cases under title 11.” According to the trustee, the “related to” jurisdiction under § 1334(b)
includes contract and tort claims asserted by and against the debtor. See Bear Stearns Sec.
Corp. v. Cho, No. 02 C 4419, 2002 U.S. Dist. LEXIS 18253, at *6 (N.D. Ill. Sept. 17, 2002)
(Cho).

As the Trustee concedes, though, claims asserted in a district court pursuant to § 1334(b)
are automatically referred to the bankruptcy court for this district. 28 U.S.C. § 157(a); Intemal
Operating Procedure 15(a) for the Northern District of Hlinois; Cho, 2002 U.S. Dist. LEXIS
18253, at *6.

The Trustee next argues that his claims are subject to a jury trial, and the bankruptcy
court is not authorized to conduct a jury trial without the consent of the parties.

28 U.S.C. § 157(e). Therefore, according to the Trustee, he could file his claims in the
bankruptcy court and then seek to have the bankruptcy reference withdrawn for cause, pursuant
to 28 U.S.C. § 157(d), based upon his right to a jury trial. See Steege v. N. Trust, No. 96 C 742,
1996 U.S. Dist. LEXIS 8311, at *3 (N.D. Il. June 12, 1996) (Steege).

However, the Trustee may not automatically and immediately withdraw the reference to
the bankruptcy court simply because he contends these claims would eventually end up in district
court. First, it is not enough for a party to contend it has a right to a jury trial for a bankruptcy
reference to be withdrawn; rather, the claims asserted must also be considered non-core
proceedings. Steege, 1996 U.S. Dist. LEXIS 8311, at * 3. Secondly, the parties must also refuse
to have their claims adjudicated before a jury in the bankruptcy court. Steege, 1996 U.S. Dist.
LEXIS 8311, at *3. Finally, even if the reference to the bankruptcy court could be withdrawn,

the district court may permit the bankruptcy court to proceed with discovery and pre-trial

13


from Embraer, NewWorldAir was already facing mounting debts and was unable to meet its
obligations as they came due.

NewWorldAir was unable to meet its obligations to companies and individuals, such as
Bizjet, Inc.; Kardan, Inc.; Daniel Lee; Boston Consulting Group; and Ameritech. Lunn, who
assumed effective ownership and management of NewWorldAir, began directing the assets of
NewWorldAir to entities he owned and controlled, such as Lunn Falcon LLC.

In the summer of 2002, Lunn met with Piser to discuss a potential sale of a portion of
Lunn’s NewWorldAir stock to Piser. During the meeting, Lunn represented to Piser that: (1) the
business of NewWorldAir was sound and the balance sheet was clean because all outstanding
liabilities of the company had been paid with the initial funds received from Embraer; (2) the
company intended to seek additional capital through an offering of Series D Preferred stock (the
“Series D Raise”); (3) the company needed an additional $10 million; (4) two investors, Robert
Shaw and Julian Saul, had committed to invest $5 million in NewWorldAir; (5) if the Series D
Raise failed to raise the remaining $5 million, Lunn would provide the balance from his personal
fund; (6) if Piser purchased the stock, his interest could not be diluted except by the Series D
Raise; and (7) no investor would receive any money out of NewWorldAir unless all investors
received an amount pari passu with the amount each invested.

Based on these representations, Piser then offered to purchase common stock from Lunn
for $250,000 on four conditions. First, Piser must obtain no less than 2.5% of the outstanding,
stock of NewWorldAir. Second, Piser’s ownership would not be diluted, except by the Series D

Raise. Third, no investor would receive any money out of NewWorldAir unless all investors


Furthermore, Piser did not allege any facts explaining that NewWorldAir failed to use the
Embraer money to pay the existing liabilities. Finally, although Piser alleges Lunn directed
NewWorldAir to pay some of Lunn’s companies, these allegations contain no facts explaining
how these payments negatively affected the balance sheet and financial condition of
NewWorldAir in July and August 2002.

Accordingly, Piser’s allegations regarding Lunn’s alleged statements about the balance
sheet and financial condition of NewWorldAir are not actionable and fail to state a claim under
Rule 10b-5.

