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Trooien v. Mansour: US District Court : FRAUD | SECURITIES - some allegations sufficiently allege fraud; others not

15
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
GERALD L. TROOIEN,
Plaintiff,
v.
PETER MANSOUR and BARRY
ROITBLAT,
Defendants.
Civil No. 06-3197(JRT/FLN)
MEMORANDUM OPINION
AND ORDER
George G. Eck, DORSEY & WHITNEY LLP, 50 South Sixth Street,
Suite 1500, Minneapolis, MN 54402; Alexander A. Baehr, DORSEY &
WHITNEY LLP, 1420 Fifth Avenue, Suite 3400, Seattle, WA 98101-
4010, for plaintiff.
Alan L. Kildow and Sonya R. Braunschweig, DLA PIPER US LLP, 90
South Seventh Street, Suite 5100, Minneapolis, MN 55402; Brian D.
Buckley and Stellman Keehnel, DLA PIPER US LLP, 701 Fifth Avenue,
Suite 7000, Seattle, Washington 98104; for defendant Mansour.
Wesley Edmunds, GORDON EDMUNDS ELDER PLLC, 1200 112th
Avenue NE, Suite C110, Bellevue, WA 98004; Brian Melendez, FAEGRE
& BENSON LLP, 90 South Seventh Street, Suite 2200, Minneapolis, MN
55402; for defendant Roitblat.
Gerald Trooien brought this action against Peter Mansour and Barry Roitblat, two
former executive officers of Sproqit Technologies, Inc. (Sproqit), alleging violations of
Minnesota securities laws and negligent and fraudulent misrepresentation. On
February 7, 2007, this Court granted defendants motions to dismiss Trooiens complaint
for failure to plead fraud with particularity, and granted Trooiens request for leave to
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amend the complaint. This case is now before the Court on defendants partial motions
to dismiss Trooiens first amended complaint.1 For the reasons discussed below, the
Court grants in part and denies in part Mansours motion, and grants Roitblats motion.
BACKGROUND
Trooien is a private investor and shareholder of Sproqit Technologies, Inc., a
Washington-based corporation that develops mobile communications software.
Defendants are former executive officers of Sproqit. Mansour was Sproqits President
and Chief Executive Officer until March 2006. Roitblat was Sproqits Chief Technology
Officer. Trooien alleges that between 2003 and 2005 both defendants made material
misrepresentations and failed to disclose material facts regarding Sproqits financial
health and business prospects. Trooien claims that he invested over million in Sproqit
based on these alleged misrepresentations.
Trooien alleged in his original complaint that in 2003 and 2004 defendants
forecasted extremely high revenues in a spreadsheet provided to him. Trooien claimed
that the forecasts were false because Sproqits revenues for 2004 and 2005 did not even
approach the forecasted revenue figures. For example, the 2003 spreadsheet projected
Sproqits 2004 revenues to be 4,224, with revenues increasing to ,339,360 in 2005.
However, Sproqits unaudited financial statements revealed that gross revenue in 2004
was 0,251. Sproqits gross revenue through the end of October 2005 was just ,022.
1 Trooiens amended complaint includes a new claim for breach of fiduciary duty.
Defendants have not moved for dismissal of the breach of fiduciary duty claim, and the status of
that claim is not affected by this Memorandum Opinion and Order.
- 3 -
Trooien alleges that Mansour stated in an October 2005 email to a Sproqit employee that
[w]e havent brought in a single penny in revenue, yet, right? Basically, I now look like
a fool in front of [Trooien] from whom we now need to be bridged. (Pl.s Compl. 13.)
In addition to representations regarding Sproqits revenue projections, Trooien
alleged that Mansour falsely represented that Sproqit was negotiating its potential
acquisition by Microsoft and Google in order to induce Trooien to make additional
investments in Sproqit. Trooien also alleged that Mansour misrepresented the value of
Sproqits contract with a product manufacturer named Archos. Finally, Trooien alleged
that Roitblat knew that Mansours representations were false but failed to disclose this
information to Trooien.
