Opinion
CIVIL ACTION NO. 3:03-CV-2692-B.
August 13, 2008
MEMORANDUM ORDER
Before the Court is Calpine Defendants' May 2008 Motion to Dismiss (1) Plaintiffs' Federal and State Securities Law Claims; and (2) Plaintiffs' "Financial Strength" Common Law Fraud Claims. At issue is: 1) whether Plaintiffs may replead their federal and state securities law claims even though this Court previously dismissed those claims with prejudice; and 2) whether two of Plaintiffs' common law fraud claims satisfy federal pleading requirements. Having considered the pertinent pleadings, the Court finds that the Motion should be GRANTED as set forth below.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Account
By way of background, the events underlying this action began in early 2000 when Defendants approached Plaintiffs with a proposal for a joint venture involving the development of several of Plaintiffs' power plant projects. (Pls.' 2d Am. Compl. ¶ 27). Relying on several statements made by Defendants to their representatives, Plaintiffs entered into the venture through a series of agreements on June 14, 2000. (Id. at ¶¶ 36, 38). Plaintiffs allege that Defendants' statements were "untrue" when made and that Defendant made them for the purpose of inducing Plaintiffs into the agreements. (Id. at ¶¶ 27, 31, 36). Plaintiffs assert claims of common law fraud (Count Two), violations of federal securities law (Count Five), and violations of state securities law (Count Six). (Id. at ¶¶ 57-60, 68-71, 72-75).
B. Defendants' 2005 Motion to Dismiss
Defendants moved to dismiss Counts Five and Six, the securities law claims, in June 2005. This Court granted that motion, dismissing the Counts with prejudice on September 28, 2005. Defendants next moved to dismiss two particular allegations of common law fraud that were based upon the Defendant's "financial strength" representations. This, in turn, triggered a motion by Plaintiffs to amend their complaint to add several facts to the paragraphs supporting their financial strength representations. The Court denied Plaintiffs' motion to amend in November 2005 but did not reach Defendants' Motion to Dismiss because Defendants' bankruptcy caused the administrative closure of the case in January 2006.
Those two "financial strength" statements were:
Statement One: Plaintiffs allege that Calpine misrepresented its financial strength "during [a] telephone call . . . between [Panda's] Todd Carter and Calpine's Chief Financial Officer Robert Kelly, on February 15, 2000, when Mr. Kelly touted Calpine's `financial strength' and `strong credit' as factors that should make the proposed joint venture attractive to Panda."
(Pls.' 2d Am. Compl. ¶ 34).
Statement Two: Plaintiffs allege that "on March 27, 2000, Peter Cartwright, Calpine's CEO" misrepresented in a public proclamation "that there were `no accounting irregularities practiced at Calpine and further stated, `I want to assure our investors of the quality of our reported earnings."(Id. at ¶ 35.)
C. Defendants' 2008 Motion to Dismiss
Upon the reopening of this case in January 2008, Plaintiffs filed a Motion for Leave to Amend First Amended Complaint to Join Additional Defendants. The Court granted Plaintiffs' motion, and Plaintiffs filed their Second Amended Complaint on May 5, 2008. The Second Amended Complaint is identical to the First Amended Complaint except that it includes additional Calpine subsidiaries as Defendants. In fact, the Second Amended Complaint even reincorporated the previously dismissed Counts Five and Six. (Pls. 2d Am. Compl. ¶¶ 34, 35, 68-71, 72-75). The Second Amended Complaint does not include the additional facts of the October 2005 Proposed Complaint.
On May 19, 2008, Defendants filed the instant motion to dismiss Counts Five and Six as well as the two "financial strength" allegations in Count Two. Defendants argue that the securities law claims have already been dismissed and that the "financial strength" allegations should be dismissed because they fail to satisfy federal pleading standards. Plaintiffs oppose the motion and argue, inter alia, that the Court should reconsider its previous dismissal of Counts Five and Six. (Pls.' Resp. at 2-3).
