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Filed on 9-20-2021
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT COURT OF NEW MEXICO JOHN STRONG, Plaintiff, v. Case No. 1:21-cv-00418-KWR-LF SCOUT SECURITY, INC., SCOUT SECURITY LIMITED, DANIEL ROBERTS, DAVE SHAPIRO, ANTHONY BROWN, and SOL MAJTELES, Defendants. RESPONSE TO DEFENDANTS’ MOTION TO DISMISS COMES NOW, John Strong, by and through his counsel, ADAMS+CROW LAW FIRM (Arlyn G. Crow and Jacqueline K. Kafka), and, pursuant to Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6), hereby responds to Defendants’ Motion to Dismiss (Doc. 18) (“Motion”). Mr. Strong has properly stated claims upon which relief can be granted, to include stating those claims with particularity and identifying the relevant parties and timeframes. Further, this Court has personal jurisdiction over Defendants based upon their actions of reaching into New Mexico to market and sell their goods and services and their actions directed at Mr. Strong in New Mexico. Mr. Strong’s Complaint (Doc. 1-1) survives the motion to dismiss stage, and the Motion should be denied. To the extent the Court disagrees, Mr. Strong is filing a motion to amend the Complaint (Doc. 1-1) shortly hereafter to remedy any alleged deficiencies in his pleadings. BACKGROUND I. Scout Security Inc. is created in 2013. Scout Security, Inc. (“SSI”) began as a start-up company in the do-it-yourself (“DIY”) home security market. Complaint (Doc. 1-1), ¶ 22. SSI was incorporated in 2013, with its principal place of business in Chicago, Illinois. Id. ¶¶ 3, 22. After its incorporation, SSI began looking for Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 1 of 27 2 seed funding to kickstart and grow its business. SSI, through its founders/board members/executive officers, Defendants Roberts and Shapiro, contacted Mr. Strong, a respected investor in the start-up community who lived in New Mexico, to see if he was interested in investing in SSI. See id. ¶ 22; Defendants’ Motion to Dismiss (Doc. 18) at Exhibits B and C. Specifically, the founders of SSI, Defendants Roberts and Shapiro, reached out repeatedly to Mr. Strong in New Mexico to convince Mr. Strong that SSI had a product and business model worth investing in. Complaint (Doc. 1-1), ¶ 23. After convincing Mr. Strong that SSI was worth investing in, Mr. Strong signed numerous investment contracts with SSI in New Mexico, and Defendants SSI, Roberts, and Shapiro continued to reach into New Mexico as part of their ongoing relationship with Mr. Strong. See id. Mr. Strong’s early involvement in the company was so pervasive that he was as close to being a founder as he could be without actually having started the company with Defendants Roberts and Shapiro. Over the years of his involvement in SSI and Scout, Mr. Strong executed numerous agreements in New Mexico, including written consents, investors’ rights agreements, rights of first refusal agreements, purchase agreements, co-sale agreements, and voting agreements, to name a few. See id. Mr. Strong was also instrumental to SSI in bringing on other seed-round investors, and SSI, through its directors, entered into a number of seed-round investment agreements with Mr. Strong, which Mr. Strong executed in New Mexico. See id. ¶¶ 23-24. In fact, SSI documents listed Mr. Strong as one of the major investors in SSI in 2014. By May of 2016, Mr. Strong purchased and owed almost 26,000 shares of Series Preferred A Stock in SSI, which amounted to approximately 20% of SSI stock. II. Scout Security Limited was created in 2016. In or about 2016, Armada Holdings (“Armada”), an Australian private banking company, approached SSI about the possibility of an initial public offering (“IPO”) on the Australian Stock Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 2 of 27 3 Exchange (“ASX”). Id. ¶ 25. To facilitate such an IPO, Scout Security, Ltd. (“Scout”) was formed “for the primary purpose of acquiring [SSI]…. [Scout] entered into a binding Heads of Agreement with the majority stockholders of [SSI] to acquire 100% of the issued capital of [SSI.]” Id.; Prospectus, relevant portions of which are attached as Exhibit 1, at 6. As stated in the Prospectus, “[t]he primary reason for [SSI, through Scout] to list on the [ASX was] to access Australian capital markets to facilitate and accelerate growth of [SSI’s] business.” Exhibit 1 at 6. At the time of the formation of Scout, almost all of SSI’s business was in the United States and SSI had no business or business operations in Australia. Id. Pursuant to an agreement between SSI, Armada, and Scout, Mr. Strong allowed for the transfer of his interest in SSI to an account in Australia so that the stock could be converted into Scout stock. Complaint (Doc. 1-1), ¶ 26. After the transfer and conversion was complete, Mr. Strong held approximately 4.63 million shares of stock in Scout, of which approximately 3.41 million shares were restricted, meaning they were subject to an escrow period of 24 months during which they could not be disposed of or transferred, see Restriction Agreement, relevant portions of which are attached as Exhibit 2, at 1, and of which approximately 1.22 million were unrestricted and could be sold or transferred at any time. See Holding Information, dated June 19, 2018, attached as Exhibit 3. Mr. Strong also agreed to sit on the Board of Scout. Complaint (Doc. 1-1), ¶ 27. To that end, in or about February of 2017, Mr. Strong signed the Confirmation of Appointment as NonExecutive Chairman of Scout Security Limited (“Confirmation of Appointment”) in New Mexico, which confirmed Mr. Scout’s appointment as the Non-Executive Chairman of Scout. See id. The Confirmation of Appointment provided that Mr. Strong would be compensated $37,500.00 a year for his service as chairman of the Board. As part of his appointment, Mr. Strong was responsible Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 3 of 27 4 for chairing Board meetings and setting meeting agendas; sharing responsibility for control of Scout; providing his experience and insight on issues of strategy and performance; setting Scout values and standards; monitoring management performance; and ensuring the adequacy and integrity of financial and other reporting by Scout. See relevant portions of Confirmation of Appointment, attached as Exhibit 4, at 1-2. At this point, Scout’s continuous relationship with New Mexico began: Mr. Strong signed his employment contract to be chairman of the Board in New Mexico, Mr. Strong worked for Scout from New Mexico, and Scout began reaching into New Mexico to involve Mr. Strong in the holding company’s operations. See Complaint (Doc. 1-1) ¶¶ 27, 30. In short, Scout’s corporate governance and administration occurred in the United States and Scout reached into New Mexico to enter into agreements with Mr. Strong, to include his appointment as chairman of the Board for Scout. Id. ¶ 29. At the time of the decision to go public, the Board for Scout also included Defendants Roberts and Shapiro, both residents of Chicago, Illinois. Id. ¶¶ 27-28. The IPO for the ASX required two Australian citizens to be on Scout’s Board, resulting in Defendants Brown and Majteles becoming members of the Board. See id. ¶ 28. Neither had any prior relationship with SSI. Id. All four Board members reached into New Mexico to interact with Mr. Strong while he was chairman of the Board on numerous occasions. After the IPO occurred, Scout was, for all intents and purposes, SSI. See id. ¶ 29. SSI and Scout listed their address in Chicago, Illinois, identified the founding members of SSI (Defendants Roberts and Shapiro) as directors of Scout, and chose Mr. Strong to be the Board’s chairman. See id. ¶¶ 27-29; Scout Annual Report, dated June 30, 2020, attached as Exhibit 5 at i (identifying Scout’s registered office in Chicago, Illinois). In fact, Scout admits that the reason it formed Scout was solely to access the Australian capital markets. Exhibit 1 at 6, 25. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 4 of 27 5 Scout holds itself out as being indistinguishable from SSI and claims it was founded in Chicago, Illinois in 2013 (the year SSI was founded) and has spent the time since its creation creating a DIY home security system (despite the fact that Scout is simply a holding company for SSI’s stock and SSI, in fact, is the entity that sells the home security products and offers security monitoring services). Id.; Exhibit 5 at 1. Scout also took advantage of the United States’ CARES Act and obtained a forgivable loan during the COVID-19 pandemic. Id. at 3. Scout clearly has a presence in the United States and is an alter ego of SSI. III. Mr. Strong becomes ill in 2018. Although Mr. Strong was an obvious candidate to serve on the Scout Board, given his knowledge of Scout and his business reputation, Armada and Defendants Brown and Majteles did not want Mr. Scout on the Board. While on the Board, Mr. Strong advised against Armada seeking financing for Scout and, consequently, Armada lobbied the other Board members to out vote Mr. Strong. Id. ¶ 32. Then, in January of 2018, Mr. Strong became ill and incurred substantial medical bills. Id. ¶ 33. So, in March of 2018, Mr. Strong approached the Board about his situation and selling his Scout stock to pay for his outstanding medical expenses, but the Board told him he could not sell his stock. Mr. Strong relied on the Board’s misrepresentation and took no steps to sell his stock for several months. During that time in which Mr. Strong relied on the Board’s misrepresentation, the value of Scout’s stock fell. A few months after Defendants’ misrepresentation, Mr. Strong reviewed his Scout contracts and documents and realized that he had approximately 1.2 million shares of stock that was unrestricted and, therefore, could be sold to pay his medical bills. Accordingly, in May of 2018, Mr. Strong sought to sell some of his unrestricted stock in Scout. Id. ¶ 34. At that time, Mr. Strong’s broker, Hartley’s, told Mr. Strong that the Scout Board had to approve any sale of the stock. Id. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 5 of 27 6 Faced with ever increasing medical bills, Mr. Strong again turned to the Scout Board for help. The Scout Board and Defendants Brown and Majteles, however, told Mr. Strong for the first time that he could not sell his unrestricted stock while he was part of the Scout Board and that he would need to resign before he sold his stock. Id. ¶¶ 35-36. Mr. Strong had numerous conversations with the Board about selling his stock as his health continued to deteriorate, but Defendants repeatedly told him that he could not sell his stock unless he resigned from the Board and repeatedly refused to give Hartley’s permission to sell Mr. Strong’s unrestricted stock. Id. ¶¶ 37- 39. This amounted to a breach of Mr. Strong’s contractual appointment as chairman of the Board because the contract provided the Board would not unreasonably withhold consent for Mr. Strong to sell his shares of Scout security. See id.; Exhibit 4 at 4-5. Knowing Mr. Strong was in a difficult position due to his medical expenses, the Board leveraged Mr. Strong’s precarious physical and financial position and refused to give approval for the sale of Mr. Strong’s Scout stock to force Mr. Strong’s resignation from the Scout Board. Complaint (Doc. 1-1), ¶¶ 37-39. In or about January of 2019, faced with no other options, Mr. Strong caved to the Board’s demands and resigned. Id. ¶ 41. At that time, he sold his stock at a great loss because during the 8 months the Board intentionally withheld permission for Mr. Strong to sell his stock, stock prices fell. See id. ¶ 42. Further, as a result of his forced resignation, Mr. Strong lost the $37,500.00 per year he was receiving as compensation for his service as the Board chairman and suffered substantial damage to his reputation. Id. ¶¶ 42-43. IV. This lawsuit. Now, Mr. Strong is seeking compensation for the damages he has suffered. He entered into a contract with Scout whereby Scout promised to pay Mr. Strong as the Board chairman and the Board agreed it would not unreasonably withhold permission for Mr. Strong to sell his stock in Scout. Nonetheless, when Mr. Strong fell gravely ill and incurred substantial medical bills, the Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 6 of 27 7 collective Board, and individual members of the Board, coerced Mr. Strong into resigning, knowing that they could use (1) their misrepresentations regarding Mr. Strong’s ability to sell his stock, and (2) misrepresentations to Hartley’s regarding the same, to inflict enough duress on Mr. Strong to bend him to their will. Defendants’ fraudulent misrepresentations that Mr. Strong needed to resign before he could sell any of his 1.2 million unrestricted shares in Scout caused him substantial damage. He now seeks compensation for those damages and has filed a Complaint (Doc. 1-1) that properly pleads claims against Defendants that have had systematic and continuous contacts with New Mexico and are subject to personal jurisdiction in New Mexico. ARGUMENT Mr. Strong is not required to present facts at this stage proving he will win his case against Defendants, or even probably win. Rather, he is merely required to plead facts sufficient to show he is plausibly entitled to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S. Ct. 1955, 1965, 167 L. Ed. 2d 929 (2007). This standard is “not akin to a ‘probability requirement.’” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (citing Bell Atl. Corp., 550 U.S. at 556). Mr. Strong is required to plead “enough fact to raise a reasonable expectation that discovery will reveal evidence” to support his claims against Defendants. Bell Atl. Corp., 550 U.S. at 556. He is not required to plead “detailed factual allegations.” Ashcroft v. Iqbal, 556 U.S. at 678. In determining whether Mr. Strong’s Complaint survives a motion to dismiss, the Court “must accept as true all well pleaded factual allegations in the complaint, view those allegations in the light most favorable to the non-moving party, and draw all reasonable inferences in the plaintiff’s favor.” C.H. v. Los Lunas Sch. Bd. of Educ., 852 F. Supp. 2d 1344, 1350 (D.N.M. 2012). “[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 7 of 27 8 facts is improbable, and that a recovery is very remote and unlikely.” Bell Atl. Corp., 550 U.S. at 556 (internal quotation marks and citations omitted). Mr. Strong has properly pleaded claims sufficient to survive a motion to dismiss. First and foremost, the Court has personal jurisdiction over Defendants. The Defendants took intentional, purposeful actions in New Mexico aimed at Mr. Strong that they knew would harm Mr. Strong: they made misrepresentations and coerced Mr. Strong into resigning from the Board by unreasonably withholding approval for the sale of Mr. Strong’s unrestricted stock in Scout when he needed to sell the same to pay for medical bills. Even if that were not sufficient, Scout employed Mr. Strong in New Mexico, SSI provided continuing services to customers in New Mexico, and Scout and SSI are alter egos of each other because of the fact that they are essentially indistinguishable from each other as entities. Second, Mr. Strong properly pleaded all his claims. The Securities Exchange Act can apply to extraterritorial conduct and does here because Defendants made misrepresentations about Scout stock in their contract with Mr. Strong. Mr. Strong has properly pleaded facts to support plausible claims for breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contract, and negligence. He has also pleaded claims for fraud and misrepresentation with the requisite particularity. Finally, if the Court determines Mr. Strong’s pleading is insufficient—which Mr. Strong denies—the Court should grant Mr. Strong leave to amend his Complaint (Doc. 1-1) to remedy any alleged deficiencies.1 1 Mr. Strong intends to file a motion seeking leave to amend his Complaint (Doc. 1-1) to proactively resolve any alleged deficiencies raised by Defendants. Should the Court determine that other deficiencies exist, Mr. Strong asks the Court for leave to include amendments to address those deficiencies. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 8 of 27 9 I. This Court has personal jurisdiction over Defendants. Mr. Strong has the burden of proving—and can prove—that this Court has personal jurisdiction over Defendants. When jurisdiction is “decided on the basis of affidavits and other written materials, the plaintiff need only make a prima facie showing” of facts that would support the assertion of jurisdiction.” Fabara v. GoFit, LLC, 308 F.R.D. 380, 394 (D.N.M. 2015), as amended (Aug. 20, 2015).2 In doing so, courts take the facts alleged in the complaint as true to the extent the defendants do not contest them. Id. “The party seeking to establish personal jurisdiction over a foreign litigant must make two showings: first, that the exercise of jurisdiction is sanctioned by the state’s long-arm statute; and second, that it comports with the due process requirements of the Fourteenth Amendment.” Id. The Court has “wide discretion to allow affidavits, documents and even a limited evidentiary hearing to resolve disputed jurisdictional facts under 12(b)(1).” Breakthrough Mgmt. Group, Inc. v. Chukchansi Gold Casino & Resort, 629 F.3d 1173, 1188 (10th Cir. 2010).3 This Court has personal jurisdiction over Defendants in the form of specific jurisdiction and general jurisdiction. New Mexico courts exercise personal jurisdiction over a nonresident, outof-state defendant when the following three-part test is satisfied: “(1) the defendant’s act must be one of the five enumerated in the long-arm statute; (2) the plaintiff’s cause of action must arise 2 “When, however, a defendant presents credible evidence through affidavits or other materials suggesting the lack of personal jurisdiction, the plaintiff must come forward with sufficient evidence to create a genuine dispute of material fact on the issue.” Id. 3 If the Court should determine additional evidence is needed on the jurisdictional issues, it may and should grant Mr. Strong leave to conduct discovery on the limited issue of jurisdiction or hold an evidentiary hearing on the same. Grynberg v. Ivanhoe Energy, Inc., 490 Fed. Appx. 86, 102 (10th Cir. 2012) (“When a defendant moves to dismiss for lack of jurisdiction, either party should be allowed discovery on the factual issues raised by that motion.”). The 10th Circuit has found that “a refusal to grant [jurisdictional] discovery constitutes an abuse of discretion if the denial results in prejudice to a litigant and that [p]rejudice is present where pertinent facts bearing on the question of jurisdiction are controverted...or where a more satisfactory showing of the facts is necessary.” Breakthrough Mgmt. Group, Inc., 629 F.3d at 1189) (alterations in original) (internal quotation marks and citation omitted). Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 9 of 27 10 from the act; and (3) minimum contacts sufficient to satisfy due process must be established by the defendant’s act.” Fabara, 308 F.R.D. at 397 (quoting State Farm Mut. Ins. Co. v. Conyers, 1989-NMSC-071, ¶ 6, 109 N.M. 243) (internal citations omitted). New Mexico’s long-arm statute allows courts to exercise personal jurisdiction over a party “whether or not a citizen or resident of this state, who in person or through an agent does any of the acts enumerated in this subsection thereby submits himself or his personal representative to the jurisdiction of the courts of this state as to any cause of action arising from: (1) the transaction of business within this state… [or] (3) the commission of a tortious act within this state.” NMSA 1978, § 38–1–16(A) (1959). “Because New Mexico’s long-arm statute has been interpreted to extend ‘as far as constitutionally permissible,’ [courts’] personal jurisdiction inquiry largely collapse into an analysis of Due Process.’” Good v. Fuji Fire & Marine, Ins. Co., Ltd., 271 Fed.Appx. 756, 759 (10th Cir. 2008). Under the 14th Amendment, “to exercise jurisdiction in harmony with due process defendants must have ‘minimum contacts’ with the forum state, such that having to defend a lawsuit there would not ‘offend traditional notions of fair play and substantial justice.’” Dudnikov v. Chalk & Vermillion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). “The due process analysis is also two-fold: First, [the defendant] must have ‘minimum contacts’ with the forum state, demonstrating that he ‘purposefully availed’ himself of the protections or benefits of the state's laws and ‘should reasonably anticipate being haled into court there.’” Fabara, 308 F.R.D. at 395 (alteration in original). Accordingly, Mr. Strong must establish that Defendants have