The opinion of the court was delivered by: Holderman, District Judge:
MEMORANDUM OPINION AND ORDER
Daniel and Marie O'Keefe ("plaintiffs") brought this suit
against defendants Guy W. Courtney ("Courtney") and its clearing
broker Mesirow and Company, Inc. ("Mesirow") after losing a
substantial sum of money in the stock market. The amended
complaint charges Mesirow with liability under section 10(b) of
the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule
10b-5 promulgated thereunder (Count I); section 17(a) of the
Securities Act of 1933, 15 U.S.C. § 77q(a) (Count II); the
Racketeer Influenced and Corrupt Organization statute ("RICO"),
18 U.S.C. § 1961 et seq. (Count V); and with various state law
violations (Counts VI-VIII).
Mesirow has moved the Court to dismiss the complaint against
it. In considering a motion to dismiss, all well-pleaded factual
allegations in the complaint are taken as true, with the facts
viewed in the light most favorable to the plaintiff. Dismissal is
proper only when "it appears beyond doubt that the plaintiff can
prove no set of facts in support of his claim which would entitle
him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct.
99, 102, 2 L.Ed.2d 80 (1957). Despite this vigorous standard of
review, the Court is convinced that Mesirow's motion to dismiss
should be granted.
The scenario of events alleged in the complaint is as follows:
On February 21, 1984, plaintiffs met with Courtney for investment
advice. Plaintiffs told Courtney that they wanted to invest their
funds conservatively in order to preserve the capital. On
February 28, 1984 Courtney sent plaintiffs an Investment Analysis
and Summary. The Summary recognized that plaintiffs' investing
objective was to preserve capital "by conservative investing with
a willingness to accept certain moderate risk levels in an
attempt to generate current income. . . ." Courtney's suggested
investment portfolio included a $15,000 investment in preferred
stock issues. On March 19, 1984, plaintiffs gave Courtney
$100,000 to be invested according to the suggested portfolio.
In June of 1984, plaintiffs received a statement indicating
that $17,812.96 of their funds had been used to purchase
Continental Illinois Corp. and Anacomp Inc. stock. The statement
indicated that the purchases had been cleared through Mesirow.
The purchase price for Continental Illinois and Anacomp stock
subsequently declined and plaintiffs incurred losses of
The complaint alleges that plaintiffs never authorized the
purchase of the Continental Illinois and Anacomp stock since the
stock of these companies is not "low-to-moderate risk preferred
stock" and the purchase price exceeded the $15,000 authorization.
Paragraphs 15 and 16 of the complaint allege as follows:
Defendant COURTNEY defrauded and deceived Plaintiffs
by wilfully and intentionally making unauthorized
trades in Plaintiffs' account and by taking
discretions with Plaintiffs' account in violation of
the portfolio agreement. In the alternative,
Defendants disregarded their duty and acted
recklessly or with gross negligence in making the
aforesaid unauthorized trades in Plaintiffs' account.
16. The aforesaid allegations portray a fraudulent
course of business conduct on the part of Defendant
COURTNEY, to defraud Plaintiffs. . . .
The alleged liability of Mesirow is premised upon those
sections of the securities laws which impose joint and several
liability upon any person who directly or indirectly "controls"
the primary offender. 15 U.S.C. § 77o, 78t(a).
A. Section 10(b) and 17(a) Claims.
Mesirow has moved for dismissal of Counts I and II on two
grounds. First, Mesirow contends that the complaint fails to
state a cause of action for violation of the securities laws by
the primary offender, Courtney, and cannot therefore state a
claim against Mesirow for "control" liability. Second, Mesirow
argues that even assuming Counts I and II sufficiently set forth
causes of action against Courtney, the complaint is bereft of any
fact from which this Court could conclude that ...