Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-05600/USCOURTS-cand-3_06-cv-05600-2/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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United States District Court

For the Northern District of California

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 Defendant Leonard purports to bring these motions on behalf of himself and IGDC. See First

Motion to Dismiss at 1 (asserting that the SEC did not have adequate information to support its

allegations “with regard to defendants”) (emphasis added); Second Motion to Dismiss at 1 (stating

above the signature line “By: Mr. Deni Leonard and Indigenous Global Development Corporation”).

Under Civil Local Rule 3-9(b), a corporation may appear only through an attorney. For this reason –

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

v.

INDIGENOUS GLOBAL DEVELOPMENT

CORPORATION, ET AL.,

Defendants.

____________________________________/

No. C-06-5600 JCS

ORDER DENYING MOTIONS TO

DISMISS [Docket Nos. 11, 12]

I. INTRODUCTION

On September 13, 2006, Plaintiff Securities and Exchange Commission (“SEC”) filed this

action against Indigenous Global Development Corporation (“IGDC”) and its chief executive

officer, Deni Leonard (“Leonard”), asserting violations of several sections of the Securities Act of

1933 (“the Securities Act”) and the Securities Exchange Act of 1934 (“the Exchange Act”) based on

alleged false and misleading statements regarding IGDC’s business and funding. IGDC failed to

retain counsel and default was entered against it on January 11, 2007. Leonard responded to the

complaint by filing a motion to dismiss on November 3, 2007 (“the First Motion to Dismiss”). On

November 27, 2007, Leonard filed an additional pleading entitled “Emergency Order to Dismiss,”

which the Court also construes as a motion to dismiss (“the Second Motion to Dismiss”). For the

reasons stated below, both motions are DENIED.1

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II. BACKGROUND

A. The Complaint

In the complaint, the SEC alleges that “[s]ince at least 2003, IGDC and Leonard have made

numerous materially false and misleading statements and omissions in press releases, marketing

materials, and SEC filings thereby falsely leading reasonable investors to believe it was poised to

reap millions either from natural gas contracts or from outside financiers.” Complaint at 5. In

particular, the complaint alleges that Defendant made the following false statements:

1. In a May 2003 press release, IGDC falsely announced a $5 million

investment in IGDC by Native America, FLC, even though only a letter

of intent had been signed and no funds were ever provided. Complaint

at 5-6.

2. In a March 2004 press release, IGDC and Leonard misrepresented the

terms of a preliminary agreement between IGDC, Cree Energy and First

Indigenous Depositor Company (“FIDC”) – a limited liability company

of which 98.5 % is owned by Leonard, falsely stating that the agreement

would provide IGDC with expected natural gas revenues of $32 million

per quarter even though none of the three companies had any natural gas

and no agreement had been signed by any of the entities to acquire

natural gas from a natural gas supplier. Complaint at 6-9.

3. In IGDC’s annual report, filed October 14, 2004, IGDC and Leonard

continued to misrepresent the terms of FIDC’s agreement with Cree

Energy in October of 2004. Complaint at 9-11.

4. In a November 2004 press release, IGDC and Leonard falsely claimed

IGDC was purchasing natural gas from a Canadian supplier when in

fact, there was no agreement to purchase natural gas. Complaint at 11-

12. 

5. In its annual report, filed October 14, 2004, and in amended annual

reports filed December 7, 2004 and April 25, 2005, IGDC and Leonard

stated that it maintained its “existing agreements with its valued partners

such as . . . Chevron Energy Solutions,” even though IGDC had only

signed a memorandum of understanding with Chevron Energy

Solutions, which expired November 2004, and Chevron never provided

services of any kind to IGDC. Complaint at 12-13.

6. In a brochure entitled “Indigenous Exonomic Sovereignty,” IGDC

repeated the representation, discussed above, that Native America, FCL,

had invested $5 million in IGDC. The brochure also stated that

investors could “rest assured that [their] money [would] produce profits

and generate excellent returns,” even though IGDC had never earned a

profit or generated any returns for investors. Complaint at 13-14.

