United States District Court, D. Colorado
Brooke Jackson United States District Judge.
matter is before this Court on Magistrate Judge Kathleen M.
Tafoya's Report and Recommendations on defendants'
motions to dismiss. ECF No. 50. Plaintiff Mary Heath filed
her third amended complaint (TAC), the operative complaint
here, on August 13, 2018. ECF No. 23. In this complaint she
alleges that defendants “Root9B” and Eric Hipkins
committed Securities and Commodities Fraud under 18 U.S.C.
§1348, and that the defendants “falsely advertised
they are the #1 Cybersecurity Company.” Judge Tafoya
describes the factual background of this case in further
detail in her recommendation. See ECF No. 50 at 1-5.
Eric Hipkins filed a motion to dismiss this complaint because
18 U.S.C. §1348 is a criminal statute without a private
cause of action, and that even if construed to invoke a civil
cause of action, plaintiff fails to satisfy Fed.R.Civ.P.
12(b)(6) and the heightened securities- fraud pleading
standard under the Private Securities Litigation Reform Act
(“PSLRA”). ECF No. 29. Though there is some
confusion about what entity the defendant named as
“Root9B” refers to, attorneys who represent
“Root9B, LLC” (and who state that they do not
represent the public corporation Root9B Holdings, Inc.) filed
a motion to dismiss, or in the alternative, for summary
judgment. ECF No. 30. In this motion, Root9B, LLC argued that
plaintiff's TAC should be dismissed for lack of standing
under Fed.R.Civ.P. 12(b)(1) because “Root9B, LLC has no
legal or organizational connection to Root9B Holdings, Inc.,
the entity that, according to Plaintiff's allegations,
caused her injuries.” ECF No. 30 at 10. It also moved
to dismiss under Fed.R.Civ.P. 12(b)(6) arguing that
Plaintiff's claims do not plausibly relate to Root9B,
LLC. Ms. Heath filed her response to both motions, ECF No.
33, and defendants filed replies, ECF Nos. 38, 40.
Tafoya recommended that I grant Mr. Hipkins' motion to
dismiss, grant in part and deny in part Root9B LLC's
motion to dismiss, and permit plaintiff to file an amended
complaint against all defendants asserting claims under
Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5. ECF No. 50. The only party that filed an objection to
Judge Tafoya's recommendation was Root9B, LLC. ECF No.
54. Ms. Heath filed a response in opposition to this
objection. ECF No. 58. For the reasons below, the Court
AFFIRMS and ADOPTS the Recommendation. The Recommendation is
incorporated herein by reference. See 28 U.S.C.
§636(b)(1)(B); Fed.R.Civ.P. 72(b).
Heath also filed a fourth amended complaint following the
issuance of Judge Tafoya's recommendation but before this
court adopted the recommendation. ECF No. 52. Defendants move
jointly to strike the amended complaint on procedural
grounds, arguing that its filing was premature and without
leave of the court as the recommendation and objections had
not yet been ruled on by this court. ECF No. 57. Plaintiff
filed a response to this motion in which she states “I
understand now that I might have acted prematurely. I
understand if the court must strike my Third Amended
Complaint.” ECF No. 59 at 2. I grant the motion to
strike plaintiff's amended complaint, ECF No. 52. I again
grant plaintiff leave to file an amended complaint in
conformity with Judge Tafoya's recommendation and after
complying with the dictates of this order.
Magistrate Judge Recommendation.
magistrate judge makes a recommendation on a dispositive
motion, the district court “must determine de novo any
part of the magistrate judge's disposition that has been
properly objected to.” Fed.R.Civ.P. 72(b)(3). For an
objection to be proper, it must be timely and
“sufficiently specific to focus the district
court's attention on the factual and legal issues that
are truly in dispute.” United States v. One Parcel
of Real Prop., 73 F.3d 1057, 1060 (10th Cir. 1996).
“In the absence of timely objection, the district court
may review a magistrate . . . [judge's] report under any
standard it deems appropriate.” Summers v.
Utah, 927 F.2d 1165, 1167 (10th Cir.1991) (citing
Thomas v. Arn, 474 U.S. 140, 150 (1985)) (stating
that “[i]t does not appear that Congress intended to
require district court review of a magistrate's factual
or legal conclusions, under a de novo or any other standard,
when neither party objects to those findings”). I will
address Root9B, LLC's objection, conducting a de novo
review of the issue it seeks clarification on in its motion.
