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American Power, LLC v. Harris

United States District Court, S.D. Ohio, Western Division, Dayton

August 2, 2018

AMERICAN POWER, LLC, Plaintiff,
v.
DOUGLAS O. HARRIS, et al. Defendants.

          Walter H. Rice, District Judge.

          REPORT AND RECOMMENDATIONS[1]

          Sharon L. Ovington United States Magistrate Judge.

         Plaintiff American Power, LLC brings this action seeking to impose liability on Defendants Michael T. Morley, Scott Larson, and others for purported violations of the Securities Exchange Act of 1934 and state common law. The case is presently before the Court upon Morley's and Larson's Motions to Dismiss (Doc. #s 21, 22), Plaintiff's Memoranda in Opposition (Doc. #s 34, 35), and the record as a whole.

         Both Morley and Larson contend that this Court lacks personal jurisdiction over them under Ohio's long-arm statute and the Fourteenth Amendment's Due Process Clause. Plaintiff asserts that this Court has personal jurisdiction over Defendants under 15 U.S.C. § 78aa.

         Plaintiff's Complaint alleges the following basic information about Defendants Morley and Larson. Morley is a Member-Manager of two other Defendants-Dektrix LLC and Dektrix Transportation Services LLC (Dektrix Transportation). Morley's personal residence is in Spanish Fork, Utah. He is a citizen of Utah. (Doc. #1, ¶ 16). Defendant Larson is the Comptroller, employee, and/or agent of Dektrix LLC and Dektrix Transportation. Larson's personal residence is in Midvale, Utah. He is a citizen of Utah. Id. at ¶ 17.

         The principal office apparently shared by Dektrix LLC and Dektrix Transportation is in Salt Lake City, Utah. Dektrix LLC is incorporated in the State of Nevada; Dektrix Transportation is incorporated in the State of Utah. Id. at ¶s 11-12.

         Plaintiff has the burden to establish that this Court may exercise personal jurisdiction over “each Defendant independently.” Days Inns Worldwide, Inc. v. Patel, 445 F.3d 899, 904 (6th Cir. 2006) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174 (1985)); see CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1261-62 (6th Cir. 1996). No. evidentiary hearing was held on Defendants Morley's and Larson's Motions and, as a result, Plaintiff “need only make a prima facie showing of jurisdiction.” Patterson, 89 F.3d 1262; see Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th 2002). “Under these circumstances, th[e] court will not consider facts proffered by the defendant that conflict with those offered by the plaintiff and will construe the facts in the light most favorable to the nonmoving party [here, Plaintiff]….” Neogen Corp., 282 F.3d at 887 (internal citation omitted); see Beydoun v. Wataniya Restaurants Holding, Q.S.C., 768 F.3d 499, 504 (6th Cir. 2014).

         Defendants Morley and Larson mistakenly rely on Ohio's long-arm statute and the Fourteenth Amendment's Due Process Clause because Plaintiff's Complaint asserts that they violated §§ 10(b) and 20(a) of the Securities Exchange Act and accompanying Rules. (Doc. #1, PageID #s 24-28). “Nationwide service of process is available under Section 78aa of the Securities Exchange Act, which ‘confers personal jurisdiction in any federal district court over any defendant with minimum contacts to the United States.'” Zobel v. Contech Enters., 170 F.Supp.3d 1041, 1045 (S.D. Ohio 2016) (quoting United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1330 (6th Cir. 1993)). Plaintiff's Complaint sufficiently alleges that both Morley and Larson reside in Utah and both are citizens of the State of Utah. They, therefore, have minimum contacts with the United States, triggering this Court's proper exercise of personal jurisdiction over them. See id.

         Defendant Morley also maintains that Plaintiff's claims against him should be dismissed for failing to state claims against him that satisfy Fed.R.Civ.P. 8, 12(b)(6), and 9(b). He incorporates by reference the arguments and authorities pressed by Dektrix LLC and the other Dektrix Defendants in their separately filed Motion to Dismiss. He also argues:

Plaintiff's conclusory and group-pled allegations that the individual Defendants ‘acted as controlling persons for Dektrix' ([Doc. #1, ] ¶ 86) are belied by detailed factual allegations to the contrary. Specifically, the MPA [Membership Purchase Agreement] which Plaintiff incorporated into the Complaint clearly states that only Defendants Harris and Crane are managing members of Dektrix LLC. See Doc. 1-1, p. 89-114 at p. 97.[2] And there is no allegation supporting any reason to believe otherwise. Certainly there is no factual allegation supporting Plaintiff's conclusory allegation.

(Doc. #21, PageID # 286) (footnote added). These contentions lack merit.

         Accepting as true the factual allegations raised in Plaintiff's Complaint and construing it “in the light most favorable to Plaintiff…, ” Doshi v. General Cable Corporation, 823 F.3d 1032, 1039 (6th Cir. 2016); see Frank v. Dana Corp., 646 F.3d 954, 958 (6th Cir. 2011), reveals repeated allegations that Defendant Morley is a member-manager of Dektrix LLC and Dektrix Transportation. See Doc. #1, ¶s 8, 16, 18. Dektrix LLC's Private Placement Memorandum attached to the Complaint provides details about Morley's management role and authority. It states:

Management The Company [Dektrix LLC] is managed by a Board of Managers (the ‘Board'). As of the dates of this Memorandum, the Board is comprised of Murray J. Crane, ...

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