The opinion of the court was delivered by: ASPEN
MARVIN E. ASPEN, UNITED STATES DISTRICT JUDGE
Plaintiffs Leonard and Gaye Wislow and Beco, Inc. bring this multi-count action charging defendants Arthur Wong, Bernard Kornhaber, W-K Investment Co., Wayne Siem and Siem Limited Partnership with violating federal and state securities laws and breaching various common law duties. Defendants move to dismiss all but two of the counts. For the following reasons, the motion to dismiss is granted in part and denied in part.
In March of 1987, the defendants organized Lakeside II, an Illinois partnership, for the purpose of purchasing, rehabilitating and re-selling old apartment buildings in the Chicago area. The partnership agreement named W-K Investment and Siem Limited as general partners and Arthur Wong as the initial limited partner. Beginning in June of that year, defendants solicited plaintiffs to join the Lakeside II partnership. During negotiations, the defendants made a series of misstatements of fact to the plaintiffs, including but not limited to the order of cash distribution to general and limited partners, the expected rate of return on plaintiffs' investment and the status of Lakeside's ongoing activities. Defendants also failed to disclose certain facts and specified documents. On September 9, the plaintiffs, in reliance upon the misrepresentations and omissions, purchased limited partnership interests for $ 100,000. The plaintiffs have yet to receive any return on their investment. In this action, plaintiffs set forth six federal and state law claims founded on fraud,
two claims charging a failure to register securities in violation of federal and state law,
and one claim each of breach of contract and fiduciary duty. Defendants move to dismiss all but the two registration claims.
Failure to Plead Fraud with Particularity
Defendants move to dismiss the six fraud claims for failure to satisfy the dictates of Fed.R.Civ.P. 9(b). As we have stated frequently, Rule 9(b) places the following burden upon a plaintiff claiming fraud:
[A] complaint which alleges . . . fraud must state with particularity specific fraudulent acts comprising fraud. In describing the circumstances constituting fraud, the plaintiff must describe the "time, place and particular contents of the false representations, as well as the identity of the party making the misrepresentation, and what was obtained or given up thereby." (Citations omitted). D & G Enterprises v. Continental Illinois National Bank, 574 F. Supp. 263, 267 (N.D. Ill. 1983).
See also Harris Trust & Savings Bank v. Ellis, 609 F. Supp. 1118, 1123 (N.D. Ill. 1985), aff'd, 810 F.2d 700 (7th Cir. 1987). Plaintiffs are not required to allege facts that are in the exclusive possession of the defendants. Donato v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 663 F. Supp. 669, 673 (N.D. Ill. 1987). In a case with multiple defendants, "plaintiff need only allege a 'brief sketch of how the fraudulent scheme operated, when and where it occurred, and the participants,'" Carter v. Signode Industries, Inc., 694 F. Supp. 493, 500 (N.D. Ill. 1988), quoting Tomera v. Galt, 511 F.2d 504, 509 (7th Cir. 1975). A plaintiff must additionally specify each individual defendant's misconduct. Harris Trust, 609 F. Supp. at 1123.
This requirement serves the twin goals of giving the defendants adequate notice to allow preparation of a defense and assuring that the plaintiff has a colorable basis for naming each defendant.
Plaintiffs have satisfied these standards only in part. The complaint adequately sets forth the time frame within which the misrepresentations and omissions occurred and, in most cases, the nature of the fraudulent acts. However, plaintiffs do not identify where the acts occurred and fail to attribute the acts to specific defendants. Rather, plaintiffs allege generally that "the defendants, and each of them, aided and abetted by the others, induced plaintiffs . . . by their fraudulent acts," followed by a list of those acts. Rule 9(b) as we have interpreted it requires the plaintiff at a minimum to notify each defendant of the fraudulent acts for which it is charged. Plaintiffs seek to avoid this requirement by stating that "each defendant either controls or is the agent or partner of the other. As such, each defendant is responsible for the conduct and representations of the other." That each defendant may be liable for the actions of the others does not obviate the need to identify the perpetrator of each alleged fraudulent act. As we stated above, one reason for requiring the plaintiff to attribute the misconduct to specific defendants is to provide adequate notice. The defendants as a group must be informed of the precise actions or inactions that constitute the misrepresentation or omission. The most that we can glean from the complaint is that someone somewhere misrepresented or omitted material facts. Accordingly, we dismiss Counts I through III and VI through VII; but, to the extent any of these claims survive defendants' motion to dismiss under Fed.R.Civ.P. 12(b)(6), we give plaintiffs leave to amend their complaint within ten days to comply with Rule 9(b) as interpreted above, if they so choose.
Defendants also move under Fed.R.Civ.P. 12(b)(6) to dismiss six of the counts for failure to state an essential element of the claim.
A. Count II: Section 17(a) of the Securities Act of 1933
In Count II, plaintiffs seek relief for violations of section 17(a) of the 1933 Securities Act. In Bear Stearns & Co., Inc. v. Zeier, 691 F. Supp. 145 (N.D. Ill. 1988), we held without qualification that a private cause of action is unavailable under § 17(a).