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McCullough v. Advest, Inc.

United States District Court, W.D. Pennsylvania

August 25, 2017

RICHARD H. MCCULLOUGH, et al., Plaintiffs,
v.
ADVEST, INC., et al., Defendants.

          MEMORANDUM AND ORDER

          Cathy Bissoon United States District Judge.

         I. MEMORANDUM

         Pending before the Court is a Motion to Dismiss filed by Defendants Advest, Inc., Bank of America, N.A., Robert Feldman, Merrill Lynch, and Pierce Fenner & Smith Incorporated (collectively, the "Defendants") (Doc. 13), pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, Defendants' Motion to Dismiss (Doc. 13) will be GRANTED, Plaintiffs' federal claim (Count I) will be dismissed and the Court will decline to exercise supplemental jurisdiction over the remaining state law claims (Counts II through V).

         A. BACKGROUND

         The Court writes principally for the parties, who are familiar with the factual context and legal history of this case. Therefore, it will set forth only those allegations that are necessary to its analysis.

         Plaintiffs commenced this lawsuit on February 4, 2011 by filing a writ of summons in the Court of Common Pleas of Allegheny County. Thereafter, Defendants removed the case to federal court, and, in response to a motion to dismiss, Plaintiffs filed the operative Amended Complaint, m their Amended Complaint, Plaintiffs allege that, between 2005 and 2007, Defendant Feldman, while employed by the corporate Defendants, used false representations to induce Plaintiffs to purchase shares of two penny stocks, Telkonet, Inc. ("TKOI") and Geo Global Resources, Inc. ("GGR"), from which they suffered losses. (Am. Compl. (Doc. 10) ¶¶ 6-23, 30-36; see also Doc 10, Exhibit 1). Specifically, Plaintiffs allege as follows:

15. On or about March 17, 2005 and each succeeding date that Plaintiff purchased TKOI stock as set forth on Plaintiffs Exhibit 1, Feldman represented that TKOI would go to $14, then $40, then $70 and then $100 per share, depending on the need to induce a purchase or to allay fear and prevent liquidation of the position. Feldman's representations were not true as TKOI stock continued to fall in value after Plaintiffs initial purchase of the stock on March 17, 2005 at $4.31 per share.
16. On or about April 22, 2005 and each succeeding date that Plaintiff purchased TKOI stock as set forth on Plaintiffs Exhibit 1, Feldman represented that he had a business relationship with TKOI's CEO or Board of Trustees and had frequent meetings and communications with inside sources, often in Baltimore, who told him TKOI obtained enormous government contracts which would be announced soon or that the contracts could not be announced. Such representations were not true, as the CEO of TKOI later advised Plaintiff during early 2010 that Feldman never had a business relationship with the CEO or the Board of Trustees, that there had been no meetings or communications between Feldman and the CEO or other inside sources and that TKOI had no government contracts. The CEO of TKOI advised that he did not know Defendant Feldman and that Feldman was never a consultant for TKOI, contrary to Feldman's representations.
17. On or about August 11, 2005 and subsequent dates that Plaintiff purchased TKOI stock as set forth on Plaintiffs Exhibit 1, Feldman represented that TKOI entered into a contract with GE to remotely monitor all GE sub power stations, which contract was going to be announced on a particular date, always delayed. Defendant Feldman's representation in this regard was false, as the CEO of TKOI later advised during early 2010 that TKOI had no contract with GE.
18. On October 3, 2005 and subsequent dates that Plaintiff purchased TKOI stock, Feldman represented that the Department of Homeland Security was going to use TKOI technology at all major airports in the U.S. Defendant Feldman's representation was false as the CEO of TKOI later advised Plaintiff during early 2010 that TKOI did not have any government contract with the Department of Homeland Security to use TKOI technology at major airports.
19. On or about June 7, 2006 Feldman represented that TKOI could not keep up with orders and had a huge backlog of work. Feldman's representation was false, as Plaintiff later learned during early 2010 that in speaking with TKOI's CEO's assistant that there was no backlog of orders and that TKOI needed money to produce its product and run the company.
20. On or about May 18, 2007 Feldman represented that he owned a million shares of TKOI stock personally and that his family owned two million shares of stock when Plaintiff said he would sell. Feldman told him that to buy more TKOI shares because Feldman controlled the float, meaning that Feldman and his personal customers were the only individuals to own shares outside of the company. This representation was false, as Plaintiff was later told by Feldman that the shorts on the TKOI stock were "killing us" which meant Feldman did not control the float and that other people not under his control were selling shares whereas he previously stated to Plaintiff that he controlled all shares. Feldman also stated that he owned a million shares of the stock, and, if the Plaintiff threatened to sell, that Feldman would just purchase more, often for family and friends, and that he could use the money he had made on the tremendous rise in the value to help cure a disease which afflicted his sick son.
21. On or about July 31, 2007 Feldman represented that TKOI stock would become worth 60-80 Million, that Feldman and his clients "controlled the float" and that once the shorts were cleared out they would dramatically increase the value of the stock. This representation was false as Plaintiff was later told by Feldman that the shorts on the TKOI stock were "killing us" which meant Feldman did not control the float and that other people not under his control were selling shares whereas he previously stated to Plaintiff that he controlled all shares.
22. On or about January 9, 2006, January 11, 2006, and March 8, 2006, and on numerous dates thereafter, Feldman represented that he had a close friend in the GGR office of the CEO, Jon Paul, and that the company had the largest discovery of oil and natural gas ever in the Indian Ocean. This representation was false as Plaintiff later learned during early 2010 from ...

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