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Howe v. Shchekin

United States District Court, N.D. Illinois, Eastern Division

March 3, 2017

WILLIAM HOWE, an Individual, and D & D AUTO RESORT, LLC, an Illinois limited liability company, Plaintiffs,
v.
ALEXANDR SHCHEKIN a/k/a ALEXANDRE SHCHEKIN, an Individual, Defendant.

          MEMORANDUM OPINION AND ORDER

          John Z. Lee United States District Judge

         Plaintiffs William Howe (“Howe”) and D&D Auto Resort, LLC (“D&D”) (together, “Plaintiffs”) filed suit against Defendant Alexandr Shchekin (“Shchekin”), alleging that Shchekin violated federal securities law and committed common law fraud in connection with selling Howe membership units in ReadOz, LLC (“ReadOz”). Shchekin now moves to dismiss Plaintiffs' Amended Complaint under Federal Rule of Procedure (“Rule”) 12(b)(6). For the reasons that follow, Shchekin's motion [51] is granted.

         Background

         Beginning in May 2008, Shchekin-an owner and manager of digital publisher ReadOz-began soliciting Plaintiffs' investment in the company. Am. Compl. ¶¶ 8, 16, ECF No. 47. His solicitation was successful. On three occasions, Plaintiffs purchased “membership units” in ReadOz. First, on May 27, 2008, D&D purchased 47, 666 and 2/3 units for $71, 500.00. Id. ¶ 17. Later, on September 15, 2009, Howe made an individual investment of an undisclosed amount and received 21, 399.92 units. Id. ¶ 19. Finally, on April 8, 2011, Howe made another individual investment of an undisclosed amount and received 8750 units in return. Id. ¶ 22.

         In connection with these purchases, Plaintiffs allege that Shchekin made a number of misrepresentations and omissions “[b]etween April 2008 and present.” Id. ¶ 25. First, in connection with all three sales, Shchekin failed to advise Plaintiffs that the units were not registered with the Securities Exchange Commission (SEC). Id. ¶ 25(a). He also “never presented or delivered” a prospectus and “failed to ensure that [Plaintiffs] were accredited investors.” Id. ¶¶ 25(b), 45.[1]Additionally, in connection with the 2009 and 2011 sales, Shchekin “failed to advise Howe that ReadOz could only accept investments over $50, 000.” Id. ¶ 25(c).[2]

         Plaintiffs also identify a number of misrepresentations that Shchekin made on various dates from on or about February 17, 2010, to August 1, 2011, in the course of securing their investments. See Id. ¶ 25. In general terms, the statements sought to reassure Plaintiffs of ReadOz's growth and solvency. See, e.g., id. ¶ 25(m) (“In the same August, 17, 2010 correspondence, Shchekin claimed that ReadOz was experiencing 1, 000% growth and in excess of 750, 000 readers on the ReadOz site monthly.”). Plaintiffs further allege that, following their investments, Shchekin continued to reassure them of ReadOz's value. Id. ¶¶ 26-27. According to Plaintiffs, their “suspicions of fraud were confirmed in 2015 when they discovered Shchekin's continued efforts to solicit additional investment.” Id. ¶ 28.

         Plaintiffs filed their initial complaint before this Court on October 1, 2015. On May 13, 2016, the Court granted Plaintiffs' motion to file an amended complaint, and Plaintiffs filed their amended complaint thereafter, naming Shchekin and Andrew Menasce as Defendants. Andrew Menasce has since been dismissed. Plaintiffs' Amended Complaint contains two counts. Count I, brought solely by Howe, is titled “Violation of § 10(b)(5) of the Securities Act of 1934” and is based on Howe's April 8, 2011 investment in ReadOz. Count II is titled “Common Law Fraud” and is based on each of Plaintiffs' investments in ReadOz.

         Legal Standard

         To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint must “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Additionally, when considering motions to dismiss, the Court accepts “all well-pleaded factual allegations as true and view[s] them in the light most favorable to the plaintiff.” Lavalais v. Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013) (citing Luevano v. Wal-Mart Stores, Inc., 722 F.3d 1014, 1027 (7th Cir. 2013)). At the same time, “allegations in the form of legal conclusions are insufficient to survive a Rule 12(b)(6) motion.” McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir. 2012) (citing Iqbal, 556 U.S. at 678). As such, “[t]hreadbare recitals of the elements of the cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.

         In ruling on a motion to dismiss pursuant to Rule 12(b)(6), a district court should not require a plaintiff to “anticipate or overcome affirmative defenses such as those based on the statute of limitations.” O'Gorman v. City of Chi., 777 F.3d 885, 889 (7th Cir. 2015). But where a plaintiff “plead[s] himself out of court by including factual allegations that establish that the plaintiff is not entitled to relief as a matter of law, ” the court can dismiss the complaint accordingly. Id.

         Analysis

         I. Count I: Section 10(b) of the Securities and Exchange Act of 1934

         A. Statute of Repose

         Shchekin initially moves to dismiss Count I to the extent it relies on fraudulent misrepresentations or omissions occurring prior to October 1, 2010. He argues that any such reliance is barred by the applicable statute of repose. Claims under Section 10(b) of the Securities and Exchange Act of 1934 are subject to the limitations and repose ...


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