Court Opinion

ID: 9408795
Source: CourtListenerOpinion
Date Created: 2023-07-13 18:00:46.263393+00
Date Added: 2024-06-11T17:20:46.800117
License: Public Domain

Case: 22-40609          Document: 00516819219             Page: 1      Date Filed: 07/13/2023

               United States Court of Appeals
                    for the Fifth Circuit
                                                                                United States Court of Appeals
                                                                                         Fifth Circuit

                                       ____________                                    FILED
                                                                                   July 13, 2023
                                        No. 22-40609                              Lyle W. Cayce
                                       ____________                                    Clerk

   Dennis Burback; Ken Eddy; Mark Andersen,

                                                                    Plaintiffs—Appellants,

                                              versus

   Jordan Brock; Four Oceans Holding, Incorporated;
   Elepreneurs U.S., L.L.C.; Elevacity U.S., L.L.C.; Sharing
   Services Global Corporation, formerly known as Sharing
   Services, Incorporated,

                                                Defendants—Appellees.
                       ______________________________

                       Appeal from the United States District Court
                            for the Eastern District of Texas
                                 USDC No. 4:20-CV-946
                       ______________________________

   Before King, Smith, and Elrod, Circuit Judges.
   Per Curiam: *
             Plaintiffs appeal the dismissal of their claims alleging securities fraud
   in connection with two investment schemes. For the following reasons, we
   AFFIRM.

             _____________________
   *
       This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 22-40609     Document: 00516819219          Page: 2    Date Filed: 07/13/2023

                                   No. 22-40609

                             I. Factual Background
          Plaintiffs-Appellants Dennis Burback, Ken Eddy, and Mark Andersen
   (“Plaintiffs”) are individual investors who participated in two securities-
   related transactions that they allege were actually part of two fraudulent
   schemes. The first scheme involved the use of promissory notes (the “Note
   Scheme”), while the second scheme is alleged to have been related to the
   first and involved the purchase of stock (the “Stock Scheme”).
          The Note Scheme was carried out by Robert Oblon and Defendant-
   Appellee Jordan Brock, who are both alleged to have convinced Plaintiffs to
   purchase promissory notes based on false representations and insufficient
   disclosures. Specifically, Oblon represented to Plaintiffs that FourOceans
   Global, LLC (“Global”), a multilevel marketing travel company that he
   founded, was insolvent and on the brink of collapse and that Plaintiffs’
   investments were critical to its survival. In September 2015, Plaintiffs each
   entered into a note purchase agreement promising various forms of payment
   from and equity ownership in Global in exchange for $33,333. Plaintiffs allege
   that they were misled by Oblon and Brock as to the legitimacy of Global’s
   business in the months leading up to their signing the note purchase
   agreements. By March 2016, it “became apparent to Plaintiffs” that Global
   “would be a failure.” Around this time, Oblon transferred Global’s assets to
   Defendants-Appellees Elevacity U.S., L.L.C. (“Elevacity”) and Elepreneurs
   U.S., L.L.C. (“Elepreneurs”), two other multilevel marketing companies
   that he founded, without first informing Plaintiffs. Plaintiffs never received
   any return on their investment, nor the return of their principal, in
   connection with the Note Scheme. According to Plaintiffs, Oblon, Brock, and
   others instead used this money for their own personal gain and to make
   Ponzi-like payments to investors that were similarly situated as Plaintiffs in
   order to perpetuate the Note Scheme.

