elicit through this discovery could support a finding of waiver
by FNB of its venue privilege.
The only case that has been cited by plaintiff where the court
did in fact find a waiver was Stinnett v. 3rd National Bank of
Hampden City, 443 F. Supp. 1014 (D.Minn. 1978). In Stinnett,
plaintiff sued defendant bank for defamation; the publication
allegedly having been part of a complaint filed by defendant
bank against the plaintiff in a previous action. The court held
that since the action concerned arose from a previous action
voluntarily filed by the bank, there was a waiver of § 94 venue
for the purpose of the present action.
Plaintiff in the instant case relies heavily on FNB's alleged
involvement in previous actions in this district. However,
plaintiff has not alleged, nor could he, that FNB was a party
to those actions, made an appearance in those actions or in any
way put itself before the courts of this district. Thus, even
if plaintiff could show that FNB was informally involved in
those other causes, that would not constitute a voluntary
waiver as required by Buffum. FNB, not being a party, was not
in a position to move for a change of venue.
Therefore, since plaintiff has alleged no facts which, if
proved, would constitute a waiver by FNB of its § 94 venue
privilege, this court is bound by Supreme Court precedent to
dismiss FNB for lack of venue in this district.
This cause comes before the court on defendant Shreffler's
motion to dismiss plaintiff's complaint as against it.
Plaintiff has charged Shreffler and others with violations of
sections 17(a) of the Securities Act of 1933 (Count I) and
section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder (Count II). Plaintiff has also
asserted a pendent claim against Shreffler based on common law
fraud. Defendant's motion to dismiss is apparently based on its
assertions that this court lacks subject matter jurisdiction
over plaintiff's claim, that plaintiff has failed to state a
claim on which relief may be granted under the federal
securities laws, Fed.R. Civ.P. 12(b)(6), and that plaintiff has
failed to plead both the alleged securities violations and the
common law fraud count with sufficient particularity.
The court finds defendant's claim that this court lacks subject
matter jurisdiction over plaintiff's cause of action to be
without merit. McGrath v. Zenith Radio, 651 F.2d 458, CCH
Fed.Sec.L.Rep. ¶ 97,841 at 90,209 (7th Cir. 1981). Rather, the
substance of defendant's argument should in fact be
characterized as a standard motion to dismiss for failure to
state a claim on which relief may be granted. Fed.R.Civ.P.
12(b)(6). It is the court's conclusion, however, that
plaintiff's claim, if properly pleaded, would withstand a Rule
12(b)(6) motion. Nevertheless, because plaintiff has failed to
comply with the dictates of Fed.R. Civ.P. 9(b), the complaint
must be dismissed as to defendant Schreffler. Plaintiff is
granted leave to amend its complaint within 30 days in order to
comply with the requirements of that rule.
The reasons for the court's holdings are detailed below.
The Section 17(a) Claim
Defendant, in its reply memorandum in support of its motion to
dismiss, baldly asserts that "[t]his District does not
recognize a private right of action under [Section 17(a)] of
the 1933 Act." (Reply Memorandum at 2). Defendant's assertion
is simply untrue. The Seventh Circuit does recognize such a
right of action and has done so for over four years. Daniel v.
International Brotherhood of Teamsters, 561 F.2d 1223,
1244-1246 (7th Cir. 1977), rev'd on other grounds
439 U.S. 551, 99 S.Ct. 790, 58 L.Ed.2d 808 (1979); Lincoln National
Bank v. Herber, 604 F.2d 1038, 1040 n.2 (7th Cir. 1979).
Defendant next claims that, even if plaintiff has a right of
action under § 17(a), this court is prohibited from sustaining
plaintiff's § 17(a) count because of the restrictive language
of the section which requires that claims brought under it must
based on alleged frauds committed "in the offer or sale of
any securities." (emphasis added). It is defendant's assertion
that, since, by plaintiff's implied admission, defendant did
not actually sell any securities, see Complaint ¶ 29 at 9,
the language of the section prevents this court from
considering plaintiff's claim for relief. The court disagrees.
It is beyond dispute that with regard to section 17(a)'s sister
provisions, section 10(b) of the 1934 Act and Rule 10b-5
promulgated thereunder, allegations of omissions or
misstatements of material fact in a selling document would
supply a basis for a claim brought under those provisions. It
is true that, as plaintiff states, the language of section
10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder is
somewhat broader than that of § 17(a) of the 1933 Act, (the
former covers omissions or misrepresentations made "in
connection with" the purchase and sale of any security),
however, it is this court's belief that the slight difference
in language does not compel different analysis. This conclusion
is supported by the Supreme Court's recent holding advocating a
broad interpretation of section 17(a)'s coverage, see United
States v. Naftalin, 441 U.S. 768, 773, 99 S.Ct. 2077, 2081, 60
L.Ed.2d 624 (1979) ("The statutory terms which Congress
expressly intended to define broadly [citations omitted] are
expansive enough to encompass the entire selling process . . .")
and by Seventh Circuit cases advocating a parallel
interpretation of the requirements of these provisions of the
1933 and 1934 Acts. See Lincoln National Bank v. Herber, 604
F.2d at 1040 n.2; Daniel v. International Brotherhood of
Teamsters, 561 F.2d at 1244-1246; Sennett v. Oppenheimer,
502 F. Supp. 939, 942 (N.D.Ill. 1980). As a result of this
conclusion, inquiry turns to whether or not plaintiff has
adequately alleged the existence of a misstatement or omission
in connection with the purchase or sale of the securities which
are the subject of this lawsuit so as to make out a claim under
section 10(b) and Rule 10b-5. The court believes that plaintiff
has not done so.
The substance of plaintiff's allegation against Shreffler
appears to be that the defendant participated in the
preparation of a selling document which allegedly contained
certain misstatements and omissions of material fact. Plaintiff
has sufficiently alleged the existence of such omissions and
misstatements. See Amended Complaint, ¶ 27 at 8. However,
plaintiff has failed to adequately plead its claim that
defendant Shreffler participated in the preparation of this
document. At present, all plaintiff has pleaded is its
conclusory allegation. In light of the serious nature of
plaintiff's claim, such vague and unsupported charges cannot be
allowed to stand. Segal v. Gordon, 467 F.2d 602 (2d Cir.
1971); Denny v. Barber, 576 F.2d 465 (2d Cir. 1978);
Jacobson v. Peat, Marwick, Mitchell & Co., 445 F. Supp. 518,
522 (S.D.N.Y. 1973); Rich v. Touche-Ross & Co., 68 F.R.D.
243, 245 (S.D.N.Y. 1973). Defendant Shreffler is charged with
aiding and abetting the allegedly wrongful activities referred
to in the complaint. Liability for such conduct would require
allegations of the "aider's substantial assistance of the
primary fraud [citations omitted]." Morgan v. Prudential
Group, Inc., 81 F.R.D. 418, 424 (S.D.N.Y. 1978). The court is
in agreement with the opinion of Judge Lasker of the Southern
District of New York in which it is stated,
"An unadorned allegation that a defendant `participated' in the
preparation of false and misleading selling documents is at
most a conclusory allegation that it `substantially assisted'
or `furthered' the fraud. Such conclusions do not satisfy the
strictures of Rule 9(b)."
Plaintiff's failure to plead with particularity is fatal to
both its securities act counts and its common law fraud
counts. Therefore, the motion to dismiss as to defendant
Shreffler is granted. Plaintiff is given leave to amend its
complaint within 30 days.