Freedom Environmental Services, Inc. v. Borish, 6:12-cv-00665

This case concerns Freedom Environmental Services, Inc. (Freedom Inc.) and three of its directors suing the CEO and others involved in Freedom’s stock for securities fraud and various state-law claims.
Freedom Inc. is described as a Delaware corporation whose principal place of business is in Delaware, with Florida subsidiaries Brownies Waste Water Solutions, Inc. and Grease Retrieval, Inc.
The defendants are Florida citizens, including Borish (CEO) and other officers; three board members sue as corporate representatives.
The court treats the case as a potential federal question or diversity matter under 28 U.S.C. § 1331 and § 1332, respectively.
The magistrate judge recommends dismissal for lack of subject-matter jurisdiction and discretionary purposes, with some issues about counsel authority to file/dismiss to be addressed later.
There is no allegation of an actual sale of securities; rather, stock issuance allegedly occurred to various parties for non-sale purposes.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Is there subject-matter jurisdiction based on diversity of citizenship?	Freedom Inc. contends diversity exists.	Borish, Rowland, Barhonovich, and Berthiaume are Florida citizens; Freedom Inc. is Florida-based for the nerve center.	No diversity; lack of complete diversity present; jurisdiction lacking.
Is there subject-matter jurisdiction based on federal securities fraud claims?	Claims under §10(b)/Rule 10b-5 and §17(a) are asserted.	Standing problems; issuer suing about its own stock; no sale or enforceable contract to purchase/sell.	No federal question jurisdiction; plaintiffs lack standing and §17(a) private right of action exists.
Do the plaintiffs have standing to sue under Rule 10b-5 as non-purchasers?	Directors sue as corporate plaintiffs alleging loss from stock issuance.	They are non-purchasers; different category under Blue Chip Stamps.	Lack of standing; cannot sue under Rule 10b-5 as non-purchasers.
Does §17(a) provide an implied private right of action?			No implied private right of action under §17(a) for private plaintiffs.

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975) (standing limits for private 10b-5 suits; actual purchase/sale or contract required)
Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010) (nerve center test for corporate citizenship; establishes diversity rule)
Pelletier v. Stuart-James Co., Inc., 863 F.2d 1550 (11th Cir. 1989) (standing to sue 10b-5 requires actual purchase/sale or contract)
Trustcash Holdings, Inc. v. Moss, 668 F. Supp. 2d 650 (D.N.J. 2009) (non-purchasing issuer lacks standing in securities fraud suit)
Financial Sec. Assurance, Inc. v. Stephens, Inc., 500 F.3d 1276 (11th Cir. 2007) (standing of certain plaintiffs in securities actions)
Currie v. Cayman Res. Corp., 835 F.2d 780 (11th Cir. 1988) (§17(a) does not imply private right of action)