IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

BRUCE W. MAJER, et al. : CIVIL ACTION

:

v. :

:

SONEX RESEARCH, INC., et al. : NO. 05-606

MEMORANDUM AND ORDER

McLaughlin, J. July 19, 2006

This case involves the claims of Bruce W. Majer, Allen

W. Fortna, and The Hermitage Partnership (“Hermitage”), who

invested in Sonex Research, Inc. (“Sonex”) through a private

placement in 2004. The plaintiffs allege that Sonex and four

individuals affiliated with it – Roger D. Posey, Jim Z.I.

Williams, George E. Ponticas, and Andrew A. Pouring, Ph.D. – made

misrepresentations about Sonex while they were soliciting the

plaintiffs’ participation in the private placement. The

plaintiffs allege that their investments are now worthless.

The thrust of the complaint is the allegation that the

defendants’ actions constituted fraud in violation of federal

securities law, and Pennsylvania securities and common law. The

plaintiffs also make state law claims of negligent

misrepresentation, breach of contract and rescission. 

The Court here decides Pouring and Ponticas’ motion to

dismiss for lack of personal jurisdiction, which the Court will

deny. The Court will grant Sonex, Pouring, Ponticas and Posey’s

motions to dismiss for failure to state a claim upon which relief

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 1 of 35
1 Williams has yet to enter an appearance or file a

responsive pleading or motion. The Court, however, will consider

the motions to dismiss for failure to state a claim as to

Williams. 

2 In considering the defendants’ motions to dismiss, the

Court must accept the allegations in the Complaint as true and

draw all reasonable inferences in favor of the plaintiffs. 

Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir.

2004); In re Rockefeller Ctr. Props., Inc Secs. Litig., 311 F.3d

198, 215 (3d Cir. 2002).

2

can be granted.1 The Court will allow the plaintiffs to amend

their complaint if, in light of the Court’s decision, they

believe that it would be efficacious to do so.

I. Facts

The facts alleged in the complaint are as follows.2

Sonex is an engineering research and development

(“R&D”) firm that holds patented technology for in-cylinder

control of ignition and combustion in various types of engines. 

Founded in 1980, Sonex originally focused on basic research into

the principle of in-cylinder control of ignition and combustion. 

Although it went public in the mid-1980s, Sonex remained small

and tightly managed, with only an office/warehouse in Annapolis,

Maryland and a few full-time employees. In the late 1980s, Sonex

focused on studying the effects of chemical and fuel disbursement

characteristic changes within the combustion chamber. (Compl. at

¶¶ 21-22, 24, 32). 

Pouring is a former Professor of Aerospace Engineering

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 2 of 35
3

and Chairman of the Department of Aerospace Engineering at the

U.S. Naval Academy. Pouring was a co-founder of Sonex. Since

that time, he has remained an officer and director of Sonex. At

the time of the complaint’s filing, he was the Chairman of the

Board, Chief Executive Officer and President. Id. at ¶¶ 22, 23.

Ponticas is a Certified Public Accountant. Sonex hired

Ponticas as its Comptroller and Assistant Secretary in 1987. He

has remained continuously at Sonex since then, and became its

Chief Financial Officer and Secretary in 1991. He served on the

Board of Directors at various times. Id. at ¶ 25.

Around late 2003, Pouring and Ponticas began taking

steps to reposition Sonex’s business and to enhance its

capabilities and growth plan. They engaged Global Equity

Consultants (“Global”), led by Jim Rose, to assist with this

process. Pouring and Ponticas’s plan was to transform Sonex from

an R&D firm that relied mainly upon government grants for funding

into a full-service firm that commercialized and marketed the

technologies it developed. Id. at ¶¶ 26, 27. 

They sought a leader for this effort, and after

considering several candidates, they decided to hire Posey, who

came on as President in February of 2004. Soon after, Posey

became Chief Executive Officer and a member of the Board of

Directors. Pouring and Ponticas were aware that Posey came to

Sonex shortly after the termination of his employment as a sales

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 3 of 35
4

representative with BRD Noise and Vibration Control (“BRD”). The

press release announcing Posey’s hiring stated:

We are delighted to have Roger join Sonex as our President. 

Roger brings a wealth of management and industry turnaround

experience to Sonex and with his efforts we look forward to

profitable growth as we continue to provide products to the

marketplace. At our 2003 Shareholder meeting in September,

we announced the Company was focusing on business repositioning, strengthening its internal capabilities, and

planning for growth. Roger will play a major role in the

continuing implementation of this strategy.

Id. at ¶¶ 11, 28-29, 31.

Sonex experienced cash flow difficulties in its

transition from an R&D to a commercialization firm. To address

this problem, Pouring, Ponticas and Posey all agreed to defer

portions of their salary. The three officers searched for ways

to raise short-term and long-term capital. They were

particularly motivated to recoup their deferred income and ensure

their future financial well-being. Id. at ¶¶ 34-35.

To assist with this effort, Posey reached out to his

friend and business colleague, Williams. Williams became a

member of the Board of Directors of Sonex in April of 2004. 

Williams offered to try to arrange a capital investment exceeding

$40 million by a group of Canadian investors led by Fred Hunter,

a prominent Toronto businessman. He noted that the investment

would not be available until at least the summer of 2004. Id. at

¶¶ 12, 36-38. 

In February of 2004, to secure more immediate

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 4 of 35
5

financing, Pouring, Ponticas, Posey and Williams (the “individual

defendants”) decided to pursue a private placement of equity

marketed to individual investors. Private placement enabled

Sonex to raise cash immediately while avoiding the requirements

of registration with the SEC and state regulatory bodies

associated with a public offering. Id. at ¶ 39.

