886 F.2d 8 (2nd Cir. 1989), 1108, Cosmas v. Hassett

Docket Nº:1108, Docket 89-7112.
Citation:886 F.2d 8
Party Name:, 14 Fed.R.Serv.3d 1149 Nicholas COSMAS, Plaintiff-Appellant, v. James P. HASSETT, Gerard V. Carey, James M. Cooke, Benjamin S. DeYoung, Lawrence R. Miles, C. Bruce Newberry, Thomas W. Russell, Jr. and Norman S. Sherwood, Defendants-Appellees.
Case Date:September 12, 1989
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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886 F.2d 8 (2nd Cir. 1989)

, 14 Fed.R.Serv.3d 1149

Nicholas COSMAS, Plaintiff-Appellant,

v.

James P. HASSETT, Gerard V. Carey, James M. Cooke, Benjamin

S. DeYoung, Lawrence R. Miles, C. Bruce Newberry,

Thomas W. Russell, Jr. and Norman S.

Sherwood, Defendants-Appellees.

No. 1108, Docket 89-7112.

United States Court of Appeals, Second Circuit

September 12, 1989

Argued May 8, 1989.

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I. Stephen Rabin, New York City (Saul Roffe, Rabin & Sirota, New York City, of counsel), for plaintiff-appellant.

Gregory J. Wallance, New York City (Jay G. Strum, Richard A. Mescon, Herbert Schrank, Donna M. Gerber, Sara L. Shudofsky, Kaye, Scholer, Fierman, Hays & Handler, New York City, Goldstein, Schrank, Segelstein & Shays, New York City, Webster & Sheffield, New York City, of counsel), for defendants-appellees James P. Hassett, Gerard V. Carey, James M. Cooke, Benjamin S. DeYoung, Thomas W. Russell, Jr. and Norman S. Sherwood.

Angelo G. Savino, New York City (Charles M. McCaghey, Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, of counsel), for defendant-appellee Lawrence R. Miles.

Before KEARSE, CARDAMONE and PIERCE, Circuit Judges.

PIERCE, Circuit Judge:

Nicholas Cosmas appeals from an order of the United States District Court for the Southern District of New York, Judge John

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Walker, Jr., which dismissed Cosmas' amended complaint for failure to satisfy the pleading requirements of Federal Rule of Civil Procedure 9(b). We believe that the amended complaint did satisfy the requirements of Rule 9(b). Therefore, we vacate the order of the district court and remand to the district court for further proceedings consistent with this opinion.

BACKGROUND

In a complaint dated March 5, 1987, Cosmas, the plaintiff, alleged that he purchased securities of Inflight Services, Inc. ("Inflight"). He further alleged that the eight named defendants were directors of Inflight, and that these defendants defrauded him and other purchasers of Inflight securities in violation of both statutory and common law. In an order dated November 17, 1987, the district judge dismissed Cosmas' complaint for failure to plead fraud with particularity as required by Rule 9(b), but granted Cosmas leave to amend the complaint.

Cosmas filed an amended complaint dated December 7, 1987. Count One of the amended complaint charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j, and Rule 10b-5 promulgated under that Act, 17 C.F.R. Sec. 240.10b-5. Count One sets forth the following allegations:

In 1985, Inflight was principally engaged in the business of providing projection and video equipment and services in three markets: the airline industry, the marine market and the "institutional" market. (p 14). Through March 31, 1985, Inflight, as part of its institutional market, had customers in the People's Republic of China ("the PRC"). (p 15). Between April 1, 1985 and June 30, 1985, the PRC imposed significant import restrictions which restricted Inflight's sales to customers in the PRC. (p 26).

In Inflight's 10K form for the fiscal year which ended June 30, 1985 ("1985 10K"), which Inflight filed with the Securities and Exchange Commission on or about October 1, 1985, (p 16), Inflight stated that the revenue increase at Inflight from fiscal 1984 to fiscal 1985 was "primarily the contribution of increased sales in the institutional market," (p 17). The 1985 10K reported that as of September 1, 1985, purchase orders for the future delivery of institutional projection equipment had an estimated value of $6 million and that this backlog of orders was expected to generate at least $5 million in revenue in the 1986 fiscal year. (p 20).

On or about August 26, 1985, an article appeared in Forbes magazine which reported on an interview with one of the defendants, Lawrence R. Miles, who was then the chief executive officer of Inflight. The article stated that "[s]ales to the People's Republic of China ... are also an important new source of revenue" for Inflight. (p 18). According to the amended complaint, Inflight had approached Forbes to write the article, and provided Forbes with the information which the...

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