Hable v. Godenzi

• Court: Court of Appeals for the Ninth Circuit
• Decided: December 31, 2024
• Docket: 24-646
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS DEC 31 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

PATRICK HABLE, No. 24-646 D.C. No. Plaintiff - Appellant, 2:22-cv-02012-GMN-BNW v. MEMORANDUM* BENN GODENZI,

Defendant - Appellee.

Appeal from the United States District Court for the District of Nevada Gloria M. Navarro, District Judge, Presiding

Argued and Submitted December 2, 2024 San Francisco, California

Before: BENNETT, BRESS, and FORREST, Circuit Judges. Dissent by Judge BRESS.

Appellant Patrick Hable appeals from the district court’s order dismissing his

federal and state securities fraud claims against Appellee Benn Godenzi. We have

jurisdiction under 28 U.S.C. § 1291, and we affirm.

“We review de novo dismissals for failure to state a claim under Federal Rule

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. of Civil Procedure 12(b)(6).” Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1161

(9th Cir. 2009). We accept all well-pleaded allegations as true. Lloyd v. CVB Fin.

Corp., 811 F.3d 1200, 1205 (9th Cir. 2016).

1. Section 10(b) and Rule 10b–5 claim. “To state a claim under Section

10(b) and Rule 10b-5(b) [of the Securities Exchange Act of 1934], plaintiffs must

allege: (1) a material misrepresentation or omission (‘falsity’), (2) made with

scienter, (3) in connection with the purchase or sale of a security, (4) reliance on the

misrepresentation or omission, (5) economic loss, and (6) loss causation.” In re

Genius Brands Int’l, Inc. Sec. Litig., 97 F.4th 1171, 1180 (9th Cir. 2024). Hable’s

claim asserted under Section 10(b) and Rule 10b–5 is subject to the heightened

pleading standard required by the Public Securities Litigation Reform Act (PSLRA)

and Rule 9(b) of the Federal Rules of Civil Procedure. Id. The PSLRA requires that

the complaint “specify each statement alleged to have been misleading, the reason

or reasons why the statement is misleading, and, if an allegation regarding the

statement or omission is made on information and belief, the complaint shall state

with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1).

Rule 9(b) similarly requires a party to “state with particularity the circumstances

constituting fraud or mistake.” Fed. R. Civ. P. 9(b). “These heightened standards

apply ‘to all elements of a securities fraud action.’” In re Genius Brands Int’l, 97

F.4th at 1181 (quoting Oregon Pub. Emps. Ret. Fund v. Apollo Grp., Inc., 774 F.3d

2 24-646 598, 605 (9th Cir. 2014)).

Falsity. To plead falsity, a complaint “must allege a misrepresentation or a

misleading omission with particularity and explain why it is misleading.” Retail

Wholesale & Dep’t Store Union Loc. 338 Ret. Fund v. Hewlett-Packard Co., 845

F.3d 1268, 1274 (9th Cir. 2017). “[Section] 10(b) and Rule 10b–5(b) do not create

an affirmative duty to disclose any and all material information. Disclosure is

required under these provisions only when necessary ‘to make . . . statements made,

in the light of the circumstances under which they were made, not misleading.’”

Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011) (alteration in original)

(quoting 17 C.F.R. § 240.10b–5(b)). “[A] statement is misleading if it would give a

reasonable investor the ‘impression of a state of affairs that differs in a material way

from the one that actually exists.’” Retail Wholesale, 845 F.3d at 1275 (alteration in

original) (quoting Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 985 (9th Cir.

2008)).

Here, Hable contends that Godenzi’s statements about litigation he filed in

Singapore against Ecomi Technology PTE Limited—that “[t]he dispute was settled

and we parted ways amicably” and that “the [Ecomi] team didn’t pay our contract

for a year which led to a lawsuit and of course a settlement”—gave the misleading

impression that Godenzi had no ongoing legal disputes with Ecomi. However, read

in context, Godenzi’s statements referred specifically to the Singapore litigation.

3 24-646 Godenzi therefore did not have a duty to disclose the New Zealand lawsuit that he

brought against Ecomi’s parent company when he made the challenged statements

about the Singapore litigation. Moreover, Hable failed to allege why a reasonable

investor would interpret Godenzi’s challenged statements to mean that all litigation

between him and Ecomi and its parent company was resolved. See 15 U.S.C. § 78u-

4(b)(1) (requiring a complaint to specify “the reason or reasons why the statement is

misleading”). Accordingly, Hable failed to adequately allege falsity.1

Scienter. To plead scienter, “a complaint must ‘allege that the defendants

made false or misleading statements either intentionally or with deliberate

recklessness.’” Nguyen v. Endologix, Inc., 962 F.3d 405, 414 (9th Cir. 2020)

(quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir.

