Sec. & Exch. Comm'n v. Elliott

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. DAMON ELLIOTT, et al., Defendants.

Civil No. 20-10860-LTS

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

December 7, 2020

ORDER ON DAMON ELLIOTT AND SHARON ELLIOTT'S MOTION TO DISMISS (DOC. NO. 26)

SOROKIN, J.

Plaintiff Securities and Exchange Commission ("the SEC") brought a securities fraud enforcement action against Defendants Damon Elliott and Piptastic Limited; and Relief Defendants DSE Retail Limited, Paul Rose, Unique Asset Management Limited, and Sharon Elliott. Doc. No. 1.¹ The Complaint alleges violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a); violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5; and claims for equitable relief. Id. ¶ 43-53. Pro se Defendant Damon Elliott and pro se Relief Defendant Sharon Elliott ("the Elliotts") filed a motion to dismiss, asserting a variety of defenses under Rule 12(b) of the Federal Rules of CivilProcedure. See Doc. Nos. 26, 37. The SEC responded, Doc. No. 30, and Damon Elliott replied, Doc. No. 42.² For the reasons set forth below, the Elliotts' Motion to Dismiss is DENIED.

I. FACTS

The facts are drawn from the allegations in the complaint, in accordance with the standard applicable to motions to dismiss.

The SEC alleges that Damon Elliott, operating through Piptastic Limited, fraudulently raised at least $9 million, including $5.3 million from at least 30 investors in the United States. Doc. No. 1 ¶ 1. At least one of these investors resides in Massachusetts and communicated with Mr. Elliott over email. Id. ¶ 15. Mr. Elliott held himself out as an expert in a type of speculative trading called "spread trading." Id. ¶ 1. While he led investors to believe he was generating large returns, he did not use investors' money for spread trading. Id. ¶ 2. Instead, the money was used to pay principal and profits to previous investors to maintain the appearance that the venture was successful; Mr. Elliott also kept a substantial amount of money for himself and the Relief Defendants, including his wife, Sharon Elliott. Id. ¶¶ 3, 31. The Elliotts are citizens of the United Kingdom who reside in France. Id. ¶¶ 10, 14.

II. DISCUSSION

The Elliotts assert four defenses in their Motion to Dismiss: improper service, lack of personal jurisdiction, improper venue, and failure to state a claim for which relief can be granted. See Doc. No. 26 at 2-3. Below, the Court considers each defense in turn. Because the Elliotts are proceeding pro se, the Court construes their filings liberally. See Rodi v. S. New England Sch. of Law, 389 F.3d 5, 13 (1st Cir. 2004). Even so, "pro se status does not insulate a party fromcomplying with procedural and substantive law." Ahmed v. Rosenblatt, 118 F.3d 886, 890 (1st Cir. 1997).

A. Service of Process

The Elliotts first assert that Sharon Elliott has not received a summons or a copy of the Complaint and that even in a global pandemic, service by mail was possible and could have been attempted. Doc. No. 26 at 2. The Court construes this as raising a defense under Rule 12(b)(5) for insufficient service of process. See, e.g., Connolly v. Shaw's Supermarkets, Inc., 355 F. Supp. 3d 9, 14 (D. Mass. 2018) ("a motion to dismiss for improper service of process under Fed. R. Civ. P. 12(b)(5) challenges the 'mode of delivery'") (citation omitted). Once adequately challenged, "plaintiffs have the burden of proving proper service." Rivera-Lopez v. Municipality of Dorado, 979 F.2d 885, 887 (1st Cir. 1992). A return of service "generally serves as prima facie evidence that service was validly performed." Blair v. City of Worcester, 522 F.3d 105, 111 (1st Cir. 2008).

It is undisputed that the Elliotts are foreign citizens and live outside of the United States. Rule 4 of the Federal Rules of Civil Procedure provides that an individual in a foreign country may be served:

(1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention . . . ; (2) if there is no internationally agreed means, or if an international agreement allows but does not specify other means, by a method that is reasonably calculated to give notice . . . [; or] (3) by other means not prohibited by international agreement, as the court orders.

