United States District Court, D. Colorado
RECOMMENDATION OF UNITED STATES MAGISTRATE
Kathleen M Tafoya United States Magistrate Judge
case comes before the court on Defendant Eric Hipkins'
Motion to Dismiss the Third Amended Complaint [Doc. No. 29]
(“Hipkins Mot.”) filed August 27, 2018, to which
Plaintiff Mary Heath, acting pro se, filed a
Response [Doc. No. 32] on August 28, 2018 and to which
Defendant Hipkins filed a Reply on September 7, 2018 [Doc.
before the court is Defendant Root9b's “Motion to
Dismiss Amended Complaint or, in the Alternative, for Summary
Judgment” [Doc. No. 30] (“Root9b Mot.”)
filed August 27, 2018), to which Plaintiff filed a Response
on August 28, 2018 [Doc. No. 33] and Defendant Root9B filed a
Reply [Doc. No. 40] on September 11, 2018.
filed her Third Amended Complaint [Doc. No. 23]
(“TAC”) on August 13, 2018. Plaintiff cites her
statutory authority to bring a federal action as
“Federal question pursuant to 28 U.S.C. §
1331” and “18 U.S. Code 1348 - Securities and
Commodities Fraud.” (TAC at 3.) Plaintiff brings two
claims against Defendant Root9B and Defendant Eric Hipkins. Claim
One alleges “Root9B & Eric Hipkins have committed
Securities & Commodities Fraud.” Under the
“Supporting Facts” section of the TAC Plaintiff
states, “They swindled their investors out of millions
of dollars.” (Id. at 4.) Claim Two alleges the
defendants “falsely advertised they are the #1
Cybersecurity Company” and references the narrative
beginning on page 6 of the TAC. (Id. at 5.)
asserts she was interested in investing in technical stocks
so she “googled the #1 Cybersecurity Company.”
(Id. at 7.) She says she came upon articles in which
Root9b was represented by Eric Hipkins as being
the “#1 Cybersecurity 500 for the 4th consecutive
quarter.” (Id.) Before she made any investment
in Root9b, Plaintiff claims she called Root9b's
“office on the NYSE” at 212-371-8660 and spoke to
a male who answered the phone who told her, “Root9b was
reorganizing to become a company that has all its resources
going to cybersecurity.” (Id. at 8.) The same
male allegedly also told her Root9b was “close, if not
completing a contract with the Federal Government. This
contract with the Federal Government would bring in millions
of dollars.” (Id.)
asserts that she “first invest[ed] in Root9b” on
May 16, 2017 and “purchased over 64, 000 shares of
Root9b” over “the next approximately 7
months[.]” (Id. at 7.) The TAC does not state
what price per share Plaintiff paid for her stock. Plaintiff
claims that on July 12, 2017, she called the Root9b office in
Colorado Springs to express an interest in attending a
stockholder's meeting for Root9b and spoke to an
employee. She was discouraged from attending the
meeting, but the employee told her “the company was
growing.” (Id. at 9.) When Plaintiff expressed
concern that the stock price was dropping, the employee
allegedly told Plaintiff, “they have been speaking to
investors, but this is good for stockholders. The investors
will pay off the debt & stabilize the company.”
alleges that between May 19, 2017 and June 29, 2017, Quad
Capital Management (“Quad”) began purchasing RTNB
stock and eventually obtained 378, 697 shares of
RTNB. Plaintiff provides no information in the
TAC about the ownership or membership or officers of Quad.
Plaintiff claims that the stock price of Root9b rose to
$11.99 per share. (Id.) During or near the same time
period, Plaintiff alleges “Root9b Holdings, Inc. . . .
issued a series of secured convertible promissory notes to
accredited investors.” (Id. at 10.) The TAC
contains no identification of the investors. On or about
August 11, 2017, those investors demanded “immediate
repayment of all outstanding amounts due” associate
with the notes, alleging improprieties under the loan
provisions. (Id.) On August 22 and 23, 2017, Quad
sold all its RTNB stock, and two days later when an
unspecified “press release” was issued, the
company's stock allegedly fell to “less than
alleges that the investors foreclosed on the promissory notes
issued to them.(Id.) The investors took all
Root9b's assets, including full ownership of Root9b, LLC,
a private entity which was apparently a Root9b Holdings'
subsidiary. (Id.) The secured investors therefore
became the sole owners of Root9b, LLC, the private entity.