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          The Stock Scheme is alleged to have begun in about February or
   March 2018. Plaintiffs had made repeated requests for updates regarding the
   status of the Note Scheme, expressing concern as to “irregularities”
   surrounding their investments. In March and April 2018, Brock spoke with
   Eddy over the phone, stating that no irregularities existed and that he, Oblon,
   and John “JT” Thatch had a “plan” to convert Plaintiffs’ ownership and
   equity interests in Global into stock in a new company, Sharing Services, Inc.,
   founded by Oblon. Sharing Services, Inc., which would later become
   Defendant-Appellee Sharing Services Global Corporation (“Sharing
   Services”), had already acquired Four Oceans Holding, Inc. (“Holding”),
   Global’s successor in interest; Elevacity; and Elepreneurs in October 2017.
          In June 2018, Plaintiffs attended a conference call with Brock and Jeff
   Bollinger. During the call, Brock explained that he and Bollinger would be
   taking over for Oblon as Plaintiffs’ point of contact. Bollinger then told
   Plaintiffs that Global had since been dissolved but that Plaintiffs would
   receive new stock in Sharing Services. Bollinger explained, though, that
   Plaintiffs could not directly receive Sharing Services stock and would instead
   need to complete their transaction with an intermediary company so as not
   to raise any concerns with the SEC. According to Bollinger, as a part of this
   plan, Plaintiffs would have to assign their interests in Global over to Custom
   Travel Holdings, Inc. (“Custom Travel”) if they ever wanted to recover
   their initial investments in the Note Scheme.
          Each Plaintiff subsequently entered into a subscription agreement in
   which additional consideration (apart from that already expended in the Note
   Scheme) was exchanged for stock in Custom Travel. Plaintiffs never received
   Custom Travel stock certificates. At some point prior to the subscription
   agreements’ execution, Brock and Bollinger “made clear” to Plaintiffs that
   they knew that Custom Travel would soon be acquired by Sharing Services,
   explaining that this was not public knowledge, Plaintiffs were not supposed

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   to know about the acquisition, but that Plaintiffs would not be in violation of
   SEC rules. In a June 2019 conference call, Brock informed Plaintiffs that
   Sharing Services would not be acquiring Custom Travel and that all of
   Plaintiffs’ investments in connection with both the Note and Stock Schemes
   were lost.
          In December 2020, Plaintiffs filed an 11-count complaint (the
   “Complaint”) in the United States District Court for the Eastern District of
   Texas naming, inter alia, Holding, Elepreneurs, Elevacity, Sharing Services
   (collectively, the “Entity Defendants”), Brock (collectively, with the Entity
   Defendants, the “Defendants”), Oblon, Bollinger, Thatch, Custom Travel,
   and Global as defendants. The Complaint asserts claims for federal securities
   fraud in violation of § 10(b) of the Exchange Act and SEC Rule 10b-5, and
   claims for statutory fraud, common law fraud, fraud by nondisclosure, unjust
   enrichment, civil conspiracy, aiding and abetting, accounting, constructive
   trust, and breach of fiduciary duty under Texas law. Brock and Thatch
   subsequently moved to dismiss the Complaint.
          The district court partially granted the motions in September 2021
   (the “First Dismissal Order”). The court first dismissed the federal
   securities fraud claim against Brock relating to the Note Scheme, holding that
   the claim was filed past the applicable five-year statute of repose. The court
   next dismissed the federal securities fraud claims against both Brock and
   Thatch relating to the Stock scheme, explaining that neither claim was
   sufficiently pleaded in accordance with the heightened pleading standards for
   fraud. The court then determined that the state law fraud claims were
   similarly not well pleaded and dismissed these claims against both
   defendants. The remaining claims brought against the movants were
   dismissed as well. Each claim that the court dismissed was dismissed without
   prejudice, save for the federal securities claim brought against Brock relating
   to the Note Scheme.

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          Plaintiffs filed an eight-count amended complaint in October 2021
   (the “Amended Complaint”) with factual allegations that, for the purpose of
   this appeal, mostly hew to those in the Complaint. Notably, though, Thatch
   is no longer named as a defendant in the Amended Complaint. Like the
   Complaint, the Amended Complaint contains claims for federal securities
   fraud, and state claims for statutory fraud, common law fraud, fraud by
   nondisclosure, unjust enrichment, civil conspiracy, and breach of fiduciary
   duty; the remaining claims from the Complaint have been eliminated.
   Plaintiffs bring a new claim for “joint and several liability for knowing
   participation and assisting in Brock’s and Oblon’s fraudulent conduct and
   breaches of fiduciary duties” in the amended complaint as well. Brock and
   the Entity Defendants subsequently moved to dismiss the Amended
   Complaint.
          The court fully granted both motions in July 2022 with prejudice (the
   “Second Dismissal Order”). The court first addressed the claims brought
   against Brock, beginning by dismissing the lone federal securities fraud claim
   against him for the same reason it did in the First Dismissal Order, explaining
   that Plaintiffs again failed to meet the heightened pleading standards for
   fraud. The court likewise dismissed Plaintiffs’ state fraud claims as it did in
   the First Dismissal Order. Turning to the Entity Defendants’ motion, the
   court ruled that all claims pertaining to Brock’s actions must be dismissed
   because it had already held that the Amended Complaint did not adequately
   plead the underlying claims against Brock. The court then dismissed the
   claims against the Entity Defendants as they pertained to Oblon, holding that
   the Amended Complaint failed to sufficiently link Oblon’s actions to the
   Entity Defendants. The court dismissed the remaining claims against the
   Defendants as well.
          Following the Second Dismissal Order, the parties filed a joint
   stipulation dismissing the remainder of the claims with prejudice. Plaintiffs