The individual defendants completed a written business

plan, entitled “Business Content 2004,” with the assistance of

Global. It was used primarily as a solicitation piece for the

private placement. The individual defendants hired a Florida law

firm, Winderweedle, Haines, Ward & Woodman, P.A.

(“Winderweedle”), to prepare documents and counsel Sonex on the

private placement. Id. at ¶ 40, 41.

The individual defendants also developed “talking

points” highlighting two themes to entice investors for the

private placement. The first message highlighted new noise and

vibration control technologies as opposed to the company’s

traditional fuel-burning technologies. Particularly, the focus

was on a new process called “active noise concealment.” The

second message overstated and exaggerated the immediacy of longterm capital infusion, to appease the private placement

investors’ concerns about the capital infusion above and beyond

their own investment called for in the business plan. The

individual defendants knew that, in fact, the loan was

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 5 of 35
6

speculative, but also knew that the way to entice the private

placement investors was to assure them that it was imminent. Id.

at ¶ 42-43.

The individual defendants told potential investors

that: (1) Sonex was poised to become a leader in the area of

active noise concealment, Posey’s area of expertise; (2) to

achieve that end, a group of Canadian investors led by Fred

Hunter had committed up to $43 million in loans that were

expected to close during the summer; (3) the company was looking

to raise a few hundred thousand dollars through private placement

as a short-term bridge until the Canadian financing closed; and

(4) once the financing arrived, the company would implement the

business plan and all shareholders would reap enormous benefits. 

Id. at 44.

The business plan stated that:

Roger Posey and his team have been developing and

implementing this updated business plan, the primary goal of

which is to transition Sonex from a research and development

company into a technology, commercialization, and

manufacturing enterprise. Roger Posey intends to use a

combination of strategic alliances, immediately accretive

acquisitions, and internal development to diversify the

Sonex product offering. 

The business plan described Posey as having a “career rich in the

successful management of both large established corporate

organizations and firms focused on research and development of

innovative technologies.” Id. at ¶¶ 45-46. 

Around February of 2004, Posey approached Majer, a

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 6 of 35
7

former colleague residing in Pennsylvania, to solicit his

participation in the private placement. Majer said that he was

willing to consider an investment, and spoke to the individual

defendants during several conversations and meetings over the

next two months. During these discussions, the individual

defendants adhered to their talking points. The individual

defendants furnished Majer with the completed business plan. Id.

at ¶¶ 5, 47-49. 

When Majer learned that Sonex had engaged Global and

Winderweedle, he expressed concern about cash flow and asked how

the companies would be paid. The individual defendants told

Majer that the firms had agreed to accept stock in lieu of cash

for all services. Id. at ¶ 50. 

When Majer asked Posey whether he had any restrictive

covenant from his former employer that might affect his work for

Sonex, Posey said that he had a restrictive covenant, but that it

would not be implicated by his Sonex employment, and that counsel

had reviewed it and found it inapplicable. Id. at ¶ 51.

After these and other representations, Majer decided to

purchase 1.2 units of the private placement equity, or 240,000

shares of common stock and a warrant, exercisable until May 31,

2006, to purchase 240,000 more shares at $0.25 per share. Around

April 21, 2004, Majer delivered a check for $60,000.00 and a

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 7 of 35
3 The plaintiffs do not attach copies of the subscription

agreements to their complaint, although Sonex, Pouring and

Ponticas attach copies to their motion. The United States Court

of Appeals for the Third Circuit has held that although “[a]s a

general matter, a district court ruling on a motion to dismiss

may not consider matters extraneous to the pleadings, . . . an

exception to the general rule is that a document integral to or

explicitly relied upon in the complaint may be considered without

converting the motion to dismiss into one for summary judgment.” 

In re Burlington Coat Factory Secs. Litig., 114 F.3d 1410, 1426

(3d Cir. 1997)(internal quotations omitted). In Burlington, the

plaintiffs argued that data about one portion of the year was

crucial to investors because it constituted the bulk of the

inventory purchased for the entire year. Id. The Court found

that this was “an unambiguous reference to full-year cost data”

for that year, and considered full-year cost data not attached to

the complaint. Id. 

The subscription agreements form the basis for the

plaintiffs’ claims of rescission and breach of contract. In

addition, they are intimately involved with the plaintiffs’ other

claims. For example, in order to succeed with their claims of

material omissions, the plaintiffs need to show the absence of

statements from the materials with which they concede they were

provided. The Court will consider the subscription agreements. 

4 The defendants also seek the Court’s consideration of

confidential purchaser questionnaires, which they seek to file

under seal. They state that Majer and Fortna executed these

documents. The defendants provide no basis for the admission of

these documents. In any event, they do not appear to be

particularly relevant to any of the defendants’ arguments, as

they contain similar statements to those contained in the

subscription agreements about the plaintiffs’ appreciation of the

risk of investment. The Court will not consider the confidential

purchaser questionnaires.

8

completed and signed subscription agreement3 and confidential

purchaser questionnaire4 to Sonex. Id. at ¶ 52.

Majer told some friends, relatives and colleagues that

he was considering investing in Sonex. Some of these people

expressed interest, and Majer referred them to the individual

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 8 of 35
9

defendants. The individual defendants provided them with the

business plan, held several meetings and discussions, and

emphasized the company’s pursuit of sound-dampening technologies,

Posey’s unique qualifications, and the imminence of the Canadian

financing. The individual defendants also advised them that

Global and Winderweedle had agreed to accept stock in lieu of

cash for all services. Id. at ¶¶ 53-54.

Some of these potential investors decided to invest. 

Allen Fortna, a Pennsylvania resident, purchased 1.4 units,

representing 280,000 shares of common stock and a warrant to

purchase 280,000 more. Around late April, he delivered a check

for $70,000.00 to Sonex, along with a completed and signed

subscription agreement and confidential purchaser questionnaire. 

