Summary
The United States District Court for the Eastern District of California denies Defendants’ motion to dismiss the plaintiffs’ Second Amended Complaint. The Court holds that the complaint sufficiently alleges scienter and reliance for a securities-fraud claim under Section 10(b) of the Securities Exchange Act of 1934. Defendants are ordered to answer within 21 days of the October 24, 2025 order.
Topics
Practice areas
Questions Presented
- Whether the Second Amended Complaint adequately pleaded scienter for a securities-fraud claim under § 10(b) and Rule 10b-5.
- Whether the Second Amended Complaint adequately pleaded reliance for the securities-fraud claim.
Holdings
- The Second Amended Complaint adequately pleaded scienter because it alleged with particularity facts supporting a strong inference that the individual defendants acted intentionally or with deliberate recklessness, and it alleged that Haas and Westbrook acted as agents of Quartzview within the scope of their apparent authority, permitting their scienter to be imputed to Quartzview.
- The Second Amended Complaint adequately pleaded reliance by alleging how shareholders learned of the alleged misrepresentations, the purpose of the representations, and that the representations played a role in shareholders’ decisions whether to sell their stock to Quartzview or transfer control of OSTO.
Key quotations
“Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged “enough facts to state a claim to relief that is plausible on its face.”” (Opinion at 2)
“In sum, the Court finds Plaintiffs have adequately established scienter.” (Opinion at 4)
“Here, the Court finds Plaintiffs have sufficiently cured the defects previously identified.” (Opinion at 5)
Factual background
Plaintiffs alleged that defendants made multiple false or misleading statements and omissions as part of a campaign to depress the value of Original Sixteen to One Mine stock and enable Quartzview to gain control of the company. The alleged misconduct included a manipulation report distributed by Roger Haas and Simon P. Westbrook, which plaintiffs alleged was intended to cause shareholders to lose confidence in existing management and sell their shares to Haas or Quartzview. Plaintiffs alleged that Haas was Quartzview’s president and director and Westbrook was a director, and that shareholders relied on the alleged misrepresentations when deciding whether to sell their stock to Quartzview or transfer control of the company.
Procedural history
Plaintiffs filed a Second Amended Complaint alleging, among other claims, securities manipulation under § 10(b), declaratory relief, California securities-law violations, breach of contract, inducing breach of contract, elder financial abuse, theft, and unfair competition. Defendants moved to dismiss the securities-fraud claim, arguing that scienter and reliance were inadequately pleaded. The court concluded that the Second Amended Complaint cured deficiencies identified in prior rulings and denied the motion, directing defendants to answer within twenty-one days.