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   now appeal the dismissal of their federal securities fraud claim relating to the
   Note Scheme against Brock in the First Dismissal Order and raise various
   points of error in the Second Dismissal Order.
                                   II. Discussion
          We review a district court’s grant or denial of a motion to dismiss for
   failure to state a claim under Rule 12(b)(6) de novo. Whitley v. BP, P.L.C., 838
   F.3d 523, 526 (5th Cir. 2016). To survive such a motion, a complaint must
   allege enough facts, accepted as true, “to state a claim to relief that is
   plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
   “A claim has facial plausibility when the plaintiff pleads factual content that
   allows the court to draw the reasonable inference that the defendant is liable
   for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
   Although “detailed factual allegations” are not required, the complaint must
   include “factual allegations that when assumed to be true ‘raise a right to
   relief above the speculative level.’” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th
   Cir. 2007) (quoting Twombly, 550 U.S. at 555). Conclusory statements or
   “‘naked assertion[s]’ devoid of ‘further factual enhancement’” are
   insufficient. Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). “The
   plausibility standard . . . asks for more than a sheer possibility that a
   defendant has acted unlawfully.” Id. A complaint pleading facts “that are
   ‘merely consistent with’ a defendant’s liability . . . ‘stops short of the line
   between possibility and plausibility of entitlement to relief.’” Id. (quoting
   Twombly, 550 U.S. at 557). Whether the plausibility standard has been met is
   a “context-specific task that requires the reviewing court to draw on its
   judicial experience and common sense.” Id. at 679.
          Fraud claims are subject to heightened pleading requirements. “In
   alleging fraud or mistake, a party must state with particularity the
   circumstances constituting fraud or mistake. Malice, intent, knowledge, and

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   other conditions of a person’s mind may be alleged generally.” Fed. R.
   Civ. P. 9(b). “This Court interprets Rule 9(b) strictly, requiring a plaintiff
   pleading fraud to specify the statements contended to be fraudulent, identify
   the speaker, state when and where the statements were made, and explain
   why the statements were fraudulent.” Dorsey v. Portfolio Equities, Inc., 540
   F.3d 333, 339 (5th Cir. 2008) (quoting Herrmann Holdings Ltd. v. Lucent
   Techs. Inc., 302 F.3d 552, 564–65 (5th Cir. 2002)). “Although Rule 9(b)
   expressly allows scienter to be ‘averred generally’, simple allegations that
   defendants possess fraudulent intent will not satisfy Rule 9(b).” Id. (quoting
   Melder v. Morris, 27 F.3d 1097, 1102 (5th Cir. 1994)). “The plaintiffs must set
   forth specific facts supporting an inference of fraud.” Id. (quoting Melder, 27
   F.3d at 1102). “Alleged facts are sufficient to support such an inference if
   they either (1) show a defendant’s motive to commit securities fraud or (2)
   identify circumstances that indicate conscious behavior on the part of the
   defendant.” Id. (quoting Herrmann Holdings, 302 F.3d at 565). “If the facts
   pleaded in a complaint are peculiarly within the opposing party’s knowledge,
   fraud pleadings may be based on information and belief. However, this luxury
   must not be mistaken for license to base claims of fraud on speculation and
   conclusory allegations.” Id. (quoting Tuchman v. DSC Commc’ns Corp., 14
   F.3d 1061, 1068 (5th Cir. 1994)).
          Federal securities fraud claims are subject to additional pleading
   requirements under the Private Securities Litigation Reform Act of 1995
   (“PSLRA”), which “enhances the particularity requirements of Rule 9(b).”
   Id.; see 15 U.S.C. § 78u-4(b). The PSLRA requires plaintiffs to “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
   particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-
   4(b)(1). Additionally, under the PSLRA,