Trooien claimed that defendants conduct violated 80A.01 of the Minnesota
Securities Act (MSA) and constituted common law fraudulent and negligent
misrepresentation under Minnesota law. On February 7, 2007, this Court granted
defendants motions to dismiss the complaint for failure to plead fraud with particularity
under Rule 9(b). See Fed. R. Civ. P. 9(b). The Court found that the complaint failed to
specify defendant Roitblat as having made particular misrepresentations to plaintiff, and
that it merely imputed fraudulent conduct collectively to defendants. Because Trooien
had not alleged facts establishing the existence of an independent duty, the Court also
determined that the allegations of Roitblats fraudulent omissions failed to state a claim.
With respect to Mansour, the Court concluded that the complaint failed to set forth
particularized allegations showing that Mansours representations were false when made.
Specifically, the Court found that Trooien had failed to allege particular facts showing
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that Mansours representations regarding the financial projections, acquisition
discussions, and the Archos contract were false when made. While the Court recognized
the inherent difficulties in pleading fraud with particularity absent pre-trial discovery, the
Court noted that conclusory allegations of fraud are insufficient under Rule 9(b).
Accordingly, the Court granted defendants motions to dismiss with respect to the MSA
claims and the fraudulent and negligent misrepresentation claims. The Court further
granted Trooiens request for leave to amend the complaint to assert his claims in
accordance with Rule 9(b).
Trooien has now filed a first amended complaint that includes the same
substantive allegations from the original complaint and sets forth additional details
surrounding defendants alleged misrepresentations. As with the original complaint, the
allegations in the amended complaint fall generally into three categories of
representations: representations regarding Sproqits future revenue projections,
representations regarding Microsoft acquisition discussions, and representations
regarding the Archos contract.
According to the amended complaint, in 2003 and 2004 Mansour continually told
Trooien that Sproqit was going to obtain significant business accounts, including
accounts with Vodafone and Bell Canada, which would produce revenues and make
Sproqit an attractive takeover target by a large technology company. Mansour
represented that he was familiar with the processes by which Microsoft acquired
companies because he had been employed at Microsoft, and told plaintiff that it was an
absolute fact that Sproqit would be acquired. (Amd. Compl. 12.) Mansour also
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represented that Sproqit was going to sign a significant contract with Vodafone, allowing
Sproqit to break even in 2004, and that there were contracts in place with Bell Mobility
that would create substantial revenues for Sproqit. Trooien alleges these statements were
false because, among other things, it was never a fact that Sproqit would be acquired
and there were no contracts in place with Bell Mobility. Trooien also points to an email
dated August 3, 2004, in which Roitblat wrote to Mansour that certain revenue projection
numbers looked rather ambitious and aggressive, and stated he was doubtful about
certain figures. Two days later, on August 5, 2004, detailed revenue projections were
provided to Trooien.
With respect to the Microsoft acquisition discussions, the amended complaint
alleges that both Mansour and Roitblat participated in conference calls with Trooien, that
misrepresentations were made during these calls, and that Mansour took the lead on the
calls. Trooien alleges that Roitblat knew misrepresentations were made during the
conference calls but failed to disclose the truth in violation of his fiduciary duties. The
amended complaint also quotes from a November 8, 2005 email from Mansour to
Trooien stating that [w]e are having breakfast to discuss next steps and acquisition.
Todd [a Microsoft employee] already gave the green light. (Amd. Compl. 19.) In the
same email, Mansour told Trooien I am very good an [sic] maneuvering within
Microsoft. (Id.) Trooien alleges that, in fact, Microsoft had never given a green light to
do business with Sproqit, and that Mansour was in fact not very good at maneuvering
within Microsoft.
