20101012- Motion to Dismiss- Final Electronic Signature-2

8/8/2019 20101012- Motion to Dismiss- Final Electronic Signature-2

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ORRIGAN& MORRIS , LLP

ATTORNEYSATLAW

201 SANTA MONICA BLVD.

SUITE475

SANTA MONICA, CA. 90401(310) 394-2800

MOTION TO DISMISS COMPLAINT - 1

Nia C. Killebrew, Esq.Nevada Bar No. 4553428 South 4th StreetLas Vegas, NV 89101702-385-1482

CORRIGAN & MORRIS LLPSTANLEY C. MORRIS, ESQ. (BAR NO. 183620)BRIAN T. CORRIGAN, ESQ. (BAR NO. 143188)(Subject to Approval of Application for Association of CounselPer LR IA 10-2)201 SANTA MONICA BOULEVARD, SUITE 475SANTA MONICA, CALIFORNIA 90401-2212TELEPHONE: (310) 394-2800FACSIMILE: (310) 394-2825

Attorneys for Defendant

CHINA ARMCO METALS, INC.

UNITED STATES DISTRICT COURT

DISTRICT OF NEVADA

CRAWFORD SHAW, an individual,

Plaintiff,

vs.

CHINA ARMCO METALS, INC., a

domestic corporation; ACTION

STOCK TRANSFER, a foreign

corporation; KEXUAN YAO, an

individual; WEN FENGAO, an

individual; WEINGANG ZHAO, an

individual; HEPING MA, an

individual; WILLIAM THOMSON,

an individual and DOES 1 through

100 inclusive,

Defendants.

Case No.: 2:10-cv-1581-JCM-RJJJudge: Robert J. Johnston

MOTION FOR AN ORDER TODISMISS COMPLAINT



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


TO THE COURT, COUNSEL AND PARTIES:

Defendant, China Armco Metals, Inc. (“Defendant”), hereby moves the

Court for an order dismissing the Complaint pursuant to Federal Rules of Civil

Procedure 12(b)(1) and (6). In short, Plaintiff’s complaint based in fraud fails to

plead, with particularity or otherwise, that Plaintiff, himself, relied on specific

material misstatements or omissions, and that Plaintiff himself suffered damages as

a direct and proximate result of such material misstatements or omissions.

These consistent and obvious deficiencies in each of the three fraud claims

for relief in the Complaint require dismissal under Federal Rule of Civil Procedure

12(b)(1) because, without a sufficient pleading of fraud, causation and damages,

there is no securities law claim, and thus no subject matter jurisdiction, and no

diversity jurisdiction because Plaintiff cannot successfully allege a claim for relief

above the jurisdictional minimum of $75,000.

Separately, these consistent and obvious deficiencies in each of the three

fraud claims for relief in the Complaint require dismissal under Federal Rule of

Civil Procedure, Rules 12(b)(6) and 9, because the Complaint fails to state a claim

upon which relief may be granted.

This Motion is based on this Notice of Motion and Motion, the

Memorandum of Points and Authorities filed herewith, the pleadings and papers

and previously on file herein and upon such other matters as may be presented to

the Court at the time of the hearing.

//

//



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


WHEREFORE, Defendant, China Armco Metals, Inc., prays for an order:

1. Dismissing the Complaint for lack of jurisdiction;

2. Dismissing the Complaint for failure to state a claim; and

3. Granting such other and further relief as this Court deems just.

Dated: October 12, 2010

CORRIGAN & MORRIS LLP

/s/ Stanley C. Morris

Stanley C. Morris(CA State Bar No. 183620)(Subject to Approval of Applicationof Association of Counsel Per LR 10-2)

Attorneys for Defendant,

China Armco Metals, Inc.

KILLEBREW LAW FIRM

/s/ Nia C. Killebrew

Nia C. Killebrew, Esq.(Nevada Bar No. 4553) Attorneys for Defendant , China ArmcoMetals, Inc.



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iDEFENDANT’S MOTION TO DISMISS COMPLAINT

TABLE OF CONTENTS

I. INTRODUCTION……………………………………………………….....4

II. PLAINTIFF’S COLLATERAL ATTACK ON THE

CALIFORNIA ACTION…………………………......................................

