Before the Court is a Motion by defendant Hans Gassner to Dismiss the Complaint or, in the Alternative, to Transfer Based Upon Improper Venue (doc. #137). Plaintiff has responded and opposes the Motion. For the reasons set forth below, the Motion is DENIED IN PART.
Plaintiff Pet Quarters, Inc., is a corporation organized and existing under the laws of the State of Arkansas, with its principal place of business in Arkansas. Pet Quarters supplies pet food and other pet supplies to consumers and professionals through the Internet and mail order catalogs. Defendant Hans Gassner is a resident of Liechtenstein, Germany, and is Director of separate defendant, Splendid Rock Holdings, Ltd. ("Splendid Rock").*fn1
In early 1999, Pet Quarters began to look for capital funding sources to help aid in the growth of its business.*fn2 During this search, Pet Quarters was introduced to defendant Ladenburg Thalmann and Company, a capital investment firm. Following a series of conversations and referrals, Ladenburg introduced Pet Quarters to defendant Thomas Badian. Pet Quarters eventually entered into three financing arrangements with Badian and his investment companies.
On February 23, 2000, Pet Quarters entered into a common stock and warrants purchase agreement with Amro International ("Amro") and Markham Holdings Limited ("Markham"), both Badian investors. Under the Agreement, Pet Quarters sold 619,047 shares of its common stock to Amro and 95,238 shares to Markham, for a total of less than $1.5 million. The Agreement contained repricing provisions under which Amro and Markham could demand additional shares of stock in the event the share price fell over a defined period of time.
On March 15, 2000, Pet Quarters entered into an equity line of credit with Splendid Rock, another Badian investor. Pet Quarters could periodically draw on the line of credit in exchange for shares of common stock, issued at a discount to market price. Gassner signed the equity line of credit on behalf of Splendid Rock.*fn3
On May 2, 2000, Pet Quarters entered into a loan agreement with Amro in the amount of $1 million. The loan was made subject to the terms and conditions of a convertible debenture, which allowed Amro to convert any outstanding principal into shares of Pet Quarters' common stock after a certain period of time. By March 2001, Pet Quarters' stock was trading at pennies per share, down from a high of more than six dollars on September 1, 1999.
On July 21, 2004, plaintiff filed this action against thirteen named defendants, alleging their involvement in a scheme to defraud plaintiff and to manipulate downward the price of Pet Quarters' securities in violation of federal and state laws. In general, plaintiff alleges that the defendants are seasoned practioners of a "death spiral" funding scheme in which they provide financing to a target company and proceed to aggressively short-sell its stock in the hope that such short sales will drive down the price of the target company's securities. Pet Quarters alleges that Gassner is involved in this "death spiral" scheme because he is a control person of Splendid Rock and therefore participated in the scheme to manipulate the price of Pet Quarters' stock.
The Complaint sets forth eleven claims against Gassner: (1) violation of § 10 of the Securities Exchange Act of 1934 and SEC Rule 10b-5 (Counts I & II), (2) violation of sections 23-42-507 and 23-42-508 of the Arkansas Code Annotated (Count III), (3) common law fraud (Count IV), (4) aiding and abetting breach of fiduciary duty (Count VI), (5) prima facie tort (Count VII), (6) constructive fraud (Count IX), (7) civil conspiracy (Count XII), (8) tortious interference with contracts (Count XIII), (9) control person liability under § 20A of the Exchange Act (Count XIV), and (10) disgorgement and restitution under the Exchange Act (Count XVI). Defendant moves to dismiss the Complaint pursuant to Rules 9(b), 12(b)(1), 12(b)(2), 12(b)(3), and 12(b)(6) of the Federal Rules of Civil Procedure.*fn4 Defendant also moves to dismiss the Complaint for failure to plead with particularity under the Private Securities Litigation Reform Act, 15 U.S.C. § 78-u4 ("PSLRA"). The Court will address each of the defendant's contentions in turn.
The defendant's first possible ground for dismissal is that this Court does not have personal jurisdiction over Gassner. In order to survive a motion to dismiss for lack of personal jurisdiction, the plaintiff must make a prima facie showing that the Court has personal jurisdiction over the defendant. Epps v. Stewart Info. Services Corp., 327 F.3d 642, 647 (8th Cir. 2003). The plaintiff bears the burden of proof of whether jurisdiction exists. Id. The Court must view the evidence in a light most favorable to the plaintiff and resolve all factual conflicts in favor of the plaintiff. Digi-Tel Holdings, Inc. v. Proteq Telecomm., Ltd., 89 F.3d 519, 522 (8th Cir. 1996). With this standard in mind, the Court begins its analysis.
The plaintiff's first contention is that this Court has personal jurisdiction over defendant because he is liable as a controlling person under the Exchange Act.*fn5 As support for this proposition, the plaintiff relies on San Mateo County Transit Dist. v. Dearman, Fitzgerald & Roberts, Inc., 979 F.2d 1356 (9th Cir. 1992). In that case, the court held that personal jurisdiction exists if "the ...