- 6 -
Finally, the amended complaint contains additional allegations with respect to the
Archos contract. On September 26, 2005, Mansour wrote an email to Trooien stating
Im hoping its enough [revenue] to bridge us to the Archos revenue which is to start in
Jan-Feb. [2006]. (Amd. Compl. 17.) In an October 18, 2005 email from Mansour to
Trooien, Mansour stated that I refuse to let this thing die before I shop with Archos.
(Amd. Compl. 22.) Trooien also quotes from a November 1, 2005 email from Mansour
to Trooien. In that email, Mansour stated that we have to fulfill the Archos contract.
(Amd. Compl. 23.) On November 8, 2005, Mansour wrote to Trooien, I think another
opportunity has popped up with Archos, so I need to make my way to Paris to see if I can
get some more business from them. (Amd. Compl. 24.) Trooien alleges that these
statements were false because the contract with Archos was illusory and Archos had no
definitive obligations pursuant to a contract with Sproqit. Trooien also quotes from a
November 23, 2005 email from an Archos representative which states, [w]e have not a
clear idea of whether we will need Sproqit. (Amd. Compl. 33.)
It is alleged that Roitblat was aware of these misrepresentations but failed to
disclose them to Trooien, in violation of his fiduciary duties. It is also alleged that
Mansour and Roitblat had been representing to Trooien since at least April 2005 that the
Archos contract would be a significant source of revenue. (Amd. Compl. 31.)
As with his original complaint, Trooien alleges in Count 1 of the amended
complaint that defendants statements were misrepresentations of material fact in
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violation of section 80A.68 of the MSA.2 Minn. Stat 80A.68 (2007). He also claims
that Roitblat failed to disclose material facts necessary to correct prior misleading
statements, in violation of the MSA. Count 2 of Trooiens amended complaint alleges
that defendants statements and omissions constitute negligent and fraudulent
misrepresentation under Minnesota common law. Count 3 alleges that defendants
violated fiduciary duties owed to plaintiff under Washington law.
ANALYSIS
I. STANDARD OF REVIEW
In reviewing a complaint under a Rule 12(b)(6) motion to dismiss, the Court
considers all facts alleged in the complaint as true, and construes the pleadings in a light
most favorable to plaintiff, the non-moving party. See, e.g., Bhd. of Maint. of Way
Employees v. Burlington N. Santa Fe R.R., 270 F.3d 637, 638 (8th Cir. 2001). A motion
to dismiss should not be granted unless it appears beyond a doubt that a plaintiff can
prove no set of facts that would entitle plaintiff to relief. Coleman v. Watt, 40 F.3d 255,
258 (8th Cir. 1994). However, a plaintiff must provide more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.
Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007). A plaintiff must state a
claim to relief that is plausible on its face. Id. at 1974.
2 Minnesota statute 80A.01 was amended and renumbered as 80A.68, effective
August 1, 2007.
- 8 -
II. MINNESOTA SECURITIES ACT CLAIM (COUNT 1)
The Minnesota Securities Act makes it unlawful for a person, in connection with
the offer, sale, or purchase of a security, to make an untrue statement of a material fact
or to omit to state a material fact necessary in order to make a statement made . . . not
misleading. Minn. Stat. 80A.68(2). The elements of a securities fraud claim under
80A.68 are essentially the same as a federal securities fraud claim under Rule 10b-5.
Erickson v. Horing, 2001 WL 1640142, at *7 (D. Minn. 2001). Both statutes require a
misrepresentation with scienter in connection with a transaction in a security on which
the plaintiff justifiably relied to his detriment. Id. As this Court determined in its prior
Memorandum Opinion and Order, Trooiens MSA claim is subject to the particularity
requirements of Rule 9(b). See Fed. R. Civ. P. 9(b) (providing that all averments of
fraud . . . shall be stated with particularity).
Under Rule 9(b), a plaintiff must allege the time, place, and contents of the false
representations, and identify the person making misrepresentations and what was
obtained or given up thereby. Parnes v. Gateway 2000, Inc., 122 F.3d 539, 550 (8th Cir.