4

III. LEGAL ARGUMENT…………………………………….......................... 7

A. Plaintiff’s Complaint Should be Dismiss Under

Federal Rule of Civil Procedure 12(b)(6)……………………….......

8

B. The Common Law Fraud Claim Fails ……………………….....…..9

C. The Civil Conspiracy Claims Must be Dismissed………………….. 9

D. This Court Lacks Subject Matter Jurisdiction…………………….....10

IV. CONCLUSION……………………………………………………………. 11



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iDEFENDANT’S MOTION TO DISMISS COMPLAINT

TABLE OF AUTHORITIES

Cases

Baker v. Carr , 369 U.S. 186, 198 (1962)……………………………………. 11

Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)………………10

Bulbman, Inc. v. Nev. Bell, 108 Nev. 105 (Nev. 1992)……………………….9

Collins v. Union Fed. Sav. & Loan Ass'n, 99 Nev. 284 (Nev. 1983)…………10

In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994)………….8

Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994)………………………… 8

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)……... 11

McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936)…… 11

Moore v. Kayport Package Express, Inc.,

885 F.2d 531, 541 (9th Cir. 1989)……………………………………..

10

Stock West, Inc. v. Confederated Tribes,

873 F.2d 1221, 1225 (9th Cir. 1989)………………………………......

11

Swartz v. KPMG LLP, 476 F.3d 756, 764—65 (9th Cir. 2007)………………10

Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir. 1996)……………………11

Warshaw v. Xoma Corp., 74 F.3d 955, 960 (9th Cir 1996) ………………….8

WMCV Phase 3, LLC v. Shushok & McCoy, Inc,

2010 U.S. Dist. LEXIS 107035, 13-30 (D. Nev. Oct. 5, 2010)……….

9

9

Statutes and Rules Fed. R. Civ. P. 12(b)(6)……………………………………………………… 8

Fed. R. Civ. P. 9(b) ………………………………………………………….. 8

Fed. R. Civ. P. 12(h)(3)……………………………………………………….11



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iiDEFENDANT’S MOTION TO DISMISS COMPLAINT

Fed. R. Civ. P. 12(b)(1)……………………………………………………….10

Section 16a-1(c)(1) of the Securities Act. ……………………………………7



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


MEMORANDUM OF POINTS AND AUTHORITIES

I.

INTRODUCTION

The Complaint fails to plead the elements of a fraud as against Plaintiff, as

Plaintiff has not pled, with the requisite particularity, or otherwise, that he, himself,

actually heard or read any false statement, actually or reasonably relied on any

misrepresentations, or that he, himself, was damaged as a proximate result of any

misrepresentations. Plaintiff’s Complaint, which asserts only fraud claims, fails to

state a claim upon which relief can be granted. Because subject matter jurisdiction

rests unsteadily on fatally flawed claims for relief, this Court lacks subject matter

jurisdiction over this matter. Finally, because diversity jurisdiction requires a

$75,000 minimum in controversy, Plaintiff’s fatally flawed fraud claims cannot

support the exercise of diversity jurisdiction in this case. Accordingly, this Motion

should be granted.

II.

PLAINTIFF’S COLLATERAL ATTACK ON THE CALIFORNIA ACTION

The Complaint constitutes a sham pleading brought as a collateral attack

against Defendant, Kexuan Yao (“Yao”), in response to Yao’s action against

Anthony Gentile (“Gentile”) and Crisnic Fund, S.A. (“Crisnic”), pending in the

United States District Court for the Central District of California (Yao v. Crisnic

Fund, S.A., et al. (Case No. SACV 10-1299(JCGx), hereafter the “California

Action”). Gentile and Crisnic puppeteer Plaintiff in order to impose litigation costs

on Yao and his company, China Armco, while at the same time Gentile and Crisnic

stonewall discovery and hide from the jurisdiction of the United States District

Court for the Central District of California in the California Action.

The Complaint is fatally deficient because the Complaint was never intended

actually to initiate a valid lawsuit, but was instead intended to support false and



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


misleading press releases by a stock manipulator, hoping to find protection in the

litigation privilege. The content of the Complaint focuses almost entirely on

matters pending in the California Action. While Plaintiff is not a party to that

action, it seems more than apparent, by the content and timing of this Complaint,

that Plaintiff is the puppet of Gentile and Crisnic. Indeed, most of the Complaint

and all of the exhibits focus on the very correspondence and transaction documents

at issue in the California Action.

