The opinion of the court was delivered by: Austin, District Judge.
This is a class action brought under a four count complaint
to recover actual and punitive damages for alleged violations
of: (1) the registration requirements of the Securities Act of
1933 [15 U.S.C.A. §§ 77e and 77l]; (2) the antifraud provisions
of the Securities Act of 1933 [15 U.S.C.A. §§ 77l(2) and
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]; (3) the
registration requirements and antifraud provisions of the
Illinois Securities Law of 1953 [S.H.A. ch. 121 1/2, §§ 137.5,
137.4, subd. G and 137.12, subds. A, B, D, F, G and I]; and (4)
for common law fraud. Plaintiffs were the purchasers of shares
of a real estate investment trust. Defendants are the issuer,
the management company, and various persons connected to the
sale of the securities.
On May 11, 1973 defendants' motion to dismiss the complaint
was granted, and plaintiffs were given leave to file an
amended complaint. This was done on May 18. Four of the eleven
defendants filed an answer to the amended complaint;
defendants Charles Anderson and William Alles III have yet to
respond; and the others renewed their motions to dismiss.
Disposition of these motions is the subject of this opinion.
Issues which are common to the motions of defendants Wax,
Wolk, and Wolk & Company, Inc. shall be dealt with first,
followed by miscellaneous matters.
MOTIONS TO DISMISS COUNT I
Count I of the amended complaint basically alleges that
defendants sold unregistered securities to plaintiffs, and in
so doing, made use of instruments of interstate transportation
or communication. Furthermore, it alleges that Wax, Wolk and
Wolk & Company, Inc. exerted control over Allson (the alleged
issuer and probable seller of the securities) and Eagle (an
alleged underwriter). Those three defendants now move to
dismiss Count I in that it fails to state a claim against them
upon which relief can be granted. For the following reasons,
the motions should be denied.
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