Fed. R. Civ. P. 4(f). The SEC moved under Rule 4(f)(3) for leave to serve Sharon Elliott via email on May 29, 2020, Doc. No. 6, which the Court allowed, Doc. No. 7. "Rule 4(f)'s plain language unambiguously indicates that the only limit it imposes on court-directed service under Rule 4(f)(3) is that the means must not be prohibited by international agreement." Forum Fin.Grp. v. President & Fellows of Harvard Coll., 199 F.R.D. 22, 23-24 (D. Me. 2001). Moreover, "Rule 4(f)(3) does not require exhaustion of all possible methods of service before a court may authorize service by 'other means,' such as service through counsel and by email." AngioDynamics, Inc. v. Biolitec AG, 780 F.3d 420, 429 (1st Cir. 2015). Service by email to an individual residing in the United Kingdom or France is not prohibited by international agreement. See Doc. No. 6 at 4-5. Nor do the Elliotts allege that it is prohibited. In short, the Elliots have not demonstrated that the Court authorized improperly service by email, nor have they otherwise called into question that decision.

Additionally, the SEC has filed a return of service certifying that Sharon Elliott was served by email. Doc. No. 12. While the Elliotts claim that Mrs. Elliott never received the Complaint or summons, they do not provide any evidence suggesting that the email address to which the SEC sent the email is incorrect or invalid. See Blair, 522 F.3d at 111-12 (noting that defendant may adduce "rebuttal evidence to refute any presumption of valid service"). Without rebuttal evidence, the Elliotts' conclusory statement that service failed here is insufficient to rebut the plaintiff's presumption of proper service. Mrs. Elliott was properly served. In addition, while Mrs. Elliott raises the concern that she may not have had time to review and respond to the Complaint, Doc. No. 26 at 2, the record belies that contention. Mrs. Elliott has filed both a motion to dismiss and an answer in this matter, and she has not sought additional time to make either filing.

B. Personal Jurisdiction

The Elliotts allege that the Court has no personal jurisdiction over either of them because they are citizens of the United Kingdom, reside in France, and have not "operated in, solicited investments or otherwise in the USA or to US citizens." Doc. No. 26 at 2. The plaintiff has theburden of showing that the court has personal jurisdiction over a defendant. See, e.g., Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 50 (1st Cir. 2002). When the court considers a motion to dismiss for lack of personal jurisdiction without an evidentiary hearing, as it does here, the court applies a "prima facie standard."³ See United States v. Swiss Am. Bank, Ltd., 274 F.3d 610, 618 (1st Cir. 2001). Under that standard, the plaintiff must "go beyond the pleadings" and make a "showing of personal jurisdiction . . . based on evidence of specific facts set forth in the record." Boit v. Gar-Tec Products, Inc., 967 F.2d 671, 675 (1st Cir. 1992) (citation omitted). In assessing whether this burden is met, the court "is not acting as a factfinder; rather, it accepts properly supported proffers of evidence by a plaintiff as true and makes its ruling as a matter of law." Swiss Am. Bank, 274 F.3d at 619 (citation and internal quotation marks omitted).

Jurisdiction for the SEC's claims lies under Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa, both of which authorize nationwide service of process. When a statute provides for nationwide service of process, "the jurisdictional inquiry focuses on whether [the defendants] had sufficient contacts with the United States as a whole, rather than with just Massachusetts, such that this Court can exercise jurisdiction over [the defendants]." Filler v. Lernout, 337 F. Supp. 2d 298, 309-10 (D. Mass. 2004); see also United Electrical, Radio and Machine Workers of America v. 163 Pleasant Street Corp., 960 F.2d 1080, 1085 (1st Cir. 1992).

An exercise of personal jurisdiction must comply with both statutory limitations and the due process requirements of the U.S. Constitution. See, e.g., Boit, 967 F.2d at 675. "A districtcourt may exercise authority over a defendant by virtue of either general or specific jurisdiction." Mass. Sch. of Law at Andover, Inc. v. Am. Bar Ass'n, 142 F.3d 26, 34 (1st Cir. 1998). Specific jurisdiction requires "a demonstrable nexus between a plaintiff's claims and a defendant's forum-based activities." Id. General jurisdiction, in contrast, "exists when the litigation is not directly founded on the defendant's forum-based contacts, but the defendant has nevertheless engaged in continuous and systematic activity, unrelated to the suit, in the forum state." Swiss Am. Bank, 274 F.3d at 618 (citation and internal quotation marks omitted). Here general jurisdiction has no application; any personal jurisdiction the Court may exercise is specific jurisdiction.

In the context of specific jurisdiction, the Constitution requires that a defendant have maintained "minimum contacts" with the forum, "such that maintenance of the suit does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). Whether minimum contacts exist is assessed through a tripartite test.⁴ First, "the litigation [must] result[] from alleged injuries that 'arise out of or relate to'" the defendant's in-forum activities. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (citations omitted). Second, there must be "'some act by which the defendant purposefully availsitself of the...