William P. McKinney, George McClennen, Donald E. Wynne,

Alan S. Lurty, Jay Feinschil and Jeffrey J. Craighead, all

Pennsylvania residents, formed Hermitage, a Pennsylvania

partnership, to make their investment. Through it, they

purchased 0.9 units, or 180,000 shares of common stock and a

warrant to purchase 180,000 more. Around mid-July of 2004, they

delivered a check for $45,000.00 to Sonex, along with

subscription agreements and confidential purchaser questionnaires

for each partner. Id. at ¶¶ 6-9, 55-56.

Majer and Fortna’s subscription agreements are dated

April 21, 2004. Hermitage’s Subscription Agreement is dated July

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 9 of 35
10

2, 2004. In those agreements, the plaintiffs represented and

warranted that they were “capable of evaluating the merits and

risks of an investment in the Units,” that they had “read and

understood the Company Information [defined by the Subscription

Agreements to include the Company’s Annual Report on Form 10-KSB

for the year ended December 31, 2003],” that in connection with

their review, they had “consulted with such independent legal

counsel, accountants and other advisers considered appropriate to

assist [them] in evaluating [their] proposed investment in the

Company,” and that they had: 

taken full cognizance of and underst[ood]:

(A) the Company’s Annual Report on Form 10-KSB

for the year ended December 21, 2003;

. . . 

(C) the Company’s business plan entitled

“Business Content 2004";

(D) the form of the Warrant;

(E) this Subscription Agreement;

(F) that there are substantial risk factors to be

considered in connection with an investment in the Units,

including without limitation those set forth in the Company

Information;

(G) that the Units constitute a speculative

investment and involve a high degree of risk, including the

loss of the subscriber’s entire investment in the Company;

and

(H) that there are substantial restrictions on

the transferability of the shares of Common Stock and the

Warrants . . . accordingly, the undersigned may be required

to hold the shares of Common Stock and the Warrants

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 10 of 35
5 The Court will consider the 2003 Form 10-KSBs for two

reasons. First, these forms are essentially incorporated into

the subscription agreements, which the Court has already

explained it will consider. Second, when considering a motion to

dismiss in a securities action, a court may “take judicial notice

of properly-authenticated public disclosure documents filed with

the SEC.” Oran v. Stafford, 226 F.3d 275, 289 (3d Cir. 2000). 

The Court in Oran took judicial notice of such documents even

though they had not been included in the complaint. Id. 

11

comprising the Units indefinitely and it may not be possible

for an investor to liquidate an investment in the Company.

(Mot. Exs. 2-A, 2-B, and 2-C at p. 5, 10). 

The 2003 Form 10-KSBs that the plaintiffs warranted

that they had “taken full cognizance of and understood” in the

subscription agreements included the following disclosures:5

Since its inception in 1980, the Company has generated

cumulative net losses of approximately $23 million and

anticipates continuing to incur operating losses for the

foreseeable future. 

. . . .

Operating funds have been raised primarily through the sale

of equity securities.

. . . . 

The continued deferral of portions of current wages by the

Company’s officers cannot be expected to continue

indefinitely, and the Company will be required to pay

amounts outstanding as soon as cash flow permits.

. . . . 

[A]s of January 1, 2004, the Company’s chief financial

officer is no longer deferring any portion of his current

salary. 

. . . . 

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 11 of 35
6 This form was not attached to the complaint, but forms

the basis for many of the plaintiffs’ claims. The defendants

attached it to their motion as Exhibit 4, and the Court will

consider it. 

12

[Sonex has a] history of operating losses. 

. . . . 

[Sonex’s] prospects beyond [approximately June 30, 2004] are

dependent upon its ability to enter into significant funded

contracts . . . or secure a major capital infusion. 

. . . . 

The[] uncertainties [of]. . . the Company’s ability to

generate sufficient revenue and ultimately achieve

profitable operations . . . raise substantial doubt about

the Company’s ability to continue as a going concern.

. . . . 

The agreement with the new legal counsel also requires the

Company to remit a cash retainer of $50,000 by June 30,

2004. 

(Mot. Ex. 1 at p. 15, 16, 35-36, 41).

With $175,000 of private placement money, the

individual defendants over the next several weeks paid Sonex’s

operating expenses, including their own salaries. During the

weeks following the investments, the investors’ confidence waned. 

By late summer of 2004, the Canadian financing had not arrived. 

Majer pressed Williams and learned that the financing had always

been speculative, and that at that point the Canadian investor

group had lost all interest. (Compl. at ¶¶ 57, 59-60).

In late August of 2004, Sonex filed and published with

the SEC a form 10-QSB6 for the quarter ended June 30, 2004. This

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 12 of 35
13

form stated that Sonex had signed an engagement agreement in

which it agreed to pay Winderweedle in cash and agreed to pay a

cash retainer of $50,000 by June 30, 2004, that Winderweedle had

sent invoices to Sonex in May and July of 2004 totaling $102,000,

that Sonex had not paid these invoices, and that Winderweedle had

advised Sonex that Sonex was in default. Winderweedle sent out

these invoices after Majer and Fortna’s investment, but before

Hermitage’s investment. Id. at ¶¶ 61-62; (Mot. Exs. 2-A, 2-B and

2-C at p. 10). 

The 10-QSB also explained that Sonex disputed the fees

that Winderweedle claimed it owed, and had engaged separate

counsel on a pro bono basis in connection with the matter. It

stated: “[t]he Company believes that the amounts invoiced by

[Winderweedle] are far in excess of what is reasonable based on

the limited services requested by the Company and the limited

work product produced by [Winderweedle].” It described Sonex’s

demand for return of the common stock it had issued to the firm

and Sonex’s reservation of its rights, “including the right to

pursue affirmative claims” against the firm. It stated: “[w]hile

the outcome of this dispute is uncertain and may have an adverse

effect on the Company’s financial condition, management believes

that the Company has a defensible position. Accordingly, no

liability for any amounts related to this dispute has been

recorded in the accompanying financial statements as of June 30,

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 13 of 35
14

2004.” (Mot. Ex. 4 at p. 15). 