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7. In a March 2005 press release, IGDC and Leonard stated that

agreements had been reached for the purchase of “up to 30,000

MMB[TU]s a day” of natural gas, generating annual revenues of

between $9 million and $15 million. In fact, although preliminary

agreements had been signed, no agreement had been reached under

which any specific quantity of natural gas would be sold to IGDC; nor

had a specific price been negotiated. Complaint at 15-17.

8. In a quarterly report form for the first quarter of 2005, filed May 27,

2005, IGDC and Leonard represented that IGDC had access to a $12

million line of credit from Magellan Group Investments, even though

Magellan had already declared IGDC in default with respect to the line

of credit and had sued IGDC for breach of contract. Complaint at 17-18.

9. In a September 2005 press release, IGDC and Leonard represented that

an “Asian Investment Energy Group” had invested $100 million dollars

in IGDC even though no such investment had been made or prmised. 

Rather, a Chinese company had issued a letter of intent stating it might

be interested in purchasing products from IGDC and that it had access to

$100 million. The Chinese company never agreed to purchase products

from IGDC. Complaint at 18-19.

On the basis of these allegations, the SEC asserts five claims: 1) violations of Section 17 (a)

of the Securities Act (IGDC and Leonard); 2) violations of Section 10 (b) of the Exchange Act and

Rule 10b-5 (IGDC and Leonard); 3) violations of Sections 13 (a) of the Exchange Act and Rules

12b-20, 13a-1 and 13a-13 (IGDC only); 4) aiding and abetting violations of Sections 13(a) of the

Exchange Act and Rules 12b-20, 13a-1, 13a-13 (Leonard only); and 5) Violations of Rule 13a-14

under the Exchange Act (Leonard only). 

B. The First Motion to Dismiss

On November 3, 2006, Leonard filed a Motion to Dismiss in which he asserted that “[t]he

Securities and Exchange Commission did not possess adequate information to make [its] allegations

with regard to the defendants.” Motion to Dismiss at 1. Leonard further asserted that the

“allegations by the SEC misrepresent the truth . . . .” Id. Leonard went on to argue that, as a factual

matter, members of IGDC’s staff were at fault, asserting that:

IGDC perso[nnel] were involved in a long term campaign to sabotage

IGDC and to use the regulations of the SEC to remove the

management and therefore obtain the assets of the company. These

former staff members planned to take over the company by noncompliance to (sic) federal regulations and to, themselves, abuse these

very same regulations.

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Id. In his Reply brief, Leonard stated that his motion to dismiss was brought pursuant to Rule

12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure.

C. The Second Motion to Dismiss

On November 27, 2006, Leonard filed an “Emergency Order to Dismiss” which included a

copy of a San Francisco Chronicle article dated November 26, 2006, entitled “High flier falls to

earth: Deni Leonard told investors they could build wealth by helping indigenous people, but SEC

calls that a tall tale.” In his pleading, Leonard states: 

The Securities and Exchange Commission has provided the San

Francisco Chronicle Newspaper with opinions that create a

circumstance in which I can get no fair trial. . . . This action by the

Securities and Exchange Commission to purposely sway public

opinion against both Indigenous Global Development Corporation and

Mr. Deni Leonard violates the 5th Amendment protection. Because of

the serious nature of this violation of the 5th Amendment, we request

an Emergency Order to Dismiss [the case].

Second Motion to Dismiss at 1.

III. ANALYSIS

A. The First Motion to Dismiss

Leonard seeks dismissal of the claims against him under Rule 12(b)(1) (dismissal for lack of

subject matter jurisdiction) and Rule 12(b)(6) (dismissal for failure to state a claim). Because

Leonard attacks the factual basis of the claims rather than the adequacy of the pleadings, the motion

fails to the extent it is based on Rule 12(b)(6). Further, to the extent the challenge is based on

12(b)(1), the Court concludes that Leonard’s factual assertions are so intertwined with the merits

that dismissal on this basis would be inappropriate.