sufficient minimum contacts with the New Mexico so “that [they]…reasonably anticipate being haled into court there.” Employers Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1159-60 (10th Cir. 2010) (quoting Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 10 of 27 11 OMI Holdings, Inc. v. Royal Ins. Co. of Can., 149 F.3d 1086, 1091 (10th Cir. 1998) (internal citation omitted). a. Defendants’ intentional, wrongful actions aimed at New Mexico gives this Court specific personal jurisdiction over all Defendants. Defendants’ wrongful actions give this Court specific personal jurisdiction. Specific personal jurisdiction is proper if: (1) the out-of-state defendant “purposefully directed” its actions and activities at residents of the forum state, and (2) the plaintiff’s alleged injuries “arise out of or relate to those activities” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (internal quotation marks omitted). With respect to torts, a defendant has “purposefully directed” his activities at New Mexico when he has taken “(a) an intentional action…, that was (b) expressly aimed at the forum state…, with (c) knowledge that the brunt of the injury would be felt in the forum state.” Dudnikov, 514 F.3d at 1072 (quoting Calder v. Jones, 465 U.S. 783, 789–90 (1984)). Conduct can be “expressly aimed” at New Mexico without any physical contacts. Id. at 1076. “[A]ctions that ‘are performed for the very purpose of having their consequences felt in the forum state’ are more than sufficient to support a finding of purposeful direction.” Id. at 1077-78 (emphasis added)). Importantly, jurisdiction extends to individuals who primarily participated in tortious conduct.” Niemi v. Lasshofer, 770 F.3d 1331, 1350 (10th Cir. 2014). Corporate officers, shareholders, and/or directors can be held liable if they “direct[] or actively participate[] in the commission of the tortious act of the corporation. Thus, if the officer or director directed, controlled, approved or ratified the activity that led to the injury, he or she can be held personally liable.” Stinson v. Berry, 1997-NMCA-076, ¶ 17, 123 N.M. 482. The same is true if the individual commits an intentional tort. Brophy v. Ament, 2009 WL 5206020, at *5 (D.N.M. Nov. 20, 2009). Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 11 of 27 12 Such liability is separate and distinct from the company’s liability. Stinson, 1997-NMCA-076, ¶ 18. Here, all Defendants clearly took intentional actions directed at the state of New Mexico knowing and intending the harm caused by their actions to be felt by Mr. Strong in New Mexico. As alleged in the Complaint, Defendants SSI and Scout intentionally breached their contract with Mr. Strong, violated the doctrine of good faith and fair dealing, violated the Securities Exchange Act, and are liable for negligence. See Complaint (Doc. 1-1), Counts I, II, V, VI. Defendants Roberts, Shapiro, Brown, and Majteles tortiously interfered with Mr. Strong’s contracts, intentionally engaged in fraud and misrepresentation, violated the Securities and Exchange Act, and are liable for negligence. See id. Counts III-VI. The consequences of Defendants’ actions were aimed at New Mexico and felt in New Mexico. Defendants’ misconduct was aimed at Mr. Strong with the goal of forcing him to resign. Defendants knew Mr. Strong resided in New Mexico at the time of their actions. Indeed, he signed numerous contracts in New Mexico that listed his address in New Mexico. Accordingly, they knew the effects of their actions would be felt by Mr. Strong in New Mexico and cause Mr. Strong harm in New Mexico. Such is sufficient for personal jurisdiction, even if Defendants have no physical contact with the state. See Dudnikov, 514 F.3d at 1076. Not only did the individual defendants actively participate in the alleged misconduct and engage in tortious activity, but they also ratified SSI and Scout’s conduct. By purposefully reaching into New Mexico and causing Mr. Strong to suffer harm in New Mexico, Defendants have availed themselves to New Mexico’s jurisdiction and this Court has authority over them. Defendants cannot direct harm at the United States and expect to escape liability because they have never actually stepped into New Mexico. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 12 of 27 13 b. Defendant Scout’s employment of Mr. Strong gives this Court personal jurisdiction. This Court also has jurisdiction of SSI and Scout because Scout employed Mr. Strong in New Mexico and the alleged misconduct in this case arises from breaches related to the same. Defendants misrepresented in Mr. Strong’s contract to be executive director that the Scout Board would not unreasonably withhold approval for Mr. Strong to sell his stock. “Although agreements alone are likely to be insufficient to establish minimum contacts, parties who reach out beyond one state and create continuing relationships and obligations with citizens of another state are subject to regulation and sanctions in the other state for the consequences of their activities.” Fabara, LLC, 308 F.R.D. 380, 395 (D.N.M. 2015), as amended (Aug. 20, 2015) (internal quotation marks and citations omitted) (emphasis added). Scout’s employment of Mr. Strong in New Mexico gives this Court personal jurisdiction over Scout. Because SSI reached into New Mexico since 2013 and later Scout employed Mr. Strong in New Mexico with the expectation that Mr. Strong would only work in New, Scout transacted business in this state. Where, as here, Defendants reached out to Mr. Strong, contacted him in New Mexico, and sent him contracts to execute in New Mexico with the understanding that Mr. Strong would work from New Mexico, resulting in Defendants communicating with Mr. Strong continuously in New Mexico, there is personal jurisdiction resulting from the transaction of business. See Hall v. Rag-O-Rama, LLC, 359 F. Supp. 3d 499, 506 (E.D. Ky. 2019) (“Therefore, by recruiting and hiring Plaintiff in Kentucky and maintaining an active business relationship with Plaintiff in Kentucky, Defendant's conduct fits within the plain meaning of ‘transacting’ business in Kentucky, which is defined as ‘carry[ing] on [and] conduct[ing] negotiations, business, etc. to a conclusion.’”). Further, it was Defendants’ breach of the business relationship that caused injury to Mr. Strong. For this reason, and the reasons described supra, this Court has personal jurisdiction over Defendants. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 13 of 27 14 c. There is general personal jurisdiction over SSI because it provides continuous services in the State of New Mexico. “General jurisdiction is based on an out-of-state defendant’s ‘continuous and systematic’ contacts with the forum state and does not require that the claim be related to those contacts.” Dudnikov, 514 F.3d at 1078 (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 409 (1984) (internal citations omitted)). Thus, courts have personal jurisdiction over defendants that have commercial contacts with a state that amount to a physical presence in the forum state. See Shrader v. Biddinger, 633 F.3d 1235, 1243 (10th Cir. 2011). The commercial transactions at-issue here are not passive, one-time engagements but rather amount to continuous contact with New Mexico amounting to a physical presence. But cf. id. at 1246 (concerning defendant’s sales of books to a single Oklahoma resident stemming from magazine advertisements of the book purchased at the particular bookstore). Accordingly, this Court has personal jurisdiction over Defendant SSI. Not only does SSI offer home security products, but it also offers monitoring services for those products. See SSI website, last accessed September 20, 2021, attached as Exhibit 6. Thus, SSI is not a passive seller of goods over the internet. Rather, it is an active provider of services to those in New Mexico who purchase Scout Products to include alarm system monitoring and emergency dispatch services. Thus, it has an active, continuing relationship with its customers in New Mexico that amounts to a physical presence. See id.; Exhibit 1 at 27 (identifying long-term arrangement with monitoring company). d. Because SSI and Scout are alter egos of each other, their respective contacts with New Mexico can be imputed on each other, giving this Court personal jurisdiction. New Mexico law allows the Court to pierce the corporate veil for the purposes of establishing jurisdiction over Defendants. “Companies conducting business through their subsidiaries can qualify as transacting business in a state, provided the parent exercises sufficient Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 14 of 27 15 control over the subsidiary.” Pro Axess, Inc. v. Orlux Distribution, Inc., 428 F.3d 1270, 1278 (10th Cir. 2005). Because SSI and Scout are alter egos of each other, the Court can “attribute[e] the contacts of one person or entity to another.” Alto Eldorado Partnership v. Amrep, 2005-NMCA131, ¶ 20, 138 N.M. 607 (alterations in original). Thus, if the Court determines it has personal jurisdiction over either SSI or Scout, it has jurisdiction over the other. Importantly, all the elements of alter ego do not have to be met to hale a foreign corporation in New Mexico. Id. ¶ 25. Here, both SSI and Scout are alter egos of each other. Scout is the parent corporation of SSI and its sole purpose is to hold SSI’s stock. SSI, on the other hand, sells products, offers services, and conducts the company’s business. Indeed, Defendants admit SSI is a wholly owned subsidiary of Scout. Defendants’ Motion to Dismiss (Doc. 18), 4 n.2. In essence, SSI is the operating company and Scout’s sole purpose is to generate capitol on the ASX and control SSI. Both SSI and Scout have a principal place of business in the United States in Chicago, Illinois. Complaint (Doc. 1-1), ¶¶ 3-4. And Scout acts as if it is one and the same entity with SSI. It represents that it was founded in 2013 and develops products for a DIY home security system. Exhibit 5 at 1. And it claims it took advantage of the United States’ CARES Act during the COVID-19 pandemic. Id. Scout and SSI clearly act as if they are alter egos of each other. Equally, both SSI and Scout operate out of their Chicago, Illinois office. And Defendants Shapiro and Roberts are executive officers and board members of Scout who live in Chicago, Illinois, see Defendants’ Motion to Dismiss (Doc. 18) at Exhibits B and C, where their principal place of business is also located. There is no evidence that any of Scout’s business operations occur anywhere other than the United States and, more specifically, Chicago, Illinois. Given the relationship between SSI and Scout, the entities are alter egos of each other such that should the Court have jurisdiction over one entity, it also has jurisdiction over the other. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 15 of 27 16 II. Mr. Strong properly pleaded his claim for violations of the Securities Exchange Act with particularity. Mr. Strong’s allegations for violations of the Securities Exchange Act survive dismissal. Contrary to Defendants’ assertions, Mr. Strong can bring such claims because the Securities Exchange Act has extraterritorial reach if the causes-and-effects test is met, which is the case here. Most importantly, misrepresentation in contracts can be sufficient to amount to a violation of the Securities Exchange Act. Specifically, misrepresentations in Mr. Strong’s contract about his ability to sell Scout stock foreseeably caused harm to a domestic investor who had stock in a company with the majority of its operations in the United States. Furthermore, the heightened pleading standard in the Private Securities Litigation Reform Act (“PSLRA”) does not apply to Mr. Strong’s claims but, even if it did, he properly pleaded the requisite scienter. Contrary to Defendants’ assertion, the Securities Exchange Act’s prohibition against fraudulent conduct can apply to extraterritorial conduct. Congress amended the Dodd-Frank Act less than a month after the Supreme Court issued its ruling in Morrison v. Nat’l Australia Bank, 561 U.S. 247, 130 S. Ct. 2869, 177 L. Ed. 2d 535 (2010). Sec. & Exch. Comm’n v. Scoville, 913 F.3d 1204, 1217-18 (10th Cir. 2019) (cert. denied, Scoville v. Sec. & Exch. Comm’n, 140 S. Ct. 483, 205 L. Ed. 2d 268 (2019)).4 Because of the amendment, the Dodd-Frank Act now “indicate[s] 4 This case is distinguishable from Morrison v. National Australia Bank, Ltd., which involved a foreign company with foreign investors who invested in stock traded on a foreign market, and all the alleged misconduct occurred outside the United States. 561 U.S. 247, 130 S. Ct. 2869, 177 L. Ed. 2d 535 (2010). While Morrison contained allegations involving a subsidiary, domestic company, “[t]he acts performed in the United States did not ‘compris[e] the heart of the alleged fraud.’” Id. at 2876 (second alteration in original). Here, Mr. Strong is a domestic investor. He invested in a company mostly administered and operated in the United States and originally bought stock in a domestic company: SSI. See Complaint (Doc. 1-1), ¶¶ 23, 29; Exhibit 1 at 6, 25; Exhibit 5 at i. Scout is the parent company of SSI but the two are largely indistinguishable and the bulk of the operations still occur in the United States. Exhibit 1 at 6, 25; Exhibit 5 at i. Equally, the restriction on the sale of stock by Defendants was due to an agreement between Scout and Mr. Strong, which was effectuated in the United States. Complaint (Doc. 1-1), ¶ 29; Exhibit 4. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 16 of 27 17 that the antifraud provisions appl[y] extraterritorially when a version of the conducts-and-effects test is met.” Id. at 1218.5 The effects test is met when “conduct causes foreseeable and substantial harm to interests within the United States, that is, when there is a substantial impact on domestic investors or on the domestic market.” Tamari v. Bache & Co. (Lebanon) S.A.L., 547 F. Supp. 309, 311 (N.D. Ill. 1982) (aff’d, Tamari v. Bache & Co. (Lebanon) S.A.L., 730 F.2d 1103 (7th Cir. 1984)). The conducts test applies when substantial activities occur in the United States further a fraudulent scheme. Id. at 313-14. Of note, a breach of contract can amount to a violation of Section 10(b) if “the contract itself was a misrepresentation, i.e., the plaintiff’s loss was caused by reliance upon the defendant’s specific promise to perform particular acts while never intending to perform those act.” Capital Mgmt. Select Fund Ltd. v. Bennett, 680 F.3d 214, 226 (2d Cir. 2012). Here, Mr. Strong has been harmed by Defendants’ violations of the Securities Exchange Act, the effects were foreseeably felt in the United States by Mr. Strong, a United States stockholder. Mr. Strong entered into a contract with Scout to be the chairman of the Scout Board when his stock was transferred from SSI stock to Scout stock. Pursuant to that contract, the Scout Board promised not to unreasonably withhold approval of the sale of Mr. Strong’s stock in Scout. Mr. Strong relied on this provision of the contract related to the liquidity of his stock, but Defendants’ later actions show they never intended to uphold their end of the bargain. Defendants Roberts, Shapiro, Brown, and Majteles refused to give Mr. Strong permission to sell his Scout stock when Mr. Strong became gravely ill in 2018 without any justification for doing so. Rather, 5 Although Morrison, 561 U.S. 247, restricted the extraterritorial reach of a private cause of action, the 10th Circuit has not yet determined whether the extraterritorial reach of the Dodd-Frank Act, which superseded Morrison, applies in a private cause of action. See, e.g., Sec. & Exch. Comm’n, 913 F.3d at 1218 (“the Dodd-Frank Act directed the SEC to ‘solicit public comment and thereafter conduct a study to determine the extent to which private rights of action under the antifraud provisions’ of the 1934 Act” (citation omitted)); see also City of Highland Park, Michigan v. Envtl. Prot. Agency, 817 Fed. Appx. 42, *48 (6th Cir. 2020) (recognizing that the Dodd-Frank Wall Street Reform and Consumer Protection Act superseded Morrison on other grounds). Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 17 of 27 18 they used Hartley’s requirement of needing the Board’s permission to sell Mr. Strong’s stock as leverage to force him to resign from the Scout Board. Defendants Roberts, Shapiro, Brown, and Majteles took it a step further and misrepresented Mr. Strong’s ability to sell to his broker, Hartley’s, and refused to allow Hartley’s to sell Mr. Strong’s stock. Defendants made misrepresentations in Mr. Strong’s contract when Mr. Strong’s stock was converted to Scout stock, and again to Hartley’s when Mr. Strong tried to sell his stock in 2018 to pay for his substantial medical bills. Mr. Strong relied on the Board’s initial representation that it would not unreasonably withhold approval for the sale of this stock, and Hartley’s relied on the Board’s representation that Mr. Strong was not allowed to sell his stock unless he resigned. Mr. Strong has pleaded facts sufficient to show Defendants never intended to keep their promise in the contract and to demonstrate a violation of the Securities Exchange Act, including the requisite scienter of Defendants. See Capital Mgmt. Select Fund Ltd. v. Bennett, 680 F.3d 214, 225 (2d Cir. 2012) (“This strong inference of scienter can be established by alleging either (1) that defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness.” (Internal quotation marks and citation omitted)). It was easily foreseeable that Defendants’ misrepresentations would affect a domestic investor in the United States (Mr. Strong) and such misrepresentations were recklessly made. Additionally, a majority of the Board members resided in the United States at the time of the allegations raised in the Complaint (Doc. 1-1) and Scout is operations were in the United States; therefore, a substantial amount of conduct occurred in the United States to further a fraudulent scheme related to stock on the ASX. Specifically, both Scout and SSI have their principal place of business in Chicago, Illinois; three of the five Board members lived in the United States at the Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 18 of 27 19 time; and Scout and SSI’s executive directors lived in Chicago, Illinois. See Exhibit 1 at 6, 25; Exhibit 5 at i; Defendants’ Motion to Dismiss (Doc. 18) at Exhibits B and C. Defendants argue that the heightened pleading standard of the PSLRA controls this case. Defendants, however, fail to take into account that the PSLRA was created to address shareholder derivative class actions that had the punitive goal of obtaining large attorneys’ fees or large settlements without any benefit to the company. City of Philadelphia v. Fleming Companies, Inc., 264 F.3d 1245, 1258-59, n.16 (10th Cir. 2001). Such is not the case here, especially when the stock at issue in this case is not traded on a United States exchange. Even if the PSLRA does apply—which Mr. Strong disputes—it allows Mr. Strong to establish scienter through reckless conduct or “conduct which is highly unreasonable and which represents an extreme departure from the standards of ordinary care...to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.” Id. at 165 (alteration in original). At a minimum, Defendants’ conduct as alleged in the Complaint (Doc. 1-1) was reckless. They knew Mr. Strong was in a financially precarious situation resulting from health issues he experienced in January 2018 and needed to sell unrestricted stock just a few months later to pay his medical bills. Notwithstanding the fact that the Board knew of this precarious situation, Defendants made misrepresentations about Mr. Strong’s ability to sell his unrestricted stock both to Mr. Strong and to Hartley’s, and refused to give permission for the sale of stock until Mr. Strong resigned. Defendants knew Mr. Strong was in a physically, emotionally, and financially fragile state, and used their power to grant or withhold authority for Mr. Strong to sell his stock as leverage to force Mr. Strong off the Board. All this occurred after Mr. Strong advised against Armada seeking financing for Scout and Armada pressured the other Board members to vote Mr. Strong off the Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 19 of 27 20 Board. Defendants’ conduct, at a minimum, was highly unreasonable, departed from the standards of ordinary care, and was committed with the knowledge that it would cause harm to Mr. Strong. Mr. Strong has, therefore, properly pleaded scienter. See, e.g., Tamari, 547 F. Supp. at 313-14 (stating the alleged scheme must be “substantial rather than merely preparatory, incidental, or fortuitous”). III. Mr. Strong has sufficiently alleged claims for breach