Fleming v. Lind-Waldock & Co., LIND-WALDOCK
| Decision Date | 03 October 1990 |
| Docket Number | Nos. 90-1013,LIND-WALDOCK,90-1014,s. 90-1013 |
| Citation | 922 F.2d 20 |
| Parties | , 19 Fed.R.Serv.3d 464 Edmund E. FLEMING, et al., Plaintiffs, Appellees, v.& CO., Defendant, Appellee, Barry Breech, Intervenor-Appellant. Edmund E. FLEMING, et al., Plaintiffs, Appellants, v.& CO., Defendant, Appellee. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Barbara L. Moore, with whom Cooley, Manion, Moore & Jones and Edward E. Fleming, were on brief, for plaintiffs, appellants.
Jerrold E. Salzman, with whom Albert F. Ettinger, Scott R. Williamson, Freeman, Freeman & Salzman, John M. Connolly, H. Joseph Hameline, and Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, were on brief, for defendant, appellee.
Before SELYA, Circuit Judge, BOWNES, Senior Circuit Judge, and ATKINS, * Senior District Judge.
The issues in this long-lived case are whether the district court erred in: 1) granting defendant-appellee Lind-Waldock & Company's motion to dismiss plaintiff-appellant Edmund E. Fleming's claims on behalf of U.S. Investment Company ("USIC") under Fed.R.Civ.P. 12(b)(6); 2) denying the plaintiff, equity receiver for USIC, standing as a putative class representative to initiate class actions against both Lind-Waldock & Company and Bank of Boston Corporation on behalf of USIC investors; 3) denying one such investor, Barry Breech, the right to intervene in Fleming's class actions after they had been dismissed; and 4) denying the plaintiff's contribution claim against Lind-Waldock.
After reviewing all prior decisions in this case, we affirm the district court's rulings. In regard to the issues of intervention and contribution, however, we reach the painstaking conclusions of the district court by slightly different routes.
Plaintiff Edmund E. Fleming, the equity receiver for USIC, originally brought this action against defendant Lind-Waldock & Company on April 10, 1984, nearly three years after the latter had been notified by the Commodity Futures Trading Commission ("CFTC") of fraud involving Herbert J. Kent, the president and chief executive officer of USIC. On April 24, 1981, the CFTC's motion for a temporary injunction against USIC and Kent had been granted in Commodity Futures Trading Comm'n. v. U.S. Investment Co., C.A. No. 81-1070-Mc (D.Mass.1981), and USIC's accounts at Lind-Waldock had been closed. From July of 1979 until April of 1981, Kent had maintained USIC accounts with Lind-Waldock and its predecessor, Riverside Commodity Corporation. These accounts were financed by investors in USIC though only Lind-Waldock, not USIC, was a Futures Commission Merchant.
In both the original and the first amended complaint, the plaintiff receiver sued on behalf of both USIC and its investors, claiming Lind-Waldock had violated the Commodity Exchange Act, 7 U.S.C. Sec. 1 et seq. In his second amended complaint dated January 9, 1985, the plaintiff receiver also sought to assert a class action against Lind-Waldock on behalf of the investors with himself as representative of that class.
Receiver Fleming further sued for contribution from Lind-Waldock for shared liability arising from the investors' unpaid judgments entered against USIC. In a bench decision on August 26, 1987, the district court granted the defendant's motion to dismiss on the ground that this second amended complaint failed to state a claim on which relief could be granted. On July 18, 1989, in a related ruling, the district court denied USIC investor Barry Breech's September 3, 1987, motions to intervene in the plaintiff receiver's two class actions. Fleming's class action against the Bank of Boston had been dismissed by summary judgment on June 15, 1987. These appeals arise from the district court's opinions and orders of August, 1987 and July, 1989. Fleming v. Lind-Waldock & Co., C.A. No. 84-1076-WF (D.Mass.1987); Fleming v. Bank of Boston Corp., 127 F.R.D. 30 (D.Mass.1989), Comm.Fut.L.Rep. (CCH) P24,500.
At the outset Fleming portrays the district court's decision to dismiss his underlying action as an erroneous application of Fed.R.Civ.P. 12(b)(6). He insists that the case merited the further scrutiny of a Fed.R.Civ.P. 56 summary judgment proceeding. Specifically, he claims that the district court erred in basing its decision on facts not alleged in the complaint, as well as facts for which there was no evidence. We find that the district court's conclusions were procedurally appropriate and substantively correct. We augment the district court's thorough decision in only a few respects.
