 13 Washington Revised Code § 21.20.040 .......................................................................................... 15 Washington Revised Code § 21.20.140 .......................................................................................... 15 Washington Revised Code § 21.20.430 .................................................................................... 12, 15 Washington Revised Code § 21.20.430(1) ........................................................................................ 4 Washington Revised Code § 21.20.430(3) ...................................................................................... 12 Washinton Revised Code § 21.20.010 ........................................................................................ 7, 12 Other Authorities Federal Rule of Civil Procedure 8(a) ................................................................................................. 1 Federal Rule of Civil Procedure 9(b) ............................................................................................ 1, 6 Federal Rule of Civil Procedure 12(b)(6) .................................................................................. 1, 3, 6 Federal Rule of Evidence 201(b)(2) .................................................................................................. 3 Private Securities Litigation Reform Act of 1995 (PSLRA) ................................................. 1, 10, 17 Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a) .................................... 16 Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 5 of 26 MOTION TO DISMISS & JOINDER - vi 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) ................................ 7, 16 Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5 ............................ 4, 7, 16 Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 6 of 26 MOTION TO DISMISS & JOINDER - 1 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 I. NATURE OF CASE & RELIEF SOUGHT Individual Defendants Frank Maresca, Mike Conrad and Adam Kremin (collectively the “Individual Defendants”) join the Motion to Dismiss filed by Zaycon Foods LLC (“Zaycon”), and respectfully ask this Court to dismiss with prejudice the first and second claims in the Complaint filed by Plaintiff Richard Braddock (“Braddock”); those claims fail to plead federal or state securities fraud with the specificity required by Federal Rules of Civil Procedure 8(a), 9(b), and 12(b)(6), as well as both the Private Securities Litigation Reform Act (“PSLRA”) and the Washington State Securities Act (“WSSA”). Under the same rules, Conrad and Kremin seek dismissal with prejudice of the third and fourth claims in the Complaint, which allege secondary liability under the WSSA; the allegations are insufficient to state a claim under the WSSA both as a matter of law and fact. The remaining state law claims sounding in the parties’ contracts should all be dismissed for lack of federal jurisdiction. The Complaint fails to adequately plead any of the required elements of a federal or state securities fraud claim against the Individual Defendants. The fifty-page Complaint creates the appearance of factual detail, but in reality, it is woefully short of sufficient, actual probative facts, which are required under the heightened pleading standards of both the PSLRA and the WSSA. The Complaint fails to adequately plead any false or misleading statements, separately and independently made by Maresca, Conrad, and Kremin in connection with the offering of securities to Braddock. The Complaint utterly fails on another statutorily mandated hurdle of a federal securities claim: it does not meet the PSLRA’s stringent requirement that a plaintiff must plead specific facts, in great detail, demonstrating a strong inference of scienter on the part of each Individual Defendant. The Complaint also falls short of satisfying the reliance element of pleading Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 7 of 26 MOTION TO DISMISS & JOINDER - 2 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 both a federal and state securities fraud claim, and the Complaint fails to plead the causation necessary for a federal claim against each Individual Defendant. Separately, the third and fourth claims for secondary liability under the WSSA against Conrad and Kremin must be dismissed because there can be no secondary liability claim absent an underlying securities claim and because the scant omission allegations supporting the secondary liability claims are insufficient as a matter of both law and fact to state a claim under the WSSA. The Court should dismiss with prejudice Plaintiff’s first four claims, and dismiss the remainder of the Complaint for lack of federal jurisdiction. II. STATEMENT OF FACTS & SCOPE OF RECORD The Individual Defendants adopt the statement of facts in Zaycon’s Motion to Dismiss and do not restate a duplicate or similar summary of facts here as a matter of efficiency. The Individual Defendants dispute the accuracy of many allegations in Braddock’s Complaint, but they also recognize the facts at issue for purposes of this motion must be those drawn from the Complaint, in addition to the documents governing the contractual relationship between the parties, which are integral to the Complaint. In deciding both motions to dismiss, the Individual Defendants join Zaycon’s request and ask this Court to consider the documents attached to the Declaration of Laura Clinton1: (Ex. A) Zaycon’s Operating Agreement and amendments; (Exs. B- D) Membership Unit Purchase Agreements between Braddock and Zaycon dated August 21, 2014, December 15, 2014, and September 18, 2015; (Ex. E) Exercise of a Convertible Note Agreement dated February 3, 2015, executed by Braddock; and (Ex. F) a waiver and release Agreement executed by Braddock, dated September 2015. 