The California Action arises out of a loan transaction in which Yao pledged

his China Armco stock as collateral for a $2.5 million loan to be made by Crisnic.

Crisnic did not fund the loan immediately, as promised. Instead, it appeared that

Crisnic immediately began selling Yao’s collateral to fund the loan. Huge

increases in China Armco’s trading volume gave Yao cause for concern that

Crisnic, rather than hold the collateral, started selling it in violation of the federal

securities laws. Yao, despite his best efforts in the California Action, has been

unsuccessful in preventing Crisnic from selling, or even from getting the discovery

necessary to confirm Yao’s suspicions that Crisnic has sold or is selling such

shares in violation of the securities laws. Gentile and Crisnic, through their

counsel, Richard Cutler of Houston, Texas, have filed a motion to dismiss that

action for lack of personal jurisdiction, claiming that no court in the United States

has jurisdiction over them anywhere in the United States, despite Gentile’s United

States’ passport and citizenship, among many other contacts.

Crisnic initiated its hard ball defense tactics by issuing a Newswire press

release accusing Yao of defrauding Crisnic in connection with the very same

transactions, and telling the world that Crisnic intended to sue Yao. But, when

Yao demanded rescission of the same transactions and sued Crisnic to rescind the

very transactions that Crisnic claimed were fraudulent, and sued Crisnic and

Crisnic’s owner, Gentile, for defamation, Gentile and Crisnic ran for the hills,



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


hiding in Costa Rica in the hope that the long arm of the United States federal

courts would not catch them.

At the same time as Crisnic and Gentile are running from the Court’s

jurisdiction in California, the same parties continue to manipulate the Court system

and Newswire, among other sources, to malign Yao and his company, China

Armco. Here, Crisnic and Gentile are quite obviously utilizing their puppet,

Plaintiff, to attack Yao and his company in this Court. The Plaintiff in this case is

a Houston, Texas resident, not coincidentally, the same city in which Gentile’s and

Crisnic’s counsel, Mr. Cutler, practices law. Plaintiff is the CEO of Extensions,

Inc., which is also represented before the SEC by Mr. Cutler. Mr. Cutler also

purports to be an associate editor for Newswire, an internet publisher of

Extensions, Inc. Not coincidently, on August 9, 2010, the press release issued by

Crisnic and Gentile which is the subject of Yao’s defamation action in the

California Action, was published by the same Newswire entity owned by

Plaintiff’s company, Extensions, Inc. While these facts are not directly relevant to

this Motion, the Court should be aware of Plaintiff’s abuse of this Court’s process

at the very earliest opportunity.

Plaintiff’s bad faith is further evident by the fact that Plaintiff’s own counsel

has filed a motion to withdraw representing, as an officer of the Court, that:

“Plaintiff has requested that James Stout, Esq. file a pleading that James R.

Stout, Esq. did not believe was appropriate to file. The refusal of James R.

Stout, Esq. to file the pleading led to a complete breakdown of the attorney-client

relationship. Counsel has advised Plaintiff to retain new counsel. Plaintiff is an

experienced licensed New York attorney and could represent himself in the

interim." Emphasis added.

This despicable litigation strategy cannot withstand the scrutiny of this

Court. This Motion should be granted. While it might be premature to grant it



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


with prejudice at this juncture, this Court should keep in mind the manipulations of

Plaintiff and his puppeteers as this case plays out, so that it can put a swift end to

Plaintiff’s abuse of this Court’s process.

III.

LEGAL ARGUMENT

The gist of Plaintiff’s complaint is that Defendant should have reported an

alleged sale of Kexuan Yao’s stock that Mr. Yao does not even know has occurred.

See, Page 16, ¶ 49 of the Complaint. That by failing to report Mr. Yao’s sale of

stock, Defendant has artificially inflated the price of China Armco stock. See,

Complaint at Page 3, ¶ 12, lines 20-27. Plaintiff’s case is based entirely on Yao’s

allegations in the California Action that Crisnic Fund, S.A. defrauded Yao when it

allegedly violated a promise not to sell Yao’s pledged shares, a fact that Crisnic

has denied, and a fact that Yao, despite his best efforts, has been unable to confirm

through discovery in the California Action.