It is well established that a Rule 12(b)(6) motion to dismiss and a Rule 56 summary judgment motion share a functional nexus. "[A] Rule 12(b)(6) motion to dismiss can be transformed by the court into a motion for summary judgment under Rule 56, (and vice versa)...." Aldahonda-Rivera v. Parke Davis & Co., 882 F.2d 590, 591 (1st Cir.1989) (citing C. Wright, A. Miller & M. Kane, 10 Federal Practice & Procedure Section 2713 (1983)). One fundamental difference between the two motions lies in the scope of the court's consideration. The grounds for a Rule 12(b)(6) dismissal comprise only the pleadings and no more. A Rule 56 summary judgment allows the court to consider matters "outside" the pleadings such as "depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any...." Fed.R.Civ.P. 56.
Given the similar outcomes induced by these two rules, Fleming's desire to recharacterize the motion as a summary judgment may initially appear academic. The two motions, however, place different burdens on the parties at different times in the course of litigation. Consequently, the correct characterization may have a substantive impact on review. Aldahonda-Rivera v. Parke Davis & Co., 882 F.2d at 591. To this extent, Fleming's concerns have merit. As applied to the district court's opinion and order below, however, the distinction has no impact.
Fleming essentially misconstrues the nature of the burden imposed by the pleading requirements of Federal Rules of Civil Procedure. True, the threshold demands on the pleader are low. As we have recently stated, both the trial and appellate courts must
accept the well-pleaded factual averments of the latest (second amended) complaint as true, and construe these facts in the light most flattering to the [plaintiff's] cause ... exempt[ing], of course, those "facts" which have since been conclusively contradicted by [plaintiff's] concessions or otherwise, and likewise eschew[ing] any reliance on bald assertions, unsupportable conclusions, and "opprobrious epithets."
Chongris v. Board of Appeals, 811 F.2d 36, 37 (1st Cir.), cert. denied, 483 U.S. 1021, 107 S.Ct. 3266, 97 L.Ed.2d 765 (1987). Nevertheless, it is also well established that the pleading requirements are "not entirely ... toothless." Dartmouth Review v. Dartmouth College, 889 F.2d 13, 16 (1st Cir.1989). Hence, the deference afforded to the plaintiff does not render the requirements meaningless. This generous approach to pleadings is further restricted by requiring that each general allegation be supported by a specific factual basis. The pleadings are not sufficient where the plaintiff rests on "subjective characterizations" or unsubstantiated conclusions. Dewey v. University of New Hampshire, 694 F.2d 1, 3 (1st Cir.1982), cert. denied 461 U.S. 944, 103 S.Ct. 2121, 77 L.Ed.2d 1301 (1983). Despite the potential ambiguities, this court has plotted the dividing line between pleading adequate facts and inadequate conclusions.
Most often, facts are susceptible to objective verification. Conclusions, on the other hand, are empirically unverifiable in the usual case. They represent the pleader's reactions to, sometimes called "inferences from," the underlying facts. It is only when such conclusions are logically compelled, or at least supported, by the stated facts, that is, when the suggested inference rises to what experience indicates is an acceptable level of probability, that "conclusions" become "facts" for pleading purposes.
Dartmouth Review, 889 F.2d at 16.
In addition, the necessary factual averments are required with respect to each material element of the underlying legal theory. Gooley v. Mobil Oil Corp., 851 F.2d 513, 515 (1st Cir.1988). This burden, of course, rests squarely upon the pleader; initial failure to satisfy the burden in no way obligates the district court to allow the parties an opportunity to offer matters outside the pleadings. Simply put, summary judgment is not a procedural second chance to flesh out inadequate pleadings.
Accepting the alleged facts as true and viewing them in the light most favorable to the plaintiff, we find, as did the district court, that Fleming has failed to support adequately an essential element of his claim for relief. Fleming's allegations that USIC sustained injury from Lind-Waldock's actions are merely conclusions unsubstantiated by fact. The pleadings acknowledge that the USIC accounts held by Lind-Waldock were comprised solely of investor funds. Fleming, however, merely avers, without offering facts demonstrating the relationship between the accounts and the corporation, that USIC suffered injury as a result of losses to these accounts.
Despite having been granted the opportunity twice to amend his complaint, Fleming now insists that given further opportunity, he would recharacterize the relationship between the accounts and USIC. In short, he simply ignores the pleader's immediate burden. Without injury to USIC factually supported in the pleadings, the six conclusory counts alleging Lind-Waldock's wrongdoing all lack an essential element. The district court recognized that Fleming failed to satisfy his preliminary pleading burden and correctly dismissed Fleming's claims on behalf of USIC.
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