Romano v. Merrill Lynch, Pierce, Fenner and Smith, Inc., Civ. A. No. 84-3424.
| Decision Date | 01 July 1986 |
| Docket Number | Civ. A. No. 84-3424. |
| Citation | 638 F. Supp. 269 |
| Parties | Joseph A. ROMANO v. MERRILL LYNCH, PIERCE, FENNER AND SMITH, INC., Merrill Lynch Commodities, Inc., Merrill Lynch Futures, Inc., Merrill Lynch Asset Management, Inc., Merrill Lynch Ready Assets Trust. |
| Court | U.S. District Court — Eastern District of Louisiana |
Stephen J. Caire, Metairie, La., for plaintiff.
Harry B. Kelleher, William R. Forrester, Jr., Lemle, Kelleher, Kohlmeyer, Hunley, Moss & Frilot, New Orleans, La., for defendant.
ORDER & REASONS
This matter is before the Court upon motion of Merrill Lynch, Pierce, Fenner and Smith, Inc., Merrill Lynch Commodities, Inc. and Merrill Lynch Futures, Inc. hereafter "Merrill Lynch", to dismiss the second amended complaint of Joseph A. Romano with prejudice for failure to state a claim upon which relief can be granted.
Plaintiff's suit places at issue two types of transactions, occurring between March 1981 and April 1983: (1) Silver commodities trading undertaken on plaintiff's behalf; and (2) Associated deposits and withdrawals from Plaintiff's Ready Assets account, which the parties agree are technically securities transactions.1 The dates of the relevant commodities trades are listed in paragraph 42 of plaintiff's first amending complaint. The initial deposit of funds into plaintiff's Ready Assets account was made on March 12, 1981. See Original Complaint, p. 4, ¶ 13. Thereafter, there were deposits and withdrawals, reflected in certain statements of account made a part of this record in connection with a prior motion by the defendants. These unchallenged records show Ready Assets transactions occurring through March 26, 1982. Plaintiff filed his original complaint on July 12, 1984.
On April 30, 1986, plaintiff filed a second amended complaint2 adding certain allegations of RICO violations through a pattern of racketeering activity consisting of fraud and unlawful use of the mails associated with particular commodities transactions specifically set forth in paragraph 42 of plaintiff's first amended complaint. See Second Amended Complaint, ¶ 24(C)(b), p. 5. No other transactions are specifically pled as predicate acts, although at hearing on the motion presently under consideration, plaintiff also relied upon the Ready Assets transactions as predicate acts.
This Court previously denied a motion for summary judgment seeking dismissal of plaintiff's Rule 10b-5 claims stated in plaintiff's original and first amending complaints on grounds of prescription in an Order & Reasons entered December 9, 1985. This Court held that a two year prescriptive period governed those claims and that on the face of the complaint any misrepresentations subject to Rule 10b-5 in respect of transactions occurring more than two years prior to the original complaint were time barred. Thus, on the face of the complaint, as amended, all claims as to securities transactions prior to July 1982 were clearly prescribed. Moreover, the statements of account in the record confirm prescription of the causes of action as to all Ready Assets transactions.
To counter the defense of prescription, plaintiff raised by memorandum a general claim of fraudulent concealment of his churning causes of action.3 Although both the complaint as amended and plaintiff's memorandum failed to specify any facts supporting the claim of fraudulent concealment, this Court gave plaintiff the benefit of the doubt and denied the motion to dismiss, indicating that where plaintiff properly pled fraudulent concealment, it would serve to prevent dismissal of plaintiff's claims under Rule 10b-5 for churning. All other claims for securities fraud arising prior to July 12, 1982 were therefore deemed prescribed, but this Court purposely left those claims unspecified.
The foregoing resolution of defendants' earlier motion to dismiss was warranted by the relatively early stage of the litigation and the Court's desire that the parties discover fairly what claims, if any, the plaintiff had and what, if any, were the plaintiff's actual damages, rather than prematurely foreclosing litigation of legitimate demands. However, the vagueness and lack of coherency of the plaintiff's pleadings have continuously hampered the Court's efforts to resolve the issues presented to it, and in light of the proximity to the trial date, the Court is now prepared to take a stricter view of plaintiff's inability to clarify his claims as required by law. The lack of progression in the pleadings and the lack of any development of plaintiff's case have also prompted the Court to reconsider sua sponte its prior rulings on prescription.
Thus, the Court has carefully reviewed the prior submissions of the parties, in conjunction with the present motion to dismiss the RICO claims. For reasons stated more fully below, it is ordered that the motion to dismiss on grounds of prescription be and is hereby granted as to all of plaintiff's claims under Rule 10b-5, including those for churning, and as to plaintiff's RICO claims.4 To the extent any of the rulings below conflict with the Court's earlier Order & Reasons, the Order is hereby recalled. Plaintiff's RICO claims are also dismissed for failure to properly allege predicate acts.