Plaintiffs also argue that Defendants admitted Plaintiffs' allegations by failing to timely respond to Plaintiffs' First Amended Complaint. The Court fails to see how such an argument bears on the present Motion. When examining a motion to dismiss, the Court assumes all facts pled in the complaint as true. Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir. 2005). The issue before the Court is not whether the allegations are true, rather whether those facts are sufficient to state a claim.
II. ANALYSIS
A. Counts Five and Six: Federal and State Securities Law Violations
Defendants argue that Plaintiffs cannot replead claims that are identical to the previously dismissed Counts Five and Six. The Court agrees. When a claim is dismissed with prejudice, that claim may not be repled at all, let alone without alteration. See "With Prejudice," Black's Law Dictionary, 1603 (6th Ed. 1990). Plaintiffs were given leave to add additional defendants to their Complaint, not to replead claims already dismissed with prejudice. The Court looks upon such a filing with disfavor. The Court's reasoning with respect to its previous dismissal of Counts Five and Six applies equally to the new Defendants. Finding no basis for reconsidering that decision, the Court again dismisses Counts Five and Six, Plaintiffs' securities law claims, with prejudice.B. Count Two: "Financial Strength" Common Law Fraud Claims
Defendants also seek dismissal of those portions of Plaintiffs' common law fraud claims that allege that Defendants lied about the financial strength of their company. Defendants argue that these allegations are too vague to satisfy heightened federal pleading standards for fraud. For the reasons that follow, the Court agrees.
Common law fraud claims pled in federal court fall under the pleading requirements of Fed.R.Civ.P. 9(b). Williams v. WMX Tech., Inc., 112 F.3d 175, 177 (5th Cir. 1997); United States ex re. Coppock v. Northrop Grumman Corp., No. 3:98-CV-2143-D, 2002 WL 1796979, *14 (N.D. Tex. Aug. 1, 2002). This Rule states, "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b). The Fifth Circuit "strictly" interprets 9(b)'s particularity requirement, mandating that a plaintiff "specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." Herrmann Holdings Ltd. v. Lucent Tech. Inc., 302 F. 3d 552, 564-65 (5th Cir. 2002). A plaintiff must also specify "what [the speaker] obtained [by making the misrepresentation]." Williams, 112 F.3d at 177. If a claim fails to plead fraud with particularity as required by Rule 9(b), it is treated as a Rule 12(b)(6) dismissal on the pleadings for failure to state a claim. Shushany v. Allwaste, Inc., 992 F.2d 517, 520 (5th Cir 1993). The Panda Plaintiffs fail to state a claim because they do not satisfy 9(b)'s particularity requirement — the Complaint does not state why the "financial strength" statements were false or what Defendants obtained by making them. Each statement is examined individually:
In Texas, an action in common law fraud requires "a material misrepresentation, which was false, and which was either known to be false when made or was asserted without knowledge of its truth, which was intended to be acted upon, which was relied upon, and which caused injury." Formosa Plastics Corp. USA v. Presidio Engineers and Contractors, Inc., 960 S.W. 2d 41, 47 (Tex. 1998).
Statement One: Plaintiffs allege that Calpine misrepresented its financial strength "during [a] telephone call . . . between [Panda's] Todd Carter and Calpine's Chief Financial Officer Robert Kelly, on February 15, 2000, when Mr. Kelly touted Calpine's `financial strength' and `strong credit' as factors that should make the proposed joint venture attractive to Panda."
(Pls. 2d Am. Compl. ¶ 34).
Plaintiffs fail to state why this statement is fraudulent. The Second Amended Complaint gives no indication of why Mr. Kelly's touting of Calpine's "financial strength" and "strong credit" were false or misleading. It fails to provide "specific allegations" that "isolate the statement and particularize its falsity" — a test the Fifth Circuit has employed in determining whether a claim explains why certain representations are false. See Williams, 112 F.3d at 180 (ruling that fraud claims, including common law fraud, that were based upon certain newspaper articles failed to satisfy 9(b) because Plaintiffs did not indicate why the statements in the article were false). In other words, the Panda Plaintiffs fail to state why Statement One was "wrong, false, or made without any basis or foundation" altogether. See Stephens v. Halliburton Co., No. 02-CV-1442-L, 2003 WL 22077752, *9 (N.D. Tex. Sept. 5, 2003) (holding that Plaintiff did not satisfy 9(b)'s particularity standard regarding claims including common law fraud based upon SEC filings and communications made by Defendants). Plaintiffs also fail to state what Defendants obtained through the representation.
