Arena Land & Inv. Co., Inc. v. Petty

• Decision Date: 12 August 1994
• Docket Number: No. 89-C-0144-S.,89-C-0144-S.
• Citation: 906 F. Supp. 1470
• Court: U.S. District Court — District of Utah
• Parties: ARENA LAND & INVESTMENT CO., INC., a Utah corporation, Dave McGee, John Satterfield, Jean Pinto, Gary Blatter, Brian Johnson, Mike Stevens, Doug Christiansen, Ray Lowe, William J. Pappas, Bart Jackson, Lisa Jackson, Sherrie Pappas, James Friedman, Neil Zais, and Kenneth R. McClain, individually and on behalf of the class of all persons similarly situated, Plaintiffs, v. Neuman C. PETTY, Robert M. Bryson, Nupetco Associates, a general partnership, Ralph C. Petty, Wayne G. Petty, Brent G. Petty, Keith A. Petty, Albert S. Petty, Ireva G. Petty, Ireva P. Ozawa, Global Oil & Gold Company, a "publicly-held" Utah corporation, Sugarhouse Finance Company, a dba of Nupetco Associates, Petty Investment Company, a dba of Neuman C. Petty, Petty Motor Company, or Petty Motor Company, Inc., a Utah corporation, P & L Land Company, a dba of Neuman C. Petty and/or Nupetco Associates, Defendants.

906 F. Supp. 1470

ARENA LAND & INVESTMENT CO., INC., a Utah corporation, Dave McGee, John Satterfield, Jean Pinto, Gary Blatter, Brian Johnson, Mike Stevens, Doug Christiansen, Ray Lowe, William J. Pappas, Bart Jackson, Lisa Jackson, Sherrie Pappas, James Friedman, Neil Zais, and Kenneth R. McClain, individually and on behalf of the class of all persons similarly situated, Plaintiffs, v.Neuman C. PETTY, Robert M. Bryson, Nupetco Associates, a general partnership, Ralph C. Petty, Wayne G. Petty, Brent G. Petty, Keith A. Petty, Albert S. Petty, Ireva G. Petty, Ireva P. Ozawa, Global Oil & Gold Company, a "publicly-held"

Utah corporation, Sugarhouse Finance Company, a dba of Nupetco Associates, Petty Investment Company, a dba of Neuman C. Petty, Petty Motor Company, or Petty Motor Company, Inc., a Utah corporation, P & L Land Company, a dba of Neuman C. Petty and/or Nupetco Associates, Defendants.

No. 89-C-0144-S.

United States District Court, D. Utah, Central Division.

August 12, 1994.

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Michael Goldsmith, John Michael Coombs, Salt Lake City, UT, for plaintiffs.

John T. Caine, Richards, Caine & Allen, Ogden, UT, Joseph J. Palmer, Mark W. May, Moyle & Draper, Salt Lake City, UT, for defendants.

SAM, District Judge.

I.INTRODUCTION

DefendantsNeuman C. Petty, Ralph C. Petty, Wayne G. Petty, Keith A. Petty, Ireva G. Petty, Albert S. Petty and Nupetco Associates(the "Pettys") have moved to dismiss plaintiffs' claims alleged in their third amended complaint for failure to comply with Fed.R.Civ.P. 8 and for failure to state a claim pursuant to Fed.R.Civ.P. 9(b) and 12(b)(1) and (6).DefendantsBrent G. Petty, Petty Motor Company, Charles N. Petty, and Ireva P. Ozawa also move to dismiss the third amended complaint and join the Pettys in their motion.¹

In their third amended complaint, plaintiffs contend defendants committed violations under the Racketeer Influenced and Corrupt Organizations Act("RICO"), the Securities Exchange Act of 1934, the Securities Act of 1933, and various pendant state law claims.For the reasons hereafter discussed, the court concludes that plaintiffs' third amended complaint is fatally defective and must, therefore, be dismissed.²

The facts alleged in this matter are adequately set forth in the extensive pleadings and the court will not recite them here.The essence of the case, as alleged in the second amended complaint, was stated by the magistrate judge in his March 27, 1991Report and Recommendation ("R & R")³, p. 4 as follows:

The gist of the complaint is this: Michael Strand was a promoter of penny stock in Global Oil & Gold Company; Strand manipulated the market in Global Oil by use of various fraudulent schemes, and induced plaintiffs to purchase Global stock through various misrepresentations and material omissions.Neuman C. Petty and Nupetco Associates knowingly financed these fraudulent schemes by loaning or giving Strand large sums of money.The individual Petty defendants are liable for Nupetco Associates' misconduct as general partners of Nupetco.

In their third amended complaint, plaintiffs further assert that Neuman Petty and Nupetco Associates manipulated the stock and assets of several publicly-held companies.

II.STANDARD FOR DISMISSAL

A defendant may move to dismiss a cause of action when the plaintiff has failed "to state a claim upon which relief can be granted."Fed.R.Civ.P. 12(b)(6).Such a motion puts the legal sufficiency of the plaintiff's complaint at issue.SeeBryan v. Stillwater Bd. of Realtors,578 F.2d 1319, 1321(10th Cir.1977).In considering a motion to dismiss, "the pleadings should be liberally construed, all well-pleaded factual allegations must be accepted as true, and all reasonable inferences must be drawn in favor of the plaintiff."Garcia v. Eidal Int'l Corp.,808 F.2d 717, 719(10th Cir.1986), cert. denied,484 U.S. 827, 108 S.Ct. 94, 98 L.Ed.2d 55(1987);accordCastleglen, Inc. v. Commonwealth Savings Ass'n,689 F.Supp. 1069, 1070(D.Utah1988).Thus, a complaint does not warrant dismissal "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."Castleglen,689 F.Supp. at 1070.

