Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-arwd-5_06-cv-05109/USCOURTS-arwd-5_06-cv-05109-5/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1441 - Petition for Removal: SEC Act

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IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

FAYETTEVILLE DIVISION

SHIMODA-ATLANTIC, INC. PLAINTIFF

VS. CASE NO. 06-CV-5109

TALON HOLDINGS, INC.,

MIX GROUP OF SOUTH FLORIDA, INC.,

JOHN DOE #1 A/K/A JOHN V. FIRO A/K/A

THOMAS V. FARO, ROBERT BETTES, 

PATRICK JOSEPH LOCHRIE, AND 

JOHN DOE #3 A/K/A MOHAMMED GALANI

A/K/A MOHAMMED GILANI DEFENDANTS

MEMORANDUM OPINION & ORDER

Currently before the Court is Plaintiff’s Motion to Remand and

Brief in Support (Doc. 35) and the United States of America’s

Response (Doc. 48); Plaintiff’s Motion to Dismiss Without Prejudice

(Doc. 47) and the United States’ Response (Doc. 53); the United

States’ Motion to Dismiss and Brief in Support (Docs. 38-39); and

Plaintiff’s Motion to Strike Pleadings, Brief in Support and

Supplemental Brief (Doc. 40-41, 44) and the United States’ Response

(Doc. 49). 

The Court finds, for the reasons set forth below, that

Plaintiff’s Motion to Remand (Doc. 35) is DENIED; Plaintiff’s

Motion to Dismiss Without Prejudice (Doc. 47) is GRANTED IN PART

AND DENIED IN PART; the United States’ Motion to Dismiss (Doc. 38)

is GRANTED, and Plaintiff’s Motion to Strike (Doc. 40) is DENIED.

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Background

Plaintiff initially filed a complaint against Talon Holdings,

Inc. (Talon); the Mix Group of South Florida, Inc. (Mix Group);

John Doe #1 a/k/a John v. Firo a/k/a Thomas V. Faro (Firo); Robert

Bettes a/k/a Robert O. Brewer (Bettes); Patrick Joseph Lochrie

(Lochrie); John Doe #3 a/k/a Mohammed Galani a/k/a Mohammed Gilani

(Galani); the National Association of Securities Dealers, Inc.

(NASD); and NASD Regulation , Inc. (NASD Regulation), in the

Circuit Court of Benton County, Arkansas, Civil No. 06-1095,

alleging theft of trade secrets, violations of the Arkansas

Securities Act, fraudulent inducement and violations of NASD Rule

3020. Separate Defendants NASD and NASD Regulation removed the

case on June 16, 2006 (doc. 1) citing both diversity of citizenship

and federal question jurisdiction. On that date, the United States

District Court Clerk (the Clerk) directed Plaintiff to file

affidavits of service for all defendants that had been served and

proof of service for defendants to be served in the future. 

On July 11, 2006, Plaintiff filed a motion to remand the case

to state court as all defendants served at the time of removal did

not consent to the removal; specifically, the Mix Group, Firo and

Lochrie (Doc. 18). On July 13, 2006, NASD and NASD Regulation

filed an amended removal notice adding an allegation that at the

time of removal none of the other defendants had been properly

served (Doc. 19). On July 14, 2006, Plaintiff filed copies of

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certified mail, restricted delivery receipts for Separate

Defendants the Mix Group, Lochrie and Firo showing that service was

effected on June 17, 2006.

On July 18, 2006, NASD and NASD Regulation filed a motion to

dismiss (Doc. 23) alleging (1) Plaintiff failed to exhaust its

administrative remedies before the SEC; (2) no private cause of

action exists against NASD for violations of its own rules or the

Exchange Act; (3) the NASD is immune from suits related to its

regulatory activities; and (4) Plaintiff failed to state a claim

for negligence or fraud under Arkansas law.

On August 5, 2006, Plaintiff moved to nonsuit its action

against Separate Defendants NASD and NASD Regulation (Doc. 28). On

August 24, 2006, the Court granted the motion dismissing NASD and

NASD Regulation without prejudice (Doc. 30). As a result of this

ruling, the Court denied NASD and NASD Regulation’s motion to

dismiss as moot. In that opinion, the Court denied Plaintiffs’

Motion to Remand finding that all defendants served at the time of

removal consented to removal and that diversity jurisdiction

existed. The Court did not reach the issue of whether federal

jurisdiction existed. 

On November 9, 2006, the Clerk entered a default order against

Separate Defendants the Mix Group, Firo and Lochrie (Doc. 34). To

date, Plaintiff has not filed proof of service as to Separate

Defendants Talon, Bettes and Galani.

