In making this determination, the Court must confine its
consideration "to facts stated on the face of the complaint, in
documents appended to the complaint or incorporated in the
complaint by reference, and to matters of which judicial notice
may be taken." Leonard F. v. Israel Discount Bank of N.Y.,
199 F.3d 99, 107 (2d Cir. 1999); see Rothman v. Gregor,
220 F.3d 81, 89 (2d Cir. 2000) (holding that for the purpose of deciding
a motion to dismiss, the complaint includes "any written
instrument attached to it as an exhibit or any statements or
documents incorporated in it by reference"); Hayden v. County
of Nassau, 180 F.3d 42, 54 (2d Cir. 1999). The Court also may
consider documents that the plaintiffs either possessed or knew
about and upon which they relied in bringing the suit.
Rothman, 220 F.3d at 97; Cortec Indus., Inc. v. Sum Holding,
L.P., 949 F.2d 42, 47-48 (2d Cir. 1991). Further, in securities
fraud actions, the Court may consider "public disclosure
documents required by law to be and which actually have been
filed with the SEC." Rothman, 220 F.3d at 89 (citing Kramer
v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991)); San
Leandro Emergency Med. Group Profit Sharing Plan v. Philip
Morris Companies, Inc., 75 F.3d 801, 808-09 (2d Cir. 1996).
1. The Claim Pursuant to Rule 10(b) of the Exchange Act
Price's claim for securities fraud under Section 10(b) is
based on two theories: (1) material misrepresentation; and (2)
market manipulation. Accordingly, the Court's analysis of the
Sterling Foster Defendants' motion to dismiss the claim
addresses both of the theories upon which it are based. The
Sterling Foster Defendants move to dismiss the claim brought
pursuant to Rule 10(b) of the Exchange Act on the grounds that:
(1) it is not pled with the particularity required by Rule 9(b);
and (2) the Eastern District of Texas does not have personal
jurisdiction over Lieberman, Monroig, Matthews, or Marowski.
BSSC moves to dismiss the same claim on the ground that the
complaint fails to allege that: (1) BSSC made a material
misrepresentation; (2) Price relied on representations made by
BSSC in purchasing securities; or (3) scienter on the part of
Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and
Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5,
prohibit fraudulent activities in connection with securities
transactions. Section 10(b) makes it "unlawful for any person
. . . [t]o use or employ in connection with the purchase or sale
of any security . . . any manipulative or deceptive device or
contrivance in contravention of [Securities and Exchange
Commission Rules.]" 15 U.S.C. § 78j(b). Rule 10b-5, promulgated
by the Securities and Exchange Commission under Section 10(b),
prohibits any person from, among other things, "mak[ing] any
untrue statement of material fact or . . . omit[ting] . . . a
material fact necessary in order to make the statements made,
not misleading." 17 C.F.R. § 240.10b-5(b). Rule 10b-5 also
prohibits the employment of "any device, scheme or artifice to
defraud." 17 C.F.R. § 240.10b-5(a).
To state a claim under Section 10(b) and Rule 10b-5 based on a
material omission or misrepresentation, "a plaintiff must plead
that the defendant made a false statement or omitted a material
fact, with scienter, and that plaintiffs reliance on defendant's
action caused plaintiff injury." San Leandro Emergency Med.
Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801,
808 (2d Cir. 1996) (citing In re Time Warner Inc. Secs.,
Litig., 9 F.3d 259, 264 (2d Cir. 1993)); see Kalnit v.
Eichler, 264 F.3d 131, 138 (2d Cir. 2001). To state a claim
under Section 10(b) and Rule 10b-5 against persons who
employ manipulative and deceptive trade practices in a scheme to
defraud, a plaintiff must allege: (1) that he was injured; (2)
in connection with the purchase or sale of securities; (3) by
relying on a market for securities; (4) controlled or
artificially affected by defendants' deceptive and manipulative
conduct; and (5) defendants engaged in the manipulative conduct
with scienter. In re Blech Sec. Litig., 961 F. Supp. 569, 582
(S.D.N.Y. 1997) (Blech II) (citing Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 199, 96 S.Ct. 1375, 1383-84, 47
L.Ed.2d 668 (1976)); see Vandenberg v. Adler, No. 98 Civ.
3544, 2000 WL 342718, *7 (S.D.N.Y. March 31, 2000); see also
Royal American Managers, Inc. v. IRC Holding Corp.,
885 F.2d 1011, 1015 (2d Cir. 1989); Connolly v. Havens, 763 F. Supp. 6,
10 (S.D.N.Y. 1991).
A complaint asserting securities fraud generally must satisfy
the heightened pleading requirement of Rule 9(b) of the
Fed.R.Civ.P., which requires fraud to be alleged with
particularity. Kalnit, 264 F.3d at 138; Ganino, 228 F.3d at
168; see Fed.R.Civ.P. 9(b). Rule 9(b) requires that "[i]n all
averments of fraud . . ., the circumstances constituting the
fraud shall be stated with particularity." Fed.R.Civ.P. 9(b).
Thus, a securities fraud allegations based on a material
misrepresentation or omission shall "`(1) specify the statements
that the plaintiff contends are fraudulent, (2) identify the
speaker, (3) state where and when the statements were made, and
(4) explain why the statements were fraudulent.'" Shields v.
Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)
(quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175
(2d Cir. 1993)). The purpose of Rule 9(b) is threefold: (1) to
provide the defendant with fair notice of the claims against
him; (2) to protect the defendant from harm to his reputation or
goodwill; and (3) to reduce the number of strike suits. See
DiVittorio v. Equidyne Extractive Industries, Inc.,
822 F.2d 1242, 1248 (2d Cir, 1987).
Further, in 1995, Congress enacted the Private Securities
Litigation Reform Act ("PSLRA"), Pub.L. No. 105-67, 109 Stat.
737, which makes the pleading requirements for securities fraud
cases even more demanding. See Novak v. Kasaks, 216 F.3d 300,
305-07 (2d Cir. 2000). Thus, although the heightened pleading
requirement of Rule 9(b) continues to apply, the more stringent
pleading standards of the PSLRA govern an inquiry into the
adequacy of the pleadings. Novak, 216 F.3d at 305-07. Under
the PSLRA, in any securities fraud case alleging a material
misrepresentation or omission,
the complaint shall specify each statement alleged to
have been misleading, the reason or reasons why the
statement is misleading, and, if any allegation
regarding the statement or omission is made on
information and belief, the complaint shall state
with particularity all facts on which that belief is
15 U.S.C. § 78u-4(b).