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           in any private action . . . in which the plaintiff may recover
           money damages only on proof that the defendant acted with a
           particular state of mind, the complaint shall, with respect to
           each act or omission alleged to violate this chapter, state with
           particularity facts giving rise to a strong inference that the
           defendant acted with the required state of mind. 1
   Id. § 78u-4(b)(2)(A).
                            A. The Contours of the Appeal
           As an initial matter, the parties disagree as to whether Plaintiffs may
   challenge any of the district court’s holdings in the First Dismissal Order. “If
   [a] district court dismisse[s] [a] claim on the merits or with prejudice, [a]
   plaintiff may appeal that ruling without needing to include the claim in a later
   amended complaint.” Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Servs., Inc., 787
   F.3d 716, 724 (5th Cir. 2015) (citing Williams v. Wynne, 533 F.3d 360, 365
   (5th Cir. 2008)); see also 6 Charles Alan Wright, Arthur R.
   Miller, & Mary Kay Kane, Federal Practice & Procedure
   § 1476 (3d ed. 2023) (“A rule that a party waives all objections to the court’s
   dismissal if the party elects to amend is too mechanical and seems to be a rigid
   application of the concept that a Rule 15(a) amendment completely replaces
   the pleading it amends. Without more, the action of the amending party
   should not result in completely denying the right to appeal the court’s
   ruling.”). But if a claim is dismissed without prejudice due to a “technical
   defect or voluntary withdrawal, [a] plaintiff forfeits the right to appeal if it
   files an amended complaint omitting that claim.” Lincoln Gen. Ins., 787 F.3d
   at 724 (citing Wilson v. First Hous. Inv. Corp., 566 F.2d 1235, 1238 (5th Cir.
   1978), vacated on other grounds, 444 U.S. 959 (1979)). Here, the First

           _____________________
   1
    Subject to exceptions inapplicable to the case at bar. See 15 U.S.C. § 78u-4(b)(2)(A) &
   (B).

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   Dismissal Order dismissed the federal securities fraud claim relating to the
   Note Scheme against Brock with prejudice. Therefore, Plaintiffs were not
   required to replead that claim in order to preserve the issue of its dismissal
   for appeal. Accordingly, we begin by addressing the district court’s dismissal
   of that claim, i.e., Plaintiffs’ only challenge to the First Dismissal Order, and
   then turn to Plaintiffs’ appeal of the Second Dismissal Order.
                           B. The First Dismissal Order
          In its First Dismissal Order, the district court dismissed the federal
   securities fraud claim relating to the Note Scheme against Brock because it
   was filed outside of the time prescribed by the applicable statute of repose.
          Claims arising under the Exchange Act involving “fraud, deceit,
   manipulation, or contrivance in contravention of a regulatory requirement
   concerning the securities laws . . . may be brought not later than the earlier
   of . . . (1) 2 years after the discovery of the facts constituting the violation; or
   (2) 5 years after such violation.” 28 U.S.C. § 1658(b). The outer, five-year
   bound in § 1658 is a statute of repose, which “begin[s] to run on the date of
   the last culpable act or omission of the defendant.” China Agritech, Inc. v.
   Resh, 138 S. Ct. 1800, 1804 & n.1 (2018) (alteration in original) (quoting Cal.
   Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc., 582 U.S. 497, 505 (2017)); Hall v.
   Variable Annuity Life Ins. Co., 727 F.3d 372, 375 n.4 (5th Cir. 2013). Any
   prohibited conduct or omission under § 10(b) of the Exchange Act and its
   attendant regulation, SEC Rule 10b-5, must occur “in connection with the
   purchase or sale of any security.” 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5.
   Prohibited conduct or omissions are “‘in connection with’ the purchase or
   sale of securities if there is a relationship in which the fraud and the stock sale
   coincide or are more than tangentially related.” Roland v. Green, 675 F.3d
   503, 520 (5th Cir. 2012) (quoting Madden v. Cowen & Co., 576 F.3d 957, 965–