1997). In the securities fraud context, Rule 9(b) requires that the pleading set forth facts
explaining why it is claimed that the representations were known by each of the
defendants to be untrue or misleading at the time they were made. In re Buffets, Inc. Sec.
Litig., 906 F. Supp. 1293, 1300 (D. Minn. 1995). In reviewing Trooiens allegations,
however, the Court is mindful that the issue here is not whether plaintiff[] will
- 9 -
ultimately prevail at trial, but rather whether [he is] entitled to proceed with [his] claims.
In re Digi Intern., Inc. Sec. Litig., 6 F. Supp. 2d 1089, 1095 (D. Minn. 1998).
A. Financial Projections
Trooiens first set of allegations concern representations of Sproqits future
revenue projections. Mansour argues once again that the MSA claim fails because it is
based on statements about the future, and because nothing in the amended complaint
demonstrates that Mansour knew the revenue predictions were false at the time they were
made.3 Under federal securities laws, the scienter required for a fraud claim depends on
the kind of statement made. For statements of present or historical fact, the required
scienter is actual knowledge or recklessness. Helwig v. Vencor, Inc., 251 F.3d 540, 552
(6th Cir. 2001). Under the federal safe harbor rule, forward-looking statements about
3 Mansour also argues that the Supreme Courts recent decision in Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 127 S. Ct. 2499, 2510 (2007), imposes a heightened pleading requirement
on Trooiens amended complaint. In Tellabs, the Court held that to plead a strong inference of
scienter, the inference must be more than merely plausible or reasonable it must be cogent and
at least as compelling as any opposing inference of nonfraudulent intent. Id. at 2504-05.
Trooien responds that the Tellabs decision applies only to federal securities law claims arising
within the Private Securities Litigation Reform Act, and not to state securities fraud claims under
the MSA.
The Court agrees that the Reform Act is generally inapplicable to claims arising under
state law. See 15 U.S.C. 78u-4(a)(1) (stating that the Act applies to actions brought under the
chapter in which it is contained). Nonetheless, courts in this district have consistently looked to
the federal securities laws in interpreting the MSA. See, e.g., First Presbyterian Church of
Mankato v. John G. Kinnard & Co., 881 F. Supp. 441, 445 (D. Minn. 1995) (denying motion to
dismiss MSA claim on grounds that plaintiff had alleged a strong inference of scienter with
respect to an accompanying federal rule 10b-5 claim); Minneapolis Employees Ret. Fund v.
Allison-Williams Co., 519 N.W.2d 176, 179 (Minn. 1994) (The Minnesota Securities Act is
patterned after federal law. The Act is to be construed so as to coordinate the interpretation of
[the MSA] with the related federal regulation.). Here, even applying the heightened pleading
requirement of Tellabs, the Court finds that Trooien has stated a MSA claim with respect to
certain of Mansours alleged future revenue projections. The Court therefore need not decide
whether the Tellabs standard should apply to securities claims under the MSA.
- 10 -
the future require a showing that defendant had actual knowledge that the prediction was
false. 17 C.F.R. 240.3b-6(b)(1); In re NationsMart Corp. Sec. Litig., 130 F.3d 309, 320
(8th Cir. 1997). That a prediction of future revenue never comes to be does not mean that
the prediction was false when made, which would amount to pleading fraud by
hindsight. See In re Nash Finch Co., 502 F. Supp. 2d 861, 882 (D. Minn. 2007).
However, predictions about future revenue may be actionable if a plaintiff alleges that the
forward-looking statements were made without a reasonable basis. In re NationsMart
Corp. Sec. Litig., 130 F.3d at 320; Wielgos v. Commonwealth Edison Co., 892 F.2d 509,
513 (7th Cir. 1989).