2009)). Deliberate recklessness is “‘an extreme departure from the standards of

ordinary care,’ which ‘presents a danger of misleading buyers or sellers that is either

known to the defendant or is so obvious that the actor must have been aware of it.’”

Id. (emphasis in original) (quoting Schueneman v. Arena Pharm., Inc., 840 F.3d 698,

705 (9th Cir. 2016)). A complaint adequately pleads scienter when, viewing all the

allegations holistically, “a reasonable person would deem the inference of scienter

1 Hable’s additional arguments that the two lawsuits were closely related and that Godenzi’s statements were capable of objective verification do not cure the First Amended Complaint’s deficiencies under the heightened pleading standards of the PSLRA and Rule 9(b).

4 24-646 cogent and at least as compelling as any opposing inference one could draw from

the facts alleged.” Matrixx Initiatives, 563 U.S. at 48 (quoting Tellabs, Inc. v. Makor

Issues & Rts., Ltd., 551 U.S. 308, 324 (2007)).

Here, Hable’s allegations do not support a “strong inference” that Godenzi

was “intentionally or with deliberate recklessness seeking to mislead the market

about” the status of his legal disputes with Ecomi. Nguyen, 962 F.3d at 419. Rather,

the more plausible inference is that Godenzi was merely explaining that the

Singapore litigation was resolved.

Because Hable failed to adequately allege falsity and scienter, we affirm the

district court’s dismissal of his federal securities fraud claim. See No. 84 Emp.-

Teamster Joint Council Pension Trust Fund v. America West Holding Corp., 320

F.3d 920, 931–32 (9th Cir. 2003) (“If a plaintiff fails to plead either the alleged

misleading statements or scienter with particularity, his or her complaint must be

dismissed.”).

2. State law claims. Under the Nevada Securities Act, a plaintiff must

allege that the defendant “[m]a[d]e an untrue statement of a material fact or omit[ted]

to state a material fact necessary in order to make the statements made not

misleading in the light of the circumstances under which they [we]re made.” Nev.

Rev. Stat. § 90.570(2). For the reasons discussed above, Hable failed to sufficiently

allege that any of Godenzi’s statements were untrue or that disclosure of the New

5 24-646 Zealand litigation was necessary to make his statements not misleading.

Accordingly, Hable failed to state a claim under the Nevada Securities Act.

A common law fraud claim similarly requires a plaintiff to allege that the

defendant (1) made a false representation that the defendant knows or believes is

false, Barmettler v. Reno Air, Inc., 956 P.2d 1382, 1386 (Nev. 1998); or (2)

concealed or suppressed a material fact that the defendant had a duty to disclose,

Leigh-Pink v. Rio Properties, LLC, 512 P.3d 322, 325 (Nev. 2022). Because Hable

failed to sufficiently allege that Godenzi made a false representation or concealed a

material fact that he was under a duty to disclose, he also failed to state a claim for

common law fraud. Accordingly, we affirm the district court’s dismissal of Hable’s

claims under Nevada law.

AFFIRMED.

6 24-646 FILED Hable v. Godenzi, 24-646 DEC 31 2024 MOLLY C. DWYER, CLERK BRESS, Circuit Judge, dissenting: U.S. COURT OF APPEALS

The majority concludes that plaintiff Hable failed to plead a material

misrepresentation or misleading omission and scienter. In doing so, the majority

overlooks the most salient facts in this case and erroneously affirms the district

court’s Rule 12(b)(6) dismissal of the plaintiff’s complaint.

Defendant Godenzi was “the largest investor” in the cryptocurrency security

that he personally sold to Hable. In fact, Godenzi was not only the largest investor,

but he was also hired by Ecomi “to advise the company on how to structure” the

security. In a one-on-one conversation between Hable and Godenzi discussing

Hable’s potential purchase of the cryptocurrency, Godenzi told Hable that Ecomi

“didn’t pay our contract for a year which led to a lawsuit and of course a settlement.”

Although Godenzi mentioned that this lawsuit against Ecomi had settled (the

Singapore lawsuit), he did not mention that he still had an ongoing lawsuit against

Ecomi (the New Zealand lawsuit). In the New Zealand litigation, Godenzi alleged

that Ecomi “failed to pay him” for his investment. Moreover, the New Zealand

lawsuit was not publicly available information. Hable proceeded to purchase

approximately $12 million of the cryptocurrency from Godenzi. Several months

before the one-on-one discussion between Hable and Godenzi that led directly to the

sale of cryptocurrency, Godenzi had publicly discussed the Singapore lawsuit, stating that “[t]he dispute was settled and we parted aways amicably.” Here too, he

did not mention the New Zealand lawsuit.

