Williams v. WMX Technologies, Inc.

• Decision Date: 24 April 1997
• Docket Number: No. 96-20461,96-20461
• Citation: 112 F.3d 175
• Parties: Fed. Sec. L. Rep. P 99,449, 37 Fed.R.Serv.3d 739, RICO Bus.Disp.Guide 9248 Dennis WILLIAMS, Richard Dreiling, Plaintiffs-Appellees, v. WMX TECHNOLOGIES, INC. formerly known as Waste Management, Inc. and Environmental Industry Associations, formerly known as National Solid Waste Management Association; Dean L. Buntrock, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 175

112 F.3d 175

Fed. Sec. L. Rep. P 99,449, 37 Fed.R.Serv.3d 739,

RICO Bus.Disp.Guide 9248

Dennis WILLIAMS, Richard Dreiling, Plaintiffs-Appellees, v. WMX TECHNOLOGIES, INC. formerly known as Waste Management,

Inc. and Environmental Industry Associations, formerly known

as National Solid Waste Management Association; Dean L.

Buntrock, Defendants-Appellants.

No. 96-20461.

United States Court of Appeals,

Fifth Circuit.

April 24, 1997.

Rehearing and Suggestion for Rehearing

En Banc Denied May 22, 1997.

Ben C. Broocks, H. Victor Thomas, Jr., Broocks, Baker & Lange, Houston, TX, Diana Elizabeth Marshall, James Tynan Kelly, Schechter & Marshall, Houston, TX, Donna K. Gray, Martin & Farley, Houston, TX, for Plaintiffs-Appellees.

Nicholas J. Etten, Peter G. Rush, Maureen Ward Kirby, Marc Douglas Fisher, Bell, Boyd & Lloyd, Chicago, IL, Lynne Liberato, Haynes and Boone, Houston, TX, for Defendants-Appellants.

Joseph M. Hassett, Washington, DC, Albert W. Turnbull, George Henry Mernick, III, Hogan & Hartson, Washington, DC, David J. Beck, Laura Nicole Batey, Beck, Redden & Secrest, Houston, TX, for Environmental Industry Associations, National Solid Waste Management Association fka National Solid Waste Management Association, Defendant-Appellant.

Appeals from the United States District Court for the Southern District of Texas.

Before HIGGINBOTHAM, DAVIS and BARKSDALE, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This is a class action suit alleging fraud in the sale of securities. WMX, EIA, and Dean Buntrock bring this interlocutory appeal from the district court's denial of their motion to dismiss Williams and Dreiling's complaint. We find that the amended complaint failed to allege fraud with particularity, reverse the order of the district court, and remand with instructions to dismiss.

I.

In 1987, news services over much of the world followed the plight of a barge heaped with New York state garbage off the coast with no landfill willing to take its waste. This event seeded a public perception that the United States was running out of space to dispose of its trash. Much public discussion followed. Finally, on January 19, 1995, the Wall Street Journal published an article detailing the history of this "crisis," postulating that we were never really running out of disposal space. This article also attributed much of the media's attention about declining landfill space to large garbage companies willing to exploit public fear of a garbage crisis.

On February 24, 1995, Dennis Williams and Richard Dreiling filed this suit alleging that WMX, a national garbage hauling service, and its president, Dean Buntrock, defrauded the public, government agencies, and local trash haulers who sold out to WMX by perpetuating the "garbage crisis" myth. Plaintiffs also sought to represent a class of purchasers of "securities, including the common stock of WMX for a period beginning January 1, 1987, and ending December 31, 1993." The putative class has not been certified. Williams and Dreiling were co-owners of Texas Sanitation Industries, sold to WMX in exchange for WMX stock. On June 6, 1995, Williams and Dreiling filed an amended pleading, adding EIA, a trade group formed to lobby for the interest of the garbage companies, as a defendant and modifying its claims to allege violations of RICO and aiding and abetting a 10b-5 violation. Williams and Dreiling alleged that EIA was liable for the fraud committed by WMX because it is linked both operationally and financially with WMX and that it participated in disseminating false and misleading material in the market.