In October of 2004, Sonex announced that Posey was

resigning as President and Chief Executive Officer. About two

weeks later, in November of 2004, Sonex announced that Posey was

stepping down as a member of the Board of Directors. Although

the formal announcements did not give a reason for the

resignation, the plaintiffs learned that the sole reason for

Posey’s departure was a conflict with his former employer, BRD,

about his non-competition agreement. The agreement prohibited

Posey from competing with BRD in the area of sound-dampening and

noise management. While they were soliciting the plaintiffs and

touting Posey’s qualifications, the defendants knew that if BRD

pressed the non-competition issue, Posey would be forced to

resign, as ultimately occurred. (Compl. at ¶¶ 63-65).

If Sonex had been as the defendants represented, the

securities purchased by the plaintiffs would have been worth what

the plaintiffs paid for them. Instead, because Sonex was in

financial trouble, the securities became essentially worthless. 

Id. at 67.

Although the plaintiffs had signed their subscription

agreements and delivered their checks, the defendants never

delivered to the plaintiffs their stock certificates, despite

numerous requests by the plaintiffs. Id. at ¶ 105.

Through a letter from their attorney dated December 9,

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 14 of 35
7 Posey is pro se. He purported to move to dismiss the

complaint on behalf of both himself and Sonex. Sonex, however,

is represented by separate counsel. The Court will consider

Posey’s motion only as to himself.

15

2004, the plaintiffs notified the defendants of their claims and

demanded that Sonex return their investments. The plaintiffs

thereby tendered the equity they had purchased in exchange for a

refund of their money. Sonex, through Pouring and Ponticas,

denied the plaintiffs’ request. Id. at ¶ 68. 

II. The Complaint and the Motions to Dismiss

The complaint contains six counts: Count One, violation

of § 10(b) of the Securities Exchange Act of 1934 (“SEA”) and 17

C.F.R. § 240.10b-5(b), (collectively, “Rule 10b-5"); Count Two,

violation of the Pennsylvania Securities Act (“PSA”); Count

Three, fraudulent misrepresentation; Count Four, negligent

misrepresentation; Count Five, rescission; and Count Six, breach

of contract.

Sonex, Pouring, and Ponticas filed a motion to dismiss,

in which Pouring and Ponticas argue that the Court lacks personal

jurisdiction over them, and Sonex, Pouring and Ponticas argue

that the complaint fails to state a claim upon which relief may

be granted. Posey also filed a motion to dismiss the complaint

for failure to state a claim.7

The Court will deny the motion to dismiss for lack of

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 15 of 35
16

personal jurisdiction. The Court concludes that the defendants’

contacts with the United States and with Pennsylvania are

sufficient to justify the Court’s exercise of personal

jurisdiction over them.

The Court will grant the motions to dismiss for failure

to state a claim, allowing the plaintiffs leave to amend their

complaint within the contours of this decision. The Court

concludes that the allegations of misrepresentations and

omissions fail under the standards for claims of securities fraud

under Rule 10b-5, the PSA, and Pennsylvania common law. 

The plaintiffs made only brief and bare allegations

regarding their other claims of negligent misrepresentation,

breach of contract and rescission. The Court concludes that

these allegations, as well, fail to state a claim. 

III. Analysis

A. Personal Jurisdiction Over Pouring and Ponticas

The Court has personal jurisdiction over Pouring and

Ponticas. The SEA and the cases interpreting it authorize

nationwide service of process and confer to courts personal

jurisdiction over a defendant served anywhere in the United

States, provided that the defendant has minimum contacts with the

United States. 15 U.S.C. § 78aa; Pinker v. Roche Holdings Ltd.,

292 F.3d 361, 369 (3d Cir. 2002). In other words, “a federal

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 16 of 35
8 Although “there has been some debate as to whether this

second prong of the International Shoe analysis ought to apply in

the context of a federal statute authorizing nationwide service

of process,” the United States Court of Appeals for the Third

Circuit has “hinted that a fairness analysis consisting of more

than an assessment of the defendant’s national contacts would be

appropriate.” Pinker, 292 F.3d at 370 n.2. 

17

court’s personal jurisdiction may be assessed on the basis of the

defendant’s national contacts when the plaintiff’s claim rests on

a federal statute authorizing nationwide service of process.” 

Pinker, 292 F.3d at 369. In their reply brief, Pouring and

Ponticas concede that they have minimum contacts with the United

States. 

The only remaining issue regarding personal

jurisdiction is whether the exercise of personal jurisdiction “is

consistent with ‘traditional notions of fair play and substantial

justice.’” Id. (quoting Int’l Shoe Co. v. Washington, 326 U.S.

310, 316 (1945)).8 When, as here, federally-created rights are

at issue, the fairness analysis is under the Fifth, and not the

Fourteenth Amendment. Max Daetwyler Corp. v. A West German

Corp., 762 F.2d 290, 293 (3d Cir. 1985). “Those strictures of

fourteenth amendment due process analysis which attempt to

prevent encroachment by one state upon the sovereignty of another

do not apply with equal force to the adjudication of [a] federal

claim in a federal court.” Id. at 294. In addition, in this

situation, “an alien defendant’s preference for a particular

state as a more or less convenient forum generally [should not]

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 17 of 35
18

rise to the level of a constitutional objection.” Id.

