Bradford v. Moench

• Decision Date: 09 July 1987
• Docket Number: No. 87-C-0078S.,87-C-0078S.
• Citation: 670 F. Supp. 920
• Parties: C. Frank BRADFORD, et al., Plaintiffs, v. Lorin L. MOENCH, et al., Defendants.
• Court: U.S. District Court — District of Utah

670 F. Supp. 920

C. Frank BRADFORD, et al., Plaintiffs, v. Lorin L. MOENCH, et al., Defendants.

No. 87-C-0078S.

United States District Court, D. Utah, C.D.

July 9, 1987.

Robert M. Anderson, Ross C. Anderson, John T. Anderson, William P. Schwartz, Hansen & Anderson, Salt Lake City, Utah, for plaintiffs.

Christopher L. Burton, George W. Pratt, Michael O'Brien, Jones, Waldo, Holbrook & McDonough, Salt Lake City, Utah, for Lorin L. Moench and Richard Moench.

Henry Nygaard, Salt Lake City, Utah, for Robert Beckstead and Copper State Financial Corp.

Denis R. Morrill, Prince, Yeates & Geldzahler, Salt Lake City, Utah, for John Taggart.

Richard M. Taylor, Taylor & Taylor, Spanish Fork, Utah, for Snell Olsen.

ORDER

SAM, District Judge.

The defendant Lorin and Richard Moench, Richard Beckstead, Commercial Security Financial Corporation and John M. Taggert, filed a motion to dismiss the plaintiffs' complaint. The matter was referred to the magistrate under 28 U.S.C. § 636(b)(1)(B). The magistrate issued a report and recommendation and amended report and recommendation that the motion to dismiss be denied except as to the plaintiffs' claim under Section 17(a) of the Securities Act of 1933. As to that claim the magistrate recommended the defendants' motion be granted. No objection has been taken to the magistrate's report and recommendation. The court has reviewed the file and adopts the magistrate's report and recommendation. Therefore,

IT IS HEREBY ORDERED that the motion of the above named defendants to dismiss the plaintiffs' complaint is denied, except that the portion of plaintiffs' claim that is based on Section 17(a) of the Securities Act of 1933 is dismissed.

REPORT AND RECOMMENDATION

The plaintiffs, numerous purchasers of thrift certificates or participants in saving passbook or other accounts of Copper State Thrift and Loan (CST & L) filed suit against CST & L, individual members of CST & L's board of directors and principal stockholders. Copper State Financial Corporation (CSFC) has also been named a defendant. The plaintiffs contend the defendants violated 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5 of the Securities Exchange Act of 1934; Section 12(2) 15 U.S.C. § 77l(2) of the Securities Act of 1933; Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a); the Utah Uniform Securities Act, § 61-1-22, et seq., U.C.A., 1953; Section 12(1) of the Securities Act of 1933, § 77l(1); 18 U.S.C. § 1961, et seq., R.I.C.O. Act and § 76-10-1601, U.C.A., 1953 R.I.C.E. Act; and that defendants engaged in common law fraud. The plaintiffs' claims for relief are set forth in plaintiffs' amended complaint (File Entry # 8). The defendants, Lorin L. and Richard Moench, filed a motion to dismiss the amended complaint under Rules 12(b) and 9(b), Federal Rules of Civil Procedure (F.R.C.P.), for failure to state a claim for relief (File Entry # 10). Robert B. Beckstead and CSFC have joined in the same motion as filed by defendants Moench. (File Entry # 15, 16). Defendant John M. Taggart also joined in the motion. (File Entry # 21). Motions to stay discovery pending disposition of the motions were also filed, however, the magistrate orally denied those motions at the time of hearing on the motions to dismiss, a written order confirming the denial of a stay on discovery has also been entered. This case has been referred to the magistrate under 28 U.S.C. § 636(b)(1)(B). This report and recommendation is submitted on the various defendants' motions to dismiss.

The motions to dismiss, even when considered with the affidavit of Robert B. Beckstead and other materials¹ must be considered under the assumption that the allegations in the plaintiffs' complaint are true. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Jay v. Chicago Bridge & Iron Co., 150 F.2d 247 (10th Cir.1945).

Defendants' Motion to Dismiss

The defendants' memorandum in support of the motion to dismiss the plaintiffs' amended complaint (File Entry # 11) sets forth the essence of defendants' contentions. First, the defendants contend that the plaintiffs' interests in CST & L were not "securities" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 or the Utah Uniform Securities Act. Whether the plaintiffs' interests in CST & L were securities also directly effects the question of whether the activities alleged to have been engaged in by defendants constitute possible violations of the RICO Act or the RICE Act.

The defendants also contend a private claim for relief cannot be maintained under Section 17(a) of the Securities Act of 1933.