In response to defendants' present prescription defense to the RICO claims, plaintiff again invoked the doctrine of fraudulent concealment generally, as stated in his opposition memorandum. Even though plaintiff has presumably had the benefit of six months of discovery, plaintiff's memorandum fails to delineate the claimed fraudulent concealment. Similarly, his second supplemental complaint does not allege any facts relative to fraudulent concealment, even though the parties are approaching trial of this matter on August 22, and the Court would expect the plaintiff to have available to him sufficient knowledge of the facts of this case to satisfy the Court that the plaintiff's claims of fraudulent concealment are well founded.
As stated in the hearing on defendants' motion, the Court agrees that plaintiff's RICO claims would be governed by the one year limitation period of Louisiana Civil Code article 3492 (formerly article 3536). See Ingram Corp. v. J. Ray McDermott & Co., 495 F.Supp. 1321, 1324 n. 4 (E.D.La. 1980), rev'd on other grounds, 698 F.2d 1295 (5th Cir.1983); Moore v. A.G. Edwards & Sons, 631 F.Supp. 138 (E.D.La. 1986). See also Alexander v. Perkin Elmer Corp., 729 F.2d 576, 577 (8th Cir.1984) (per curiam); Bowling v. Founders Title Co., 773 F.2d 1175 (11th Cir.1985), cert. denied sub nom. Zoldessy v. Founders Title Co., ___ U.S. ___, 106 S.Ct. 1516, 89 L.Ed.2d 915 (1986). Thus, on the fact of the complaint, all of plaintiff's RICO claims have prescribed, and the focal issue is whether plaintiff has sufficiently pled or established entitlement to fraudulent concealment. For reasons stated more fully below, the Court concludes he has not.
An initial hurdle arises in considering whether to evaluate defendants' motion under Rule 12 or Rule 56. Defendants originally invoked Rule 12, but defendants' reliance on Rule 12 does not prevent the plaintiff from introducing matters outside of the pleadings in order to defeat the defendants' motion. Accordingly, the Court considered the pleadings and all materials in the record submitted by the plaintiff to determine whether the plaintiff has stated a claim under RICO. Nevertheless, plaintiff's failure to provide legally admissible evidence opposing defendants' motion would not of itself require the motion be granted: Under Rule 56, the movants have an initial burden of establishing the absence of genuine issues of material fact supporting their claim, if matters outside of the pleadings are to be considered. See John v. State of Louisiana, 757 F.2d 698, 708-09 (5th Cir.1985). Thus, if plaintiff's pleadings disclose issues of fact, plaintiff need not file any counter affidavits or other legally admissible evidence to controvert the motion for summary judgment. See Thompson v. Johns-Manville Sales Corp., 714 F.2d 581 (5th Cir.1983), cert. denied 465 U.S. 1102, 104 S.Ct. 1598, 80 L.Ed.2d 129 (1984); White v. Thomas, 660 F.2d 680, 682-83 (5th Cir.1981), cert. denied 455 U.S. 1027, 102 S.Ct. 1731, 72 L.Ed.2d 148 (1982).
However, whether the Court considers defendants' motion as a Rule 12 motion to dismiss for failure to state a claim or a Rule 56 motion for summary judgment, it is bound to carefully consider the pleadings in this case to determine whether they disclose any allegations of fact supporting plaintiff's claim for fraudulent concealment. In evaluating the pleadings, this Court is bound by Rule 9 of the Federal Rules of Civil Procedure, which provides in pertinent part:
The Court was unable to uncover any controlling authority indicating what law governs evaluation of the sufficiency of plaintiff's allegations, and the parties did not address this issue in their memoranda. However, the question of prescription was resolved by analogy to state law in Dupuy v. Dupuy, 551 F.2d 1005, reh. denied, 554 F.2d 1065 (5th Cir.), cert. denied, 434 U.S. 911, 98 S.Ct. 312, 54 L.Ed.2d 197 (1977). Accordingly, the Court has turned to state law to resolve the sufficiency of averments of fraudulent concealment, with reliance upon federal jurisprudence as persuasive.
Under state law, when an action has prescribed on the fact of the complaint, plaintiff bears the burden of proving facts which would have the effect of either interrupting or avoiding prescription. See Wilkins v. Hogan Drilling Co., 471 So.2d 863 (La.App. 2d Cir.1985...
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Romano v. Merrill Lynch, Pierce, Fenner & Smith
...time for discovery, the district court dismissed the prescribed 10b-5 and RICO claims for failure to show fraudulent concealment 7, 638 F.Supp. 269. Dismissal of the RICO claims was further appropriate because appellant failed to allege predicate acts upon which a pattern of racketeering ac......