1 Hereinafter referred to as “Clinton Ex. ___” Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 8 of 26 MOTION TO DISMISS & JOINDER - 3 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 The Court may also consider any matter that is subject to judicial notice, such as public records. In re Boeing Sec. Litig., 40 F. Supp. 2d 1160, 1165 (W.D. Wash. 1998) (citing MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986)); Fed. R. Evid. 201(b)(2). Thus, the Court may take judicial notice of two matters of public record complained of in Braddock’s Complaint: Conrad’s 2010 bankruptcy, and the Washington Department of Financial Institutions (DFI) actions initiated in 2009 against Conrad and Kremin. Zaycon’s Operating Agreement, which is central to Braddock’s Complaint, contains a venue clause requiring disputes to be brought in state or federal courts in Spokane, Washington, Clinton Ex. A at Article 12.6, however, the Individual Defendants accede to Zaycon’s waiver of the venue provisions in the Operating Agreement (and the arbitration clauses in the other contracts governing this lawsuit, see Clinton Exs. B-E) only for the limited purpose of the pending motions to dismiss the securities claims.2 III. ARGUMENT A. The Court does not consider the legal conclusions in Plaintiff’s Complaint. When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), courts are not required to accept legal conclusions cast in the form of factual allegations if those conclusions cannot be reasonably drawn from the facts alleged. Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994) (citations omitted). Therefore, in deciding this motion to dismiss, this Court does not accept as true Braddock’s legal conclusions; “a pleading that only offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not 2 Plaintiff’s remaining state law claims (Claims Five through Ten of the Complaint) should be dismissed by this Court for lack of federal jurisdiction for the reasons set forth in Section III. E. of Zaycon’s Motion to Dismiss. The Individual Defendants reserve their right to later challenge, in the proper venue and forum, the sufficiency of those claims as plead. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 9 of 26 MOTION TO DISMISS & JOINDER - 4 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 do.” Callan v. Motricity Inc., No. C11-1340 TSZ, 2013 WL 195194, at *4 (W.D. Wash. Jan. 17, 2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). B. The Complaint fails to adequately plead a claim against Maresca, Conrad and Kremin under the Washington State Securities Act (WSSA). To state a cause of action for liability under the WSSA, a plaintiff must allege the defendant was a “seller” of securities under Wash. Rev. Code § 21.20.430(1), the defendant made material misrepresentations in connection with the sale of a security, the plaintiff relied on the defendant's alleged material misstatements, and the reliance was reasonable. Hines v. Data Line Sys., Inc. 114 Wash.2d 127, 134-35, 787 P.2d 8 (1990) (en banc). “Both the Ninth Circuit and the Supreme Court of Washington have recognized that the WSSA closely resembles its federal counterpart, Rule 10b-5.” Somerset Comm’ns Grp., LLC v. Wall to Wall Adver., Inc., No. C13- 2084-JCC, 2014 WL 1794676 *8 (W.D. Wash. May 6, 2014) (citing Burgess v. Premier Corp., 727 F.2d 826, 833 (9th Cir. 1984) and Kittilson v. Ford, 93 Wash.2d 223, 608 P.2d 264, 265 (1980)). Here, Braddock’s allegations supporting his first federal securities claim are identical to the allegations supporting his second claim under the WSSA. Compare Compl. ¶¶ 203-216 with ¶¶ 162-176. For all the reasons Braddock’s federal securities claim fails against Zaycon,3 it also fails to state a cause of action individually against Maresca, Conrad, and Kremin. 1. The Complaint does not allege any facts establishing Maresca, Conrad, and Kremin are “sellers” under the WSSA. Wash. Rev. Code § 21.20.430(1) provides in part that a “person who offers or sells a security in violation of any provisions of RCW 21.20.010 . . . is liable to the person buying the 3 The Individual Defendants adopt and incorporate here the arguments in Zaycon’s Motion to Dismiss. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 10 of 26 MOTION TO DISMISS & JOINDER - 5 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 security.” Braddock’s second claim does not specifically plead recovery under section .430, but he also does not plead controller or director liability as a form of secondary liability, so his only cognizable cause of action as pleaded against the Individual Defendants is that they allegedly violated the WSSA, separately and independently from Zaycon, as a seller. The Washington Supreme Court has explained a defendant is liable as a “seller” under this statute “if his acts were a substantial contributive factor in the sales transaction.” Haberman v. Wash. Pub. Power Supply Sys., 109 Wash.2d 107, 131, 744 P.2d 1032, 1052 (1987). Here, the Complaint sets forth only the bare legal conclusion that Maresca, Conrad and Kremin were each a “seller” of Zaycon securities to Braddock under the WSSA. Compl. ¶¶ 198-200. This legal conclusion is insufficient where no facts are pled to support the legal conclusion. For example, the Complaint alleges Kremin is a “member” of Zaycon, Compl. ¶ 6, but nothing more. There are no facts alleged in the Complaint detailing how or when or why Kremin would be considered a seller under the statute. Similarly, the Complaint alleges Conrad and Maresca are both members of Zaycon, and Conrad was at some time a former managing member while Maresca is the current managing member. Compl. ¶¶ 3-4. This is insufficient. The Complaint does not contain any allegation about their roles or titles or responsibilities or actions at the specific times they allegedly sold securities to Braddock. The Complaint does not allege any facts, aside from the conclusory statement, suggesting how, when, where or why the Individual Defendants, not Zaycon, sold securities to Braddock; the only documents show Zaycon sold securities. See Clinton Exs. B-E. // Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 11 of 26 MOTION TO DISMISS & JOINDER - 6 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2. The Complaint does not allege the Individual Defendants each made any specific, material misrepresentations in connection with the security Braddock purchased. “Identifying a statement [sufficient to survive dismissal under the heightened pleading standards of Rule 9(b) and Rule 12(b)] involves setting forth such facts as the statement’s contents, the time and place at which it was made, and the party who made it.” In re Metro. Sec. Litig., 532 F. Supp. 2d 1260, 1279 (E.D. Wash. 2007) (citation omitted). “The plaintiff must attribute the misleading statements upon which the claim is based to a particular defendant.” Callan, 2013 WL 195194, at *15 (quoting In re Coinstar Inc. Sec. Litig., 2011 WL 4712206, at *3 (W.D. Wash. 2011) and Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135, 144 (2011)). Here, the Complaint contains none of these required details. The 50-page Complaint contains lots of broad, conclusory statements about the defendants collectively but it does not assert a single, specific alleged misstatement made to Braddock directly by any of the Individual Defendants.4 The Complaint only alleges conclusory statements:  Maresca, Conrad and Kremin made misrepresentations and omissions “in a series of meetings in New York and Colorado and during telephone conversations while Braddock was in New York or Colorado, which began during mid-2014 and continued until January 2016”. Compl. ¶¶ 172, 213. 44 The Complaint makes general allegations about alleged misstatements in Zaycon’s Operating Agreement, but as explained in Zaycon’s Motion to Dismiss, incorporated herein, the outdated information in the Operating Agreement’s schedules was not a material misrepresentation and Braddock failed to allege any facts showing he relied on those alleged misrepresentations. Further, Braddock could not have justifiably relied on inaccuracies in the Operating Agreement schedules he already knew were incorrect. Moreover, the Complaint’s allegations about Zaycon’s Operating Agreement (actions taken by Zaycon) are wholly insufficient to state a claim against Maresca, Conrad or Kremin individually as pleaded since the Complaint does not allege a claim for controller liability and it does not allege a single fact suggesting Maresca, Conrad or Kremin were individually responsible for the Operating Agreement. Janus, 564 U.S. at 144 (explaining the “maker of a statement is the entity with authority over the content of the statement and whether and how to communicate it.”). Moreover, it’s difficult to understand how Braddock could be claiming reliance on unknown misstatements of other members of Zaycon while Braddock with the CEO. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 12 of 26 MOTION TO DISMISS & JOINDER - 7 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23  “. . . . from mid-2014 through January 2016, Maresca, Giunta, Conrad and Kremin, individually and on behalf of Zaycon and one another, continued to make Misrepresentations and Omissions, orally and in writing, to Braddock in connection with solicitations of additional capital and loans from Braddock”. Compl. ¶¶ 176, 216. Other than the Operating Agreement, the Complaint fails to identify any other “writing” allegedly containing a false statement or a material omission, and why it was material; the Operating Agreement is not sufficient.5 The Complaint is insufficient where it fails to identify the “who, what, and where” of any of the alleged statements by Maresca, Conrad, or Kremin that were allegedly made during these meetings and conversations, and where it fails to allege why any of the alleged statements were material. Moreover, it fails to allege that these unidentified statements were made “in connection with the offer, sale or purchase of any security.” Wash. Rev. Code § 21.20.010. This is a separate, but missing, element of plaintiff’s claim. Id.; see Kinney v. Cook, 159 Wash.2d 837, 842-845, 154 P.2d 206, 209-11 (2007). 