of contract and breach of the covenant of good faith and fair dealing. The Complaint (Doc. 1-1) establishes (1) Mr. Strong entered into a contract with Scout to serve as chairman of the Scout Board, (2) Scout breached that contract by forcing Mr. Strong to resign from his position and refusing to give Mr. Strong permission to sell his stock, and (3) Mr. Strong was damaged by the breach because he sold his stock at a loss and also lost compensation as chairman of the Board. See generally Complaint (Doc. 1-1). Contrary to Defendants’ claims, Mr. Strong has pleaded sufficient facts to establish a plausible breach of contract claim to the point that there is an expectation that discovery will reveal evidence in support of the same. See Bell Atl. Corp., 550 U.S. at 556. The Complaint alleges that Mr. Strong performed under his contract to serve as chairman of the Board, Complaint (Doc. 1-1), ¶ 13 and the contract did not have any conditions precedent to performance and, accordingly, his exclusion of an allegation of the same does not defeat his claim at this stage of the case. See McCasland v. Prather, 1978-NMCA-098, ¶ 7, 92 N.M. 192. Mr. Strong pleaded that he entered into a contract for provision of his services as chairman of the Board, which he provided and Defendants breached that contract by forcing Mr. Strong to resign. See Complaint (Doc. 1-1), ¶¶ 27, 31, 38-41. The Complaint (Doc. 1-1) further alleges that the Board refused to grant Mr. Strong permission to sell his stock in the company and had no justification for doing so. Id. ¶ 36. This was a breach of Mr. Strong’s contract to serve as chairman Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 20 of 27 21 because the Board promised it would not reasonably withhold permission for Mr. Strong to sell his stock. See id. To the extent the Court may find more particular pleading is required—which Mr. Strong denies—Mr. Strong is filing a Motion for Leave to Amend Complaint shortly hereafter to remedy any such alleged deficiencies about the contract at issue in this case. Mr. Strong also pleaded sufficient damages. He had to sell his stock at a reduced price because of Scout’s refusal to allow the sale of Mr. Strong’s unrestricted shares (the stock prices fell while Defendants coerced Mr. Strong into resigning), lost his compensation as non-executive director, and suffered damages to his reputation. See id. ¶¶ 41-43. Because Mr. Strong’s contract claim is properly pleaded and survives a motion to dismiss, contrary to Defendants’ assertions, his claims for breach of the good faith and fair dealing survive as well. Defendants arbitrarily denied Mr. Strong the right to sell his unrestricted stock, and knew at the time of entering into the contract that they would never grant him that right. They dealt unfairly with him and breached the covenant of good faith and fair dealing. See Young v. Hartford Casualty Insurance Co., 505 F.Supp.3d 1125, 1182 (D.N.M. 2020) (recognizing that the cause of action for breach of the implied covenant of good faith and fair dealing sounds in contract). IV. Mr. Strong’s tortious interference with contract claim survives dismissal. To establish tortious interference with contract, Mr. Strong must show (1) Defendants had knowledge of his contract with Scout, (2) performance was refused, (3) Defendants “played an active and substantial part in causing [Mr. Strong] to lose the benefits of his contract,” (4) Mr. Strong suffered damages as a result of the breach, and (5) Defendants had no justification for inducing the breach. See Ettenson v. Burke, 2001-NMCA-003, ¶ 14, 130 N.M. 67.6 Corporate 6 The law of the court in which a lawsuit was filed controls, Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822, 82 L. Ed. 1188 (1938), and neither Mr. Strong nor Defendants allege a choice of law provision requires this Court to apply anything but New Mexico law. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 21 of 27 22 officers have a qualified privilege when it comes to tortious interference with contracts; that is “a corporate officer is privileged to interfere with his corporation’s contracts only when he acts in good faith and in the best interests of the corporation, as opposed to his own private interests.” Id. ¶¶ 17, 20. However, the qualified privilege is an affirmative defense, not an element Mr. Strong is required to plead and prove. See id. ¶ 21; Chaffin v. BHP Billiton, 2019 WL 4673192, at *4 (D.N.M. Sept. 25, 2019) (“Whether an officer’s actions are privileged is an issue of fact. The burden is on the defendant to plead and prove privilege as an affirmative defense.” (Internal quotation marks and citation omitted)). Here, Mr. Strong has properly pleaded facts sufficient to show tortious interference with contract, and Defendants’ allegation that individuals of a corporation cannot interfere with the corporation’s contract is not grounds for a motion to dismiss. Under New Mexico law, the director defendants can be held liable for their own tortious interference with Mr. Strong’s contract with Scout. See Ettenson, 2001-NMCA, ¶¶ 17-20. As demonstrated above, Mr. Strong entered into a valid contract with Scout to serve as chairman of the Board. Defendants Roberts, Shapiro, Brown, and Majteles were well aware of Mr. Strong’s contract with Scout and the compensation Mr. Strong was to receive for serving as the chairman. Nonetheless, they deliberately interfered with Mr. Strong’s contract by misrepresenting his ability to sell unrestricted stock in Scout, and forcing him to resign. V. Mr. Strong pleaded fraud with particularity. The Federal Rules of Civil Procedure required Mr. Strong to plead “the who, what, when, where and how of the alleged fraud.” Two Old Hippies, LLC v. Catch the Bus, LLC, 784 F. Supp. 2d 1200, 1209 (D.N.M. 2011). It does not require “specific knowledge regarding the defendant’s state of mind.” Id. Thus, a fraud claim survives the motion to dismiss phase if a complaint pleads “what was said, by whom, approximately when and in what context.” Two Old Hippies, LLC v. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 22 of 27 23 Catch the Bus, LLC, 784 F. Supp. 2d 1200, 1210 (D.N.M. 2011) (finding that the plaintiff adequately pleaded under Rule 9(b) when it cursorily identifies the what, who, and when). Mr. Strong’s fraud claim sufficiently alleges who said what, approximately when, and in what context. Mr. Strong entered into a contract with Scout that indicated Scout would not unreasonably withhold approval for Mr. Strong to sell his Scout stock. As demonstrated above, it is clear from Defendants’ actions that they never intended to keep this promise. It was the first fraudulent statement by Defendants. The second fraudulent statement arose when Mr. Strong became ill in 2018 when the Scout Board unreasonably withheld approval for Mr. Strong to sell his stock in or about March of 2018. Mr. Strong relied on this misrepresentation for several months, during which time stock prices fell, before he investigated Defendants’ claim that he could not sell stock. The third fraudulent misrepresentation arose when Defendants informed Mr. Strong’s broker, Hartley’s, that Mr. Strong could not sell his unrestricted stock in May of 2018. Hartley’s relied on the Scout Board’s misrepresentation that Mr. Strong was not permitted to sell his unrestricted shares of Scout. As a result, Mr. Strong was damaged because, again, stock prices fell. Lastly, the Scout Board misrepresented to Mr. Strong that he would be required to resign to sell his stock. Although Mr. Strong did not believe this false statement, due to the duress he was under, he conceded to the demand to resign. Again, Mr. Strong was damaged because he was forced to abandon his chairman position and the compensation that came with it. VI. Mr. Strong’s negligent misrepresentation claim survives a motion to dismiss. Negligent misrepresentation “is determined by the general principals of the law of negligence.” Stotlar v. Hester, 1978-NMCA-067, ¶ 11, 92 N.M. 26. It arises when “[o]ne who, in the course of his business, profession or employment, or in any other transaction in which he has Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 23 of 27 24 a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.” Id. ¶ 12 (citing Restatement (2d) Torts, § 552). Liability for negligent misrepresentation arises when the person suffering a loss is the one “for whose benefit and guidance he intends to supply the information.” Stotlar, 1978-NMCA-067, ¶ 12 (citing Restatement (2d) Torts, § 552). “It is enough that the maker of the representation intends it to reach and influence either a particular person or persons, known to him, distinct from the much larger class who might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance upon it.” Id. ¶ 14 (citing Restatement (2d) Torts, § 552, cmt. b). Here, whether Scout, acting through its Board members, or the Board members, acting through their own pecuniary interests to force Mr. Strong off the Board, Defendants misrepresented information to both Mr. Strong and to Mr. Strong’s agent, Hartley’s, causing damage to Mr. Strong. First, Mr. Strong’s contract contained the misrepresentation that he would be able to sell unrestricted Scout stock because the Board would not unreasonably withhold approval for the same. Second, Defendants misrepresented to Mr. Strong that he could not sell his stock when he sought to do so in 2018. Third, Defendants made misrepresentations to Mr. Strong’s agent, Hartley’s, when the Board refused to approve the sale of Mr. Strong’s unrestricted stock unless he resigned. Based upon these facts, an inference can be drawn that the Scout Board misrepresented to Hartley’s that Mr. Strong was prohibited from selling his unrestricted stock. All these misrepresentations ultimately damaged Mr. Strong. Accordingly, Mr. Strong has sufficiently demonstrated he has grounds for his negligent misrepresentation claim. Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 24 of 27 25 VII. Mr. Strong’s claim for negligence survives summary judgment. Mr. Strong has clearly alleged facts supporting the elements of negligence—duty, breach, causation, and damages—and a plausibility of a finding of liability on the same. This claim is separate and distinct from negligent misrepresentation, contrary to Defendants’ assertions. Defendants had a duty to allow Mr. Strong to sell his unrestricted shares of stock without limitations. They also had a duty to treat Mr. Strong with reasonable care with respect to his position as chairman of the Board and not interfere with his employment. Nonetheless, they breached the duties owed to Mr. Strong by blocking Mr. Strong’s attempts to sell stock when they knew he was in a financially precarious situation, and they used that situation to coerce Mr. Strong into resigning from the Board. That breached extended to refusing to give Hartley’s permission to sell Mr. Strong’s unrestricted stock for 8 months until Mr. Strong was forced to give into the Board’s duress and resign. As a direct and proximate result of Defendants’ breaches, he suffered damages in the form of reduced value of Scout stock, lost compensation as chairman to the Board, and harm to his reputation. Thus, Mr. Strong’s negligence claim survives dismissal. VIII. This Court should grant Mr. Strong leave to amend his Complaint should it determine any of Mr. Strong’s claims are lacking. Federal Rule of Civil Procedure 15 requires leave to amend be freely granted “when justice so requires,” which is the case here. “Generally, where a more carefully drafted complaint might state a claim, a plaintiff must be given at least one chance to amend the complaint before the district court dismisses the action with prejudice.” See Johnson v. City of Roswell, 2016 WL 10538730, at *4 (D.N.M. Apr. 1, 2016) (citing cases and holding allowing a chance to amend complaint comports with principle that courts should freely provide leave to amend where justice so requires.”) “Refusing leave to amend is generally only justified upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 25 of 27 26 amendments previously allowed, or futility of amendment.” Frank v. U.S. W., Inc., 3 F.3d 1357, 1365 (10th Cir. 1993). Here, Defendants would suffer no prejudice if Mr. Strong is granted leave to amend his Complaint (Doc. 1-1) to add more detailed factual allegations and cure any alleged deficient pleading. The amendment does not arise from undue delay, bad faith, or dilatory motive. See Motion for Leave to Amend Complaint, filed shortly hereafter, incorporated herein by reference. Rather, it is a result of Defendant’s Motion. See id. Accordingly, should the Court determine Mr. Strong has failed to state claims upon which relief may be granted—which he denies—Mr. Strong should be granted leave to amend. CONCLUSION WHEREFORE, for the foregoing reasons, Mr. Strong respectfully requests the Court deny Defendants’ Motion to Dismiss or, alternatively, grant Mr. Strong leave to amend his Complaint and provide a more definite statement, and for such other and further relief as the Court deems just and proper. Respectfully submitted, ADAMS+CROW LAW FIRM By: /s/ Jacqueline K. Kafka Arlyn G. Crow Jacqueline K. Kafka 5051 Journal Center Blvd. NE, Suite 320 Albuquerque, New Mexico 87109 Phone: (505) 582-2819 Fax: (505) 212-0439 arlyn@adamscrow.com jackie@adamscrow.com Attorneys for John Strong Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 26 of 27 27 CERTIFICATE OF SERVICE I hereby certify that the foregoing Response was electronically filed through the CM/ECF system on the 20th day of September 2021, which caused all counsel of record to be served via electronic means. ADAMS+CROW LAW FIRM By: /s/ Jacqueline K. Kafka Jacqueline K. Kafka Case 1:21-cv-00418-KWR-LF Document 25 Filed 09/20/21 Page 27 of 27
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