Dismissal of Complaint--Opinion and Order
U. S. D. J. :
Plaintiffs Anna, Laura, & William Brandt filed a PRO SE complaint on May 22, 2003. Defendants Merrill Lynch Pierce Fenner & Smith Inc., Citigroup Global Markets, Inc. (f /k /a Salomon Smith Barney, Inc.), and Morgan Stanley now move to dismiss the complaint for failure to state a claim (1) or, in the alternative, to plead fraud with particularity. (2) For the reasons that follow, that motion is granted.
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(1) See Fed. R. Civ. P. 12(b) (6).
(2) See ID. Rule 9 (b).
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I THE COMPLAINT
The Brandts' complaint reads, in its entirety, as follows:
Allegation
Plaintiffs allege that Defendants engaged in a conspiracy to defraud Plaintiffs through a stock fraud involving extreme dilution.
Facts
Defendants Nussen, Weisz, and Rothschild signed an SEC document filed on June 11, 2002 showing that they agreed to an amendment to a convertible-debenture (CD) that had the effect of allowing the CD-owner to defraud existing shareholders including Plaintiffs through extreme dilution to the value of their shares.
Relief Sought
Plaintiffs seek cancellation of all shares held by dishonest shareholders(Class 2) and an election for a new Board of Directions by honest shareholders (Class 1) of the company.
Plaintiffs also seek damages in the billions of dollars. In the event of default, Plaintiffs ask for an award of $40,000,000,000.00.
II. LEGAL STANDARD
"Given the Federal Rules' simplified standard for pleading, (a) court may dismiss a complaint ONLY if it is clear that no relief could be granted under ANY set of facts that could be proved consistent with the allegations. ' " (3) Thus, a plaintiff need only plead " ' a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." (4) At the motion to dismiss stage, the issue " ` is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleading that a recovery is very remote and unlikely but that is not the test. ' " (5) The task of the court in ruling on a Rule 12 (b) (6) motion
is " ` merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof. ' " (6) When deciding a motion to dismiss pursuant to Rule 12 (b) (6), courts must accept all factual allegations in the complaint as true and draw all reasonable inferences in plaintiff's favor. (7)
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(3) SWIERKIEWICZ v. SOREMA N. A., 534 U. S. 506, 514 (2002) (emphasis added) (quoting HISHON v. KING & SPALDING, 467 U. S. 69, 73 (1984) ).
(4) CONLEY v. GIBSON, 355 U. S. 41, 47 (1957) (quoting Fed. R. Civ. P. 8 (a) ).
(5) PHELPS v. KAPNOLAS, 308 F. 3d 180, 184-85 (2d Cir. 2002) (per curiam) (quoting CHANCE v. ARMSTRONG, 143 F. 3d 698, 701 (2d Cir. 1998) ).
(6) PIERCE v. MARANO, No. 01 Civ. 3410, 2002 WL 1858772, at
* 3 (S. D. N. Y. Aug. 13, 2002) (quoting SAUNDERS v. COUGHLIN, No. 92 Civ. 4289, 1994 WL 98108, at * 2 (S. D. N. Y. Mar. 15, 1994) ).
(7) See CHAMBERS v. TIME WARNER, INC., 282 F. 3d 147, 152 ( 2d Cir. 2002).
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III. DISCUSSION
In accordance with the standard just reviewed, a complaint will generally be dismissed for failure to state a claim in only three situations. FIRST, where the conduct alleged is not legally actionable (e.g., "Defendant discriminated against me because I'm a blonde"), then "no relief could be granted under any set of facts that could be proved consistent with the allegations," and the complaint must be dismissed." (8) SECOND, where the allegations of a complaint are so vague or ambiguous (e.g., "Defendant wronged me") that they fail to "give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests," the complaint must also be dismissed. (9) Where a complaint alleges fraud, as here, the allegations must be pled "with particularity" in order to provide fair notice to the defendant. (10) THIRD, where a purely legal deficiency appears on the face of the complaint (e.g., running of the statue of limitations), dismissal is appropriate. (11) Of course, a complaint may also be dismissed for a variety of other reasons, such as lack of jurisdiction or inadequate service of process. (12)
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(8) SWIERKIEWICZ, 534 U. S. at 514.
(9) CONLEY, 355 U. S. at 47.
(10) Fed. R. Civ. P. 9 (b).
(11) See, e.g., CANTOR FITZGERALD INC. v. LUTNICK, 313 F. 3d 704 (2d Cir. 2002) (dismissing claim as time-barred under Fed. R. Civ. P. 12 (b) (6) ).
(12) See Fed. R. Civ. P. 12 (b) (1) - (5) & (7).
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This is the rare case where plaintiffs' pleadings fail to apprise the defendants of the claim against them. Although the Brandts' are plainly trying to allege some sort of securities fraud, they have failed to do so with sufficient particularity to put defendants on notice of the claim.
