SPECIALTY GRAPHITE SERVICES, INC v. CHIODO
2:11-cv-01438
| W.D. Pa. | Jan 19, 2012Background
- Plaintiff Specialty Graphite Services, Inc. is a Pennsylvania corporation engaged in graphite products and SGS sued Chiodo, a former SGS president/secretary/director.
- Chiodo allegedly formed SGS while secretly remaining employed by Graphite Sales, Inc. (GES) and signed NDA, noncompete, nonsolicitation, and stock agreements.
- Kearney, president/owner of GES, helped establish SGS; Chiodo arranged to incorporate SGS and serve as a director and officer.
- Chiodo informed Kearney of unfaithfulness after Graphite Sales confronted him, leading to contemporaneous disclosures in exhibits attached to the complaint.
- Plaintiff asserted five counts: Count I under §10(b) of the Exchange Act; Counts II–V state law claims; Defendant moved to dismiss Counts I–III and to decline supplemental jurisdiction over II–V.
- Court dismissed Count I for lack of loss causation and economic loss and declined supplemental jurisdiction over Counts II–V; the remaining state claims may be pursued in state court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Count I states a §10(b) securities fraud claim. | Plaintiff argues misrepresentation/omission and loss causation. | Defendant contends failure to plead economic loss and loss causation. | Count I dismissed for lack of loss causation and economic loss. |
| Whether the court should exercise supplemental jurisdiction over Counts II–V. | Counts II–V arise from the same nucleus of facts. | With Count I dismissed, supplemental jurisdiction should be declined. | Court declines supplemental jurisdiction over Counts II–V. |
Key Cases Cited
- McCabe v. Ernst & Young, LLP, 494 F.3d 418 (3d Cir. 2007) (requires both transaction and loss causation in §10(b) claims)
- Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (S. Ct. 2005) (pleading standards; need for loss causation and economic loss)
- EP MedSystems, Inc. v. EchoCath, Inc., 235 F.3d 865 (3d Cir. 2000) (loss causation considerations in non-typical §10(b) actions)
- Berckeley Inv. Group, Ltd. V. Colkitt, 455 F.3d 195 (3d Cir. 2006) (loss causation framework in §10(b) actions)
- Newton v. Merrill Lynch, Pierce Fenner & Smith, Inc., 259 F.3d 154 (3d Cir. 2001) (illustrates causation concepts in §10(b) actions)