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Forsberg v. Always Consulting

December 31, 2008

ALFRED O. FORSBERG, PLAINTIFF,
v.
ALWAYS CONSULTING, INC.; BRUCE GRIFFITH, INDIVIDUALLY AND AS PRESIDENT AND CEO OF ALWAYS CONSULTING, INC.; MICHAEL YORBA; D.W. LEWIS; DAMON FOX; T.A. MARKHAM; PEPPER LEWIS; JAMES TAYLOR; TRAVIS JORDAN; KENDALL TINNIN; PAUL CARLISLE; CHARLES ROUP; JIM FRALEY; JOHN NOLAN; RAY WALSMITH; DARRY ADOPTING REPORT BURRELL; CHRIS AKE; CHRIS HOLLOWAY; MARK AND RECOMMENDATION LEVITSKY; GERARD H. PLANTE; TOBY ENGLEMAN; ALEXANDRA STEWART; JP MORGAN CHASE BANK; JPMCHASE BANK, TEXAS; LEXON INSURANCE COMPANY; FED-EX; OSAGE INDIAN TRIBE; RUSSELL RANCH; BOY SCOUTS OF AMERICA, DEFENDANTS.



The opinion of the court was delivered by: Seibel, J.

MEMORANDUM DECISION AND ORDER

Before the Court is the September 10, 2008 Report and Recommendation of Magistrate Judge Lisa Margaret Smith ("Report") (Doc. 41), to which Plaintiff filed objections on October 2, 2008 (Doc. 43).

I. Background

A. Facts

Pro se Plaintiff Alfred O. Forsberg commenced this action on November 27, 2006, against a number of Defendants alleging violations of federal and state securities laws and regulations based on purportedly false and misleading statements made to him in connection with his investment in a oil and natural gas drilling venture in Texas and Oklahoma that turned out to be fraudulent. After Judge Charles L. Brieant's*fn1 September 26, 2007 Order dismissing a number of Defendants for failure to state a claim, the remaining Defendants in this action are the following: Always Consulting, Inc., Bruce Griffith, Michael Yorba, D.W. Lewis, T.A. Markham, Charles Roup, Lexon Insurance Company ("Lexon"), and JP Morgan Chase Bank ("Chase"). (Doc. 15.) The Court adopts the facts as set forth in the Report (Report 2-7), which are taken from Plaintiff's Second Amended Complaint (Doc. 6).

B. Pending Motions

1. Dispositive Motions of Lexon and Chase

On June 30, 2008, Defendant Lexon filed a dispositive motion styled as a motion for summary judgment. (Doc. 29.) Magistrate Judge Smith, however, treated the Motion as a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) because discovery has not commenced, and she did not consider any of the extraneous materials submitted by Lexon that would compel the Court to treat the Motion as one for summary judgment (Report 2-3). See Lawrence v. Borah, Goldstein, Altschuler, Schwartz & Nahins, P.C., No. 04-CV-3066, 2005 U.S. Dist. LEXIS 25893, at *1-2 (S.D.N.Y. Oct. 31, 2005) (treating summary judgment motion as motion to dismiss where no discovery exchanged); Daniel v. Am. Bd. of Emergency Med., 988 F. Supp. 112, 118 n.4 (W.D.N.Y. 1996) (same, where discovery not complete). In support of its Motion, Lexon argues that it had only minimal involvement in the business transactions about which Plaintiff complains (apparently the provision of surety and/or performance bonds); it never engaged directly or indirectly in the selling or marketing of securities and did not make any fraudulent or misleading statements to Plaintiff; and its minimal involvement is an insufficient basis on which to hold it liable for securities fraud. (Doc. 33.)

On July 1, 2008, Chase filed a Motion to Dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) and for failure to plead fraud with sufficient particularity pursuant to Federal Rule of Civil Procedure 9(b). (Doc. 34.) Chase sets forth similar arguments in support of its Motion, specifically that its involvement in the alleged wrongdoing was minimal -- it maintained the bank account that was purportedly used by Always Consulting, Inc.*fn2 -- and insufficient to support a claim against it. (Doc. 35.) Chase asserts that it is not alleged to have committed any acts, fraudulent or otherwise, in connection with the investments, that there are no private rights of action pursuant to Sections 5 and 17 of the Securities Act, and that Plaintiff failed to plead fraud with particularity as required by Rule 9(b). (Id.)

2. Plaintiff's Motion for Default Judgment

On April 1, 2008, after a previous unsuccessful attempt*fn3 and two orders issued by Magistrate Judge Smith explaining the proper procedure (Doc. 17, 23), Plaintiff's Revised Motion for Default Judgment against all eight of the remaining Defendants was accepted for filing (Doc. 28). In support of this Motion, Plaintiff asserts that a process server served the Revised Default Motion on each of the Defendants through the U.S. Postal Service and attaches a letter dated March 10, 2008, from Rickey Odrisco -- described by Plaintiff as his "business partner" -- who swears that he personally served the Second Amended Complaint on Defendant Griffith who also accepted service on behalf of Always Consulting, Inc., Michael Yorba, D.W. Lewis, T.A. Markham, Charles Roup and other Defendants who have been dismissed from this action. Plaintiff also attaches to his Motion an affidavit of service submitted by a process server indicating that the "new motion for default and cease and desist order and reference to second amended summons and complaint" were served on Defendants Griffith and Always Consulting, Inc. on February 5, 2008. (Id.)

C. Report

Magistrate Judge Smith's Report concludes that: (1) Lexon's Motion for Summary Judgment should be granted, (2) Chase's Motion to Dismiss should be granted, (3) Plaintiff's Revised Motion for Default Judgment should be denied, (4) the case should be dismissed with prejudice as against Lexon and Chase, and (5) the case should ...


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