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   66 (9th Cir. 2009)), aff’d sub nom. Chadbourne & Parke LLP v. Troice, 571 U.S.
   377 (2014).
             The Complaint alleges that Plaintiffs executed the note purchase
   agreements for the Note Scheme in September 2015, more than five years
   before they filed the Complaint in December 2020. Plaintiffs counter that
   Brock engaged in post-sale “lulling activities” to cover up the fraudulent
   nature of the Note Scheme, becoming the latest conduct relevant to the
   statute of repose and occurring within five years of the Complaint’s filing.
   Specifically, Plaintiffs point to the transfer of Global’s assets to Elevacity and
   Elepreneurs and the later transaction where those three entities were
   acquired by Sharing Services. But we fail to see how those actions (and other
   post-September 2015 statements or conduct) were connected to the
   execution of the note purchase agreements. Importantly, the pleadings do not
   sufficiently allege a connection between these post-sale actions and the
   original sale, i.e., that these events were all linked as parts of a fraudulent
   scheme. Plaintiffs rely on allegations that are either conclusory or that the
   heightened pleading standards of Rule 9(b) and the PSLRA deem inadequate
   to establish such a connection. 2

             _____________________
   2
       Representative allegations include:
             [T]he     statements       (and     omissions)      made       by      these
             defendants . . . propagated the impression that Plaintiffs were investing in
             a legal and legitimate enterprise and not . . . a scheme to take their
             investments and transfer [Global’s] assets, secretly or otherwise . . . , to
             Elepreneurs, Elevacity, and/or [Holding], which were ultimately sold to
             [Sharing Services], with no remuneration to Plaintiffs as equity owners in
             [Global].
             ...
             Each Plaintiff was presented with a unified, consistent set of exaggerations,
             misrepresentations and omissions about their investment, how their
             investments would be spent, that [Global] was an ongoing, legitimate

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          Plaintiffs also contend that the district court erred in considering
   Brock’s argument that the Complaint’s allegations relating to the Note
   Scheme and not implicated by the statute of repose were not in connection
   with the purchase or sale of any security. According to Plaintiffs, Brock
   forfeited this argument because he raised it for the first time on reply below.
   But this mischaracterizes the nature of Brock’s argument, which was
   consistent throughout his briefing: that the Complaint was devoid of well-
   pleaded allegations concerning the Note Scheme occurring within five years
   of its filing. In the opening brief on his first motion to dismiss, Brock argued
   that Plaintiffs’ claim was “barred by the 5-year statute of repose” because it
   was “entirely based on an alleged fraudulent scheme to induce Plaintiffs to
   invest $33,333 in [Global] by executing separate Note Purchase
   Agreements . . . on or about September 10, 2015.” He contended that all
   relevant allegations regarding the fraudulent scheme “occurred before the
   September 2015 transaction.” Implicit in this argument is that the
   Complaint’s remaining allegations do not relate to the Note Scheme or
   invoke § 10(b) and Rule 10b-5. Brock only explicitly referred to the language
   “in connection with the purchase or sale of any security” in his reply brief
   because Plaintiffs’ opposition brief relied on allegations that were wholly
   divorced from that requirement but would otherwise fall within the five-year
   window. Plaintiffs’ briefing on the motion is further proof that they were on
   notice of Brock’s argument and were not prejudiced. In their initial
   opposition to Brock’s motion, they explicitly addressed his argument
   regarding which culpable acts or omissions triggered the statute of repose.

          _____________________
          business, and there was no mention that the assets of [Global] would be
          secretly transferred to one or more entities (secret or otherwise), . . . which
          would be sold to [Sharing Services] with no remuneration as equity owners
          in [Global].

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   And Plaintiffs restated their arguments in a sur-reply where they incorrectly
   averred (as they do here) that Brock’s argument had been forfeited.
          The Complaint’s federal securities fraud claim against Brock was
   correctly dismissed for being filed outside the five-year statute of repose.
                         C. The Second Dismissal Order
       1. Federal Securities Fraud Claims Relating to the Stock Scheme
          The district court dismissed the federal securities fraud claim relating
   to the Stock Scheme against Brock, holding that the allegations in the
   Amended Complaint failed to meet the heightened pleading standards for
   fraud. Because the Entity Defendants were alleged to be implicated in this
   scheme through Brock under an alter ego theory of liability, the court
   dismissed the parallel claims brought against them as well. Plaintiffs raise two
   points of error in the court’s analysis. First, they argue that that court
   inadequately addressed their theories of Defendants’ “scheme liability” and
   “lulling activities.” Second, they contend that the court did not consider an
   SEC filing that they assert bolstered their claims.
         a. Theories of “Scheme Liability” and “Lulling Activities”
          Section 10(b) prohibits using or employing “any manipulative or
   deceptive device or contrivance in contravention of such rules and
   regulations as the [SEC] may prescribe” “in connection with the purchase
   or sale of any security.” 15 U.S.C. § 78j(b). The SEC’s implementing
   regulation, Rule 10b-5, provides three general means of liability under
   § 10(b):
          (a) To employ any device, scheme, or artifice to defraud,
          (b) To make any untrue statement of a material fact or to omit
          to state a material fact necessary in order to make the

