Roditi v. New River Investments Inc.

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MANUEL RODITI, et al., Case No.: 3:20-cv-01908-RBM-MSB

12 Plaintiffs, ORDER: 13 v. (1) DISMISSING RODITI & RODITI, 14 LLC 15 NEW RIVER INVESTMENTS INC., et al., (2) GRANTING IN PART, DENYING 16 IN PART, AND RESERVING Defendants. 17 RULING ON DEFENDANTS NEW RIVER INVESTMENTS, INC., 18 RODITI & RODITI, LLC, ALBERTO 19 RODITI, AND GUILLERMO RODITI DOMINGUEZ’S MOTION 20 FOR PARTIAL SUMMARY 21 JUDGMENT

22 (3) REQUIRING SUPPLEMENTAL 23 BRIFING

24 [Doc. 52] 25 26 On May 4, 2022, Defendants New River Investments, Inc., Roditi & Roditi, LLC, 27 Alberto Roditi, and Guillermo Roditi (“Defendants”) filed a motion for partial summary 28 judgment (“partial MSJ”). (Doc. 52.) Plaintiffs Manuel Roditi and Venice Bejarano 1 (“Plaintiffs”) filed their opposition to Defendants’ partial MSJ on May 6, 2022. (Doc. 58.) 2 Defendants filed their reply on May 27, 2022. (Doc. 64.) The Court took the matter under 3 submission pursuant to Civil Local Rule 7.1(d)(1). (Doc. 65.) 4 For the reasons discussed below, Roditi & Roditi, LLC is DISMISSED from the 5 action, and Defendants’ partial MSJ is GRANTED IN PART and DENIED IN PART. 6 The Court RESERVES RULING on Defendants’ partial MSJ requesting dismissal of the 7 first and second claims for violation of section 10(b), rule 10b–5, and section 20(a) of the 8 Securities Exchange Act and ORDERS supplemental briefing as to these claims as set 9 forth in detail below. 10 I. BACKGROUND 11 Defendant Roditi & Roditi, LLC (“R&R”) is an investment management company. 12 (Doc. 29 at 3.) Alberto Roditi and Guillermo Roditi are the managing directors of R&R. 13 (Id.) Defendant New River Investments, Inc. (“NRI”) is a registered investment advisor 14 and is affiliated with R&R. (Id.) 15 Plaintiffs allege that in or around April 2011, Plaintiffs engaged in an investment 16 relationship and maintained three investment accounts with Defendants through NRI. (Id.) 17 “Plaintiffs’ investments were managed by Defendants via NRI using two custodians: two 18 accounts at TD Ameritrade, and one account at Interactive Brokers.” (Id. at 4.) Over the 19 years, Plaintiffs increased their investment by depositing additional funds with Defendants, 20 and as of March 2019 the net asset value of Plaintiffs’ investment was approximately $2.5 21 million. (Id.) 22 Plaintiffs state they “believed that their investments would be managed suitably, and 23 with an appropriate level of risk based on Plaintiffs’ financial needs.” (Id. at 3.) They 24 allege that at some point during the investment relationship, Defendants began engaging in 25 “risky and reckless investment strategies.” (Id. at 5.) Plaintiffs allegedly requested that 26 Defendants take a more conservative approach, but Defendants continued to exercise risky 27 trading practices. (Id. at 5–6.) By April 3, 2020, “nearly the entirety of Plaintiffs’ 28 Investment Brokers account—$1.1 million—had been lost” and “Plaintiffs’ investment in 1 the Interactive Brokers account was merely $16,444.93. The TD Ameritrade account had 2 a balance of $530,000.” (Id. at 4.) 3 On September 23, 2020, Plaintiffs filed the present action against Defendants. (Doc. 4 1.) Defendants filed an answer on December 28, 2020. (Doc. 11.) Plaintiffs filed a first 5 amended complaint on June 1, 2021, and Defendants filed an answer to the first amended 6 complaint on June 16, 2021. (Docs. 29, 30.) Plaintiffs assert five causes of action against 7 Defendants including: (1) violation of the Securities Exchange Act of 1934 (“Exchange 8 Act”) section 10(b) and Rule 10b–5, (2) violation of section 20(a) of the Exchange Act, (3) 9 violation of section 25401 of the California Corporation Code, (4) negligent 10 misrepresentation, and (5) breach of fiduciary duty. (See Doc. 29.) 11 On May 4, 2022, Defendants filed the instant partial MSJ. (Doc. 52.) They seek 12 summary judgment on all claims except the fifth cause of action for breach of fiduciary 13 duty. 14 II. LEGAL STANDARD 15 Rule 56 of the Federal Rules of Civil Procedure provides that “[a] party may move 16 for summary judgment, identifying each claim or defense—or the part of each claim or 17 defense—on which summary judgment is sought.” FED. R. CIV. P. 56(a). “The court shall 18 grant summary judgment if the movant shows that there is no genuine dispute as to any 19 material fact and the movant is entitled to judgment as a matter of law.” Id. 20 Material facts are those “that might affect the outcome of the suit.” Anderson v. 21 Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is “genuine” 22 if the evidence is such that “a reasonable jury could return a verdict for the nonmoving 23 party.” Id. “[I]n ruling on a motion for summary judgment, the judge must view the 24 evidence presented through the prism of the substantive evidentiary burden.” Id. at 254. 