Factors to be considered under a fairness test include:

(1) “the extent of the defendant’s contacts with the place where

the action was brought;” (2) “the inconvenience to the defendant

of having to defend in a jurisdiction other than that of his

residence or place of business;” (3) judicial economy, including

concerns of split and duplicative litigation; (4) the probable

location of discovery, and whether the likelihood of discovery

out of the defendant’s state of residence or business moots his

claim of inconvenience; and (5) the nature of the regulated

activity and the impact of the defendant’s activities outside of

his state of residence or business. Oxford First Corp. v. PNC

Liquidating Corp., 372 F. Supp. 191, 203-04 (E.D. Pa. 1974). 

“The corporate shield doctrine protects officers and

directors by limiting the extent to which their actions performed

in the corporate capacity may be used to exercise jurisdiction

over them individually.” Lautman v. Loewen Group, Inc., 2000

U.S. Dist. LEXIS 8241 at *15 (E.D. Pa. June 15, 2000). However,

“courts have refused to permit a corporate officer to invoke the

shield when the officer was involved in tortious conduct for

which he or she could be held personally liable.” Id. at *16. 

Factors to be considered under this analysis are (1) the

defendants’ role in the corporate structure; (2) the nature and

quality of the defendants’ forum contacts; and (3) the extent and

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 18 of 35
19

nature of the defendants’ participation in the allegedly wrongful

conduct. Id. at *17-*18.

Whether or not a fairness analysis is required in this

Circuit, the Court concludes that in this case, the exercise of

personal jurisdiction is consistent with traditional notions of

fair play and substantial justice. Pouring and Ponticas have

sufficient contacts with Pennsylvania, and the corporate shield

doctrine does not protect them. Pouring and Ponticas led the

effort to solicit the plaintiffs, who were Pennsylvania

residents. (Compl. at ¶¶ 48-50, 54). They directed their

allegedly fraudulent communications and solicitations into

Pennsylvania. Id. They were at the top of the corporate

structure, and were at the center of the allegedly wrongful

conduct. Id. at ¶¶ 11-15. Pouring and Ponticas’ contacts with

Pennsylvania are sufficient to satisfy the first prong of the

relaxed fairness test. 

As stated in Max Daetwyler Corp., 762 F.2d at 294, the

second prong, relating to the defendants’ inconvenience, is not

particularly important in this type of case. The defendants

argue that they are financially strapped; however, they already

have local counsel. The Court concludes that the prospect of

litigating in Pennsylvania, which is relatively close to

Maryland, would not inconvenience the defendants to such an

extent that personal jurisdiction is inappropriate. 

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 19 of 35
20

The principle of judicial economy supports keeping the

litigation whole in Pennsylvania, and avoiding split or

duplicative litigation. In addition, discovery would necessarily

take place in both Maryland and Pennsylvania. Finally, the

defendants’ activities, including soliciting Pennsylvania

residents for investment, reached beyond Maryland into

Pennsylvania. Thus, personal jurisdiction over Pouring and

Ponticas is appropriate.

B. Failure to State a Claim

Counts One through Four of the complaint are based upon

the alleged misrepresentations made by the defendants. Counts

Five and Six allege that the defendants violated the subscription

agreements by failing to deliver the stock certificates to the

plaintiffs, and that the plaintiffs are entitled to rescission of

the subscription agreements on that basis and because of the

defendants’ alleged fraud.

In their opposition to the motions to dismiss, the

plaintiffs narrow their claims of alleged misrepresentations to

the following: 

(1) the defendants’ touting of Posey as uniquely qualified

to implement the company’s business plan, when he was

subject to a restrictive covenant with his former

employer that would ultimately force him to resign; 

(2) Posey’s statement that this restrictive covenant was

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 20 of 35
9 The plaintiffs specifically attribute this statement to

Posey in ¶ 51 of the complaint. Then, in ¶ 75 and in their

opposition to the motions to dismiss, they attribute it to “[t]he

defendants.”

21

inapplicable, when in fact it was applicable9; 

(3) the individual defendants’ representations that the

Canadian investors’ loan of up to $43 million was

imminent and would close within months, when in fact it

was highly speculative and had no realistic chance of

being consummated; and 

(4) Sonex and the individual defendants’ statements that

Winderweedle had agreed to accept payment in the form

of stock rather than cash, when in fact the fee

agreement required cash payment, the company had agreed

to pay a cash retainer of $50,000, and the law firm had

invoiced the company for $102,000 for services

rendered. 

(Resp. at p. 1, 33). The Court will consider only these alleged

misrepresentations in deciding whether the complaint states a

claim.

1. Rule 10b-5 Claims

a. Elements and Legal Standards

A valid claim under Rule 10b-5 requires allegations

that a defendant (1) made a misstatement or an omission of a

material fact, (2) with scienter, (3) in connection with the

purchase or the sale of a security, (4) upon which the plaintiff

reasonably relied, and (5) that the plaintiff’s reliance was the

proximate cause of his or her injury. In re Ikon Office

Solutions, Inc., Secs. Litig., 277 F.3d 658, 666 (3d Cir.

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 21 of 35
10 In addition, individuals may be jointly and severally

liable for a company’s actions under § 20(a) of the SEA if they

influenced and directed its activities. “Plaintiffs alleging a

Section 20(a) violation must plead facts showing (1) an

underlying violation by the company; and (2) circumstances

establishing the defendant’s control over the company’s actions.” 

Winer Family Trust v. Queen, 2004 U.S. Dist. LEXIS 19244 at *74

(E.D. Pa. Sept. 27, 2004).

22

2002).10

(1) Specificity

 Rule 10b-5 claims are governed by the Private

Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4

(“Reform Act”). The Reform Act heightened the pleading

requirements in private securities actions. In re Rockefeller

Ctr. Props., Inc Secs. Litig., 311 F.3d 198, 217 (3d Cir. 2002). 

