Morgan v. Kobrin Securities, Inc.

• Citation: 649 F. Supp. 1023
• Decision Date: 04 November 1986
• Docket Number: No. 85 C 6119.,85 C 6119.
• Court: U.S. District Court — Northern District of Illinois
• Parties: Susan G. MORGAN, R. Thomas Geist, Lawrence Niwa, Karen Niwa, and Laura Marchese, Plaintiffs, v. KOBRIN SECURITIES, INC., Barrett Roy Kobrin, Richard Leon Kobrin, Rodney Arden Brown, Warren S. Sandy, Leonard Berman, Lawrence Zuliani, Harold E. Winkler, Cosmetic Sciences, Inc., Mario J. Ebonietti, Alvin J. Goren, Eli Gorenberg, Edward A. Trevison, Rachael Santos, and Ronald Hunter, Defendants.

649 F. Supp. 1023

Susan G. MORGAN, R. Thomas Geist, Lawrence Niwa, Karen Niwa, and Laura Marchese, Plaintiffs, v. KOBRIN SECURITIES, INC., Barrett Roy Kobrin, Richard Leon Kobrin, Rodney Arden Brown, Warren S. Sandy, Leonard Berman, Lawrence Zuliani, Harold E. Winkler, Cosmetic Sciences, Inc., Mario J. Ebonietti, Alvin J. Goren, Eli Gorenberg, Edward A. Trevison, Rachael Santos, and Ronald Hunter, Defendants.

No. 85 C 6119.

United States District Court, N.D. Illinois, E.D.

November 4, 1986.

COPYRIGHT MATERIAL OMITTED

W.K. Gullberg, Jr., Chicago, Ill., Stephen H. Landuyt, Monmouth, Ill., for plaintiffs.

Michael J. Rovell, Richard J. Nogal, Jenner & Block, Chicago, Ill., for defendant Barrett Kobrin.

Paul A. Brady, Floyd A. Wisner, Lord, Bissell & Brook, Chicago, Ill., for defendants Rodney A. Brown and Lawrence Zuliani.

James L. Schwartz, Mark H. Schiff, Saharack, Schwartz & Schiff, Ltd., Chicago, Ill., for defendant Ronald Hunter.

Richard Kobrin, pro se.

MEMORANDUM AND ORDER

MORAN, District Judge.

Plaintiffs Susan G. Morgan ("Morgan"), R. Thomas Geist ("Geist"), Susan Marchese ("Marchese") and Lawrence and Karen Niwa ("Niwas") brought a thirteen-count complaint against Barrett Roy Kobrin ("Kobrin"), Kobrin Securities, Inc. ("KSI") and thirteen others. Eight counts are directed against Kobrin. KSI has filed for Chapter 11 reorganization protection and the proceedings against it have been stayed pursuant to 11 U.S.C. § 362(a) (1985). Counts I through V allege violations of the Securities and Exchange Act of 1934. Count VI alleges common law fraud and count VIII alleges violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).

Defendant Kobrin has two motions before this court.¹ The first is a motion to dismiss under Fed.R.Civ.P. 12(b)(6). Kobrin argues that plaintiffs have failed to: (1) comply with the pleading requirements of Fed.R.Civ.P. 8; (2) timely file the complaint pursuant to 15 U.S.C. § 78i(e); (3) allege fraud with the particularity required by Fed.R.Civ.P. 9(b); (4) adequately allege a RICO violation under 18 U.S.C. § 1961; and (5) join an indispensable party pursuant to Fed.R.Civ.P. 19. Alternatively, Kobrin moves to stay the entire action pending resolution of KSI's bankruptcy proceeding or pending arbitration of plaintiffs' claims. For the reasons discussed below, defendants' motions are denied.

FACTS

The principal player in the alleged scheme,² Maurice Aresty ("Aresty"), is not named as a party to this lawsuit. The story unfolds in January 1983, when Aresty agreed to solicit stock brokerage customers for defendant Lawrence Zuliani ("Zuliani"). In March 1983, Zuliani left his firm and took a job with defendant Kobrin Securities, Inc. ("KSI"). In April 1983, defendant Kobrin agreed to handle brokerage transactions for Aresty's clients. At this time, Kobrin first told Aresty that he had inside information about the companies whose stock KSI sold. Kobrin told Aresty that he would supply Aresty with this information either directly or through Zuliani. Aresty should then pass the inside information along to his clients.

Aresty first met plaintiff Morgan in January 1983. They were introduced through her accountant. Aresty represented himself to Morgan as a financial planner. At Aresty's urging Morgan sold all of her holdings and invested in over-the-counter stocks Aresty recommended. Morgan continued to trade through Aresty, on his recommendations, through June 1983. In June, she suspended trading until she could verify Aresty's representations. Throughout the summer Aresty continued to solicit Morgan's business. In October 1983, Morgan again traded stock recommended by Aresty.

The other plaintiffs tell similar stories. Geist apparently met Aresty through Morgan. Like Morgan, Geist traded through Aresty until June 1983, when he suspended trading. He also consummated a final trade with Aresty in October 1983. Marchese alleges she knew Aresty prior to January 1983, in his capacity as an insurance salesman. According to Marchese, Aresty controlled most of her financial dealings. On Aresty's representations, she invested in high risk stocks. She suspended trading with Aresty in October of 1983. The Niwas also knew Aresty as an insurance salesman. The Niwas invested with Aresty on the assurances he was choosing conservative investments.

