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Securities and Exchange Commission v. Lidingo Holdings, LLC

United States District Court, W.D. Washington, Seattle

May 11, 2018

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
LIDINGO HOLDINGS, LLC, et al., Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS

          RICARDO S. MARTINEZ CHIEF UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         This matter comes before the Court on Defendants Lidingo Holdings, LLC's, Kamilla Bjorlin's and Andrew Hodge's (collectively “Lidingo Defendants”) Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), in which Defendant Brian Nichols has also joined. Dkts. #66 and #68. Defendants seek dismissal of all claims against them on the basis that they are time-barred. Id. Alternatively, Defendants argue that certain of Plaintiff's claims should be dismissed for the failure to adequately plead facts supporting the elements of those claims. Dkts. #66 at 11-18 and #68 at 3-12. Plaintiff opposes the motion, asserting that its claims are not time-barred, and that, even if some claims are barred against Defendant Lidingo, it has adequately pled its claims against the individual Defendants. Dkt. #69. Having reviewed the record before it, and neither party having requested oral argument on the motions, the Court now GRANTS IN PART AND DENIES IN PART Defendants' motions for the reasons discussed herein.

         II. BACKGROUND

         Plaintiff initially filed its Complaint in this matter in the United States District Court for the Southern District of New York. Dkt. #1. The matter was subsequently transferred to this Court on October 27, 2017. Dkt. #53. According to the parties:

Following an investigation, the SEC filed this action under the antifraud and antitouting provisions of the federal securities laws alleging Defendants Lidingo Holdings, LLC (“Lidingo”), Kamilla Bjorlin (“Bjorlin”), Andrew Hodge (“Hodge”), Brian Nichols (“Nichols”), and Vincent Cassano (“Cassano”) engaged in a scheme to promote the stock of public companies without disclosing compensation they received for the promotion directly or indirectly from the issuers, and in many instances, by falsely stating they had received no compensation at all.
The SEC has charged Defendants with violating Sections 17(a) and 17(b) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77q(a) and 77q(b); and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5. Defendants have responded with numerous defenses to the counts raised.

Dkt. #61 at 1-2. Defendant Cassano has since been dismissed from this action. Dkt. #72. The instant motions to dismiss are ripe for review.

         III. DISCUSSION

         A. Standard of Review

         On a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, the Court is not required to accept as true a “legal conclusion couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The Complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. at 678. This requirement is met 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. Absent facial plausibility, Plaintiff's claims must be dismissed. Twombly, 550 U.S. at 570.

         Though the Court limits its Rule 12(b)(6) review to allegations of material fact set forth in the Complaint, the Court may consider documents of which it has taken judicial notice. See F.R.E. 201; Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). The Lidingo Defendants have asked the Court to take judicial notice of business entity documents and a Form 10-K of Galena Biopharma, Inc. for the period ending December 31, 2013. Dkts. #66 at 20-22 and #67, Exs. A and B. The Court finds it unnecessary to consider those documents to resolve this matter, and declines Defendants' request on that basis. However, the Court does take judicial notice that Lidingo Holdings, LLC, with registered agent Kamilla Bjorlin, was formerly registered to do business in the State of Washington, but is now terminated. This information is contained in the public records maintained by the Secretary of State of the State of Washington, and can be retrieved on the public website for the Secretary of State of the State of Washington Corporations division. https://www.sos.wa.gov/corps/ (last visited May 9, 2018).

         B. Time-Bar

         Defendants first move to dismiss all of Plaintiff's claims on the basis that they are time-barred pursuant to Nevada law. Dkts. #66 at 8-11 and #68 at 2-3. Defendants rely on Nevada Revised Statutes (“NRS”) § 86.505(1) pertaining to dissolved corporations. Id. Plaintiff, relying on U.S. v. Summerlin, 310 U.S. 414, 417, 60 S.Ct. 1019, 1020, 84 L. Ed.1283 (1940), asserts that when it brings claims in its governmental capacity, it cannot become subject to any state statute of limitations. Dkt. #69 at 14. While acknowledging the general rule, this Court disagrees that it is applicable in this case.

