Vetter v. Shearson Hayden Stone Inc.
Decision Date | 18 December 1979 |
Docket Number | No. 79 Civ. 3857.,79 Civ. 3857. |
Citation | 481 F. Supp. 64 |
Parties | Helen VETTER and Hans Vetter, Plaintiffs, v. SHEARSON HAYDEN STONE INC. and Gordon Joblon, Defendants. |
Court | U.S. District Court — Southern District of New York |
Ira Jay Sands, New York City, for plaintiffs by George C. Cabell, New York City, of counsel.
Willkie, Farr & Gallagher, New York City, for defendant Shearson Hayden Stone Inc. by William T. Sullivan, Francis J. Menton, Jr., John M. McEnany, New York City, of counsel.
This is an action brought under section 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), as amended, 15 U.S.C. § 78j(b); Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder ("Rule 10b-5"); Rule 408 of the New York Stock Exchange; and Section 15(b)(3) of the 1934 Act, 15 U.S.C. § 78o (b)(3). Jurisdiction is based on section 27 of the 1934 Act, 15 U.S.C. § 78aa. Defendant Shearson Hayden Stone Inc. ("Shearson") has moved pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure for an order dismissing the complaint for failure to plead fraud with the requisite particularity.
Plaintiffs are Helen Vetter and her father, Hans Vetter. However, in the complaint "Vetter" is defined as referring only to Helen Vetter. Defendants are Shearson, a stock brokerage firm, and Gordon Joblon, a registered representative employed by Shearson. The facts underlying this action, as alleged by plaintiffs in their complaint, are as follows:
Based on the foregoing factual allegations, plaintiffs charge defendants with three separate violations of section 10(b) of the 1934 Act and Rule 10b-5: "Churning";1 purchasing securities unsuitable to plaintiff Helen Vetter's investment objective; and purchasing securities without plaintiffs' authorization. Plaintiffs also allege that defendants violated Rule 408 of the New York Stock Exchange which stringently regulates the discretionary power members of the Exchange and their employees may exercise in customers' accounts. Finally, in a fifth cause of action, plaintiffs allege that defendant Shearson violated § 15(b)(3) of the 1934 Act in failing properly to supervise defendant Joblon so as to prevent his "improper course of conduct."
Defendant Shearson asserts that plaintiffs' complaint is "virtually devoid of information as to the particulars of the `improper course of conduct' by which plaintiffs claim to have been defrauded." We agree. Pursuant to Rule 9(b) of the Federal Rules of Civil Procedure, "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." This plaintiffs have clearly failed to do. Their complaint does no more than make unsubstantiated conclusory allegations.
The Court of Appeals for this Circuit has held that "mere conclusory allegations to the effect that defendant's conduct was fraudulent or in violation of Rule 10b-5 are insufficient." Shemtob v. Shearson, Hammill & Co. (2d Cir. 1971) 448 F.2d 442, 444. See also Denny v. Barber (2d Cir. 1978) 576 F.2d 465, 470; Felton v. Walston and Co., Inc. (2d Cir. 1974) 508 F.2d 577, 580-81; Segal v. Gordon (2d Cir. 1972) 467 F.2d 602, 607. Most recently it observed in Ross v. A. H. Robins Company, Inc. (2d Cir. 1979) 607 F.2d 545, 557-558:
For instance, in order to support a cause of action for churning, plaintiffs cannot merely allege in conclusory terms that defendants have been guilty of churning, or that defendants may have purchased and sold securities which were "excessive in number, frequency and amount." (Complaint ¶ 10) "The nature, amount and dates of securities transactions must be included in the complaint." (Todd v. Oppenheimer & Co., Inc. (S.D.N.Y.1978) 78 F.R.D. 415, 423. In addition, the complaint must identify the securities involved and should contain a "statement of facts permitting a determination of the turnover ratio or the percentage of the account value paid in commissions." Salwen Paper Company, Inc. Profit Sharing Retirement Trust v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (S.D.N.Y.1978) 79 F.R.D. 130, 135. See also Carroll v. Bear, Stearns & Co. (S.D.N.Y. 1976) 416 F.Supp. 998, 1001; Berman v. Bache, Halsey, Stuart, Shields, Inc. (S.D. Ohio 1979) 467 F.Supp. 311, 314-15.
With regard to the claim of unsuitability, plaintiffs likewise allege only that defendant Joblon's transactions were "not consistent with plaintiff Helen Vetter's investment objective." (Complaint ¶ 10) In order to support this cause of action, plaintiffs must identify the transactions in question and the securities involved, and at least give some indication why they consider such securities to have been unsuitable. See Rotstein v. Reynolds & Co. (N.D. Ill.1973) 359 F.Supp. 109, 114. Similar considerations apply to the claim of unauthorized trading. If nothing else, plaint...
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