Pfizer Inc. et al v. Gelfand

MEMORANDUM OF LAW in Support re: 15 MOTION to Dismiss and/or. MOTION to Strike Document No. 6 Counterclaims.. Document

S.D.N.Y.April 11, 2008

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK PFEZER INC, ROBERT JARVIK, M.D., JARVIK HEART, INC., Plaintiffs, v. . Civil Action No. 08-cv-02018-LAK ECF case MATHEW I. GELFAND, M.D., Defendant. MEMORANDUM IN SUPPORT OF PLAINTIFFS’ MOTION TO DISMISS AND/ORSTRIKE DEFENDANT’S COUNTERCLAIMS DavidG. Ebert INGRAM YUZEK GAINEN CARROLL & BERTOLOTTI, LLP 250ParkAvenue- 6th Floor NewYork, New York 10177 212 907-9603 debert@ingramllp.com Attorneysfor PlaintffsPfizermc, Robert Of Counsel: Jarvik, MD., andJarvikHeart, Inc. RudolfB. Hutz JeffreyB. Bove Mary W. Bourke CONNOLLY BOVE LODGE & HUTZ LLP 1007NorthOrangeStreet Wilmington, DB 19899 302 658-9141 DATED: April 10, 2008 275074_3/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 1 of 15 TABLE OF CONTENTS Pate iNDEX OF UNREPORTEDDECISIONS ii TABLE OF AUTHORITIES iii I. PRELIMINARY STATEMENT 1 II. SUMMARY OF ARGUMENT 2 III. STATEMENT OF FACTS 2 A. TheParties 2 B. TheLitigation 3 IV. ARGUMENTS 4 A. StandardsApplicableTo A Motion To DismissAnd/Or Strike 4 1. TheStandardon aMotion to Dismiss 4 2. The Standardon aMotion to Strike 4 B. Defendant’sCounterclaimsAre ImproperlyFiled Without An Answer 5 V. CONCLUSION 9 275280112519-0003 i Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 2 of 15 INDEX OF UNREPORTED DECISIONS In rePfizer, Inc. Sec.Litig., F. Supp.2d ____, 2008WL 540120S.D.N.Y.,February28, 2008 Ex. 1 SonyFin. Servs.,LLC v. Multi VideoGroup, Ltd., No. 03 civ. 1730 LAKGWG, 2003 WL 22928602S.D.N.Y. Dec. 12, 2003 Ex. 2 Ulla-MaUa, Inc. v. Kivimaki, No. 02 civ. 3640AGS,2003WL 169777S.D.N.Y.Jan.23, 2003 Ex. 3 Pitts v. L. EpsteinofNewYork, Inc., No. 92 civ. 0802RPP, 1993 WL 535120S.D.N.Y.Dec. 17, 1993 Ex. 4 11 275074_3102519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 3 of 15 TABLE OF AUTHORITIES Cases ATSICommc’ns,Inc. v. ShaarFund, Ltd., 493 F.3d87 2d Cir. 2007 4 Aventv. Solfaro, 210 F.R.D.91 S.D.N.Y. 2002 5 Bell Atl. Corp. v. Twombly, U.S. ____, 127 S. Ct. 1955 2007 4 Bernsteinv. IDT Corp., 582 F. Supp.1079 D. Del. 1984 7 Burnsv. Lawther, 53F.3d1237llthCir. 1995 6 EsteeLauder,Inc. v. TheFragranceCounter, Inc., 189 F.R.D. 269 S.D.N.Y. 1999 5 Flores v. S. Peru CopperCorp., 343 F.3d 140 2d Cir. 2003 4 ForschnerGroup, Inc. v. B-LineA. G., 943 F. Supp.287 S.D.N.Y. 1996 5 Hollander v. Amer. CyanamidCo., 172 F.3d 192 2d Cir. 1999 5 In re CessnaDistributorshipAntitrustLitig., 532 F.2d64 8th Cir. 1976 7, 8 In re Pfizer,Inc. Sec.Litig., F. Supp.2d ____, 2008WL 540120S.D.N.Y., Feb. 28, 2008 4 Iqbal v. Hasty, 490 F.3d 143 2d Cir. 2007 4 Langerv. MonarchLife Ins. Co., 966 F.2d786 3d Cir. 1992 8 Leiy v. SouthbrookInt’l Invs.,Ltd., 263 F.3d 10 2d Cir. 2001,cert. denied, 535 U.S. 1054, 122 S. Ct. 1911 2002 4 MicrosoftCorp. v. Ion Techs.Corp., 484 F. Supp.2d 955 D. Minn. 2007 8 111 275074_3102519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 4 of 15 Pitts v. L. EpsteinofNewYork, Inc., No. 92 civ. 0802 RPP,1993 WL 535120S.D.N.Y. Dec. 17, 1993 8 PolymerIndus.Prods. Co. v. Bridgestone/Firestone,Inc., 347 F.3d935 Fed. Cir. 2003 6 SonyFin. Servs.,LLC v. Multi VideoGroup,Ltd., No. 03 civ. 1730LAKGWG, 2003 WL 22928602S.D.N.Y.Dec. 12, 2003 5 Ulla-Maa, Inc. v. Kivimaki, No. 02 civ. 3640AGS, 2003 WL 169777,at 4 S.D.N.Y.Jan.23, 2003 5 Rulesand Statutes 28U.S.C.2201 3 Fed. R. Civ. P. 12b6 1, 5 Fed. R. Civ. P. 12f 1, 4, 5, 8 Fed.R.Civ.P.13 1,6,7 Fed.R. Civ. P. 7a 1, 6, 7 OtherAuthorities 2 Moore’sFederalPractice § 7.02[1][bJMatthewBender3d ed. 6 3 Moore’sFederalPractice § 13.90[1] MatthewBender3d ed. 6 iv 2750743/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 5 of 15 I. PRELIMINARY STATEMENT This is an actionby Pfizer Inc "Pfizer mc", RobertJarvik,M.D. "Dr. Jarvik", and JarvikHeart, Inc. "JHI", collectivelyreferredto as"Pfizer" or "Plaintiffs" againstMathewI. Gelfand,M.D. "Gelfand"or "Defendant",for a declaratoryjudgmentof non-infringement, invalidity andunenforceabilityofUnitedStatesPatentNo. 5,837,688"the ‘688 patent". Gelfandfailed to file an answerto Pfizer’s complaint. Instead,in an effort to substitute his allegationsfor Pfizer’s, Gelfandfiled a documentitled "Defendant/Counter-Plaintiffs Counterclaim,"unaccompaniedby anyanswer. At thesametime, Gelfandmovedto dismiss Pfizer’s complaint, a motionwhich, if granted,would leavea bare"counterclaim"pendingwith no associatedcomplaint,answeror otherpleading. GelfandprecipitatedPfizer’s complaintby repeatedlythreateningPfizerwith patent infringement,seekinghundredsofmillions of dollarsin damagesandan injunction againstall futuresalesby Pfizer Inc oftheworld’s mostsuccessfulpharmaceutical,Lipitor. When Plaintiffs soughtto properlyprotectthemselvesandto promptly resolvethedisputeby useof a complaintfor declaratoryjudgment,Gelfandrefusedto file an answer,plungingthis litigation into an immediateproceduralquagmireto thedetrimentoftheCourt andPfizer. In effect, Gelfandwantsto substitutePfizer’s suit againsthim with onehe,asPlaintiff, mighthavebrought againstPfizerbut did not. Thereis no basisin theRulesor in logic for that to bepermitted. Pfizermovespursuantto Fed. R. Civ. P. 12b6 and 12f to Dismissand/orStrike Defendant’sCounterclaimsfiled on March 24, 2008. Fed. R. Civ. P. 7a and13 do not permit thepleadingofa counterclaimseparatefrom an answeror otherpleading. This is Pfizer’s Memorandumin supportof its Motion. 275074_3/025 19-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 6 of 15 II. SUMMARY OF ARGUMENT Pfizer’s Motion to dismissand/orstrike‘all ofGelfand’s counterclaimsshouldbegranted becauseDefendanthasimproperlyfiled a documentpurportingto be "Counterclaims"without filing an answerto thecomplaint III. STATEMENT OF FACTS A. The Parties Pfizer Inc is a research-basedpharmaceuticalcompanythat invents,develops, manufacturesandmarketsleadingprescriptionmedicinesfor humansand animalsthroughouthe world. Its mostimportantproduct,andtheworld’s largestsellingpharmaceutical,is Lipitor, a lifesavingcholesterol-loweringdrugcontainingtheactive ingredient,atorvastatincalcium. Complaint at ¶J 3, 11 hereinafter"Corn.¶ _".‘ Pfizer Inc introducedLipitor into theUnited Statesmarket in 1996. Corn. ¶ 12. Pfizer Inc also developed,manufacturesandmarketsa uniquecombinationproductcomprisedoftwo activeingredients,amlodipinebesylateand atorvastatincalcium,which it hassold in theUnited Statessince2004undertheregisteredname Caduet. Corn. ¶f 13, 14. Dr. Jarvik is an individual residingin New York, New York who servesasPresidentand ChiefExecutiveOfficer of IHI. Corn. ¶ ‘6. Dr. Jarvik is widely respectedandrecognizedasthe inventoroftheJarvik artificial heart. Corn. ¶ 9 Dr. Jarvikhasappearedin certainof Pfizer’s advertisementsfor Lipitor®. Counterclaimat¶f 4, 32 hereinafter"Counterclaim¶ _2 JHI is a New York Corporation,with offices locatedat 333 West52ndStreet,New York, New York 10019. Corn. ¶5. copyoftheComplainthasbeenannexedasExhibit A to theaccompanyingaffidavit of David G. Ebert,swornto April 10, 2008hereafter,"EbertAffidavit". 2 A copyof theCounterclaimhasbeenannexedasExhibit B to theEbertAffidavit. 2 275074_3/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 7 of 15 Gelfandis a residentofthe StateofNewYork, with an addressof245 FairwayRoad, Lido Beach,New York 11561. Corn. ¶ 6; Counterclaim¶ 2. Gelfandclaimsto be theinventor andownerof the ‘688 patent. Corn. ¶ 9; Counterclaim¶f 9, 10. TheUnitedStatesPatentand TrademarkOffice issuedthe ‘688 patenton November17, 1998, entitled"Useof Thrombolytic Reagentsfor PreventionofVascularDisease",on an application,SerialNumber758,615,filed by Gelfandon November27, 1996. Corn. ¶ 2; Counterclaim¶f 9. B. This Litigation Beginning in August,2005,Gelfandrepeatedlyaccusedoneor moreofthePlaintiffs in writing of infringing the ‘688patentby reasonoftheir activitiesin manufacturing,promoting andselling Lipitor® and Caduet®,threateningto seekmillions in damagesandan injunction againsthefuture saleoftheseimportant,lifesavingdrugs. Corn. ¶[ 9, 10, 17, 18, 19; Counterclaim¶f 28, 43, 44. GelfandevensentPfizeracopyof a draft complaintwhichhe threatenedto file in thisDistrict. Basedupontheseseriousassertionsofinfringement,Pfizerproperlybroughtthis action for declaratoryjudgmentofnon-infringement,invalidity andunenforceabilityagainstGelfandto resolveGelfand’saccusations.Pfizerevenfiled its complaintin Gelfand’schoiceof forum as statedin his owndraft complaint. OnMarch 24, 2008,althoughfailing in violation ofthe FederalRulesofCivil Procedureto file ananswer,Gelfanddid respondto Pfizer’s suit by filing: 1 Counterclaims,and 2 a Motion to DismisstheComplaint,seekingto proceedsolelyon the counterclaims,while assertingthat thecomplaintwas"inconsistentwith theDeclaratory JudgmentAct, 28 U.S.C. § 2201,et. seq."purportedlybecausethecomplaintis "merelypre emptive" and"proceduralfencing."Motion to Dismiss,p. 2. 3 275074_3102519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 8 of 15 Pfizer is respondingseparatelyto Gelfand’sMotion to Dismiss,andaddressesheresolely the improprietyofa bare"counterclaim,"unassociatedwith anyanswer.3 IV. ARGUMENT A. StandardsApplicable To A Motion To DismissAnd/Or Strike 1. The Standard on a Motion to Dismiss. In decidingamotion to dismiss,a court‘ordinarily acceptsastrueall well-pleadedfactual allegationsanddrawsall reasonableinferencesin favor ofthenon-movingparty. Flores v. S. Peru Copper Corp.,343 F.3d 140, 143 2d Cir. 2003;Leiy v. SouthbrookInt’l Invs.,Ltd., 263 F.3d 10, 14 2d Cir. 2001,cert. denied,535 U.S. 1054, 122 5. Ct. 1911 2002; In rePfizer, Inc. Sec.Litig., F. Supp.2d ____, 2008 WL 540120S.D.N.Y.,Feb. 28, 2008. In orderto survivesucha motion, however,thenon-movingpartyhereGelfand"mustprovidethegrounds uponwhich his claimreststhroughfactual allegationssufficient ‘to raisearight to relief above thespeculativelevel." ATSICommc’ns,Inc. v. ShaarFund, Ltd., 493 F.3d87, 98 2d Cir. 2007 quotingBell Atl. Corp. v. Twombly, U.S. ____,127 S. Ct. 1955, 19652007; seealso Iqbal v. Hasty,490 F.3d 143, 158-592d Cir. 2007decliningto limit Bell Atl. holdingto the antitrustcontext. 2. The Standard on a Motion to Strike. FederalRuleofCivil Procedure121 provides: Uponmotionmadeby a partybeforerespondingto apleadingor, if no responsivepleadingis permittedby theserules, uponmotion madeby apartywithin 20 daysaftertheserviceofthepleading uponthepartyor uponthecourt’s owninitiative at anytime, the courtmayorderstrickenfrom anypleadinganyinsufficient Pfizerwill respondto thesubstantiveallegationsof Gelfand’scounterclaimsif andwhenthey arepresentedin a legally recognizablepleading. copyofthedecisionin In rePfizer,Inc. Sec.Litig., F. Supp.2d ____, 2008WL 540120 S.D.N.Y., February28, 2008is annexedheretoasExhibit 1. 4 275074_3/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 9 of 15 defenseor any redundant,immaterial,impertinent,or scandalous matter. Whetherto granta motion to strike is vestedin thetrial court’s sounddiscretion.See,e.g., Hollanderv. Amer. CyanamidCo., 172 F.3d 192, 198 2d Cir. 1999. Thestandardappliedto a motion to strike is the"mirror image"of thestandardon a 1 2b6 motion to dismissfor failure to stateaclaim. SeeSonyFin. Servs.,LLC v. Multi Video Group,Ltd., No. 03 civ. 1730 LAKGWG, 2003 WL 22928602,at * 8 S.D.N.Y. Dec. 12, 2003. Althoughmotionsto strike arenot generallyfavored,courtswill strikepleadingswheretheyare clearlyinsufficient as amatterof law. SeeAventv. Solfaro, 210 F.R.D. 91, 94 S.D.N.Y.2002;ForschnerGroup, Inc. v. B-LineA.G.,943 F. Supp.287, 291 S.D.N.Y. 1996. Seealso Ulla-Maa, Inc. v. Kivimaki, No. 02 civ. 3640AGS,2003 WL 169777,at * 4 S.D.N.Y.Jan.23, 2003.6 In addition, somecourtsrequirethemovingparty to showthatit would beprejudicedif a pleadingwereto remain.SeeAvent,210 F.R.D.at 94. Increasedtime andexpenseof trial justify a court’s grantof a Rule 12f motion, andacourtshould strikeadefenseto eliminatethedelay andunnecessaryexpensefrom litigating aninvalid claimwhenit is insufficientasa matterof law. SeeEsteeLauder,Inc. v. TheFragranceCounter,Inc., 189 F.R.D. 269, 272S.D.N.Y. 1999. B. Defendant’sCounterclaims Are Improperly Filed Without An Answer WhetherconsideredundertheprovisionsofFederalRulesofCivil ProcedureRule 12b6 or 12f, Gelfand’sso-called"Counterclaims"are improperlyfiled without an answeror A copyofthedecisionin SonyFin. Servs.,LLC v. Multi VideoGroup,Ltd., No. 03 civ. 1730 LAKGWG, 2003 WL 22928602S.D.N.Y. Dec. 12, 2003is annexedheretoasExhibit 2. 6 A copyofthedecisionin Ulla-Maja, Inc. v. Kivimaki, No. 02 civ. 3640AGS,2003 WL 169777S.D.N.Y.Jan.23, 2003is annexedheretoasExhibit 3. 5 275074_3/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 10 of 15 any otherpleading. FederalRulesofCivil ProcedureRule7a preciselydelineatestheonly pleadingsallowed: a Pleadings.Only thesepleadingsareallowed: 1 a complaint; 2 an answerto acomplaint; 3 an answerto a counterclaimdesignatedassuch; 4 an answerto acrossclaim; 5 a third-partycomplaint; 6 an answerto athird-partycomplaint; 7 if thecourtordersone,a replyto an answer. Unambiguously,a "counterclaim"without moreis not apleading. Thelist ofpleadings in Rule7a is exclusive. Burnsv. Lawther, 53 F.3d 1237, 1241 11th Cir. 1995; 2 Moore’s FederalPractice § 7.02[1][b] MatthewBender3d ed.. Theomissionof counterclaimsfrom thelist ofpleadingsallowedunderRule7a is no accident."A counterclaimis not a separatepleading,but mustbemadein aresponsivepleading, suchasananswer."3 Moore‘s FederalPractice§ 13.90[1] MatthewBender3d ed.. Courts havelongrecognizedthat theFederalRulesrequirethat counterclaimsandcrossclaimsbe assertedin answersandotherRule7 pleadings. Gelfand’scounterclaimspurportto assertinfringementby Pfizerofthe ‘688 patent,the samepatentthat is thesubjectofPfizer’s complaint. Thus,thecounterclaimsare compulsory counterclaimsunderFed. R. Civ. P. 13. PolymerIndus.Prods. Co. v. Bridgestone/Firestone, Inc., 347F.3d935, 938 Fed. Cir. 2003 establishinga "uniform nationalrule" that "[r]ule 13a makesan infringementcounterclaimto a declaratoryjudgmentaction for noninfringement compulsory.". Fed. R. Civ. P. 1 3a1 statesthat"[a] pleadingmuststateasacounterclaimany claim that - at thetime ofits service- thepleaderhasagainstan opposingparty.. ." Thus,Rule 13 confirms that a"counterclaim"is not a"pleading"andit mandatesthat Gelfand’s compulsory counterclaimof patentinfringementbe statedin a "pleading." Similarly, Rule 13b provides 6 275074_3/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 11 of 15 that "[a] pleadingmaystateasacounterclaimagainstan opposingpartyany claim that is not compulsory." Subparagraphsd, e, f andg ofRule13 areequallyclearthat counterclaims mustbe includedin a pleading. Nothingin Rule 13 providesfor a counterclaimto be separately filed from a properpleadingunderRule7a. In Bernsteinv. IDTCorp., 582 F. Supp. 1079, 1089D. Del. 1984,thecourtdismissed counterclaimsfiled separatelyfrom any pleading. There,theplaintiff broughta lawsuitagainst defendantsfor RICO andpendentstatelaw claims. Oneofthedefendantsbroughta 12b6 motion to dismissprior to answering. Beforethedispositionofthemotionto dismiss,the defendantfiled its counterclaimsandcrossclaims.Thecourt ruled: Specialemphasisshouldbeplacedon thefact that General Dynamics[defendant]hasfiled no Answerto thecomplaint. Nonetheless,on October25, 1983, GeneralDynamicsfiled an extensivedocumententitled"CounterclaimsandCrossclaimsof GeneralDynamicsCorporation." Thecrossclaimis directed against[the otherdefendants].This documenthasspawneda flurry ofmotionsto dismissor to strike. Theywill all be granted. Id. TheBernsteincourtproceededto examineFed. R. Civ. P. 13a,7a, and 12a,aswell asrelevanttreatises,and foundthat all therelevantrulestreatcounterclaimsasassertedin a pleading. Thecourtalsocited the8th Circuit casein In re CessnaDistributorshipAntitrust Litigation, 532 F.2d64 8th Cir. 1976,which consideredthesameissuefor crossclaims,and whichconcludedthat crossclaimscouldonly beassertedin ananswer;standingalone,a crossclaimwasnot apleading. Finding that therulesfor crossclaimscited by that court containedthesameoperativelanguageasthe rules for counterclaims,theBernsteincourtheld that"becauseGeneralDynamicshasfiled no pleading,its counterclaimsmustbedismissed and/orstrickenatthis juncture." Id. 7. 