Securities laws combating fraud should be construed liberally to promote their remedial purpose of protecting the investing public.SeeHerman & MacLean v. Huddleston,459 U.S. 375, 386-87, 103 S.Ct. 683, 689-90, 74 L.Ed.2d 548(1983).However, "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.Malice, intent, knowledge, and other condition of mind of a person may be averred generally."Fed.R.Civ.P. 9(b)(emphasis added).Rule 9(b) not only applies generally in securities fraud cases, seeSeattle-First Nat'l Bank v. Carlstedt,800 F.2d 1008, 1010(10th Cir.1986), but courts strictly enforce it under the securities laws, requiring "detailed statements" of the specific, fraudulent conduct.Farlow v. Peat, Marwick, Mitchell & Co.,956 F.2d 982, 986(10th Cir.1992).The requirement of rule 9(b), that allegations of fraud be pled with particularity, also applies to each element of a RICO violation, as well as the predicate fraud allegations of RICO claims.Id.;Cayman Exploration Corp. v. United Gas Pipe Line,873 F.2d 1357(10th Cir.1989)."The threat of treble damages and injury to reputation which attend RICO actions justify requiring plaintiff to frame its pleadings in such a way that will give the defendant, and the trial court, clear notice of the factual basis of the predicate acts."Id. at 1362.

Rule 9(b) must be read in conjunction with Fed.R.Civ.P. 8 requiring plaintiffs to set forth "a short and plain statement of the claim" showing they are entitled to relief See Dahl v. Gardner,583 F.Supp. 1262, 1267(D.Utah1984).Attempting to balance these two rules, the Dahl court noted that "`the most basic consideration in making a judgment as to the sufficiency of a pleading is the determination of how much detail is necessary to give adequate notice to an adverse party and enable that party to prepare a responsive pleading.'"Id.(quoting5 C. Wright & A. Miller, Federal Practice and Procedure§ 1298(1969));see alsoLochhead v. Alacano,697 F.Supp. 406, 415(D.Utah1988)("The policy of requiring notice to adverse parties is fundamental" in considering a motion to dismiss.).⁴

In applying Rule 9(b), the Court of Appeals for the Tenth Circuit and this court have more fully explained the requirements of pleading fraud "with particularity."In Carlstedt, the Tenth Circuit adopted as a "correct statement of Rule 9(b) requirements in securities fraud cases"a standard of the District Court of Colorado:

Rule 9(b) does not ... require the pleading of detailed evidentiary matter, nor does it require any particularity in connection with an averment of intent, knowledge, or condition of mind.It only requires identification of the circumstances constituting fraud or mistake.That requirement means ... that individual plaintiffs should identify particular defendants with whom they dealt directly, and from whom they purchased stock; that individual plaintiffs should designate the occasions on which affirmative statements were allegedly made to them—and by whom; and that individual plaintiffs should designate what affirmative misstatements or half-truths were directed to them—and how.

Carlstedt,800 F.2d at 1011(quotingTrussell v. United Underwriters, Ltd.,228 F.Supp. 757, 774-75(D.Colo.1964));accordBradford v. Moench,670 F.Supp. 920, 924-25(D.Utah1987);see alsoCook v. Zions First Nat'l Bank,645 F.Supp. 423, 424-25(D.Utah1986)(Plaintiffs must "set forth in specific terms the time, place, content, and manner of each defendant's alleged material misrepresentations or otherwise fraudulent conduct," particularly "in cases involving multiple defendants.").

"A plaintiff may not justify a failure to plead fraud with specificity by arguing that he cannot meet the standards of Rule 9(b) without discovery."Lochhead,697 F.Supp. at 415;accordFarlow,956 F.2d at 990.However, a complaint based upon the plaintiff's information and belief, as long as it includes the facts upon which the belief is based, is adequate where the plaintiff"`cannot be expected to have personal knowledge of the facts constituting the wrongdoing.'"Lochhead,697 F.Supp. at 416(quotingZatkin v. Primuth,551 F.Supp. 39, 42(S.D.Cal.1982)).Also, "more complex transactions require less specificity in pleading and, in these matters, the paragraphs of the complaint cannot be isolated but must be read as a whole."Id.

III.DISCUSSION

1.Violation of Fed.R.Civ.P. 8

Defendants first assert that the third amended complaint should be dismissed with prejudice for violation of Fed.R.Civ.P. 8, which requires that pleadings contain a short and plain statement of the claims and that the averments be simple, concise and direct.⁵

The court agrees.The magistrate judge and this court decided to reach the merits of plaintiffs' second amended complaint in light of "substantial efforts already made to condense the complaint on the one hand, and the necessity of including enough details to survive a Rule 9(b) motion on the other hand,"R & R, p. 3.However, the twice-warned plaintiffs have not been granted permanent immunity from having to comply with Rule 8 in future amended pleadings.After reviewing the third amended complaint, the court concludes that plaintiffs have failed to heed prior direction that they delete scandalous, impertinent and redundant matters from their complaint.The court further concludes that plaintiffs' third amended complaint still is replete with irrelevant and redundant allegations and consistently makes repetitive legal conclusions unsupported by relevant facts.The observation of the magistrate judge regarding the second amended complaint still applies to...