Solar Integrated Roofing Corp. v. Massey

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SOLAR INTEGRATED ROOFING CORP., Plaintiff, v. DAVID M. MASSEY; LAURA METTIAS; DOES 1 through 10, Defendants.

No. 23-cv-2323-MMA (AHG)

United States District Court, S.D. California

September 11, 2024

ORDER: GRANTING DEFENDANT METTIAS'S MOTION TO DISMISS

[DOC. NO. 34]

GRANTING DEFENDANT MASSEY'S MOTION TO DISMISS

[DOC. NO. 36]

HON MICHAEL M. ANELLO, UNITED STATES DISTRICT JUDGE

Solar Integrated Roofing Corp. (“SIRC” or “Plaintiff”) filed this civil action on December 20, 2023 alleging Defendants David M. Massey and Laura Mettias committed securities violations, fraud, negligence, conversion, unjust enrichment, breach of fiduciary duties, and violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act. See Doc. No. 1. On April 30, 2024, default judgment was entered against Defendant Massey because he had failed to respond to the summons issued by the Court on December 21, 2023. Doc. No. 14.

On March 8, 2024, Defendant Mettias filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), which the Court granted with leave to amend on May 3, 2024. See Doc. Nos. 8, 8-1, 15. Defendant Massey then filed a Motion to Set Aside Default Judgment, which the Court granted on June 24, 2024. See Doc Nos. 17, 35. Plaintiff filed an amended complaint on June 3, 2024, which is the operative pleading in this case. Doc. No. 26 (First Amended Complaint, the “FAC”).

Both Defendants have now filed Motions to Dismiss pursuant to Federal Rule of Civil Procedure 12(b). See Doc. Nos. 34, 36. Plaintiff has filed an Opposition to each motion, and Defendants have filed Replies. Doc. Nos. 37-38, 40-41. The Court found the matters suitable for determination on the papers and without oral argument pursuant to Federal Rule of Civil Procedure 78(b) and Civil Local Rule 7.1.d.1. See Doc. Nos. 39, 42. For the reasons discussed below, the Court GRANTS both Defendant Mettias's and Defendant Massey's Motions to Dismiss without prejudice and with leave to amend, except as to Count III which is dismissed with prejudice.

I. Background^[1]

Defendant Massey was the Chief Executive Officer and a member of the Board of Directors (“Board” or “the Board”) of SIRC. FAC ¶¶ 2, 18-19. In February of 2020, SIRC's Board issued Massey 5,000,000 shares of Class B SIRC stock worth $1,500,000.00 as compensation after Massey allegedly told the Board he had not received any compensation for his services for that year. Id. ¶¶ 18-20. The Board issued Massey another 1,500,000 Class B shares four months later, again for compensation. Id. ¶ 21. Both of these stock transfers were executed even though Massey had in fact received compensation for his role as CEO. Id. ¶ 23. In September of 2021, Massey attempted to convince the Board to buy his shares back for $10,000,000.00 but they refused. Id. ¶ 25.

The Board later agreed to buy 1,000,000 shares for $2,000,000.00 in lieu of compensation, which Massey had again allegedly already received. Id.

According to SIRC, Massey created a shell company, SIRC, LLC, in June of 2021 as a vehicle to transfer his remaining SIRC stock and improperly profit from the transaction. Id. ¶¶ 26-27. Using SIRC, LLC, Massey allegedly committed several securities violations in his attempt to transfer and sell SIRC stock. Id. ¶¶ 35-41. Ultimately, the FBI seized 6,258,96 SIRC shares on August 25, 2023. Id. ¶ 41.

SIRC also alleges Massey committed various instances of “reckless mismanagement” of SIRC's business, including serious accounting discrepancies, “toxic debts,” regulatory noncompliance, a lack of due diligence in hiring and acquisitions, gambling with SIRC funds, using SIRC money for personal expenditures, and lying to investors. Id. ¶¶ 42-62.