It requires securities plaintiffs to specify with particularity

at the outset of litigation all facts upon which they base their

allegations or upon which they form their belief, if an

allegation is made on information and belief. 15 U.S.C. § 78u4(b)(1)(B). They must “specify each statement alleged to have

been misleading [and] the reason or reasons why the statement is

misleading.” In re NAHC, Inc. Secs Litig., 306 F.3d 1314, 1328

(3d Cir. 2002)(quoting In re Advanta Corp. Secs. Litig., 180 F.3d

525, 530 (3d Cir. 1999)).

Group pleading, as opposed to the specific

identification of who made alleged misrepresentations, is

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 22 of 35
23

insufficient under the Reform Act. Winer Family Trust v. Queen,

2004 U.S. Dist. LEXIS 19244 at *17 (E.D. Pa. Sept. 27, 2004);

Marra v. Tel-Save Holdings, Inc., 1999 U.S. Dist. LEXIS 7303 at

*13 (E.D. Pa. May 18, 1999). In Winer Family Trust and Marra,

the Court found that the plaintiffs had relied on group pleading

when their allegations against individual defendants were based

solely upon their involvement in creating company publications. 

Winer Family Trust, 2004 U.S. Dist. LEXIS 19244 at *16-*17;

Marra, 1999 U.S. Dist. LEXIS 7303 at *11-*13.

In Rockefeller, 311 F.3d at 217, the court stated that

the Reform Act “requires plaintiffs to set forth the details of

allegedly fraudulent statements or omissions, including who was

involved, where the events took place, when the events took

place, and why any statements were misleading.” In that case,

one statement was alleged to have been made by “an employee of

Goldman Sachs.” Id. at 218. The court held that this

designation did not specifically identify the speaker, and

rendered the allegation of the misstatement at issue

insufficient. Id.

(2) Materiality

To survive a motion to dismiss, the misstatements or

omissions alleged by a plaintiff must be material to the

reasonable investor. In other words, there must be a

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 23 of 35
24

“substantial likelihood that, under all the circumstances, the

[statement or omission] would have assumed actual significance in

the deliberations of the reasonable shareholder.” In re Aetna

Inc. Secs. Litig., 34 F. Supp. 2d 935, 945 (E.D. Pa.

1999)(quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438,

449 (1976)). “[T]he issue is whether there is a substantial

likelihood that the disclosure would have been viewed by the

reasonable investor as having significantly altered the total mix

of information available to that investor.” Shapiro v. UJB Fin.

Corp., 964 F.2d 272, 280 n.11 (3d Cir. 1992)(citations omitted).

“[V]ague and general statements of optimism constitute

no more than puffery and are understood by reasonable investors

as such. . . . Such statements, even if arguably misleading, do

not give rise to a federal securities claim because they are not

material.” Advanta, 180 F.3d at 538. The United States Court of

Appeals for the Third Circuit has stated that “[i]n determining

the effect of an omission, we examine whether the information

omitted is speculative or unreliable, or if it is contingent.” 

In re Rockefeller Ctr. Props., Inc. Secs. Litig., 184 F.3d 280,

290 (3d Cir. 1999). 

(3) Scienter

The Reform Act also heightened the standard for

pleading scienter. 15 U.S.C. § 78u-4(b)(2). The Reform Act

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 24 of 35
25

requires “plaintiffs, with respect to each act or omission, to

state with particularity facts giving rise to a strong inference

that the defendant acted with the required state of mind.” GSC

Partners CDO Fund v. Washington, 368 F.3d 228, 237 (3d Cir.

2004)(internal quotations omitted). “The plaintiffs may

establish a strong inference that the defendants acted with

scienter either (a) by alleging facts to show that defendants had

both motive and opportunity to commit fraud, or (b) by alleging

facts that constitute strong circumstantial evidence of conscious

misbehavior or recklessness.” Id. 

“Blanket assertions of motive and opportunity will not

suffice, and catch-all allegations that defendants stood to

benefit from wrongdoing and had the opportunity to implement a

fraudulent scheme are no longer sufficient, because they do not

state facts with particularity or give rise to a strong inference

of scienter.” Id.

“[M]otives that are generally possessed by most

corporate directors and officers do not suffice” to give rise to

a strong inference of scienter. Id. (internal quotations

omitted). “In every corporate transaction, the corporation and

its officers have a desire to complete the transaction, and

officers will usually reap financial benefits from a successful

transaction. Such allegations alone cannot give rise to a strong

inference of fraudulent intent.” Id. Examples of such

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 25 of 35
26

insufficient allegations are allegations of “a corporate

defendant’s desire to retain his position with its attendant

salary, or realize gains on company stock.” Id. at 238. 

“A reckless statement is a material misrepresentation

or omission involving not merely simple, or even inexcusable

negligence, but an extreme departure from the standards of

ordinary care, and which presents a danger of misleading buyers

or sellers that is either known to the defendant or is so obvious

that the actor must have been aware of it.” Id. at 239 (internal

quotations omitted). In addition, “in a non-disclosure

situation, any required element of scienter is satisfied where .

. . the defendant had actual knowledge of the material

information.” Id. 

Allegations that defendants “knew” or “must have known”

that their statements were false, without allegations of the

“who, what, when, where and how” of the events at issue, are

insufficient to plead scienter. Id.

b. The Alleged Misrepresentations Fail to State

a Claim 

Applying these standards, the defendants argue that the

plaintiffs’ allegations fail to establish a valid Rule 10b-5

claim. The Court agrees with many of the defendants’

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 26 of 35
11 Because the Court concludes that the failure of the

complaint to state a claim based upon the factors above provides

several independent bases for its dismissal, the Court will not

address the issue of loss causation or proximate cause.

