Clinton Brown v. Emil Assentato

• Court: District Court, C.D. California
• Decided: September 27, 2024
• Docket: 2:23-cv-02972
• Status: Unknown

Opinion

1 O, JS-6 2

7 UNITED STATES DISTRICT COURT 8 CENTRAL DISTRICT OF CALIFORNIA 9

10 Case No.: 2:23-cv-02972-MEMF-KS CLINTON BROWN,

11 Plaintiff, ORDER GRANTING PLAINTIFF’S 12 REQUEST FOR JUDICIAL NOTICE, v. DENYING DEFENDANTS’ REQUEST FOR 13 JUDICIAL NOTICE, AND GRANTING

MOTION TO DISMISS [ECF NOS. 39, 41] 14 EMIL ASSENTATO, TAX DEED

15 ENTERPRISES LLC, STEVE WEERA TONASUT TRUST, 16 Defendant. 17 18

19 Before the Court are a Request for Judicial Notice filed by Plaintiff Clinton Brown (ECF No. 20 39); a Request for Judicial Notice filed by Defendants Emil Assentato, Steve Weera Tonasut Trust, 21 Tax Deed Enterprises LLC (ECF No. 41-2); and a Motion to Dismiss filed by Defendants Emil 22 Assentato, Steve Weera Tonasut Trust, Tax Deed Enterprises LLC (ECF No. 41). For the reasons 23 stated herein, the Court GRANTS Plaintiff Clinton Brown’s Request for Judicial Notice (ECF No. 24 39), DENIES Defendants’ Request for Judicial Notice (ECF No. 41-1), and GRANTS the Motion to 25 Dismiss (ECF No. 41). 26

27 / / / 28 1 BACKGROUND 2 The Court addressed the allegations at issue and the procedural history of this action in its 3 previous Order granting previous Motions to Dismiss. See ECF No. 38 (“Previous Order”). The 4 Court will only address aspects that are relevant to this Order here. 5 I. Factual Allegations1 6 Plaintiff Clinton Brown (“Brown”) is an individual residing in California. See FAC ¶ 19. 7 Defendant Emil Assentato (“Assentato”) is an individual residing in New York. See id. ¶ 20. 8 Defendant Tax Deed Enterprises, LLC (“TDE”) is a limited liability company with an address in 9 Florida. See id. ¶ 21. Defendant Steve Weera Tonasut Trust (“Tonasut Trust,” or collectively with 10 Assentato and TDE, “Defendants”) is a trust with an address in California. See id. ¶ 22. Defendants 11 are all accredited investors, and Brown is not an accredited investor. See id. ¶¶ 26, 27. 12 On approximately June 25, 2020, Brown contracted to purchase a property, consisting of two 13 parcels of land totaling 32.4 acres, in Calabasas, California (the “Property”) for $299,000. See id. ¶¶ 14 23, 24. The Property was owned by TDE prior to the purchase.2 See id. ¶ 24. 15 On October 22, 2020, Brown, Assentato, and TDE executed an operating agreement 16 establishing a partnership, the purpose of which was to provide capital to rezone the Property, 17 facilitate the development of a solar far, and eventually sell the Property. See id. ¶¶ 28, 29. The 18 19

20 1 Unless otherwise indicated, the following factual background is derived from Plaintiff Clinton Brown’s First 21 Amended Complaint. ECF No. 40 (“FAC”). For the purposes of the Motion to Dismiss, the Court treats these factual allegations as true, but at this stage of the litigation, the Court makes no finding on the truth of these 22 allegations and is therefore not—at this stage—finding that they are true. 23 2 The previous version of the Complaint contained more detail on this purchase, including an allegation that at the time Brown purchased the land, it had an outstanding property tax debt of $171,000. See Previous Order 24 at 2, see also ECF No. 1 at 2. This is one of several instances in which the FAC has omitted some detail included in the initial complaint. In determining whether Brown has stated a claim upon which relief can be 25 granted, the Court may only consider the operative version of the complaint, and so will only consider the allegations in the FAC and not allegations included in the initial complaint that have been removed. See PAE 26 Gov't Servs., Inc. v. MPRI, Inc., 514 F.3d 856, 858–59 (9th Cir. 2007) (where an amended complaint has been filed, a court should review the amended complaint and determine whether the amended complaint states a 27 claim without regard for the initial complaint, even if the amended complaint contradicts the original complaint). But, the Court will consider the other allegations in determining whether Brown might be capable 28 1 operating agreement stated that Brown would be solely responsible for development of the solar 2 farm, and that Assentation would provide financial backing and consulting services. See id. ¶ 29. 