Caliber Partners, Ltd. v. Affeld, 83 C 6968.
Decision Date | 04 April 1984 |
Docket Number | No. 83 C 6968.,83 C 6968. |
Parties | CALIBER PARTNERS, LTD. and Stratford Energy Investments-Ohio Shallow, Plaintiffs, v. Marvin E. AFFELD and Mary T. Affeld, individually and d/b/a Affeld Oil Company, Defendants. |
Court | U.S. District Court — Northern District of Illinois |
Barry Yavitz, Cushner & Yavitz, Chicago, Ill., for plaintiffs.
Bruce S. Sperling, Mitchell H. Macknin, Sperling, Slaten & Spitz, P.C., Chicago, Ill., for defendants.
Illinois limited partnerships Caliber Partners, Ltd. ("Caliber") and Stratford Energy Investments-Ohio Shallow ("Stratford") sue Marvin Affeld ("Affeld") and Mary Affeld individually and d/b/a Affeld Oil Company (collectively "Affelds") in a ten-count Complaint alleging:
Affelds now move to dismiss under Fed.R. Civ.P. ("Rule") 12(b)(1) and 12(b)(6). For the reasons stated in this memorandum opinion and order, their motion is granted.
In the spring of 1981 Caliber (acting on behalf of itself and Stratford) conferred with Affeld to obtain information about investing in oil and gas leases on property located in Morrow County, Ohio. Affeld represented (1) he had many years' experience in oil drilling and exploration and (2) he was willing to sell shares in three oil and gas leases on which he was preparing to begin drilling operations. Affeld agreed to sell Caliber a 1/16 interest and Stratford a 6/16 interest in the three leases upon payment of $76,250 for the aggregate 7/16 interest in each lease. Contracts were signed by Caliber2 and Affeld contemporaneously with Caliber's payment of those amounts, and upon completion of two of the wells (the third having been abandoned) Caliber paid the added completion costs of $52,500 for each as the contracts required. Caliber's total investment was $18,750, while Stratford's was $315,000.3
According to Complaint ¶ 18 Affeld knowingly made the following material misrepresentations or omissions:
Plaintiffs relied on those representations in making the investments (Complaint ¶ 20).
As to the federal securities fraud claims (under Sections 10(b) and 17(a)), Affelds say plaintiffs have not alleged fraud with the requisite particularity. Affelds attack plaintiffs' failure to particularize the time and place of the misrepresentations, why the statements were false and misleading or the facts underlying Affeld's knowledge those statements were false when he made them.
In those respects Affelds misconceive the purpose and effect of Rule 9(b):
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.
To plead a cause of action for fraud, plaintiffs need not allege evidentiary details that will be used to support the claim at a later date. Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 379 (2d Cir.1974); 2A Moore, Moore's Federal Practice ¶ 9.03, at 9-28 to 9-30 and nn. 13-14. They need only set forth the basic outline of the scheme, who made what misrepresentations and the general time and place of such misrepresentations. Darling & Co. v. Klouman, 87 F.R.D. 756, 757-58 (N.D.Ill. 1980) and cases there cited. Here Affelds have been given sufficient notice of those matters, who made the representations and the general time period in which they were made.4
Affelds are also wrong in urging Rule 9(b) requires plaintiffs to allege facts showing Affeld knew he was misleading them. Instead Rule 9(b) specifically permits general allegations of knowledge and intent. To require a plaintiff to plead such matters, which are peculiarly within a defendant's knowledge, would impose an impermissible burden. 2A Moore ¶ 9.03, at 9-36 to 9-38 and nn. 25-28; compare the "clear weight of authority" as exemplified by McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 228 (1st Cir.1980) with the solitary viewpoint expressed in Ross v. A.H. Robins Co., 607 F.2d 545, 558 (2d Cir.1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980).
Affelds also contend plaintiffs cannot ground an action on promises contrary to the contract terms, in contravention of the contract integration clause. Katz v. Diabetes Association of Greater Chicago, 31 Ill.App.3d 240, 243, 333 N.E.2d 293, 295 (1st Dist.1975). That argument misses the mark as applied to the Complaint's fraud counts.5 Plaintiffs are there suing for fraud in the inducement of a contract, not to enforce the contract terms. Allegations of representations contrary to the contract terms are properly considered to determine whether Affeld fraudulently induced Caliber and Stratford to enter into these contracts.6 See Ainsworth Corp. v. Cenco, Inc., 107 Ill.App.3d 435, 439, 63 Ill.Dec. 168, 172, 437 N.E.2d 817, 821 (1st Dist. 1982).
Nonetheless Count One and the Section 17(a) claim in Count Two must be stricken. By their very nature a number of the alleged misrepresentations and material omissions recited in Complaint ¶ 18 plainly appear to have been post- rather than pre-contract-signing.7 As such they cannot underpin a fraud-in-the-inducement claim. Affelds cannot fairly be required to parse the Complaint to pick out the allegations that do and do not form part of the cause of action. They are entitled to a more craftsmanlike pleading to which they can prepare an informed answer.
Affelds make two separate attacks on Count Two:
Their first onslaught is successful, and their second need not be confronted at this time.
As to the first point, Affelds are correct: Plaintiffs must affirmatively allege compliance with the one-year statute of limitations contained in 1933 Act § 13, 15 U.S.C. § 77n:
No action shall be maintained to enforce any liability created under section 77k or 77l(2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 77l(1) of this title, unless brought within one year after the violation upon which it is based. In no event shall any such action be brought to enforce a liability created under section 77k or 77l(1) of this title more than three years after the security was bona fide offered to the public, or under section 77l (2) of this title more than...
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