3. The Complaint fails to allege the Individual Defendants each made specific, separate, material omissions about the security Braddock purchased, and it fails to allege any duty of disclosure. “Omissions are actionable under the [Washington] Securities Act only if the undisclosed facts are both material and “necessary in order to make the statement made, in the light of the circumstances under which they are made, not misleading. RCW 21.20.010(2).” Goel v. Jain, 259 F.Supp.2d 1128, 1140 (W.D. Wash. 2003). Rule 10b-5 is violated by nondisclosure only when there is a duty to disclose because there can be no fraud absent a duty to speak. Chiarella v. United States, 445 U.S. 222, 235 (1980) (“We hold that a duty to disclose under § 10(b) does not arise from the mere possession of nonpublic market information.”). “Thus, silence is not 5 The only writing mentioned in the entire Complaint is the Operating Agreement. See id. (FN 4). Notably, the Complaint fails to mention the release agreement Braddock signed in the fall of 2015 after discovering the facts he now alleges are “misrepresentations” or “omissions”. See Clinton Ex. F. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 13 of 26 MOTION TO DISMISS & JOINDER - 8 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 misleading in the absence of a duty to disclose.” In re Boeing Sec. Litig., 40 F. Supp. 2d, at 1167 (citations and internal quotations omitted). When a plaintiff relies on an omission of fact as evidence of falsity, the plaintiff must show the omission was material but cannot rely on that alone; instead, the plaintiff must show the material omission also actually renders other statements misleading. City of Roseville Emps. Ret. Sys. v. Sterling Fin. Corp., 963 F. Supp. 2d 1092, 1109 (E.D. Wash. 2013), appeal docketed, No. 14-35902 (9th Cir. Oct. 24, 2014) (citing In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 880 n. 8 (9th Cir. 2012) and Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011)). There is no “affirmative duty to disclose any and all material information”; disclosure is required “only when necessary to make other statements that were made, in the light of the circumstances under which they were made, not misleading.” City of Roseville Emps. Ret. Sys., 963 F. Supp. 2d at 1109 (internal quotations and citations omitted). The Complaint alleges two omissions outside the Operating Agreement. Braddock says he was never informed about two matters of public record: (1) that four years before Braddock invested in Zaycon, the DFI had taken some action against Conrad and Kremin, in connection with a wholly unrelated company, prior to Zaycon’s existence6; and (2) Conrad had gone into bankruptcy in 2010, and Maresca and Kremin were both creditors in that bankruptcy. Compl. ¶¶ 175, 215. First, these allegations of omissions are insufficient to plead a securities claim because Braddock does not identify any independent duty obligating Maresca, Conrad and Kremin each to 6 Compl. ¶ 31 (Zaycon was founded on January 9, 2010.); Compl. ¶¶ 175, 215 (Before Zaycon existed, the DFI initiated the action against Conrad and Kremin in 2009 in connection with a different company, unrelated to Zaycon.). Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 14 of 26 MOTION TO DISMISS & JOINDER - 9 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 separately disclose these matters of public record (which occurred four years prior to any investment by Braddock), to a sophisticated investor like Braddock who had an active role in managing Zaycon and became its CEO.7 Second, Braddock’s Complaint does not allege specific facts to show how these matters of public record are material to Braddock’s investment, particularly where the value of Braddock’s investments continued to increase and Zaycon ‘s revenues grew.8 Third, even if the Complaint did, that would still be insufficient to plead a securities claim because Braddock does not allege why or how these omissions of matters of public record actually made other specific (but unknown and unpled) statements by each Individual Defendant misleading, or alternatively why they were necessary to be disclosed in order to make other statements (unknown and unpled) made (and relied upon), in connection with the purchase of Braddock’s securities, in the light of the circumstances under which they are made, not misleading. See City of Roseville Emps. Ret. Sys., 963 F. Supp. 2d at 1109; Wash. Rev. Code § 21.20.010(2). Braddock fails to identify any statement by any Individual Defendant that was made in connection with the sale of a security to Braddock that was somehow misleading in the absence of the details about the public records related to the DFI and bankruptcy. Further, there is no allegation that the public records were concealed from Braddock and neither of these 7 Braddock describes himself as a sophisticated businessman and investor with years of experience serving in key, executive roles of companies of all sizes. See Compl. ¶¶ 1, 11, 35. Braddock took an active role in managing Zaycon; he was a managing member and became the CEO. Compl. ¶¶ 78-81. 