Summary
The United States District Court for the Southern District of California grants in part and denies in part defendants’ motion to dismiss and motion to strike the Third Amended Complaint in a putative securities fraud class action involving Regulation A offerings and acquisition fees. The court dismisses without leave to amend the California Corporations Code section 25401 claim concerning NCP Dove acquisition fees, while allowing claims concerning Regulation A exemption representations and DF Summerlyn acquisition fees to proceed. The court also partially grants the motion to strike allegations relating to previously dismissed claims and orders defendants to answer the remainder of the complaint.
Topics
Practice areas
Questions Presented
- Whether defendants could relitigate the sufficiency of unchanged Regulation A exemption allegations in the Third Amended Complaint.
- Whether the Third Amended Complaint adequately pleaded under Rules 12(b)(6) and 9(b) that the NCP Dove acquisition fees violated California Corporations Code section 25401.
- Whether the Third Amended Complaint adequately pleaded under Rules 12(b)(6) and 9(b) that the DF Summerlyn acquisition fees violated section 25401.
- Whether specified allegations in the Third Amended Complaint were immaterial or impertinent and should be stricken under Rule 12(f).
Holdings
- Defendants could not use the filing of the Third Amended Complaint to relitigate the sufficiency of unchanged allegations concerning the REITs' representations about their Regulation A exemption. The court applied the law-of-the-case doctrine and denied dismissal on that basis.
- The TAC failed to state a section 25401 claim based on allegedly excessive acquisition fees for NCP Dove, and the claim was dismissed without leave to amend.
- The TAC adequately stated a section 25401 claim based on allegedly excessive acquisition fees for DF Summerlyn, so dismissal was denied as to that claim.
- The motion to strike was granted only as to specified portions of paragraphs 23, 30, 41-43, 64-65, and 74-77 concerning previously dismissed claims; it was denied as to the remaining challenged allegations.
Key quotations
“Under the ‘law of the case’ doctrine, a court is ordinarily precluded from reexamining an issue previously decided by the same court, or a higher court, in the same case.” (at 5)
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” (at 6)
“Under Rule 12(f), the court may “strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.”” (at 10)
Factual background
REIT I and REIT II were blind-pool real-estate companies that offered securities under Regulation A. Plaintiffs alleged that the REITs made materially false or misleading statements concerning their Regulation A exemption status and the acquisition fees charged for the NCP Dove and DF Summerlyn projects. The TAC alleged that NCP Dove had total project costs of $46,370,000, that REIT II owned 31.07 percent, and that the reported acquisition fee was later revised to $530,106; it also alleged that DF Summerlyn had total project costs of $9,480,772.94 and generated $540,088 in acquisition fees against a stated 5.5 percent cap.
Procedural history
The court previously dismissed with leave to amend several section 25401 theories, while sustaining claims concerning REIT II's alleged representation that it would not charge management fees and the REITs' representations concerning Regulation A exemption status. Plaintiffs filed a Third Amended Complaint, amending only allegations concerning excessive acquisition fees. The court granted in part and denied in part defendants' motion to dismiss and motion to strike, dismissed the NCP Dove acquisition-fee claim without leave to amend, sustained the Regulation A and DF Summerlyn acquisition-fee claims, struck specified allegations, and ordered defendants to answer the remainder of the complaint.