I review the rest of the recommendation under a clear error
standard. Based on this review, I conclude that Judge
Tafoya's analyses and recommendations are correct, and
that “there is no clear error on the face of the
record.” See Fed. R. Civ. P. 72 Advisory
Committee's Note (“When no timely objection is
filed, the court need only satisfy itself that there is no
clear error on the face of the record in order to accept the
LLC aims its objections at Judge Tafoya's recommendation
that this Court deny its motion to dismiss Ms. Heath's
claims for lack of standing, ECF No. 50 at 9-13. Judge Tafoya
concluded that “a review of the pro se
allegations of the Third Amended Complaint do not comport
with an inference that Plaintiff intended to bring claims
only against the private entity, Root9B, LLC.”
Id. at 12. I agree with this conclusion. Root9B, LLC
made arguments in its motion as to why, as a private entity
that is legally and organizationally unrelated to a public
corporation named Root9B Holdings, Inc., “no relief can
be afforded to Plaintiff by an entity with no responsibility
for the actions of which Plaintiff complains or the injuries
for which she seeks compensation.” ECF No. 30 at 2. It
argues that as a private company with no publicly traded
stock, securities fraud claims asserted in the TAC fail to
state a claim against the Private LLC that has no public
plaintiff did not file her lawsuit against “Root9B,
LLC.” plaintiff filed her lawsuit against
“Root9B” and states in her TAC that “I use
the name Root9b because they have constantly changed their
name from Root9b LLC to Root9b Technology to Root9b
Holdings.” ECF No. 23 at 7. Judge Tafoya determined that
“Root9B” should not be dismissed as a defendant
for lack of standing, because it does not seem that Plaintiff
intended to only sue the private entity, Root9B, LLC. Judge
Tafoya reasoned that a limited liability company, like
Root9B, LLC, has no stock and is not controlled by or
answerable to the Securities and Exchange Commission, nor
would it be affiliated with the New York Stock Exchange.
Plaintiff, on the other hand, makes many claims that would
only apply to a publicly traded stock company such as her
assertions that she “purchased over 64, 000 shares of
Root9b, ” ECF No. 23 at 7, and that plaintiff talked to
someone associated with Root9B's New York Stock Exchange
office. Id. at 9. This led Judge Tafoya to conclude,
and leads me to agree, that plaintiff is bringing claims
against multiple Root9B entities, not just against Root9B,
Tafoya recommended the dismissal of plaintiff's claims
under 18 U.S.C. §1348 against all parties but
recommended that plaintiff be granted leave to amend and
assert claims under Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5(a) and (c). ECF No. 50 at 13-14,
19. Judge Tafoya analyzed claim two regarding false
statements under Rule 10b-5(b), recommending that Mr.
Hipkins' motion to dismiss with respect to claim two,
claims pursuant to SEC Rule 10b-5(b), should be granted.
However, Judge Tafoya declined to dismiss such claims against
Root9B, LLC, who did not move for dismissal on this basis,
finding that it would not necessarily be futile for Ms. Heath
to attempt to amend her Complaint to state an appropriate
claim pursuant to Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 against Root9B. ECF No. 51 at 4.
The Recommendation does not specify whether the claims are
dismissed with or without prejudice. This Court construes
claims for violations under 18 U.S.C. §1348 to be
dismissed with prejudice and the other dismissed claims to be
dismissed without prejudice.
LLC objects that the use of the generic entity name
“Root9B” in plaintiff's pleadings and the
Recommendation does not provide sufficient clarity as to what
claims are being brought against itself as opposed to other
Root9B entities like Root9B Holdings, Inc. It asserts that
the claims that pertain specifically to Root9B, LLC should be
dismissed. However, given Ms. Heath's use of the generic
entity name “Root9B, ” the Court is unclear as to
what claims Ms. Heath is alleging against Root9B, LLC, as
opposed to other Root9B entities. At this juncture, it is too
early for the Court to know exactly how Root9B, LLC fits into
Ms. Heath's allegations. It would be premature to ...