Here, while many of the alleged misrepresentations concern predictions about
Sproqits future revenue, the amended complaint now includes particular allegations that
Mansour misrepresented then-existing material facts. Specifically, Trooien alleges that
Mansour stated it was an absolute fact that Sproqit would be acquired, and that
Mansour represented there were contracts in place with Bell Mobility that would
generate substantial revenues for Sproqit. Although these representations have a
predictive component, they are also representations of then-existing material facts: that
Sproqits acquisition was 100% certain at the time, and that Sproqit already had contracts
in place with Bell Mobility. Trooien has alleged that these statements were false when
made because it was not a fact that Sproqit would be acquired, and because there were no
contracts in place with Bell Mobility, as represented by Mansour. In addition, the
August 3, 2004 email from Roitblat to Mansour described the numbers as rather
ambitious and aggressive, and noted that Roitblat was doubtful about certain
- 11 -
figures. This email was sent just two days before Mansour presented revenue projection
figures to Trooien.
The Court finds that these allegations, when taken together and in context, are
sufficient to remove the taint of fraud by hindsight from Trooiens original complaint.
Contrary to Mansours assertion, the amended complaint does not seek to establish fraud
based simply on the fact that predictions of future revenue never materialized. Rather,
the amended complaint now includes particular allegations that Mansour misrepresented
then-existing material facts. Trooien alleges that Mansour knew the statements were
false because the contracts were not in place with Bell Mobility, and because it was not
an absolute fact that Sproqit would be acquired. The Court finds these two statements
sufficiently particularized to create a strong inference of scienter that is at least as
compelling as an opposing inference of non-fraudulent intent.
Further, these two statements, particularly when considered in combination with
the August 3, 2004 email,4 support a strong inference that Mansour lacked a reasonable
basis for any predictions of future revenue that are based on the Bell Mobility contracts
or the Microsoft acquisition. Therefore, contrary to Mansours contention, Trooien need
not show that Mansour had actual knowledge that these specific revenue predictions were
false at the time they were made. See In re NationsMart Corp. Sec. Litig., 130 F.3d at
4 Mansour argues that Trooien has not sufficiently alleged that the revenue projections
provided on August 5 were the same as the numbers reviewed by Roitblat pursuant to the
August 3 email. Mansour further notes that the initial email sought input from Roitblat regarding
the projections. The Court finds that, while the email may not be sufficient by itself to create a
strong inference of scienter, it provides context for Mansours revenue projections and
strengthens the inference of scienter with respect to predictions based on the Bell Mobility
contracts and the Microsoft acquisition.
- 12 -
320. Based on Trooiens particularized allegations that Mansour knew that statements
about Bell Mobility contracts or the Microsoft acquisition were false, the Court finds a
sufficiently strong inference that Mansours predictions of future revenue were made
with actual knowledge of their falsity or with reckless disregard for their truth.
The Court emphasizes that the allegations are sufficient only with respect to future
revenue predictions that are based specifically on 1) the Bell Mobility contracts and 2)
the Microsoft acquisition. With respect to the remaining revenue predictions, the Court
finds that Trooien has failed to allege with particularity that Mansour had actual
knowledge of the falsity of those predictions,5 or that Mansour lacked a reasonable basis
for those predictions. Accordingly, the Court denies Mansours motion to dismiss with
respect to (1) Mansours statement that it was an absolute fact that Sproqit would be
acquired, (2) Mansours statement that there were contracts in place with Bell
Mobility that would generate substantial revenues for Sproqit, and (3) Mansours
predictions of future revenue that are based on either (1) or (2).
Roitblat argues that the allegations of revenue forecasts in the amended complaint
do not cure the initial pleading deficiencies under Rule 9(b). This Court previously found
that the allegations imputing fraudulent activity collectively to defendants were not
sufficiently particularized to satisfy Rule 9(b). Here, the amended complaint alleges once
again that defendants forecasted extremely high revenues for Sproqit knowing these
facts to be false. (Amd. Compl. 9.) That allegation is not sufficiently particularized
5 The Court makes these and the remaining findings of non-fraudulent intent applying
either the strong inference standard, see, e.g., John G. Kinnard & Co., 881 F. Supp. at 445, or
the heightened inference requirement under Tellabs, Inc., 127 S. Ct. at 2504-05.