Piser next relies on two statements, in connection with the Series D Raise, that allegedly
are in violation of Rule 10b-5. First, Piser argues that Lunn, who stated that NewWorldAir
needed an additional $10 million to complete purchases, misrepresented that he received, on
behalf of NewWorldAir, a commitment for $5 million from Shaw and Saul. Secondly, Piser
claims Lunn misrepresented that he would provide the balance to NewWorldAir from his
personal funds in the event the Series D Raise failed to obtain the needed $10 million.

As to the first statement, Defendants argue that the Shaw and Saul investment eventually
went to NewWorldAir; thus, the statement was not a misrepresentation. While it is true that this
commitment was eventually paid to NewWorldAir, fraud cannot be disproved by hindsight. See
In re: Hartmarx Sec. Litig, No. 01 C 7832, 2002 WL 653892, at *3 (N.D. Ill. Apr. 19, 2002)
(Hartmarx). However, Piser must show that facts existed demonstrating that Lunn’s statement
was false when made. See Hartmarx, 2002 WL 653892, at *3.

Piser, in his attempt to prove Lunn’s statement was false, alleges that, on information and

belief, Shaw and Saul had entered into a written agreement with Lunn and Lunn Partners at the



On or about November 27, 2002, Woodland paid the $500,000 to Lunn Partners for use by
NewWorldAir; but Lunn Partners only transferred $180,000 to NewWorldAir. Lunn failed to
disclose the terms of this loan by Woodland to the NewWorldAir Board of Directors.

On December 3, 2002, Shaw and Saul wired $3.1 million to Pedersen & Houpt, who
promptly paid $500,000 to American Express Travel Services to settle an existing debt of
NewWorldAir and wired the remaining $2.6 million to NewWorldAir; $710,000 of this $2.6
million was paid to Lunn Partners, and $100,000 was applied to the purchase of 1,298,702 shares
of NewWorldAir Series D-1 Preferred stock issued to Shaw and Saul. This action diluted the
interest in the company held by Piser, who held approximately 1.8% of the NewWorldAir stock.

In January 2003, NewWorldAir prepared and issued two documents, each entitled
“Private Placement Memorandum,” designed to entice investors to make investments in
NewWorldAir. Lunn Partners and Lunn utilized the Private Placement Memorandum to solicit
investment in Indigo LLC, which was formed as part of the efforts to raise working capital for
NewWorldAir.

In February 2003, Shaw and Saul provided the remaining $1.9 million of the $2 million
commitment in the Series D Raise. At that time, Lunn represented to the Board of Directors that
those funds had been received by NewWorldAir. However, Lunn and Lunn Partners refused to
transmit $447,000 of the funds to NewWorldAir. On or about February 25, 2003, Lunn directed
that NewWorldAir make a loan of $460,000 to Indigo LLC but never disclosed this loan to the
NewWorldAir Board of Directors. On April 28, 2003, Peter Pappas, Chairman of the Board of

Directors, made a presentation about NewWorldAir’s need for cash and asked for the release of


received money out of NewWorldAir pari passu with their investments. Finally, Piser must
obtain a seat on the NewWorldAir Board of Directors.

In the fall of 2002, Lunn introduced Shaw and Saul to NewWorldAir and represented that
they had agreed to make a $5 million investment in NewWorldAir. Lunn failed to disclose that
Lunn Partners entered into a written, secret, side agreement with Shaw and Saul whereby $2
million of the $5 million would be used to purchase stock in the Series D Raise and that the
remaining $3 million would be placed in escrow with NewWorldAir’s attorneys, Pedersen &
Houpt. The $3 million placed in escrow would be used to purchase the rights of NewWorldAir
under the Ameritech Sublease on behalf of Shaw and Saul’s company, MDW Investors LLC
(“MDW”). NewWorldAir then agreed to an Assignment and Assumption Agreement, by which
MDW agreed to pay $3.1 million to NewWorldAir for an assignment of NewWorldAir’s rights
under the Ameritech Sublease and to purchase stock in NewWorldAir. Under the new agreement
with MDW, NewWorldAir agreed to seek approval to transfer the leasehold interest to MDW. In
the event the City of Chicago approved the transfer of the Ameritech Sublease to MDW and
NewWorldAir could pay the balance due Ameritech, MDW would own NewWorldAir’s rights
under the sublease to the Midway Airport hangar facility. In the event the transfer was not
approved, Lunn Partners agreed to return the $3 million to Shaw and Saul.