1. Rule 12(b)(6)

“The purpose of a motion to dismiss under rule 12(b)(6) is to test the legal sufficiency of the

complaint.” N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). Generally, a

plaintiff’s burden at the pleading stage is relatively light. Rule 8(a) of the Federal Rules of Civil

Procedure states that “[a] pleading which sets forth a claim for relief . . . shall contain . . . a short and

plain statement of the claim showing that the pleader is entitled to relief.” In complaints alleging

fraud, the Plaintiff is required to provide more detailed allegations under Rule 9(b) of the Federal

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Rules of Civil Procedure: “In all averments of fraud or mistake, the circumstances constituting

fraud or mistake shall be stated with particularity.” The Ninth Circuit has held that “[a] pleading is

sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can

prepare an adequate answer from the allegations. . . . While statements of the time, place and nature

of the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud are

insufficient.” Moore v. Kayport Package Express, 885 F.2d 531, 540 (9th Cir. 1988) (internal

citation omitted). 

In ruling on a motion to dismiss, the court analyzes the complaint and takes “all allegations

of material fact as true and construe(s) them in the light most favorable to the non-moving party.” 

Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). “Dismissal can be based on the

lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal

theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988) (internal citation

omitted); see also Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (footnote omitted) (finding dismissal

proper under Rule 12(b)(6) only when “it appears beyond doubt that the plaintiff can prove no set of

facts in support of his claim which would entitle him to relief.”)

Here, Leonard does not identify any specific deficiency in the SEC’s allegations. Rather, he

challenges the factual basis for the SEC’s allegations. While such a challenge may be appropriate

on summary judgment, it does not provide a basis for dismissal under Rule 12(b)(6).

2. Rule 12(b)(1)

Rule 12(b)(1) authorizes a defendant to seek dismissal based on lack of subject matter

jurisdiction. A party seeking dismissal for lack of subject matter jurisdiction may bring a facial

challenge or a factual challenge. See White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). A facial

challenge asserts that the pleadings are insufficient on their face. Safe Air for Everyone v. Meyer,

373 F.3d 1035, 1039 (9th Cir. 2004). In evaluating such a challenge, the court accepts the factual

allegations in the complaint as true. Miranda v. Reno, 238 F.3d 1156, 1157 n.1 (9th Cir. 2001). In

contrast, where a defendant challenges the factual basis underlying the allegations, as does

Defendant Leonard here, the court need not accept the allegations as true and may make factual

determinations. White, 227 F.3d at 1242. However, dismissal for lack of subject matter jurisdiction

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is rare and should only be granted where “the alleged claim under the Constitution or federal statutes

clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where

such a claim is wholly insubstantial or frivolous.” Bell v. Hood, 327 U.S. 678, 682-83 (1946).

Further, dismissal on this basis is inappropriate where “the jurisdictional issue and the substantive

issues are so intertwined that the question of jurisdiction is dependent on the resolution of factual

issues going to the merits . . . .” Augustine v. U.S., 704 F.2d 1074, 1077 (9th Cir. 1983). In that

case, resolution of the factual dispute should be deferred until a determination on the merits is made,

either on summary judgment or at trial. Id.

Leonard’s challenge is based on disputed facts that go to the heart of the SEC’s claims. As

such, the Court concludes that dismissal for lack of subject matter jurisdiction is inappropriate at this

stage of the case.

B. The Second Motion to Dismiss

In his Second Motion to Dismiss, Leonard argues that publicity from a San Francisco

Chronicle article, which includes statements by an SEC attorney about this case, precludes him from

receiving a fair trial and therefore, the action should be dismissed. The Court denies this motion on

the basis that it is premature.

Under some circumstances, pretrial publicity may be so pervasive that a defendant’s right to

an impartial jury – and thus, to due process – may be threatened. See Sheppard v. Maxwell, 384

U.S. 333, 362 (1966). Under such circumstances, the court may determine that transfer to another

venue under 28 U.S.C. § 1404(a) is necessary to guarantee a fair trial. Wash. Pub. Utils. Group v.

U.S. Dist. Court for W. Dist., 843 F.2d 319, 321 (9th Cir. 1988). The Ninth Circuit has held,

however that “the effect of pretrial publicity can be better determined after the voir dire examination

of the jurors.” Narten v. Eyman, 460 F.2d 184, 187 (9th Cir. 1969) (internal quotations and citations

omitted). Therefore, the Court denies the Motion without prejudice to Leonard seeking a transfer of

venue at a later stage of the case.

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IV. CONCLUSION

The Motions are DENIED.

IT IS SO ORDERED.

Dated: April 2, 2007

__________________________

JOSEPH C. SPERO

United States Magistrate Judge

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