3 Brown’s purchase of the Property closed on December 18, 2020.3 See id. ¶ 30. Brown paid 4 $10,000 in cash at the time of the purchase. See id. ¶ 31. Brown acquired a 50% interest in the 5 Property. See id. ¶ 41. Also on December 18, 2020, the Tonasut Trust recorded a first deed of trust 6 on the Property for $179,000 and Assentato recorded a second deed of trust on the Property for 7 $110,000.4 See id. ¶¶ 32, 33. Brown was responsible for paying the debt on these deeds of trust. See 8 id. ¶ 34. Non-party5 Steve Weera Tonasut (“Tonasut”)—whom the Court understands to be a 9 beneficiary of the Tonasut Trust—expressed interest in purchasing the property if Brown had not 10 purchased it and intended to later take Brown’s title if possible. See id. ¶ 35. Defendants engaged in 11 a scheme to take control of the property from Brown. See id. ¶ 36. 12 Brown sought to develop a solar farm at the Property pursuant to his obligations under the 13 operating agreement. See id. ¶ 37. In 2021, Assentato loaned Brown $250,000 to finance the studies 14 related to Brown’s intended application for a solar farm on the Property. See id. ¶ 44. Brown is 15 individually responsible for paying back this loan and interest. See id. ¶ 45. Pursuant to the Tonasut 16 Trust’s deed of trust on the Property (discussed above), Brown made monthly payments of 17 $1,977.48 to the Tonasut Trust throughout 2021. See id. ¶ 46. Brown ceased making these payments, 18 due to a need for further financing, in January 2022. See id. ¶ 47. Brown requested that Assentato 19 provide further financial backing, but Assentato refused. See id. ¶ 48. 20 21 22 3 The FAC gives two different dates for the purchase—a purchase agreement signed on June 25, 2020 (see FAC ¶ 24) and a purchase on December 18, 2020 (see FAC ¶ 30). The Court assumes this is not in error and 23 understands that Brown initially contracted to purchase the Property in June 2020 and closed the purchase in December 2020. 24 4 The Court understands a “deed of trust” to refer to a loan agreement between a property purchaser and a 25 lender where title to the property is held by either the lender or a third-party trustee (as opposed to the purchaser) until the loan is repaid. See Deed, Black's Law Dictionary (11th ed. 2019). 26 5 Brown asserts at times in his FAC that Tonasut is a Defendant in this action. See, e.g. FAC ¶ 41 (describing Steve Weera Tonasut, the individual, as “Defendant Weera”). He is not—rather, the Tonasut Trust is a 27 Defendant. See FAC. However, drawing all inferences in favor of Brown, the Court reads the FAC as alleging that Tonasut controls and is a beneficiary of the Tonasut Trust such that Tonasut’s actions may be imputed to 28 1 On January 28, 2022, Brown transferred 15% ownership (of his previous 50% ownership) in 2 the Property to the Tonasut Trust in exchange for additional financing, with Assentato’s and TDE’s 3 approval. See id. ¶ 40. On November 11, 2022, Tonasut contacted Brown via email and encouraged 4 Brown to forfeit his shares and convince Assentato and TDE to consent to a sale of the property to 5 avoid foreclosure. See id. ¶ 41. Brown later learned that Defendants had been communicating with 6 each other, without Brown’s knowledge, as this occurred. See id. ¶ 53. Brown is not currently aware 7 of the full extent or content of these communications. See id. ¶¶ 54–56. 8 After the County of Los Angeles rejected a permit for a solar farm that Brown had applied 9 for, Brown brought legal action against the County in a separate action which is currently pending 10 before this Court. See id. ¶ 38; see also Clinton Brown v. Clark R. Taylor, Case No. 2:22-cv-09203- 11 MEMF-KS (C.D. Cal.) (filed December 17, 2022). Brown undertook this legal action in his 12 individual capacity. See FAC ¶ 38. Tonasut assured Brown that Tonasut would provide additional 13 funding if necessary as Brown continued in his efforts to develop a solar farm at the Property. See id. 14 ¶ 39. 15 On December 15, 2023, Defendants filed a Notice of Default as to the Property. See id. ¶ 65. 16 The document stated that Defendants had “contacted the borrower in person or by telephone . . . [to] 17 assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” 18 See id. ¶ 66. This was false—Defendants did not speak to Brown regarding options to avoid 19 foreclosure before filing this document. See id. ¶ 67. Brown’s Property is now at risk of foreclosure 20 by Defendants based on the various deeds of trust. See id. ¶ 68. 