58 F.R.D. 534 | E.D.N.Y | 1973
Defendants have moved before answer for an order dismissing the complaint for failure to comply with Rule 9(b),
Plaintiff, asserting a claim individually and derivatively, brought this action against the three individual defendants who constitute the board of directors and principal officers of the three corporate defendants. Plaintiff and defendants Robert T. Cadillac and Eleanor McGarry are each holders of one-third of the stock of each corporate defendant.
The activities in controversy center around the issuance by the corporations of bonds convertible into stock. Plain
Jurisdiction is alleged under § 22(a) of the 1933 Act, 15 U.S.C. §§ 77v(a) and § 27 of the 1934 Act, 15 U. S.C. § 78aa. In view of plaintiff’s allegations that the bond offers in controversy were made by mail and in interstate commerce and the bonds were issued by mail and in interstate commerce (par. 12), jurisdiction would appear to exist under the 1934 Act. See Schine v. Schine, 250 F.Supp. 822, 823-824 (S.D. N.Y.1966). However, although not disputed by defendants, jurisdiction under the 1933 Act seems highly doubtful. See Cary, Corporations (4th ed.), 1317-37; §§ 3(b), 4(2) of the 1933 Act, 15 U.S.C. §§ 77c(b), 77d(2).
Defendants, in moving to dismiss under Rule 9(b), are clearly engaging in frivolous motion practice, totally ignoring the allegations of the complaint.
What is alleged here is not the ordinary variety of deceit, misrepresentation or fraud in the inducement. Rather, plaintiff charges that (1) the individual defendants purchased securities from corporations they controlled for wholly inadequate consideration, and (2) they failed to fully inform plaintiff of the financial facts when he was offered the securities. As to these types of fraud, plaintiff’s complaint is specific, containing more than conclusory allegations or recitations of the federal statutes relied upon. Compare Shemtob v. Shearson, Hammill & Co., 448 F.2d 442 (2 Cir. 1971); Reiver v. Photo Motion Corp., 325 F.Supp. 214 (E.D.Pa. 1971); cf. Hirshfield v. Briskin, 447 F.
Accordingly, defendants’ motion to dismiss is denied.
. “ (b) Fraud, Mistake, Condition of the Mind. In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.”
. This became apparent even to defendants when after receipt of plaintiff’s memorandum of law they abandoned their first list of omitted particulars, and submitted a second list. Thus, they first demanded the following particulars:
“(1) Each and every alleged misrepresentation of material fact made by each of the defendants,
“(2) The time, manner, and place each such alleged misrepresentation was made,
“(3) The identity of the person (s) to whom each such alleged misrepresentation was made, and
“(4) The manner in which each such alleged misrepresentation was false and known to be false by each such defendant when made.” (Defendants’ Affidavit in Support of Motion, p. 2.)
This was recast as follows :
“(1) the true conversion value of the shares,
“(2) that defendants had knowledge of the true conversion value and the basis therefore, and
“(3) the specific financial information withheld from plaintiff together with the time, date and circumstances, and that plaintiff did not have and could not have obtained such information.” (Defendants’ Reply Affidavit, pp. 1-2.)
. Since plaintiff's complaint is held to be sufficient under Rule 9(b), the court does not pass upon the question of whether dismissal would be appropriate in this case for failure to satisfy the rule.