275074_3/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 12 of 15 Similarly, aMinnesotaDistrict Court in MicrosoftCorp. v. Ion TechnologiesCorp., 484 F. Supp.2d 955, 965 D. Minn. 2007,citing Cessna,also foundthat thedefendantsthere improperlyassertedtheir counterclaimswhenthey"advancedtheir counterclaimsin a separate documenton thesamedaythat theyfiled theirAnswerto AmendedComplaint." Counterclaims mustappearin a pleading,and"a separatedocumentthatcontainscounterclaimsis not a permissiblepleading." Id. at 965. Thecourt foundotherproceduraldefectsin additionto this defectandultimatelydismissedthecounterclaims. This Courthasespousedthesameview in Pitts v. L. EpsteinofNew York, Inc., No. 92 civ. 0802 RPP,1993 WL 535120S.D.N.Y.Dec. 17, 1993. InPitts, defendantEpstein movedfor summaryjudgmenton its crossclaimsagainstdefendantMetro. Metro opposedthe motion by arguing, inter alia, that Epstein’scrossclaimswereimproperlypledbecausetheywere not containedin its answerfiled earlier. JudgePattersonreliedsolelyon Langerv. MonarchLife Ins. Co., 966 F.2d786 3d Cir. 1992,which reliedon Cessnasupra, andfoundthat crossclaims mustbestatedin a pleading. Thus,theCourtdismissedEpstein’smotion because"Epstein’s motion for summaryjudgmentis groundedon an impropercross-claimwhich is hereby stricken." Pitts, 1993 WL 535120at *1. Finally, to theextentthat prejudicemustbe shownby themovingparty to justify a motion to strikeunderFed. R. Civ. P. 12f, Plaintiffs havebeenprejudicedby Gelfand’s failure to comply with the rules ofpleading. Gelfandseeksto usehis improperCounterclaimsto assert that Pfizer’sproperComplaintfor DeclaratoryJudgmentshouldbedismissedso that this matter is litigated solelyuponGelfand’s improperCounterclaims.Motion to Dismiss,p 2. No answer hasbeenfiled, noneof Pfizer’s complaintallegationshavebeendirectlyadmittedor deniedand 7A copyofthedecisionin Pitts v. L. EpsteinofNew York, Inc., No. 92 civ. 0802RPP,1993 WL 535120S.D.N.Y.Dec. 17, 1993is annexedheretoasExhibit 4. 8 2750743/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 13 of 15 Gelfand’simproperactionshavecreated,andwill continueto create,wholly unnecessary proceduralconundrumsthroughoutthis litigation. V. CONCLUSION For thereasonsset forth above,Plaintiffs’ Motion to Dismissand/orstrikeDefendant’s counterclaimsshouldbe granted. RESPECTFULLYSUBMITTED, INGRAM YUZEK GAINEN CARROLL & BERTOLOTTI, LLP Attorneysfor PlaintffsPfizermc, Robert Jarvik, MD., andJarvikHeart, Inc. ccrOf Counsel: ‘ By: DavidG. Ebe 407 RudolfE. Hutz 250ParkAvenue - 6th Floor JeffreyB. Bove New York, New York 10177 Mary W. Bourke 212 907-9603 William B. McShane debert@ingramllp.com CONNOLLY BOVE LODGE & HUTZ LLP 1007NorthOrangeStreet Wilmington, DE 19899 302658-9141 DATED: April 10, 2008 9 2750743/02519-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 14 of 15 CERTIFICATE OF SERVICE I aman attorneyadmittedto practicebefore this Court andamassociatedwith IngramYuzek Gainen Carroll & Bertolotti, LLP, attorneysfor plaintiffs, Pffer Inc., RobertJarvik, M.D., andJarvik Heart, Inc. "Plaintiffs". I herebycertify that on April 10, 2008, I causedcopiesof Plaintiffs’ NOTICE OF MOTION, dated April 10, 2008, MEMORANDUM IN SUPPORTOF PLAINTIFFS’ MOTION TO DISMISS AND/OR STRIKE DEFENDANT’S COUNTERCLAIMS, datedApril 10, 2008, andAFFIDAVIT OF DAVID G. EBERT IN SUPPORT OF PLAINTIFFS’ MOTION TO DISMISS AND/OR STRIKE DEFENDANT’S COUNTERCLAIMS, datedApril 10, 2008, to be servedby handupon: TheHonorableLewis A. Kaplan UnitedStatesDistrict Court SouthernDistrict of NewYork 500 PearlStreet,Room 1310 NewYork, NewYork 10007 and alsoto be served,togetherwith the [PROPOSED] ORDER GRANTING PLAINTIFFS’ MOTION TO DISMISS AND/OR STRIKE DEFENDANT’S COUNTERCLAIMS uponthe following: MitchellJ. Rotbert TheRotbertLaw Group,LLC Attorneyfor Defendant MathewI. Gelfand,MD. 7315WisconsinAvenue Suite 1250West Bethesda,Maryland 20814 by depositing a true and correct copy of the sameproperly enclosedin a postpaidwrapper, in the official depositorymaintainedandexclusivelycontrolledby theUnitedStates. Dated: New York, NewYork April 10, 2008 itlin L. BronnerCB - 4280 275 160_1/025 19-0003 Case 1:08-cv-02018-LAK Document 16 Filed 04/11/2008 Page 15 of 15 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 1 of 20 Page2 of 20 F.Supp.2d F.Supp.2d----, 2008 WL 540120S.D.N.Y., Fed.Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d---- Page1 In rePfizer, Inc. SecuritiesLitigation S.D.N.Y.,2008. Only theWestlawcitation is currently available. United StatesDistrict Court,S.D.New York. In rePFIZER, INC. SECURITIESLITIGATION. ThisDocumentRelatesto: All Cases. No. 06 Civ. 14199LAK. Feb.28, 2008. Background: Shareholders brought class action against drug manufacturerand three of its current and former officers and directors, alleging claims for securitiesfraud andcontrol personliability. De fendantsmovedto dismiss. Holdings: The District Court, Lewis A. Kaplan, J., held that: 1 shareholdersfailed to plead allegationsof fraud with requisiteparticularity; 2 shareholdersfailed to sufficiently allegemotive to statesecuritiesfraud claim; and 3 shareholdersfailed to sufficiently allege con scious misbehavioror recklessnessto state securit ies fraud claim. Motion granted. [1] SecuritiesRegulation349B60.53 349B SecuritiesRegulation 349BI FederalRegulation 349B1CTradingand Markets 349B1C7Fraudand Manipulation 349Bk60.50Pleading 349Bk60.53 k. Misrepresentation. MostCitedCases To satisfy the Private Securities Litigation Reform Act PSLRA and rule requiring that, in all aver ments of fraud or mistake, the circumstancescon stituting fraud or mistake be statedwith particular ity, the complaint in a securitiesfraud casemust: 1 specifythe statementsthat the plaintiff contends were fraudulent; 2 identify the speaker;3 state whereandwhen the statementswere made; and 4 explainwhy the statementswere fraudulent.Secur ities ExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; Private Securities Litigation Reform Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b; 15 C.F.R. § 240.lOb-5; Fed.Rules Civ.Proc.Rule 9b, 28 U.S.C.A. [2] SecuritiesRegulation349BZ60.51 349B SecuritiesRegulation 349BI FederalRegulation 349B1CTradingandMarkets 349BIC7 FraudandManipulation 349Bk60.50Pleading 349Bk60.51 k. In General. Most CitedCases Under the Private SecuritiesLitigation Reform Act PSLRA, the complaint in a securities fraud case must state with particularity facts giving rise to a strong inference that the defendantacted with the required state of mind, i.e., an intent to deceive, manipulate,or defraud. SecuritiesExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; Private Secur ities Litigation Reform Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b2; 15 C.F.R. § 240.lOb-5. 131 SecuritiesRegulation349B60.18 349B SecuritiesRegulation 349B1 FederalRegulation 349B1CTradingandMarkets 349BIC7 Fraudand Manipulation 349Bk60.17 Manipulative, Deceptive or FraudulentConduct 349Bk60.18 k. In General. Most CitedCases To state a claim based on a misrepresentationor omission in violation of Rule lOb-5, one must al lege that a defendant:1 made misstatementsor omissionsof material fact; 2 with scienter;3 in connectionwith the purchaseor sale of securities; 4 upon which plaintiffs relied; and 5 that plaintiffs’ reliancewas the proximate causeof their © 2008 Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.comlprintlprintstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 2 of 20 Page3 of20 F.Supp.2d F.Supp.2d----, 2008WL 540120S.D.N.Y., Fed. Sec.L. Rep.P 94,590 Cite as: -- F.Supp.2d--- Page2 injury. 15 C.F.R. § 240.lOb-5. [4] SecuritiesRegulation349B60.53 349B SecuritiesRegulation 349B1FederalRegulation 349BICTradingandMarkets 349B1C7Fraudand Manipulation 349Bk60.50Pleading 349Bk60.53 k. Misrepresentation. MostCitedCases To plead securitiesfraud with requisite particular ity, plaintiffs must do more than allege that state ments were materially misleading, they must demonstratewith specificity why and how that is so. Securities ExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; Private Securities Litigation Re form Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b; 15 C.F.R. § 240.lOb-5. [5] SecuritiesRegulation349B60.51 349B SecuritiesRegulation 349BI FederalRegulation 349B1CTradingandMarkets 349B1C7Fraudand Manipulation 349Bk60.50Pleading 349Bk60.51 k. In General. Most CitedCases When factual allegations are made on information and belief, the Private Securities Litigation Reform Act PSLRA requiresthat the complaint in a secur ities fraud caseinclude adequatebasesfor the alleg ations, and it must identify sufficiently the sources upon which plaintiffs’ beliefs are basedand those sourcesmust have been likely to have known the relevant facts. SecuritiesExchange Act of 1934, § 10b, 15 U.S.C.A. § 78jb; Private SecuritiesLit igation ReformAct of 1995, § 101b, 15 U.S.C.A. § 78u-4b1; 15 C.F.R. § 240.lOb-5. [61 SecuritiesRegulation349B‘60.51 349B SecuritiesRegulation 349B1FederalRegulation 349BICTradingandMarkets 349B1C7Fraudand Manipulation 349Bk60.50Pleading 349Bk60.5l k. In General. Most Cited Cases When factual allegations are made in a securities fraud case on information and belief, pursuant to the Private Securities Litigation Reform Act PSLRA, the factual allegations that are basedon adequatesourcesmust justify plaintiffs’ conclusion that defendants’ statementswere materially mis leading. Securities ExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; Private Securities Litigation Reform Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b; 15 C.F.R. § 240.lob-5. [7J SecuritiesRegulation34911 60.2811 349B SecuritiesRegulation 349BI FederalRegulation 349B1CTradingandMarkets 349B1C7FraudandManipulation 349Bk60.17 Manipulative, Deceptive or FraudulentConduct Trading Disclosed 349Bk60.28 Nondisclosure; Insider 349Bk60.2810 Matters to Be 349Bk60.2811 k. Material- ity. MostCitedCases An omission is materially misleading, for purposes of a securitiesfraud claim, if there is a substantial likelihood that the disclosure of the omitted fact would havebeenviewedby the reasonableinvestor as having significantly altered the total mix of in- formation made available. SecuritiesExchangeAct of 1934, § 10b, as amended,15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. [8] SecuritiesRegulation349B60.51 349B SecuritiesRegulation 349111 FederalRegulation 349111CTradingandMarkets 349B1C7FraudandManipulation 349Bk60.50Pleading 349Bk60.51 k. In General. Most © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.conilprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 3 of 20 F.Supp.2d---- F.Supp.2d----, 2008WL 540120S.D.N.Y.,Fed.Sec.L. Rep. P94,590 Cite as: -- F.Supp.2d --- Page4 of 20 Page3 CitedCases Shareholdersfailed to plead with particularity facts sufficient to support allegation that statements of drug manufacturer and three of its current and former officers and directorsregardingdrug’s effic acy were materially misleading, as required to plead a securitiesfraud claim underthe Private Se curities Litigation Reform Act PSLRA, where studiescited by shareholdersdid not support their allegation that the drug was not effective, and shareholdersdid not allege how sourcewho asser ted that defendants had been warned of drug’s shortcomingswas likely to know the relevant facts. Securities Exchange Act of 1934, § 10b, 15 U.S.C.A. § 78jb; Private SecuritiesLitigation Re form Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b; 15 C.F.R. § 240.lOb-5. [9] SecuritiesRegulation349Bz’60.53 349B SecuritiesRegulation 349BI FederalRegulation 349BIC TradingandMarkets 349B1C7Fraudand Manipulation 349Bk60.50Pleading 349Bk60.53 k. Misrepresentation. Most CitedCases Facts alleged did not support shareholders’infer ence that drug intendedto reduce coronary heart diseaseby raising so-called"good" cholesterolwas unlikely to reduce artherosclerosisand thus made drug manufacturerand its officers and directors’ positive statementsabout drug’s efficacy materially misleading, as required to satisfy requirementsof pleading securities fraud with particularity; rather, allegations supported at most an inference that evidenceavailable during the class period was in- conclusiveon drug’s efficacy, which would not sup port an inference that defendantsactually drew a negative conclusion from inconclusive evidence. Securities Exchange Act of 1934, § 10b, 15 U.S.C.A. § 78jb; Private SecuritiesLitigation Re form Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b; 15 C.F.R. § 240.lOb-5.; Fed.Rules Civ.Proc.Rule9b, 28 U.S.C.A. 1101 SecuritiesRegulation 349B60.2811 349B SecuritiesRegulation 349BI FederalRegulation 349B1C Tradingand Markets 349B1C7Fraudand Manipulation 349Bk60.17 Manipulative, Deceptive or FraudulentConduct 349Bk60.28 Nondisclosure; Insider Trading Disclosed 349Bk60.28l0 Matters to Be 349Bk60.28l1 k. Material- ity. MostCitedCases An omission is material, for purposesof a securities fraud claim, if there is a substantiallikelihood that the disclosureof the omitted fact would havebeen viewed by the reasonableinvestor as having signi ficantly altered the total mix of information made available. Securities Exchange Act of 1934, § 10b, 15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. 