21 II. Procedural History 22 Brown’s FAC brings two causes of action: (1) unregistered offers and sales of securities in 23 violation of federal law; and (2) use of insider information in connection with the offer or sale of an 24 unregistered security in violation of Rule 10b-5. See FAC. 25 On December 6, 2023, the Court issued its Previous Order granting Defendants’ previous 26 Motions to Dismiss. See Previous Order. The Court held (among other holdings not relevant to this 27 Order) that: (1) Brown had adequately pleaded the sale of a security, based on Assentato, TDE, and 28 the Tonasut Trust pooling money in a common enterprise expecting to profit based on the efforts of 1 Brown; and (2) Brown had failed to plead his securities-related claims with the required specificity, 2 including because the claims were not pleaded with the level of detail required for fraud claims by 3 Federal Rule of Civil Procedure 9(b) and did not met the heightened pleading requirements of the 4 Private Securities Litigation Reform Act (“PSLRA”). See Previous Order at 16–20. 5 Brown filed a Request for Judicial Notice on December 21, 2023. See ECF No. 39 (“Brown’s 6 Request for Judicial Notice” or “Brown RJN”). Brown filed his FAC on January 3, 2024. See FAC. 7 Defendants filed the instant Motion to Dismiss, along with a Memorandum of Points and 8 Authorities, on January 17, 2024. See ECF No. 41 (“Motion” or “Mot.”); ECF No. 41-1 (“MPA”). 9 Defendants also filed a Request for Judicial Notice. See ECF No. 41-2 (“Defendants’ Request for 10 Judicial Notice” or “DRJN”). Brown filed an Opposition to the Motion on January 28, 2024. See 11 ECF No. 43 (“Opposition” or “Opp’n”). Defendants filed a Reply in support of the Motion on 12 February 5, 2024. See ECF No. 44 (“Reply”). 13 The Court held a hearing on the Motion on June 6, 2024. 14 BROWN’S REQUEST FOR JUDICIAL NOTICE (ECF NO. 39) 15 I. Applicable Law 16 A court may judicially notice facts that: “(1) [are] generally known within the trial court’s 17 territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy 18 cannot reasonably be questioned.” Fed. R. Evid. 201(b) (“Rule 201”). Under this standard, courts 19 may judicially notice “undisputed matters of public record,” but generally may not notice “disputed 20 facts stated in public records.” Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001), 21 overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119, 1125–26 (9th Cir. 22 2002). Once a fact is judicially noticed, the court “must instruct the jury to accept the noticed fact as 23 conclusive.” Fed. R. Evid. 201(f). 24 On a motion to dismiss, courts are generally prohibited from “consider[ing] any material 25 beyond the pleadings.” United States v. Corinthian Colleges, 655 F.3d 984, 998 (9th Cir. 2011) 26 (quoting Lee, 250 F.3d at 688). Courts generally only consider the complaint and other materials 27 “submitted with and attached to the Complaint.” Id. at 999. Documents not attached to the 28 complaint—including documents that might otherwise be subject to judicial notice—may only be 1 considered if: “(1) the complaint refers to the document; (2) the document is central to the plaintiff’s 2 claim; and (3) no party questions the authenticity of the document.” Id. (citing Marder v. Lopez, 450 3 F.3d 445, 448 (9th Cir.2006)). A court considering a motion to dismiss should not take judicial 4 notice of material that cannot be considered for the motion. See Lee, 250 F.3d at 689–90. 5 A Court may take judicial notice of a document and consider it in analyzing a motion to 6 dismiss. See Corinthian Colleges, 655 F.3d at 998. In order to do so, the document must satisfy both 7 the Corinthian Colleges test and the requirements of Rule 201. See id. (first considering whether 8 document was referenced in and central to complaint, and second considering Rule 201). However, a 9 Court may also consider certain documents in deciding a motion to dismiss without taking judicial 10 notice of the documents. See Marder, 450 F.3d at 448 (finding documents may be considered in 11 deciding motion to dismiss, based on a test identical to the one in Corinthian Colleges, without 12 taking judicial notice of the documents). In some circumstances, it may be appropriate to deny a 13 request for judicial notice, avoiding the obligation to instruct the jury on the trust of a document, but 14 nevertheless consider the document as evidence in deciding a motion to dismiss. See id. 15 II. Discussion 16 Brown requests judicial notice of the notice of default that was recorded on December 18, 17 2023, which is discussed in the Factual Allegations section above. See Brown RJN. This same 18 document was also attached to Brown’s FAC. See ECF No. 40-1. 