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Schoemann v. Ewellness Healthcare Corp.

United States District Court, M.D. Louisiana

October 18, 2017




         Before the Court is the Motion to Dismiss Counterclaims (Doc. 13) and the Motion for Partial Summary Judgment (Doc. 19) filed by Plaintiff Rodney Schoemann. The parties filed oppositions (Docs. 21 and 25), and replies (Docs. 28 and 29). For the following reasons, the Motion to Dismiss (Doc. 13) and the Motion for Partial Summary Judgment (Doc. 19) are GRANTED.

         I. BACKGROUND

         Plaintiff alleges that he executed a promissory note ("Note") with Defendant on August 16, 2016. (Doc. 1-2 at ¶ 1, p. 5). Plaintiff alleges that the Note required Defendant to pay Plaintiff $213, 255.31 with interest, no later than November 14, 2016. Id. at ¶ 4. Plaintiff alleges that Defendant has refused to pay the balance of the Note. Id. at 1[ 8. Plaintiff also alleges that the Note is governed by Louisiana law. Id. ¶ 1.

         On January 24, 2017, Plaintiff filed suit in the 19th Judicial District in the Parish of East Baton Rouge, Louisiana. (Doc. 1-2 at p. 2). Invoking the Court's diversity jurisdiction, Defendant then removed the case on March 3, 2017. (Doc. 1). Defendant then filed a counterclaim against Plaintiff. (Doc. 7 at p. 8). Defendant alleges that Plaintiff made a series of loans to Defendant with interest rates that violated California law, notwithstanding the Louisiana choice of law provision contained in the loans. Id. at ¶ 34. Defendant also alleges that Plaintiff was privy to certain "material non-public information regarding eWellness and its financial condition" which allowed Plaintiff to make certain transactions into the trading market and/or engaged in fraud or deceit. Id. at ¶ 65. Additionally, Defendant claims that Plaintiffs "actions manipulated the market price of eWellness Shares through a series of transactions through his own brokerage account and the brokerage accounts he controlled!.]" Id. at ¶ 67.

         Defendant claims that Plaintiff is liable under: (1) California's unfair competition law by extending commercial loans without a license; (2) California's unfair competition law by making loans with excessively high interest rates; (3) California Civil Code § 1916-2 and 1916-3 by making loans with excessively high interest rates; (4) Louisiana's Unfair Trade Practices Act by extending loans with interest rates that exceed the interest limitations on commercial loans; (5) the Securities and Exchange Act of 1934 § 17(a) ("Exchange Act") by engaging in insider trading; and (6) the Exchange Act by engaging in market manipulation. (Doc. 7 at p. 16-24)


         A. Plaintiffs Motion to Dismiss Defendant's Counterclaims

         A motion to dismiss under Rule 12(b)(6) tests the sufficiency of the complaint against the legal standard set forth in Rule 8, which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8(a)(2). "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.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Ail. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "Determining whether a complaint states a plausible claim for relief [is] . . . a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Ashcroft, 556 U.S. at 679.

         "[F]acial plausibility" exists "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 678 (citing Twombly, 550 U.S. at 556). Hence, the complaint need not set out "detailed factual allegations, " but something "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action" is required. Twombly, 550 U.S. at 555. When conducting its inquiry, the Court "accepts all well-pleaded facts as true and views those facts in the light most favorable to the plaintiff." Bustos v. Martini Club Inc., 599 F.3d 458, 461 (5th Cir. 2010) (quotation marks omitted).

         1. Counterclaim V-Insider Trading

         Defendant claims that Plaintiff is liable for insider trading under § 17(a) of the Exchange Act. (Doc. 7 at ¶ 61). However, the United States Court of Appeals for the Fifth Circuit has held that § 17(a) does not create a private right of action. See Landry v. All Am. Assurance Co., 688 F.2d 381, 384-91 (5th Cir. 1982) ("[T]he statutory language [of § 17(a)] does not suggest a private cause of action"); Earle v. Aramark Corp., No. 3-CV-2960, 2005 WL 473675, *3 (N.D. Tex. 2005) ("The Fifth Circuit does not recognize a private right of action under Section 17(a) of the Securities Act of 1933"). Accordingly, Defendant's § 17(a) claim is dismissed.

         Defendant also claims that Plaintiff is liable under Section 10b-5 of the Exchange Act by making false statements about eWellness shares. (Doc. 7 at ¶ 62). Plaintiff argues that Defendant's 10b-5 claim fails the heightened pleading requirement for a 10b-5 securities fraud claim. (Doc. 13-1 at p. 6). Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act together require "a plaintiff pleading a false or misleading statement or omission as the basis for a section 10(b) and Rule 10b-5 securities fraud claim [to] ... (1) specify . . . each statement alleged to have been misleading, i.e., contended to be fraudulent; (2) identify the speaker; (3) state when and where the statement was made; (4) plead with particularity the contents of the false representations; (5) plead with particularity what the person making the misrepresentation obtained thereby; and (6) explain the reason or reasons why the statement is misleading, i.e., why the statement is fraudulent." Goldstein v. MCI WorldCom, 340 F.3d 238, 24 (5th Cir. 2003) (quoting ABC Arbitrage Plaintiffs Grp. V. Tchuruk, 291 F.3d 336, 350 (5th Cir. 2002)).

         Defendant fails to make allegations sufficient to overcome the heightened pleading requirements for a 10b-5 claim. Indeed, Defendant merely pleads the elements of a 10b-5 claim in a conclusory fashion. (Doc. 23 at ¶ 65). Specifically, Defendant fails to identify the specific misleading statements that it alleges Plaintiff made, when and where Plaintiff made them, the content of the statements, ...

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