Statement Two: Plaintiffs allege that "on March 27, 2000, Peter Cartwright, Calpine's CEO" misrepresented in a public proclamation "that there were `no accounting irregularities practiced at Calpine and further stated, `I want to assure our investors of the quality of our reported earnings."(Id. at ¶ 35).
Plaintiffs, likewise, do not state how this statement is fraudulent. Plaintiffs' Complaint does not allege a single instance of an accounting irregularity prior to March 27, 2000. Hence, the Court has no facts upon which it can consider whether Statement Two was "wrong, false, or made without an basis or foundation," — whether the "quality" of Calpine's "reported earnings" was actually poor or whether "accounting irregularities" actually existed. See Stevens, 2003 WL 22077752 at *9. In order to determine the falsity of a statement, courts look at the allegations and compare them to the facts set forth in the complaint. See Plotkin v. IP Axess Inc., 407 F.3d 690, 701 (5th Cir. 2005); Williams, 112 F.3d at 179-80; and Stevens, 2003 WL 22077752 at *9. In the instant case, the Plaintiffs' claim derives no factual support from the Complaint and consequently fails to explain why the statement is fraudulent and what Defendants obtained by its issuance.
The analysis of Statements One and Two above is consistent with this Court's September 2005 ruling in which it analyzed the same Statements in dismissing securities fraud claims, Counts Five and Six. (See Mem. Order 2).
The Court rejects Plaintiffs' arguments that the nine misrepresentations related to Count Two should be treated as a single cause of action and that individual dismissal of the allegations is thus improper. Instead, the Court views the allegations pertaining to Count Two as nine separate claims of common law fraud. See Plotkin, 407 F.3d at 701-03 (reversing district court's dismissal of a common law fraud claim based on May 25 press release, while also affirming dismissal of another common law fraud claim based on an August 18 press release); Southland Sec. v. Inspire Ins. Solutions, 365 F.3d 353, 383 (5th Cir. 2004) (upholding dismissal of all but one allegation of securities fraud); Williams, 112 F.3d at 178-80 (examining fraudulent misrepresentations alleged by plaintiffs individually and reversing district court's denial of motion to dismiss); Oppenheimer v. Prudential Sec. Inc., 94 F.3d 189, 195-96 (5th Cir. 1996) (affirming grant of motion to dismiss common law fraud claims while examining the two alleged misrepresentations individually); Flaherty Crumrine Preferred Income Fund Inc. v. TXU Corp., No. 3:03-CV-02692-B, 2008 WL 918339, *6-9 (N.D. Tex. April 4, 2008) (dismissing each of plaintiffs' claims of common law fraud because plaintiffs failed to state what made each statement fraudulent); and Infowise Solutions Inc. v. Microstrategy, Inc., No. 3:04-CV-0553, 2005 WL 2445436, *3 (N.D. Tex. Sept. 29, 2005) (examining common law fraud allegations of amended complaint and determining that each alleged fraudulent statement individually failed to meet the pleading requirement necessary to avoid dismissal).
III. CONCLUSION
For the reasons stated above, Defendants' May 2008 Motion to Dismiss (1) Plaintiffs' Federal and State Securities Law Claims; and (2) Plaintiffs' "Financial Strength" Common Law Fraud Claims is GRANTED.
It is further ORDERED that Plaintiffs' claims of Common Law Fraud (Count Two) based on Statements One and Two above, Violation of Federal Securities Law (Count Five), and Violation of Texas Blue Sky Law (Count Six) are dismissed WITH PREJUDICE.