On October 31, 2002, NewWorldAir engaged Lunn Partners as its exclusive financial
advisor for the purpose of effectuating the capital raise and private placement. In
November 2002, Woodland Financial Group, LLC (“Woodland”) agreed to loan $500,000 to
NewWorldAir. As of November 15, 2002, the operating account of NewWorldAir showed a

negative balance; and NewWorldAir had outstanding unpaid obligations in excess of $5 million.


particularity ali facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). Plaintiff also
must “state with particularity facts giving rise to the strong inference that the defendant acted
with the required state of mind.” 15 U.S.C. § 78u-4(b)(2).

Defendants assert that Lunn’s alleged misrepresentations regarding NewWorldAir’s
balance sheet as clean and its financial condition as sound constitute “puffing” — general,
optimistic statements that are not capable of being objectively verified ~ and are, thus, not
actionable. See Eisenstadt v. Centel Corp., 113 F.3d 738, 746 (7th Cir. 1997) (Eisenstadt).

If puffing statements reinforce factual misstatements and contribute to deceiving an
investor, those statements may be actionable. In re Sears, Roebuck, & Co. Sec. Litig., 291 F.
Supp. 2d 722, 726 (N.D. Ill. 2003). However, statements claiming a business is sound or that an
investor would profit, with nothing more, constitute puffing and are not actionable. Waxman v.
Envipco Pick Up & Processing Servs., Inc., No, 02 Civ. 10132, 2003 WL 22439796, at *9
(S.D.N.Y. Oct. 28, 2003).

Here, Piser alleged that numerous unpaid and undisclosed liabilities existed to companies
such as Bizjet, Inc.; Kardan, Inc.; Daniel Lee; Boston Consulting Group; and Ameritech. Piser
further alleged that NewWorldAir received a $5 million payment from Embraer in July 2002.
Lastly, Piser contends that Lunn directed NewWorldAir to fund a “settlement” with some of
Lunn’s companies, thus compromising the financial condition of NewWorldAir.

However, Piser has failed to adequately plead these allegations were false when they were
made. See, e.g., Johnson y. Tellabs, Inc., 262 F. Supp. 2d 937, 951 (N.D. Ill. 2003). Instead,
Piser’s allegations only list liabilities which existed at the time NewWorldAir received the $5

million payment from Embraer but not at the time Lunn allegedly made these statements.


‘Minute Order Form (06/97)

United States District Court, Northern District of Dlinois

Name of Assigned Judj Sitting Judge if Oth
anor Magistrate Tudge John W. Darrah than Ausigeed ‘Sadge
CASE NUMBER 03 C 5816 DATE 3/17/2004
CASE Piser vs. Lunn Partners, LLC.
TITLE
Un the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: ‘of the motion being presented.)
DOCKET ENTRY:
qd) i] Filed motion of [ use listing in “Motion” box above.]
(2) oO Brief in support of motion due
(3) Qa Answer brief to motion due . Reply to answer brief due. :
(4) im Ruling/Hearing on set for at
(5) o Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Q Pretrial conference[held/continued to] (set for/re-set for] on set for at .
(©) a Trial(set for/re-set for] on at
(8) Qo [Bench/Jury trial] [Hearing] held/continued to at
(9) Qa This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}
OFRCP4(m) CLocal Rule 41.1 OOFRCP41(a)(1) FRCP41(a)(2).
ao @ [Other docket entry] Status hearing held. For the reasons stated in the attached memorandum
opinion and order, defendant’s motion to dismiss is granted. Plaintiffs may file a second amended
complaint alleging federal jurisdiction within seven days of the date of this order, if they can do so
consistent with Rule 11. Enter Memorandum Opinion and Order.
a) {For further detail see order attached to the original minute order.)

No notices required, advised in open court.

No notices required. _numbes of notices

Document.”
Number.

Notices mailed by judge's staff. MAR 1 2008

Notified counsel by telephone. docacted

Docketing to mail notices.

Mail AO 450 form. “sn
LoWLsia
Copy to judge/magistrate judge. ABno yy 13

courtroom afug LA YH nti?
MF cours 62 2 hid Lis
initials

~: <Daté/time received in
5 *ceittral Clerk's Office



have the money.

