Summary
striking dismissed counts from amended complaint but retaining factual allegations that "continue to serve as support in connection with the ... claims that remain"
Summary of this case from Clean Coal Techs. v. Leidos, Inc.Opinion
02 Civ. 4911 (HB)
April 28, 2003
OPINION ORDER
On January 17, 2003, this Court granted-in-part and denied-in-part defendants' motion to dismiss plaintiffs' complaint. Masters v. Wilhelmina Model Agency, Inc., 2003 WL 145556 (S.D.N.Y. Jan. 17, 2003). With respect to claims for antitrust damages, this Court granted plaintiffs leave to replead an amended complaint to plead the necessary elements to toll the statute of limitations. Plaintiffs filed a Second Amended Consolidated Complaint on February 6, 2003, which defendants now move to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure ("FRCP"). In addition, defendants move to strike certain materials included in the complaint. In large part, defendants' motion is granted, though I am denying their motion to strike the two added class representatives.
I. MOTION TO DISMISS STANDARD
When considering a motion to dismiss pursuant to FRCP 12(b)(6), the Court is required to accept as true all of the facts alleged in the complaint and draw all reasonable inferences in the plaintiffs' favor. See Krimstock v. Kelly, 306 F.3d 40, 47-48 (2d Cir. 2002). A motion to dismiss should be granted only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Hamilton Chapter of Alpha Delta Phi, Inc. v. Hamilton College, 128 F.3d 59, 63 (2d. Cir. 1997) (citations and internal quotations omitted). It is improper, however, "`to assume that the [plaintiffs] can prove facts that it has not alleged or that the defendants have violated the antitrust laws in ways that have not been alleged.'" Todd v. Exxon Corp., 275 F.3d 91, 198 (2d Cir. 2001) (citing Associated Gen. Contractors of Calif Inc. v. Calfornia State Council of Carpenters, 459 U.S. 519, 526 (1983)).
II. DISCUSSION
1. Due diligence
The Court assumes familiarity with the facts set forth in Masters v. Wilhelmina Model Agency, Inc., 2003 WL 145556 (S.D.N.Y. Jan. 17, 2003), and will not repeat them herein. Plaintiffs seek to toll the statute of limitations for antitrust damages. To plead the necessary elements of fraudulent concealment to equitably toll the statute of limitations, plaintiffs have the burden of providing factual allegations in its complaint that show: (1) defendants concealed the existence of an antitrust violation, (2) which prevented plaintiffs' discovery of the violation until some time within the four year statute of limitations, and (3) plaintiffs' continuing ignorance of the defendants' antitrust infraction was not due to the lack of diligence. State of New York v. Hendrickson Bros., 840 F.2d 1065, 1083 (2d Cir.), cert. denied, 488 U.S. 848 (1988). "The burden rests squarely on the party pleading fraudulent concealment, and courts require particularity in pleading fraudulent concealment." Donahue v. Pendleton Woolen Mills, Inc. 633 F. Supp. 1423, 1443 (S.D.N.Y. 1986). This Court held that plaintiffs had not met their burden of pleading the third element with adequate particularity, and granted them leave to replead their claim for antitrust damages arising before June 25, 1998.
In plaintiffs Second Amended Consolidated Complaint, they now allege that representative plaintiff Carolyn Fears, after learning of an investigation being undertaken by counsel on behalf of Lenore Mason for possible violations of law by defendants, retained counsel to pursue an investigation on her behalf on or about October 2001. Second Amended Consolidated Complaint ("SAC") at ¶ 106. Before this date, representative plaintiffs allege they had "no knowledge of the combination and conspiracy alleged in the Complaint, or of any facts that could have or would have lead to the discovery thereof, until shortly before the first complaint . . . was filed in this Court on June 25, 2002. Id at ¶ 105. Plaintiffs further allege that they would not have been able to earlier discover their claims by due diligence because defendants colluded to conceal evidence of the antitrust conspiracy. See id. at ¶¶ 111-13. By May or June 2002, the investigation purportedly uncovered sufficient facts giving rise to Fears' antitrust claims to allow her counsel to file a complaint on June 25, 2002.
"Mason is not a named plaintiff to the instant lawsuit. Because the present motion requires me to only evaluate representative plaintiffs' diligence, I decline to address what others, who are not a part of the lawsuit as far as I can tell, knew or investigated.
Defendants argue that plaintiffs have again failed to adequately allege the due diligence element. More specifically, defendants argue that had any of the plaintiffs consulted with an attorney, based on only the knowledge that "she was being asked to sign a non-negotiable contract with a commission rate that was allegedly standard and non-negotiable, that lawyer would have known all the facts on which this [antitrust] claim is based and would have been able to draft the same [complaint] as was here filed." Def. Mem. at 12. In other words, defendants suggest that plaintiffs' mere knowledge of the non-negotiable contract and commission rate charged to them should have aroused enough suspicion to put them on inquiry notice, if not actual notice, of defendants' alleged wrongdoing, and that following this notice, it was unreasonable for plaintiffs not to have taken steps to determine what legal causes of action they may have had. Id. at 12, 16. Defendants note that plaintiffs fail to allege in the Second Amended Complaint that they "ever took any steps whatsoever to determine whether they had been wronged before Carolyn Fears went to see a lawyer in October 2001." Id. at 7. Moreover, "[t]here is no allegation of any proactive conduct of any nature by Ms. Fears or any of the other plaintiffs during the years plaintiffs worked as models, or since." Id.