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          statements made, in the light of the circumstances under which
          they were made, not misleading, or
          (c) To engage in any act, practice, or course of business which
          operates or would operate as a fraud or deceit upon any person.
   17 C.F.R. § 240.10b-5.
          “To state a securities-fraud claim under section 10(b), and Rule 10b–
   5, plaintiffs must plead (1) a misstatement or omission; (2) of a material fact;
   (3) made with scienter; (4) on which the plaintiffs relied; and (5) that
   proximately caused the plaintiffs’ injuries.” Southland Sec. Corp. v. INSpire
   Ins. Sols., Inc., 365 F.3d 353, 362 (5th Cir. 2004). “A fact is material if there
   is ‘a substantial likelihood that, under all the circumstances, the omitted fact
   would have assumed actual significance in the deliberations of the reasonable
   shareholder.’” Id. (quoting Grigsby v. CMI Corp., 765 F.2d 1369, 1373 (9th
   Cir. 1985)). “Materiality ‘depends on the significance the reasonable
   investor would place on the withheld or misrepresented information.’” Id.
   (quoting Basic Inc. v. Levinson, 485 U.S. 224, 240 (1988)). “[T]he required
   state of mind [for scienter] is an intent to deceive, manipulate, defraud or
   severe recklessness.” Owens v. Jastrow, 789 F.3d 529, 535 (5th Cir. 2015)
   (second alteration in original) (quoting Lormand v. US Unwired, Inc., 565
   F.3d 228, 251 (5th Cir. 2009)).
          Severe recklessness is limited to those highly unreasonable
          omissions or misrepresentations that involve not merely simple
          or even inexcusable negligence, but an extreme departure from
          the standard of ordinary care, and that present a danger of
          misleading buyers or sellers which is either known to the
          defendant or is so obvious that the defendant must have been
          aware of it.
   Id. at 536 (quoting Abrams v. Baker Hughes Inc., 292 F.3d 424, 430 (5th Cir.
   2002)). “To withstand a 12(b)(6) motion to dismiss, the required ‘strong
   inference’ of severe recklessness must be ‘more than merely “reasonable”

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   or “permissible”—it must be cogent and compelling, thus strong in light of
   other explanations.’” Id. (quoting Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
   551 U.S. 308, 324 (2007)). “A reviewing court therefore must ‘take into
   account plausible inferences opposing as well as supporting a strong
   inference of scienter.’” Id. (quoting Ind. Elec. Workers’ Pension Tr. Fund
   IBEW v. Shaw Grp., Inc., 537 F.3d 527, 533 (5th Cir. 2008)). “A complaint
   will survive only if the inference of scienter is ‘at least as compelling as any
   opposing inference one could draw from the facts alleged.’ ‘[A] tie favors the
   plaintiff.’” Id. (citation omitted) (alteration in original) (first quoting Tellabs,
   551 U.S. at 324; and then quoting Lormand, 565 F.3d at 254).
          In its Second Dismissal Order, the district court held that the
   Amended       Complaint     did   not    contain     non-conclusory     allegations
   demonstrating that any of Brock’s statements were false when made or that
   he otherwise had knowledge of those statements’ falsity. The court similarly
   held that Plaintiffs could not establish Brock’s scienter, ruling that the
   Amended Complaint’s allegations concerning Brock’s roles with Global and
   Sharing Services; receipt of shares in Sharing Services, Inc. that were later
   converted into Sharing Services shares; “knowledge of the fraudulent
   schemes”; and the benefits Sharing Services received because of those
   schemes did not meet Rule 9(b) or the PSLRA’s heightened pleading
   requirements. Specifically, the court correctly determined that this collection
   of allegations was rooted in Brock’s roles with Global and Sharing Services,
   and that “[s]cienter in a particular case may not be footed solely on motives
   universal to corporate executives.” Ind. Elec., 537 F.3d at 544. The court also
   correctly ruled that the allegations pertaining to the various forms of
   compensation Brock received, including his shares in Sharing Services, could
   not create a strong inference of scienter because the Amended Complaint did
   not allege the value of this compensation nor how it was connected to the
   Stock Scheme. See id. (“Incentive compensation packages may be considered

