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O'KEEFE v. COURTNEY

November 20, 1985

DANIEL W. O'KEEFE AND MARIE O'KEEFE, PLAINTIFFS,
v.
GUY W. COURTNEY, D/B/A G.W. COURTNEY, INC., AND MESIROW & COMPANY, INC., DEFENDANTS.



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.

Background Facts

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 $11,192.00.

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).

Discussion

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 ...


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