(Id.at 10-11.) The investors then sold the remaining
assets of Root9b Holding, Inc. at a foreclosure sale to
Tracker Capital Management. (Id. at 11.) Plaintiff
claims that the Asset Acquisition Agreement between the
secured creditors and Tracker Capital Management contains
confidentiality provisions that she has not been allowed to
see. (Id. at 12.) Plaintiff asserts that
Eric Hipkins still has ownership of “the
company.” (Id. at 13.) Plaintiff claims she
and other stockholders in the “worthless Root9b
Holdings” were left holding worthless stock and
concludes that “insiders” pocketed all the money
received from sales of the stock at the Quad inflated price
and retained unencumbered ownership of the cybersecurity
business. (Id. at 11.)
to Plaintiff, Root9b evolved into two companies-Root9b, LLC
and Root9b Holdings. (Id. at 12.) Plaintiff contends
Root9b failed to protect the financial interests of its
disagreeing with Plaintiff's conclusions, Root9b does not
significantly disagree with the Plaintiff's factual
version of events and transactions set forth in the TAC with
respect to the business dealings of Root9b. (Root9b Mot. at
parties agree that Tracker Capital Management “has no
connection or affiliation to [Root9b]” and
“purchased the Foreclosed Assets from the Secured
Creditors for fair value pursuant to an arms-length business
transaction negotiated between sophisticated commercial
entities.” (Id.) The sole variance between the
Defendants and Plaintiff regarding these facts (as
opposed to conclusions drawn therefrom) is whether Eric
Hipkins retains any ownership of Root9b, LLC. (Root9B Mot. at
5; Bremer Decl. at ¶ 14.)
Pro se Plaintiff
is proceeding pro se. The court, therefore,
“review[s] h[er] pleadings and other papers liberally
and hold[s] them to a less stringent standard than those
drafted by attorneys.” Trackwell v. United
States, 472 F.3d 1242, 1243 (10th Cir. 2007) (citations
omitted). See also Haines v. Kerner, 404 U.S. 519,
520-21 (1972) (holding allegations of a pro se
complaint “to less stringent standards than formal
pleadings drafted by lawyers”). Pro se
plaintiffs must “follow the same rules of procedure
that govern other litigants” and “must still
allege the necessary underlying facts to support a claim
under a particular legal theory.” Thundathil v.
Sessions, 709 Fed. App'x 880, 884 (10th Cir. 2017)
(citations and internal quotation mark omitted). “[A]
pro se plaintiff requires no special legal training to
recount the facts surrounding his alleged injury, and he must
provide such facts if the court is to determine whether he
makes out a claim on which relief can be granted.”
Hall, 935. F.2d at 1110. A pro se
litigant's “conclusory allegations without
supporting factual averments are insufficient to state a
claim upon which relief can be based.” Id.
“cannot take on the responsibility of serving as the
litigant's attorney in constructing arguments” or
the “role of advocate” for a pro se plaintiff.
Garrett v. Selby Connor Maddux & Janer, 425 F.3d
836, 840 (10th Cir. 2005). A court may not assume that a
plaintiff can prove facts that have not been alleged, or that
a defendant has violated laws in ways that a plaintiff has
not alleged. Assoc. Gen. Contractors of Cal., Inc. v.
Cal. State Council of Carpenters, 459 U.S. 519, 526
(1983). See also Whitney v. New Mexico, 113 F.3d
1170, 1173- 74 (10th Cir. 1997) (court may not “supply
additional factual allegations to round out a plaintiff's
complaint”); Drake v. City of Fort Collins,
927 F.2d 1156, 1159 (10th Cir.1991) (the court may not
“construct arguments or theories for the plaintiff in
the absence of any discussion of those issues”). The
plaintiff's pro se status does not entitle her
to application of different rules. See Montoya v.
Chao, 296 F.3d 952, 957 (10th Cir. 2002).
Subject Matter Jurisdiction
Rule of Civil Procedure Rule 12(b)(1) empowers a court to
dismiss a complaint for lack of subject matter jurisdiction.
Fed.R.Civ.P. 12(b)(1). Dismissal under Rule 12(b)(1) is not a
judgment on the merits of a plaintiff s case. Rather, it
calls for a determination that the court lacks authority to
adjudicate the matter, attacking the existence of
jurisdiction rather than the allegations of the complaint.