25 The question is “whether a jury could reasonably find either that the [moving party] proved 26 his case by the quality and quantity of evidence required by the governing law or that he 27 did not.” Id. (emphasis omitted). “[A]ll justifiable inferences are to be drawn in [the 28 nonmovant’s] favor.” Id. at 255. 1 The moving party bears the initial burden of demonstrating the absence of any 2 genuine issues of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) 3 (internal quotations omitted). The moving party can satisfy this burden by demonstrating 4 that the nonmoving party failed to make a showing sufficient to establish an element of his 5 or her claim on which that party will bear the burden of proof at trial. Id. at 322–23. If 6 the moving party fails to bear the initial burden, summary judgment must be denied and 7 the court need not consider the nonmoving party’s evidence. Adickes v. S.H. Kress & Co., 8 398 U.S. 144, 159–60 (1970). 9 A party opposing a properly supported motion for summary judgment “may not rest 10 upon the mere allegations or denials of his pleading.” Liberty Lobby, 477 U.S. at 248. 11 “Rule 56(e) therefore requires the nonmoving party to go beyond the pleadings and by her 12 own affidavits, or by the depositions, answers to interrogatories, and admissions on file, 13 designate specific facts showing that there is a genuine issue for trial.” Celotex, 477 U.S. 14 at 324 (internal quotations omitted). If the nonmoving party fails to make a sufficient 15 showing of an element of its case, the moving party is entitled to judgment as a matter of 16 law. Id. at 325. The opposing party need not show the issue will be resolved conclusively 17 in its favor. See Liberty Lobby, 477 U.S. at 248–49. All that is necessary is submission of 18 sufficient evidence to create a material factual dispute, thereby requiring a jury or judge to 19 resolve the parties’ differing versions at trial. See id. 20 III. DISCUSSION 21 As an initial matter, Plaintiffs contend Defendants’ partial MSJ should be denied as 22 procedurally improper due to Defendants’ failure to include a separate statement of 23 undisputed facts as required by U.S. District Judge Gonzalo P. Curiel’s Civil Chambers 24 Rules. (Doc. 58 at 10.) Given that this case was transferred to the undersigned during the 25 pendency of the briefing on this motion, the Court declines to enforce Judge Curiel’s Civil 26 Chambers Rules as a basis to deny summary judgment. Accordingly, the Court will 27 consider the merits of Defendants’ partial MSJ. 28 / / / 1 A. Claims against Roditi & Roditi, LLC 2 Defendants assert that all claims against R&R have no merit and should be dismissed 3 because Plaintiffs have not identified any specific allegation supporting the claims. (Doc. 4 52–1 at 7.) Defendants allege “R&R had no supervisory or investment advisor role, in any 5 respect, with respect to Plaintiff’s [sic] investment funds or accounts at issue in this case.” 6 (Id.) R&R hired NRI to act as a sub-advisor and investment manager for a separate entity, 7 New River Investments Special Opportunities LP. (Id.) However, New River Investments 8 Special Opportunities LP is not a party to this action, and R&R was not involved in 9 “supervising the performance of Plaintiffs’ accounting being managed by [NRI].” (Id.) 10 Plaintiffs consent to the dismissal of R&R. (Doc. 58 at 10.) “Plaintiffs initially 11 believed that some of the investment losses at issue were held in an investment vehicle 12 operated by R&R. Subsequent discovery has revealed that Plaintiffs do not appear to have 13 been invested in that investment vehicle.” (Id.) 14 It appears R&R was not involved in the events giving rise to this action, and 15 Plaintiffs do not oppose the dismissal of R&R as a defendant. (Id.) Accordingly, R&R is 16 hereby DISMISSED from the action. 17 B. Plaintiffs’ First and Second Claims for Violation of Section 10(b), Rule 18 10b–5, and Section 20(a) of the Exchange Act 19 Defendants claim they are entitled to partial summary judgment on Plaintiffs’ first 20 and second claims for violation of section 10(b), rule 10b–5, and section 20(a) of the 21 Exchange Act (collectively “Exchange Act claims”). (Doc. 52–1 at 8–12.) 