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Paige v. The Pulse Beverage Corp.

United States District Court, D. Hawaii

January 19, 2017

BRUCE PAIGE; MALANA PAIGE; AND PULSE BEVERAGE HAWAII, INC., Plaintiffs,
v.
THE PULSE BEVERAGE CORPORATION; DONALD BRUCE HORTON; AND ROBERT E. YATES aka ROBERT EDWARD YATES; AND JOHN DOE 1, JOHN DOE 2, AND JANE DOE, Defendants.

          ORDER GRANTING DEFENDANTS' MOTION TO DISMISS AND MOTION TO STRIKE WITHOUT PREJUDICE AND WITH LEAVE TO AMEND

          Alan C. Kay Sr. United States District Judge.

         For the reasons set forth below, the Court GRANTS Defendants' Motion to Strike and Defendants' Motion to Dismiss WITHOUT PREJUDICE and WITH LEAVE TO AMEND.

         PROCEDURAL BACKGROUND

         On February 29, 2016, Plaintiffs Bruce Paige and Malana Paige (“Plaintiffs”) filed a Complaint against Defendants The Pulse Beverage Corporation (“Pulse”), Donald Bruce Horton, and Robert E. Yates, and three unknown individuals (“Defendants”). Compl. ECF No. 1. On May 20, 2016, before Defendants filed any responsive pleading, Plaintiffs filed an ex parte application seeking leave to add Pulse Beverage Hawaii, Inc. as a plaintiff and to extend the time for serving process by 90 days. ECF No. 8. The Court granted leave to file an amended complaint as a matter of course under Federal Rule of Civil Procedure 15(a) because the original complaint had not been served and found good cause to grant Plaintiffs' request to extend the time for service under Rule 4(m) until August 22, 2016. ECF No. 13.

         Plaintiffs filed their First Amended Complaint on August 20, 2016, and on the same day filed another ex parte application to further amend their complaint and extend the time for serving process by 90 days. ECF Nos. 14, 17. The Court granted leave to further amend their complaint under Rule 15(a)(2) and again found good cause to extend the time for service until November 21, 2016. ECF No. 18.

         Plaintiffs filed their Second Amended Complaint, which spans approximately 80 pages and consists of three separate parts, along with three separate sets of attachments supporting the complaint, on October 9, 2016. ECF Nos. 19-24.

         On November 29, 2016, Defendants filed a Motion to Dismiss the Second Amended Complaint. ECF No. 20. Plaintiffs did not file an opposition. However, on December 22, 2016, Plaintiffs filed a Third Amended Complaint, which spans approximately 125 pages and incorporates by reference the three attachments filed with the Second Amended Complaint. ECF No. 36 & ¶ 6. Defendants filed their Reply in support of their Motion to Dismiss on January 3, 2017. ECF No. 37. Defendants have stated that Plaintiffs did not request consent for filing the Third Amended Complaint. ECF No. 38-2, ¶ 5 (Schmitt Declaration). Additionally, Defendants filed a Motion to Strike the Third Amended Complaint on January 4, 2017. ECF No. 38.

         Plaintiffs filed a response to these motions on January 13, 2017.[1] ECF No. 43. The motion is styled as a Motion to Dismiss Defendants' Motion to Dismiss, but Plaintiffs purport to (1) oppose the Motion to Dismiss and seek an order declaring that the Defendants were properly served with the Second Amended Complaint; and (2) oppose the Motion to Strike, seek leave to extend the time for filing the Third Amended Complaint, and seek an order declaring that the Defendants were properly served with the Third Amended Complaint.[2] Id.

         The Court held a hearing regarding the Motion to Dismiss and the Motion to Strike on Tuesday, January 17, 2017 at which Plaintiffs and counsel for Defendants appeared.

         FACTUAL BACKGROUND[3]

         I. Overview of the Case

         Plaintiffs allege violations of the Securities Act of 1933, the Securities Exchange Act of 1934, Hawaii's Uniform Securities Act, and various other state law claims, in connection with losses suffered on a stock deal and master distributorship agreement. Plaintiffs invested a significant amount of their savings in Pulse on the basis of representations made by defendant Bruce Horton, the Chairman of the Pulse Advisory Board during the relevant time period and a family friend of plaintiff Bruce Paige, about how much money Plaintiffs would make. Second Am. Compl., Section IV, ¶¶ 3, 8; Section II, ¶¶ 9-14, 19, 44.