See Castaneda v. INS, 23 F.3d 1576, 1580 (10th Cir.
1994) (recognizing federal courts are courts of limited
jurisdiction and may only exercise jurisdiction when
specifically authorized to do so). The burden of establishing
subject matter jurisdiction is on the party asserting
jurisdiction. Basso v. Utah Power & Light Co.,
495 F.2d 906, 909 (10th Cir. 1974). A court lacking
jurisdiction “must dismiss the cause at any stage of
the proceedings in which it becomes apparent that
jurisdiction is lacking.” See Basso, 495 F.2d
at 909. The dismissal is without prejudice. Brereton v.
Bountiful City Corp., 434 F.3d 1213, 1218 (10th Cir.
2006); see also Frederiksen v. City of Lockport, 384
F.3d 437, 438 (7th Cir. 2004) (noting that dismissals for
lack of jurisdiction should be without prejudice because a
dismissal with prejudice is a disposition on the merits which
a court lacking jurisdiction may not render).
12(b)(1) motion to dismiss “must be determined from the
allegations of fact in the complaint, without regard to mere
conclusionary allegations of jurisdiction.”
Groundhog v. Keeler, 442 F.2d 674, 677 (10th Cir.
1971). When considering a Rule 12(b)(1) motion, however, the
court may consider matters outside the pleadings without
transforming the motion into one for summary judgment.
Holt v. United States, 46 F.3d 1000, 1003 (10th Cir.
1995). Where a party challenges the facts upon which subject
matter jurisdiction depends, a district court may not presume
the truthfulness of the complaint's “factual
allegations . . . [and] has wide discretion to allow
affidavits, other documents, and [may even hold] a limited
evidentiary hearing to resolve disputed jurisdictional facts
under Rule 12(b)(1).” Id.
party invoking federal jurisdiction has the burden of
establishing standing. Lujan v. Defs. of Wildlife,
504 U.S. 555, 561 (1992). In addition to asserting an injury,
this requires the party to show “her injury is
‘fairly traceable to the challenged action of the
defendant, and not the result of the independent action of
some third party not before the court,' ” and that
such injury is likely to be redressed by the relief sought.
Nova Health Sys. v. Gandy, 416 F.3d 1149, 1156 (10th
Cir. 2005) (quoting Lujan, 504 U.S. at 560). The law
in this circuit is clear that a plaintiff lacks standing if
she “fail[s] to demonstrate the necessary causal
connection between [her] injury and these defendants, ”
including by failing to present evidence that the defendants
“have done or have threatened to do anything that
presents a substantial likelihood of causing [plaintiff]
harm.” Id. at 1156-57.
Failure to State a Claim
Rule of Civil Procedure 12(b)(6) provides that a defendant
may move to dismiss a claim for “failure to state a
claim upon which relief can be granted.” Fed.R.Civ.P.
12(b)(6). “The court's function on a Rule 12(b)(6)
motion is not to weigh potential evidence that the parties
might present at trial, but to assess whether the
plaintiff's complaint alone is legally sufficient to
state a claim for which relief may be granted.”
Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th
Cir. 2003) (quotation marks omitted).
court reviewing the sufficiency of a complaint presumes all
of plaintiff's factual allegations are true and construes
them in the light most favorable to the plaintiff.”
Hall, 935 F.2d at 1109. “To survive a motion
to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.'” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (citing Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
Plausibility, in the context of a motion to dismiss, means
that the plaintiff pleaded facts which allow “the court
to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. The
Iqbal evaluation requires two prongs of analysis.
First, the court identifies “the allegations in the
complaint that are not entitled to the assumption of truth,
” that is, those allegations which are legal
conclusion, bare assertions, or merely conclusory.
Id. at 679-81. Second, the Court considers the
factual allegations “to determine if they plausibly
suggest an entitlement to relief.” Id. at 681.
If the allegations state a plausible claim for relief, such
claim survives the motion to dismiss. Id. at 679.
the court need not accept conclusory allegations without
supporting factual averments. S. Disposal, Inc., v. Texas
Waste, 161 F.3d 1259, 1262 (10th Cir. 1998).
