77l. 15 U.S.C.A. § 77o. Because Count I alleges that the moving
defendants controlled the seller of unregistered securities and
used instruments of interstate transportation and communication
in connection with such control and sale, it states a claim
upon which relief may be granted.
In their supporting memoranda, defendants make much of their
observation that Count I fails to allege facts showing control
over the seller of the securities in question. Such an argument
is clearly without merit in the federal courts, since fact
pleading is not required. Rather, a complaint is sufficient if
it contains "a short and plain statement of the claim showing
that the pleader is entitled to relief." F.R.Civ.P. 8(a)(2); 2A
J. Moore, Federal Practice ¶ 8.13, at 1695 and 1700, (2d ed.
1972). Moreover, the averments in Count I need not even be
pleaded with "particularity", the cause of action presented
therein not being founded in fraud. F.R.Civ.P. 9(b).
Accordingly, the motions to dismiss Count I of the amended
complaint are denied.
MOTIONS TO DISMISS COUNT II
Count II of the amended complaint is based upon the
antifraud provisions of the Securities Act of 1933 [15
U.S.C.A. §§ 77l(2), 77q(a)], the Securities Exchange Act of
1934 [15 U.S.C.A. § 78b] and Rule 10B-5 thereunder
[17 C.F.R. § 240.10b-5]. In it, plaintiffs allege they relied to their
detriment upon various misstatements and omissions of material
facts which defendants are collectively alleged to have made in
connection with the sale of the securities in question. None of
the moving defendants are specified as having participated in
any particular violation. Accordingly, they move to dismiss the
count. The essence of their motion appears to be plaintiffs'
failure to comply with F.R.Civ.P. 9(b), which requires that
"circumstances constituting fraud . . . shall be stated with
particularity." However, for the following reasons defendants'
motions should be denied.
While allegations of fraud must be particularized,
F.R.Civ.P. 9(b), they must also be as short, plain, simple,
concise and direct as is reasonable under the circumstances.
F.R.Civ.P. 8(a). The function of pleadings under the Federal
Rules is to give fair notice of the claim asserted so as to
enable the adverse party to answer and prepare for trial, to
allow for the application of the doctrine of res judicata, and
to show the type of case brought, so it may be assigned to the
proper form of trial. 2A J.Moore, Federal Practice ¶ 8.13 at
1695 (2d ed. 1972). The test is whether the pleading in
question gives notice and states the elements of the claim
plainly and succinctly, and not whether as an abstract matter
it states "conclusions" or "facts". Federal Practice, supra at
Viewing Count II as a whole, it is clear that the notice
requirement of modern federal pleading has been met. Specific
misstatements and omissions of material facts are set forth
with particularity in separate subparagraphs, along with the
dates and letters in which they were made. Although it is true
that none of these misstatements and omissions are attributed
to specific defendants, this court is of the opinion that such
a high degree of particularity is not required to fulfill the
purposes of notice pleading. The defendants have been notified
that they are alleged to have made specific misstatements and
omissions in connection with the sale of securities in
interstate commerce; and the allegations are clear enough to
enable defendants to answer them.
Judicial economy would be best served at the present time in
this case by permitting defendants to ascertain the facts they
seek through the discovery process rather than by requiring a
return to "fact" pleading. Accordingly the motions to dismiss
Count II of the amended complaint are denied.
MOTIONS TO DISMISS COUNT III
Count III of the amended complaint is founded upon alleged
violations of the
Illinois Securities Law of 1953 which are similar to those
alleged in Counts I and II. The relief sought is recision of
the sales of the securities pursuant to S.H.A. ch. 121 1/2,
§ 137.13, which provides in pertinent part:
A. Every sale of a security made in violation of
the provisions of this Act shall be voidable
at the election of the purchaser exercised as
provided in subsection B of this
Section. . . .
B. Notice of any election provided for in
subsection A of this Section shall be given
by the purchaser, within 6 months after the
purchaser shall have knowledge that the sale
of the securities to him is voidable, to each
person from whom recovery [of the purchase
price] will be sought. . . .
Defendants move to dismiss Count III on the ground that it
fails to state a cause of action. For the following reasons
the motions should be granted.
It has long been established in Illinois that the right to
bring an action under the securities law is wholly statutory;
and a plaintiff, in order to successfully prosecute that
right, must bring himself within the requirements of the
statute. See Lipcovitz v. Warren Printing Co., 249 Ill. App. 368,
372 (1928). S.H.A. ch. 121 1/2, § 137.13, subd. B requires
as an element of the cause of action for recision that the
purchaser, within six months of learning that the sale to him
was in violation of the Illinois Act, must serve a written
election to rescind upon each person from whom recovery is
sought. Such compliance with the notice requirement must be
specifically pleaded in the complaint. Jordan Building
Corporation v. Doyle, O'Connor & Co., 282 F. Supp. 87, 94
(N.D.Ill. 1967), reversed on other grounds, 401 F.2d 47 (7 Cir.
