14‐3994‐cv
Salvani v. InvestorsHub.com
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
ʺSUMMARY ORDERʺ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 9th day of October, two thousand fifteen.
PRESENT: DENNY CHIN,
CHRISTOPHER F. DRONEY,
Circuit Judges,
EDWARD R. KORMAN,
Senior District Judge.*
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JOSEPH M. SALVANI, JFS INVESTMENTS INC.,
Plaintiffs‐Appellants,
v. 14‐3994‐cv
INVESTORSHUB.COM, INC., ADVFN PLC, a company
incorporated under the laws of the United Kingdom,
JOHN DOE, known herein as ʺbrklynrusso,ʺ
IHUB.COM.COM, INC.,
Defendants‐Appellees,
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* The Honorable Edward R. Korman, of the United States District Court for the
Eastern District of New York, sitting by designation.
FOR PLAINTIFFS‐APPELLANTS: Douglas R. Dollinger, Douglas R. Dollinger,
P.C. & Associates, White Plains, New York
FOR DEFENDANTS‐APPELLEES: James J. McGuire, Deanna K. Shullman,
Thomas & Locicero PL, Tampa, Florida, and
Andrew G. Celli, Jr., Emery Celli Brinckerhoff
& Abady LLP, New York, New York
Appeal from the United States District Court for the Southern District of
New York (Ramos, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the opinion and order of the district court is
AFFIRMED.
Plaintiffs‐appellants Joseph M. Salvani and JFS Investments, Inc. (ʺJFSʺ)
appeal from a September 23, 2014 opinion and order of the United States District Court
for the Southern District of New York, dismissing their claims under sections 10(b) and
9(a)(4) of the Securities and Exchange Act of 1934 (the ʺExchange Actʺ) and Securities
and Exchange Commission (ʺSECʺ) Rule 10b‐5 for failure to state a claim, and declining
to exercise supplemental jurisdiction over the state law claims. We assume the partiesʹ
familiarity with the facts, procedural history, and issues on appeal.
Salvani is the sole shareholder of JFS and, until September 5, 2013, was an
investment consultant for CodeSmart Holdings, Inc. (ʺCodeSmartʺ). Defendant‐
appellee InvestorsHub.com, Inc. (ʺInvestorsHubʺ), which is owned by defendant‐
appellee ADVFN PLC (ʺADVFNʺ), operates a website that includes a forum to share
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investment advice. On September 5, 2013, John Doe (under the username
ʺbrklynrussoʺ) posted that Salvani ʺwas a former broker barred from the financial
industryʺ who promotes stocks that quickly collapse after he has earned a profit ‐‐
ʺpump n dump at its best.ʺ App. at 17‐18. Salvani discovered the post around that
time. CodeSmartʹs stock prices then suffered a steep drop, and during that drop,
Salvani sold his shares. Salvani contends that Doeʹs statements were a form of market
manipulation and that InvestorsHub and ADVFN are responsible for Doeʹs statements.
Salvani and JFS brought suit, asserting claims arising under state law,
including defamation and libel, and eventually under sections 10(b) and 9(a)(4) of the
Exchange Act and SEC Rule 10b‐5. On September 23, 2014, the district court denied
defendantsʹ motion to dismiss for lack of subject matter jurisdiction but sua sponte
dismissed the securities law claims for failure to state a claim pursuant to Federal Rule
of Civil Procedure 12(b)(6). The district court then declined to exercise supplemental
jurisdiction over the remaining state law claims pursuant to 28 U.S.C. § 1367(c)(3),
dismissing those claims without prejudice. We affirm.
We review de novo a district courtʹs sua sponte dismissal of an action and its
complaint. J.S. v. TʹKach, 714 F.3d 99, 103 (2d Cir. 2013). To survive dismissal under
Rule 12(b)(6), a plaintiff must plead ʺenough facts to state a claim to relief that is
plausible on its face.ʺ Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). ʺA claim has
facial plausibility when the plaintiff pleads factual content that allows the court to draw
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the reasonable inference that the defendant is liable for the misconduct alleged.ʺ
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Under the Private Securities Litigation Reform
Act of 1995 (ʺPSLRAʺ), a plaintiff alleging that the defendant made a false or misleading
statement must also ʺ(1) ʹspecify each statement alleged to have been misleading [and]
the reason or reasons why the statement is misleadingʹ; and (2) ʹstate with particularity
facts giving rise to a strong inference that the defendant acted with the required state of
mind.ʹʺ Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 321 (2007) (quoting 15
U.S.C. § 78u‐4(b)) (applying PSLRA to section 10(b) actions).