In support of their motion to dismiss, defendants rely heavily on material that is extraneous to the complaint, such as the deposition of plaintiffs, defendants' internal records and various books, and other materials that plaintiffs submitted in connection with their motion for class certification. Generally, it is improper to consider such extraneous material, which are not integral to the complaint, in a motion to dismiss. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). Defendants urge the Court to take judicial notice of these materials, while continuing to treat their motion as one under Rule 12(b)(6), rather than Rule 56. Under the Federal Rules of Civil Procedure, however, consideration of the proffered extraneous material would require me to translate defendants' Rule 12(b)(6) motion into a Rule 56 motion, i.e, motion for summary judgment. Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991). Although the evidence presented by defendants may later prove to be determinative, it is premature, at this early stage of litigation and discovery, to consider motions for summary judgment. See Ryder Energy Distr. Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 782 n. 2 (2d Cir. 1984) ("a 12(b)(6) motion is not the proper mechanism to resolve" factual issues raised by extraneous materials, such as depositions). Accordingly, I decline to accept defendants' invitation to consider at this time the extraneous material provided to support their motion to dismiss.
Although plaintiffs indisputably allege when they were able to conclude that defendants had concealed its wrongdoing, i.e., May or June of 2002, plaintiffs fail to allege anything about what facts were discovered and how they were specifically discovered, Wood v. Carpenter, 101 U.S. 135, 143 (1879); see SAC ¶¶ 105-115, such that the Court could see that plaintiffs, despite due diligence, could not have reasonably learned, before the statute of limitations ran, of the facts that evidence defendant's unlawful activities. Klehr v. A. O. Smith Corp., 521 U.S. 179, 195 (1997); Moviecolor, Ltd v. Eastman Kodak Co., 288 F.2d 80, 88 (2d Cir. 1961). "General assertions of ignorance and due diligence without more specific explanation . . . will not satisfy the pleading requirements." Philip Morris v. Heinrich, 1996 WL 363156, at *12 (S.D.N.Y. June 28, 1996); see also In re Merrill Lynch Ltd Partnerships Litig., 154 F.3d 56, 60 (2d Cir. 1998). For instance, plaintiffs make no allegations of the inquiries, if any, they made, when such inquiries were made, to whom those inquiries were directed, what those inquiries were in regard to, and what response was obtained. See Merrill Lynch, 154 F.3d at 60. Although this Court observed that it was unlikely that plaintiffs with reasonable diligence alone would have uncovered the 1977 lawsuit that perhaps gave the public the first glimpse of defendants' antitrust conspiracy, Masters, 2003 WL 145556, at *10, that does not preclude the possibility that other facts could not have been discovered before June 25, 1998 by their due diligence, which would have put them on, at minimum, inquiry notice. Once on inquiry notice, plaintiffs are "charged with whatever knowledge an inquiry would have revealed." Stone v. Williams, 970 F.2d 1043, 1049 (2d Cir. 1992). Moreover, plaintiffs have failed to allege with adequate particularity the facts that were discovered during counsel's investigation and the inquiry performed to obtain those facts to show that plaintiffs could not have been on notice of their causes of action before the statute of limitations period ran.
I would further add that although many of the plaintiffs may have been young when they suffered the alleged damage caused by defendants, the fact that they may not have known of their legals rights does not toll the statute of limitations. Stone, 970 F.2d at 1049.
Plaintiffs suggest that they withheld these particular facts to avoid waiving the attorney-client privilege. Pl. Mem. at 5, n. 9. It has long been held, however, that "[a]lthough an attorney-client communication is privileged and may not be divulged, the underlying information or substance of the communication is not, as [plaintiffs here] incorrectly believe, so privileged . . . . The factual information is not protected by the attorney-client privilege just because the information was developed in anticipation of litigation. In re Six Grand Jury Witnesses, 979 F.2d 939, 945 (2d Cir. 1992) (internal citations omitted) (emphasis added); see also Upjohn Co. v. United States, 449 U.S. 383, 395-96 (1984) ("[the] protection of the privilege extends only to communications and not to facts."). Even if these facts that should have been plead with particularity could be properly characterized as covered by the attorney-client privilege (which I find is not the case here), plaintiffs impliedly waived the privilege by making a claim that in fairness requires an examination of the purported privileged material. United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991); Johnson Matthey, Inc. v. Research Corp., 2002 WL 1728566, at *2 (S.D.N.Y. July 24, 2002) (a person "may waive the privilege if he makes factual allegations the truth of which can only be assessed by examination of the privileged communication."). Although plaintiffs offer the Court the opportunity to review by in camera inspection, SAC at ¶ 108, the particulars of what was discovered following plaintiffs retention of counsel, it would be manifestly unfair to deprive defendants of this information, which is vital to their defense. Johnson Matthey, 2002 WL 1728566, at * 3. In any event, plaintiffs have failed to plead adequately that they could not through reasonable diligence have discovered defendants' alleged antitrust offenses, and accordingly, I will grant defendants' motion to bar antitrust damages for claims arising before June 25, 1998.