However, Piser has failed to allege any facts regarding the value of Lunn’s personal assets
in the summer of 2002, when the statements were made. Moreover, Piser failed to properly plead
that a shortfall existed in the Series D Raise such that Lunn would need to pay the balance of the
$10 million. Finally, Piser’s own self-serving letter fails to support the inference that Lunn did
not possess the funds to pay off the outstanding balance of the Series D Raise. See N. Indiana
Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 456 (7th Cir. 1998) (“Letters
written by [a party may contain self-serving statements ....”). Therefore, Piser’s allegations for
this alleged misrepresentation are not properly pled and are dismissed.

Lunn also argues that Piser’s allegations concerning the representations to grant Piser a
board seat, to not dilute Piser’s 2.5% share in NewWorldAir except through the Series D Raise,
and that the investors would receive distributions in amounts pari passu with their investments
were not included as part of the contract to purchase NewWorldAir stock. Lunn points out these
terms are not included in the contract, attached as an exhibit to the Amended Complaint.

However, a contract without an “anti-reliance” clause does not affect a plaintiff's ability
to assert claims for an “antecedent oral fraud.” Astor Chauffeured Limousine Co. v. Runnfeldt
Inv. Co., 910 F.2d 1540, 1545-46 (7th Cir. 1990). Piser asserts, and Lunn does not dispute, that
the contract at issue here does not contain an “anti-reliance clause.”

Lunn next challenges the sufficiency of these allegations by asserting that Piser failed to
adequately plead the statements were false when made. As to the representation that Piser’s
2.5 % share of NewWorldAir stock would not be diluted except through the Series D Raise, Piser

asserts that the written agreement with Shaw and Saul would have diluted his interest in the

11



time Lunn conveyed his statements to Piser that was unbeknownst to NewWorldAir. This
written agreement allegedly required Shaw and Saul to place approximately $3 million into an
escrow fund for the purchase.of the leasehold interest on the hangar facility and not to use those
funds for the operations of NewWorldAir.

As noted above, 15 U.S.C. § 78u-4(b)(1) requires “if an allegation regarding the
statement or omission is made on information and belief, the complaint shall state with
particularity all facts on which that belief is formed.” To satisfy this requirement, Piser must
provide documentary evidence or a sufficient general description of the confidential, personal
sources his information and belief is based upon. Johnson v. Tellabs, Inc., 262 F. Supp. 2d 937,
946 (N.D. Ill. 2003) (citing Novak v. Kasaks, 216 F.3d 300, 314 (2d Cir. 2000) (Novak)).

In this case, Piser has not presented any documents or general personal description of any
confidential or personal sources upon which he bases his information and belief. Moreover,
Piser even states in his Complaint that Shaw and Saul transmitted $3.1 million to
NewWorldAir’s trust account on December 3, 2002, and that in February 2002, Shaw and Saul
paid the balance of their $5 million commitment. Thus, under the PSLRA, Piser’s allegations for
this alleged misrepresentation are not properly pled.

As to the second statement, Piser has also failed to allege any facts, as he is required to
under the PSLRA, demonstrating that Lunn would not be able to pay the balance of the $10
million not obtained in the Series D Raise. Piser admits that he does not have access to the
personal affairs of Lunn. Rather, Piser pled that he sent a letter, attached to the Amended
Complaint, to Lunn in June 2003, attempting to discern why the balance of the $10 million was

not paid; according to Piser, Lunn’s failure to respond is a strong inference that Lunn did not

10



the $447,000. Lunn and Lunn Partners claimed they cannot release the $447,000 without
authority from Shaw and Saul.
AN SI

Lunn seeks to dismiss Count I, Piser’s federal claim, a violation of the Securities Act of
1934, for a failure to state a claim. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. Lunn also seeks
to dismiss Piser’s three state law claims in Counts I-IV, a claim under Section 12 of the Illinois
Securities Law of 1953, 815 ILCS 5/12; a common law fraud claim; and a claim for negligent
misrepresentation. Lunn and the other Defendants also seek to dismiss the Trustee’s state law
claims for lack of subject matter jurisdiction.