SIRC further contends that Massey and Mettias agreed to prepare and submit false loan applications to the Paycheck Protection Program (“PPP”), which provided Small Business Administration (“SBA”) loans to businesses who were affected by the COVID-19 pandemic. Id. ¶ 64. According to SIRC, Massey and Mettias lied about the number of SIRC employees on the applications, thereby securing $6,375,014.00 in PPP loan proceeds. Id. ¶¶ 66-67. Massey then paid Mettias $637,501.70, representing 10% of the loan proceeds and Mettias divided this amount between herself and Massey. Id. ¶¶ 66-67.

Plaintiff alleges it suffered significant financial and reputational damage as a result of Massey's and Mettias's misconduct and seeks $100,000,000.00 in economic damages and $1,000,000,000.00 in punitive damages. Id. at 25.^[2]

II. Legal Standard

A Rule 12(b)(6)^[3] motion to dismiss tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations, brackets, and citations omitted).

In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, “conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998). In determining the propriety of a Rule 12(b)(6) dismissal, generally, a court may not look beyond the complaint for additional facts. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003); Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998).

III. DISCUSSION

Massey first argues the FAC violates Rule 8 because it is a “shotgun” pleading. Doc. No. 36-1 at 8-10. Massey also seeks dismissal of Count I of the FAC because it does not sufficiently allege a violation of the Securities Exchange Act of 1934 (the “Exchange Act”), nor does it satisfy the pleading requirements of the Private Securities Litigation Reform Act (“PSLRA”). Id. at 10-13. Mettias and Massey seek dismissal of SIRC's fraud claim in Count II, arguing that SIRC fails to satisfy Rule 9(b)'s particularity requirement. Id. at 14-17; Doc. No. 34-1 at 8-10. They seek dismissal of the remaining counts for failure to allege sufficient facts under Rule 12(b)(6). Doc. No. 34-1 at 10-20; Doc. No. 36-1 at 17-30. In its Oppositions to the Motions to Dismiss, SIRC argues it has provided sufficient facts to state a claim. Doc. Nos. 37, 40.

A. Rule 8

As an initial matter, Massey contends the FAC should be dismissed as a “shotgun” or “puzzle” pleading which violates Rule 8 and the Court agrees. See Doc. No. 36-1 at 8-10. “Shotgun pleadings are pleadings that overwhelm defendants with an unclear mass of allegations and make it difficult or impossible for defendants to make informed responses to the plaintiff's allegations.” Sollberger v. Wachovia Securities, LLC, No. 90-cv-0766-AG (ANx), 2010 WL 2674456, at *4 (C.D. Cal. June 30, 2010). “A ‘puzzle pleading' is a complaint that forces the defendants and/or court to sort out the alleged statements and match them with the corresponding alleged facts in order to solve the puzzle of interpreting Plaintiff's claims.” Cheng Jiangchen v. Rentech, Inc., No. 17-cv-1490-GW (FFMX), 2017 WL 10363990, at *5 (C.D. Cal. Nov. 20, 2017) (citing In re Intuitive Surgical Sec. Litig., 65 F.Supp.3d 821, 831 (N.D. Cal. 2014)). SIRC has alleged more than 70 paragraphs of factual allegations but has not sufficiently explained how those facts map onto the elements of each of the claims in the FAC; therefore, SIRC has not met the requirements of Rule 8. Nevertheless, for the sake of completeness, the Court will address the plausibility of each of SIRC's claims.

B. Count I: Violations of the Securities Exchange Act of 1934

Plaintiff alleges in Count I that Massey violated Section 10(b) of the Exchange Act, as codified at 15 U.S.C. § 78j(b). FAC ¶ 73. That section makes it unlawful for a person to:

use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. § 78j(b).

“In a typical § 10(b) private action a plaintiff must prove (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta 552 U.S. 148, 157 (2008). “At the pleading stage, a complaint stating claims under section 10(b) . . . must satisfy the dual pleading requirements of Federal Rule of Civil Procedure 9(b) and the [Private Securities Litigation Act (PSLRA)].” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009). Rule 9(b) requires that allegations of “fraud or mistake . . . must state with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b). The “circumstances” required by Rule 9(b) are the “who, what, when, where, and how” of the fraudulent activity. Vess...