DBSI Private Actions Trust Litigation

The matter

A bankruptcy trust bringing investors’ claims against their brokers.

Nearly 100 Diversified Business Services & Investments (“DBSI”) entities filed for bankruptcy in November 2008. Under the Second Amended Joint Chapter 11 Plan of Liquidation, DBSI’s creditors and equity holders assigned their causes of action against securities brokers and dealers to the Private Actions Trust.

The trustee’s theory was that the assignors had acquired DBSI securities through the defendants — brokers, registered representatives and their control persons — and that those defendants facilitated the sale of securities that turned out to be part of a fraudulent Ponzi scheme.

The amended complaint pleaded six causes of action: violations of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, control person liability under section 20(a), breach of contract, common law fraud, negligence, and breach of fiduciary duty.

Three independent grounds were briefed rather than one. Failure to state a claim, improper venue, and lack of standing and subject matter jurisdiction each stood alone — so the complaint had to survive all three. The court issued written opinions on two of them.

The proceedings were related but separate. Claims assigned to the trust were pursued against representative defendants in more than one forum, which is why venue and standing were live questions in their own right rather than technicalities.

The defendants were not only broker-dealers. A registered investment adviser named in the action was also dismissed.

The record

The filings that decided it.

A selection of the material filings from the federal actions, reproduced as filed — not the full docket. They are published because the reasoning is more useful than a description of it would be. The arbitrations are not represented here.

The complaint

• Amended Complaint of James R. Zazzali, Trustee of the DBSI Private Actions Trust

  313 KB

Rule 12(b)(6) — failure to state a claim

• Motion to Dismiss Amended Complaint in its Entirety for Failure to Sufficiently State Claims for Relief under Rule 12(b)(6)

  328 KB

• Brief in Support of Motion to Dismiss Amended Complaint in its Entirety for Failure to Sufficiently State Claims for Relief under Rule 12(b)(6)

  425 KB

• Reply in Support of Motion to Dismiss Amended Complaint in its Entirety for Failure to Sufficiently State Claims for Relief under Rule 12(b)(6)

  259 KB

• Memorandum Opinion – Motion to Dismiss – Rule 12(b)(6) – DBSI Private Actions Trust

  1.6 MB

Rule 12(b)(3) — improper venue

• Motion to Dismiss Amended Complaint for Improper Venue under Rule 12(b)(3)

  328 KB

• Brief in Support of Motion to Dismiss Amended Complaint for Improper Venue under Rule 12(b)(3)

  499 KB

• Declaration in Support of Motion to Dismiss Amended Complaint for Improper Venue under Rule 12(b)(3)

  1017 KB

• Exhibits in Support of Motion to Dismiss Amended Complaint for Improper Venue under Rule 12(b)(3)

  1.3 MB

• Declaration of Counsel in Support of Motion to Dismiss Amended Complaint for Improper Venue under Rule 12(b)(3)

  519 KB

• Reply in Support of Motion to Dismiss Amended Complaint for Improper Venue under Rule 12(b)(3)

  508 KB

• Memorandum Opinion – Motion to Dismiss – Rule 12(b)(3) – DBSI Private Actions Trust

  458 KB

Rule 12(b)(1) — standing and subject matter jurisdiction

• Motion to Dismiss Amended Complaint for Lack of Standing and Subject Matter Jurisdiction Pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure

  236 KB

• Brief in Support of Motion to Dismiss Amended Complaint for Lack of Standing and Subject Matter Jurisdiction Pursuant to Rule 12(b)(1)

  743 KB

• Declaration of Counsel and Exhibits in Support of Motion to Dismiss Amended Complaint for Lack of Standing and Subject Matter Jurisdiction Pursuant to Rule 12(b)(1)

  1.5 MB

• Reply in Support of Motion to Dismiss Amended Complaint for Lack of Standing and Subject Matter Jurisdiction Pursuant to Rule 12(b)(1)

  569 KB

• Declaration of Counsel and Exhibits for Reply in Support of Motion to Dismiss Amended Complaint for Lack of Standing and Subject Matter Jurisdiction Pursuant to Rule 12(b)(1)

  842 KB