A plaintiff alleging a violation of section 10(b) or Rule 10b‐5 must plead:
(1) a material misrepresentation (or omission), (2) scienter, (3) a connection with the
purchase or sale of a security, (4) reliance, (5) economic loss, and (6) loss causation.
Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341 (2005); see 15 U.S.C. § 78u‐4(b); 17 C.F.R.
§ 240.10b‐5. Section 9(a)(4) similarly requires a ʺ(1) misstatement or omission (2) of
material fact (3) made with scienter (4) for the purpose of inducing a sale or purchase of
a security (5) on which the plaintiff relied (6) that affected plaintiffʹs purchase or selling
price.ʺ Chemetron Corp. v. Bus. Funds, Inc., 682 F.2d 1149, 1161‐62 (5th Cir. 1982)
(footnotes omitted), vacated on other grounds, 460 U.S. 1007 (1983); see 15 U.S.C. § 78i(f).
Salvani failed to sufficiently plead reliance. ʺThe traditional (and most
direct) way a plaintiff can demonstrate reliance is by showing that he was aware of a
[defendantʹs] statement and engaged in a relevant transaction ‐‐ e.g., purchasing
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common stock ‐‐ based on that specific misrepresentation.ʺ Erica P. John Fund, Inc. v.
Halliburton Co., 131 S. Ct. 2179, 2185 (2011). A plaintiff may also plead under a ʺfraud on
the marketʺ theory that she ʺtraded . . . in reliance on the integrity of the price set by the
market.ʺ Basic Inc. v. Levinson, 485 U.S. 224, 245 (1988).
Salvani does not make express in his complaint his theory of reliance, but
under either theory, Salvaniʹs complaint is implausible on its face. Salvani only pleads
that following the post the market ʺevinc[ed] signs of stock manipulation,ʺ and his
ʺshares were traded during this period wherein, but for the postings Salvani would not
have experienced actual losses in his trades.ʺ App. at 20. As to the first theory, Salvani
knew those statements were false (the post was about him). It makes no sense that he
would rely on statements about himself that he knew to be false. As to the second
theory, Salvani likewise could not have relied on the integrity of CodeSmartʹs stock
price. See Basic, 485 U.S. at 245. Even assuming that Doeʹs post caused CodeSmartʹs
precipitous stock price drop, Salvani purports he knew about this ʺmarket
manipulation,ʺ and he cannot ʺbe said to have relied on the integrity of a price he knew
had been manipulated.ʺ Id. at 247, 249 (ʺWho would knowingly roll the dice in a
crooked crap game?ʺ (quoting Schlanger v. Four‐Phase Sys. Inc., 555 F. Supp. 535, 538
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(S.D.N.Y. 1982))). We therefore affirm the district courtʹs determination that Salvani
failed to plead reliance necessary to make his Exchange Act claims plausible.1
We also affirm the district courtʹs dismissal without prejudice of the state
law claims pursuant to 28 U.S.C. § 1367(c)(3). That dismissal was not an abuse of
discretion, because this is ʺʹthe usual case in which all federal‐law claims are eliminated
before trial,ʹ [and] ʹthe balance of factors . . . [thus] point[s] toward declining to exercise
jurisdiction over the remaining state‐law claims.ʹʺ Kolari v. N.Y.‐Presbyterian Hosp., 455
F.3d 118, 122 (2d Cir. 2006) (quoting Carnegie‐Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7
(1988)).
We have reviewed plaintiffs‐appellantsʹ remaining arguments and
conclude they are without merit. Accordingly, we AFFIRM the opinion and order of
the district court.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
1 The district court concluded that Salvaniʹs ʺfraud on the marketʺ theory fails
because he pleaded that CodeSmart traded on the Over‐the‐Counter Bulletin Board (the
ʺOTCBBʺ) operated by the Financial Industry Regulatory Authority but did not plead that the
OTCBB was an ʺefficient market.ʺ We need not determine whether the OTCBB is an efficient
market. Cf. Basic, 485 U.S. at 249 n.29 (ʺProof of that sort is a matter for trial . . . .ʺ). Nor do we
need to address the district courtʹs alternative holding that Salvani did not plead loss causation,
because Salvani did not even rely on the purported misrepresentations. See Erica P. John, 131 S.
Ct. at 2186 (finding loss causation only when ʺa misrepresentation that affected the integrity of
the market price also caused the subsequent economic lossʺ).
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