In re Forcefield Energy Sec. Litig., 2017 U.S. Dist. LEXIS 54606, *29-30 (S.D.N.Y. Mar. 29, 2017):
This putative securities class action is brought by shareholders of ForceField Energy Inc. ("ForceField") alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Various defendants moved to dismiss under Federal Rule of Civil Procedure 12(b) (6). For the reasons set forth below, the moving defendants' motions are granted in part [*2] and denied in part.
F. Improperly Preventing TPE Shareholders From Selling Stock
The fourth alleged scheme is that ForceField, St. Julien, Natan, and Williams improperly prevented the TPE shareholders from selling the ForceField shares they had received as part of ForceField's acquisition of a controlling interest in TPE.
As a threshold matter, defendants argue that plaintiffs may not rely on allegations drawn from the TPE shareholders' civil complaint, which appears to provide the basis for the TAC's allegations. Courts in this Circuit are split on the issue. Compare RSM Prod. Corp. v. Fridman, 643 F. Supp. 2d 382, 403 (S.D.N.Y. 2009) ("Second Circuit case law is clear that paragraphs in a complaint that are either based on, or rely on, complaints in other actions that have been dismissed, settled, or otherwise not resolved, are, as a matter of law, immaterial within the meaning of Fed. R. Civ. P. 12(f)."), aff'd, 387 F. App'x 72 (2d Cir. 2010), with In re OSG Sec. Litig., 12 F. Supp. 3d 619, 620-22 (S.D.N.Y. 2014) ("[N]o Second Circuit precedent indicates" "the broad [*30] rule that a complaint may never reference allegations from a separate proceeding that has not been decided on the merits. . . . While allegations from another lawsuit are not evidence . . . plaintiffs need not provide admissible proof at this stage.").
We need not resolve the issue here, however, as plaintiffs' allegations are insufficient to establish scienter even considering those drawn from the TPE shareholders' complaint. According to the TAC, ForceField refused to reissue the shares at issue because ForceField believed it had been fraudulently induced to enter into the shareholder agreement. Plaintiffs claim this was merely a "spurious pretext," TAC ¶¶ 151, 153, but offer no support for that conclusion. Moreover, the fact that the TPE shareholders ultimately settled with ForceField suggests that ForceField's position was at least colorable. Accordingly, plaintiffs have failed to establish a strong inference that ForceField's stated reason for refusing to reissue the shares was mere pretext or that it otherwise acted with a fraudulent intent.
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