The opinion of the court was delivered by: Scheindlin, District Judge.
Plaintiffs have brought suit alleging violations of Section
10(b) of the Securities Exchange Act of 1934 ("1934 Act"),
15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder,
17 C.F.R. § 240.10b-5, common law fraud, and breach of fiduciary duty.
Defendants have moved to dismiss on the following grounds: (1)
that the complaint fails to plead scienter adequately; (2) that
the complaint fails to comply with the pleading requirements of
Federal Rule of Civil Procedure 9(b) ("Rule 9(b)"); and (3) that
the plaintiffs improperly pled a derivative claim. Defendants
also move for a transfer of venue to the Southern District of
Florida pursuant to 28 U.S.C. § 1404(a). For the following
reasons, defendants' motion to dismiss is granted in part and
denied in part. Defendants' motion to transfer venue is granted.
The following allegations are taken from the Amended Complaint
("Am.Cmpl.") unless otherwise indicated. Defendant Skyteller,
Inc. ("Skyteller") is a corporation incorporated under the laws
of Delaware with its principal place of business in Florida. Am.
Cmpl., ¶ 6. Defendant Richard Postrel is the President and Chief
Executive Officer of Skyteller. Id., ¶ 7. Richard Postrel, with
his wife Jennifer Postrel, own a majority of the common stock of
Skyteller. Id. Jennifer Postrel is alleged to be a de jure or
de facto officer of Skyteller. Id., ¶ 8. Plaintiff Marvin
Rubinstein was a long time friend of Richard Postrel and the
purchaser of some 30 shares of Skyteller common stock. Id., ¶
16. The remaining plaintiffs are all relatives of Marvin
Rubinstein to whom he transferred a portion of the Skyteller
stock. Id., ¶¶ 2-5.
Skyteller issued 1,000 shares of common stock in July of 1995.
Id., ¶ 15. On a number of occasions prior to July 11, 1995,
Richard Postrel represented to Marvin Rubinstein that he would
purchase 510 shares (51%) of the shares issued and would cause
Skyteller to reserve 300 shares (30%) for subsequent purchase by
an institutional investor to provide additional needed capital.
Id., ¶ 17. According to plaintiff, this representation was
false as Richard Postrel had no intention of causing Skyteller to
reserve 300 shares for such purchase. Id., ¶ 18. Instead, he
intended to appropriate to himself and his wife the 300 reserved
shares without paying for them. Id.
Relying on this misrepresentation, Marvin Rubinstein purchased
five shares of Skyteller stock on July 3, 1995 for $100,000.
Id., ¶ 19. Through means of communication in interstate
commerce, Richard Postrel repeated this misrepresentation to
Marvin Rubinstein between July 3 and September 1, 1995. Id., ¶
20. Reasonably relying on these additional misrepresentations,
Marvin Rubinstein purchased an additional five shares of
Skyteller stock for $100,000. Id. Then, on October 26, 1995,
Skyteller issued to Marvin Rubinstein an option to purchase ten
additional shares for $200,000. Id., ¶ 21. Between September 1
and December 21, 1995, Richard Postrel repeated the foregoing
misrepresentation causing Marvin Rubinstein to exercise his
option and purchase an additional ten shares. On several
occasions between December 21, 1995 and August 1, 1996, Richard
Postrel again repeated the misrepresentation that he would cause
Skyteller to reserve 300 shares for purchase by an institutional
investor. Id., ¶ 23. Again, Marvin Rubinstein relied on this
misrepresentation and purchased an additional ten shares on
August 1, 1996. Id.
Direct allegations against Jennifer Postrel are sparse indeed.
As stated earlier, it is alleged that Jennifer Postrel serves as
Skyteller's de jure or de facto Treasurer and/or Chief
Financial Officer. Id., ¶ 8. In this capacity, she has the
authority to write checks from Skyteller's corporate accounts
several of which she has sent to the Rubinsteins at their home in
New York. Id. In addition, it was Jennifer Postrel who
transmitted the letter to Marvin Rubinstein's home in New York
granting him the option to purchase ten additional shares. Id.,
¶ 21. Jennifer Postrel, along with Richard Postrel, also caused
Skyteller to send a "Confidential Information Memorandum" to
Marvin Rubinstein which listed "300 Common shares reserved for
financing." Id., ¶ 24. This memorandum was sent on September
11, 1996, after Marvin Rubinstein made his last purchase of
Skyteller shares. Jennifer Postrel also sent Marvin Rubinstein
the distribution checks from the First Data transaction. Id., ¶
29. Finally, in the months following September 1887, Marvin
Rubinstein spoke on the phone with Jennifer Postrel who failed to
inform him of the stock misappropriation. Id., ¶ 31.
A. Motion to Dismiss Standard
Rule 12(b)(6) imposes a substantial burden upon the moving
party. Cruz v. Jackson, 94 Civ. 2600, 1997 WL 45348, at *3
(S.D.N.Y. Feb.5, 1997). A court may only grant a motion to
dismiss if "it appears beyond doubt that the plaintiff can prove
no set of facts in support of his claim which would entitle him
to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99,
2 L.Ed.2d 80 (1957). A court must accept the factual allegations
alleged in the complaint as true and all inferences must be drawn
in plaintiff's favor. Scheuer v. Rhodes, 416 U.S. 232, 236, 94
S.Ct. 1683, 40 L.Ed.2d 90 (1974); Cohen v. Koenig,
25 F.3d 1168, 1171-72 (2d Cir. 1994).
B. Claims Against Richard Postrel
Section 10(b) prohibits the use of any manipulative or
deceptive device or contrivance in connection with the purchase
or sale of securities. Rule 10b-5 more specifically describes
what constitutes a manipulative or deceptive device or
contrivance. See 17 C.F.R. § 240.10b-5. In order to state a
claim under Rule 10b-5, a plaintiff must allege that
in connection with the purchase or sale of
securities, the defendant, acting with scienter, made
a false material representation or omitted to
disclose material information and that plaintiff's