1111 SecuritiesRegulation349B60.2813 349B SecuritiesRegulation 349B1 FederalRegulation 349BIC TradingandMarkets 349B1C7FraudandManipulation 349Bk60.17 Manipulative, Deceptive or FraudulentConduct 349Bk60.28 Nondisclosure; Insider Trading Disclosed 349Bk60.2810 Matters to Be 349Bk60.2813 k. Particular Matters.MostCitedCases Suddendrop in stock price afterrevelationof previ ously undisclosedinformation did not preventcon clusion that allegedly omitted information was ab sorbedby the market, suchthat it was not material for purposesof shareholders’securitiesfraud claim, where drop in stock price did not follow revelation of allegedly omitted fact that there was conflicting evidence about efficacy of drug manufacturer’s drug, but, rather, it followed suddennews that clin ical trials were being halted, a developmentthat © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 4 of 20 Page5 of 20 F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y., Fed. Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d ---- Page4 was significant independentof whether thereprevi ously hadbeenconflicting evidenceof drug’s effic acy. SecuritiesExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. [121 SecuritiesRegulation 349B ‘60.53 349B SecuritiesRegulation 349B1FederalRegulation 349B1CTradingand Markets 349B1C7FraudandManipulation 349Bk60.50Pleading 349Bk60.53 k. Misrepresentation. MostCitedCases Shareholdersfailed to plead with particularity facts sufficient to support allegation that optimistic state mentsof drug manufacturerand threeof its current and former officers and directors regarding drug’s side effects were materially misleading, as required to plead a securitiesfraud claim under the Private Securities Litigation Reform Act PSLRA, where studiescited by shareholdersdid not support their allegation that drug’s side effects were unmanage able, and shareholdersdid not allege how source who assertedthat defendantshad been warned of drug’s side effects hadpersonalknowledgeof relev ant facts. SecuritiesExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; Private Securities Litigation Reform Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b; 15 C.F.R. § 240.lOb-5. [13] SecuritiesRegulation 349B‘60.53 349B SecuritiesRegulation 349B1FederalRegulation 349B1CTradingandMarkets 349B1C7Fraudand Manipulation 349Bk60.50Pleading 349Bk60.53 k. Misrepresentation. MostCitedCases Shareholdersfailed to pleadwith particularity facts supporting their allegation that optimistic state mentsof drug manufacturerand threeof its current and former officers and directors regardingdrug’s side effects were materially misleadingwhenmade, as required to plead a securitiesfraud claim under the Private Securities Litigation Reform Act PSLRA, where evenshareholders’own sourceun dermined any inference that defendantsbelieved side effects of drug were unmanageable,and drug’s ultimate failure was not evidence that side effects were thought to be unmanageableat time alleged misstatementswere made. SecuritiesExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; Private Se curities Litigation Reform Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b; 15 C.F.R. § 240.lOb-5. [14] SecuritiesRegulation 349B60.51 349B SecuritiesRegulation 349111FederalRegulation 349B1CTradingand Markets 349B1C7FraudandManipulation 349Bk60.50Pleading 349Bk60.51 k. In General. Most Cited Cases To statea securitiesfraud claim under the Private Securities Litigation Reform Act PSLRA, plaintiffs must state with particularity facts giving rise to a strong inferencethat each defendantacted with the required state of mind, by alleging facts: 1 showing that defendantshad both motive and opportunity to commit the fraud, or 2 constituting strong circumstantialevidenceof consciousmisbe havior. Securities ExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; Private SecuritiesLitigation Reform Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b;15 C.F.R. § 240.lOb-5. [151 SecuritiesRegulation 349B60.51 349B SecuritiesRegulation 349B1 FederalRegulation 349BIC TradingandMarkets 349B1C7FraudandManipulation 349Bk60.50Pleading 349Bk60.51 k. In General. Most CitedCases A complaintgives rise to a strong inferenceof sci enter, as required to state a claim for securities fraud under the Private Securities Litigation Re form Act PSLRA, only if a reasonableperson © 2008Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.com/print/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 5 of 20 ---F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y.,Fed.Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d --- Page6 of 20 Page5 would deemthe inferenceof scientercogentand at least as compelling as any opposing inference one could draw from the facts alleged. SecuritiesEx changeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; Private Securities Litigation Reform Act of 1995, § 101b, 15 U.S.C.A. § 78u-4b; 15 C.F.R. § 240.lOb-S. [161 SecuritiesRegulation 349Bz60.53 349B SecuritiesRegulation 349B1 FederalRegulation 349BIC TradingandMarkets 349B1C7FraudandManipulation 349Bk60.50Pleading 349Bk60.53 k. Misrepresentation. MostCitedCases Even if statementsmadeby drug manufacturer’sof ficers and directors about drug intended to reduce coronary heart diseaseby raising so-called"good" cholesterol were actionable, shareholdersfailed to sufficiently allege motive to state securities fraud claim; defendants’allegedmotivesto portray likeli hood of prosperity, and to increasevalue of their performancebasedcompensationplans,were typic al of every corporation and executive. Securities Exchange Act of 1934, § 10b, 15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. [17] SecuritiesRegulation349B60.53 34911 SecuritiesRegulation 349B1FederalRegulation 349B1CTradingandMarkets 349B1C7FraudandManipulation 349Bk6O.50Pleading 349Bk60.53 k. Misrepresentation. MostCited Cases To plead motive sufficiently to give rise to strong inference of scienter, securities fraud plaintiffs must allege facts demonstrating concrete benefits that could be realizedby one or more of the false statementsand wrongful nondisclosuresalleged; it is not sufficient to allegemotives that are generally possessedby most corporatedirectors and officers, and generalallegationsthat the defendantsacted in their economic self-interest are insufficient. Secur ities ExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. [181 SecuritiesRegulation 349B ‘60.53 349B SecuritiesRegulation 349B1 FederalRegulation 349BICTradingand Markets 349BIC7FraudandManipulation 349Bk60.50Pleading 349Bk60.53 k. Misrepresentation. MostCitedCases Even if statementsmadeby drug manufacturer’sof ficers and directors about drug intendedto reduce coronary heart diseaseby raising so-called"good" cholesterol were actionable, shareholdersfailed to sufficiently allege conscious misbehavioror reck lessnessto state securities fraud claim, where their factual allegationsand sourcesdid not support in ference that defendants’statementswere materially misleading,and those facts could not support an in ferencethat defendantsknew or shouldhaveknown their statementswere false or misleading when made.SecuritiesExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. [19] SecuritiesRegulation 349B‘60.451 34911 SecuritiesRegulation 349B1FederalRegulation 349B1CTradingandMarkets 349B1C7FraudandManipulation 349Bk60.43 Grounds of and Defenses to Liability 349Bk60.45 Scienter, Intent, Knowledge,Negligenceor Recklessness 349Bk60.451 k. In General. MostCitedCases To raise a strong inferenceof scienter based on recklessness,securities fraud plaintiffs must allege conductthat is highly unreasonableandwhich rep resentsan extremedeparturefrom the standardsof ordinary care. SecuritiesExchangeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. © 2008Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 6 of 20 F.Supp.2d F.Supp.2d----, 2008 WL 540120S.D.N.Y.,Fed. Sec.L. Rep.P 94,590 Cite as: -- F.Supp.2d ---- Page7 of 20 Page6 [201 SecuritiesRegulation349B60.51 349B SecuritiesRegulation 349BI FederalRegulation 349B1CTradingand Markets 349B1C7Fraudand Manipulation 349Bk60.50Pleading 349Bk60.5l k. In General. Most Cited Cases If a complaint in a securities fraud case fails ad equately to allege motive, the strength of the cir cumstantialallegationsof consciousmisbehavioror recklessnessmust be correspondingly greater. Se curities Exchange Act of 1934, § 10b, 15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. nouncedthat it was halting clinical trials of the de velopmental drug torcetrapib.’’By the close of the next trading day, the price of Pfizer common stock had declined by 10.62 percent."’2Plaintiffs then brought a class action againstPfizer and three of its current and former officers and directors collectively, the "Individual Defendants".3 Plaintiffs seek recovery against defendants under Section 10b of the Securities Exchange Act of 1934 the "Exchange Act" ‘ and Rule lOb-5 thereunder."5They assert an additional claim against the Individual Defendants under Section 20a of the ExchangeAct.l’N6The case is before the Courton defendants’motion to dismiss. [21] SecuritiesRegulation 349BZ,60.53 Facts 349BSecuritiesRegulation 349B1 FederalRegulation 349111CTradingandMarkets 349BIC7Fraudand Manipulation 349Bk60.50Pleading 349Bk60.53 k. Misrepresentation. MostCitedCases When the complaint in a securitiesfraud case al leges that defendantsknew facts or had accessto non-public information contradicting their public statements,recklessnessis adequatelypled for de fendants who knew or should have known they were misrepresentingmaterial facts. SecuritiesEx changeAct of 1934, § 10b, 15 U.S.C.A. § 78jb; 15 C.F.R. § 240.lOb-5. SamuelP. Sponi, Joel P. Laitman, ChristopherLo metti, Jay P. Saltzman, Kurt Hunciker, Frank R. Schinipa,Daniel B. Rehns,SchoengoldSpornLait man& Lometti, P.C.,for Plaintiffs. Dennis J. Block, Gregory A. Markel, Martin L. Seidel, Mollie E. O’Rourke, Cadwalader, Wicker- sham& Taft LLP, for Defendants. MEMORANDUM OPINION LEWIS A. KAPLAN, District Judge. *1 On December2, 2006, Pfizer, Inc. "Pfizer" an- The lead plaintiff in this action is the Uniformed Sanitationmen’sAssociationCompensationAccrual Fund. It purports to representa class of all indi viduals and entitieswho purchasedPfizer securities betweenJanuary 19, 2005, and December2, 2006, the "Class Period". Pfizer is a Delaware corpora tion that develops,manufactures,and marketspre scription medicines and consumer healthcare products.7 During the class period, Pfizer was developingtor cetrapib, a drug intendedto reduce coronary heart disease"CuD" by raising so-called"good" cho lesterol. In colloquial terms, there are two varietiesof cho lesterol: "good" and "bad" cholesterol. Whether cholesterolis good or badis defmedby the type of lipoprotein to which the cholesterol is attached. Low density lipoproteins "LDLs" carry cholester ol into arteries, where excess cholesteroloften is depositedas plaque on arterial walls. The depos ition of plaque-a process known as atherogenesisFN8-narrowsarteries and restricts the flow of blood and oxygen to the heart.’N9Thus,the cholesterol attachedto LDLs "LDL-cholesterol" is known popularly as bad cholesterol. In contrast, high density lipoproteins"HDLs" removecholes © 2008Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.comlprintlprintstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 7 of 20 Page8 of 20 F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y.,Fed. Sec.L. Rep.P 94,590 Cite as: --- F.Supp.2d--- Page7 terol from the blood, transportingit to the liver for excretion, a processknown as reverse cholesterol transport "RCT"YNbo Thus, the cholesterol at tachedto HDLs "HDL-cholesterol" is known pop ularly as goodcholesterol. High HDL-cholesterol levels correlate generally with low cardiovascularrisk, " a fact attributed to RDL’s role in RCT.’’2 Pfizer developed tor cetrapib to raise HDL-cholesterol. It anticipated that torcetrapibwould accomplishthis by inhibiting the cholesterol ester transfer protein "CETP", which transfers cholesterol between HDLs and LDLs. This was intended to raise HDL-cholesterol levels by causing cholesterol to accumulate on H1L particles. Ultimately, Pfizer hopedartificially raising HDL-cholesterol would increaseRCT and correlatewith low cardiovascular isk.’3 PhaseII clinical testsof torcetrapib were designed to determine whether torcetrapib raised HDL cholesterol levels.NI4Those trials showed that torcetrapib was effective at raising HDL-cho lesterol,but they showedalso a 2-3 mm increasein systolicbloodpressure.I’N15 *2 By 2004, Pfizer beganPhaseIII of the clinical trials. As the clinical trials progressed,Pfizer up datedthe medicaland financial communitieson tor cetrapib’s development through public statements andpressreleases. On December2, 2006, Pfizerannouncedthat it was "stopping all torcetrapib clinical trials" based on the recommendationof the Data Safety Monitoring Board"DSMB" that monitoredthe trials. The re commendationwas made"becauseof an imbalance of mortality and cardiovascular events."16Fol- lowing this announcement,sharesof Pfizer com mon stock declinedby $2.96 per share,from a clos ing priceof $27.86 per shareon December1, 2006, to a closing priceof $24.90 per shareon December 4, 2006Y’ Plaintiffs allege that defendants,in the period prior to the cessationof PhaseHI trials, intentionally or recklessly made statementsthat were misleading becausethey failed to disclose facts that lessened the likelihood that torcetrapib ultimately would prove safe and efficacious. The misleading state ments, plaintiffs claim, were "designed to artifi cially inflate the price of Pfizer securities" and were part of a "desperateeffort to avert significant market loss due to the impendingloss of patentpro tection by principal Pfizer drugs ...."1’18 Plaintiffs allege that defendantMcKinnell was motivated to maximize his severancepackage,but do not allege that any Individual Defendantsold stock during the classperiod.’9 Discussion I. StandardGoverningMotionsto Dismiss In deciding a motion to dismiss, the Court ordinar ily accepts as true all well-pleadedfactual allega tions and draws all reasonableinferences in the plaintiffs’ favor!N20In order to survive such a mo tion, however, "the plaintiff must provide the groundsupon which his claim rests through factual allegationssufficient ‘to raisea right to relief above the speculativelevel.’ "‘ Although this motion is addressedto the face of the pleadings,the Court may consideralso the full text of "documents incorporatedinto the complaint by reference, and matters of which a court may take judicial notice."22Defendants have submitted many exhibits in support of their motion, including Pfizer press releasesand analyst call transcripts, academicliterature, and analyst reports.The parties agreedthat all of these documentscould be con sidered on this motion to dismiss,23 and the Court considersthose documentsthat the complaint incorporatesby referenceor are amenableto judi cial notice. [1][2] As this is a securities fraud case, the com plaint must satisfy the heightenedpleadingrequire mentsof Rule9b and the Private SecuritiesLitig ation Reform Act "PSLRA"YN24 It must state © 2008 Thomson/West.No Claimto Orig. U.S. Govt.Works. https://web2.westlaw.comlprinliprintstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 8 of 20 F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y.,Fed. Sec.L. Rep.P 94,590 Cite as: --- F.Supp.2d-- Page9 of 20 Page8 the circumstancesconstituting fraud with particu larity. In particular, it "must: 1 specify the state ments that the plaintiff contends were fraudulent, 2 identify the speaker,3 state where and when the statementswere made, and 4 explain why the statementswere fraudulent."25Where an allega tion regardinga misstatementor omission is made on information andbelief, "the complaintshall state with particularity all facts on which that belief is formed."26Finally, the complaint must "state with particularity factsgiving rise to a strong infer encethat the defendantactedwith the requiredstate of mind."27 IL Plaintffs’ Section10b Claims A. Elementsofa 10b Claim *3 Section 10b makesit unlawful "for any person, directly or indirectly ... [tb use or employ, in con nectionwith the purchaseor sale of any security any manipulative or deceptive device or contriv ance in contraventionof such rules and regulations as the Commissionmay prescribeas necessaryor appropriatein the public interestor for the protec tion of investors."Rulelob-S in turnprovides: "It shallbeunlawful for anyperson a To employ any device, scheme,or artifice to defraud, b To make any untrue statementof a material fact or to omit to state a materialfact necessaryin order to makethe statementsmade, in the light of the circumstancesunder which they were made, not misleading,or c To engage in any act, practice, or course of businesswhich operates or would operate as a fraud ordeceitupon anyperson, in connectionwith the purchaseor sale of any Se curity."28 [3] To state a claim basedon a misrepresentationor omission in violation of Rule lOb-5, as plaintiffs purport to do here,one mustallege that a defendant "1 made misstatementsor omissions of material fact; 2 with scienter; 3 in connectionwith the purchase or sale of securities; 4 upon which plaintiffs relied; and 5 that plaintiffs’ reliancewas the proximatecauseof their injuiy."29 B. Allegationsthat StatementswereMaterially Mis leading Defendantsargue that plaintiffs have not pleaded with particularity facts sufficient to support the be lief that defendants’statementswere materiallymis leading. Plaintiffs, however, contendthat they have allegedsufficiently that defendants’statementsmis represented1 torcetrapib’s potential for reducing artheroscierosis,and 2 the seriousnessof its side effects. [4][5][6][7] Plaintiffs must do more than allegethat statementswere materially misleading: "they must demonstratewith specificity why and how that is so."30Where, as here, factual allegations are madeon information and belief, the complaint must allege adequate bases for the allegationsYN3 11t "must identify sufficiently the sourcesupon which [plaintiffs’] beliefs are based and those sources must havebeen likely to have known the relevant facts." "32Second, the factual allegations that are basedon adequatesourcesmust justify plaintiffs’ conclusion that defendants’ statementsabout tor cetrapib’s were materially misleading.33An omission is materially misleading if "there [is] a substantial likelihood that the disclosure of the omitted fact would havebeenviewedby the reason able investor as having significantly altered the totalmix of informationmadeavailable."34 1. Torcetrapib’sEfficacy [8] Plaintiffs allege, on information andbelief, that defendants’ statements were misleading because they cast the likelihood that torcetrapib would prove to be effective in a positive light when in fact this was unlilcelyY°5 They rest this allegation on four subsidiaryassertions:1 a study showedthat "RCT was not increased by torcetrapib,"36 2 anotherstudy "demonstratedonly that the patients © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprintlprintstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 9 of 20 ---F.Supp.2d---- F.Supp.2d----, 2008WL 540120S.D.N.Y., Fed. Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d---- Page10 of2O Page9 who took torcetrapib were no worseoff than those who did not in terms of cholesterol removal ...,"FN37 3 "there was conflicting evidence on whether CETP inhibition [the mechanismby which torcetrapib raised HDL} was pro- or anti atherogenic,"38and 4 "Pfizer had been warned internally that CETP inhibition would not work."FN39None,however,withstandsanalysis. a Do the Cited SourcesSupportPlain4ffs’ Subsi diary Allegations? *4 The allegation that RCT was not increasedby torcetrapib is said to be basedon the Brousseau studyYN4oContrary to plaintiffs’ allegation, however, Brousseaudid not reach any conclusion about whether torcetrapib increased RCT."4’ In fact, the study observed only that torcetrapib did not affect fecal concentrationsof neutral sterols and bile acids, which it used to assessRCT indirectly. But it noted also that thesesurrogatesmight not be affected by an increasein RCT if torcetrapib were associatedwith "a decreasein hepatic cholesterol synthesisanda proportional increasein cholesterol synthesis in the peripheral tissues."tN42The com plaint’s reliance on Brousseautherefore is mis placed. The claim that anotherstudy showedonly that pa tients on torcetrapib were no worseoff in terms of cholesterolremoval than others rests on the Barn berger study abstract!N43Plaintiffs suggest that Bamberger observed no affinnative evidence of cholesterolremoval. In fact, however, the abstract reportedstatistically significant increasesin the two measuresof cholesterolremovalthat were observed andconcludedthat "partial inhibition of CETP with T[orcetrapib] does not compromise, and may en hance, the cholesterol efflux potential of MDL, which is consideredthe first step in reversecholes terol fransport."-’Thus, plaintiffs’ characteriza tion of Bamberger, like their characterizationof Brousseau,is misleading. Plaintiffs’ third allegation is basedon scientific art- ides published between 1993 and 2006Y’45These sourcessupport plaintiffs’ allegation "that therewas conflicting evidence" about torcetrapib’s potential efficacy. Plaintiffs’ fmal and most significant allegation-viz. that Pfizer had been warned internally that CETP inhibition would not work-is basedentirely on an anonymous blog postY46Plaintiffs have identi fied their source-thetext of the blog post-andin cluded its full text in their complaint.But this is not sufficient. In addition to identifying the source, the source mustbe shownto havebeenlikely to know the rel evant facts.lN4lThere is no reason to believe that the author of this blog, identified only as RADman Zulu, is likely to haveknown the relevantfacts. Plaintiffs try to avoid this inevitable conclusionby attributing characteristicsto the blog’s anonymous author. They assertthat RADmanZulu is "a former Pfizer Vice-President and Medical Therapeutic Head of Pfizer’s Cardiovascular & Metabolic Group, who also acted as medical director of Pf izer’s CardiovascularRisk Factors Group in the [United States] ... [through the second half of 2002]."1’48 But the blog post, plaintiffs’ purported source, does not contain any information about RADmanZulu’s identity, andplaintiffs do not artic ulate any otherbasisfor theirbe1ief.lN49 Even if we credited plaintiffs’ assertionthat RAD manZuluwasemployedat Pfizer throughthe end of 2002, the questionof whether he would havebeen likely to know the relevant facts would remain. In the blog post, RADmanZulu claims that, "[ejarly in the program,peoplelike Brian Brewer andMichael Brown warned Pfizer that blocking CETP was likely to accelerate atherosclerosis."’N5oTo sup port the inference that RADmanZulu would have been likely to know the relevant facts, plaintiffs rely entirely on his alleged positions at Pfizer.51But the complaint does not describe RADmanZulu’s role at Pfizer or his participation in relevant events. Moreover, RADmanZulu’s allega © 2008Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 10 of 20 F.Supp.2d---- F.Supp.2d----, 2008WL 540120S.D.N.Y., Fed.Sec.L. Rep.P94,590 Cite as: --- F.Supp.2d--- Page11 of2O Page10 tion does not claim to be basedon personalknow ledge and lacks detail that might suggestpersonal knowledge.For example,the blog post doesnot de scribewhen,52 how, on what basis, by whom, or to whom the alleged warning was communicated. Even setting asidethe numerousdeficiencieswith this source, RADmanZulu’s assertionthat someone warned Pfizer that CETP inhibition was likely to accelerate atherosclerosis does not support plaintiffs’ larger claim that Pfizer was warned it would not work. b Does the Sufficiently SourcedSubsidiaryAlleg ation Justfy Plaintffs’ Inference? *5 [9] The next question is whether the facts al leged, to the extent they are based on adequate sources,support plaintiffs’ inference that torcetrap ib was unlikely to reduceartherosclerosisand thus made defendants’ positive statements materially misleading. Only one of plaintiffs’ subsidiaryallegations is sup portedby adequatesources-viz,that there was con flicting evidenceon whether CETP inhibition was pro- or anti-atherogenic.Drawing all inferences in plaintiffs’ favor, the most this allegationsupportsis an inference that evidence available during the class period was inconclusive on torcetrapib’s po tential efficacy. Defendants’ knowledgethat evidenceof torcetrap ib’s efficacy was inconclusive does not support an inference that their optimistic statementswere ma terially misleading. Defendants were entitled to take an optimistic view of inconclusive evidence, so long as they did not make positive statements while withholding negative information that would have been material to an investor."53"[C]orporate officials neednot presentan overly gloomy or cau tious picture" so long as "public statementsare con sistentwith reasonablyavailabledata."54 This principle is applicablein the drug development context. In the Carter-Wallace cases,"the Second Circuit concludedthat the drug manufacturer’sas surancesabout safety ‘did not become materially misleadinguntil [it] hadinformation that [the drug] had causeda statistically significant numberof deathsand thereforehad reasonto believe that the commercial viability of [the drug] was threatened.’ "FN55 To be sure, Carter-Wallacedid not adopt a bright- line rule that a statementis materially misleading only if it conflicts with statistically significant evid ence.56Thus, if a drug manufacturer in fact draws a pessimisticconclusionfrom statistically in significant evidence, any optimistic statements it makescould be renderedmateriallymisleadingif it were to omit even statistically insignificant negat ive evidenceYN5lBut plaintiffs’ allegations do not supportan inferencethat defendantsactuallydrew a negative conclusion from the inconclusive evid ence.N5sThey allege only that Pfizer’s optimistic statementswere misleading because it failed to state also that there was conflicting evidence as to whether CETP inhibition would be pro- or anti atherogenic. This is insufficient under Carter- Wallace. [10] Furthermore,while plaintiffs assertthat the al legedly omitted facts relating to torcetrapib’s effic acy were material, allegationsin the complaint be lie that claim.59An omission is material if there is "a substantiallikelihood that the disclosureof the omitted fact would havebeenviewedby the reason able investor as having significantly altered the ‘total mix’ of information made available."60In this case,it is clear that the conflicting evidenceof torcetrapib’sefficacy waspart of thetotal mix of in- formationavailableto themarket.6’ *6 Plaintiffs argue that there is a factual question about whether investors "read and digested" the available informationYN62But the relevant inquiry is not whether the truth was absorbedby the mar ket, but whether it was available to the market.FN63Moreover,the complaint here alleges that the market absorbed all available information.FN64This allegation allows plaintiffs © 2008 Thomson/West.No Claim to Orig. U.S. Govt.Works. https://web2.westlaw.com/print/printstrearn.aspx?prft=HTMLE&destinationatp&sv=Split...4/9/200 8 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 11 of 20 Page12 of 20 F.Supp.2d F.Supp.2d----, 2008WL 540120S.D.N.Y., Fed.Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d--- Page11 to avoid a fact intensive question of whether the market actually was aware of defendants’ alleged misstatements.But it simplifies also the questionof whether the market was aware of the allegedly omittedfacts. It is evident that the allegedly omitted information was available to the market becauseplaintiffs, in their effort to identify allegedly omitted informa tion, rely entirely on sourcesthat were available publicly during the class period."65Indeed, ana lysts’ reports acknowledgedthe conflicting evid ence of torcetrapib’s efficacy.FIAccording to plaintiffs, suchreportswere "publicly available and enteredthe public marketplace."67 [11] Finally, plaintiffs arguethat the suddendrop in stock price after the "revelation of previously un disclosed information" prevents a conclusion that the allegedly omitted information was absorbedby the market. This is not persuasive.The drop in stock price did not follow the revelationof the al legedly omitted fact-thattherewas conflicting evid ence about torcetrapib’s efficacy. Rather, as plaintiffs explainelsewherein the complaint, it fol lowed the "sudden news ... that the clinical trials were being halted," a developmentthat was signi ficant independentof whether therepreviously had been conflicting evidence of torcetrapib’s efficacy.FN68 2. BloodPressureSideEffect Plaintiffs allege, on information and belief,69 that defendants’ optimistic statements about tor cetrapib’s side effects were misleadingbecauseits side effects were unmanageable."70Thisassertion rests on subsidiaryassertionsthat: 1 even small increasesin systolic blood pressuremay be danger ous,’7’ and 2 "Pfizer believed, but did not dis close, that the metabolitesof torcetrapibcould in hibit [monoamine oxidase], thereby causing in- creasedblood pressure a Do the Cited SourcesSupportPlaintiffs’ Subsi diary Allegations? [12] Plaintiffs’ first allegation is basedon scientific researchand statementsmade by Pfizer in other contexts!73Thesesources support plaintiffs’ fac tual allegation that even small increasesin blood pressuremay be dangerous.However, this does not lead inevitably to the inference that the side effect was unmanageableor unjustifiable. Plaintiffs’ secondallegation is based on the same RADmanZulu blog post discussed above.t’Nl4RADmanZulu asserted that "[t]he cur rent wisdom of the time is that one of the metabol ites inhibited mono amine oxidase."75Even if we assume,as plaintiffs do, that RADmanZulu was employedat Pfizer throughthe secondhalf of 2002, this source would be insufficient to support plaintiffs’ allegation that "Pfizer believed" that tor cetrapib could inhibit monoamine oxidase. RAD manZulu’s assertionis vague: it does not claim a basis for personal knowledge, nor does it explain when, by whom, or on what basis the "currentwis domof the time" washeld. b Does the Sufficiently SourcedSubsidiaryAlleg ation Jus4/j’ Plaintiffs’ Inference? *7 [13] Drawing all inferencesin plaintiffs’ favor, the plaintiffs’ factual allegations and sourcessup port an inferencethat small increasesin blood pres sure can be dangerous.But plaintiffs’ sourcesand factual allegationsdo not supportthe inferencethat torcetrapib’s side effects were unmanageable.Nor do the sourcesor factual allegationssupport an in ference that defendants actually believed the side effect was unmanageable.Indeed, plaintiffs’ own source,the blog post, underminesany inferencethat Pfizer believedthe blood pressureside effect was unmanageable.According to RADmanZulu: "The Groton team felt that [blood pressure] could be managedby lowering the dose and hopedthat ator vastatinwould alsolower [bloodpressure]."76 Finally, torcetrapib’s ultimate failure is not evid © 2008Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 12 of 20 ---F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y., Fed.Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d---- Page13 of2O Page12 ence that the side effectswere thoughtto be unman ageableat the time the allegedmisstatementswere made. Fraud-by-hindsightis not sufficient to estab lish liability under Rule 10b5.R7In any case, plaintiffs havenot allegedthat torcetrapibfailed be cause its side effects were unmanageable.78They acknowledge that the most they can allege is that torcetrapib failed be cause"there was a differencein deathsbetweenthe group which got the drug and the group that didn’t."FN79 Plaintiffs have not pleaded with particularity facts sufficient to support their allegation that defend ants’ statementswere materially misleading. Many of plaintiffs’ factual allegationsare not basedon an adequatesourceor are unsupportedby the purpor ted source. Thoseallegations that are basedon ad equatesourcesdo not supportthe inferencethat de fendants’ statementsabout torcetrapib’ssafetyor ef ficacy were materially misleading. For the forego ing reasons,the complaint fails to statethe circum stancesconstituting fraud with particularity as re quired by Rule9b andthe PSLRA. C. Scienter [14][15] Even if the complaint had pleaded ad equately the circumstancesconstituting fraud, it would be insufficient nonetheless.Plaintiffs must "state with particularity facts giving rise to a strong inferencethat [each] defendantacted with the re quired state of mind.""80A complaint may satisfy this requirement"by alleging facts1 showingthat defendants had both motive and opportunity to commit the fraud or 2 constitutingstrong circum stantial evidence of conscious misbehavior."81A complaint gives rise to a strong inference of sci enter"only if a reasonableperson would deemthe inferenceof scientercogentand at least as compel ling as any opposinginferenceone could draw from the factsalleged."2 1. MotiveandOpportunity [1 6][ 17] To plead motive, plaintiffs must allege facts demonstrating"concretebenefits that could be realizedby one or more of the false statementsand wrongful nondisclosuresalleged."3It is not suf ficient to allege motives that are "generally pos sessed by most corporate directors and officers."FN84And "[g]eneral allegations that the defendantsacted in their economicself-interest"are insufficient.’85 *8 Plaintiffs attempt to plead motive by alleging that Pfizer had a "desperateneed ... to assurethe fmancial community of the existence of a new blockbusterdmg."86This is not a unique motive. Rather, it is a way of saying,in a mannertailoredto a pharmaceuticalcompany, somethingthat is true for all profit enterprises-eachas an incentive to portraythe likelihood that it will continueto prosper. Courts in this district have found similar allegations of motive insufficient. For example,plaintiffs in In re Bayer sought to plead motive by alleging that "[Bayer] was under pressureto bring a ‘blockbuster drug to market.’ "87 And in In re Bristol-Myers Squibb, the plaintiffs alleged motive basedon the defendants’desireto" ‘maintain a facade of future potential’ for [its] drug pipeline, ... [and to] address potential concerns about patent expirations ...."FN88 Both courts found theseallegations insuf ficient. The latter court describedsuch allegations as "nothing more than a pejorativecharacterization of... ordinarycorporatedesires."89 Plaintiffs arguethat McKinnell hadmotive to com mit fraud in order to increasehis severancepack age.90Performancebased compensation plans "are typical of nearly every corporation" and are usually insufficient to plead motive.lN9l"If sci entercouldbe pleadedon that basis alone,virtually every company in the United States that experi encesa downturn in stock price could be forcedto defend securities fraud actions."92Plaintiffs’ at tempt to distinguish McKinnell’s severanceagree ment from generic performance-basedcompensa tion plans is disingenuousyu93 © 2008Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.com/printlprintstrea.aspx?prftHTMLE&destinationatp&svSplit...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 13 of 20 ---F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y., Fed.Sec.L. Rep.P94,590 Cite as: --- F.Supp.2d ---- Page14 of 20 Page13 2. ConsciousMisbehavioror Recklessness [1 8][1 9] [20][21] To raisea strong inferenceof sci enter basedon recklessness,plaintiffs must allege conductthat is "highly unreasonableandwhich rep resentsan extreme departurefrom the standardsof ordinary care."94If a complaint fails adequately to allegemotive, "the strengthof the circumstantial allegations of conscious misbehavior or reckless ness ‘must be correspondingly greater.’ "95"Where the complaint alleges that defend antsknew facts or hadaccessto non-public inform ation contradicting their public statements, reck lessness is adequately pled for defendants who knew or should have known they were misrepres entingmaterialfacts "FN96 Plaintiffs attempt createa strong inference of sci enter by alleging that: 1 defendants had know ledge or accessto information contradicting their public statements,972 "Pfizer intentionally es tablished endpoints for the Phase II trial of in- creasedHDL-[cholesterol] in order to ensure that the endpointswould be obtained,knowing full well that such endpoints ... potentially were associated with increased coronary heart risk,"98 3 "Pfizer intentionally violated AHA [American Heart Association] Rules in order to pre-announce its Phaseifi clinical results in order to ‘spin’ the adverse blood pressure side effect results found therein,"99 and 4 "Pfizer knowingly designed the torcetrapib PhaseHI trials to allow the trial to continue until an unreasonablyhigh statistical cer taintywasmet."°° *9 Plaintiffs rely on the same factual allegations and sourcesto assertdefendants’knowledge of or access to information contradicting their public statements.As addressedabove, plaintiffs’ factual allegationsand sourcesdo not supportthe inference that defendants’ statements were materially mis leading. "If the facts alleged in the Complaint are insufficient to support Plaintiffs’ belief that false or misleadingstatementswere made, those facts can not support an inference that Defendantsknew or should have known their statementswere false or misleadingwhenDefendantsmadethem."°’ Even if plaintiffs’ factual allegations about tor cetrapib’s efficacy and safety could be understood as contradicting defendants’statements,the contra dictory information was publicly available."’°2Numerouscourts have suggestedor assumed that the contradictory information must have beennon-public in order to raise a strong in ference of intentY°3That the information was publicly available when the allegedly misleading statementswere made weakensany inference that defendantsintendedto defraudthemarket. Plaintiffs’ remaining allegations are conclusory statements of defendants’ intent. The complaint makesno factual allegationsthat suggestthatPfizer violated AHA rules in order to spin the results,or that Pfizer designedPhase II studies to avoid un coveringadverseclinical results, or that Pfizer used an unreasonablyhigh measureof statistical signific ance to postpone termination of Phase llI.°4Conclusory allegations of intent are not sufficientY°5 Plaintiffs cannot circumvent this requirement by providing subsidiary allegations that merelyare conclusoryallegationsof intent. III. Plaintffs’Section20a Claims Plaintiffs assertalso claims under Section 20a of the Exchange Act 106 against the individual de fendants. Section 20a claims are necessarilypre dicatedon a primary violation of securities law and impose "control person" liability on individual de fendants."’°7Because plaintiffs have failed to state a claim for a primary violation of Section 10b of the Exchange Act, their Section 20a claim mustbedismissedagainstall defendants. Conclusion For the foregoing reasons,defendants’motion to dismiss the amendedcomplaint [docket item 13] is granted. Plaintiffs’ request for leave to amend FN1O8 is denied without prejudice to a motion for © 2008 Thomson/West.No Claimto Orig. U.S. Govt. Works. https://web2.westlaw.com/printlprintstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 14 of 20 ---F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y., Fed.Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d--- Page15 of2O Page14 leave to amendsupportedby a proposedamended complaint. SO ORDERED. FN 1. Amended Class Action Complaint "Cpt." ¶ 17. FN2. Cpt. ¶11 17, 153. FN3. The Individual Defendants are: 1 Henry A. McKinnell, former chairman of the boardof directors,and former chief ex ecutive officer; 2 JohnLaMattina, presid ent of Pfizer global researchand develop ment; and 3 JosephFeczko, chief medic al officer. FN4.15U.S.C.§ 78jb. FN5.17C.F.R. § 240.lOb-S. FN6.15U.S.C.§ 78ta. FN7. Cpt. ¶25. FN8.Id ¶ 57 n. 4. An anti-atherogenic compound curbs the accumulation of plaque while a pro-atherogenic promotes accumulation.Id FN9.Id ¶11 54-56. FN1OJd. ¶ 59. FN1 lJd. ¶112n. 2; 58-59. FNI2Jd. ¶ 59. FN13.Id. FN18.Id ¶ 1-3. FNI9.Id ¶28. FN2O.Flores v. S. Peru Copper Corp., 343 F.3d 140, 143 2d Cir.2003; Levy v. SouthbrookInt’l Invs., Ltd, 263 F.3d 10, 14 2d Cir.2001, cert. denied,535 U.S. 1054, 122 S.Ct. 1911, 152 L.Ed.2d 821 2002. FN21 .ATSI Commc’ns, Inc. v. ShaarFund, Ltd., 493 F.3d 87, 98 2d Cir.2007 quoting Bell Atl. Corp. v. Twombly, U.S. ----, ----, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 2007; see also Iqbal v. Hasty, 490 F.3d 143, 158-59 2d Cir.2007 declining to limit Bell Atl. holding to the antitrustcontext. FN22.Tellabs, Inc. v. Makor Issues & Rights, Ltd., --- U.S. ----, 127 S.Ct. 2499, 2509, 168 L.Ed.2d 179 2007 citing SB CHARLES ALAN WRIGHT & ARTHUR MILLER, FEDERAL PRACTICE AND PROCEDURE: CIVIL § 1357 3d ed.2004 and Supp.2007; see also Cham bers v. Time Warner, Inc., 282 F.3d 147, 152-532d Cir.2002. FN23. The parties agreedthat defendants’ exhibits could be consideredon the motion to dismiss without converting the motion into a motion for summary judgment. Tr., Nov. 7, 2007, at 20:13-23; seeFED. R. CIV. P. 12b, c; Gurary v. Winehouse, 190 F.3d37,42 2d Cir.1999. FN24.Pub.L. No. 104-67, 109 Stat. 737 1995. FN25.Novakv. Kasaks, 216 F.3d 300, 306 2d Cir.cert. denied,531 U.S. 1012, 121 S.Ct. 567, 148 L.Ed.2d 486 2000; accord In re ScholasticCorp. Sec. Litig., 252 F.3d 63, 69-70 2d Cir., cert. denied,534U.S. 1071, 122 S.Ct. 678, 151 L.Ed.2d 590 FN14.Id ¶ 162d. FNI5.Id ¶9. FN16Jd¶ 151, SeidelDecl.DI 15 Ex. 39. FN17. Cpt.¶ 153. © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. 4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 15 of 20 F.Supp.2d---- F.Supp.2d----, 2008WL 540120S.D.N.Y., Fed.Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d---- Page16of20 Page15 2001. FN26.l5 U.S.C. § 78u-4bl. The re quirement of stating "all facts" is not ap plied literally. SeeNovak, 216 F.3d at 313-14. FN27.15 U.S.C. § 78u-4b2. The re quired state of mind is "an intent to de ceive, manipulate,or defraud."Ganino,228 F.3d at 168 quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 1976 internal quotation marks omitted; accord Kalnit v. Eichler, 264 F.3d 131, 138 2d Cir.2001. FN28.17C.F.R. § 240.lOb-52007. FN29.Lentell v. Merrill Lynch & Co., 396 F.3d 161, 172 2d Cir. quoting In re IBM Corp. Sec. Litig., 163 F.3d 102, 106 2d Cir. 1998 internal quotation marks omit ted, cert. denied,546U.S. 935, 126 S.Ct. 421, 163 L.Ed.2d 321 2005; accord Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 2d Cir.2000. FN3O.Rombachv. Chang, 174 2d Cir.2004; see InterActiveCorpSec. Litig., 574, 591 S.D.N.Y.2007. FN31.SeeNovak, 216 F.3d at 306 quoting 15 U.S.C. § 78u-4b 1; see also In re L4C/InterActiveCorp,478 F.Supp.2dat 591. FN32.Fraternity Fund Ltd. v. BeaconHill AssetMgmt. LLC, 376 F.Supp.2d385, 395 S.D.N.Y.2005. FN33Jn re NTL, Inc. Sec. Litig., 347 F.Supp.2d 15, 23 S.D.N.Y.2004; Fra ternity FundLtd., 376 F.Supp.2dat 395. FN34.Starrv. GeorgesonS’holder, Inc., 412 F.3d 103, 110 2d Cir.2005 quoting Basic Inc. v. Levinson, 485 U.S. 224, 23 1-32, 108 S.Ct. 978, 99 L.Ed.2d 194 1988 citation omitted and internal quota tion marksomitted. FN35.See Cpt. ¶ 1, 6 describing how omission made statementsmisleading; P1. Mem. at 2 same; id at 11-12 asserting materialityof omissions. FN36. See Cpt. ¶11 116; 124, 135; 141; 149; 100; 113 alleging that statementsare misleading for this reason; id ¶11 109; 111; 118; 122 alleging that statementsare misleadingbecause"PhaseII trials did not find any correlation betweenCETP inhibi tion andincreasedRCT". FN37.See Id ¶ 113; 124; 12 alleging that statementsaremisleadingfor this reason. FN38.See id ¶11 103; 116; 135; 141; 149 alleging that statementsare misleadingfor this reason;Id. ¶11 107; 120; 137 alleging that statements are misleading because CETP inhibition "was equally likely to be linked to adverse coronary risks"; Id ¶11 129; 131 alleging that statementsare mis leading because studies suggested that CETP inhibition "could well increase coronaryheartdisease.". FN39.See id ¶11 103; 116; 135; 141; 149 alleging that statementsare misleading for this reason. FN42.Id. citing the 113; 116; 118; 109 citing no FN43.SeeCpt. ¶J 113, 124, 12 quoting © 2008 Thomson/West.No Claim to Orig. U.S.Govt. Works. 