Defendants contend that as to the Third, Fourth, Sixth, Seventh, and Eighth claims, the plaintiffs cannot base a claim for relief on allegations of omissions to disclose because the defendants owed the plaintiffs no duty of disclosure. The defendants also assert the claims of plaintiffs as to securities fraud, common law fraud, RICO and RICE are not pleaded with insufficient particularity to meet the requirements of Rule 9(b), F.R.C.P. The various contentions of the defendants will be considered below.

Compliance With Rule 9(b), Federal Rules of Civil Procedure

The allegations as to the specificity of plaintiffs' RICO Act claims will be considered in conjunction with whether the plaintiff has plead a claim for relief under RICO, 18 U.S.C. § 1961, et seq., and RICE, 76-10-1601 et seq., U.C.A., 1953.

Plaintiffs' Sixth Claim for Relief alleges a common law fraud claim against defendants Moench, Beckstead, Taggart, CST & L and CSFC. Pendent jurisdiction is apparently the basis for this court to act on that matter. The claim incorporates the allegations in paragraphs 1-65 of the complaint and more particularly paragraph 20. That paragraph alleges that schemes and artifices to defraud were used and numerous untrue statements of material facts were made as well as omitted which were deceitful. Subparagraphs A, B, and C set forth specific alleged misrepresentations as to the status of CST & L and the status of its deposits in relation to protection of the CST & L assets and depositors accounts. Also in paragraph 20 D other specific representations are set forth (P. 15 Amended Complaint). Omissions are itemized (Id.), Pages 15 and 16 of the amended complaint also set forth representations defendants made or caused to be made to plaintiffs as members of the general public and as depositors or potential depositors. Specific time periods as to CST & L's difficult and allegedly precarious financial condition are set out (See pp. 16-17 of amended complaint); and misrepresentations as to solvency of CST & L were allegedly made and misrepresentations as to what depositors could expect as to their investments. (See p. 8, ¶ L. Amended Complaint). Omissions are also mentioned (Id.) The allegation is made that the misrepresentations were intentional and reasonably relied on by plaintiffs. An allegation as to materiality is also included (Id. p. 19, ¶ 23). An allegation of conspiratorial omission has been set out. (Id. p. 20, ¶ 26). The persons making the alleged misrepresentation or failing to disclose are identified as the defendants, specifically Moench, Beckstead, CST & L, and CSFC. (Id. p. 10). The defendants assert that the allegations are insufficiently particular to meet the standards of Rule 9(b).

Rule 9(b), F.R.C.P., requires an allegation of fraud be plead with particularity. Central Nat. Bank of Cleveland v. King, 573 F.2d 669 (10th Cir.1978). Mere general allegations do not meet the requirements of Rule 9(b). Nolan Bros., Inc. v. United States, 266 F.2d 143 (10th Cir.1959). However, it must be kept in mind the Rules of Civil Procedure more intended a get away from "booby traps which common law pleaders could set to prevent" litigants from having a day in court. Lurowitz v. Hilton Hotels Corp., 383 U.S. 363, 373, 86 S.Ct. 845, 851, 15 L.Ed.2d 807 (1966). The rules, including those dealing with pleading, were to simplify the litigation process American Fidelity & Casualty Co. v. All American Bus Lines, Inc., 190 F.2d 234, 236 (10th Cir.). cert. denied 342 U.S. 851 (1951). It should also be observed that Rule 9(b) only requires the "circumstances" of fraud be pled not the "elements." See 5 Wright & Miller, Federal Practice and Procedure, § 1297 at 400 (1969).

The defendant relies to some extent on Cook v. Zions First National Bank, 645 F.Supp. 423 (D.C.Utah 1986) where Judge Winder dismissed fraud and deceit claims based in part on inadequate pleading. That case is in opposite, in that in this case, plaintiffs have made more particularized allegations of facts and the erring defendants are reasonably identified. Given the number of plaintiffs, specific claims of individual plaintiffs would be duplicative. However, "each defendant" is advised of what the defendant allegedly did that was wrong. Judge Winder did refer to time, place, content and manner as being the standard for proper pleading. See also Philbosian v. First Financial Securities Corp., 550 F.Supp. 61 (D.C.Colo.1982); Rochambeau v. Brent Explorations, Inc., 79 F.R.D. 381 (D.C.Colo.1978). In Dahl v. Gardner, 583 F.Supp. 1262 (Utah 1984), Judge Winder found the complaint sufficient in part but dismissed a conclusionary allegation with leave to amend. The case was a securities fraud action. Judge Winder noted:

Rule 9(b) requires that `in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.' Fed. R.Civ.P. 9(b). That particularity requirement must be read in conjunction with the general principles of notice pleading set forth in Rule 8, which requires `a short and plain statement of the claim' for relief. Fed.R.Civ.P. 8(a). In striking a balance between those two rules, Wright and Miller note: `Perhaps the most basic consideration in making a judgment as to the sufficiency of a pleading is the determination of how much detail is

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