In terms of whether Godenzi made a material misrepresentation or misleading

omission, the question is whether Godenzi’s statements that one lawsuit against

Ecomi settled, without his mentioning that he had another lawsuit pending, “would

give a reasonable investor the ‘impression of a state of affairs that differs in a

material way from the one that actually exists.’” Retail Wholesale & Dep’t Store

Union Loc. 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1275 (9th Cir.

2017) (quoting Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 985 (9th Cir.

2008)). The majority is correct that “read in context, Godenzi’s statements referred

specifically to the Singapore litigation.” But the majority is incorrect that “Godenzi

therefore did not have a duty to disclose the New Zealand lawsuit.” Rather, “‘once

defendants choose to tout’ positive information to the market, ‘they are bound to do

so in a manner that wouldn’t mislead investors,’ including disclosing adverse

information that cuts against the positive information.” Schueneman v. Arena

Pharms., Inc., 840 F.3d 698, 706 (9th Cir. 2016) (quoting Berson v. Applied Signal

Tech., Inc., 527 F.3d 982, 987 (9th Cir. 2008)).

If Godenzi had not affirmatively told Hable that Ecomi “didn’t pay our

contract for a year which led to a lawsuit and of course a settlement,” then perhaps

he would have no obligation to bring up either the Singapore litigation or the New

2 24-646 Zealand litigation. But once Godenzi “tout[ed] positive information” that the

Singapore litigation settled, he became “bound to do so in a manner that wouldn’t

mislead investors.” Schueneman, 840 F.3d at 706 (quoting Berson, 527 F.3d at 987).

This required “disclosing adverse information that cut[] against the positive

information” that the Singapore lawsuit settled, specifically that the settlement

agreement carved out Hable’s New Zealand lawsuit, which he continued to litigate.

Id.

There is no question that the Singapore lawsuit was material, especially at the

Rule 12(b)(6) stage. “The materiality of . . . an omission depends upon whether

there is ‘a substantial likelihood that [it] would have been viewed by the reasonable

investor as having significantly altered the total mix of information made available’

for the purpose of decisionmaking by stockholders concerning their investments.”

Retail Wholesale, 845 F.3d at 1274 (quoting Basic Inc. v. Levinson, 485 U.S. 224,

231–32 (1988) (internal quotations omitted)). The complaint alleges that Godenzi,

the “largest investor” in the security—who also “incubated [E]comi from the

business model to the token ecosystem”—was suing Ecomi for not complying with

the terms of his investment. A reasonable investor would view this information “as

having significantly altered the total mix of information made available” about

whether to invest in the cryptocurrency. Id. (quoting Basic Inc., 485 U.S. at 232).

For similar reasons, Hable has sufficiently pleaded scienter, which requires

3 24-646 that his complaint “allege that the defendants made false or misleading statements

either intentionally or with deliberate recklessness.” Nguyen v. Endologix, Inc., 962

F.3d 405, 414 (9th Cir. 2020) (quoting Zucco Partners, LLC v. Digimarc Corp., 552

F.3d 981, 991 (9th Cir. 2009)). A “strong inference” of scienter under the PSLRA

requires that “a reasonable person would deem the inference of scienter cogent and

at least as compelling as any opposing inference one could draw from the facts

alleged.” Id. (quoting Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 324

(2007)). The complaint alleged that Godenzi did not disclose the New Zealand

lawsuit “because he intended to sell [his cryptocurrency] that he would otherwise

have been unable to sell at his desired price or, alternatively or additionally, because

he knew that Hable would not buy the tokens if he knew the truth.”

In the New Zealand lawsuit, we have the largest investor in and the architect

of a cryptocurrency security suing the company that issued the security for not

paying him for his investment. The largest investor tells a potential buyer in a one-

on-one discussion that a different lawsuit he brought against the company has settled

without disclosing that the New Zealand lawsuit, whose existence is not public

information, is ongoing. The largest investor proceeds to offload $12 million of the

security to the buyer. A few months later, when the other lawsuit becomes public

information, the security declines 36% in value. Especially given the one-on-one

interaction between the parties, the seller’s failure to disclose to the buyer his

4 24-646 nonpublic lawsuit against the company raises a strong inference that the seller either

intended to conceal or was deliberately reckless in not disclosing the lawsuit. In this

case, “a reasonable person would deem the inference of scienter cogent and at least

as compelling as any opposing inference one could draw from the facts alleged.” Id.

(quoting Tellabs, 551 U.S. at 324).

For these reasons, I would reverse the Rule 12(b)(6) dismissal of Hable’s

securities fraud complaint. Given my reasoning on the federal claims, I would

likewise reverse on the state law claims. I respectfully dissent.

5 24-646