         In Williams v. United States, 674 F.Supp. 334 (1987), the United States District Court for the Northern District of Florida examined a Florida statute with nearly identical language to that of the Nevada statute, to determine whether the statute constituted a statute of limitations. The Court started by recognizing the general principle that Plaintiff asserts in this case - as a general rule, the United States is not bound by state statutes of limitation. Williams, 674 F.Supp. at 336. The court went on to determine, however, that the statute was a “prolongation” statute rather than a statute of limitations:

A statute of limitations is one that prescribes a period of time within which a civil action must be commenced . . . ., the “limitation” being the time at the end of which no action can be maintained. 35 Fla. Jur. 2d, Limitations and Laches, S.1. Put another way, a “statute of limitation” is but the action of the state in determining that, after the lapse of a specified time, a claim shall not be legally enforceable. State of South Dakota v. State of North Carolina, 192 U.S. 286, 24 S.Ct. 269, 48 L.Ed. 448 (1904).
In determining whether Section 607.297, Florida Statutes, is a statute of limitation, the court will first examine the plain language of the statute and then consider the gloss placed upon the statute by the Florida courts.
Section 607.297, which is entitled “Survival of remedy after dissolution, ” states in part that, “The dissolution of a corporation . . . shall not take away or impair any remedy available . . . against such corporation, or its directors . . . . for . . . any liability incurred, prior to such dissolution . . . if action . . . is commenced within 3 years . . . .” It is apparent that the Florida legislature intended Section 607.297 to extend the time in which a claim against a dissolved corporation could be brought. This court must presume that the legislative purpose is expressed by the ordinary meaning of the words used and that the language must be regarded as conclusive. American Tobacco Co. v. Patterson, 456 U.S. 63, 68, 102 S.Ct. 1534, 71 L.Ed.2d 748 (1982). The cause of action is not barred, but rather, the remedy survives the dissolution of the corporation.
This is in sharp contrast to the effect of a typical statute of limitation where the substantive right continues to exist, but its enforcement is cut off. A statute of limitation bars the remedy after the passage of a prescribed amount of time. Henry v. Halifax Hospital Dist., 368 So.2d 432, 433 (Fla. 1st DCA 1979); Walter Denson & Son v. Nelson, 88 So.2d 120, 122 (Fla. 1956); Hoagland v. Railway Exp. Agency, 75 So.2d 822, 827 (Fla. 1954).
Section 607.297 not only does not act as a bar to an action, it actually creates a remedy where one did not exist. Prior to the passage of Section 607.297, the common law rule was that after the dissolution and termination of a corporation, no action could be maintained against it. Marinelli v. Weaver, 208 So.2d 489, 492 (Fla. 2nd DCA 1968); Nelson v. Miller, 212 So.2d 66, 67 (Fla. 3rd DCA 1968); Bahl, 423 So.2d at 965. The common law rule still controls after the passage of the three years prescribed in the statute. Fedonics West Hollywood Corp. v. Barnett Bank, 450 So.2d 322, 324 (Fla. 4th DCA 1984).
In addition, the Florida courts have not described nor treated Section 607.297 as a statute of limitation. A corporation “continued as a body corporate” in order to satisfy its liabilities. Air Control Products, Inc. v. Perma-Stress, Inc., 189 So.2d 412, 414 (Fla. 1st DCA 1966) (construing prior law, Florida Statutes, Section 608.30(1)). Section 607.297 has been described as a “winding up” statute, one which extends the life of a dissolved corporation. McGlynn v. Rosen, 387 So.2d 468, 469 (Fla. 3rd DCA 1980), Advance Machine Co. v. Berry, 378 So.2d 27, 28 (Fla. 3rd DCA 1978). The statute provides for a three year “grace period.” Fedonics, 450 So.2d at 324.
Additional evidence that Section 607.297 was not intended to be a statute of limitation is its placement in Florida's statutory scheme. The statute at issue is part of the Florida General Corporation Act, Section 607.001 et seq. Chapter 95 of the Florida Statutes contains the limitations of actions provisions.
This court is of the opinion that Florida Statutes, Section 607.297 is, as described by the third party defendant, a “prolongation statute” and not a statute of limitation. The general rule that the United States is not subject to state statutes of limitation is not applicable here, and the United States claim against the third party defendant may not proceed.

Williams, 674 F.Supp. at 336-37.

         Neither the Ninth Circuit Court of Appeals nor any District Court in the Ninth Circuit has addressed the same question with respect to the Nevada statute at issue here.[1] However, the Court finds the reasoning in Williams, supra, persuasive in this case. First, the language of the Nevada statute, entitled “Continuation of company after dissolution for winding up of affairs, ” is nearly identical in ...


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