22 Defendants chiefly argue that there is no evidentiary support that Defendants made 23 any material misrepresentation or omission and thus, the Exchange Act claims fail as a 24 matter of law. (See Doc. 64 at 2–4.) Defendants’ reply brief focuses on Plaintiffs’ failure 25 to satisfy the heightened pleading requirements on the element of scienter, which requires 26 “deliberate recklessness or some degree of intention or conscious misconduct.” (Id. at 2– 27 3 (internal quotations and citations omitted).) Finally, Defendants contend they were 28 1 merely investment advisors who facilitated trades of securities, such that they are not a 2 “seller” of securities as required by the Exchange Act. (Doc. 52–1 at 11–12.) 3 The parties have provided little support as to whether the conduct in this case may 4 be considered in “connection with a purchase or sale of any security,” which is an element 5 of the section 10(b) claim. See 15 U.S.C.A. § 78j (West); see also Flaxel v. Johnson, 541 6 F. Supp. 2d 1127, 1136 (S.D. Cal. 2008) (citing Dura Pharm., Inc. v. Broudo, 544 U.S. 7 336, 341–42 (2005)). Moreover, neither party has provided any authority which expressly 8 prohibits or permits Exchange Act liability against an investment advisor who facilitates 9 an investment trade. Therefore, the Court reserves its ruling as to the Exchange Act claims 10 and ORDERS supplemental briefing as to whether an element of the section 10(b) claim, 11 i.e., “a connection to the purchase or sale of any security,” has been satisfied. 12 C. Plaintiffs’ Third Claim for Violation of California Corporations Code §§ 13 25401 and 25501 14 Defendants allege that Plaintiffs’ third claim for violation of California Corporations 15 Code sections 25401 and 25501 has no merit and that Defendants are entitled to summary 16 judgment on this claim. (Doc. 52–1 at 12–13.) 17 California Corporations Code section 25401 states that it is “unlawful for any person 18 to offer or sell a security in this state . . . that includes an untrue statement of a material fact 19 or omits to state a material fact necessary to make the statements made . . . not misleading.” 20 CAL. CORP. CODE § 25401 (West). “Section 25008 delineates the ‘in this state’ as an offer 21 or sale originating in California or when an offer is accepted in California.” (Doc. 52–1 at 22 12 (citing CAL. CORP. CODE § 25008 (West)). California Corporations Code section 25501 23 provides that “[a]ny person who violates Section 25401 shall be liable to the person who 24 purchases a security from, or sells a security to, that person . . . .” CAL. CORP. CODE § 25 25501 (West). 26 Defendants argue, in part, that section 25401 applies to conduct in California and 27 that there is no evidence the offer or acceptance of an offer occurred in California. (Doc. 28 52–1 at 12.) Plaintiffs reside in Mexico City, and “[t]he only resident of California is 1 Guillermo Roditi Dominguez[,] and both Plaintiffs admitted in their respective depositions 2 they had limited contact with Guillermo and he did not provide them with any investment 3 advice.” (Id.) 4 In their opposition, Plaintiffs present no evidence disputing Defendants’ position and 5 state they “consent to the dismissal of the third cause of action for violation of California 6 Corporations Code §§ 25401 and 25501.” (Doc. 58 at 10.) 7 Based on Defendants’ assertions and Plaintiffs’ consent to dismissal, the Court finds 8 that that there is no genuine dispute as to any material fact with respect to this claim. See 9 FED. R. CIV. P. 56(a). Therefore, Defendants’ partial MSJ as to Plaintiffs’ third cause of 10 action for violation of California Corporations Code sections 25401 and 25501 is 11 GRANTED. 12 D. Plaintiffs’ Fourth Claim for Negligent Misrepresentation 13 Defendants allege Plaintiffs’ fourth claim for negligent misrepresentation has no 14 merit because Plaintiffs have not identified any specific misrepresentations. (Doc. 52–1 at 15 14.) 16 Negligent misrepresentation requires: “(1) the misrepresentation of a past or existing 17 material fact, (2) without reasonable ground for believing it to be true, (3) with intent to 18 induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the 19 misrepresentation, and (5) resulting damage.” Apollo Cap. Fund, LLC v. Roth Cap. 20 Partners, LLC, 158 Cal. App. 4th 226, 243 (2007) (citing Shamsian v. Atlantic Richfield 21 Co., 107 Cal. App. 4th 967, 983 (2003)). 