Microbot Med. v. Mona

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MICROBOT MEDICAL, INC., Plaintiff, v. JOSEPH MONA, Defendant.

No. 19-CV-3782 (GBD) (RWL)

United States District Court, S.D. New York

August 4, 2023

REPORT AND RECOMMENDATION

TO HON. GEORGE B. DANIELS: MOTION FOR SUMMARY JUDGMENT ON DEFENDANT'S COUNTERCLAIM

ROBERT W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE.

This action began when Plaintiff Microbot Medical, Inc. (“Microbot”) sued Defendant Joseph Mona (“Mona”) under § 16(b) of the Securities Exchange Act of 1934 (the “Act”), 15 U.S.C § 78j(b), alleging that Mona was required to disgorge profits from his purchase and sale of securities during a period of months when he became a beneficial owner of more than 10% of Microbot securities. Mona counterclaimed alleging that Microbot violated § 10(b) of the Act, 15 U.S.C.§78j(b), and Rule 10b-5, promulgated thereunder and codified at 17 C.F.R. § 240.10b-5, by making twelve material misstatements or omissions on which Mona relied to purchase Microbot stock.

The Court granted Microbot's Motion for Judgment on the Pleadings on its § 16(b) claim, awarding Microbot $484,614.30. The Court also granted Microbot's Motion to Dismiss Mona's counterclaim but granted Mona leave to replead with respect to three statements made by investor-relations consultants retained by Microbot. In repleading, Mona would have to show that he relied on the statements and that the statements were misrepresentations that caused his loss.

Mona filed an Amended Counterclaim attempting to cure the pleading deficiencies with respect to the three statements, and the parties continued with discovery. Following the end of discovery, Microbot moved for summary judgment dismissing Mona's counterclaims. That motion is now fully briefed and ripe for decision. For the reasons that follow, I recommend granting Microbot's motion.

BACKGROUND^[1]

A. The Factual Record

Before setting forth the relevant facts, the Court addresses the parties' submissions pursuant to Local Rule 56.1, which requires parties to file statements of material fact that they contend are disputed or undisputed.

To a large extent, Mona does not dispute the facts set forth in Microbot's Rule 56.1 Statement. Mona does dispute some of Microbot's characterizations of the record, contending that the documents quoted or referenced speak for themselves. (E.g., Def. Reply 56.1 at ¶¶ 15, 17-19, 24, 27, 29, 34, 36-37, 52-53, 58-61, 63, 76.) In other instances, Mona does not dispute the asserted fact but instead disputes its “materiality” or “inferences” that may be drawn from it. (E.g., id. at ¶¶ 10, 21-22, 25, 32, 35, 37, 4142, 44-50, 62, 64, 66.) In no instance, however, does Mona cite to the record, except implicitly when he states that a particular document referenced by Microbot speaks for itself. Other than the latter, such unsupported responses are insufficient to create a disputed fact. See, e.g., Industrial Quick Search, Inc. v. Miller, Rosado & Algois, LLP, No. 13-CV-5589, 2018 WL 264111, at *2 n.4 (S.D.N.Y. Jan. 2, 2018) (“the Court will not consider disputed statements in Defendants' 56.1 Statement to which Plaintiffs objected or denied but failed to provide a specific citation to admissible evidence as required by Local Rule 56.1(d)”) (citing Feis v. United States, 394 F. App'x. 797, 799-800 (2d Cir. 2010)); U.S Information Systems, Inc. v. International Brotherhood of Electrical Workers, No. 00-CV-4763, 2006 WL 2136249, at *3 (S.D.N.Y. Aug. 1, 2006) (“A non-moving party cannot create a factual dispute merely by denying a movant party's factual statement; rather, the non-moving party must identify controverting evidence for the court”). While the Court appropriately could entirely disregard Mona's unsupported denials for that reason alone, the Court does not do so. Based on the Court's review of the record, the outcome is the same either way.

In addition to responding to Microbot's asserted statements of fact as to which there is no dispute, Mona submitted a Statement Of Additional Material Facts. (Dkt. 218.) Microbot moves to strike that document in its entirety, both because it “consists entirely of quotations from documents that are not in dispute or else describes (and mischaracterizes) facts that are not in evidence or at issue in this case, and which are entirely extraneous to Microbot's motion.” (Dkt. 226 at 4.)