19 First, this document is proper for judicial notice. It has recorded with the County of Los 20 Angeles, and therefore it appears to be a public record which “can be accurately and readily 21 determined from sources whose accuracy cannot reasonably be questioned.” See Fed. R. Evid. 22 201(b). Defendants have not opposed Brown’s request for judicial notice, and the Court has no 23 reason to question whether this document is genuine. The Court will take judicial notice of this 24 document, but not of any disputed facts within it. 25 Second, this document is appropriate to consider in evaluating the Motion to Dismiss. Brown 26 attached a copy of the same document to his FAC. See FAC. It is also referenced in the FAC. See 27 FAC ¶ 65. Because the document is referenced in the complaint, appears central to the complaint, 28 1 and no party has questioned its authenticity, the Court may consider the document in evaluating the 2 Motion to Dismiss. See Corinthian Colleges, 655 F.3d at 998. 3 Thus, Brown’s Request for Judicial Notice (ECF No. 39) is GRANTED. 4 DEFENDANTS’ REQUEST FOR JUDICIAL NOTICE (ECF NO. 41-2) 5 The same standard described above as to Brown’s Request for Judicial Notice applies to 6 Defendants’ Request for Judicial Notice. 7 Defendants request judicial notice of one document: a loan agreement between The Atlas, 8 LLC and Assentato dated February 2, 2024. See DRJN. This appears to be the loan agreement for 9 $250,000 referenced in the FAC and described above. See FAC ¶ 44. Assentato and TDE previously 10 requested judicial notice of the same document in support of their previous Motion to Dismiss. See 11 ECF No. 26-2 (Document No. 4). The Court denied the request for judicial notice, noting that this 12 document was not a public record, and therefore the document’s existence and contents were neither 13 generally known within the Court’s jurisdiction nor capable of being accurately and readily 14 determined from sources whose accuracy cannot reasonably be questioned, and so the document was 15 not appropriate for judicial notice. See Fed. R. Evid. 201(b). However, the Court held that the 16 document could be considered in evaluating the previous Motions to Dismiss, because it was 17 referenced in the complaint and central to the complaint. See Marder, 450 F.3d at 448 (considering 18 documents central to complaint in deciding motion to dismiss, without taking judicial notice). 19 The Court holds the same here, for the same reasons. Defendants’ Request for Judicial Notice 20 is DENIED, but the Court will consider the document in evaluating the Motion to Dismiss. 21 DEFENDANTS’ MOTION TO DISMISS (ECF NO. 41) 22 I. Applicable Law 23 Federal Rule of Civil Procedure 12(b)(6) allows an attack on the pleadings for “failure to 24 state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). “To survive a motion to 25 dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to 26 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 27 Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff 28 1 pleads factual content that allows the court to draw the reasonable inference that the defendant is 2 liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. 3 The determination of whether a complaint satisfies the plausibility standard is a “context- 4 specific task that requires the reviewing court to draw on its judicial experience and common sense.” 5 Id. at 679. Generally, a court must accept the factual allegations in the pleadings as true and view 6 them in the light most favorable to the plaintiff. Park v. Thompson, 851 F.3d 910, 918 (9th Cir. 7 2017); Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001). But a court is “not bound to 8 accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (quoting 9 Twombly, 550 U.S. at 555). 10 Moreover, Federal Rule of Civil Procedure 9(b) states that an allegation of “fraud or mistake 11 must state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). Specifically, 12 the “circumstances” required by Rule 9(b) are the “who, what, when, where, and how” of the 13 fraudulent activity. Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003); 14 Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (“[Rule 9(b) requires] the times, dates, places, 15 benefits received, and other details of the alleged fraudulent activity.”). Additionally, the allegation 16 “must set forth what is false or misleading about a statement, and why it is false.” Vess, 317 F.3d at 17 1106. 