United States District Court, S.D. Alabama, Southern Division
BRIAN A. DEKLE, et al., Plaintiffs,
GLOBAL DIGITAL SOLUTIONS, INC., et al., Defendants.
WILLIAM H. STEELE, Chief District Judge.
This matter comes before the Court on Defendants' Motion to Dismiss or for Transfer of Venue (doc. 14). The Motion has been briefed and is now ripe.
I. Relevant Background.
Plaintiffs, Brian A. Dekle and John Ramsay, brought this action against defendants, Global Digital Solutions, Inc. ("GDSI"), North American Custom Specialty Vehicles, Inc. ("New NACSV"), and Richard A. Sullivan, concerning a commercial dispute arising from the sale of plaintiffs' business interests to defendants.
The well-pleaded allegations of the First Amended Complaint reflect the following: Dekle and Ramsay were the founders and owners of North American Custom Specialty Vehicles, LLC ("Old NACSV"), which was in the business of designing and producing custom mobile command centers, principally for law enforcement and military agencies. In 2014, GDSI and Sullivan (an officer and/or director of GDSI who is alleged to have controlled that entity) became interested in purchasing Old NACSV. Thereafter, Dekle negotiated an agreement with GDSI and Sullivan for the sale of Old NACSV. Dekle desired an all-cash deal; however, GDSI and Sullivan prevailed on plaintiffs to accept a portion of their compensation for the transaction in the form of newly-issued GDSI stock. Plaintiffs and GDSI entered into an Equity Purchase Agreement (doc. 9, Exh. A) on June 16, 2014, with Article 3 of such Agreement delineating the cash and stock components of plaintiffs' compensation.
According to the First Amended Complaint, GDSI and Sullivan persuaded plaintiffs to accept stock as part consideration by making false representations on which plaintiffs relied to their detriment. Plaintiffs' pleading identifies seven categories of allegedly fraudulent representations, to-wit: (i) defendants had made deals to acquire specified companies in the business of law enforcement support; (ii) GDSI was building a turnkey conglomerate military and law enforcement support business; (iii) GDSI had reached agreement with a prominent European businessman to serve on its board of directors; (iv) the public announcement of this individual's appointment would boost GDSI's stock price well above the transactional valuation of $0.35 per share; (v) GDSI would fund New NACSV's production, obviating the need for working capital; (vi) GDSA would fund New NACSV's marketing activities and dedicate a named management employee to develop and carry out New NACSV's business; and (vii) GDSI would purchase a 56, 000 square-foot facility where New NACSV could engage in production activities at the necessary volume. The First Amended Complaint alleges that plaintiffs relied on all of these false statements in entering into the Equity Purchase Agreement and accepting GDSI stock as part of the consideration for the sale of Old NACSV to GDSI. Regrettably, the GDSI stock price declined from $0.35 per share to $0.04 per share within months after execution of the Purchase Agreement.
In addition to these purported false representations, the First Amended Complaint alleges that defendants wronged plaintiffs in other ways as well. Specifically, plaintiffs contend that defendants materially breached at least three provisions in the Equity Purchase Agreement. First, plaintiffs assert that defendants failed and refused to pay them $406, 000 in cash consideration for the post-closing sale of certain specified assets, despite having the funds to do so. Second, plaintiffs allege that defendants failed to comply with the contractual requirement that they use commercially reasonable efforts to generate a profit (which is significant because plaintiffs were to be paid additional consideration based on New NACSV's post-closing performance). Third, plaintiffs contend that defendants breached the contractual requirement that they operate New NACSV consistently with historical practices (which is significant to plaintiffs for the same reason).
