Integrated Media Resources, LLC v. Morley

Background

Integrated Media Resources, LLC (IMR) invested $1.5 million in 2014 to purchase 22,864 Class A common units of G2 FMV. IMR alleged that the defendants induced the investment by providing financial information that omitted G2’s outstanding tax liabilities and an accounting error. IMR also alleged that the defendants later made misrepresentations about G2’s assets and value.

IMR asserted one federal claim under Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. It also asserted state-law claims for breach of fiduciary duty, waste, unjust enrichment, aiding and abetting breaches of fiduciary duties, declaratory and injunctive relief, a constructive trust, an accounting, fraudulent misrepresentation, and civil conspiracy. The defendants moved to dismiss. Dori V. Karjian was proceeding without a lawyer and was deemed to have joined the motions filed by co-defendants.

Federal Securities-Fraud Claim

The defendants argued that the federal securities-fraud claim was barred by the applicable time limit and that the complaint otherwise failed to state a claim. The court focused on the five-year statute of repose in 28 U.S.C. § 1658(b). A statute of repose generally bars a claim five years after the underlying violation, regardless of when the plaintiff discovers it.

The court held that the only alleged statements or omissions connected to IMR’s purchase of securities occurred before July 6, 2014, when IMR completed its investment. Because IMR filed the action on June 5, 2021, the alleged securities-law violation occurred more than five years before the filing. The court rejected IMR’s argument that later statements about G2’s financial condition, including statements allegedly made in 2019, restarted or extended the repose period. Those later statements followed the 2014 purchase and did not change when the alleged securities-law violation occurred.

The court therefore ruled that the Section 10(b) and Rule 10b-5 claim was time-barred. In the conclusion, the court stated that the claim was dismissed with prejudice.

State-Law Claims

After dismissing the only federal claim, the court considered whether to retain supplemental jurisdiction over the remaining state-law claims. Supplemental jurisdiction allows a federal court to hear related state-law claims in the same case, but the court may decline to do so after dismissing all claims within its original federal jurisdiction.

The court declined supplemental jurisdiction. It noted that discovery had not yet begun, that judicial economy and respect for state courts favored dismissal, and that IMR had not made a developed argument for retaining the state-law claims. The court dismissed those claims without prejudice to refiling in state court.

Disposition

Judge Denise Cote granted the defendants’ motion to dismiss, dismissed the Section 10(b) and Rule 10b-5 claim with prejudice, dismissed the state-law claims without prejudice to refiling in state court, and directed the clerk to close the case.