Plaintiff’s theory misunderstands the facts and securities laws. First,

because Mr. Yao has been unable to confirm whether his stock has been sold or

not, there is nothing to report. A stock pledge does not trigger a Form 4 report be

filed under SEC reporting rules. See, Section 16a-1(c)(1) of the Securities Act.

Thus, Yao has not violated any securities laws. Plaintiff’s other allegations are that

Yao has alleged in the California Action that if Crisnic sold Yao’s stock, he could

possibly be subject to a hypothetical SEC prosecution. See, Complaint at page 4,

lines 1-6. Again, Plaintiff has no reporting obligation with respect to a hypothetical

possibility of a sale or an investigation.

Plaintiff’s theory importantly omits any explanation as to how such alleged

violation possibly could hurt Plaintiff, who is apparently armed with knowledge of

all the facts alleged in his Complaint. Plaintiff claims that if the public knew of

these facts, the stock price would go down. But, Plaintiff is free to sell his stock, if



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


he suspects the stock price will go down in the future. How is Plaintiff damaged?

He is not. Moreover, Plaintiff is silent on how much stock he owns, when he

bought it and whether he knew about the facts alleged in his complaint when he

made the purchase, and what measures he took to mitigate his damages once he

learned about the facts alleged in his complaint. Defendant suspects that Crisnic

gave Plaintiff, Shaw, a share or two to bring this action, while avoiding jurisdiction

in the California Action.

A. Plaintiff’s Complaint Should be Dismissed Under

Federal Rule of Civil Procedure 12(b)(6).

Federal Rule of Civil Procedure 12(b)(6) authorizes the Court to dismiss any

claim or action for “failure to state a claim upon which relief can be granted.”

Based on the procedures outlined in such rule, Defendant, China Armco, seeks

dismissal of the Complaint and each cause of action stated therein because Plaintiff

has failed to plead, with particularity or otherwise, that he actually and reasonably

relied on any specific misrepresentation of fact or that he, personally, suffered any

damages. Plaintiff was required to plead the fraud counts of his complaint (all

three claims for relief) with particularity. See Fed. R. Civ. P. 9(b)

Rule 9(b) has been construed to require a plaintiff to "state precisely the

time, place and nature of the misleading statements, misrepresentations and

specific acts of fraud." Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994). A

plaintiff must plead facts such as "he bought a house from defendant, that the

defendant assured him that it was in perfect shape, and that in fact the house turned

out to be built on a landfill . . . ." Warshaw v. Xoma Corp., 74 F.3d 955, 960 (9th

Cir 1996) (quoting In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir.

1994)("In all averments of fraud or mistake, the circumstances constituting fraud

or mistake shall be stated with particularity.”)



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


B. The Common Law Fraud Claim Fails

The elements of intentional misrepresentation (common law fraud) in

Nevada are:

1. A false representation made by the defendant;

2. Defendant's knowledge or belief that the representation is false (or

insufficient basis for making the representation);

3. Defendant's intention to induce the plaintiff to act or to refrain from

acting in reliance upon the misrepresentation;

4. Plaintiff's justifiable reliance upon the misrepresentation; and

5. Damage to the plaintiff resulting from such reliance.

Bulbman, Inc. v. Nev. Bell, 108 Nev. 105 (Nev. 1992) (citing Lubbe v. Barba, 91

Nev. 596 (1975)). WMCV Phase 3, LLC v. Shushok & McCoy, Inc, 2010 U.S. Dist.

LEXIS 107035, 13-30 (D. Nev. Oct. 5, 2010)

In this case, Plaintiff’s complaint utterly failed to identify a single false

representation that he relied on when he purchased China Armco stock. Plaintiff

failed to allege when he purchased his shares. Plaintiff failed to allege how many

shares he purchased, or even if he purchased any shares. Likewise, Plaintiff failed

to articulate any damage that he suffered as proximate cause of the alleged failure

to disclose certain hypothetical possibilities. Instead, Plaintiff alleged that Yao’s

acts were done to protect the stock price from falling, not that he caused any

damage. See Complaint at page 3, line 22. If Plaintiff believes the stock price is

artificially high as a result of inadequate disclosures, then Plaintiff should sell his

stock. This cause of action should be dismissed as against the Defendants.