Taking these factual allegations in the aggregate, Dekle and Ramsay interpose undifferentiated claims against GDSI, New NACSV, and Sullivan in the First Amended Complaint for specific performance ( i.e., an order requiring defendants to instruct the purchaser of certain Old NACSV assets sold post-closing to reissue checks directly to plaintiffs in the amount of $300, 000); breach of contract ( i.e., violation of the aforementioned terms of the Equity Purchase Agreement); violation of the United States Securities Act of 1934, including SEC Rule 10b-5, as codified at 17 C.F.R. § 240.10b-5 ( i.e., misrepresentations to induce plaintiffs to accept GDSI stock as partial consideration for the sale of Old NACSV); and violation of Alabama Code § 8-6-17 in connection with the offer and sale of securities in Alabama.
Defendants have filed a multifaceted Motion to Dismiss (doc. 14), challenging the First Amended Complaint on numerous grounds, including (i) lack of personal jurisdiction, (ii) transfer of venue for the convenience of parties and witnesses, (iii) insufficient pleading of securities fraud claims under federal and Alabama law, (iv) lack of standing to pursue Rule 10b-5 claim, (v) dismissal of the Rule 10b-5 claim under the "bespeaks caution" doctrine, and (vi) shotgun pleading. The Court will examine these legal issues sequentially.
A. Personal Jurisdiction.
As an initial matter, defendants (GDSI, New NACSV, and Sullivan) maintain that dismissal is warranted under Rule 12(b)(2), Fed.R.Civ.P., because personal jurisdiction is lacking as to each of them.
1. Legal Framework.
In the absence of contractual acquiescence to personal jurisdiction, "[w]hen a defendant challenges personal jurisdiction, the plaintiff has the twin burdens of establishing that personal jurisdiction over the defendant comports with (1) the forum state's long-arm provision and (2) the requirements of the due-process clause of the Fourteenth Amendment to the United States Constitution." Matthews v. Brookstone Stores, Inc., 469 F.Supp.2d 1056, 1060 (S.D. Ala. 2007) (citations omitted); see also Horizon Aggressive Growth, L.P. v. Rothstein-Kass, P.A., 421 F.3d 1162, 1166 (11th Cir. 2005) (similar). In Alabama, this inquiry collapses into a single question because Alabama's long-arm statute permits its courts to exercise personal jurisdiction to the full extent authorized by the Due Process Clause. See Sloss Industries Corp. v. Eurisol, 488 F.3d 922, 925 (11th Cir. 2007) ("the two inquiries merge, because Alabama's long-arm statute permits the exercise of personal jurisdiction to the fullest extent constitutionally permissible"); Avocent Huntsville Corp. v. Aten Int'l Co., Ltd., 552 F.3d 1324, 1329 (Fed. Cir. 2008) ("Alabama's long-arm statute permits service of process as broad as the permissible limits of due process.") (citation and internal quotation marks mitted). Accordingly, the operative query is whether the exercise of personal jurisdiction over each of GDSI, New NACSV and Sullivan in Alabama comports with constitutional safeguards.
Due process authorizes the exercise of personal jurisdiction when "(1) the nonresident defendant has purposefully established minimum contacts with the forum" and "(2) the exercise of jurisdiction will not offend traditional notions of fair play and substantial justice." U.S. S.E.C. v. Carrillo, 115 F.3d 1540, 1542 (11th Cir. 1997); see also Diamond Crystal Brands, Inc. v. Food Movers Int'l, Inc., 593 F.3d 1249, 1267 (11th Cir. 2010) (similar). The minimum contacts analysis varies depending on whether the type of jurisdiction asserted is general or specific. Moreover, "we may not ascribe the forum contacts of one co-defendant to another in determining the existence of personal jurisdiction." Fraser v. Smith, 594 F.3d 842, 852 (11th Cir. 2010).
2. Jurisdictional Analysis.
The parties devote substantial chunks of their briefing on the Motion to Dismiss to setting forth and analyzing jurisdictional facts reflecting each defendant's contacts (or lack thereof) with the State of Alabama, and debating whether said contacts do or do not exceed the threshold of minimum contacts with Alabama. As plaintiffs correctly assert, however, the federal securities law claim found at Count Three and brought under the United States Securities Act of ...