18 As a general rule, leave to amend a dismissed complaint should be freely granted unless it is 19 clear the complaint could not be saved by any amendment. Fed. R. Civ. P. 15(a); Manzarek v. St. 20 Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 21 II. Discussion 22 The Court finds that Brown has failed to plead that a security was bought, sold, or offered to 23 be sold. This is a change from the Court’s previous finding on this issue, which the Court will 24 explain in detail below. This failure is fatal to Brown’s claims, and so the Motion to Dismiss will be 25 GRANTED. 26 A. All of Brown’s claims require that a security was bought, sold, or offered to be sold. 27 The Court finds that all of Brown’s claims require that a security was bought, sold, or offered 28 to be sold. 1 First, the Court finds that Brown’s cause of action for unregistered offers and sales of 2 securities requires that a security was sold or offered to be sold. Brown’s cause of action is, per his 3 FAC, based on a purported violation of “Section 5(a),” which the Court understands as a reference to 4 Section 5 of the Securities Act of 1933. See 15 U.S.C. § 77e. “Sections 5(a) and (c) of the Securities 5 Act, 15 U.S.C. § 77e(a), (c), make it unlawful to offer or sell a security in interstate commerce if a 6 registration statement has not been filed as to that security, unless the transaction qualifies for an 7 exemption from registration.” S.E.C. v. CMKM Diamonds, Inc., 729 F.3d 1248, 1255 (9th Cir. 8 2013). Three elements are required to show establish a prima facie case for violation of Section 5: 9 “(1) no registration statement was in effect as to the securities; (2) the defendant directly or 10 indirectly sold or offered to sell securities; and (3) the sale or offer was made through interstate 11 commerce.” Id. As the second element makes clear, this claim requires that the defendant sold, or 12 offered to sell, securities. See id. If no security was sold or offered to be sold, there is no claim under 13 this cause of action. 14 Second, the Court finds that Brown’s cause of action for use of insider information in 15 connection with the offer or sale of an unregistered security in violation of Rule 10b-5 requires that a 16 security was sold. “Section 10(b) and Rule 10b–5 prohibit deceptive practices ‘in connection with 17 the purchase or sale of any security.’” Cohen v. Stratosphere Corp., 115 F.3d 695, 700 (9th Cir. 18 1997). The Supreme Court has “interpreted this restriction to limit relief under Rule 10b–5 to 19 plaintiffs who had either purchased or sold securities.” Id. (citing Blue Chip Stamps v. Manor Drug 20 Stores, 421 U.S. 723, 733–34 (1975)). Thus, this claim also requires that Brown allege that some 21 security was sold, and there can be no claim absent such an allegation. 22 B. Brown has not adequately pleaded that a security was bought, sold, or offered to be sold. 23 24 For the reasons discussed below, the Court finds that Brown has not adequately pleaded that 25 any security was bought, sold, or offered to be sold. 26 A security can be found based on there being either a “note” or an “investment contract.” See 27 Reves v. Ernst & Young, 494 U.S. 56, 64 (1990) (discussing notes); S.E.C. v. W.J. Howey Co., 328 28 U.S. 293, 297 (1946) (discussing investment contracts). In the previous Motions to Dismiss, 1 Defendants argued that the arrangements in question did not constitute notes and therefore were not 2 securities, but did not address in any detail whether the arrangements might qualify as investment 3 contracts. See ECF Nos. 18-1, 26-1, 31, 32. The Court held that drawing all inferences in favor of 4 Brown, the alleged arrangements could be construed as investment contracts and therefore could be 5 construed as securities. See Previous Order at 16–19. The Court made clear that its holding was “not 6 a definitive judicial finding that any transaction constituted a security,” and rather “only a finding 7 that, at this stage, drawing all inferences in favor of Brown, Brown [had] pleaded sufficient facts that 8 if proven true could support a finding that a security was sold.” Id. at 19. 