355 F.3d 164, In re IAC/ 478 F.Supp.2d FN4O.See Id ¶ 100-01 Brousseaustudy; ¶11 111; 122; 124, 135; 141; 149; sourceor paragraphs100-01. FN41. SeidelDecl. Ex. 12, at 1062. https://web2.west1aw.conpnprintstrearn.aspx?prft=HTMLE&destination=atp&svSp1it...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 16 of 20 Page17of20 F.Supp.2d F.Supp.2d----, 2008 WL 540120S.D.N.Y., Fed.Sec.L. Rep.P94,590 Cite as: -- F.Supp.2d---- Page16 from the abstract to the Bambergerstudy. Based on the facts alleged in the com plaint, defendants identify plaintiffs’ source as the Bambergerstudy, which was presentedby Pfizer at the November2005 Conferenceof the American Heart Associ ation. SeeSeidel Decl. ¶ 14; Def. Mem. at 9, 23. Plaintiffs do not contest that this was their source. FN44. Seidel DecI. Ex. 13 emphasisad ded. FN45.See Cpt. ¶11 63-76 summarizing studies from 1996 to 2006 that found CETP deficiency due to a geneticmutation was correlated with an increased risk of CHD; ¶11 103, 116; 135; 141; 149 citing to paragraphs63-76; ¶ 107, 120; 137 citing to no source;¶11 129; 131 citing to paragraphs12; 44; 54-87, but only para graphs63-76 supportfactalleged. FN46.See Id ¶11 44 reprinting the text of the blog post; ¶11103; 116; 135; 141; 149 citing to paragraph44; 100-02. FN47.Fraternity Fund Ltd v. BeaconHill AssetMgmt. LLC, 376 F.Supp.2d385, 395 S.D.N.Y.2005;In re NTL, Inc. Sec. Lit 1g., 347 F.Supp.2d15, 23 S.D.N.Y.2004. FN48. Cpt. ¶ 43. The complaint alleges that RADmanZulu held these positions "during the relevant period," but at oral ar gument, plaintiffs specified that he was employed at Pfizer through the "second halfof 2002." Tr., Nov. 7,2007,at 21:15-17. FN49. At oral argument, plaintiffs ex plained that they alleged RADmanZulu’s identity based on "an investigation." Tr., Nov. 7, 2007, at 21:5-10. Plaintiffs did not elaborateon this investigation, and they do not claim to have spoken to the man they assumeto bethe authorof the blog. Id FN5O. Cpt. ¶ 44. FNS1.See,e.g., P1. Mem. at 10 "Needless to say, [RADmanZulu’s] position ... makes him eminently qualified to know about ad verse effects of Pfizer principal cardiovas culardrug andthestatusof clinical tri- als.". FN52. Although according to plaintiffs’ own assertions, RADmanZulu left Pfizer during second half of 2002, and would haveno basisfor knowledgeafter that time. FN53.See, e.g., In re L4C/In- terActiveCorp., Sec. Litig., 478 F.Supp.2d 574, 591 S.D.N.Y.2007citing Rombach v. Chang, 355 F.3d 164, 173 2d Cir.2004; Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 2d Cir.2002. FN54.Novakv. Kasaks, 216 F.3d 300, 309 2d Cir.2000 citing Stevelman v. Alias Research Inc., 174 F.3d 79, 85 2d Cir. 1999; Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1129-302dCir.1994. FN55.In re Bayer AG Sec. Litig., 03 Civ.2004WHP, 2004 WL 2190357, at *8 S.D.N.Y. Sept. 30, 2004 quoting In re Carter-Wallace Sec. Litig., 150 F.3d 153, 157 2d Cir.1998 FNS6.See,e.g., In Re Bayer AG, 2004 WL 2190357, at *9;In re Corning, Inc. Sec. Lit- 1g., Nos. 92 Civ. 345TPG, 92 Civ. 1103TPG, 2001 WL 986782, at *2 S.D.N.Y. Aug. 27, 2001. FN57.See,e.g., In Re Bayer AG, 2004 WL 2190357,at *9..10. FN58. Plaintiffs argue otherwise in their © 2008Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 17 of 20 Page18 of2O F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y.,Fed. Sec.L. Rep.P 94,590 Cite as: -- F.Supp.2d--- Page17 memorandum: "Defendants had actual knowledge that ... CETP-inhibition would increaseatherosclerosisand that torcetrap ib did not increasethe rate of RCT." P1. Mem. at 15-16. But this assertion is not supportedby the adequatelysourced subsi diary allegation of the complaint and falls short of the circumstancesin In re Regen eron, on which plaintiffs rely. In that case, the court observedthat "[t]he key allega tion is that the Defendantsknew of the ex istence of the ... problem,ratherthan being awareof the possibility of the problem."In re RegeneronPharms., Inc. Sec. Litig., No. 03 Civ. 3111RWS, 2005 WL 225288, at *24 S.D.N.Y. Feb.l, 2005. Here, the most plaintiffs have alleged, even if one were to consider RADmanZulu’s asser tions, is that defendantswere aware of the possibility of a problem. FN59. P1. Mem. at 12 assertingmaterial ity. FN6O.Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 2d Cir.2000. FN61. The Court is awarethat whether an allegedly omitted fact was available to the market often is a fact intensive inquiry that is "rarely an appropriatebasis for dismiss ing."Id at 167."However, ‘rarely appropri ate’ is not the same as ‘never appropriate,’ and ‘[m]ateriality is a mixed question of law and fact."White v. H & R Block, Inc., No. 02 Civ. 8965MIBM, 2004 WL 1698628,at * 12 S.D.N.Y.July28, 2004. FN62.P1. Mem. at 30 n. 27. FN63.Starr v. Georgeson S’holder, Inc., 412 F.3d 103, 110 2d Cir.2005 "the rel evant question is not whether the market ‘truly knew’ any specific piece of informa tion, but whether the information was ‘reasonablyavailable.’ ". FN64. Cpt. ¶ 167. FN65. The sole exception is that the RAD manZulu blog post was not available to the marketduring the classperiod. FN66.See, e.g., Seidel Decl. Exs. 14, 15, 24, 30; seealsoSeidelDecI. Exs. 5, at 22; 28. FN67.Cpt. ¶ 166d. FN68.Id ¶ 17. FN69.Cpt. Preamble. FN7O.Id. ¶ 6;see also id ¶ 1 defendants misrepresented"that blood pressure side effects found in the clinical trials ... were of little concern"; P1. Mem. at 2 defendants "falsely minimized the signi ficanceof increasedbloodpressure". FN71.SeeCpt. ¶11 103; 105; 116; 127; 137; 141; 149 emphasisadded alleging that statementsare misleading for this reason. The complaint alleges also that defendants failed to disclose that torcetrapib raised blood pressure and that Phase II studies had outliers who experienced larger in- creasesin blood pressure. Plaintiffs make clear, however, that they do not allege a failure to disclose these facts. P1. Mem. at 3 n. 2; Tr., Nov. 7, 2007, at 26:19-22.Thus the key to plaintiffs’ allegations is that de fendants omitted that the blood pressure increase was "dangerous" and "threatened the efficacy and approval of [torcetrapib]."See,e.g., Cpt.¶11103,127. FN72.SeeCpt. ¶f 103, 105; 111; 116; 118; 122; 127; 133; 141; 145; 149 alleging that statementsaremisleadingfor this reason. FN73.See Id ¶11 77-87 citing studies and Pfizer statementsmade in other contexts; ¶11 103; 105; 116; 127; 137; 141; 149; 9; © 2008Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.comlprintlprintstream.aspx?prft=HTMLE&destination=atp&sv=spljt...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 18 of 20 Page19 of2O F.Supp.2d---- F.Supp.2d----, 2008 WL 540120S.D.N.Y.,Fed. Sec.L. Rep.P 94,590 Cite as: --- F.Supp.2d---- Page18 162 citing to paragraphs77-87. FN74.See Id ¶ 44 reprinting weblog post of RADmanZulu; ¶11 85; 103; 105; 111; 116; 118; 122; 127; 133; 141; 145; 149 citing to paragraph44. FN75.Id. ¶ 44. FN76.Id FN77.See In re Carter-Wallace, Inc. Sec. Litig., 220 F.3d 36, 4 1-42 2d Cir.2000 "the eventual linking of [a side effect] to [a drug] cannot relate back to the time of the statements ... and reflect on [defendant’s]reasonablebelief’. FN78. Tr., Nov. 7,2007, at 32:13-14. FN79.Id at 27:4-7. FN8O.15U.S.C. § 78u-4b2. FN81ATSI Comm’ns, Inc. v. Shaar Fund, Ltd, 493 F.3d 87, 99 2d Cir.2007 citing Ganino v. Citizens Utils. Co., 228 F.3d 154, 168-692d Cir.2000. FN82.Tellabs, Inc. v. Makor Issues & Rights, Ltd. --- U.S. ----, 127 S.Ct. 2499, 2510, 168 L.Ed.2d 179 2007. FN83.Shieldsv. Citytrust Bancorp, Inc., 25 F.3d 1124, 1130 2d Cir.1994; see also Ganino, 228 F.3d at 170;Novakv. Kasaks, 216 F.3d 300, 307 2d. Cir.2000. FN84.Kalnit v. Eichler, 264 F.3d 131, 139 2d Cir.2001. FN85.Ganino,228 F.3dat 170. FN86. P1. Mem. at 21. FN87Jn re Bayer AG Sec. Litig., 03 Civ.2004WHP, 2004 WL 2190357, at *14 S.D.N.Y. Sept.30, 2004. FN89.Id. at 561. Squibb Sec. Lit- 549, 560-61 FN9O. P1. Mem. at 22; P1. Reply at 4. Plaintiffs do not allegemotive for the other individual defendants. FN91 .In re Bristol-Myers Squibb, 312 F.Supp.2dat 561. FN92.Acito v. IMCERA Group, Inc., 47 F.3d 47,54 2d Cir.1995. FN93. P1. Mem. at 22-23. Plaintiffs argue that McKinnell had a motive to commit fraud becausehe was awardeda severance package "which was dependent, in part, upon ‘Pfizer’s actual [stock] performance relative to the pharmaceutical peer group." Cpt. ¶ 28. But this portion of McKinnell’s severance package reflects "McKinnell’s outstandingperformance-con tingent share and performance share awards ... settled in accordancewith the original terms and conditions of such awards."Pfizer’sDec.21, 2006Form 8-K. FN94.Novakv. Kasaks, 216 F.3d 300, 308 2d Cir.2000internalquotationomitted. FN95.In re Bayer AG Sec. Litig., 03 Civ.2004WHP, 2004 WL 2190357, at *15 S.D.N.Y. Sept. 30, 2004 quoting Beck v. Mfrs. Hanover Trust Co., 820 F.2d 46, 50 2d Cir.1987; see also Kalnit v. Eichler, 264 F.3d 131, 141 2d Cir.2001; accord Tellabs, Inc. v. Makor Issues & Rights, Ltd., --- U.S. ----, 127 S.Ct. 2499, 2511, 168 L.Ed.2d 179 2007. FN96.In re Scholastic Corp. Sec. Litig., 252 F.3d63, 76 2d Cir.2001. FN97.Cpt. ¶ 162a-c. © 2008Thomson/West.No Claimto Orig. U.S.Govt. Works. FN88.In re Bristol-Myers ig., 312 F.Supp.2d S.D.N.Y.2004. https://web2.westlaw.comlprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 19 of 20 Page20 of 20 F.Supp.2d---- Page19 F.Supp.2d----, 2008 WL 540120S.D.N.Y., Fed.Sec.L. Rep. P94,590 Cite as: --- F.Supp.2d --- FN98.Id ¶ 162d. --- F.Supp.2d ----, 2008 WL 540120 S.D.N.Y., Fed. Sec.L. Rep.P94,590 FN99.Id ¶ 162e. END OF DOCUMENT FN100.Id ¶ 162f. FN101 .Feasby v. Industri-Matematik In tern. Corp., 99 Civ. 876lLTS, 2003 WL 22976327, at *5 S.D.N.Y. Dec. 19, 2003 quoting San Leandro Emergency Med Group Profit Sharing Plan v. PhilIp Mor ris Cos., Inc., 75 F.3d 801, 813 2d Cir. 1996. FN1O2. With the exception of the allega tions supportedby RADmanZulu’sblog. FN1O3.In re GeoPharma, Inc. Sec. Litig., 399 F.Supp.2d 432, 452-53 S.D.N.Y.2005; accord Higginbotham v. Baxter Int’l, Inc., 495 F.3d 753, 758-59 7thCir.2007. FNIO4. Plaintiffs’ source suggests that Phase III used an appropriate measureof statistical significance. See Seidel Decl. Ex. 42, at 1144 citedin Cpt. ¶ 91. FN1O5.Rombachv. Chang, 355 F.3d 164, 176-77 2d Cir.2004 a "pleading tech nique [that] couple[s] a factual statement with a conclusory allegation of fraudulent intent" is insufficient to "support the infer ence that the defendantsacted recklesslyor with fraudulent intent." quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1129 2d Cir.1994. FN1O6.15U.S.C.§ 78ta. FN1O7.Rombach,355 F.3d at 177-78. FN1O8. Plaintiffs requestedleave to amend in a footnote of their memorandum. P1. Mem.at 35 n. 36. S.D.N.Y.,2008. In re Pfizer, Inc. SecuritiesLitigation © 2008Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.com/printlprinream.aspx?prft=HTMLE&destination=atp&sv=Split... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-2 Filed 04/11/2008 Page 20 of 20 Case 1:08-cv-02018-LAK Document 16-3 Filed 04/11/2008 Page 1 of 8 Page2 of 8 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 22928602S.D.N.Y. Cite as: Not Reportedin F.Supp.2d Page1 H Sony FinancialServices,LLC v. Multi Video Group,Ltd. S.D.N.Y.,2003. Only the Westlawcitation is currently available. United StatesDistrict Court,S.D.New York. SONY FiNANCIAL SERVICES,LLC, Plaintiff, v. MULTI VIDEO GROUP,LTD., RhinocerosVisual Effects& Design,LLC, andCool BeansDigital Audio, Inc., Defendants. MULTI VIDEO GROUP,LTD. and Rhinoceros Visual Effects & Design,LLC, Counterclaimants, v. SONY ELECTRONICS,INC. andSony Financial Services,LLC, Counterdefendants. No. O3Civ.1730LAKGWG. Dec. 12, 2003. REPORTANDRECOMMENDATION GORENSTBIN,MagistrateJ. *1 Plaintiff Sony Financial Services,LLC "Sony Financial" brought this actionagainst Multi Video Group, Ltd. "Multi Video", RhinocerosVisual Ef fects & Design, LLC "Rhinoceros" and Cool Beans Digital Audio, Inc. "Cool Beans" for breach of contract. Multi Video and Rhinoceros collectively, the "counterclaimants" interposeda counterclaim against Sony Financial and Sony Electronics, Inc. "Sony Electronics" for fraud and deceit. Additionally, they asserted a counterclaim solely againstSony Electronicsfor breachof con tract. By order datedJune 17, 2003, JudgeLewis A. Kaplan dismissedthe counterclaimsas insufficient but granted leave to replead.Sony Fin. Servs. v. Multi Video Group, Ltd., 2003 WL 21396690 S.D.N.Y. June 17, 2003. Multi Video andRhino cerosthereaftereassertedtheir counterclaims. Now Sony Electronics and Sony Financial again move for judgmenton the pleadingsunder Fed.R.Civ.P. 12c dismissing the counterclaims. Sony Financial also moves to strike one of the af firmative defenses pursuant to Fed.R.Civ.P. 12f.SeeNotice of Motion for Judgmenton the PleadingsDismissing AmendedCounterclaimsand to Strike First Affirmative Defense, filed July 17, 2003 Docket # 26. For the reasonsbelow, their motionshouldbe grantedin its entirety. I. BACKGROUND The counterclaims in this case involve what the counterclaimantsrefer to as the "Beta Test Site Agreement."A "beta test" is the secondphaseof testingfor an experimentalproduct. After a product has beenthrough the first, or "alpha," test, but be fore it is ready for the market, the product is made available to select membersof the intended audi ence, who use the product and provide feedback. SeeAnswer and AmendedCounterclaims,filed July 7, 2003 Docket # 24 "Am.Countercl.", ¶ 441 n. 1. In the summer of 1999, Sony Electronics ap proachedMulti Video with an offer to enter into an agreemento beta test new equipment.Am. Coun terci. ¶ 44. Sony Electronicswould install certain equipment in Multi Video’s businesspremises and the equipmentwould be "used, studied, upgraded, modified and tailored."Id. ¶ 442. In order to enter into this arrangement,however, Sony Electronics required Multi Video to enter into certain equip ment leasesand a Master Lease"relating to a cer tain Telecine Suite" with plaintiff Sony Financial. Id ¶ 44v. Multi Video enteredinto these agree ments. Id. ¶ 46. In addition, in early 2000, Rhino ceros and Cool Beanseach executeda guaranty in favor of Sony Financial. Id.; AmendedComplaint, filed March 26, 2003 Docket # 7 "Am.Compl.", ¶11 11-12. Sony Financial’s complaint in this action alleges that Multi Video breachedthe MasterLeaseby fail- © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-3 Filed 04/11/2008 Page 2 of 8 Page3 of 8 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 22928602S.D.N.Y. Cite as: Not Reportedin F.Supp.2d Page2 ing to make all payments,Am. Compl. ¶11 2 1-29, and that Rhinocerosand Cool Beansbreachedtheir guaranties,id ¶ 30-34. As an affirmative defense, defendantsallege that the MasterLeaseis a product of deceitand was induced by fraud and misrepres entations.Am. Countercl.