The bulk of the allegations involve the sale of stock in Cosmetic Sciences, Inc. ("CSI"). CSI is a small pharmaceutical firm, traded over the counter. CSI contracted with KSI to market CSI stock. At Kobrin's behest Aresty touted CSI stock as a low-risk investment. He told plaintiffs that he could double their money in a short time because KSI controlled the stock's price. In fact, CSI was a highly speculative investment. CSI's sales were subject to seasonal declines and had dropped 44 percent prior to 1983. CSI's products were dependent on uncertain Food and Drug Administration approval. In addition, the company was dependent on two key managers and involved in litigation with potential adverse impact on CSI's continued viability. Nevertheless, when asked about the stock, Aresty consistently quoted the asking and not the bid price, thus overvaluing the stock. Similar representations were made concerning other stocks KSI sold.

I. Motion to Dismiss

A. Federal Rule of Civil Procedure 8(a)

Kobrin initially contends that plaintiffs' complaint is defective because it does not comply with the Rule 8(a)(2) requirement that a complaint contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Kobrin contends that the length and complexity of plaintiffs' complaint mandates its dismissal with prejudice. See Michaelis v. Nebraska Bar Association, 717 F.2d 437, 438-9 (8th Cir.1983).

Plaintiffs' second amended complaint, running almost 80 pages, is certainly prolix. However, as one commentator notes:

Rule 8(a)(2) speaks of a short and plain statement of each claim, not a short and plain pleading. Hence, in the context of a multiparty, multiclaim complaint each claim should be stated as succinctly and plainly as possible even though the entire pleading may prove to be long and complicated by virtue of the number of parties and claims.

5 Wright & Miller, Federal Practice and Procedure: Civil § 1217 (1969). Thus, under Rule 8(a)(2) the appropriate length and complexity of a complaint will vary with each case. Crumpacker v. Civiletti, 90 F.R.D. 326, 329 (N.D.Ind.1981).

The purpose of Rule 8(a)(2) is to provide liberal pleading guidelines so that the merits of plaintiffs' claims will not be decided on technicalities. In re Credit Industrial Corp., 366 F.2d 402, 411 (2d Cir. 1966). At the same time, the rule provides sufficient structure so that defendants have notice of and can respond to charges against them. Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). In the present case, five plaintiffs are raising thirteen separate claims against fifteen separate defendants. Defendant Kobrin is named in counts I through IX. The allegations, while perhaps overly detailed, are pled succinctly and are easily understandable. Given Kobrin's well-briefed Rule 12(b)(6) motion, it is clear he is fully apprised of the charges against him. Plaintiffs have complied with Fed.R.Civ.P. 8(a)(2).

B. 15 U.S.C. § 78i(e)

Kobrin's second contention is that plaintiffs' counts I through IV are time-barred. The complaint was filed on July 5, 1985. Counts I through IV are based upon defendants' alleged manipulations of security prices in violation of 15 U.S.C. § 78i(a)(2), (3), (4) and (6), from January 1983 to October 1983. These sections prohibit manipulating stock prices, selling securities by representing that stock prices can be manipulated, misrepresentations in the purchase and sale of stocks, and fixing stock prices in violation of exchange rules. The governing statute of limitations for these claims, 15 U.S.C. 78i(e), states:

No action shall be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the facts constituting the violation and within three years after such violation.

This section requires that plaintiffs affirmatively plead facts constituting compliance with the statute. See Rosenberg v. Hano & Co., 26 F.Supp. 160, 161 (E.D.Pa.1938), aff'd, 121 F.2d 818, 821 (3d Cir.1941); see also Wilkinson v. Paine, Webber, Jackson & Curtis, Inc., 585 F.Supp. 23, 27 (N.D.Ga. 1983).

In the present case the disputed transactions occurred between January and October 1983. The original complaint was not filed until January 1985. In all five counts the plaintiffs alleged, simply, "the actions complained of in this Count ... were discovered by the Plaintiffs within one year prior to the commencement of this action" (¶¶ 221A, 334A, 445C, 558B).

Kobrin argues that merely alleging compliance with § 78i(e) insufficiently pleads facts showing discovery of the Securities Act's violations. See Caliber Partners, Ltd. v. Affeld, 583 F.Supp. 1308, 1312 (N.D. Ill.1984). Kobrin bases his argument on the fact that plaintiffs ceased trading with Aresty and KSI in October 1983. The inference Kobrin draws is that plaintiffs ceased trading because Aresty's stocks did not perform as he represented. Because the stocks did not perform as represented, plaintiffs obviously were aware of the Securities Act's violations in October 1983. Plaintiffs thus had until October 1984 to file their complaint. The complaint, filed in January 1985, should be time-barred.

Kobrin's logic is unconvincing. First, whether merely alleging compliance with a Securities Act limitation provision is sufficient to comply with the provision is a fact-specific determination. Compare Pfohl v. Pelican Landing, 567 F.Supp. 134, 139 (N.D.Ill.1983) (allegations sufficient) with Caliber Partners, 583 F.Supp. at 1312 (allegations insufficient). Under Rule 12(b)(6), a court must assume all...