Federal Claims

To state a violation of Rule 10b-5, Piser must plead each of the following elements: (1) a
misstatement or omission of material fact; (2) scienter; (3) a purchase or sale of securities;

(4) justifiable reliance; and (5) damages proximately caused by the misstatement or omission. Jn
re Healthcare Compare Corp. Sec. Litig., 75 F.3d 276, 280 (7th Cir. 1996). Defendants advance
two reasons for why Piser’s Rule 10b-5 claim, embodied in Count L, should be dismissed. First,
Defendants contend that Piser failed to adequately plead any material misstatements or
omissions. Secondly, Defendants claim that Piser failed to plead Lunn acted with scienter.

The Private Securities Litigation Reform Act (“PSLRA”) imposes specific pleading
requirements on plaintiffs who allege violations of Rule 10b-5. When alleging a statement was
an untrue statement of material fact, a plaintiff must “specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding

the statement or omission is made on information and belief, the complaint shall state with


BACKGROUND

The facts, for the purposes of this motion, are taken as true from Plaintiffs’ Amended
Complaint. Piser, a resident of Ilinois, is a shareholder of NewWorldAir and a member of its
Board of Directors. NewWorldAir is a Delaware corporation that owned and operated Indigo, a
commercial-scheduled charter airline service operating out of Chicago’s Midway Airport. On
August 19, 2003, NewWorldAir filed a voluntary petition under Chapter 7 of the Bankruptcy
Code.

Lunn, a resident of Illinois, is a stockholder and member of the NewWorldAir Board of
Directors. Lunn Partners is in the business of investment banking, real estate development, and
financial advisory services. Indigo LLC and Indigo Inc. are both organized under Delaware law
and were formed in connection with raising working capital for NewWorldAir.

In 1998, NewWorldAir was formed and began doing business under the Indigo name. On
May 24, 2000, NewWorldAir entered into a sublease with Ameritech Corporation (“Ameritech”)
for a hangar facility at Midway Airport. On May 31, NewWorldAir entered into an Assignment
and Assumption Agreement with Ameritech, which, as amended, contemplated an assignment of
Ameritech’s leasehold interest in the hangar facility to NewWorldAir, subject to a payment by
NewWorldAir of $3.1 million and the approval of the lessor, the City of Chicago. In August
2000, NewWorldAir began providing air service using four leased airplanes.

In July 2002, NewWorldAir executed an agreement with Embraer-Empresa Brasileria de
Aeronautica S.A. (“Embraer”) for the rolling purchase of twenty-five Embraer jets. On
July 5, 2002, pursuant to the terms of the Purchase Agreement, Embraer paid $5 million to

NewWorldAir in the form of an unearned rebate. At the time the $5 million rebate was received


motions. The district “court may wait until the case is ready to go to trial before withdrawing the
reference.” In re Dreis & Krump Mfg. Co., No. 94 C 4281, 1995 WL 41416, at *3 (N.D. Ill. Jan.
31, 1995). Therefore, at this time, jurisdiction is lacking over the Trustee’s state law claims.
Supplemental Jurisdiction over Plaintiffs’ State Law Claims

Lunn seeks to dismiss Piser’s three state law counts: (1) a claim under Section 12 of the
Hlinois Securities Law of 1953, 815 ILCS 5/12; (2) a common law fraud claim; and (3) a claim
for negligent misrepresentation. Defendants also seek to dismiss the Trustee’s three state law
counts for lack of subject matter jurisdiction. Because Plaintiffs have failed to allege any basis
for federal jurisdiction, it would be improper to accept supplemental jurisdiction at this time,
pursuant to 28 U.S.C. § 1367, over their state law claims. See, e.g., Williams v. Aztar Indiana
Gaming Corp., 351 F.3d 294, 300 (7th Cir. 2003).

CONCLUSION

For the foregoing reasons, Defendants’ Motion to Dismiss is granted. Plaintiffs may file

a second amended complaint alleging federal jurisdiction, if they can do so consistent with Rule

11.

Dated: od uw, 2004

A

/ JOHN W. DARRAH
{Unites States District Judge

14



LEGAL STANDARD

In reviewing a motion to dismiss, the court reviews all facts alleged in the complaint and
any reasonable inferences drawn therefrom in the light most favorable to the plaintiff. See
Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000). A plaintiff is
not required to plead the facts or elements of a claim, with the exceptions found in Federal Rules
of Civil Procedure 9. See Swierkiewicz v. Sorema, 534 U.S. 506, 511 (2002); Walker y.
Thompson, 288 F.3d 1005, 1007 (7th Cir. 2002) (Walker). Dismissal is warranted only if “it
appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which
would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The “suit should not
be dismissed if it is possible to hypothesize facts, consistent with the complaint, that would make
out a claim.” Graehling v. Village of Lombard, Ill, 58 F.3d 295, 297 (7th Cir. 1995).

