Carlucci v. Han
1:12-cv-00451
| E.D. Va. | Aug 7, 2012Background
- Plaintiff Frank Carlucci III sues Michael Han and Envion, Inc. for securities fraud and related claims in the Eastern District of Virginia (docket 1:12cv451).
- Defendants moved to dismiss under Rule 12(b)(6), Rule 9(b), and the PSLRA; Plaintiff opposed.
- Allegations center on a series of notes (2003–2010) convertible into Envion stock, misrepresentations about patents, deals, and investors, and substantial aggregate investment ($32,393,000 by 2011).
- Plaintiff alleges that misrepresentations induced investments and that he relied on them, leading to damages when later findings showed the schemes were false.
- Notes were rolled into a single August 2011 note; the case also involves whether some notes were securities and the timeliness of claims.
- Court grants Defendants’ Motion to Dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Damages sufficiency for Section 10(b) claims | Carlucci suffered damages from misrepresentations tied to the August 2011 note. | Damages not shown because prior notes rolled into the August 2011 note; unclear injury. | Damages exist if notes were worth less than represented; continuing injury not needed. |
| Pre-consolidation notes and the August 2011 note | Notes rolled into 2011 note do not erase prior damages or claims. | Consolidation bars claims on pre-consolidation notes. | Court rejects arguments that pre-consolidation notes cannot support claims. |
| Whether short-term notes are securities under Section 3(a)(10) and Reves test | Notes are securities; Reves framework applies. | Notes may be non-securities under short-term exception or not within Reves. | Notes are securities; Reves family-resemblance analysis applied; not excluded as commercial paper. |
| Statutes of limitations and repose | Discovery and continuing violation theories toll or extend time. | Section 10(b) repose is untolled; limitations run from discovery under Merck; pre-2007 notes barred. | Repose not tolled; pre-April 24, 2007 notes barred for Section 10(b); limitations/VA claim time-bar analysis ongoing. |
| Pleading standard under Rule 9(b) and PSLRA for Section 10(b) | Misrepresentations identified with time/place; scienter pled. | Time/place insufficient; misrepresentations lack falsity, and scienter not pled with required particularity; many statements are puffery. | Material misrepresentations fail for lack of particularity; puffery and non-actionable statements predominate; claims dismissed. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (requires strong inference of scienter, balancing opposing inferences)
- Twombly v. Bell Atl. Corp., 550 U.S. 544 (U.S. 2007) (plausibility standard for facially legitimate claims)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (requires facial plausibility, not mere conclusory allegations)
- Merck & Co. v. Reynolds, 130 S. Ct. 1784 (U.S. 2010) (statute of limitations; discovery rule clarified for §10(b))
- Reves v. Ernst & Young, 494 U.S. 56 (S. Ct. 1990) (family-resemblance test for notes; security or not)