United States District Court, D. Nevada
BATTALION CHIEF GRANDCHILDREN'S FUND, by and through its trustee ANGELINA GALLINDO on behalf of herself and nominal defendant SRC NIGHTCLUB & GRILL, LLC; RAVEN ENTERTAINMENT, LLC on behalf of itself and nominal defendant STONEY'S ENTERTAINMENT, INC.; and SEER CARTEL, LLC, Plaintiffs,
CHRISTOPHER LOWDEN; and HAROLD GRAY a.k.a “STONEY, ” Defendants, and STONEY'S ENTERTAINMENT, INC.; and SRC NIGHTCLUB & GRILL, LLC, Nominal Defendants.
M. Navarro, Chief Judge.
before the Court is a Motion to Dismiss (ECF No. 11) filed by
Defendants Christopher Lowden (“Lowden”), Harold
Gray (“Gray”), SRC Nightclub & Grill, LLC
(“SRC”), and Stoney's Entertainment, Inc.
(“SEI”) (collectively, “Defendants”).
Plaintiffs Battalion Chief Grandchildren's Fund, by and
through its trustee, Angelina Gallindo
(“Gallindo”) on behalf of herself and nominal
defendant SRC, Raven Entertainment, LLC (“Raven”)
on behalf of itself and nominal defendant SEI, and Seer
Cartel, LLC (“Seer Cartel”) (collectively,
“Plaintiffs”) filed a Response (ECF No. 16), and
Defendants filed a Reply (ECF No. 19).
case arises as a member and shareholder derivative action
against officer-Defendants Lowden and Gray. (Compl. ¶ 1,
ECF No. 1). Plaintiffs allege that Gray “organized
Nominal Defendant SRC for the stated purpose of conducing a
nightclub and bar business at the premises located at 9155 S.
Las Vegas Blvd., Suite 300, Las Vegas, Nevada 89123
(‘Stoney's').” (Id. ¶ 15).
Gray then allegedly “caused SRC to offer to the public
50 units of membership interest in SRC at the price of $50,
000 per unit.” (Id. ¶ 16). Gallindo
bought one membership unit, and Raven acquired three units.
(Id. ¶¶ 17-19). Plaintiffs allege that
Defendants “raised over $2.5 million from private
investors, ” which they predominantly used “to
finance their extravagant lifestyle.” (Id.
¶ 20). Plaintiffs further allege that Defendants
“misappropriated from SRC tens of thousands of dollars
in cash that was collected by SRC as cover charges at
Stoney's and that was not accounted for in company books
or reported to the Internal Revenue Service . . . [and] SRC
became insolvent.” (Id. ¶ 27-28).
then allege that Defendants “created another company,
SEI, and in August 2012 offered the previous SRC's
investors a membership-interest swap for SEI's
shares” while also issuing “several [of]
SEI's shares to new investors.” (Id.
¶ 29). Plaintiffs allege that any distributions to any
investors were “financed from other investors'
money, ” paid to “selectively picked investors,
mostly their friends and families, ” and none of it was
properly documented. (Id. ¶¶ 26, 33-35,
37). Raven “signed the equity-swap agreement, thus
becoming a shareholder of SEI, ” while Gallindo
“refused to sign . . . and subsequently lost her
investment in SRC due to Stoney's closing its doors and
SRC failing to renew its business license with the Nevada
Secretary of State.” (Id. ¶¶ 31-32).
Ultimately, SEI became insolvent and closed in 2013, and its
“remaining assets [were sold] to SRC 1, LLC, d/b/a Las
Vegas Bull.” (Id. ¶¶ 36, 38).
then allege similar facts regarding Defendants selling units
for $50, 000 for Stoney's Evansville, “a nightclub
and bar business in Evansville, Indiana.” (Id.
¶¶ 41-42). Plaintiff Seer Cartel bought one
membership unit in Stoney's Evansville. (Id.