- 13 -
under Rule 9(b) to allow Trooien to proceed on his fraud claim against Roitblat. See
Parnes, 122 F.3d at 550 (finding similar allegations insufficient where defendants are
left to guess which controlling shareholders were responsible for [the] alleged fraud).
The amended complaint is devoid of any additional allegations that specifically identify
Roitblat as having made representations to Trooien regarding the revenue projections.
As to the alleged fraudulent omissions, the Court notes that Trooien has cured a
prior pleading deficiency to the extent the amended complaint now alleges that both
Roitblat and Mansour owed fiduciary duties to him. See Exeter Bancorp., Inc. v. Kemper
Sec. Grp., Inc., 58 F.3d 1306, 1314 (8th Cir. 1995) (stating that omissions or
nondisclosures may constitute fraud only where the defendant has an independent duty to
disclose). As with the initial complaint, however, Trooien has failed to make
particularized allegations that Roitblat knew that Mansour made various
misrepresentations to Trooien and failed to correct those misrepresentations. Trooien
points to the August 3, 2004 email from Roitblat to Mansour, in which Roitblat wrote
that the projected revenue numbers looked ambitious and aggressive. However, it
has not been alleged that Roitblat knew that the financial projections that Mansour
ultimately provided to Trooien were false. Indeed, review of the email chain6 shows that
Roitblat was simply responding to a request from Mansour for preliminary feedback on
the revenue numbers.
6 Because the August 3, 2004 email was incorporated into the pleadings, the Court may
examine the full text of that email consistent with its review of a Rule 12(b)(6) motion to
dismiss. See Moses.com Sec., Inc. v. Comprehensive Software Sys., Inc., 406 F.3d 1052, 1063
n.3 (8th Cir. 2005).
- 14 -
The Court finds that Trooiens allegations of Roitblats fraudulent omissions are
not sufficiently particularized under Rule 9(b) to survive a motion for dismissal. The
Court therefore grants Roitblats motion to dismiss the complaint with respect to the
future revenue projections.
B. Microsoft Acquisition Discussions
Trooien alleges Mansour falsely represented that Sproqit was engaged in ongoing
acquisition discussions with Microsoft and other companies. He alleges that both
Mansour and Roitblat participated in conference calls with him, that misrepresentations
were made during these calls, and that Mansour took the lead on the calls. As with the
initial complaint, the amended complaint also quotes an email dated November 8, 2005,
from Mansour to Trooien regarding the Microsoft acquisition discussions. In the email,
Mansour writes [w]e are having breakfast to discuss next steps and acquisition. Todd
already gave the green light. (Amd. Compl. 19.) The email also states that Mansour
was very good at maneuvering with Microsoft. (Id.) Trooien alleges these statements
were false when made because there was never a green light at Microsoft to do
business with Sproqit, there was never any budget for Microsoft to do business with
Sproqit, and Mansour was not in fact very good at maneuvering within Microsoft.
The Court agrees with defendants that the alleged statements regarding Microsoft
acquisition discussions are not actionable. Trooiens amended complaint contains no
new allegations regarding Sproqits discussions with Microsoft, but merely amplifies his
conclusion that these statements were false. The allegation that misrepresentations were
- 15 -
made during conference calls is entirely devoid of the kind of particularity required
under Rule 9(b). Further, Trooien has failed to allege particular facts showing that
Mansour knew his statements regarding discussions with Microsoft were false, or that he
made those statements with reckless disregard for the truth. Instead, the amended
complaint relies on conclusory allegations that these representations were false. Such
allegations are insufficient under Rule 9(b). See Comml Prop. Invs., Inc. v. Quality Inns
Intl, Inc., 61 F.3d 639, 644 (8th Cir. 1995) ([C]onclusory allegations that a defendants
conduct was fraudulent and deceptive are not sufficient to satisfy the rule.).