8 Compl. ¶ 82. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 15 of 26 MOTION TO DISMISS & JOINDER - 10 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 alleged omissions concern Zaycon’s membership interests or Braddock’s investment in the company. This is insufficient.9 4. The Complaint fails to plead Braddock reasonably relied on any specific material misrepresentation or material omission by the Individual Defendants. Even if it had pleaded a material misrepresentation or omission (and corresponding duty), the Complaint still fails because it does not allege Braddock reasonably relied on any specific statement by any specific Individual Defendant in connection with Braddock’s purchase of Zaycon’s securities. This is a necessary element of Braddock’s claim. See Nuveen Quality Income Mun. Fund Inc. v. Prudential Equity Grp., LLC, 262 Fed. App’x. 822, 825 (9th Cir. 2008) (recognizing that Washington appellate courts have held that reliance is an element of a claim under the WSSA) (citing Hines, 114 Wash.2d 127, 787 P.2d at 12 and Stewart v. Estate of Steiner, 122 Wash. App. 258, 93 P.3d 919, 922 (Div. 1, 2004)). The Complaint’s general allegations that “[e]ach of Braddock’s decisions to acquire Zaycon securities was made in reliance on the [unspecified] Misrepresentations and Omissions made by Maresca, Giunta, Conrad and Kremin”, Compl. ¶ 177, and “Braddock reasonably relied on Defendants’ Misrepresentations and Omissions”, Compl. ¶ 122, are wholly insufficient. The Court should dismiss the WSSA claim for failure to satisfy this necessary element. See, e.g., ITI Internet Servs., Inc. v. Solana Capital Partners, Inc., No. C05-2010Z, 2006 WL 1789029 *6 (W.D. Wash. June 27, 2006) (dismissing PSLRA complaint for failure to state with particularity when the alleged misrepresentation was made, to whom it was made, why it was material and why reliance was justified). 9 The Individual Defendants incorporate Zaycon’s Motion to Dismiss at Section III. A. 1. b. discussing cases holding prior bankruptcies immaterial for purposes of a material misrepresentation in a securities claim). Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 16 of 26 MOTION TO DISMISS & JOINDER - 11 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Even if Braddock had pled that he relied on the unspecified misrepresentations, he would still have to plead and show the reliance was reasonable. Braddock cannot do that in the face of the written representations he made in connection with each of his investments. See e.g., Stewart, 122 Wash. App. at 266-270, 93 P.3d at 926 (discussing reasonable reliance in context of a WSSA case where the alleged oral misrepresentations complained of by the plaintiff were contradicted by written materials signed by the plaintiff, which included a provision stating that the plaintiff was not relying on any information outside the offering documents and applying principles articulated in analogous federal securities cases addressing non-reliance clauses).10 The representations Braddock made in the Operating Agreement and the Membership Unit Purchase Agreements (“MUPAs”) foreclose his reliance claims. See id. Through the Operating Agreement Braddock agreed: it “replaces and supersedes all prior written and oral agreements or statements by and among the Members” of Zaycon and “[n]o representation, statement, condition or warranty not contained in this Agreement shall be binding on the Members or have any force or effect whatsoever.” Clinton Ex. A at Art. 12.1. Each time Braddock invested, he executed a MUPA stating he had “a reasonable opportunity to (a) discuss the Company’s business, management, plans and financial affairs with the Company’s management, (b) ask and receive responses to all questions which are satisfactory to the Buyer, and (c) obtain any additional information necessary to evaluate the merits and risks of the purchase of and investment in the Units . . . .” Clinton Exs. B-D at ¶ 3.7. Braddock also represented he could bear the economic risk of his investments, he had the “knowledge and experience in financial or business matters that he is capable of 10 Since Washington courts apply analogous federal law, the Individual Defendants incorporate the arguments made in Section III. A. 4. of Zaycon’s Motion to Dismiss. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 17 of 26 MOTION TO DISMISS & JOINDER - 12 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 evaluating the merits and risks of the investment . . . [and] making an informed investment decision . . . .” Id. at ¶ 3.3. Finally, Braddock signed a 2015 Agreement that releases all claims regarding Braddock’s investments prior to executing the Release. Clinton Ex. F. All of his MUPAs and the Exercise of his Convertible Note predate the release11; and the other two loans Braddock complains of were made after Braddock was CEO of Zaycon. Braddock cannot claim he relied on alleged misstatements he acknowledged and released in October 2015. The WSSA complaint should be dismissed because it fails to plead, and Braddock cannot allege, the necessary reasonable reliance element. C. The third and fourth claims in the Complaint should be dismissed because they fail both as a matter of law and fact to allege a WSSA claim for secondary liability against Conrad and Kremin. The third and fourth claims in the Complaint are identical: they allege separate liability against Conrad and Kremin under Wash. Rev. Code § 21.20.430.12 Compl. ¶¶ 225-238. A claim under this section of the WSSA requires a substantive violation of another section of the WSSA. The Complaint alleges three violations, but all three are insufficient. Compl. ¶¶ 226, 233 First, as a basis for liability under Wash. Rev. Code § 21.20.430, the Complaint alleges Conrad and Kremin violated Wash. Rev. Code § 21.20.010. Compl. ¶¶ 226, 229, 233, 236. That 11 Clinton Exs. B-E. 12 Secondary liability under the WSSA only attaches to control persons, directors or employees who materially aid sellers in violations of the WSSA. Wash. Rev. Code § 21.20.430(3). Washington courts apply the federal two-part test in determining control person liability under the WSSA, which requires the plaintiff to show the defendant actually “exercised control over the operations of the corporation and possessed the power to control the specific transaction that violated the securities law. Tumelson Family Ltd. P’ship v. World Fin. News Network, 242 Fed. App’x. 385, 387 (9th Cir. 2007) (citing Hines, 114 Wash.2d at 127). Braddock did not specifically plead a claim for secondary liability under Wash. Rev. Code § 21.20.430(3) but even if the Complaint could be liberally construed to infer such a claim, the Complaint does not plead any facts under either prong of the test for control person liability for Conrad or Kremin or Maresca. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 18 of 26 MOTION TO DISMISS & JOINDER - 13 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 portion of both the third and fourth claims against Conrad and Kremin is identical to the Complaint’s second claim against all the Individual Defendants. As discussed above already, however, Braddock’s second claim for violation of the WSSA must be dismissed because the Complaint does not allege Conrad or Kremin made any specific misstatements of material fact or omissions of material facts, and the Complaint does not allege the facts necessary to plead the required reliance element. Unlike the Complaint’s second claim, the third and fourth claims do not even contain a conclusory statement about reliance; the element is wholly missing. Braddock appears to assume, but does not specifically allege, that the DFI orders equate to a contract and that he is a third-party beneficiary of the DFI orders. On its face, the general allegation that Conrad and Kremin violated the terms of a DFI order does not support a separate claim for securities fraud because as a matter of law the DFI order is not a “statement”, which is a required element of a claim under the WSSA. Wash. Rev. Code § 21.20.010(2). Courts “universally agree that contract breach is not a sufficient predicate for securities fraud . . . .” King Cnty., Wash. v. Merrill Lynch & Co., Inc., No. 2:10-cv-01156-RSM, 2012 WL 2389991 (W.D. Wash. June 25, 2012) (quoting Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 691-92 (9th Cir. 2011)). “This logic flows from the nature of fraud itself. A claim of fraud must rest on an inaccurate assertion as to a matter of past or existing fact. A promise does not contain a false assertion of fact unless it is accompanied by a simultaneous intent not to perform.” Id. (internal citations and quotations omitted). “A promise of future performance is not a representation of an existing fact and will not support a fraud claim.” West Coast, Inc. v. Snohomish Cnty., 112 Wash. App. 200, 206, 48 P.3d 997, 1000 (Div. 1, 2002) (citation omitted). All fraud claims require assertions of fact rather than promises of future performance. See Stiley v. Block, 130 Wash.2d Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 19 of 26 MOTION TO DISMISS & JOINDER - 14 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 486, 506 925 P.2d 194, 204 (1996). Even if the DFI orders could be considered a contract (although it is not, and it is not a contract Braddock can enforce or benefit from), the DFI orders would not constitute a statement, which is a required element of Braddock’s claim. Even if Braddock could allege a violation of the DFI orders, he is not a third-party beneficiary of the orders and the orders are not a contract he can enforce. See e.g., Burke & Thomas, Inc. v. Int’l Org. of Masters, Mates & Pilots, W. Coast & Pac. Region Inland Div., Branch 6, 92 Wash. 2d 762, 764, 600 P.2d 1282, 1284 (1979). In Burke & Thomas the Washington Supreme Court analyzed whether members of the public could be injured by the Washington State Public Ferry Employees’ violation of their collective bargaining agreements with the State of Washington. Id. at 767-68. The plaintiffs in the suit were business owners in the San Juan Islands and argued that as members of the public they were “third party beneficiaries” representing