United States District Court, D. Colorado
ORDER ADOPTING RECOMMENDATION OF MAGISTRATE JUDGE
MARCIA S. KRIEGER, Chief District Judge.
THIS MATTER comes before the Court on the Recommendation (# 83) of the Magistrate Judge that the Motion to Dismiss (# 21), filed by Defendants Aaron Bell, Christopher Bell, Rachel Bell, and William Bell, be granted and that the Motion for Leave to File a Second Amended Complaint (# 39), filed by Plaintiff Khaled Alattar, be denied. Mr. Alattar objected (# 86) to the Recommendation and the Bells responded (# 87).
When a magistrate judge issues a recommendation on a dispositive motion, the parties may file specific, written objections within fourteen days after being served with a copy of the recommendation. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). The district court shall make a de novo determination of those portions of the recommendation to which timely and specific objection is made. United States v. One Parcel of Real Prop. Known as 2121 E. 30th St., 73 F.3d 1057, 1060 (10th Cir.1996).
Issues presented in the Bells' motion to dismiss concern whether the Court has subject matter jurisdiction over this case. The Court may exercise jurisdiction over this matter to determine its own jurisdiction. See Dennis Garberg & Assocs, Inc. v. Pack-Tech Int'l Corp., 115 F.3d 767, 773 (10th Cir. 1997).
II. Factual Background
The following facts relevant to the motion to dismiss are derived from allegations in the Amended Complaint (# 13).
Mr. Alattar co-founded an online luxury goods retailer, LY Retail LLC ("LY Retail"). In an effort to acquire additional capital for the company, Mr. Alattar's partner approached Frederick Huttner. Huttner and Kevan Casey proposed raising capital through a reverse merger, a transaction in which a publicly-traded corporation, typically a shell corporation, acquires a privately-held corporation, thereby allowing the private corporation to transform into a publicly-traded corporation without making an initial stock offering. See, e.g., S.E.C. v. M & A W., Inc., 538 F.3d 1043, 1046-47 (9th Cir. 2008). The reverse merger was executed in November 2011. The public entity's name was changed to Luxeyard, Inc. Shortly after the reverse merger, Mr. Huttner, Mr. Casey, and others aggressively marketed Luxeyard's stock.
After the reverse merger, Mr. Huttner gave 151, 500 shares of Luxeyard stock to his stepchildren, the Defendants in this case. The stock price rose to more than $2.00 per share, at which point Mr. Huttner and the Defendants, allegedly acting in conspiracy with Mr. Huttner, sold their stock. Thereafter Luxeyard's stock price fell to $0.10 per share.
The Plaintiff characterizes this as a "pump and dump" scheme. Mr. Huttner allegedly intended to engage in a pump and dump scheme at the time he induced Mr. Alattar to agree to the reverse merger, but he did not tell Mr. Alattar.
Mr. Alattar sued Mr. Huttner, Mr. Casey, and others in a separate lawsuit in Texas.
III. Procedural Background
Mr. Alattar filed an Amended Complaint (# 13), and Defendants moved to dismiss it (# 21). Mr. Alattar responded (#46 and 47) and Defendants replied (# 51). Mr. Alattar moved for leave to file a proposed Second Amended Complaint (# 39) to add a claim alleging that the Defendants acted as agents of Mr. Huttner. The Magistrate Judge, applying Colorado law, recommended that the motion to dismiss be granted and that the motion to amend be denied. The Magistrate Judge found that Mr. Alattar lacked standing as an individual shareholder to assert claims based on the "pump and dump" theory. The ...