United States District Court, S.D. Indiana, Indianapolis Division
For CMG WORLDWIDE, INC., Plaintiff: Theodore John Minch, SOVICH MINCH LLP, Indianapolis, IN.
For JAN GLASER, an individual, TATYANA KHOMYAKOVA, an individual, TATYANA DESIGNS, INC., TATYANA, LLC, Defendants: Mario L. Herman, PRO HAC VICE, ATTORNEY AT LAW, Washington, DC; Scott E. Shockley, DEFUR VORAN LLP, Muncie, IN.
ENTRY ON DEFENDANTS' REQUEST FOR RULE 11 SANCTIONS
RICHARD L. YOUNG, CHIEF UNITED STATES DISTRICT COURT JUDGE.
On January 9, 2015, the court dismissed Plaintiff CMG Worldwide, Inc.'s, Complaint for failure to state a claim upon which relief can be granted. Count III alleged Defendants violated Section 10(b) under the Securities and Exchange Act of 1934 (" Securities Act" ) and Rule 10b-5; and Count IV alleged Defendants violated Section 20(a) of the Act. Having finally adjudicated this action, the court is now required, pursuant to the Private Securities Litigation Reform Act (" PSLRA" ), to make " specific findings regarding compliance by each party . . . with each requirement" of Rule 11." 15 U.S.C. § 78u-4(c)(1).
CMG is a celebrity and brand licensing agency that, for purposes of this case, serves as the agent of Bettie Page, LLC (or " BPL" ) and the Estate of Bettie Davis.
CMG granted Defendants a license to use the Bettie Page Intellectual Property for use in connection with their stores, clothing lines, and the like.
Stop Staring! Designs was a competitor of Defendants, and, on March 24, 2009, filed a lawsuit for trademark and trade dress infringement against them in the Central District of California. In November 2009, Defendants allegedly contacted CMG and asked CMG to sue Stop Staring! Designs as a means to deplete Stop Staring! Designs' resources. As an incentive, Defendants offered to pay CMG's attorney's fees and costs associated with the lawsuit. CMG agreed, but CMG Brands, LLC filed the lawsuit. CMG Brands lost miserably. Defendants failed to pay CMG's attorney's fees and costs; consequently, CMG terminated its license agreement(s) with Defendants and filed this action to recover its attorney's fees and costs from the Defendants.
CMG's Securities Act claims are difficult to understand. Count III contains the following conclusory allegations:
48. Defendant, JG [Jan Glaser], with scienter, directly or indirectly:
a. employed devices, schemes, or artifices to defraud;
b. made untrue statements of material facts or omitted to state material facts necessary in order to make the statement made, in light of the circumstances under which they were made, not misleading; or
c. engaged in acts, practices, or courses of business which operator would operate as a fraud or deceit upon other persons, including purchasers or sellers of securities.
49. As a result of the foregoing, Defendants JG and TK [Tatyana Khomyakova] have violated Section 10(b) of the Exchange Act of 1934 (specifically, 15 U.S.C. § 78j(b)).
A private damages action under Rule 10b-5 is limited to actual purchasers and sellers of securities. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975); Birnbaum v. Newport Steel Corp., 193 F.2d 461, 463-64 (2d Cir. 1952), cert denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952); Eason v. General Motors Acceptance Corp., 490 F.2d 654, 657 (7th Cir. 1973) (noting the " purchaser-seller" requirement is frequently described as a standing requirement). Despite this well-settled law, CMG's attorney filed 10b-5 claims against Defendants even though CMG neither purchased nor sold the relevant stock. In CMG's response in opposition to Defendants' motion to dismiss, CMG attempted to clarify Count III by explaining that " it was harmed by Defendants' failure to disclose the obligation of payment to CMG to indemnify CMG against the award in the Lawsuit was a material failure and that failure materially altered the [Tatyana Designs, Inc. (" TDI" )] stock price." (Filing No. 13 at 16) (emphasis added).
The only failure to disclose mentioned in CMG's Complaint was found in paragraphs 23 and 24, wherein CMG alleged that " CMG, on behalf of [Bettie Page LLC], terminated the various license agreements between [Bettie Page LLC] and Defendants," and " in violation of SEC Rules, Defendants have yet to publically, in required SEC filings, disclose the termination of their rights in and to the Page Intellectual Property." (Compl. ¶ ¶ 23 and 24). The court found that the failure to disclose, as alleged in the Complaint, had nothing to do with an obligation of payment; instead, the failure to disclose related to information CMG contends was ...