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NAPIER v. BRUCE

May 26, 2004.

JOHN NAPIER, Plaintiff; V. MARK BRUCE, ROSEMARY BRUCE, MAX STEVENS, TIM WALDUSKY, AL PIETRANGELO, MJM-PC SOLUTIONS, INC. d/b/a VICOM, VICODE, INC., HYPERVELOCITY, INC., VIRTUAL INTERNET COMMUNICATIONS, INC. d/b/a VICOM, and MPACT DEVELOPMENT LLC, Defendants


The opinion of the court was delivered by: MARK FILIP, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff's original complaint asserted one count under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 ("RICO"), one count under the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240, 10b-5 ("10b-5" or "Section 10(b)"), and seven counts under state common law. On May 19, 2003, Defendants Mark Bruce, Rosemary Bruce, Tim Waldusky, and Al Petrangelo moved to dismiss all of the claims asserted against them and Defendant Max Stevens moved under Federal Rule of Civil Procedure 12(e) for a more definite statement.*fn1 With regard to the RICO and 10b-5 claims, the moving Defendants argued that the circumstances of fraud were not pled with sufficient particularity. (D.E. 21, ¶¶ 7-8, 15-16; D.E. 22, at 1-3, 5-6; D.E. 23, at 1-3, 6-7; D.E. 25, at 1-3, 6-7.) Several of the Defendants also pointed out that plaintiff's claim that he was fraudulently induced to purchase shares in June and December 1999 could not be actionable as to them because they were not alleged to have had interactions or dealings with Plaintiff until months or years after Plaintiff acquired the securities in question. (D.E. 22, at 2-3; D.E. 23, at 2-3; D.E. 25, at 2-3.) Judge Leinenweber considered the Defendants' arguments sufficiently compelling that, on September 9, 2003, he summarily dismissed the complaint in a single-paragraph minute order.

Plaintiff filed his first amended complaint on September 16, 2003. The amended complaint sets forth one count under RICO against all Defendants, one count under Section 10(b) against Defendants Stevens and Mark Bruce only, and eleven counts under state statutes and common law variously against some or all Defendants, However, in terms of addressing the lack of specificity in the RICO and 10b-5 fraud claims that led to the dismissal of the original complaint, the amended complaint does nothing more than identify Stevens as the maker of a single alleged misrepresentation and add an allegation that Mark Bruce made a misrepresentation in February 2002, at least eleven months after Plaintiff acquired his last securities.*fn2

  Defendant Stevens has filed a motion to dismiss all claims asserted against him. While the other Defendants served with the amended complaint, Mark and Rosemary Bruce, Waldusky, and Pietrangelo, have not Filed a separate motion to dismiss,*fn3 the record is unclear as to whether they intended, through an oral motion made by their attorney, to join Stevens's motion to dismiss.*fn4 As explained below, this Court finds that the RICO count — which appears to be based on the same factual allegations concerning all Defendants — should be dismissed because, among other reasons, plaintiff's averments are patently defective in that he has not properly alleged any RICO predicate acts or properly alleged and defined any RICO enterprise. This Court also finds that the 10b-5 count should be dismissed because the circumstances of alleged fraud have not been pled with sufficient particularity. (As explained further below, the securities fraud count also is deficient for multiple reasons under federal securities law precedent). Put differently, nothing in the amended complaint cures the deficiencies that earlier prompted Judge Leinenweber to summarily dismiss these counts in September 2003.

  At this time, the Court intends to dismiss the federal claims for failure to state a claim and also intends — as Seventh Circuit precedent directs, see, e.g., Grace v. Eli Lilly & Co., 193 F.3d 496, 501 (7th Cir. 1999) — to dismiss all pendent state claims without prejudice so that they can be reasserted in state court, if Plaintiff so chooses. However, in light of, among other things, the lack of clarity regarding the intent of some of the Defendants to join in Stevens's motion to dismiss and the fact that the Court has further elaborated on certain deficiencies in the pleading that likely prompted Judge Leinenweber's prior summary dismissal, the Court will not dismiss the amended complaint without giving Plaintiff the opportunity to challenge the propriety of such dismissal. Accordingly, the Plaintiff has fourteen days to respond to this memorandum opinion and order. In particular, Plaintiff is invited to file a brief regarding why the pending federal law claims in the amended complaint should not be dismissed with prejudice for the reasons identified herein, such that Plaintiff will be able to pursue his state law claims in state court, if he so chooses. See, e.g., Kennedy v. Schoenberg, Fisher & Newman Ltd., 140 F.3d 716, 728 (7th Cir. 1998).

