Philippe v. Shape, Inc., Civ. No. 87-0337-P.

CourtUnited States District Courts. 1st Circuit. United States District Court (Maine)
Writing for the CourtGENE CARTER
Citation688 F. Supp. 783
PartiesDavid PHILIPPE, Plaintiff, v. SHAPE, INC., et al., Defendants.
Docket NumberCiv. No. 87-0337-P.
Decision Date22 July 1988

688 F. Supp. 783

David PHILIPPE, Plaintiff,
v.
SHAPE, INC., et al., Defendants.

Civ. No. 87-0337-P.

United States District Court, D. Maine.

July 22, 1988.


688 F. Supp. 784

Jay S. Blumenkopf, Drummond, Woodsum, Plimpton & MacMahon, Portland, Me., for plaintiff.

Paul F. Zendzian, Portland, Me., for defendants.

MEMORANDUM OF DECISION

GENE CARTER, District Judge.

I. Introduction

Plaintiff brings this action against Shape, Inc., and two of its officers, to recover for damages that allegedly occurred when the company, pursuant to a capitalization plan, issued notes convertible to common stock and changed its corporate residence. Plaintiff, a Shape stockholder, claims that by fraudulently misrepresenting material facts in corporate documents, failing to inform Plaintiff or seek his approval of the capitalization and merger, and refusing to buy back his shares at a statutorily-fixed price, Defendants violated state and federal securities laws and breached their fiduciary duties to Plaintiff.

Defendants have moved to dismiss Plaintiff's action, claiming that Plaintiff's allegations of fraud and civil RICO1 violations have not been pleaded with the particularity required by Fed.R.Civ.P. 9(b). For reasons set forth in this opinion, the Court denies Defendants' motion.2

688 F. Supp. 785

II. Factual Background

Prior to 1985, Plaintiff and Defendants Anthony and Paul Gelardi shared corporate ownership and control of three corporations, including Shape.3 In 1985, Shape entered into a capitalization agreement with a group of investors, under which Shape agreed to issue $6 million worth of notes convertible to common stock; reserve free of preemptive rights enough common stock to satisfy the investors' conversion rights; and reincorporate in Delaware. The Gelardis agreed to sell to Shape all their stock in DAP, MPT and three other companies,4 in exchange for Shape common stock.

In August, 1985, Shape undertook a change of domicile merger to satisfy the reincorporation requirement of the agreement. Anthony Gelardi filed articles of merger with Maine's Secretary of State, certifying that all Shape stockholders had unanimously approved the merger. Plaintiff, one of the six Shape stockholders, had not been informed of or approved the proposed merger.

With the articles of merger Shape filed a document memorializing its agreement to pay dissenting shareholders for their shares pursuant to the Maine Business Corporation Act.5 It then filed with Delaware's Secretary of State a "Certificate of Ownership and Merger," again certifying that its stockholders had unanimously approved the transaction.

In November, 1986, after the change of domicile merger was complete, Shape offered to buy Plaintiff's Shape stock for $3,326 per share. Plaintiff initially agreed. After learning of the merger and of his dissenter's rights, however, he turned down Shape's offer.

III. Plaintiff's Action

Plaintiff filed this action on November 17, 1987, alleging that the 1985 merger and transactions made pursuant to it were fraudulent, violated his preemptive and dissenter's rights, breached Defendants' fiduciary duties, and violated state and federal securities law. He alleges that Defendants failed to inform him of the merger; to seek his approval of the merger; to advise him of his dissenter's rights; to purchase his stock at the statutory dissenter's rights price; to advise him that the merger and note issue would diminish the value of his Shape stock; or to inform him that the merger and subsequent sale of Shape stock entitled him to preemptive stock rights.

These transgressions, he claims, constituted fraud in connection with the sale of securities, in violation of the federal Securities Exchange Act, 15 U.S.C. § 78j. He claims that collectively they constitute a pattern of racketeering activity in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962, 1964(c).

He claims that by representing to Maine's Secretary of State that Shape would purchase dissenters' stocks pursuant to Maine law, then offering to purchase Plaintiff's Shape stock without informing him of his statutory dissenter's rights and ultimately refusing to purchase his Shape stock, Defendants violated Maine's Blue Sky Law, 32 M.R.S.A. § 10605.

He claims that Defendants' knowing misrepresentation in corporate documents filed with Maine and Delaware state officials,

688 F. Supp. 786
when coupled with the omissions alleged above, constituted common law fraud, breached Defendants' fiduciary duties as officers of Shape, and violated Maine law proscribing improper filings.6

Finally, Plaintiff claims that Defendants Anthony and Paul Gelardi had agreed only to sell their DAP and MPT stock in a block with his own. Their transfer of stock to Shape, in exchange for Shape stock, he asserts, breached that contract.

