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RUBINSTEIN v. SKYTELLER

March 2, 1999

MARVIN RUBINSTEIN, SARI RUBINSTEIN, JAY RUBINSTEIN, CHIE RUBINSTEIN, AND JONATHAN RUBINSTEIN, PLAINTIFFS,
v.
SKYTELLER, INC., RICHARD POSTREL, AND JENNIFER POSTREL, DEFENDANTS.



The opinion of the court was delivered by: Scheindlin, District Judge.

  OPINION & ORDER

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.

I. Facts

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.

II. Discussion

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
  ...

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