Dietrich v. Bauer
| Decision Date | 04 March 1999 |
| Docket Number | No. 95 Civ. 7051(RWS).,95 Civ. 7051(RWS). |
| Citation | 76 F.Supp.2d 312 |
| Parties | Del DIETRICH, Plaintiff, v. Richard BAUER; Groupe Scorpion, B.V.; Jack T. Dawson; Green-Cohn Group; Morton Cohn; Van D. Greenfield; Leonard Schwalb; CS First Boston; Bear Stearns; Smith Benton & Hughes, Inc.; Michael Zaman; Claudia Zaman; Emmet A. Larkin & Company; Painewebber; Oppenheimer & Co., Inc.; Edward Fisch; Barry Witz; Mario V. Andrade; Westfield Financial Corporation; Idata, Inc.; Robert Bogutski, and Kathleen Bogutski, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Goodkind, Labaton Rudoff & Sucharow, New York City, James W. Johnson, of counsel, Lieff, Cabraser, Heimann & Bernstein, San Francisco, CA, Richard M. Heimann, of counsel, Starr & Holman, New York City, Zachary Alan Starr, of counsel, for Plaintiff.
Joseph W. Ryan, Attorney for Defendant Jack T. Dawson, Uniondale, Berliner Cohen, Attorney for Defendant Jack Dawson, San Jose, CA, Jonathan D. Wolf, of counsel, Rosenman & Colin, Attorney for Defendants Green-Cohn Group Inc., Morton Cohn, Van D. Greenfield, Leonard Schwalb and Bear Stearns, New York City, Arthur S. Linker, Howard A. Fischer, of counsel, Shearman & Sterling, Attorney for Defendant CS First Boston Corp., New York City, Stephen R. Fishbein, Jordana B. Merlis, of counsel, Einhorn & Edgerton, Attorney for Defendants Michael Zaman, Claudia Zaman and Smith, Benton & Hughes, Inc., Los Angeles, CA, Irving M. Einhorn, of counsel, Howard, Smith & Levin, Attorney for Defendant PaineWebber Inc., New York City, C. William Phillips, Barbara Hoffman, of counsel, Schulte Roth & Zabel, Attorney for Defendant Oppenheimer & Co., New York City, Howard O. Godnick, Jonathan Taylor, Thomas Fallati, of counsel, Tenzer Greenblatt, Attorney for Defendant Barry Witz, New York City, James G. Greilsheimer, Lawrence S. Feld, of counsel, for Defendants.
In this proposed class action, plaintiff Del Dietrich ("Dietrich") has moved for appointment of additional class representatives. Defendant Barry Witz ("Witz") has moved for reconsideration of an order extending Dietrich's time to serve him with the amended complaint and for dismissal of the amended complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted and for failure to plead fraud with particularity. Defendants Jack T. Dawson ("Dawson"), Green-Cohn Group ("Green-Cohn"), Morton Cohn ("Cohn"), Van D. Greenfield ("Greenfield"), Leonard Schwalb ("Schwalb"), CS First Boston Corporation ("CS First Boston"), Bear Stearns & Co., Inc. ("Bear Stearns"), Smith Benton & Hughes, Inc. ("SB & H"), Michael Zaman, Claudia Zaman (together with Michael Zaman, the "Zamans"), PaineWebber Incorporated ("PaineWebber") and Oppenheimer & Co., Inc. ("Oppenheimer") (collectively, and together with "Witz," the "Defendants"), have also moved pursuant to Rules 12(b)(6) and 9(b) for dismissal of Dietrich's amended complaint.
For the reasons set forth below, Dietrich's motion for additional class representatives is denied, as is Witz's motion for reconsideration, and the Defendants' motions to dismiss will be granted in part and denied in part.
Specifically, the claims brought pursuant to (1) Section 12(1) and 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(1), (2) (the "1933 Act"), along with its California state counterparts; (2) the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 ("RICO"); (3) negligent misrepresentation; (4) and sections 17200 et seq. of the California Business Professions Code are dismissed as to all the Defendants. As to the primary liability claims brought under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (the "1934 Act"), SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder, and common law fraud, the motions to dismiss of Dawson, Cohn, Greenfield, Schwalb, Bear Stearns, Oppenheimer, PaineWebber, the Zamans, and Witz are granted, and those of Green-Cohn and SB & H are denied. The motions to dismiss claims alleging controlling person liability under Section 20(a) of the 1934 Act, 15 U.S.C. § 78t(a), on the part of Greenfield, Cohn, and the Zamans are denied. CS First Boston's motion to dismiss the Section 10(b), Rule 10b-5, and common law fraud claims is granted in part and denied in part; any claim against CS First Boston for participation in the Regulation S scheme is dismissed, whereas the claim alleging participation in the market manipulation scheme is sustained.
