Vennittilli v. Primerica, Inc.
| Decision Date | 24 September 1996 |
| Docket Number | No. 95-75241.,No. 95-73017.,No. 96-70060.,95-73017.,95-75241.,96-70060. |
| Citation | 943 F.Supp. 793 |
| Parties | Elvidio VENNITTILLI, Josephine Vennittilli, et. al, individually and on behalf of a class of persons similarly situated, Plaintiffs, v. PRIMERICA, INC., PFS Investments, Inc., Basic Energy and Affiliated Resources, Inc., Mid America Resource Corporation, and Robert Vecchioni, jointly and severally, Defendants. Margaret FOURNIER, James Addabbo, Adam Angelas, Greg Berklich, Maurice Bogart, Beth Calhoun, Thomas Clem, Richard Doddie, Scott Downey, Joan A. Elwert Trust, Megan Fasel, Michael Foreman, Martin George, Larry Gerschbacher, Marie Hartman, Jack Henshaw, Nelson Iddings, Giuseppe Ioco, Eugene Ignasiak, Robert Jacques, Kenneth Johnston, Richard Kujala, Derrick Knieper, Tracy Leonard, Adrian Lucas, Laura Mahoney, John McNulty, Reginald Mendenhall, George Nolan, David Osterland, Aurthur Paul, Sebastian Post, Roberta Pultie, Rudy Roos, Robert Schulte, Margaret Spoor, Joseph Tocco, Stephen Ternullo, Betty Utz, Bette Valade, Robert Vrable, Raymond Weber, Kathleen Weiss, Henry Ybarra, Jeanette Zajdlik, Jack Zapytowski, et al., Plaintiffs, v. PRIMERICA FINANCIAL SERVICES, INC., d/b/a PFS Investments, Inc., Defendants. Brian SULLIVAN and Julia Sullivan, Plaintiffs, v. BASIC ENERGY AND AFFILIATED RESOURCES, INC., a Michigan corporation, Michael Schouman, Sarah Delaney, Primerica Financial Services, Inc., a Georgia corporation, PFS Investments, Inc., a Georgia corporation, David McLeod, Gas & Oil Lease Development, Inc., a Michigan corporation, David Henry, Joan Henry, Total Integrated Gas & Energy Resources, Inc., a Michigan corporation, Charles Michael, jointly and severally, Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
D. Michael Kratchman, Rubenstein Plotkin, PC, Southfield, MI; Michael P. Marsalese, Bloomfield Hills, MI; Thomas R. Charboneau, Jr., Sills, Law, Essad, Fielder & Charboneau, PC, Bloomfield Hills, MI, for plaintiffs.
Donald S. Young, Ava K. Ortner, Dykema Gossett, PLLC, Detroit, MI; Peter Q. Bassett, Alston & Bird, Atlanta, GA, for defendants.
Three cases are before the court on Motions to Dismiss by common defendants, Primerica Financial Services, Inc. and PFS Investments1 (hereinafter "Primerica defendants"): Fournier v. Primerica, Case No. 95-75241; Vennittilli v. Primerica, Case No. 95-73017; and Sullivan v. BEAR, Case No. 96-70060 (hereinafter Fournier, Vennittilli and Sullivan). Because the issues and parties overlap, the court's opinion addresses all three Motions to Dismiss.
These cases are also related to another case currently before the court, Securities and Exchange Commission v. Basic Energy & Affiliated Resources, Case No. 94-74434. A brief explanation of this case is helpful to understanding those which are the subject of this Opinion.
Between January 1, 1992 and November 4, 1994, Basic Energy & Affiliated Resources (hereinafter "BEAR") and Mid America Resources Corporation (hereinafter "MARC") marketed approximately seventeen (17) oil and gas programs, rights, leases, investment contracts, loan programs and equity programs through Robert Vecchioni and about one hundred and fifty (150) marketers to some 2,100 investors. Plaintiffs in all these cases are investors in the BEAR programs.
Some investors allege they were told that their investments were secured by financial bonds or that their investments were secured by collateral or assets from other programs. Additionally, investors in loan programs allege they were guaranteed a return of principal and interest as well as a premium based on a percentage of the gross revenues from the sale of oil and gas. Equity investors allege they were promised a percentage of the production of certain gas and oil wells.
Primerica's National Sales and Marketing Director, Robert Vecchioni, solicited and sold these BEAR programs. It is the association between Primerica and Vecchioni which plaintiffs allege forms the basis of their various claims based on failure to supervise, negligent hiring, fraud and violations of the securities laws, among others.