"Even under the liberal Federal Rules of Civil Procedure, there is a limit to how much a court may be called upon to divine in assessing the sufficiency of the complaint before it...." (13) Although "courts in this Circuit are instructed to construe (PRO SE) pleadings liberally, " (14) even PRO SE pleadings must satisfy the basic notice requirement.
In this case, the Brandts' complaint is completely inscrutable. It does not provide defendants or the court with notice of the conduct that plaintiffs complain of or, to the extent that the Brandts are asserting a securities fraud claim, why that conduct was fraudulent.
In order to prevail on a claim of securities fraud, "(a)plaintiff must ALLEGE" the following elementS: " ` that (1) in connection with the purchase or sale of securities, the defendant, (2) acting with scienter,(3) made a false material misrepresentation or omitted to disclose material information and that (4) plaintiff's reliance on defendant's conduct (5) caused (plaintiff) injury. ' " IN re TIME WARNER INC. SEC. LITIG., 9 F. 3d 259, 264 (2d Cir. 1993) (alteration in original) (quoting BLOOR v. CARRO, SPANBOCK, LONDIN, RODMAN & FASS, 754 F. 2d 57, 61 (2d Cir. 1985) ). (15).
Furthermore, "causation under federal securities laws is two-pronged: a plaintiff must ALLEGE both transaction causation, i.e., that BUT FOR the fraudulent statement or omission, the plaintiff would not have entered into the transaction; and loss causation, i.e., that the subject of the fraudulent statement or omission was the cause of the actual loss suffered. " (16) It is safe to say that the Brandts' complaint alleges NONE of these required elements. (17) Although these shortcomings doomed the complaint from the start, even if the Brandts HAD adequately pled a securities fraud claim against the MSM defendants -- the defendants actually named in the body of the complaint -- the complaint would still fail against the investment banks. There are NO allegations against the investment banks in the complaint.
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(13) HEART DISEASE RESEARCH FOUND. v. GENERAL MOTORS CORP., 463 F. 2d 98, 100 (2d Cir. 1972).
(14) WEINSTEIN v. ALBRIGHT, 261 F. 3d 127, 132 (2d Cir. 2001).
(15) CAIOLA v. CITIBANK, N. A. , 295 F. 3d 312, 321 (2d Cir. 2002) (emphasis and numbering added) .
(16) SUEZ EQUITY INVESTORS, L. P. v. TORONTO-DOMINION BANK, 250 F. 3d 87, 95 (2d Cir. 2001) (emphasis added) (citing
MANUFACTURERS HANOVER TRUST CO. v. DRYSDALE SECS. CORP., 801 F. 2d 13, 20 (2d Cir. 1986) ).
(17) A slightly different formulation of the elements of securities fraud must be pled if the alleged fraudulent scheme is something other than a misstatement or omission. For a discussion of pleading standards in securities fraud cases, see generally IN re INITIAL PUBLIC OFFERING SEC. LITIG., 241 F. Supp. 2d 281 (S. D. N. Y. 2003).
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In their motion papers, the Brandts' explain why they have sued the investment banks:
I suspect that MSM ( as in MSM Jewelry) stands for Merrill Lynch, Smith Barney, and Morgan Stanley....(MSM press releases) referred to financial institutions being in control of the company. These particular Banks have been identified by regulators for past financial misconduct.
Even if these allegations had been pled -- as opposed to having been raised in a brief for the first time -- they would not support a claim against the investment banks. Rule 9 (b) requires that fraud be pled with particularity, and requires the plaintiff to identify each defendant's role in the fraud. (18) Here, the Brandts merely speculate that the named investment banks might have had something to do with the alleged fraud at MSM Jewelry. This speculation is based on nothing more than apparently unrelated regulatory action against the banks and the fact that the banks' initials can be arranged to form the acronym MSM. These facts are not sufficient to charge the banks with fraud; if the Brandts seek to include the investment banks in an amended complaint, they must plead a cause of action against them with the requisite particularity.
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(18) See DiVITTORIO v. EQUIDYNE EXTRACTIVE INDUS., INC., 822 F. 2d 1242, 1247 (2d Cir. 1987) ("Where multiple defendants are asked to respond to allegations of fraud, the complaint should inform each defendant of the nature of his alleged participation in the fraud." ).
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IV. CONCLUSION
For the foregoing reasons, the motion is granted and the case is dismissed without prejudice. Plaintiffs are granted leave to amend their pleadings in order to remedy the deficiencies identified above. Plaintiffs may file an amended complaint within 30 days of this order. Their failure to do so will result in a dismissal with prejudice. The Clerk is directed to close this motion (docket number 8).
SO ORDERED;
U. S. D. J.
Dated: New York, New York
September, 22, 2003
