93 F. Supp. 3d 801
N.D. Ohio2015Background
- Putative securities class action alleging Biozoom stock was unregistered and sold by market makers; plaintiffs seek rescission or damages.
- Plaintiffs purchased Biozoom on the OTC Bulletin Board from market makers; defendants allegedly sold unregistered stock.
- Biozoom originated from Entertainment Art, with multiple restructurings and a 2008 registration for some shares; a later 2013 distribution is central to the dispute.
- SEC actions and pump-and-dump allegations frame the facts; the court considers federal and state-law claims and motions to dismiss.
- The court grants in part and denies in part, examining statute of limitations, exemptions from registration, and preemption of state law; contract claims are ultimately dismissed on causation and privity grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 12(a)(1) claims are time-barred. | Plaintiffs argue claims relate back or fall within continuing violation. | Defendants contend feasible limitations start at each sale; later-added claims are untimely. | Only Corso’s claim timely; others time-barred. |
| Whether late-added defendants' claims relate back under Rule 15(c). | Claims relate back to original pleading. | Rule 15(c) requires substitution, not addition; no mistake improper identity. | Relation back rejected; later-added claims time-barred. |
| Whether dealer’s exemption under 4(a)(3) or brokers’ exemption under 4(a)(4) applies to Biozoom sales. | Exemptions do not apply because facts show direct sales to plaintiffs. | Exemption applies depending on first bona fide public offer and nature of transactions. | Dealer’s and brokers’ exemptions not established; exemptions do not bar 12(a)(1) liability at this stage. |
| Whether plaintiffs plausibly alleged direct purchases from defendants under Section 12(a)(1). | Plaintiffs purchased directly through brokers acting as agents; real purchaser is plaintiffs. | Transactions may have been brokered by third parties; agency pleaded but not proven. | Plausible direct-purchase theory; however, overall 12(a)(1) claims largely dismissed on limitations grounds. |
| Whether state-law claims are preempted or viable. | State claims should proceed; preemption not applicable to breach of contract. | NSMIA and implied preemption bar state-law claims. | Blue Sky and related claims impliedly preempted; breach of contract claims not preempted but inadequately pled. |
Key Cases Cited
- Pinter v. Dahl, 486 U.S. 622 (U.S. 1988) (nexus with an actual sale required for liability)
- Krupski v. Costa Crociere S.p.A., 560 U.S. 538 (U.S. 2010) (relating back and mistake in identity; amendment standards)
- SEC v. North American Research & Development Corp., 424 F.2d 63 (2d Cir. 1970) (considered new distribution timing under 4(a)(3) exemptions)
- P. Stolz Family Partnership L.P. v. Daum, 355 F.3d 92 (2d Cir. 2004) (tests bona fide public offering dating for exemptions)
- SEC v. Cavanagh, 445 F.3d 105 (2d Cir. 2006) (burden on exemption applicability; transaction-by-transaction analysis)
- Brown v. Earthboard Sports USA, Inc., 481 F.3d 901 (6th Cir. 2007) (NSMIA preemption limits on state securities registration claims)