The Court grants defendants motions to dismiss the complaint with respect to
allegations regarding the Microsoft acquisition discussions.
C. Archos Contract
Trooien alleges that defendants made false representations regarding a contract
with a French company named Archos. The amended complaint quotes a September 26,
2005 email from Mansour to Trooien in which Mansour stated, Im hoping its enough
[revenue] to bridge us to the Archos revenue which is to start in Jan-Feb. [2006]. (Amd.
Compl. 17.) Mansour later wrote, I refuse to let this thing die before I ship with
Archos. (Amd. Compl. 22.) Trooien quotes a November 1, 2005 email from Mansour
to Trooien, in which Mansour stated we have to fulfill the Archos contract. (Amd.
Compl. 23.) On November 8, 2005, Mansour sent another email to Trooien, stating I
think another opportunity has popped up with Archos, so I need to make my way to Paris
to see if I can get some more business from them. (Amd. Compl. 24.) It is alleged
- 16 -
that these statements were false because there was never a contract between Archos and
Sproqit. Trooien quotes from a November 23, 2005 email from an Archos representative
which states, [w]e have not a clear idea of whether we will need Sproqit. (Amd.
Compl. 33.)
As with the Microsoft acquisition discussions, the Court finds the amended
complaint lacks sufficiently particular allegations of fraud under Rule 9(b). Many of the
alleged statements related to the Archos contract are predictive in nature reflecting
Mansours hope that the Archos contract would be profitable and, as discussed above,
such statements require a showing that Mansour actually knew these statements were
false at the time they were made. In re NationsMart Corp. Sec. Litig., 130 F.3d at 320.
However, short of the conclusory allegations that these statements were false, Trooien
has not alleged any particularized facts that would support a strong inference that
Mansour knew these statements were false at the time they were made. The fact that an
Archos representative stated that he did not have a clear idea of whether they would need
Sproqit in the future does not make Mansours statements about possible opportunities
with Archos false. In fact, the November 23, 2005 email suggests that Archos may have
a need, albeit an uncertain one, for Sproqit. The Court therefore grants Mansours
motion to dismiss the MSA claim with respect to allegations regarding the Archos
contract.
For the same reasons, the allegations against Roitblat also fail to satisfy Rule 9(b).
The amended complaint essentially concludes, without particulars, that Roitblat was
aware of Mansours alleged misrepresentations and failed to disclose them to Trooien.
- 17 -
Even if such conclusory allegations were sufficient to state a securities fraud claim,
however, as discussed above, the allegations with respect to Mansour are themselves
insufficient under Rule 9(b). The amended complaint also includes an allegation that
Roitblat had been representing to Trooien since at least April 2005 that the Archos
contract would be a significant source of revenue. (Amd. Compl. 31.) However,
Trooien has failed to identify either the specific contents of such representations or the
specific time such representations were made. As such, the Court finds that the
allegations against Roitblat regarding statements and omissions related to the Archos
contract are not sufficiently particularized under Rule 9(b). The Court will grant
Roitblats motion to dismiss with respect to representations about the Archos contract.
In summary, the Court denies Mansours motion to dismiss the MSA claim (Count
1) with respect to (1) Mansours statement that was an absolute fact that Sproqit would
be acquired, (2) Mansours statement that there were contracts in place with Bell
Mobility that would generate substantial revenues for Sproqit, and (3) Mansours
predictions of future revenue that are based on either (1) or (2). The Court grants
Mansours motion to dismiss Count 1 in all other respects. The Court further grants
Roitblats motion to dismiss the MSA claim against him.