the public interest of the contract entered into by the State. Id. at 768-69. The Washington Supreme Court refused to find the parties to the collective bargaining agreement intended that the public employees would assume a direct obligation to members of the public which could then be privately enforced by that public. Id. According to the Washington Supreme Court, for third party beneficiary status to exist, parties must intend specifically to create a direct obligation to the third party at the time of the contract. Id. Since there was no intent through the collective bargaining agreement to create a direct obligation to protect private businesses, the plaintiffs in Burke & Thomas had no cause of action as third-party beneficiaries. See id. Similarly, here, Braddock cannot show a direct obligation to him in the DFI orders even if the order could be a contract (which it is not). Braddock is not entitled to enforce the DFI orders, Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 20 of 26 MOTION TO DISMISS & JOINDER - 15 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 nor can he allege any injury by alleged violation of the DFI orders. There is no basis in law or fact to suggest Braddock can enforce or rely on a DFI order to support an independent cause of action for securities fraud. Even if an alleged violation of the DFI order could survive these multiple legal insufficiency challenges, factually Plaintiff’s Complaint is still insufficient because it does not allege any facts showing how or why the DFI order in itself constitutes a “material misrepresentation” or “material omission”. Second, as a basis for liability under Wash. Rev. Code § 21.20.430, the third and fourth claims in the Complaint allege a legal conclusion - Conrad and Kremin violated Wash. Rev. Code § 21.20.040. Compl. ¶¶ 226, 228, 233, 235. Under a plain reading of that section of the WSSA (.040), it cannot support a claim under Wash. Rev. Code § 21.20.430. Moreover, the Complaint fails to plead any facts alleging Conrad or Kremin personally or individually offered or sold stocks without proper registration. Supra, Section III. B. 1. Braddock’s conclusory statements are insufficient as a matter of fact and law. Third, the Complaint alleges Conrad and Kremin violated Wash. Rev. Code § 21.20.140 “by offering or selling securities for which there was no registration on file with the Washington State Securities Administration”. Compl. ¶¶ 226, 227, 233, 234. Under the plain reading of that statute, the DFI order does not give rise to any liability. As discussed already, this allegation fails to state a claim because there is no factual allegation in the Complaint that either Conrad or Kremin actually sold any security to Braddock; the only documents show Braddock purchased membership units in and from Zaycon. Clinton Exs. B-E. Moreover, Braddock’s claim is fatal because the security allegedly sold by Kremin and Conrad can only be the security sold by Zaycon and that security was not required to be registered. It is exempted under Wash. Rev. Code§ Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 21 of 26 MOTION TO DISMISS & JOINDER - 16 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 21.20.320(1) where it is undisputed that it did not involve a public offering. See Clinton Exs. B-D at Article 3.5. Merely alleging there is “no registration on file” does not state a claim for relief under these circumstances. Moreover, here, it is undisputed that Braddock knew the investment involved unregistered securities. In the MUPAs he signed, each contained the following disclosure in all capitalization: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. SUCH UNITS HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF. Clinton Exs. B-D at Article 3.5. Braddock’s third and fourth claims in his Complaint should be dismissed with prejudice because there is no way leave to amend would allow Braddock to fix the legal or factual insufficiencies of these identical claims. D. Plaintiff’s federal securities claim should be dismissed against the Individual Defendants because the Complaint does not plead a separate federal securities claim under Section 20(a) against Maresca, Conrad, and Kremin individually and the Complaint’s 10b-5 claim fails to state a claim against the Individual Defendants for the same reason it fails against Zaycon. Plaintiff’s Complaint does not even allege a claim under Section 20(a), which imposes joint and several liability on a company’s “controlling” individuals for a company’s Section 10(b) violations. Even if did, however, the Complaint should be summarily dismissed since it fails to adequately plead a primary violation of Section 10(b). See, e.g., Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009) (holding a section 20(a) claim may be summarily dismissed if a plaintiff fails to adequately plead a primary violation of Section 10(b)). Braddock purports to plead a claim against Maresca, Conrad, and Kremin under Rule 10b- 5, identical in each respect to the 10b-5 claim alleged against Zaycon. The first claim and only Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 22 of 26 MOTION TO DISMISS & JOINDER - 17 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 