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   in conjunction with other scienter allegations but only in an extraordinary
   case is it probative.” (citation omitted)).
          Plaintiffs contend that the district court neglected to consider extra-
   circuit caselaw that they argue supports the proposition that “lulling
   activities” may constitute evidence of scienter. In United States v. Kelley, 551
   F.3d 171 (2d Cir. 2009) (per curiam), the defendant orchestrated a scheme in
   which he misled clients regarding their investments and subsequently
   produced fallacious account statements to lull them into believing that their
   investments were safer than they were. Id. at 172–73. The Second Circuit
   held that the district court did not abuse its discretion in admitting into
   evidence the account statements that had been produced two-to-four years
   following the purchase of securities, reasoning that although the
   dissemination of those statements alone could not establish a securities
   violation, they were relevant evidence because they “tended to demonstrate
   [the defendant’s] intent to defraud his clients and the scope of the schemes
   he employed.” Id. at 172, 175–76.
          Kelley is inapposite, mainly because it is an evidentiary holding. It also
   lacks facts that are analogous to those in our case: there, the government had
   established a scheme to defraud that the district court determined involved
   post-sale account statements, whereas here, Plaintiffs have failed to
   adequately plead a fraudulent scheme (at all) to which post-sale lulling
   activities would attach. The other caselaw cited by Plaintiffs is similarly inapt
   because the court in each case was convinced of a scheme to defraud in which
   lulling activities were based. See, e.g., SEC v. Holschuh, 694 F.2d 130, 143–44
   (7th Cir. 1982) (district court properly considered post-sale lulling activities
   that were “part of a single scheme or plan . . . relat[ing] back to . . . earlier
   fraudulent conduct”); United States v. Riedel, 126 F.2d 81, 82–83 (7th Cir.
   1942) (“We are satisfied, however, that the evidence shows, and rather
   clearly, that the scheme was not over. . . . Avoidance of detection and

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                                    No. 22-40609

   prevention of recovery of money lost by the victims are within, and often a
   material part of, the illegal scheme.”); United States v. Jones, 712 F.2d 1316,
   1320–21 (9th Cir. 1983) (“Several investors testified that they relied on the
   mailings as demonstrating that [their investment] was doing well and that
   they had made a good investment. . . . [T]he defendants here had an interest
   in the bank mailings which lulled investors into complacency regarding [their
   investment]. The mailings furthered the fraud . . . .”).
          Plaintiffs do not otherwise meaningfully refute the district court’s
   analysis; instead, they assert that it failed to account for their allegations
   pertaining to sections (a) and (c) of Rule 10b-5, which they refer to as
   “scheme liability.” But the allegations that the district court deemed
   insufficient are the same that underpin Plaintiffs’ theory of “scheme
   liability.” Accordingly, Plaintiffs’ legal theories do not disturb the district
   court’s analysis.
                       b. Consideration of the SEC Filing
          Plaintiffs assert that the district court erroneously failed to consider
   an SEC filing that was attached to their Amended Complaint (“Exhibit M”).
          “[A] district court ‘must consider the complaint in its entirety, as well
   as other sources courts ordinarily examine when ruling on Rule 12(b)(6)
   motions to dismiss, in particular, documents incorporated into the complaint
   by reference, and matters of which a court may take judicial notice.’” Funk
   v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (quoting Tellabs, 551 U.S.
   at 322).
          Exhibit M is a Form 10-Q that Sharing Services filed with the SEC in
   December 2019 summarizing the firm’s performance for the third quarter of
   that year. Plaintiffs point to two passages from Exhibit M that were quoted in
   the Amended Complaint and which they argue were overlooked by the
   district court. The first passage states that, in January 2019, Sharing Services

