In re Pareteum Securities Litigation

Background

The court addressed several related actions involving claims against Pareteum Corporation and its officers, directors, investment banker, and auditor. The claims included alleged violations of federal securities laws, breaches of fiduciary duty, and violations of related state laws. The claimants alleged that fraudulent conduct caused Pareteum’s stock price to plummet.

This order focused on two pleadings: the class complaint in 19 Civ. 9767 and the complaint in Patel v. Turner, et al., 20 Civ. 359, a derivative action brought on behalf of Pareteum Corporation. A derivative action is a lawsuit brought by a shareholder on behalf of a company.

Pleading deficiencies

Federal Rule of Civil Procedure 8 requires a complaint to contain a short and plain statement showing that the plaintiff is entitled to relief. Securities-fraud claims also must meet heightened particularity requirements under the Private Securities Litigation Reform Act and Rule 9(b).

The court found that the class complaint did not satisfy these requirements. It was 220 pages long, contained 445 paragraphs before the first count and 503 paragraphs overall, and relied heavily on lengthy block quotations. The court said the complaint often did not explain which quoted statements were allegedly false or why they were false. Instead, it frequently referred to a lengthy paragraph containing a list of purportedly true facts and used that paragraph as a general explanation for why many different statements were supposedly false or misleading.

The court found similar problems in the Patel complaint, which was 107 pages long and contained 288 paragraphs before the first count and 330 paragraphs overall. The court also said that complaint failed to explain how the derivative action would avoid interfering with the putative class action or how Pareteum itself had been harmed by the alleged fraud.

The court characterized both complaints as unclear, overly long pleadings, sometimes called “puzzle pleadings” or “shotgun pleadings.” It concluded that the plaintiffs had not provided the required specific explanation of why and how each challenged statement was false or misleading.

Ruling

Judge Alvin K. Hellerstein dismissed the class complaint and the Patel complaint without prejudice. The plaintiffs in both actions were instructed to file amended complaints by July 17, 2020, that complied with Rule 8 and, where applicable, the Private Securities Litigation Reform Act and Rule 9(b).

The court directed defendants to file any motions to dismiss by August 3, 2020, together with a joint stipulation setting out a briefing schedule to be completed by September 3, 2020. The Clerk was also directed to close the pending motions to dismiss and for joinder because those motions had become moot as a result of the order.