federal claim in Plaintiff’s Complaint should be dismissed in its entirety against Maresca, Conrad, and Kremin for the same reasons the claim must be dismissed against Zaycon.13 “The PSLRA requires that a complaint alleging securities fraud must specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” ITI Internet Servs., Inc., 2006 WL 1789029, at *5 (citing 15 U.S.C. § 78u-4(b)(1)). Also, a plaintiff “must plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct.” Id. (emphasis in original) (citation omitted); Middlesex Ret. Sys. v. Quest Software Inc., 527 F. Supp. 2d 1164, 1179 (C.D. Cal. 2007). “Facts showing mere recklessness or a motive to commit fraud and opportunity to do so provide some reasonable inference of intent, but are not independently sufficient.” Reese v. Malone, 747 F.3d 557, 569 (9th Cir. 2014) (citation omitted); see Callan, 2013 WL 195194, at *15-16. To qualify as strong within the intendment of the PSLRA an inference of scienter must be more than merely plausible or reasonable-it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent. Tellabs, Inc., v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007). Braddock’s Complaint falls short. As set forth above in Section B, the Complaint does not allege with particularity that any of the Individual Defendants made or were responsible for any alleged misrepresentation. And the Complaint does not allege any facts supporting the required scienter against each Individual Defendant, separately and independently. Group pleading is unacceptable. See e.g., Oklahoma Firefighters Pension & Ret. Sys. v. IXIA, 50 F. Supp. 3d 1328, 13 The Individual Defendants incorporate Zaycon’s argument in support of its Motion to Dismiss Braddock’s first and second claims. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 23 of 26 MOTION TO DISMISS & JOINDER - 18 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 1354-55 (C.D. Cal. 2014) (citing and collecting cases). Braddock’s first claim should be dismissed against Maresca, Conrad, and Kremin. E. The Court should dismiss Plaintiff’s first, second, third and fourth claims with prejudice because leave to amend would be futile. When a Complaint’s deficiencies cannot be cured by amendment, leave to amend serves neither justice nor judicial efficiency. See Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011).14 Here, the third and fourth claims against Conrad and Kremin fail as a matter of law, so leave to amend serves no purpose. Similarly, the Court should deny Braddock leave to amend his first and second claims for relief because he affirmatively pled facts about his personal knowledge about the schedules in the Operating Agreement for Zaycon; consequently, he cannot reverse his course and now plead the opposite - that he did not have personal knowledge. Moreover, Braddock should not be allowed now to creatively replead his claims where the missing facts could have been plead initially, if they existed and were true. F. The Individual Defendants are entitled to attorney fees. Zaycon’s Operating Agreement expressly provides that the prevailing party in any dispute between or among Members of Zaycon is entitled to attorney fees, costs and expenses. Clinton Ex. A at ¶ 12.13. The Individual Defendants ask the Court the include in its order granting dismissal an order requiring Braddock to pay all reasonable fees and costs. 14 The Individual Defendants incorporate the cases and argument at Section III. D. of Zaycon’s motion to dismiss. Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 24 of 26 MOTION TO DISMISS & JOINDER - 19 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 IV. CONCLUSION Maresca, Conrad and Kremin respectfully ask this Court to enter an order dismissing the first, second, third and fourth claims in Braddock’s Complaint, with prejudice, and dismissing the remaining state claims for lack of federal jurisdiction. Respectfully submitted this 26th day of January, 2017. By: s/Geana M. Van Dessel Geana M. Van Dessel, WSBA #35969 Lee & Hayes, PLLC 601 W. Riverside Ave., Ste. 1400 Spokane, WA 99201 Telephone: (509) 944-4639 Fax: (509) 323-8979 Email: GeanaV@leehayes.com Attorneys for Defendants Frank Maresca, Mike Conrad, and Adam Kremin Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 25 of 26 MOTION TO DISMISS & JOINDER - 20 2:16-cv-1756-TSZ LEE & HAYES, PLLC 601 West Riverside Ave., Suite 1400 Spokane, Washington 99201 Telephone: (509) 324-9256 Fax: (509) 323-8979 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 CERTIFICATE OF SERVICE I hereby certify that on the 26th day of January, 2017, I caused to have electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following: Michael J. Brown David L. Tift David G. Trachtenberg Laura K. Clinton brown@ryanlaw.com tift@ryanlaw.com dtrachtenberg@trflaw.com laura.clinton@bakermckenzie.com By: s/Geana M. Van Dessel Geana M. Van Dessel, WSBA #35969 Lee & Hayes, PLLC 601 W. Riverside Ave., Ste. 1400 Spokane, WA 99201 Telephone: (509) 944-4639 Fax: (509) 323-8979 Email: GeanaV@leehayes.com Attorneys for Defendants FRANK R. MARESCA, JANE DOE MARESCA, MIKE CONRAD, JANE DOE CONRAD, ADAM KREMIN and JANE DOE KREMIN Case 2:16-cv-01756-TSZ Document 17 Filed 01/26/17 Page 26 of 26