22 Defendants argue that “Plaintiffs’ claims for negligent misrepresentation are based 23 on alleged misrepresentations in connection with the risk and suitability of certain 24 investments related to the investment accounts” and that “[n]one of these necessary facts 25 have been pled in the Complaint or provided in Plaintiffs[’] answers to interrogatories or 26 in deposition.” (Doc. 52–1 at 14.) It is Defendants’ position that whether Defendants had 27 a duty to disclose the trading decisions being made in Plaintiffs’ investment accounts is a 28 question of breach of fiduciary duty, rather than one of misrepresentation. (Doc. 52–1 at 1 14.) 2 Plaintiffs counter that there is a genuine dispute regarding their negligent 3 misrepresentation claim. (Doc. 58 at 16.) Plaintiffs state that “Defendants’ 4 misrepresentations were two-fold: (1) first, inducing Plaintiffs to invest in Defendants’ 5 investment vehicles based on misrepresentations about the types of investments in which 6 Plaintiffs’ funds would be placed; and (2) after sustaining substantial losses, promising 7 Plaintiffs that they would take a conservative approach.” (Doc. 58 at 16–17.) 8 Plaintiffs originally held an investment account at Oppenheimer, but when Alberto 9 and Guillermo Roditi opened NRI, they “induced Plaintiffs to move their money there.” 10 (Id. at 17.) Both of Plaintiffs’ depositions allege that Alberto Roditi promised plaintiffs he 11 would invest conservatively, keeping Plaintiffs’ retirement goals in mind. (Id. at 12 (citing 12 Venice Depo., at 11:16–12:5; Manual Depo., Vol. II at 141:9–144:8).) Plaintiffs claim to 13 have relied on this representation, and “Alberto later traded naked call options without 14 Plaintiffs’ knowledge, leading to liquidation of the [Interactive Brokers] account.” (Doc. 15 58 at 12.) 16 After the account sustained significant losses, Plaintiffs contacted Alberto Roditi in 17 January 2020 “to figure out what had happened and why so much money had been lost” 18 and “Alberto ‘promised [Plaintiffs] that the money would be invested little by little and 19 without taking any risks.’” (Doc. 58 at 17 (quoting Doc. 58–1 at 37).) Plaintiffs state that 20 “Alberto proceeded to double down on the TESLA positions . . . then transferred 21 approximately $215,000 from the [TD Ameritrade] account to the [Interactive Brokers] 22 account, to offset some of the losses incurred from the uncovered TESLA positions.” (Doc. 23 58 at 17–18 (citing Venice Depo., at 11:21–12:5, 15:16–20; Manuel Depo., Vol II at 143: 24 13–16, 143:23–144:8).) 25 In light of Plaintiffs’ deposition testimony above, the Court finds that there are 26 genuine issues of material fact, and this matter should not be resolved on summary 27 judgment. See Retail Wholesale & Dep’t Store Union Local 338 Ret. Fund v. Hewlett- 28 Packard Co., 845 F.3d 1268, 1274 (9th Cir. 2017) (quoting Basic Inc., 485 U.S. at 231) 1 || finding the materiality of a misrepresentation “is generally an issue of mixed fact and law, 2 left to the fact-finder’’)); see also Baker, 423 F. Supp. 3d at 878 (finding “genuine 3 ||issues of material fact existed as to materiality of alleged misrepresentations . . . precluding 4 ||summary judgment on stockholders’ securities fraud claim’). 5 Accordingly, Defendants’ partial MSJ as to Plaintiff's fourth cause of action for 6 negligent misrepresentation is DENIED. 7 IV. CONCLUSION 8 For the foregoing reasons: 9 1. R&R is hereby DISMISSED from the action; 10 2. Defendants’ partial MSJ is GRANTED as to Plaintiffs’ third cause of action 11 violation of California Corporations Code sections 25401 and 25501, Defendants’ 12 ||partial MSJ is DENIED as to Plaintiffs fourth cause of action for negligent 13 misrepresentation, and the Court RESERVES RULING as to Plaintiffs’ first and second 14 ||causes of action for violation of section 10(b), rule 10b—5, and section 20(a) of the 15 || Exchange Act; and 16 3. The Court ORDERS supplemental briefing as to whether there is “a 17 ||connection to the purchase or sale of any security” in the present case. Defendants shall 18 supplemental briefing by August 26, 2022, and Plaintiffs shall file a response by 19 ||September 9, 2022. 20 IT IS SO ORDERED. 21 ||DATE: August 12, 2022 22 23 24 _— zat Berd Ming 25 HON. RUTH BERMUDEZ MONTENEGRO UNITED STATES DISTRICT JUDGE 26 27 28