  BACKGROUND FACTS*fn5

  On or about June 5, 1999, Plaintiff purchased twenty percent of the shares in MJM-PC Solutions, Inc. ("MJM"), an information technology consulting services company, "in exchange for paid-in capital in the form of ten thousand dollars ($10,000.00) in computer equipment and the transfer of existing accounts." (D.E. 30, ¶ 15.) Defendant Stevens, in his capacity as CEO of MJM-PC Solutions, Inc., signed the stock purchase agreement. According to Plaintiff, "[j]ust prior to entering into this agreement, Defendant Max Stevens showed Plaintiff Napier the financial statements of MJM-PC Solutions, Inc., which showed all accounts current and paid." (Id.) However, "[i]n December 1999, Plaintiff Napier became aware of eighty-seven thousand dollars ($87,000.00) in back taxes owed by MJM-PC Solutions, Inc," (Id., ¶ 17.) On or about December 30, 1999, Plaintiff entered into a promissory note with MJM, under the terms of which, inter alia, Plaintiff loaned MJM $87,000 "for the payment of back taxes," and plaintiff's ownership interest in MJM increased to 33%. (Id., ¶ 18.)

  In or about May 2000, Mark Bruce joined MJM (which was by then doing business as "Vicom"), replaced Stevens as CEO, and received 20% equity in the company, thereby reducing plaintiff's ownership interest to 25%. (Id., ¶ 21.) On or about May 24, 2000, Plaintiff entered an employment contract with MJM to serve as Vice President of Sales and Marketing. (Id., ¶ 20.)

  Plaintiff further alleges that, "[i]n or about February 2001, Defendant Mark Bruce completed a `reverse merger' of MJM-PC Solutions, Inc. d/b/a Vicom with a `public shell' company, which resulted in a change of the company's name to Virtual Internet Communications, Inc. d/b/a Vicom," (Id., ¶ 24.) Mark Bruce became President of the company with Stevens as Vice President. (Id.) As a result of the reverse merger, plaintiff's ownership interest was reduced to 20%. (Id.) Plaintiff alleges that there was no shareholder approval of the reverse merger, and that he "was never provided with any notice of any meeting at which said reverse merger would be discussed or voted on, Napier never approved said reverse merger or the reduction in his ownership interest of the company resulting therefrom." (Id., ¶ 25.)

  On July 13, 2001, Defendants Mark Bruce and Tim Waldusky incorporated a company known as Vicode, Inc. ("Vicode"). (Id., ¶ 28.) Plaintiff alleges that "Defendants Mark Bruce and Tim Waldusky formed Vicode to establish credit, and processed all [MJM] accounts receivable, paychecks and drafts through Vicode." (Id.) "In December 2001, [letters] were sent to clients and vendors advising that MJM-PC Solutions, Inc. had changed its name to Vicode, Inc., but that there . . . [were] no other changes, including no changes in ownership. These letters were signed by Defendants Max Stevens and Mark Bruce." (Id., ¶ 33.)

  Plaintiff further alleges that, "[o]n January 16, 2002, Defendant Mark Bruce informed Plaintiff Napier that the company . . . [would] no longer pay him current wages or any back pay." (Id., ¶ 34.) MJM (the company in which Plaintiff holds stock, a/k/a "Virtual Internet Communications, Inc." and "Vicom") was dissolved on or about January 31, 2002, (Id., ¶ 37,) "In February 2002, Defendant Mark Bruce represented to Plaintiff that ownership and debts of [MJM] would be transferred to Hypervelocity, Inc." (Id., ¶ 42.) However, it appears that Plaintiff did not receive an ownership interest in Hypervelocity, Inc.

  On March 13, 2002, Vicode (which the business of MJM was apparently run through after some point in 2001) was dissolved and its accounts arid assets were transferred to Hypervelocity, Inc. (Id., ¶ 41.) "[I]n April or May 2002, all accounts and assets of Hypervelocity, Inc, were transferred to Defendant MPACT Development LLC, which operated out of the same offices as Hypervelocity, Inc. and Vicode before it." (Id., ¶ 43.)

  To recap, Plaintiff now owns worthless stock in a dissolved corporation, MJM (a/k/a "Virtual Internet Communications, Inc." and "Vicom,") Vicode, the company that the business of MJM was apparently run through, also dissolved and transferred its assets to Hypervelocity, which then transferred those assets to MPACT Development LLC, In addition to allegedly losing the value of his stock, Plaintiff claims that he has been harmed because MJM never repaid either the $87,000 loan or other loans which total approximately $50,000, Further, Plaintiff is also seeking, inter alia, to recover amounts he is allegedly owed under his employment agreement with MJM,

  Count IX asserts a claim against all Defendants under RICO. Count I is brought against Defendants Stevens and Mark Bruce under Section 10(b). The other eleven counts, Counts II-VIII and X-XIII, seek relief variously against ...


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