However, “in all averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity.” Fed. R. Civ. P. 9(b). In order to survive dismissal, the
plaintiff must plead the who, what, when, and where of the alleged fraud. See Lachmund v. ADM
Investor Serv., Inc., 191 F.3d 777, 782 (7th Cir. 1999) (quotations omitted). “The allegations
must be specific enough to provide the defendants with a general outline of how the alleged fraud
scheme operated and of their purported role in the scheme.” Rohlfing v. Manor Care, Inc., 172
F.R.D. 330, 347 (N.D. 11.1997) (citations omitted). To determine whether counts are sufficiently
pled, a court will bear in mind the purposes of Rule 9(b): “(1) protecting the defendants’
reputations; (2) preventing fishing expeditions; and (3) providing adequate notice to the
defendants.” Rohifing, 172 F.R.D. at 347 (citing Vicom, Inc. v. Harbridge Merchant Servs., Inc.,

20 F.3d 771, 777 (7th Cir.1994)).



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

JONATHAN H. PISER, individually;and
R. SCOTT ALSTERDA, as Trustee for the
Bankruptcy Estate of NEWWORLDAIR
HOLDINGS, INC., a Delaware corporation,

Plaintiffs,

v. No: 03 C 5816
LUNN PARTNERS, LLC, a Delaware
limited liability company; INDIGO D-2
INVESTORS, LLC, a Delaware limited
liability company; INDIGO D-2
INVESTORS, INC., a Delaware corporation;
and ROBERT J. LUNN, individually,

Judge John W. Darrah

Defendants.

wwe we SS See we SS SS YH Ow

MEMORANDUM OPINION AND ORDER

Plaintiffs, Jonathan H. Piser and R. Scott Alsterda, as Trustee (the “Trustee”) for the
Bankruptcy Estate of NewWorldAir Holdings, Inc. (“NewWorldAir”), filed a seven-count
Amended Complaint against Defendants, Lunn Partners, LLC (“Lunn Partners”); Indigo D-2
Investors, LLC (“Indigo LLC”); Indigo D-2 Investors, Inc. (“Indigo Inc.”); and Robert J. Lunn.
Presently before the Court is Defendants’ Motion to Dismiss the Amended Complaint, pursuant
to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). For the following reasons, that

motion is granted in part and denied in part.


company. However, as discussed above, this written agreement was alleged on “information and
belief’; and Piser did not state the source of his information.

Similarly, Piser alleges that Lunn and Lunn Partners could receive monies from
NewWorldAir ahead of other investors and not pari passu with the amount of their investments.
Piser further contends that Lunn and Lunn Partners took money out of the company both before
and after Piser’s stock purchase. A review of these allegations, however, indicates that Piser is
again relying on “information and belief” in pleading these events. Accordingly, these
allegations do not state a claim under Rule 10b-S.

Piser’s allegations about the board seat are not actionable. Piser, in the Amended
Complaint, pleads that he is a member of the NewWorldAir Board of Directors. Piser argues that
fraud cannot be disproved by hindsight. See Hartmarx, 2002 WL 653892, at *3. Piser, though,
must allege that facts existed demonstrating that Lunn’s statement was false. See Hartmarx,
2002 WL 653892, at *3. Piser has failed to make these allegations; and, therefore, his statements
about the board seat are not actionable under Rule 10b-5.

Accordingly, Piser has failed to properly plead any actionable federal claims.

Jurisdiction over the Trustee's State Law Claims

Defendants seek to dismiss the Trustee’s three state law counts: (1) a claim for breach of
fiduciary duty, (2) a breach of contract claim, and (3) a claim for conversion. According to
Defendants, no basis for federal jurisdiction exists for these claims.

In Response, the Trustee contends that original jurisdiction is conferred on these state law
claims under 28 U.S.C. § 1334(b). Under § 1334(b), “the district courts shall have original but

not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to

12