In their amended complaint, Williams and Dreiling alleged that during the time they were contemplating whether to sell TSI for stock, an employee of WMX, Lynn Lantrip, stated that: 1) there existed a shortage of landfill capacity; 2) TSI would soon have no place to dump the trash it hauled; 3) WMX could soon be unable to accept any trash hauled by TSI; and 4) WMX owned and controlled more landfill capacity than any other company in the United States. Their brief also alleged that WMX's January 1992 prospectus falsely stated that:

Suitable sanitary landfill facilities have become increasingly difficult to obtain because of land scarcity, local resident opposition and expanding governmental regulation. The scarcity of sites and increased volume of wastes have resulted in more intensive use of existing sanitary landfill facilities. As its existing facilities become filled, the solid waste disposal operations of the Company are and will continue to be materially dependent on its ability to purchase, lease or obtain operating rights for additional sites and obtain the necessary permits from regulatory authorities to operate them. There can be no assurance that additional sites can be obtained or that existing facilities can continue to be operated. However, management believes that the facilities currently available to the Company are sufficient to meet the needs of its current operations for the foreseeable future.

Attached to the amended complaint were 62 newspaper articles alleged to contain public misrepresentations by WMX and EIA, some of which were excerpted in the body of the amended complaint. Williams and Dreiling urged that these articles demonstrated that WMX and EIA conspired to perpetrate the "mass deception" that there was a garbage crisis.

The district court denied a motion to dismiss the amended complaint under Fed.R.Civ.P. 9(b) and 12(b)(6), and a motion to reconsider, but granted a request to certify the interlocutory ruling for appeal. Judge Hittner found that whether the pleading of fraud met the particularity requirement presented a close question. We granted the requested leave to appeal.

II.

The amended complaint alleged violations of RICO predicated on mail and wire fraud, misrepresentations in violation of 10b-5, and state law claims of fraud and negligent misrepresentation. We must decide if the amended complaint was detailed enough to survive the motion to dismiss, an attack leveled at all claims, resting as they do upon the same asserted "fraud".

Fed.R.Civ.P. 9(b) applies to securities fraud and RICO claims resting on allegations of fraud. Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1068 (5th Cir.1994)(securities fraud); Tel-Phonic Serv., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1139 (5th Cir.1992)(RICO). WMX contends that 9(b) also applies to the state law claims of common law fraud and negligent misrepresentation. Because Williams and Dreiling do not attempt to distinguish these claims in their brief, and because the state law claims rely upon the same misrepresentations as the federal claims, we do not distinguish between them here. See Shushany v. Allwaste, Inc., 992 F.2d 517, 520 n. 5 (5th Cir.1993). We see no principled reason why the state claims of fraud should escape the pleading requirements of the federal rules, and the parties have not urged a separate focus upon state law claims of negligent misrepresentation.

The elements of fraud include: 1) a misstatement or omission; 2) of material fact; 3) made with the intent to defraud; 4) on which the plaintiff relied; and 5) which proximately caused the plaintiff's injury. Cyrak v. Lemon, 919 F.2d 320 (5th Cir.1990). Pleading fraud with particularity in this circuit requires "time, place and contents of the false representations, as well as the identity of the person making the misrepresentation and what [that person] obtained thereby." Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1068 (5th Cir.1994); see also Melder v. Morris, 27 F.3d 1097, 1100 n. 5 (5th Cir.1994); Shushany v. Allwaste, 992 F.2d 517, 520 (5th Cir.1993).

As the Second Circuit has noted, articulating the elements of fraud with particularity requires a plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.1993). We agree with the Second Circuit's approach. This suit was filed prior to the effective date of the Private Securities Litigation Reform Act, and while its provisions do not apply, the Act adopted the same standard we apply today. See H.R. Conf. Rep. No. 369, 104th Cong., 1st Sess. 41 (1995); 15 U.S.C. § 78u-4(b).

The cry of pleading technicalities must be put in perspective. The rules of civil procedure adopted in 1938 implemented a profound change in the role of pleading in defining issues for trial. In the main, the complaint became an ignition point for discovery. Issues were to be "defined" by discovery, not pleading. Our reverential treatment of the large achievements of the 1938 rules may not have fully counted its price, or at least the price over time seems to have gone up as pretrial process dwarfs actual trials. We do not fully understand the extent of these difficulties or their cause. It does remain clear that ready access to the discovery engine all the while has been held back for certain types of claims. An allegation of fraud is one. Rule 9(b) demands a larger role for pleading in the pre-trial defining of such claims.

That said, the requirement for particularity in pleading fraud does not lend itself to refinement, and it need not in order to make sense. Directly put, the who, what, when, and where must be laid out before access to the discovery process is granted. So today we neither set springs for the unwary nor insist on "technical" pleading requirements. We remind that this bite of Rule 9(b) was part of the pleading revolution of 1938. In short, we apply the rule with force, without apology. At the same time, we read Rule 9(b) as part of the entire set of rules, including Rule 8(a)'s insistence upon "simple, concise, and direct" allegations. Relatedly, while 9(b) stands as an exception to an overarching policy of immediate access to discovery, it did not reflect a...