¶ 35. In addition, Multi Video and Rhinoceros assert counterclaims for breach of the Beta Test Site Agreement and for fraud relatedto that agreement.Id ¶11 39-62. II. APPLICABLELEGALSTANDARD *2 In resolvinga motion for judgmenton the plead ings under Fed.R.Civ.P.12c, the standardis the sameas that usedfor a motion to dismissfor failure to state a claim under 12b6.OneidaIndian Na tion of N.Y. v. City of Sherrill, 337 F.3d 139, 152 2d Cir.2003 citing Burnette v. Carothers, 192 F.3d 52, 56 2d Cir.l999. Thus, the Court must acceptthe factual allegationsset forth in the non- moving party’s pleading as true and draw all reas onableinferences in favor of the non-movingparty. Scheuerv. Rhodes,416 U.S. 232, 236 1974; Cos mas v. Hassett, 886 F.2d 8, 11 2d Cir. 1989. Dis missal is not appropriate"unless it appearsbeyond doubt that the [non-movant] can prove no set of facts in support of [its] claim which would entitle [it] to relief."Conley v. Gibson, 355 U.S. 41, 45-46 1957. For purposesof this motion, a party’s pleading "is deemedto include any written instrumentattached to it as an exhibit or any statementsor documents incorporatedin it by reference."CortecIndus., Inc. v. SumHoldingL.P., 949 F.2d 42, 47 2d Cir.1991, cert.denied,503U.S. 960 1992; accordChambers v. Time Warner, Inc., 282 F.3d 147, 152 2d Cir.2002; seealsoFed.R.Civ.P.10c "A copy of any written instrumentwhich is an exhibit to a pleadingis a partthereoffor all purposes.". III. THE COUNTERCLAIM FOR BREACH OF CONTRACT A. ThePleading The breachof contractcounterclaimis brought only against Sony Electronics. It allegesthat in the sum mer of 1999, representativesof Sony Electronics approachedMulti Video and offered to enter into a "Beta Test Site Agreement" pursuant to which Sony Electronics would install certain state- of-the-art equipment in the businesspremises of Multi Video. Am. Countercl.¶ 441. The equip ment was to be "used, studied, upgraded,modified and tailored" to the mutual benefit of both parties. Id ¶ 442. As part of the offer, Sony Electronicsin substanceagreedthat: 1. The pricegiven to Multi Video for the equipment would be below the list price for customersonce the productwasreadyfor saleto the market. 2. Sony Electronicswould develop the equipment with Multi Video for their mutual benefit by en abling Multi Video to use the equipment while SonyElectronicstested,debuggedandimproved it. 3. Sony Electronicswould advertisethe availability of suchequipmentat Multi Video’sbusinesses. 4. Sony Electronics had the available technical know-how, engineers and technical support to provide the service and repairs neededto keep the equipmentin working order, allowing Multi Video to enter into contractswith their customersrequir ing theuseof suchequipment. Seeid ¶11 443i-iv. The counterclaimgoes on to allege that as a condition precedentto accepting Sony Electronics’ offer, Multi Video was required to enter into equipmentleaseswith Sony Financial relating to an "HD Edit Room" and a "Telecine Suite," both encompassedin the Master Lease,and to make certain advancepayments.Id. ¶ 443v. Multi Video.allegesthat no paymentswere required during the beta test stage and that paymentsunder the equipmentleaseswere only due upon successful completionof thebetateststage.Id ¶443vi. *3 Multi Video performed its obligationsunder the Beta Test Site Agreementby executing the Master Lease and the guaranties and by making the re quired advance payments. Am. Countercl. ¶ 46. Multi Video also madeits premisesavailablefor in- © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.west1aw.comIpnpntsfream.aspx?pft=HTMLE&destination=atp&sv Split... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-3 Filed 04/11/2008 Page 3 of 8 Page4 of 8 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 22928602S.D.N.Y. Cite as:Not Reportedin F.Supp.2d Page3 stallation.Id ¶ 47. The counterclaim alleges that Sony Electronics breachedthe Beta Test Site Agreementby failing to improve andupgradethe equipmentandmaintain it in working order. Id ¶ 48. Sony Electronicsre peatedlyassuredMulti Video that it would render the equipment in working order yet failed to provide technicians with the skill, knowledge or ability to do so. Id ¶ 49. As a result, Multi Video was unable to provide contracted-forservicesto its clients.Id ¶1150,62. B. Failure to Statea Claim To state a claim for breachof contract under New York law, a party must allege: 1 the existenceof an agreement,2 adequateperformanceof the con tract by the party alleging the breach, 3 breach and 4 damagescaused by the breach. Harsco Corp. v. Segui,91 F.3d 337, 348 2d Cir.1996;Le ber Assocs.,LLC v. Entm’t Group Fund, Inc., 2003 WL 21750211, at *15 S.D.N.Y. July 29, 2003; RH. Damon& Co. v. SofikeySoftwareProds., Inc., 811 F.Supp.986, 991 S.D.N.Y.1993.As detailed above, the first amendedcounterclaim satisfiesthis standard.Multi Video andRhinoceroshavealleged the terms of the Beta Test Site Agreement,Am. Countercl. ¶11 44-45, their performancepursuantto those terms, id ¶11 46-47, the natureof the breach, id ¶11 48-49, and the damagescausedby it, id ¶11 50, 62. The breachof contract counterclaimis basedon the Beta Test Site Agreement, an agreementallegedly between Multi Video and Sony Electronics. Multi Video allegesthat enteringthe MasterLease,which is the subjectof Sony Financial’s complaint in this action, was a conditionprecedentto, and thus only one aspectof, the Beta Test Site Agreement.See Am. Countercl. ¶11 443v, 46. Sony Electronics contendsthat there is no "Beta Test Site Agree ment" between Sony Electronicsand Multi Video, and thus it cannotbe the basis of a breachof con tract claim. SeeMemorandumof Law in Supportof Motion for Judgmenton the Pleadings Dismissing AmendedCounterclaimsand Motion to Strike First Affirmative Defense, filed July 17, 2003 Docket # 27 "Counterdef.Mem.",at 12. Sony Electronics’ argumentis basedon a written contract entitled the "SystemSalesAgreement,"which Sony Electronics argues is the only written, fully integratedcontract betweenSony Electronicsand Multi Video. Id at 12-15. However, Multi Video has not referredto or relied on the System SalesAgreementin its plead ing. Becausethe System Sales Agreement is not properlyconsideredby the Court on this motion for judgment on the pleadings, determining the rela tionship between the System Sales Agreementand the Beta Test Site Agreementcould only await a motion made on a proper record. Accordingly, the claim against Sony Electronics has been properly stated. C. WhetherSonyElectronicsIs an "OpposingParty" *4 Sony Electronicsalso arguesthat, even if it is properly alleged, the breach of contract countçr claim must be dismissed because it names only Sony Electronicsas a counterdefendantand Sony Electronics is not an "opposing party" within the meaningof Fed.R.Civ.P. 13. SeeCounterdef.Mem. at 15 incorporatingby referenceargumentsmade in original Memorandumof Law in Supportof Mo tion for Judgment on the Pleadings Dismissing Counterclaims,filed May 12, 2003 Docket # 15, at 3-4.This argumentis persuasive. A counterclaim,whetherpermissiveor compulsory, may be assertedonly against an "opposing party." Fed.R.Civ.P 13a-b. While Rule 13h allows additional parties to be joined in accordancewith Fed.R.Civ.P. 19 and 20, that subsectionpermits such additional parties to be joined only where an opposingparty is also a party to the counterclaim. See,e.g.,RepublicNat? Bankv. Hales, 75 F.Supp.2d 300, 310 n. 8 S.D.N.Y.1999"Under Rule 13h, parties may be properly joined as counterclaimde fendants only where at least one party against © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.com!print/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-3 Filed 04/11/2008 Page 4 of 8 Page5 of 8 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 22928602S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page4 whom a counterclaim/third-partyclaim is asserted was a party to the original action."internalquota tions omitted, affd,4 Fed. Appx. 15 2d Cir. Feb. 6, 2001; accordFDlC v. Bathgate, 27 F.3d 850, 873-74 3d Cir.1994; Various Mkts., Inc. v. Chase Manhattan Bank, 908 F.Supp. 459, 470-71 E.D.Mich.1995; 6 Charles Alan Wright, et al., FederalPractice and Procedure§ 1435, at 271 2d ed.1990 a counterclaim "may not be directed solely against personswho are not already parties to the original action, but must involve at leastone existingparty" citing cases. Were it not for this problem, the counterclaim againstSony Electronicsis so closelyrelatedto this action that it would probably qualify as a compuls ory counterclaim under Rule 13a, since it "arises out of the transactionor occurrencethat is the sub ject matter of’ Sony Financial’s claim. In the amendedcounterclaim,Multi Video and Rhinocer os haveallegedthat acceptingSony Electronics’ of fer to enter the Beta Test Site Agreementwas the event that triggeredtheir entering into the Master Leaseand the guaranties-thesubjectmatter of Sony Financial’sclaims.Am. Countercl.¶11 443v, 46. The counterclaimantsinsist that there is a suffi ciently close relationship between Sony Financial and Sony Electronics that they in fact constitutea single "opposing party." Indeed, case law reflects that there have been some generousinterpretations of the term "opposing party" under which courts have determinedthat entitiesthat were not actually the party to a lawsuit qualified as an "opposing party" for purposesof Rule 13. See,e.g.,Transamer ica OccidentalLife Ins. Co. v. Aviation Office of Am., Inc., 292 F.3d 384, 390-92 3d Cir.2002 "successorin interest" and assignee of rights of opposing party; AvemcoIns. Co. v. CessnaAir craft Co., 11 F.3d 998, 1001 10th Cir.l993 insurer deemedto have been subrogatedto rights of insured;Banco Nacionalde Cuba v. First Nat’! City Bank, 478 F.2d 191, 193 a. 1 2d Cir.1973 Republic of Cuba and Cuban bank were "one and the same for the purposesof this litigation". But the Court is awareof no case in which distinct cor porateentitieshave beenconsideredto be identical for purposesof Rule 13 for no reasonotherthan the fact that they were closely related and actedin con cert for purposesof effectuatinga particular trans action. While Sony Electronics is apparently the sole memberof Sony Financial, Am. Compl. ¶ 4, and the counterclaimantsallegethat the two parties worked in concertto set up the transactionsat issue here, Am. Countercl. ¶11 443v, 46, no allegation has been made-let alone evidence presented-that their corporate forms have been disregarded. Rather, it appearsthat Sony Financial and Sony Electronics are two distinct albeit related corporate entities. *5 While courts including this one are under standablyeagerto permit or require partiesto bring relatedclaims in a single lawsuit as a matterof effi ciency, there is a danger in construing "opposing party" underRule 13 too broadly. Doing so may lead to a future situation where a party is actually barred from bringing suit againstthe separateentity on the ground that its claim should have been brought as a compulsory counterclaim under Rule 13a.See,e.g.,Avemco, 11 F.3d at 1001. Unless de fendantshave clearnotice as to what entities consti tute an "opposing party" under Rule 13, there is a danger that these defendantswill later be unwit tingly barred from assertingotherwisevalid claims. There is no apparentguiding principle reflected in the caselaw regardingwhen an entity that is not in fact an opposingparty may be deemedactually to have beenthe "opposingparty" within the meaning of Rule 13. Whatever flaws Rule 13 may have in limiting counterclaims to those against an "opposingparty," the rule at leasthas the virtue of clearly informing parties of the situations when they must either bring a claim against sucha party or be barred from assertingit in some other pro ceeding.Here, it seemsplain that Sony Electronics is not Sony Financial andthe rule has not beensat isfied. Accordingly, the motion to dismiss the breach of © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-3 Filed 04/11/2008 Page 5 of 8 Page6 of 8 Not Reportedin F.Supp.2d Not ReportedinF.Supp.2d,2003 WL 22928602S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page5 contract counterclaim against Sony Electronics shouldbegranted. FN1. Of course, the counterclaimantsare free to initiate a separatesuit against Sony Electronics on their claim. If properly filed in this Court, such a suit would be a prime candidatefor consolidationwith the instant actionunderFed.R.Civ.P.42a. IV. THECOUNTERCLAiMFORFRAUD A. ThePleading Multi Video and Rhinocerosasserta counterclaim for fraud in the inducement and for continuing fraud and deceitwith respectto the Beta Test Site Agreement and the other agreementsin this case. Am. Countercl. ¶11 5 1-62. The fraud counterclaim alleges that "representativesof Sony [Electronics], including Robert St. John, Fabio Pansolini, Larry Thorpe, Steven Stubel [sic], George Hale, Rick Harding and others," inducedMulti Video to enter into the Beta Test Site Agreement,and in connec tion therewith the various agreementswith Sony Financial,by representingin substancethat: 1. Sony Electronicshad the capability to develop certain state-of-the-artequipmentfor the mutual be nefit of SonyElectronicsandMulti Video. 2. Sony Electronicshad available technical expert ise andsupport such that they could service andre pair suchequipmentwhenevernecessary. 