Defendants have moved to dismiss Plaintiff's action, claiming that he has failed to allege fraud and civil RICO violations with the specificity required by Fed.R.Civ.P. 9(b), and claiming that the facts he alleges fail to make out a "pattern of racketeering activity" within the meaning of RICO.

IV. Analysis

Federal Rule 9(b) requires that "in all averments of fraud or mistake, the circumstances...

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4 practice notes
  • Dowling v. Narragansett Capital Corp., Civ. A. No. 87-0213-T.
    • United States
    • United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Rhode Island
    • April 17, 1990
    ...for purposes of extracting nuisance settlements. Wayne Investment v. Gulf Oil Corp., 739 F.2d 11, 13 (1st Cir.1984); Philippe v. Shape, 688 F.Supp. 783, 786 Generally speaking, the rule requires "specification of the time, place, and content of an alleged false representation, but not ......
  • Rodi v. Southern New England School of Law, No. 03-2502.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • November 10, 2004
    ...misrepresentation count from dismissal at the pleading stage. See, e.g., Powers, 926 F.2d at 111; see also Philippe v. Shape, Inc., 688 F.Supp. 783, 786-87 (D.Me.1988) (holding that documents affixed to complaint that contained alleged misrepresentations satisfied Rule We note, however, tha......
  • Wyman v. Prime Discount Securities, Civ. No. 92-228-P-C.
    • United States
    • United States District Courts. 1st Circuit. United States District Court (Maine)
    • April 7, 1993
    ...relies heavily on this Court's rulings in In re One Bancorp Securities Litigation, 135 F.R.D. 9 (D.Me.1991) and Philippe v. Shape, Inc., 688 F.Supp. 783 (D.Me. 1988) to argue that the Complaint at issue is insufficient under Fed.R.Civ.P. 9(b). However, the facts of those cases are significa......
  • Cutler v. Federal Deposit Ins. Corp., Civ. No. 91-0073-P-C.
    • United States
    • United States District Courts. 1st Circuit. United States District Court (Maine)
    • January 10, 1992
    ...wire fraud. See, e.g., Fleet Credit Corp. v. Sion, 893 F.2d 441, 445 (1st Cir.1990); Becher, 829 F.2d at 289; Philippe v. Shape, Inc., 688 F.Supp. 783, 787 (D.Me. 1988); Gott, 745 F.Supp. at 769; United Fish Co. v. Barnes, 627 F.Supp. 732, 733 (D.Me.1986). The degree of specificity required......
4 cases
  • Dowling v. Narragansett Capital Corp., Civ. A. No. 87-0213-T.
    • United States
    • United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Rhode Island
    • April 17, 1990
    ...for purposes of extracting nuisance settlements. Wayne Investment v. Gulf Oil Corp., 739 F.2d 11, 13 (1st Cir.1984); Philippe v. Shape, 688 F.Supp. 783, 786 Generally speaking, the rule requires "specification of the time, place, and content of an alleged false representation, but not ......
  • Rodi v. Southern New England School of Law, No. 03-2502.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • November 10, 2004
    ...misrepresentation count from dismissal at the pleading stage. See, e.g., Powers, 926 F.2d at 111; see also Philippe v. Shape, Inc., 688 F.Supp. 783, 786-87 (D.Me.1988) (holding that documents affixed to complaint that contained alleged misrepresentations satisfied Rule We note, however, tha......
  • Wyman v. Prime Discount Securities, Civ. No. 92-228-P-C.
    • United States
    • United States District Courts. 1st Circuit. United States District Court (Maine)
    • April 7, 1993
    ...relies heavily on this Court's rulings in In re One Bancorp Securities Litigation, 135 F.R.D. 9 (D.Me.1991) and Philippe v. Shape, Inc., 688 F.Supp. 783 (D.Me. 1988) to argue that the Complaint at issue is insufficient under Fed.R.Civ.P. 9(b). However, the facts of those cases are significa......
  • Cutler v. Federal Deposit Ins. Corp., Civ. No. 91-0073-P-C.
    • United States
    • United States District Courts. 1st Circuit. United States District Court (Maine)
    • January 10, 1992
    ...wire fraud. See, e.g., Fleet Credit Corp. v. Sion, 893 F.2d 441, 445 (1st Cir.1990); Becher, 829 F.2d at 289; Philippe v. Shape, Inc., 688 F.Supp. 783, 787 (D.Me. 1988); Gott, 745 F.Supp. at 769; United Fish Co. v. Barnes, 627 F.Supp. 732, 733 (D.Me.1986). The degree of specificity required......

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