1968). This the plaintiffs have not done. Rather, they made a
general allegation of compliance with the statute. Having
failed to make the required allegations with the requisite
specificity, plaintiffs have not pleaded all the elements of a
cause of action under Section 137.13. Accordingly Count III of
the amended complaint is dismissed as to all the defendants.
MOTIONS TO DISMISS COUNT IV
Count IV of the amended complaint contains allegations of
the elements of common law fraud. Defendants move to dismiss
this count for failure to comply with F.R.Civ.P. 9(b), which
requires the circumstances of the fraud be alleged with
particularity. For the same reasons stated with regard to the
motions to dismiss Count II, the motions are denied as to
The relief prayed for in the amended complaint includes
punitive damages. Defendants Wax, Wolk and Wolk & Company,
Inc. move to dismiss that portion on the ground that punitive
damages are not recoverable in actions of this nature. For the
following reasons, defendants' motions are granted as to
Counts I and II, and denied as to Count IV.
Counts I and II allege violations of the federal securities
statutes. It is well established that one may recover only
actual damages for violations of the 1933 Act, in view of 15
U.S.C.A. § 77l which explicitly provides for a return of the
consideration plus interest less income received. Globus v. Law
Research Service, 418 F.2d 1276, 1283-1287 (2d Cir. 1969),
cert. denied, 397 U.S. 913, 90 S.Ct. 913, 25 L.Ed.2d 93 (1970).
It is equally established that punitive damages are not
recoverable for violations of the 1934 Act, in view of 15
U.S.C.A. § 78bb(a) which limits recovery to actual damages. See
Green v. Wolf Corp., 406 F.2d 291 (2d Cir. 1968), cert. denied,
395 U.S. 977, 89 S.Ct. 2131, 23 L.Ed.2d 766 (1969).
Accordingly, plaintiffs are not entitled to punitive damages
for violations of the federal securities statutes; and
to dismiss the prayer for such are therefore granted as to
Counts I and II.
Whether punitive damages are recoverable under a separate
common law fraud count presents a question upon which federal
courts have differed. Thus far, two judges in this district
have held that the federal statutory prohibitions against
punitive damages prevent such recovery. Cant v. A. G. Becker
& Co., Inc., [1971-1972] Fed.Sec.L. Rep. ¶ 93,347 at 91,874-75
(N.D.Ill. 1971) (Bauer, J.) (plaintiff should not be permitted
to obtain indirectly that which he cannot obtain directly);
Schaefer v. First National Bank of Lincolnwood, 326 F. Supp. 1186,
1193 (N.D. Ill. 1970) (Decker, J.) (common law damage
rules permitting recovery in excess of actual damages have not
been saved by the securities statutes). See also deHaas v.
Empire Petroleum Company, 435 F.2d 1223, 1229-1232 (10th Cir.
On the other hand, numerous courts of other jurisdictions
have held that punitive damages may be recovered under a count
for common law fraud and deceit, despite the federal statutory
limitation to actual damages. Young v. Taylor, 466 F.2d 1329,
1337-1338 (10th Cir. 1972); Hecht v. Harris Upham & Co.,
283 F. Supp. 417, 444 (N.D.Cal. 1968) (dictum), modified on other
grounds, 430 F.2d 1202 (9th Cir. 1970); Gann v. Bernzomatic
Corporation, 262 F. Supp. 301, 304 (S.D.N.Y. 1966). Although
the court in deHaas v. Empire Petroleum Company,
supra, set forth numerous policy reasons for denial of punitive
damages in a case such as this, the simple fact remains that,
on their face, both the 1933 and 1934 Acts preserve all rights
and remedies at law and equity which existed prior to
enactment. Section 16 of the 1933 Act [15 U.S.C.A. § 77p]
"The rights and remedies provided by this
subchapter shall be in addition to any and all
other rights and remedies that may exist at law
or in equity."
Section 28(a) of the 1934 Act [15 U.S.C.A. § 78bb(a)]
provides, in pertinent part:
"(a) The rights and remedies provided by this
chapter shall be in addition to any and all other
rights and remedies that may exist at law or in
equity; but no person permitted to maintain a
suit for damages under the provisions of this
chapter shall recover, through satisfaction of
judgment in one or more actions, a total amount in
excess of his actual damages on account of the act
complained of." (emphasis supplied)
It is absolutely clear from the words of §§ 77p and 78bb(a)
that common law remedies, which existed at the time of
enactment of the respective statutes were not to be affected by
the statutory restrictions on recovery. Accordingly, the
crucial question becomes whether punitive damages are still
recoverable for fraud and deceit at common law.