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   “became aware of an unliquidated amount of potential liability arising from a
   series of cash advance loan transactions . . . entered into by eight different
   lending sources and a Related Party entity . . . owned and/or controlled by a
   former Company officer.” The Amended Complaint alleges that, upon
   information and belief, this former company officer was either Brock or
   Oblon. The second passage states that, in June 2019, Sharing Services
          became aware of a potential liability arising out of certain
          previous transactions involving the formation and
          capitalization of two legal entities affiliated with a Company
          consultant who was, at the time, considered the Company
          spokesperson. Without the knowledge of the Company and in
          contravention of the express provisions of both the Company’s
          Bylaws and the controlling Nevada Revised Statutes, this
          Company consultant purportedly solicited investment funds
          from various persons, who at the time, were independent
          contractors of the Company. . . . The Company believes that it
          is probable that these actions have resulted in a material loss to
          the investing parties and is evaluating the potential exposure of
          these events to the Company.
   The Amended Complaint alleges that, upon information and belief, this
   company consultant was Oblon. According to Plaintiffs, both of these
   passages sufficiently allege Defendants’ scienter and amount to a “public
   acknowledgment of fraud.”
          We disagree. The cited passages from Exhibit M contain no ostensible
   fraudulent activity. And even assuming that they do, it is not apparent that
   they are in any way related to the Note or Stock Schemes. The Amended
   Complaint is likewise devoid of any well-pleaded allegations connecting these
   events to the Note or Stock Schemes. There was thus no need for the district

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   court to discuss Exhibit M or its citations in the Amended Complaint
   because, without more, it is wholly irrelevant to Plaintiffs’ claims. 3
           Accordingly, the district court did not err in dismissing the federal
   securities fraud claims in the Second Dismissal Order.
                2. State Fraud Claims Relating to the Note Scheme
           Plaintiffs dispute the district court’s dismissal of their state fraud
   claims relating to the Note Scheme due to the applicable statute of
   limitations.
           The statute of limitations for fraud claims in Texas is four years. Tex.
   Civ. Prac. & Rem. Code Ann. § 16.004(a)(4). Under the discovery
   rule exception to the statute of limitations, accrual of a cause of action is
   deferred “until the plaintiff knew or, exercising reasonable diligence, should
   have known of the facts giving rise to the cause of action.” Berry v. Berry, 646
   S.W.3d 516, 524 (Tex. 2022) (quoting Comput. Assocs. Int’l, Inc. v. Altai, Inc.,
   918 S.W.2d 453, 455 (Tex. 1996)).
           The note purchase agreements were signed more than four years
   before filing the Complaint, which was thus filed after the statute of
   limitations had already run. Plaintiffs argue, however, that the discovery rule
   tolled the statute of limitations because they “learned of previously
   unknown . . . facts” just “days before filing suit.” Specifically, they point to
   a demand letter attached to the Amended Complaint that was sent to Brock
   in December 2020 shortly before the Complaint was filed. But Plaintiffs fail
           _____________________
   3
    Plaintiffs argue that the district court was also required to take judicial notice of Exhibit
   M due to it being an SEC filing. See Basic Cap. Mgmt., Inc. v. Dynex Cap., Inc., 976 F.3d 585,
   589 (5th Cir. 2020) (approving of a district court taking judicial notice of a Form 10-K filed
   with the SEC on a motion to dismiss). A full analysis of this issue would be redundant
   considering that Exhibit M was both explicitly cited in and incorporated by reference into
   the Amended Complaint, and our reasoning above would be equally applicable regardless.

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                                    No. 22-40609

   to identify which relevant facts they became aware of within four years of
   filing the Complaint, including those facts they first learned upon receipt of
   the demand letter. Plaintiffs must provide well-pleaded facts in support of
   their claims, including an invocation of the discovery rule; a failure to do so
   deprives the defense of fair notice and, relatedly, an opportunity to respond.
   See Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 518 (Tex. 1988) (“A
   defendant who has established that the suit is barred cannot be expected to
   anticipate the plaintiff’s defenses to that bar.”). Furthermore, it is not
   apparent that any of the facts discussed in the demand letter are related to
   the Note Scheme. Therefore, the district court did not err in dismissing the
   state fraud claims regarding the Note Scheme pursuant to the applicable
   statute of limitations.
                                  III. Conclusion
          Having found no error in the district court’s rulings, the judgments
   are AFFIRMED.

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