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Hilliary Acquisition Corp. 2016 LLC v. Garrison

United States District Court, W.D. Oklahoma

February 16, 2018

HILLIARY ACQUISITION CORP. 2016, LLC, and OKLAHOMA WESTERN TELEPHONE COMPANY, LLC, Plaintiffs,
v.
CYNTHIA GARRISON; MIKE VAN HORN; PAULINE VAN HORN; DUSTY KIRKES; and TRUDIE KIRKES, Defendants.

          ORDER

          VICKI MILES-LAGRANGE UNITED STATES DISTRICT JUDGE.

         Before the Court is defendants' 12(b) Motion To Dismiss Or Alternatively Stay Proceedings For Lack Of Subject Matter Jurisdiction, And Due To The Same Issues Before This Court Being Currently In Litigation In The United States Court For The Eastern District Of Oklahoma, And Improper Venue, filed December 7, 2017. On December 28, 2017, plaintiffs filed their response. Defendants have filed no reply.

         I. Introduction

         This case involves a dispute arising out of defendants' alleged misrepresentations and fraud concerning the sale of 100% of the stock of plaintiff Oklahoma Western Telephone Company, LLC (“OWTC”), which was purchased by plaintiff Hilliary Acquisition Corp. 2016, LLC (“HAC 2016”). Plaintiffs allege six causes of action against defendants: (1) securities fraud under the Securities Exchange Act of 1934 § 10(b) and 17 C.F.R. § 240.10b-5, (2) violation of Section 1-509 of the Oklahoma Securities Act, (3) breach of fiduciary duties under the Employee Retirement Income Security Act (“ERISA”) § 502(a)(2), codified at 29 U.S.C. § 1132(a)(2), (4) breach of contract, (5) fraud, and (6) constructive fraud. Defendants now move this Court to dismiss plaintiffs' Amended Complaint for lack of subject matter jurisdiction, improper venue, and/or because the same issues are currently pending before the United States District Court for the Eastern District of Oklahoma.

         II. Discussion

         A. Subject matter jurisdiction

         Defendants assert that there is no federal subject matter jurisdiction over the instant case. Specifically, defendants assert that absolutely none of the claims asserted by plaintiffs arise under the Constitution, treaties, or laws of the United States.

         Defendants contend that this Court does not have subject matter jurisdiction over plaintiffs' federal securities claim. Specifically, defendants contend that Rule 10b-5 only applies to publicly traded stock on a national stock exchange and that the sale of stock at issue in this case was a private sale of stock. Defendants further contend that the instant sale was entirely an intrastate sale, and no part of the transaction was required to cross state lines to effectuate the same.

         Federal district courts have exclusive jurisdiction over federal securities claims brought pursuant to the Securities Exchange Act of 1934. See 15 U.S.C. § 78aa (“The district courts of the United States . . . shall have exclusive jurisdiction of violations of this chapter or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder.”). Additionally, Rule 10b-5 unquestionably applies to the private sale of stock. Rule 10b-5 provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5 (emphasis added). Further, the Securities Exchange Act of 1934 specifically prohibits the use of any manipulative or deceptive device “in connection with the purchase or sale of any security on a national securities exchange or any security not so registered.” 15 U.S.C. § 78j(b) (emphasis added). Additionally, the Securities Exchange Act of 1934 defines the term “interstate commerce” to include “intrastate use of (A) any facility of a national securities exchange or of a telephone or other interstate means of communication or (B) any other interstate instrumentality.” 15 U.S.C. § 78c(17) (emphasis added).

         Having carefully reviewed plaintiffs' Amended Complaint, the Court finds that it clearly has exclusive federal jurisdiction over plaintiffs' federal ...


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