27

arguments.11

As an initial matter, only one of the alleged

misrepresentations is specifically attributed to a defendant. 

Although at other points they attributed this statement to “the

defendants” generally, the plaintiffs did allege that Posey said

that he had a restrictive covenant, but that it was not

implicated by his employment with Sonex, and that, in any event,

it had been reviewed by counsel and found to be inapplicable. 

(Compl. at ¶ 51). Other than that, all of the alleged

misrepresentations are attributed to “Sonex,” “the defendants,”

or “the Individual Defendants.” (Compl. at ¶¶ 49-50, 54). The

plaintiffs do not specifically identify who made them, or where

or when they were made. Under the Reform Act, these statements

cannot form a basis for liability of the individual defendants.

Another global problem with the complaint is that the

plaintiffs fail to adequately allege scienter for any of the

alleged misrepresentations. The plaintiffs’ only allegations of

motive are allegations that Pouring, Ponticas and Posey had

deferred portions of their salaries and income, and were

motivated by their desires to recoup that deferred income and

ensure their personal well-being going forward. (Compl. at ¶¶

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 27 of 35
12 Because the plaintiffs failed to adequately plead an

underlying Rule 10b-5 claim against any of the moving defendants,

including Sonex, their claim that the individual defendants are

liable as control persons of Sonex under § 20(a) also fails.

28

34, 35, 38). As the United States Court of Appeals for the Third

Circuit has expressly held, allegations of officers’ desires to

reap the financial benefits of a successful transaction are not

sufficient to survive a motion to dismiss on the motive element

of scienter. Thus, the plaintiffs cannot satisfy the first

scienter option.

The plaintiffs also cannot make out the second scienter

option, which requires a showing of circumstantial evidence of

conscious misbehavior or recklessness. The plaintiffs simply

allege that the defendants “knew” of the applicability of Posey’s

restrictive covenant, the speculative or tenuous nature of the

Canadian financing, and the Winderweedle payment arrangement. 

(Compl. ¶¶ 60, 62, 65). This is precisely what the GSC Partners

CDO Fund court held was insufficient as an allegation of

scienter.

These global failures alone would justify the Court’s

dismissal of the Rule 10b-5 claim. The Court will also address

additional failings specific to some of the misrepresentations.12

(1) Alleged Misrepresentation Relating to

Posey’s Qualifications 

The plaintiffs’ allege that the defendants violated

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 28 of 35
13 In several places in the complaint, the plaintiffs allege

that the defendants emphasized Posey’s expertise in the key area

of noise and vibration control or active noise concealment, and

then cite to statements that make no mention of noise and

vibration control or active noise concealment. (Compl. at ¶¶ 31,

45). Even if the statements were as the plaintiffs characterize

them, they would likely constitute puffery. Regardless, the

plaintiffs do not deny that Posey had expertise in these areas,

and in fact allege that “Posey came to Sonex shortly after the

termination of his employment as a sales representative with BRD

Noise and Vibration Control.” Id. at ¶ 29. Statements about

29

Rule 10b-5 by touting Posey’s qualifications when he was in fact

prohibited from working for Sonex by a restrictive covenant. 

This allegation fails to state a claim for the fundamental reason

that it is not clear why it was a misstatement at all. A person

can be qualified for a position that he is prohibited from

filling because of a restrictive covenant. It would perhaps be

more persuasive if the plaintiffs could argue that the defendants

made a material omission by failing to disclose the existence of

the restrictive covenant. They cannot, however, because they

admit that “Posey said that he had a restrictive covenant.” 

(Compl. at ¶ 51). 

The statements about Posey’s qualifications also fail

because they constitute puffery. Statements about Posey’s

“wealth of management and industry turnaround experience,” and

his “career rich in the successful management of both large

established corporate organizations and firms focused on the

research and development of innovative technologies” are classic

puffing statements. (Compl. at ¶¶ 31, 46).13

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 29 of 35
such experience, then, would not be material misstatements.

14 The plaintiffs’ argument that this disclosure is somehow

insufficient because it was “one sentence, buried in a 70-page,

single-spaced document,” is unpersuasive. (Resp. at p. 37). If

the plaintiffs were not capable of making an informed investment,

then they should not have warranted in their subscription

agreements that they were “capable of evaluating the merits and

risks of an investment in the Units,” that they had “read and

understood the Company Information,” that in connection with

their review, they had “consulted with such independent legal

counsel, accountants and other advisers considered appropriate to

assist [them] in evaluating [their] proposed investment in the

Company,” and that they had “taken full cognizance of and

underst[ood] . . . the Company’s Annual Report on Form 10-KSB for

the year ended December 21, 2003.” (Mot. Exs. 2-A, 2-B, and 2-C

at p. 5).

30

(2) Alleged Misrepresentations Relating to

the Payment of Winderweedle 

The plaintiffs allege that the defendants told them

that Winderweedle had agreed to accept stock in lieu of cash for

all services. The materiality of any such statement is negated

by the disclosure in Sonex’s 2003 Form 10-KSB, which the

plaintiffs warranted that they read and understood in their

subscription agreements, that the “agreement with the new legal

counsel . . . requires the Company to remit a cash retainer of

$50,000 by June 30, 2004.” (Mot. Ex. 1 at p. 41).14

The plaintiffs also allege that the defendants failed

to inform them that Winderweedle had sent invoices to Sonex in

May and July of 2004 totaling $102,000, that Sonex had not paid

these invoices, and that Winderweedle had advised Sonex that

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 30 of 35
31

Sonex was in default. (Compl. at ¶ 62). These alleged omissions

could not have been material to Majer and Fortna, because Majer

and Fortna signed their subscriptions in April of 2004, before

Winderweedle sent out these invoices. (Mot. Exs. 2-A and 2-B at

p. 10). 