III. NEGLIGENT AND FRAUDULENT MISREPRESENTATION CLAIM
(COUNT 2)
Count 2 of the amended complaint alleges that defendants statements and
omissions constitute negligent and fraudulent misrepresentation under Minnesota law.
As this Court noted in its prior Memorandum Opinion and Order, the fraudulent
- 18 -
misrepresentation claim, like the MSA claim, is subject to the particularity requirements
of Rule 9(b). Fed. R. Civ. P. 9(b) (particularity requirement applies to all averments of
fraud). Trooiens negligent misrepresentation claim is similarly subject to the
particularity requirements of Rule 9(b). In re Digi Intern., 6 F. Supp. 2d at 1104; Juster
Steel v. Carlson Cos., 366 N.W.2d 616, 618 (Minn. Ct. App. 1985).
To the extent the common law claims are subject to the same particularity
requirements under Rule 9(b), the claim for fraudulent and negligent misrepresentation
suffers from the same deficiencies discussed in the context of the MSA claim. For the
reasons discussed above, the Court finds that Trooien has adequately pleaded negligent
and fraudulent misrepresentation against defendant Mansour as to (1) Mansours
statement that was an absolute fact that Sproqit would be acquired, (2) Mansours
statement that there were contracts in place with Bell Mobility that would generate
substantial revenues for Sproqit, and (3) Mansours predictions of future revenue that are
based on either (1) or (2). Mansours motion to dismiss is therefore denied with respect
to these particular statements.
In all other respects, the Court finds that Trooien has failed to allege negligent or
fraudulent misrepresentation with sufficient particularity as to Mansour. As with the
MSA claim, the negligent and fraudulent misrepresentation claim is premised largely on
conclusory allegations that Mansour knew his statements were false, or that he acted in
reckless disregard of their truth or falsity. Trooiens claim is similarly deficient with
respect to misrepresentations or omissions by Roitblat. As discussed above, such
conclusory allegations are insufficient to satisfy the particularity requirements of Rule
- 19 -
9(b). Accordingly, the Court grants in part Mansours motion to dismiss the negligent
and fraudulent misrepresentation claim (Count 2). The Court grants Roitblats motion to
dismiss in its entirety with respect to Count 2.
Finally, the Court notes that Trooien has now had two opportunities to plead his
fraud claims against defendants with sufficient particularity. The Court is not persuaded
that granting leave to amend the amended complaint at this time would cure the pleading
deficiencies. See In re Digi Intern., 6 F. Supp. 2d at 1104 (stating that the Court has
discretion under Federal Rule 15(a) to permit amendments, and that an amendment need
not be granted where it would be futile). Accordingly, the Court does not intend to grant
any further requests from Trooien for leave to amend his complaint to cure the
deficiencies identified in this Memorandum Opinion and Order.
ORDER
Based on the foregoing records, files, and proceedings herein, IT IS HEREBY
ORDERED that:
1. Defendant Mansours Partial Motion to Dismiss the Amended Complaint
[Docket No. 50] is GRANTED in part and DENIED in part. The motion is DENIED
as to (1) Mansours statement that it was an absolute fact that Sproqit would be
acquired, (2) Mansours statement that there were contracts in place with Bell
Mobility that would generate substantial revenues for Sproqit, and (3) Mansours
predictions of future revenue that are based on either (1) or (2). The motion is
- 20 -
GRANTED in all other respects, and the remaining portions of Counts 1 and 2 of
plaintiffs amended complaint are DISMISSED with prejudice.
2. Defendant Roitblats Partial Motion to Dismiss First Amended Complaint
[Docket No. 56] is GRANTED. Counts 1 and 2 of plaintiffs amended complaint are
DISMISSED with prejudice as to defendant Roitblat.
DATED: May 23, 2008 s/ John R. Tunheim _
at Minneapolis, Minnesota. JOHN R. TUNHEIM
United States District Judge
 

 
 
 

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