9 In the instant Motion, Defendants argue that the arrangement in question should not be 10 construed as a security despite appearing to be an investment contract. Defendants acknowledge that 11 an investment contract is generally a security and impliedly concede (at least for the sake of 12 argument) that the arrangements pleaded constitute an investment contract under the broad definition 13 provided in Howey, 328 U.S. at 297, but Defendants now argue for the first time that based on 14 Marine Bank v. Weaver, 455 U.S. 551, 559–60 (1982), that this arrangement was not a security. The 15 Court “possesses the inherent procedural power to reconsider, rescind, or modify an interlocutory 16 order” for sufficient cause. See City of Los Angeles v. Santa Monica Baykeeper, 254 F.3d 882, 885 17 (9th Cir. 2001). Having considered Defendants’ new argument in light of the newly presented 18 authority in Marine Bank, the Court finds that reconsideration of its previous determination is 19 warranted. 20 A “security,” as used in the Securities Act, includes “commonly known documents traded for 21 speculation or investment” and “securities of a more variable character,” including “investment 22 contract[s].” Howey, 328 U.S. 293, 297 (1946). An “investment contract” is “a contract, transaction 23 or scheme whereby a person invests his money in a common enterprise and is led to expect profits 24 solely from the efforts of the promoter or a third party.” Id. at 298. On this basis, the Court 25 previously found that because Brown alleged that Brown, Assentato, TDE, and the Tonasut Trust all 26 pooled money in a common enterprise and expected to profit based solely on the efforts of Brown, 27 Brown had alleged the existence of a security. 28 1 However, as Defendants now point out, not all arrangements that meet Howey’s broad 2 definition of an investment contract are securities. See Marine Bank, 455 U.S. at 559–60. “Congress 3 intended the securities laws to cover those instruments ordinarily and commonly considered to be 4 securities in the commercial world,” and the securities law do not apply to instruments which are 5 “not the type of instrument that comes to mind when the term ‘security’ is used and do not fall 6 within “the ordinary concept of a security.” Id. at 559. Instruments found to be securities generally 7 “involve[] offers to a number of potential investors,” and are not “private transaction[s].” Id. In 8 Marine Bank, individuals (the Weavers) entered into an agreement with a slaughterhouse 9 (Columbus) and the slaughterhouse’s owners (the Piccirillos) whereby the Weavers guaranteed a 10 loan made to Columbus, and in exchange, “the Weavers were to receive 50% of Columbus’ net 11 profits and $100 per month as long as they guaranteed the loan.” See id. at 553. “It was also agreed 12 that the Weavers could use Columbus’ barn and pasture at the discretion of the Piccirillos, and that 13 they had the right to veto future borrowing by Columbus.” Id. The Court held that this “unique 14 agreement,” “negotiated one-on-one by the parties,” was not a security. See id. at 560. In holding as 15 such, the Court emphasized that this was a private transaction, no prospectus was distributed “to the 16 Weavers or to other potential investors,” and “the unique agreement they negotiated was not 17 designed to be traded publicly.” See id. The Court noted that although there the agreement contained 18 a provision for sharing in profits, “that provision alone is not sufficient to make that agreement a 19 security.” See id. In sum, where private parties negotiate a transaction that includes some sharing of 20 profits, but the transaction is not offered generally to the public and is not designed to be traded 21 publicly, the sharing of profits alone is not sufficient to make the agreement a security. See id. 22 Here, the facts alleged resemble those in Marine Bank. Brown, Assentato, and TDE entered 23 into an agreement whereby they would pool money and share profits based on Brown’s efforts. See 24 FAC ¶¶ 28, 29. The Tonasut Trust later acquired an interest in the subject Property, and also 25 expected to share profits based on Brown’s efforts. See id. ¶ 40. But this investment opportunity was 26 never offered to the general public, and even drawing all inferences in favor of Brown, there was no 27 expectation that the agreements entered into were designed to be traded publicly. This was a unique 28 private transaction (or series of unique private transactions) between private parties. Therefore 1 although it is an investment contract under Howey, it is not the sort of instrument “that comes to 2 mind when the term ‘security’ is used and does not fall within ‘the ordinary concept of a security.’” 