¶ 43). Plaintiffs assert similar allegations regarding
Defendants' use of investor money for other purposes than
Stoney's Evansville. (Id. ¶¶ 44-48).
state that they first learned of the alleged fraud on
December 5, 2012. (Id. ¶ 49). Plaintiff's
Complaint, filed on December 5, 2015, includes the following
ten claims for relief: (1) RICO, 18 U.S.C. §§
1961-1968-Civil RICO and NRS 207.470; (2) breach of fiduciary
duties; (3) intentional misrepresentation (fraud); (4) unjust
enrichment; (5) civil conspiracy; (6) accounting; (7)
securities fraud, violations of Securities Act Section 17(a),
15 U.S.C. § 77q(a); (8) securities fraud, violations of
Exchange Act Section 10(b), 15 U.S.C. § 78j(b); (9)
securities fraud, violations of Exchange Act Rule 13b2-2, 17
C.F.R. § 240.13b2-2; and (10) securities fraud,
violations of Exchange Act Rule 13(b)(2)(A) and 13(b)(2)(B).
is appropriate under Rule 12(b)(6) where a pleader fails to
state a claim upon which relief can be granted. Fed.R.Civ.P.
12(b)(6); Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007). A pleading must give fair notice of a legally
cognizable claim and the grounds on which it rests, and
although a court must take all factual allegations as true,
legal conclusions couched as a factual allegations are
insufficient. Twombly, 550 U.S. at 555. Accordingly,
Rule 12(b)(6) “requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Id.
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) (quoting
Twombly, 550 U.S. at 555). “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Id. This standard “asks for more than a sheer
possibility that a defendant has acted unlawfully.”
a district court may not consider any material beyond the
pleadings in ruling on a Rule 12(b)(6) motion . . . However,
material which is properly submitted as part of the complaint
may be considered on a motion to dismiss.” Hal
Roach Studios, Inc. v. Richard Feiner & Co., 896
F.2d 1542, 1555 n.19 (9th Cir. 1990) (citations omitted).
Similarly, “documents whose contents are alleged in a
complaint and whose authenticity no party questions, but
which are not physically attached to the pleading, may be
considered in ruling on a Rule 12(b)(6) motion to
dismiss” without converting the motion to dismiss into
a motion for summary judgment. Branch v. Tunnell, 14
F.3d 449, 454 (9th Cir. 1994), overruled on other grounds
by Galbraith v. Cty. of Santa Clara, 307 F.3d 1119 (9th
Cir. 2002). Under Federal Rule of Evidence 201, a court may
take judicial notice of “matters of public
record.” Mack v. S. Bay Beer Distrib., 798
F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district
court considers materials outside of the pleadings, the
motion to dismiss is converted into a motion for summary
judgment. See Arpin v. Santa Clara Valley Transp.
Agency, 261 F.3d 912, 925 (9th Cir. 2001).
court grants a motion to dismiss for failure to state a
claim, leave to amend should be granted unless it is clear
that the deficiencies of the complaint cannot be cured by
amendment. DeSoto v. Yellow Freight Sys., Inc., 957
F.2d 655, 658 (9th Cir. 1992). Pursuant to Rule 15(a), the
court should “freely” give leave to amend
“when justice so requires, ” and in the absence
of a reason such as “undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the
amendment, futility of the amendment, etc.” Foman
v. Davis, 371 U.S. 178, 182 (1962).
seek to dismiss this case because they argue that the
investors knew the risks associated with their investment,
but they are “now unhappy with their lack of
profits.” (Def. Mot. to Dismiss (“MTD”)
2:4-5, ECF No. 11). Defendants further contend that
Plaintiffs' security fraud claims are both “barred
by the statute of limitations” and
“unsubstantiated.” (Id. 2:6-7). Further,
Defendants assert that Plaintiffs' “federal RICO
claim fails because it is based on securities fraud.”
(Id. 2:7-8). Lastly, Defendants argue that all state
law claims should ...