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Separate Defendant Patrick Joseph Lochrie has requested a scope of employment 1

certification that is pending with the Department of Justice.

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On November 10, 2006, Plaintiff filed another Motion to Remand

that is currently before the Court (Doc. 35). In that motion,

Plaintiff contends the Court should remand the case as all

defendants did not consent to the removal and federal question

jurisdiction no longer exists after the dismissal of NASD and NASD

Regulation. 

On November 13, 2006, a certification of scope of employment

and a notice substituting the United States of America for Separate

Defendants Bettes, Firo and Galani (Docs. 36-37) was filed 1

pursuant to the Federal Employees Liability Reform and Tort

Compensation Act of 1988, 28 U.S.C. § 2679(d)(1) (Westfall Act).

The United States also filed a motion to dismiss for lack of

subject matter jurisdiction (Doc. 38) alleging that the claims

against these Separate Defendants are now claims against the United

States pursuant to the Federal Tort Claims Act and must be

dismissed on grounds of sovereign immunity as Plaintiff failed to

exhaust its administrative remedies prior to filing suit.

On November 14, 2006, Plaintiff filed a Motion to Strike the

notice of substitution, certification of scope of employment and

the United States’ motion to dismiss and brief in support as

untimely and procedurally inappropriate. On November 20, 2006,

Plaintiff moved to dismiss this action without prejudice as to

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Separate Defendants Robert Bettes and Mohammed Galani (doc. 47).

Analysis

On November 13, 2006, the United States filed a notice of

substitution and certification of scope of employment on behalf of

Separate Defendants Bettes, Firo and Galani pursuant to the

Westfall Act. (Docs. 36-37). Federal law authorizes the Attorney

General to certify that a United States employee was acting within

the scope of his employment at the time of an incident which gives

rise to a civil claim. 28 U.S.C. § 2679(d)(1) and (2). Once

certification is given in a civil action, federal law mandates both

the substitution of the United States as defendant and, if the case

is pending in state court, removal of the action to federal court.

Id. Accordingly, Plaintiff’s claims for money damages against

Separate Defendants Firo, Bettes and Galani are DISMISSED WITH

PREJUDICE, and the United States is substituted as party-defendant

on those claims as of November 13, 2006, the date of the filing of

the certification (Doc. 36). 

As a result of this substitution, Plaintiff’s Motion to Remand

(Doc. 35) is DENIED as the Westfall Act mandates the action to be

in federal court. Further, Plaintiff’s Motion to Dismiss is

GRANTED IN PART AND DENIED IN PART. Plaintiff’s Motion is GRANTED

as to Plaintiff’s claims for equitable relief against Bettes, Firo

and Galani, and these Defendants are DISMISSED WITHOUT PREJUDICE.

Plaintiff’s Motion to Dismiss (Doc. 47) is DENIED AS MOOT as to

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Plaintiff’s claims for money damages against Separate Defendants

Bettes, Firo and Galani as they were dismissed as defendants as of

November 13, 2006. Plaintiff’s Motion to Dismiss was filed on

November 20, 2006. Plaintiff’s Motion to Strike Pleadings (Doc.

40) is DENIED as the Court finds that substitution of the United

States for Bettes, Firo and Galani is mandated by the Westfall Act.

The United States moves to dismiss all claims against it as

Plaintiff failed to exhaust its administrative remedies in

accordance with the Federal Tort Claims Act. See 28 U.S.C. §

2679(a). Plaintiff did not file a response to this motion.

Accordingly, the Court finds that the motion should be GRANTED, and

all claims against the United States are DISMISSED for lack of

subject matter jurisdiction, pursuant to Rule 12(b)(1) of the

Federal Rules of Civil Procedure, on the grounds of sovereign

immunity.

As to Separate Defendant Talon, the Clerk issued a notice on

September 6, 2006, advising Plaintiff there was no proof of service

for this defendant. To date, the file does not reflect any proof

of service upon Talon. Accordingly, Plaintiff is directed to show

cause within ten (10) days as to why its claims against Talon

should not be dismissed pursuant to Rule 4(m) of the Federal Rules

of Civil Procedure.

Conclusion

The Court finds that Plaintiff’s Motion to Remand (Doc. 35) is

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DENIED; Plaintiff’s Motion to Dismiss Without Prejudice (Doc. 47)

is GRANTED IN PART AND DENIED IN PART; the United States’ Motion to

Dismiss (Doc. 38) is GRANTED, and Plaintiff’s Motion to Strike

(Doc. 40) is DENIED.

IT IS SO ORDERED this 18 day of January 2007. th

 

/s/ Robert T. Dawson

Honorable Robert T. Dawson

United States District Judge

 

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