Defendants urge the Court not to give plaintiffs an opportunity to further amend their complaint. FRCP 15(a) states that "leave [to amend] shall be freely given when justice so requires." "Although the decision whether to grant leave to amend is within the discretion of the district court, refusal to grant leave must be based on a valid ground." Ronzani v. Sanofi S.A., 899 F.2d 195, 198 (2d Cir. 1990) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). For example, leave to amend need not be given if it would be futile, Cortec, 949 F.2d at 50, or if a plaintiff is on notice of a deficiency in the initial pleading and has had the opportunity to cure it by repleading. Dietrich v. Bauer, 76 F. Supp.2d 312, 351 (S.D.N.Y. 1999); J.S. Serv. Ctr. Corp. v. General Elec. Tech. Servs. Co., 937 F. Supp. 216, 225 (S.D.N.Y. 1996); Landy v. Heller, White Co., 783 F. Supp. 125, 133 (S.D.N.Y. 1991). Undoubtedly, plaintiffs would like the Court to grant them leave to file a third amended consolidated complaint. The words of this Court from another case are highly applicable here:
As plaintiffs' highly experienced counsel surely are aware, pleading is not an interactive game in which plaintiffs file a complaint, and then bat it back and forth with the Court over a rhetorical net until a viable complaint emerges. Rather, plaintiffs have the responsibility to plead their case adequately, without defendants' or the Court's assistance. This they have failed to do three times . . . A court may deny a plaintiff leave to replead when that party has "has been given ample prior opportunity to allege a claim." In re Merrill Lynch Ltd. Partnerships Litigation, 7 F. Supp.2d 256, 276 (S.D.N.Y. 1997), aff'd 154 F.3d 56 (2d Cir. 1998) (quoting De Jesus v. Sears, Roebuck Co., 87 F.3d 65, 72 (2d Cir. 1996).
The plaintiffs' last volley ends here. Leave to replead is denied.
2. Dismissed Claims
Defendants object to the presence of the dismissed state law claims and various factual allegations made in connection with those claims in the Second Amended Consolidated Complaint. I agree that inclusion of the dismissed counts serves no purpose because these counts have been already preserved for the appellate record in the original and first amended consolidated complaints. The factual allegations, however, that defendants seek to have stricken. see, e.g., SAC at ¶¶ 1(c) and (d), 36(b)-(g), 40-43, 49-54, and 85-97, continue to serve as support in connection with the federal antitrust claims that remain pending in this action. See SAC at ¶¶ 98, 116, 122. Accordingly, defendants' motion to strike the dismissed counts is granted, but the motion to strike the factual allegations is denied. See Gerber v. Computer Assoc. Int'l, Inc., 860 F. Supp. 27, 28 (E.D.N.Y. 1994).
3. Altered Material in Second Amended Consolidated Complaint
Defendants further move to strike the new allegations that plaintiffs added to the Second Amended Consolidated Complaint. Plaintiffs contend that the Court granted them leave to replead without limitation. Plaintiffs are mistaken. This Court granted them leave solely to replead the deficient element in connection with the alleged concealment, i.e., the due diligence element. Defendants' motion to strike the new matter unrelated to plaintiff's due diligence pleading is granted.
Defendants also complain that two new plaintiffs, Carol Alston and Tiffany Connor, have been added to the complaint as proposed class representatives without the Court's consent. When the names of both plaintiffs were proposed as class representatives, defendants did not object, and moreover, each were deposed a full day on January 20 and 23, 2003. Pl. Mem. at 17, Pl. Exh. B. I see little basis to conclude that plaintiffs would be prejudiced if they are included as class representatives. Plaintiffs have the consent of the Court to add Alston and Connor as class representatives.
Defendants also claim that certain plaintiffs no longer named on the Second Amended Consolidated Complaint should be dismissed. The Court will deal with this matter separately once the issue is fully briefed.
III. CONCLUSION
For the foregoing reasons, defendants' motion to dismiss claims for antitrust damages before June 25, 1998 is granted. In addition, their motion to strike the dismissed claims and new allegations is granted, but their motion to strike the factual allegations that support plaintiffs' antitrust claims and added plaintiff class representatives is denied. Plaintiffs will submit an amended complaint with the ordered changes within two days of the date hereof.