“[T]he tenet that a court must accept as true all of
the allegations contained in a complaint is inapplicable to
legal conclusions. Threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do
not suffice.” Iqbal, 556 U.S at 678. Moreover,
“[a] pleading that offers ‘labels and
conclusions' or ‘a formulaic recitation of the
elements of a cause of action will not do.' Nor does the
complaint suffice if it tenders ‘naked
assertion[s]' devoid of ‘further factual
enhancement.' ” Id. (citation omitted).
“Where a complaint pleads facts that are ‘merely
consistent with' a defendant's liability, it
‘stops short of the line between possibility and
plausibility of ‘entitlement to relief.' ”
Id. (citation omitted).
evaluating a Rule 12(b)(6) motion to dismiss, courts may
consider not only the complaint itself, but also attached
exhibits and documents incorporated into the complaint by
reference. Smith v. United States, 561 F.3d 1090,
1098 (10th Cir. 2009) (citations omitted). “[T]he
district court may consider documents referred to in the
complaint if the documents are central to the plaintiff's
claim and the parties do not dispute the documents'
authenticity.” Id. (quotations omitted).
Standing/Subject Matter Jurisdiction.
irreducible constitutional minimum, a plaintiff must satisfy
three criteria in order for there to be a “case or
controversy” that may be resolved by the federal
courts. Lujan v. Defenders of Wildlife, 504 U.S.
555, 560 (1992). First, the plaintiff must have suffered an
“injury in fact”-an invasion of a legally
protected interest that is both (a) concrete and
particularized and (b) actual or imminent, not conjectural or
hypothetical. Id. Second, there must be a causal
connection between that injury and the challenged action of
the defendant-the injury must be “fairly
traceable” to the defendant, and not the result of the
independent action of some third party. Id. Finally,
it must be likely, not merely speculative, that a favorable
judgment will redress the plaintiff's injury.
Id. at 561. See also Nova Health Sys. v.
Gandy, 416 F.3d 1149, 1154 (10th Cir. 2005). The causal
connection requires that the defendant's actions
caused the harm to Plaintiff. Id. at 1156-57.
Root9b, LLC argues that it is the defendant in this
action and that Root9b, LLC did not cause any harm to
Plaintiff. Therefore, the Plaintiff lacks standing to bring
claims against it.
outset, the court notes that the law firm of Ireland
Stapleton Pryor & Pascoe, PC, has taken it upon itself
without authorization to amend the caption of the instant
case to show Root9b, a Colorado limited liability
company, as one of the defendants in this action.
Ireland Stapleton Pryor & Pascoe, PC purports to
represent Root9b, LLC. (See Root9b Mot.) Plaintiff
filed the case against the entity Root9B. She did not include
the term “a Colorado limited liability company”
in her caption on her originally filed Complaint nor on any
of her Amended Complaints. [Doc. Nos. 1, 13 (which added the
phrase “including directors of the company”), 21
or 23, the operative complaint.] Nor did the Plaintiff
describe the Defendant in her lawsuit in terms of its
organizational structure in the body of the documents. The
official caption of this case is Mary Heath, Plaintiff v.
Root9B and Eric Hipkins, Defendants.
reasons not entirely clear to the court, Ireland Stapleton
Pryor & Pascoe, PC insist that Plaintiff served Root9b,
LLC and that Root9b, LLC is the Defendant entity. This, too,
is factually incorrect. The Process Receipt and Return from
the U.S. Marshals Service [Doc. No. 8] shows the entity
“Root9B” was served on July 12, 2018 at 102 N.
Cascade Avenue, Suite 220, Colorado Springs, CO. The Chief
Operating Officer for Root9b, listed as John Harbaugh, was
the individual who accepted service on behalf of the
Defendant. As a limited liability company, it is unlikely
that Root9B, LLC has either a Chief Operating Officer (or any
officers at all) or Directors, although as such companies are
by definition not public entities, the members can structure
an LLC in whatever way they see fit.
to Annual Report, Form 10-K filed by ROOT9B HOLDINGS, INC.,
root9b Holdings, Inc. is located at 102 N. Cascade Avenue,
Suite 220, Colorado Springs, CO 80919, the location where
service was made by the Plaintiff. (Root9b Mot., Ex. 1-A
[Doc. No. 30-2] at 2; Process Receipt [Doc. No. 8].) ROOT9B,
LLC, by contrast, according to documents submitted by Root9b,
LLC, is a Limited Liability Company with its principal office
mailing address at 90 S. Cascade, Ave. #830, Colorado
Springs, CO ...