         As part of the investment, Plaintiffs also discussed the possibility of a Master Distributorship Agreement for the Pulse product line in Hawaii, which Mr. Horton assured them could be “more or less” worked into the Subscription Agreement for purchasing stock and for which they would have sufficient capital from the stock offering. Id., Section IV, ¶¶ 16, 21. However, the stock price fell drastically, at least in part because Francis Chiew, a Pulse director, caused substantial downward pressure on the market by selling a significant number of shares wholesale; and due to issues related to a hold on the stock, Plaintiffs were unable to sell. Id. ¶¶ 28-31.

         The main thrust of Plaintiffs' complaint appears to be that Defendants improperly obtained an exemption from SEC registration requirements for the sale of securities by omitting material information about whether Plaintiffs were qualified investors for purposes of that exemption. Id. ¶¶ 25-26, 77. Plaintiffs also appear to allege that Plaintiffs relied on Defendants' representations that the investments would yield sufficient capital to fund the business and that Defendants breached the distribution agreement in various ways, both of which caused the distributorship to fail. Id. ¶¶ 33-38.

         II. Service of Process

         A. Second Amended Complaint

         Plaintiffs attempted to serve Mr. Yates and Pulse with the Second Amended Complaint on November 8, 2016. See ECF Nos. 27, 28. On December 1, 2016, Plaintiffs filed the process server's affidavits stating that the summons, complaint, and related documents were personally given to a person who identified himself as Robert Yates, Pulse's president, at its executive offices in Colorado, along with a picture purporting to show Mr. Yates holding a box containing those documents. ECF Nos. 27, 28. According to the process server's search of the Registry of the Secretary of State for Colorado, Robert Yates was the Registered Agent for service for Pulse. ECF No. 28.

         On November 8, 2016 Plaintiffs attempted to serve Mr. Horton through Mr. Yates at Pulse's Colorado office, under Colorado law as Mr. Horton's “supervisor, secretary, administrative assistant, bookkeeper, human resources representative or managing agent” or as a person authorized to receive service of process. ECF No. 29. Plaintiffs filed the process server's affidavit describing service on Mr. Yates, as detailed above, on December 1, 2016. Id. Plaintiffs also attempted to personally serve Mr. Horton at his residence in British Columbia, Canada on seven separate occasions between November 5, 2016 and November 20, 2016. ECF No. 30. However, personal service was unsuccessful. Id.

         Mr. Yates provided a declaration stating that on November 8, 2016, a person purporting to be a process server brought three boxes to Pulse's offices in an attempt to serve the Second Amended Complaint. ECF No. 20-2, ¶ 4 (Declaration of Robert E. Yates). Mr. Yates states that he explained his name was Robert Yates, but when he inquired what was in the boxes, the purported process server stated he would have to open the boxes to find out. Id., ¶¶ 5-6. Mr. Yates also states the boxes were left in Pulse's lobby and that no one from Pulse signed for them. Id., ¶¶ 7-8.

         Mr. Horton also provided a declaration stating that he has no authority with respect to the management of Pulse, as a member of Pulse's Advisory board, and he is neither an agent nor a principal of Pulse. ECF No. 20-3, ¶¶ 3-4 (Declaration of Donald Bruce Horton). He further states that he resides in British Columbia, Canada, and was not present at Pulse's offices in Colorado on November 8, 2016. Id., ¶¶ 5-6.

         B. Third Amended Complaint

         Plaintiffs attempted to serve the Third Amended Complaint by personally delivering it to Defendants' attorneys, but personal service was refused. ECF No. 35. Defendants' attorneys have declared that they lacked authority to accept service of pleadings on behalf of the Defendants. ECF No. 37-1, ¶ 6 (Declaration of Jessica M. Wan).

         Plaintiffs also served the Third Amended Complaint on Ty Nohara as the Securities Commissioner for Hawaii pursuant to Hawaii Rev. Stat. § 485A-610(b), which service was acknowledged on behalf of the Commissioner on December 23, 2016.[4] ECF No. 41. Plaintiffs have filed additional documents related to service on the Commissioner since that time. See ECF Nos. 40, 41, 42.

         STANDARD

         I. Moti ...


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