On November 2, 1994, the Securities and Exchange Commission (hereinafter "SEC") brought an enforcement action against Vecchioni, other BEAR officers and directors BEAR, MARC and several marketers alleging that the defendants operated a Ponzi scheme in violation of federal securities laws. As of December 1995, all of the defendants in that action settled with the SEC and have or are satisfying disgorgement and prejudgment interest obligations; as a result, no trial was held.2
Subsequently, groups of individual investors brought suit against Vecchioni's employer, Primerica, PFS Investments, marketers who sold them the various programs and the defendants named in the SEC enforcement action. The Primerica defendants then filed Motions to Dismiss in these three investor cases.
Also pending are motions to consolidate and certify a class, which the court will consider immediately following resolution of the motions to dismiss.
The purpose of Federal Rule of Procedure 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true. Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). In Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957), the Supreme Court held that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."
In a recent Sixth Circuit case, In re DeLorean Motor Co., 991 F.2d 1236 (6th Cir.1993), the court summarized the standards for deciding a Rule 12(b)(6) motion as follows:
[A] court deciding such a motion must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, and determine whether the plaintiff can undoubtedly prove no set of facts in support of his claims that would entitle him to relief.... A complaint need only give fair notice of what the plaintiff's claim is and the grounds upon which it rests.... A judge may not grant a Fed. R.Civ.P. 12(b)(6) motion to dismiss based on a disbelief of a complaint's factual allegations. (Citations omitted).
Id. at 1240. The court has applied this standard when evaluating the Primerica defendants' Motions to Dismiss the following claims: (1) conspiracy or aiding and abetting, (2) negligent hiring and negligent supervision, (3) violations of NASD rules, (4) violations of the Michigan Consumer Protection Act, (5) violations of Section 17 of the Securities Act, (6) violations of Section 5 of the Securities Act, (7) control person liability and (8) violations of RICO.
Defendants' Motion to Dismiss the aiding and abetting and conspiracy count in Fournier is granted based on Central Bank of Denver N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994), where the Supreme Court held generally that there is no private cause of action for aiding and abetting securities fraud and specifically that there is no such cause of action under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). The Central Bank Court concluded that:
... the statute prohibits only the making of a material misstatement (or omission) or the commission of a manipulative act.... The proscription does not include giving aid to a person who commits a manipulative or deceptive act. We cannot amend the statute to create liability for acts that are not themselves manipulative or deceptive within the meaning of the statute.
Id. at ___, 114 S.Ct. at 1448.
The Court relied on statutory interpretation of the express causes of action provided in the 1934 Act in support of this conclusion and found that the text of the Act does not reach those who aid and abet. Central Bank, 511 U.S. at ___ - ___, 114 S.Ct. at 1448-49. After surveying the express causes of action, the Court concluded that each specified the actions for which a defendant may be liable, and none of those imposed liability on aiders or abettors. Id. From this, the Court inferred that Congress would not have attached aiding and abetting liability to § 10(b) had it provided expressly for a § 10(b) cause of action. Id. It can also be inferred, therefore, that Congress would not have attached aiding and abetting liability for a cause of action under any other implied cause of action, such as § 17. It is clear that Central Bank eliminates aiding and abetting liability under either express or implied causes of action under the Securities Acts of 1933 and 1934.
In the case at bar, plaintiffs also allege conspiracy of violating the securities laws. This is merely another way of pleading aiding and abetting, which is no longer a viable allegation after Central Bank. Many district courts and the Ninth Circuit have so held. See Decker v. GlenFed, Inc., 60 F.3d 591 (9th Cir.1995); see also Adam v. Silicon Valley Bancshares, 884 F.Supp. 1398 (N.D.Cal.1995). It is also this court's determination that alleging conspiracy to violate the securities laws is no longer a viable claim after Central Bank.
Because plaintiffs could prove no set of facts in support of a claim for conspiracy or aiding and abetting securities fraud, this claim is dismissed pursuant to Fed.R.Civ.P. 12(b)(6).
Michigan has never recognized a claim for negligent hiring by holding an employer liable for an employee's acts resulting in economic injury or for any kind of fraudulent acts. While Michigan courts have recognized a cause of action for negligent hiring where an employee commits a foreseeable act of physical violence; see Bradley v. Stevens, 329 Mich. 556, 46 N.W.2d 382 (1951); Michigan has not...
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