Mills v. Polar Molecular Corp., Nos. 32

CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)
Writing for the CourtMcLAUGHLIN
Citation12 F.3d 1170
PartiesFed. Sec. L. Rep. P 98,051, RICO Bus.Disp.Guide 8465 William L. MILLS, Plaintiff-Appellant, v. POLAR MOLECULAR CORPORATION, Otis L. Nelson, Mark L. Nelson, A. Richard Nelson, James E. Larson, Eugene Zwoyer, Kenneth A. Roe and Thomas Ryan, Defendants-Appellees. Chester J. WALSH, Ronald L. Krumm, T.V. Miles and Joseph Mello, Plaintiffs-Appellants, v. POLAR MOLECULAR CORPORATION, Otis L. Nelson, Mark L. Nelson, A. Richard Nelson, James E. Larson and Eugene Zwoyer, Defendants-Appellees. ockets 92-9215, 92-9231.
Decision Date17 December 1993
Docket Number34,D,Nos. 32

Page 1170

12 F.3d 1170
Fed. Sec. L. Rep. P 98,051, RICO Bus.Disp.Guide 8465
William L. MILLS, Plaintiff-Appellant,
v.
POLAR MOLECULAR CORPORATION, Otis L. Nelson, Mark L. Nelson,
A. Richard Nelson, James E. Larson, Eugene Zwoyer,
Kenneth A. Roe and Thomas Ryan,
Defendants-Appellees.
Chester J. WALSH, Ronald L. Krumm, T.V. Miles and Joseph
Mello, Plaintiffs-Appellants,
v.
POLAR MOLECULAR CORPORATION, Otis L. Nelson, Mark L. Nelson,
A. Richard Nelson, James E. Larson and Eugene
Zwoyer, Defendants-Appellees.
Nos. 32, 34, Dockets 92-9215, 92-9231.
United States Court of Appeals,
Second Circuit.
Argued Sept. 27, 1993.
Decided Dec. 17, 1993.

Page 1172

Richard de Y. Manning, New York City, for plaintiffs-appellants.

Page 1173

Dennis W. Grogan, Johnston & McShane, P.C., New York City, for defendants-appellees.

Before: CARDAMONE, McLAUGHLIN, and LAY, * Circuit Judges.

McLAUGHLIN, Circuit Judge:

Plaintiffs William L. Mills, Chester J. Walsh, T.V. Miles and Joseph Mello appeal from a judgment of the United States District Court for the Southern District of New York (Robert W. Sweet, Judge ), dismissing their claims of securities fraud, brought under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j (b), and Rule 10b-5, 17 C.F.R. Sec. 240.10b-5 (1972), and their claims of mail and wire fraud, brought under 18 U.S.C. Sec. 1346 and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1961, et seq. Mills separately appeals from a judgment dismissing his claims for breaches of contract and fiduciary duty.

We affirm the district court's judgment.

BACKGROUND

Polar Molecular Corporation ("Polar") is a Utah corporation that manufactures and sells petrochemical compounds. The defendants-appellees are Polar officers and directors (the "Directors"). The plaintiffs are former managers and sales representatives of Polar. In 1989 and 1990, Polar entered various contracts with the individual plaintiffs, and the present dispute arises out of Polar's alleged failure to perform obligations under these contracts.

The complaint alleged the following facts:

A. Walsh and Miles

In April 1989, Polar hired Chester Walsh and T.V. Miles to be managers. Both employment contracts provided for $70,000 in salary and 25,000 shares of unregistered Polar stock. Because shares must be registered with the Securities and Exchange Commission ("SEC") before they can be sold on the open market, see Securities Exchange Act of 1934, 15 U.S.C. Sec. 78l, the contracts stated that Polar would register the shares with the SEC "at the earliest opportunity in the year 1989."

Polar gave the 25,000 shares each to Walsh and Miles as promised, but did not register them. In October 1989, Walsh asked Mark Nelson, president of Polar, why the shares had not been registered. Nelson said the shares were "in registration." Between October and January, other Polar personnel also told Walsh and Miles that the shares would be registered. Despite these assurances, Polar never registered any of the shares.

B. Mello

In May 1989, Polar hired Joseph Mello to sell its products on commission. As part of the deal, Polar granted Mello an option to purchase 100,000 shares of Polar's stock at $1.75 per share. Polar never registered any stock to sell Mello, and Mello never exercised his option to purchase.

C. Mills

William Mills was another salesman for Polar. In January 1990, Mills sued Polar for the breach of a sales representative agreement. On March 20, Mills and Nelson discussed settlement over the telephone. Nelson told Mills that Mills would have to accept unregistered stock as payment because Polar was short of cash. Nelson assured Mills that the stock would be registered immediately after it was issued. On March 27, Nelson again told Mills over the phone that Polar would register the shares. A week later, Nelson and Mills met in Michigan. There, they agreed that Polar would execute a new sales representative agreement for Mills. Nelson promised that Polar would perform its part of the new agreement in all respects.

Mills and Polar finally signed a contract settling their dispute on April 13, 1990 (the "Settlement"). Under the Settlement, Mills agreed to dismiss his claims with prejudice in

Page 1174

exchange for 30,000 shares of unregistered Polar stock and an option to purchase an additional 200,000 shares. The Settlement also provided that Polar would register the 30,000 shares in the "then current" registration statement on file with the SEC.

Additionally, as the parties discussed, the Settlement stated that Polar would execute a new sales representative agreement, granting Mills the right to solicit orders for Polar products in South America. The agreement stated that Polar was not obligated to accept any of Mills' orders, but that it would not withhold consent unreasonably.

Pursuant to the Settlement, Polar delivered to Mills 30,000 unregistered shares on May 1, 1990. Afterward, Nelson told Mills on several occasions that registration was imminent. At the end of August 1990, however, Polar filed a new registration statement that did not list Mills' shares. The statement, however, did register shares belonging to Nelson and other managers at Polar.