C. The Civil Conspiracy Claims Must be Dismissed

Likewise, Plaintiff’s allegation of conspiracy to commit fraud must also be

dismissed because Plaintiff does not properly allege any misrepresentation he

relied on, the reasonableness of the reliance, or that he was damaged. Plaintiff does



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ATTORNEYSATLAW


SUITE475

SANTA MONICA, CA. 90401(310) 394-2800


not allege the role of each defendant in the alleged conspiracy. "An actionable civil

conspiracy is a combination of two or more persons who, by some concerted

action, intend to accomplish some unlawful objective for the purpose of harming

another which results in damage." Collins v. Union Fed. Sav. & Loan Ass'n, 99

Nev. 284 (Nev. 1983).

With respect to claims of conspiracy, Rule 9(b) does not allow a complaint

to merely lump multiple defendants together but "require[s] plaintiffs to

differentiate their allegations when suing more than one defendant . . . and inform

each defendant separately of the allegations surrounding his alleged participation

in the fraud." Swartz v. KPMG LLP, 476 F.3d 756, 764—65 (9th Cir. 2007). "[T]he

plaintiffs must, at a minimum, 'identify the role of each defendant in the alleged

fraudulent scheme.'" Id. (quoting Moore v. Kayport Package Express, Inc., 885

F.2d 531, 541 (9th Cir. 1989)). Here, Plaintiff has alleged a conspiracy against

multiple defendants, including Defendant’s lawyer, but has not bothered to

articulate any role played by any party with particularity and/or articulate how

Plaintiff was damaged by such conspiracy. "To comply with Rule 9(b), allegations

of fraud must be specific enough to give defendants notice of the particular

misconduct which is alleged to constitute the fraud charge so that they can defend

against the charge and not just deny that they have done anything wrong." Bly-

Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001).

D. This Court Lacks Subject Matter Jurisdiction

Pursuant to Federal Rule of Civil Procedure 12(b)(1), a party may file a

motion to dismiss a claim for relief based on the court's "lack of jurisdiction over

the subject matter." Fed. R. Civ. P. 12(b)(1). A complaint must be dismissed for

lack of subject matter jurisdiction if the action: (1) "does not 'arise under' the

federal Constitution, laws, or treaties," or fall within one of the other enumerated

categories of Article III, Section 2, of the Constitution; (2) "is not a 'case or



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SUITE475


controversy' within the meaning of that section;" or (3) "the cause is not one

described by any jurisdictional statute." Baker v. Carr , 369 U.S. 186, 198 (1962)

If the Court finds that it lacks subject matter jurisdiction, then it "must dismiss the

action." Fed. R. Civ. P. 12(h)(3).

The burden of proving subject matter jurisdiction rests upon Plaintiffs, who

are the parties invoking the federal court's jurisdiction. Thompson v. McCombe, 99

F.3d 352, 353 (9th Cir. 1996). Mere conclusory allegations of jurisdiction are not

enough; the party pleading jurisdiction must allege in his pleading the facts

essential to show jurisdiction. McNutt v. General Motors Acceptance Corp., 298

U.S. 178, 189 (1936). Where jurisdiction is challenged pursuant to Rule 12(b)(1),

"[a] federal court is presumed to lack jurisdiction in a particular case unless the

contrary affirmatively appears." Stock West, Inc. v. Confederated Tribes, 873 F.2d

1221, 1225 (9th Cir. 1989); see Kokkonen v. Guardian Life Ins. Co. of Am., 511

U.S. 375, 377 (1994) (non-moving party bears the burden to establish that subject

matter jurisdiction exists). Here, Plaintiff has not alleged that his damages exceed

the $75,000 thresh hold amount for diversity and has not sufficiently pled a

violation of any federal law.

IV.

CONCLUSION

For all of the foregoing reasons, Defendant, China Armco, respectfully

request that this Court dismiss the Complaint.

Dated: October 12, 2010

CORRIGAN & MORRIS LLP

/s/ Stanley C. MorrisStanley C. Morris(CA State Bar No. 183620)(Subject to Association of Counsel)

KILLEBREW LAW FIRM

/s/ Nia C. KillebrewNia C. Killebrew, Esq.(Nevada Bar No. 4553)

Attorneys for China Armco Metals, Inc.

20101012- Motion to Dismiss- Final Electronic Signature-2

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