Hermitage signed its Subscription Agreement in July of

2004, which may have been after Winderweedle sent out some of the

invoices. (Mot. Exs. 2-C at p. 10). As Sonex’s 2004 Form 10-QSB

disclosed, however, Sonex disputed Winderweedle’s bill, and did

not record liability for any amounts related to this dispute

because it believed that its position was “defensible.” (Mot.

Ex. 4 at p. 15). Sonex’s obligation to pay Winderweedle’s bill,

then, was not material because it was contingent upon Sonex’s

failure or success in disputing that bill. 

In addition, Sonex’s 2003 Form 10-KSB discloses that

Sonex was in a financially unstable position, that it was

operating at a loss, that it would continue to do so for the

foreseeable future, and that the plaintiffs might lose their

entire investments. (Mot. Ex. 1 at p. 15). Given Sonex’s much

larger problems, the fact that Winderweedle claimed that Sonex

owed it $102,000, when Sonex disputed that amount, would not

alter the total mix of available information.

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 31 of 35
15 Although the state law fraud claims are not subject to

the heightened pleading requirements of the Reform Act, they must

be “stated with particularity” under the heightened pleading

standard of Fed. R. Civ. P. 9(b). 

32

2. Other Fraud Claims

The Court will also grant the motions to dismiss the

plaintiffs’ claims of violation of the PSA and fraudulent

misrepresentation. The PSA, like Rule 10b-5, prohibits false

statements and omissions of material fact in connection with the

sale of securities in Pennsylvania. 70 Pa. C. S. §§ 1-401(a),

501(a).15 

The elements of a claim of fraudulent misrepresentation

or omission under Pennsylvania law are: “(1) a representation [or

omission]; (2) which is material to the transaction at hand; (3)

made [or concealed] falsely, with knowledge of its falsity or

recklessness as to whether it is true or false; (4) with the

intent of misleading another into relying on it; (5) justifiable

reliance on the misrepresentation; and (6) the resulting injury

was proximately caused by the reliance.” Gibbs v. Ernst, 647

A.2d 882, 889 (Pa. 1994). 

The elements of common law fraud are “almost identical”

to the elements of Rule 10b-5 claims and claims under the PSA. 

Sunquest Info. Sys., Inc. v. Dean Witter Reynolds, Inc., 40 F.

Supp. 2d 644, 659 (W.D. Pa. 1999). For the same reasons that

their Rule 10b-5 claim fails, the plaintiffs’ PSA and fraudulent

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 32 of 35
16 For example, a theory of fraud permeates the complaint,

and the plaintiffs do not explain why the defendants should have

known the falsity of their alleged misrepresentations. Instead,

the negligent misrepresentation count simply incorporates the

rest of the complaint by reference and states that “[i]f and to

the extent the misrepresentations or omissions set forth in the

[fraudulent misrepresentation] count were not made knowingly or

recklessly, they were made negligently, giving rise to liability

for negligent misrepresentation.” (Compl. at ¶ 103). In

addition, the complaint does not explain how the alleged failure

to deliver the stock certificates violates the subscription

agreements or justifies rescission.

33

misrepresentation claims also fail.

The Court will grant the motions to dismiss the fraud

claims. The plaintiffs may amend their complaint if they feel

that it would be efficacious to do so in light of the Court’s

decision.

3. Negligent Misrepresentation, Breach of Contract

and Rescission 

The Court will dismiss the plaintiffs’ claims of

negligent misrepresentation, breach of contract and rescission. 

The vast majority of the complaint deals with the plaintiffs’

fraud claims, and the bases for their other claims are not

entirely clear to the Court.16 If the plaintiffs wish to proceed

with their claims of negligent misrepresentation, breach of

contract and rescission, they should amend their complaint to

explain the bases for these claims.

An appropriate Order follows.

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 33 of 35
17 As explained in the Memorandum, the Court considered

Posey’s motion only as to himself, and not as to Sonex, because

Sonex is represented by separate counsel.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

BRUCE W. MAJER, et al. : CIVIL ACTION

:

v. :

:

SONEX RESEARCH, INC., et al. : NO. 05-606

ORDER

AND NOW, this 19th day of July, 2006, upon

consideration of the Motion to Dismiss Complaint for Lack of

Personal Jurisdiction as to Defendants Pouring and Ponticas and

to Dismiss for Failure to State a Claim Upon Which Relief Can Be

Granted as to Defendants Sonex, Pouring and Ponticas (Docket No.

5), the Answer to Complaint and Memorandum in Support of Motion

to Dismiss for Failure to State a Claim Upon Which Relief Can Be

Granted as to Defendants Sonex, and Roger D. Posey17 (Docket No.

18), the Supplemental Memorandum of Law in Further Support of

Motion to Dismiss Plaintiffs’ Complaint as to Defendants Sonex

Research, Inc., George E. Ponticas and Dr. Andrew A. Pouring, the

response to all of the above documents, and the reply thereto, IT

IS HEREBY ORDERED that:

1. Pouring and Ponticas’ motion to dismiss for lack

of personal jurisdiction is DENIED. 

2. Sonex, Pouring, and Ponticas’ motion to dismiss

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 34 of 35
2

for failure to state a claim is GRANTED. If they wish, the

plaintiffs may amend their complaint within 30 days of the date

of this Order.

3. Posey’s motion to dismiss for failure to state a

claim is GRANTED. If they wish, the plaintiffs may amend their

complaint within 30 days of the date of this Order.

BY THE COURT:

/s/ Mary A. McLaughlin

MARY A. McLAUGHLIN, J.

Case 2:05-cv-00606-MAM Document 38 Filed 07/19/06 Page 35 of 35