“A party seeking to strike a Rule 56.1 statement bears a heavy burden, as courts generally disfavor motions to strike.” Christians of California, Inc. v. Clive Christian New York, LLP, No. 13-CV-275, 2014 WL 3407108, at *2 (S.D.N.Y. July 7, 2014) (internal quotation marks omitted). “Courts use a scalpel, not a butcher knife in resolving such motions.” Trustees of Local 8A-28A Welfare Fund v. American Group Administrators, No. 14-CV-1088, 2017 WL 3700899, at *1 (E.D.N.Y. Aug. 25, 2017) (internal quotation marks omitted). Nevertheless, courts have granted motions to strike portions of Rule 56.1 Statements that are irrelevant. See, e.g., Faulkner v. Arista Records LLC, 797 F.Supp.2d 299, 306-07 (S.D.N.Y. 2011) (striking portions of defendant's Rule 56.1 Statement that “are not relevant to the analysis ... [to] [a] motion[] for summary judgment”). In this instance, the Court declines to strike Mona's Statement Of Additional Material Facts but will disregard his immaterial factual assertions that have nothing to do with the statements at issue on Microbot's motion for summary judgment. Specifically, the Court will disregard Mona's assertions relating to the Sabby lawsuit and the Alpha transaction. (See Def. 56.1 ¶¶ 4-20, 26-27.)

B. Factual Background

Microbot creates and commercializes micro-robotic medical technologies. (Tauber Aff., Ex. 10 at MBOT0215-23.) A key component of its business plan is the Self Cleaning Shunt (“SCS”) for the treatment of hydrocephalus.^[2] (Id. at MBOT0201-02, MBOT0207, MBOT0223.) On May 31, 2017, Microbot announced that it had received a patent on the SCS prototype. (Ford Decl., Ex. F.) That same month, Microbot entered into agreements with Integra Consulting LLC (“Integra”) for Integra “to consult with [Microbot] regarding communications and public relations with existing shareholders, broker dealers and other investment professionals, as to [Microbot's] current and proposed activities.” (Tauber Aff., Ex. 7 at MBOT0001.) Both Jeremy Roe (“Roe”) and Tony Altavilla (“Altavilla”) worked for Integra and consulted for Microbot. (Def. Reply 56.1 ¶ 12.)

Mona held a brokerage account through Alliance Investment Management, Ltd. (“Alliance”). (Tauber Aff., Ex. 3.) He authorized his son, Marcus Mona, to trade securities from the account on his behalf.^[3] (Joseph Mona Deposition Transcript (“Joseph Dep.”), Tauber Aff., Ex. 4 at 11; Marcus Mona Deposition Transcript (“Marcus Dep.”), Tauber Aff., Ex. 5 at 17, 38, 43, 124.) Mona established the account in Jamaica to circumvent the Financial Industry Regulatory Authority's (“FINRA”) Pattern Day Trading (“PDT”) rule.^[4](Marcus Dep. at 16.) The PDT rule “requires a broker to identify, from observation of activity, a pattern day trader and impose on that person more stringent margin rules than the rules applying to those not so designated. It is designed, in the words of FINRA, to protect U.S. traders from losses that can occur when trading on margin. It can be avoided by becoming a non-U.S. trader.” (Def. Reply 56.1 ¶ 45.) The rule would have applied to Mona, who is a day trader (Id. ¶ 74; see generally Mona's trading records (“Trading Records”), Tauber Aff., Ex. 1), if he had established the account in the U.S. instead of in Jamaica.

Mona first traded Microbot stock on December 16, 2016, when he purchased and sold 3,000 shares. (Trading Records at row 2.) However, he only started actively trading the shares on or about May 31, 2017 at $3.67 per share, the day Microbot announced the SCS patent. (Id. at row 6.) He then proceeded to buy and sell thousands of Microbot shares at a time, executing numerous trades buying and selling thousands or tens of thousands of shares in any given day. Mona even executed multiple trades within a period of minutes or even seconds. (See generally Trading Records.)

In early August 2017, Marcus was concerned about Microbot's low stock price and that a major investor was “unloading shares at a brisk pace.” (Ford Decl., Ex. N at ECF 3.) On August 7, 2017, when Microbot shares were trading at about $1.15 per share (Trading Records at rows 220-21), Mona reached out to and spoke privately by phone with Roe. During their conversation, among other statements, Roe said that “the shares are going to get to $10.” (Def. Reply 56.1 ¶ 14; Marcus Dep. at 70-71, 76.) Roe also made other statements - that Microbot stock was “lightning in a bottle” and that Roe had just purchased 10,000 shares in Microbot - that Mona alleged to be false, but which the Court dismissed as non-actionable. (See Dkt. 59 ¶ 66; Dkt. 104 at 5, 26, 46-47.) During the ensuing week, August 7 to 14, 2017, Mona bought 130,729 additional shares in the company. (Trading Records at rows 220-39.)

Even before August 7, 2017, and prior to any of the alleged misrepresentations made by Microbot's consultants, Mona had already accumulated 395,589 shares of Microbot. (Id. at row 219.) Consistent with Mona's day-trading strategy, he executed more than 200 buy and sell transactions during that period. (Id. at rows 2-219.) On August 2, 2017, the last day he engaged in trading activity prior to August 7, 2017, Mona executed six trades, all of them purchases, totaling 29,589 shares. (Id. at rows 214-19.)

On August 14, 2017, Mona listened in on an investor conference call during which Microbot's Chief Executive Officer Harel Gadot (“Gadot”), made several statements that Mona claimed in his initial counterclaim were false...