Also in August, Mills procured a large order of Polar products from a Paraguayan buyer. Although Polar initially indicated its approval to both Mills and the Paraguayan buyer, it ultimately rejected the order on the advice of counsel.

D. The Proceedings Below

In early 1991, the plaintiffs brought this action in the United States District Court for the Southern District of New York against Polar and the Directors. 1 The complaint (which the plaintiffs amended several times) alleged that Polar and the Directors promised to register the plaintiffs' shares but never did so. The complaint further alleged that the aggregation of broken promises constituted a pattern of mail and wire fraud in violation of RICO. To bolster the fraud claims, and in an attempt to plead predicate acts under RICO, the complaint alleged that Polar and the Directors had breached promises to register shares to several other persons (in addition to the plaintiffs herein) from 1989 to 1990. Notably, the complaint did not allege that any Directors personally made fraudulent statements in these other instances.

Mills added an allegation that the Directors breached their fiduciary duty by not accepting the Paraguayan order. Mills also alleged claims for breach of contract, arising out of Polar's failure to perform both the sales representative agreement and the Settlement.

Polar and the Directors moved to dismiss the fraud claims for failure to satisfy the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure, and all the other claims for failure to state a claim under Rule 12(b)(6).

The district court granted the motion and dismissed the entire complaint. It found that the plaintiffs had failed to plead fraud with particularity under Rule 9(b), and that they had not adequately alleged facts to raise a strong inference of scienter, or, fraudulent intent. The court dismissed the RICO claims under Rule 12(b)(6) for failure to allege predicate acts. It dismissed Mills' fiduciary breach claim because he failed to make a demand on the Directors before filing suit. Finally, the court dismissed Mills' contract claims, saying that, for reasons never fully articulated, they should be adjudicated in a Michigan state court.

The plaintiffs now appeal.

DISCUSSION

When we review the grant of a motion to dismiss under Rule 9(b) or Rule 12(b)(6), we accept as true the factual allegations of the complaint, and draw all inferences in favor of the pleader. IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052 (2d Cir. November 19, 1993). Dismissal under either rule is proper where the plaintiff cannot...

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1255 practice notes
  • U.S. ex rel. Taylor v. Gabelli, No. 03 Civ.8762(SAS).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • July 29, 2004
    ...v. Melrose-Wakefield Hosp., 360 F.3d 220, 227-28 (1st Cir.2004); Phipps, 152 F.Supp.2d at 454. 65. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.1993); see also Rombach v. Chang, 355 F.3d 164, 170 (2d 66. Ouaknine v. MacFarlane, 897 F.2d 75, 78-80 (2d Cir.1990) (quotation marks......
  • Rxusa Wholesale, Inc. v. Alcon Laboratories, Inc., No. 06-CV-3447 (DRH)(AKT).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • September 24, 2009
    ...of predicate acts sounding in fraud, such as mail or wire fraud, must satisfy the rigors of Rule 9(b). See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir.1993); Zhu v. First Atl. Bank, No. 05 Civ. 96, 2005 WL 2757536, at *3 (S.D.N.Y. Oct. 25, 2005). Second, a plaintiff must alle......
  • Tribune Co. v. Purcigliotti, No. 93 Civ. 7222 (LAP).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • November 14, 1994
    ...state where and when the statements were made, and explain why the statements were fraudulent. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.1993) (citing Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989)). The rule is designed to provide a defendant with fair notice of a pla......
  • In re Cardinal Health Inc. Securities Litigations, No. C2-04-575.
    • United States
    • U.S. District Court — Southern District of Ohio
    • April 12, 2006
    ...fails to attribute them to specific directors, grouping directors together as "Defendants" instead. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.1993); Rich v. Maidstone Fin. Inc., 2001 WL 286757, *7 (S.D.N.Y. Mar.23, 2001). Further, Defendants argue, based on Southland Se......
  • Request a trial to view additional results
1252 cases
  • U.S. ex rel. Taylor v. Gabelli, No. 03 Civ.8762(SAS).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • July 29, 2004
    ...v. Melrose-Wakefield Hosp., 360 F.3d 220, 227-28 (1st Cir.2004); Phipps, 152 F.Supp.2d at 454. 65. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.1993); see also Rombach v. Chang, 355 F.3d 164, 170 (2d 66. Ouaknine v. MacFarlane, 897 F.2d 75, 78-80 (2d Cir.1990) (quotation marks......
  • Rxusa Wholesale, Inc. v. Alcon Laboratories, Inc., No. 06-CV-3447 (DRH)(AKT).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • September 24, 2009
    ...of predicate acts sounding in fraud, such as mail or wire fraud, must satisfy the rigors of Rule 9(b). See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir.1993); Zhu v. First Atl. Bank, No. 05 Civ. 96, 2005 WL 2757536, at *3 (S.D.N.Y. Oct. 25, 2005). Second, a plaintiff must alle......
  • Tribune Co. v. Purcigliotti, No. 93 Civ. 7222 (LAP).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • November 14, 1994
    ...state where and when the statements were made, and explain why the statements were fraudulent. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.1993) (citing Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989)). The rule is designed to provide a defendant with fair notice of a pla......
  • In re Cardinal Health Inc. Securities Litigations, No. C2-04-575.
    • United States
    • U.S. District Court — Southern District of Ohio
    • April 12, 2006
    ...fails to attribute them to specific directors, grouping directors together as "Defendants" instead. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.1993); Rich v. Maidstone Fin. Inc., 2001 WL 286757, *7 (S.D.N.Y. Mar.23, 2001). Further, Defendants argue, based on Southland Se......
  • Request a trial to view additional results

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