In accordance with this decision, Dietrich will be given leave to replead certain of the dismissed claims.
Dietrich, a resident of Campbell, California, invested in the common stock of Scorpion Technologies ("Scorpion").
Defendant Richard Bauer has been a director of Scorpion since February 1989 and its chief executive officer and chairman of the board since September 1993. Bauer is also chief executive officer of Groupe Scorpion, B.V. ("Groupe Scorpion").
Defendant Groupe Scorpion, a Dutch company, is a wholly owned foreign subsidiary of Scorpion.
Dawson is an attorney who provided services for Scorpion.
Green-Cohn is a brokerage firm located in New York, New York.
Cohn is the owner of Green-Cohn.
Greenfield is the president of Green-Cohn.
Schwalb is the chief financial officer of Green-Cohn.
CS First Boston is a brokerage firm whose principal offices are located in New York, New York.
Bear Stearns is a brokerage firm whose principal offices are located in New York, New York. It acted as the clearing broker for Green-Cohn's transactions.
SB & H, whose offices are located in Englewood, Colorado, is a brokerage firm registered with the Securities and Exchange Commission ("SEC") since October 5, 1987.
Michael Zaman is president of SB & H.
Claudia Zaman is a financial principal of SB & H.
Defendant Emmet A. Larkin & Company ("Emmet Larkin") is a brokerage firm with offices in San Francisco, California.
PaineWebber is a brokerage firm whose principal offices are located in New York, New York.
Oppenheimer is a brokerage firm whose principal offices are located in New York, New York.
Defendant Edward Fisch maintains offices in Century City, California, and purportedly performed investment banking services for Scorpion in 1991.
Witz maintains offices in Century City, California, and allegedly performed investment banking services for Scorpion in 1991.
Defendant Mario V. Andrade, a resident of Bolivia, is the chairman of the board of Saturn Enterprises, Ltd. ("Saturn").
Defendant IData, Inc. is a transfer agent located in Dallas, Texas, and has served as Scorpion's transfer agent since May 1992.
Defendant Robert Bogutski is president of IData, Inc.
Defendant Kathleen Bogutski is secretary, treasurer, and manager of IData, Inc.
Defendant Westfield Financial Corporation ("Westfield Financial") is a brokerage firm whose principal offices are located in New York.
In this action, filed on August 28, 1995, Dietrich alleges violations of Section 12(1) and 12(2) of the 1933 Act; Section 10(b) of the 1934 Act; Rule 10b-5; RICO; sections 25110, 25130, 25401, 25501, 25503, and 25504.1 of the California Corporations Code; and sections 17200 et seq. of the California Business Professions Code. Dietrich also brings related claims for common law fraud and negligent misrepresentation. Finally, of the Defendants at issue, Dietrich seeks to hold Dawson, Cohn, Greenfield, and the Zamans as controlling persons under Section 20(a) of the 1934 Act.
By opinion dated December 10, 1996, the Honorable Lawrence M. McKenna dismissed the complaint with leave to replead. See Dietrich v. Bauer, No. 95 Civ. 7051, 1996 WL 709572 (S.D.N.Y. Dec.10, 1996). On February 10, 1997, Dietrich filed an amended complaint ("Amended Complaint"). The instant motions were filed as follows: PaineWebber filed its motion to dismiss the Amended Complaint on April 14, 1997; Oppenheimer, CS First Boston, Green-Cohn, Cohn, Greenfield, Schwalb, and Bear Stearns on April 15, 1997; Dawson joined in the motions on April 24, 1997; Dietrich filed its motion for appointment of seven additional class representatives June 6, 19971; and Witz filed its motion for reconsideration and dismissal on December 4, 1997.
On December 1, 1998, this action was reassigned to this Court pursuant to recusal by Judge McKenna upon discovery of a conflict. A pretrial conference was held on December 14, 1998, at which time the instant motions were considered fully submitted.
The facts in this action have been set forth in detail in a prior opinion by Judge McKenna, familiarity with which is assumed. See Dietrich, 1996 WL 709572, at *1-*4. Those facts relevant to the instant motion are set forth below.
In considering a motion to dismiss, the facts alleged in the complaint are presumed to be true and all factual inferences must be drawn in the plaintiff's favor and against the defendants. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989); Dwyer v. Regan, 777 F.2d 825, 828-29 (2d Cir.1985). Accordingly, the factual allegations considered here and set forth below are taken primarily from the Amended Complaint and do not constitute findings of fact by the Court. They are presumed to be true only for the purpose of deciding the present motion.
This action is alleged to be brought on behalf of a class consisting of "[a]ll persons or entities who purchased or otherwise acquired shares of Scorpion securities during the period from and including May 13, 1992 through and including ...
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