Filed: Dec. 30, 2005
Latest Update: Feb. 21, 2020
Summary: United States Court of Appeals Fifth Circuit F I L E D IN THE UNITED STATES COURT OF APPEALS December 30, 2005 FOR THE FIFTH CIRCUIT _ Charles R. Fulbruge III Clerk No. 05-50902 Summary Calendar _ KYLE HOLLAND, Plaintiff - Appellant, versus GEXA CORP.; MARCIE ZLOTNICK; KYLE MCDONALD; DAN FOGARTY; NORMAN GEORGE; STEVEN BETHKE; KIM PETERSON; CAROL JENKINS; NEIL LEIBMAN Defendants - Appellees. _ Appeal from the United States District Court for the Western District of Texas, Austin Division No. 1:03
Summary: United States Court of Appeals Fifth Circuit F I L E D IN THE UNITED STATES COURT OF APPEALS December 30, 2005 FOR THE FIFTH CIRCUIT _ Charles R. Fulbruge III Clerk No. 05-50902 Summary Calendar _ KYLE HOLLAND, Plaintiff - Appellant, versus GEXA CORP.; MARCIE ZLOTNICK; KYLE MCDONALD; DAN FOGARTY; NORMAN GEORGE; STEVEN BETHKE; KIM PETERSON; CAROL JENKINS; NEIL LEIBMAN Defendants - Appellees. _ Appeal from the United States District Court for the Western District of Texas, Austin Division No. 1:03-..
More
United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
December 30, 2005
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 05-50902
Summary Calendar
_____________________
KYLE HOLLAND,
Plaintiff - Appellant,
versus
GEXA CORP.; MARCIE ZLOTNICK; KYLE MCDONALD; DAN FOGARTY;
NORMAN GEORGE; STEVEN BETHKE; KIM PETERSON; CAROL JENKINS;
NEIL LEIBMAN
Defendants - Appellees.
_________________________________________________________________
Appeal from the United States District Court for
the Western District of Texas, Austin Division
No. 1:03-CN-904
_________________________________________________________________
Before JOLLY, DAVIS, and OWEN, Circuit Judges.
PER CURIAM:1
Kyle Holland brings this appeal seeking review of the district
court’s dismissal without prejudice of his claims of securities and
common law fraud. Reviewing the district court’s Rule 12(b)(6)
dismissal de novo, and the denial of leave to replead for abuse of
discretion, we affirm the district court’s judgment dismissing the
case essentially for the reasons provided in the magistrate judge’s
1
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
thorough and well-reasoned recommendation to dismiss including the
following:2
1. Holland has failed sufficiently to plead damages to
support either his claim under Section 10(b) of the Securities and
Exchange Act or his claim under Rule 10b-5. Further, as correctly
noted below, the facts as pled by Holland show that he lacked
standing to bring either claim as he is neither a purchaser nor
seller in connection with the subject stock exchange.3
Additionally Holland’s failure specifically to plead the purchase
price he paid for his stock, and that the alleged violations of
Section 10(b) and Rule 10b-5 caused the stock to lose value,
further evince both Holland’s lack of standing and insufficient
pleading as to those claims.4
2
Additionally we note that the magistrate judge’s depiction
of the complaint as unclear is a forgiving description of the
pleading involved. The plaintiff’s briefing on appeal, consistent
with the confusion of the complaint, has made our task difficult.
3
To cure the standing problem Holland appears to make some
sort of dilution claim. Yet this Circuit has consistently
recognized a claim of dilution of shareholder’s equity as
insufficient to create standing in these types of securities
claims. See, e.g., Meyers v. Moody, 693 F.2d 1196, 1216 n.16 (5th
Cir. 1983); Sargent v. Genesco, Inc.
492 F.2d 750 (5th Cir. 1974);
Wolf v. Frank,
477 F.2d 467 (5th Cir. 1973) (all finding that
dilution of shareholder’s equity does not, in itself, confer
“purchaser” or “seller” status on a plaintiff seeking to achieve
the required standing in a direct action).
4
The failure to plead causation is not surprising as the
allegedly fraudulent transaction Holland contends is the basis for
his Rule 10b-5 claim (the EZUTILITIES transaction on July 1, 2001)
occurred several weeks after Holland purchased the stock in
question (stock purchase occurred on June 10, 2001).
2
2. Holland’s attempt to cure his lack of standing, by
contending that his claims are somehow derivative, was also
correctly rejected below. Holland’s pleading, although difficult
to decipher, asserts derivative claims based only on the common law
breach of a fiduciary duty. The court below correctly noted that
Holland had not pled a derivative claim under any federal
securities law, and even if a claim could be construed to exist, it
certainly was not pled with the particularity required.
3. Holland’s claim under Section 12(2) of the Securities
Act of 1933 was also properly dismissed.5 Holland’s claim under
Section 12(a)(2) appears to be that GEXA unlawfully issued the
stock based on allegedly fraudulent private placement memoranda,
when in actuality it was making a public offering requiring
registration. To the extent that Holland is alleging fraud in the
content of the memoranda, he has failed to plead any reliance on
that information that induced his purchase. Further, any claim for
fraud in the memoranda was improperly pled under Section 12(a)(2)
as that section applies only to public offerings. See Lewis v.
Fresne, 252 F.3d 352 (5th Cir. 2001) (holding that under Gustafson
v. Alloyd Co.,
115 S. Ct. 1061 (1995), Section(a)(2) liability does
not attach unless the fraud occurred in the context of a public
offering). To the extent that Holland claims the private placement
5
Section 12(2) was amended in 1995 and renumbered as Section
12(a)(2). We assume, as did the court below, that Holland intended
to assert his claim under the current statute.
3
memoranda were unlawful because the offerings should have been made
through a registered prospectus, his actual claim would be under
Section 12(a)(1), which provides for rescission of sales of
securities improperly accomplished without registration. Holland
has not asserted a claim under section 12(a)(1), nor has he alleged
any facts demonstrating the sale was actually a public offering.
4. Finally, the court below, having dismissed all of
Holland’s federal claims, dismissed his pendent state law claims.6
Federal courts have discretion in determining whether to exercise
supplemental jurisdiction over state law claims even where the
federal claims have been dismissed. See 28 U.S.C. 1367(c)(3).
Where the federal claims are dismissed before trial, however, the
relevant factors weigh heavily in favor of dismissing the state law
claims. “Our general rule is to dismiss state claims when the
federal claims to which they are pendent are dismissed.” See,
e.g., Parker & Parsley Petroleum Co. v. Dresser Indus., 972 F.2d
580, 585-86 (5th Cir. 1992) (finding the district court abused its
discretion in maintaining supplemental jurisdiction over state law
claims where the federal claims were dismissed early in the
litigation). Consequently, the court did not err in dismissing
Holland’s state law claims.7
6
Specifically, these include Holland’s claims for negligence,
negligence per se, common law fraud, statutory fraud under the
Texas Securities Act, conspiracy, and a shareholder derivative
claim for breach of fiduciary duty.
7
We note additionally that even were the federal claims not
4
To sum up, the district court did not err in granting
defendants’ 12(b)(6) motion, and thus the judgment dismissing
Holland’s claims is
AFFIRMED.
dismissed, the lack of clarity in pleading these state law claims
would possibly justify their independent dismissal for failure to
meet the requirements of Rules 8(a) and 9(b). See FED. R. CIV. P.
8(a) (requiring a “short and plain statement of the claim showing
that the pleader is entitled to relief”); FED. R. CIV. P. 9(b)
(imposing more stringent pleading requirements for fraud claims).
5
