Case Information
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UNITED STATES DISTRICT COURT DISTRICT OF NEVADA ______________________________________
) )
NORMAN MILLER et al., ) ) Plaintiffs, ) 3:15-cv-00400-RCJ-VPC ) vs. ) ) ORDER
MOORE STEPHENS WURTH FRAZER & ) TORBETT, LLP et al., )
)
Defendants. )
Pending before the Court are a Motion to Remand (ECF No. 2) and a Motion to Dismiss (ECF No. 10). For the reasons given herein, the Court denies the motion to remand and grants
the motion to dismiss.
I. FACTS AND PROCEDURAL HISTORY
This suit began as a shareholder derivative suit on behalf of RINO International Corp.
(“RINO”). The suit was first filed in state court in 2010. Plaintiffs have settled with the
director/officer Defendants. The Third Amended Complaint (“TAC”) contains direct claims for
professional negligence and breach of contract, and a derivative claim for aiding and abetting
breaches of fiduciary duties against RINO’s former auditors Defendants Moore Stephens Wurth
Frazer & Torbet, LLP and Frazer Frost, LLP. The first two claims are direct and not derivative
because RINO has assigned those claims to Plaintiffs. Plaintiffs allege that Defendants breached *2 their contracts with RINO, were professionally negligent, and aided and abetted the
director/officer Defendants’ breaches of fiduciary duties. In other words, Defendants’ failure to
conduct proper audits and to correct known deficiencies in various SEC filings permitted the
director/officer Defendants to loot the company. Defendants removed the TAC. Plaintiffs have
moved to remand, and Defendants have asked the Court to dismiss the third claim and remand
the remaining claims.
II. DISCUSSION
Because the Court is of limited jurisdiction and the motion to remand challenges the Court’s jurisdiction over the subject matter, the Court addresses that motion first. Defendants
removed the case from state court under 28 U.S.C. § 1441(a), alleging that the Court has federal
question jurisdiction under § 1331 because the TAC implicates the Securities Litigation Uniform
Standards Act of 1998 (“SLUSA”), 15 U.S.C. §§ 77p, 78bb. There is no removal jurisdiction
under §§ 1441(a) and 1331, but there may be removal jurisdiction under 15 U.S.C. § 78bb(f)(2)
directly. The Supreme Court has noted that SLUSA “‘does not itself displace state law with
federal law but makes some state-law claims nonactionable through the class action device in
federal as well as state court.’ In other words, SLUSA does not provide a federal rule of decision in lieu of a state one, but instead provides a federal defense precluding certain state law actions
from going forward.” Proctor v. Vishay Intertechnology, Inc. , 584 F.3d 1208, 1220 (9th Cir.
2009) (quoting Kircher v. Putnam Funds Trust , 547 U.S. 633, 636 n.1 (2006)). Although
SLUSA does not provide for complete preemption jurisdiction via §§ 1441(a) and 1331, it
directly provides for removal jurisdiction. Id. at 1220 & n.10 (“Any covered class action brought
in any State court involving a covered security, as set forth in paragraph (1), shall be removable
to the Federal district court. . . .” (quoting 15 U.S.C. § 78bb(f)(2))). *3 The parties dispute whether the third claim “involv[es] a covered security, as set forth in 1
2 paragraph (1) . . . .” That subsection reads: No covered class action based upon the statutory or common law of any State or
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subdivision thereof may be maintained in any State or Federal court by any private party alleging-- 4 (A) a misrepresentation or omission of a material fact in connection with
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the purchase or sale of a covered security; or
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(B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered 7
security. 10 15 U.S.C. § 78bb(f)(1). Defendants correctly note that the Supreme Court has ruled that for the
purposes of SLUSA, there is no distinction between stockholders complaining that they 2
purchased or sold their stock based on deception and stockholders complaining that they now
hold (or delayed selling) their stock based on deception. See Merrill Lynch, Pierce, Fenner &
Smith v. Dabit , 547 U.S. 71, 88–89 (2006). It may be that the harm alleged here is not the loss of
the value of stock to any stock-buyer, -seller, or -holder, but the loss of the company’s assets
directly. But the prayer for relief belies that notion, at least as to the third claim. The prayer for
relief asks the Court, inter alia , to certify the third claim “as a class action claim on behalf of all
Rino shareholders who held Rino stock after the date of the delisting of the Company’s
shares . . . .” That makes clear that Plaintiffs base the third claim on the loss of value of their
stock. And that means both that the case is removable, see 15 U.S.C. § 78bb(f)(2), and that the
third claim must be dismissed, see id. at § 78bb(f)(1). The Court will remand the remaining
claims as Defendants request, because they do not appear to seek damages based on the loss of
any stock value to any party but only direct damage to RINO as a company, which is a different
DATED this 25 th day of January, 2016. measure of harm. The Court states no opinion as to the merits of the remaining claims, and their
adjudication remains totally with the state courts. *4 CONCLUSION
IT IS HEREBY ORDERED that the Motion to Remand (ECF No. 2) is DENIED, and the Motion to Dismiss (ECF No. 10) is GRANTED. The third cause of action is DISMISSED, and
the remainder of the case is REMANDED to the First Judicial District Court of Carson City,
Nevada.
IT IS FURTHER ORDERED that the Clerk shall enter judgment on the third claim and close the case.
IT IS SO ORDERED.
Dated this 8th day of December, 2015. _____________________________________ ROBERT C. JONES United States District Judge