3 Marine Bank v. Weaver, 455 U.S. at 559. All of this leads to the conclusion, based on the Supreme 4 Court’s guidance in Marine Bank, that these transactions do not constitute securities. 5 Brown attempted in the hearing to distinguish the facts here from those in Marine Bank. 6 Brown argued that a key fact in Marine Bank was that the Federal Deposit Insurance Corporation 7 (“FDIC”) insured deposits made at federally regulated banks, which reduced the risk of insolvency 8 and contributed to a finding that certain instruments were not securities. See id. at 558. Brown 9 argued that the absence of FDIC insurance here distinguishes this case from Marine Bank, and 10 therefore that the transactions at issue here should be construed as securities despite the holding of 11 Marine Bank. This appears to be a reference to a different portion of Marine Bank than the portion 12 this Court relied upon above. Marine Bank considered two different arrangements that the Weavers 13 entered into—first, the Weavers purchased a certificate of deposit from a bank, and second, the 14 Weavers pledged that certificate of deposit to the bank in order to guarantee the loan to the 15 Columbus and received a portion of Columbus’s profits and other consideration in exchange. See id. 16 at 552–53. The Marine Bank Court addressed each in turn. The Marine Bank Court first held that the 17 purchase of the certificate of deposit did not constitute a security, and in making this holding, the 18 Marine Bank Court noted that the certificate of deposit was insured by the FDIC. See id. at 556–59. 19 Brown’s argument was based on this portion of the holding. The Marine Bank Court went on to hold 20 that the arrangement between the Weavers and Columbus did not constitute a security for the 21 reasons discussed already at length in this Order. See id. at 559–60. The Court’s findings here are 22 based upon this second portion of the Marine Bank opinion. FDIC insurance was not relevant to this 23 portion of the Marine Bank opinion, and so Brown’s argument fails—the lack of FDIC insurance 24 here is neither relevant nor dispositive. 25 Brown also argued that whether a transaction is a security must be analyzed in the context of 26 the transaction, and that the novelty of the transactions at issue should not necessarily lead to a 27 finding that the transactions do not constitute the sale of a security. While these broad principles may 28 be true, they do not affect the Court’s finding—Marine Bank makes clear that the transactions at 1 issue do not constitute the sale of securities for the reasons discussed above, and Brown failed to 2 show otherwise. 3 Accordingly, the Court finds that Brown has not adequately pleaded that any security was 4 bought, sold, or offered to be sold. This is fatal to both of Brown’s causes of action. Thus, the 5 Motion to Dismiss is GRANTED. The Court need not reach the other issues raised in the Motion to 6 Dismiss, but the parties should note that should an amended complaint be filed, there are additional 7 requirements beyond the purchase, offer, or sale of a security that will need to be met. 8 In a tentative ruling shared with the parties in advance of the hearing, the Court indicated that 9 it was inclined to grant Brown leave to amend his complaint, as it might be possible for Brown to 10 adduce further facts to permit the Court to find that the sale of security element has been properly 11 pleaded. See Manzarek, 519 F.3d at 1031. At the hearing, Brown indicated that he has no desire to 12 further amend his complaint and does not believe that he could allege further facts to state a claim if 13 the Court interprets the law as indicated in the tentative ruling. Brown therefore requested that if the 14 claims are dismissed (which Brown argued they should not be), dismissal should be with prejudice. 15 Accordingly, the Court will not grant Brown leave to amend, and will dismiss Brown’s claims with 16 prejudice. 17 18 / / / 19 20 21 22 23 24 25 26 27 28 1 CONCLUSION 2 For the reasons stated herein, the Court ORDERS as follows: 3 1. Brown’s Request for Judicial Notice (ECF No. 39) is GRANTED. 4 2. Defendants’ Request for Judicial Notice (ECF No. 41-2) is DENIED. 5 3. Defendants’ Motion to Dismiss (ECF No. 42) is GRANTED. 6 4. Brown’s claims are DISMISSED WITH PREJUDICE. The Clerk of Court is directed to 7 close the file. 8 9 IT IS SO ORDERED. 10 Uf 11 Dated: September 27, 2024 12 MAAME EWUSI-MENSAH FRIMPONG 13 United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28