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Starr Investments Cayman II, Inc. v. China Mediaexpress Holdings, Inc.

United States District Court, D. Delaware

August 21, 2014

Starr Investments Cayman II, Inc., Plaintiff,
v.
China MediaExpress Holdings, Inc., Deloitte Touche Tohmatsu, Tom Kwok, Zheng Cheng, Jacky Lam, Ou Wen Lin, Qingping Lin, Thousand Space Holdings Limited, Bright Elite Management Limited, Theodore Green, Malcolm Bird, A.J. Robbins, P.C., Defendants.

Joel E. Friedlander, Friedlander & Gorris, P.A., Wilmington, DE; Jamie L. Brown, Esq., Friedlander & Gorris, P.A., Wilmington, DE; Nicholas A. Gravante, Jr., Esq., (argued), Boies, Schiller & Flexner LLP, New York, NY; Marilyn C. Kunstler, Esq., (argued), Boies, Schiller & Flexner LLP, New York, NY, attorneys for Plaintiff.

Thad J. Bracegirdle, Esq., Wilks, Lukoff & Bracegirdle, LLC, Wilmington, DE, attorney for Defendants China MediaExpress Holdings, Inc. and Zheng Cheng.

Susan M. Hannigan, Esq., Richards, Layton & Finger, P.A., Wilmington, DE; Raymond J. DiCamillo, Esq., Richards, Layton & Finger, P.A., Wilmington, DE; Michael D. Warden, Esq., (argued), Sidley Austin LLP, Washington, D.C.; Elizabeth L. Howe, Esq., Sidley Austin LLP, Washington, D.C., attorneys for Defendants Deloitte Touche Tohmatsu and Tom Kwok.

Stephen C. Norman, Esq., Potter, Anderson & Corroon LLP, Wilmington, DE; Lee Ann Russo, Esq., (argued), Jones Day, Chicago, IL, attorneys for Defendants Ou Wen Lin, Qingping Lin, Thousand Space Holdings Limited, and Bright Elite Management Limited.

Peter B. Ladig, Esq., Morris James LLP, Wilmington, DE; Donald H. Chase, Esq., (argued), Morrison Cohel LLP, New York, NY, attorneys for Defendants Green and Bird.

Martin D. Haverly, Esq., Martin D. Haverly, Attorney at Law, Wilmington, DE; Michael E. Marr, Esq., (argued), Michael E. Marr, Attorney at Law, Baltimore, MD, attorneys for Defendant A.J. Robbins, P.C.

MEMORANDUM OPINION

RICHARD G. ANDREWS, District Judge.

Presently before the Court are Plaintiff's Motion for Entry of Default Judgment Against China MediaExpress Holdings, Inc. (D.I. 197), Defendants Theodore Green and Malcolm Bird's Motion to Dismiss (D.I. 213), DefendantA.J. Robbins, P.C.'s Motion to Dismiss (D.I. 216), Defendants Thousand Space Holdings Ltd. and Bright Elite Management Ltd.'s Motion to Dismiss (D.I. 219), Defendants Ou Wen Lin and Qingping Lin's Motion to Dismiss (D.I. 221), Defendant Deloitte Touche Tohmatsu's Motion to Dismiss (D.I. 226), and Defendant Tom Kwok's Motion to Dismiss. (D.I. 249). The motions have been fully briefed. The motions set forth a number of reasons for dismissal, many of which are particular to the individual defendants. These arguments will be dealt with in tum. However, almost all of the motions address the application of Morrison v. Nat'l Australia Bank Ltd., 561 U.S. 247 (2010), so the Morrison issue will be dealt with as to all defendants.

I. Legal Standard

To survive a challenge under Fed.R.Civ.P. 12(b)(6), the complaint must contain sufficient factual matter to "state a claim that is plausible on its face." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (internal citation omitted). In order to determine whether the complaint states a plausible claim, the Court accepts as true only well-pleaded facts. Id. at 1951. Federal Rule of Civil Procedure 9(b) requires that the circumstances constituting fraud be pled with even more particularity. See Tellabs, Inc. v. Makar Issues & Rights, Ltd., 551 U.S. 308, 318 (2007).

In addition to Rule 9(b), a plaintiff alleging securities fraud must also comply with the heightened pleading requirements of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). See California Pub. Employees' Ret. Sys. v. Chubb Corp., 394 F.3d 126, 144 (3d Cir. 2004). The PSLRA requires that any securities fraud claim brought under the Exchange Act must "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). The PSLRA also requires plaintiffs to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2); Tellabs, 551 U.S. 308.

In order to state a claim under Section 1O(b) and Rule 1Ob-5, a plaintiff must allege: (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reasonable reliance by Plaintiff on the misrepresentation or omission; (5) economic loss; and (6) causation. See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008); In re Aetna Sec. Litig., 617 F.3d 272, 277 (3d Cir. 2010).

II. Discussion

The facts of this case are voluminous and I therefore do not repeat them all. Similar allegations are made in Mcintire v. China MediaExpress Holdings, Inc., 927 F.Supp.2d 105 (S.D.N.Y. 2013).

Plaintiff Starr Investments is an institutional investor based in the Cayman Islands. Between January and December 2010, Starr purchased one million shares of preferred stock and over three million shares of common stock in ChinaMediaExpress Holdings, Inc. ("CCME"). (D.I. 207 ¶¶ 138, 145, 193, 194). In the beginning of2011, independent investment analysts published reports alleging that CCME was engaging in a pump and dump scheme to inflate stock price so that insiders could sell. By March 2011, Deloitte, CCME's auditor, confirmed that CCME had vastly overstated its financial condition. Due to the ...


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