3. The equipmentSony Electronicswished to in- stall for Multi Video’s use during the testing stage wasstate-of-the-art,andwas the latest andbestde velopment,which would allow Multi Video to ex pandits scopeof services. Seeid ¶11 52l-3. In relianceon theserepresenta tions, Multi Video allegedly enteredinto the Beta Test Site Agreementand the various other agree ments, including the Master Lease and the guar anties. Id ¶11 53-54.Theserepresentationswere re peated on many occasions over the next two years.Id¶1152, 56. *6 The counterclaim also alleges that Multi Video and Rhinoceros"in time discoveredthat the inten tionally false representations... Sony [Electronics] made, upon information and belief in concertwith SonyFinancial, ... were falseand known to be false at the time theywere madein that" in substance: 1. Sony Eleàtronicsknew that it lackedthe capabil ity to support,repair, debug, or improve the equip ment and that it had recently failed to successfully complete certain Beta Test projects including one describedby an Australian technician "in writing" asa "nightmare." 2. Sony Electronics’ sole motive was to benefit it self, and not, as it claimed, to benefit Sony Elec tronicsandMulti Video. 3. Sony Electronicsacted in concertwith Sony Fin ancialto attemptto place counterclaimantsin apos ition where they would be unable to seeklegal re dress by virtue of the languageof the equipment leasesandguaranties. SeeAm. Countercl.¶1160l-3. B. Discussion Fed.R.Civ.P.9b requiresthat in "all avermentsof fraud and mistake, the circumstancesconstituting fraud or mistake shall be stated with particular ity."To satisfy Rule 9b’s particularity requirement, "a plaintiff should specify the time, place, speaker, and sometimeseven the contentof the allegedmis representations."Lucev. Edeistein, 802 F.2d 49, 54 2d Cir.1986; accordHarscoCorp., 91 F.3d at 347. The pleadingmust also "allege facts that give rise to a strong inference of fraudulent intent."San Leandro EmergencyMed Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 812 2d Cir. 1996 citations omitted; accord,e.g.,Chill v. Gen. Elec. Co., 101 F.3d 263, 267 2d Cir.1996. This can be done "either: a by alleging facts that constitute strong circumstantial evidence of con scious misbehavior or recklessness,or b by al leging facts to show that defendants had both motive andopportunity to commit fraud."Stevelman v. Alias Research Inc., 174 F.3d 79, 84 2d © 2008Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?prfi=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-3 Filed 04/11/2008 Page 6 of 8 Page7 of 8 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 22928602S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page6 Cir.1999. The Second Circuit has stated that ‘[m]otive would entail concretebenefits that could be realizedby one or more of the false statements and wrongful nondisclosuresalleged." ‘ Chill, 101 F.3d at 267-68 quoting Shieldsv. Citytrust Ban corp. Inc., 25 F .3d 1124, 11302d Cir.l994. JudgeKaplan previously dismissedthe fraud coun terclaim becauseit did not allege fraud with partic ularity or provide a "sufficient basis for inferring that the speaker knew that what was said was false."Sony,2003 WL 21396690,at *2. JudgeKa plan observedthat "[t]his ... appearson its face to be a garden variety commercialdisputein which Sony [Electronics] then failed to live up to defend ants’ expectations."IdThe counterdefendantsargue that the complaint still does not 1 allege fraud with particularity or 2 pleadfacts giving rise to a strong inference of fraudulent intent. Counterdef. Mem. at 4-8. As the Court agrees on the second point, it is unnecessaryto reachthe first. *7 The only new factual allegationwith respect to fraudulent intent is the exampleof the unsuccessful Australian beta test which is offered to establish Sony Electronics’ knowledgethat it could not re pair, improve or upgrade the equipmentat issue. Am. Countercl. ¶ 601.CompareAnswer & Coun terclaims, filed April 15, 2003 Docket # 11, ¶ 51, with Am. Countercl. ¶ 60. The amendedcounter claim refers to a statement"in writing" which al legedly demonstratesSony Electronics’ failures in Australia. Id The "writing" relied on in the amendedcounterclaimis a March 2001 e-mail from Eric Whipp to Rich Torpey of Multi Video. SeeE mail datedMarch 30, 2001 "E-mail" annexedas Ex. A to Counterdef. Mem.. Multi Video and Rhinoceros proffer this e-mail to support their claim for fraud following the executionof the ini tial contract. See Counterclaimants’ Memorandum of Law in Oppositionto Counterdefendants’Motion for Judgmenton the Pleadingsand Motion to Strike First Affirmative Defense, filed August 1, 2003 Docket # 30, at 19. The e-mail, however,does not establisheither that the beta test conductedin Am- tralia was unsuccessful or that Sony Electronics knew that the product did not and could not work. To the contrary, the e-mail describes Sony Elec tronics’ ongoing efforts to provide service to the customer.SeeE-mail referringto an engineerwho was "flying out to help us". The word "nightmare" was usedto describethe writer’s last few weeks, in which an engineerleft, the companywas busy do ing a movie-of-the-week and problems with the software occurred, which Sony Electronicswas at temptingto remedy.Id Even if these allegations could be construed as showing that Sony Electronics knew that it could not perform under the Beta Test Site Agreement, the allegationswould still be insufficient to support a claim of fraud. The SecondCircuit hasmadeclear that an allegationthat a party enteredinto a contract with the intention of breaching it is insufficient to show fraudulent intent. See,e.g.,Manning v. Utils. Mut. Ins. Co., 254 F.3d 387, 401 2d Cir.2001 allegedly false "statementof intent to perform un der the contract cannotconstitute fraud"; Bridge stone/Firestone,Inc. v. Recovery Credits Servs., Inc., 98 F.3d 13, 19-20 2d Cir.1996 dismissing fraud claim where only false statementsat issue were "intentionally-false statements ... indicating [defendant’s] intent to perform under the contract". Accordingly, case law is replete with dismissalsof fraud claims that were predicatedon allegations that the defendantsdid not intendto meettheir con tractual obligations. See,e.g.,Alnwickv. European Micro Holdings, Inc., 281 F.Supp.2d 629, 643 E.D.N.Y.2003; Marriott Int’l, Inc. v. Downtown Athletic Club of N.Y. City, Inc., 2003 WL 213 14056, at *6 S.D.N.Y. June 9, 2003. The same principles should logically apply to assurancesgiv en by a supplier that it intendsto continueperform anceunderthe contract. *8 Furthermore,the only "motive" to commit fraud allegedis "to sell such equipmentto the Counterde fendants[sic] accountingto millions of dollars, for [Sony Electronics’] own personal benefit." Am. Countercl. ¶ 602. This too is insufficient as "the © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westIaw.comIpnpntstream.aspx?prftHTMLE&destinationatp&svSp1it...4/9/2008 Case 1:08-cv-02018-LAK Document 16-3 Filed 04/11/2008 Page 7 of 8 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 22928602S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page8 of 8 Page7 SecondCircuit has repeatedlyheld that routine and general benefits that are derived in the ordinary course of business do not constitute the type of ‘concretebenefit’ that is necessaryto allegefraudu lent intent under Rule 9b."Schmidtv. Fleet Bank, 1998 WL 47827, at *9 S.D.N.Y. Feb. 4, 1998 citing, interalia,Chill, 101 F.3d at 268;Shields,25 F.3d at 1130. Thus, the counterclaimfor fraud and deceitmustbe dismissed. V. THEMOTIONTOSTRIKE Sony Financial also movesto strike the defendants’ first affirmative defense, which alleges that the Master Leasewas a "product of deceit" and was "induced by intentionalacts of fraud andmisrepres entation" by Sony Financial. Am. Countercl.¶ 35. The standardfor a motion to strike an affinnative defenseunder Fed.R.Civ.P. 12f is a "mirror im age" of the rule governing a motion to dismiss for failure to state a claim. Canadian St. RegisBand of Mohawk Indians ax rel. Francis v. New York, 278 F.Supp.2d 313, 324, 332 N.D.N.Y.2003 Rule 12f motion should not be grantedunless "it ap pears to a certainty that plaintiffs would succeed despiteany state of the factswhich could be proved in supportof the defense"internalquotationsomit ted. Accordingly, the motion to strike the first af firmative defense-insofaras it relies on SonyFinan cial’s alleged fraud as its underpinning-shouldbe granted. Conclusion have ten 10 days from service of this Report and Recommendation to file any objections. SeealsoFed.R.Civ.P.6a, e. Such objections and any responsesto objections shall be filed with the Clerk of the Court, with extra copies sent to the HonorableLewis A. Kaplan, 500 Pearl Street,New York, New York 10007, and to the undersignedat 40 CentreStreet,New York, New York 10007.Any requestsfor an extension of time to file objections mustbe directedto JudgeKaplan. If a party fails to file timely objections, that party will not be permit ted to raise any objections to this Report and Re commendationon appeal. SeeThomasv. Am, 474 U.S. 1401985. S.DN.Y.,2003. Sony Financial Services, LLC v. Multi Video Group,Ltd. Not Reported in F.Supp.2d, 2003 WL 22928602 S.D.N.Y. END OFDOCUMENT For the foregoing reasons, Sony Electronics’ and Sony Financial’s motion to dismiss the counter claims and to strike the affirmative defenseshould be granted. PROCEDUREFORFILING OBJECTIONSTO THIS REPORTANDRECOMMENDATION Pursuant to 28 U.S.C. § 636b1 and Rule 72b of the FederalRules of Civil Procedure,the parties © 2008 Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.coni’printlprintstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-3 Filed 04/11/2008 Page 8 of 8 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 1 of 12 Page2 of 12 sE1w. Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reportedin F.Supp.2d H Ulla-Maija, Inc. v. Kivimaki S.D.N.Y.,2003. Only the Westlawcitation is currentlyavailable. United StatesDistrict Court,S.D.NewYork. ULLA-MAIJA, iNC., Plaintiff, V. Ulla-Maija KIVIMAKI, Ulla-Maija Holding, LLC, Kivimaki, Inc., BruceBarton Bulcott and Gus Young, Defendants. No. 02 Clv. 3640AGS. Jan. 23,2003. Manufacturerof wedding gowns and accessories brought action against competitor alleging trade mark infringement, breachof contract, tortious in terference,breachof fiduciary duty, and injurious falsehood.On manufacturer’smotion to strike, the District Court, Schwartz, J., held that: 1 amended answerwas striken in its entirety; 2 conduct of representativesof manufacturer was relevant to manufacturer’sinjurious falsehoodclaim; 3 letter attachedto answer was relevant to injurious false hood claim; and 4 additional parties could be joined to action only through counterclaim when that counterclaimalso was assertedagainstexisting party. Motion grantedin part anddeniedinpart. WestHeadnotes [11 FederalCivil Procedure170A z827 170A FederalCivil Procedure 170AVII PleadingsandMotions 17OAVIIE Amendments 170Ak827 k. Leave of Court in General. Most CitedCases Amended answer was stricken in its entirety be cause it was not properly filed, in lawsuit brought by manufactureragainst competitor, since compet itor did not obtain leave from court or consentfrom manufacturer before filing it. Fed.Rules Civ.Proc.Rule7a, 15a,28 U.S.C.A. [2J FederalCivil Procedure170A 624 170A FederalCivil Procedure 1 70AVII PleadingsandMotions 17OAVIIA Pleadingsin General 170Ak624 k. Time for Pleading. Most Cited Cases The rule of civil procedurethat addressesthe im pact of a decision by the court on the schedulefor pleadings does not provide for the revision of pleading schedulesbasedon the filing of a motion regarding defensesand objections under that rule. Fed.RulesCiv.Proc.Rule12a4, 28 U.S.C.A. [3] FederalCivil Procedure170A ‘1126 170A FederalCivil Procedure 17OAVII Pleadingsand Motions I7OAVIIN Striking Pleading or Matter Therein l7OAkl 125 Immaterial, Irrelevant or Un responsiveMatter l7OAkl 126 k. Particular Allegations. MostCitedCases Federal Civil Procedure 170A1 127 170A FederalCivil Procedure 170AVII PleadingsandMotions I7OAVIIN Striking Pleading or Matter Therein l7OAkl 127 k. Impertinent or Scandalous Matter.MostCitedCases Allegations in answer of competitor who was formerly associatedwith manufacturer,that chief executive officer CEO and attorneyemployedby manufacturerlooted the company, was not irrelev ant or scandalous,in lawsuit brought by manufac turer against competitor alleging injurious false hood; even though CEO and attorney were not parties to action as individuals, their conduct as representativesof manufacturer was relevant to manufacturer’sinjurious falsehoodclaim. Fed.Rules © 2008Thomson/West.No Claim to Orig. U.S. Govt. Works. Page1 https://web2.westlaw.comlprintlprintstream.aspx?rs=WLW8.03&destination=atp&prft=HT... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 2 of 1 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reportedin F.Supp.2d Page3 ofl2 Page2 Civ.Proc.Rule12f, 28 U.S.C.A. [4] FederalCivil Procedure170A1126 l7OA FederalCivil Procedure 1 70AVII PleadingsandMotions 17OAVIIN Striking Pleading or Matter Therein l7OAkl 125 Immaterial, Irrelevant or Un responsiveMatter l7OAkl 126 k. Particular Allegations. Most Cited Cases Letters attachedto answer, that were written by competitor to manufacturer’saccountantstating that manufacturer’s chief executive officer CEO was involved in "ruining of her business"and "stealing of her name," were relevant to injurious falsehood claim brought by manufacturer,and, consequently, could not be stricken, since letterswere evidenceof what competitor actually said in her conversation with accountant,and allegationsregarding conduct of CEO was relevant to issue of whethercompetit or’s statementwas mademaliciously and recklessly and whethercompetitorknew statementsto be false at time she allegedly made them. Fed.Rules Civ.Proc.Rule12c, f, 28 U.S.C.A. [51 FederalCivil Procedure 170A 1126 170A FederalCivil Procedure 170AVII PleadingsandMotions 17OAVIIN Striking Pleading or Matter Therein l7OAkl 125 Immaterial, Irrelevant or Un- responsiveMatter l7OAkl 126 k. Particular Allegations. Most Cited Cases Allegations of competitor, that chief executive of ficer CEO and attorney employed by manufac turer "embarkedon a campaignto take over the ca reers of other fashion designersand exploit their names, leaving them with nothing," was not relev ant, and, consequently,was stricken, in manufac turer’s lawsuit claiming trademark infringement, breach of contract, tortious interference, breach of fiduciary duty, and injurious falsehood,since alleg ation related to supposedconduct undertakenby persons in their individual capacities, and allega tions did not relate to any claims assertedby either Fed.Rulesmanufacturer or competitor. Civ.Proc.Rule12c, f, 28 U.S.C.A. [61 Federal Civil Procedure 170A ‘1126 I 70A FederalCivil Procedure 1 7OAVII PleadingsandMotions 17OAVIIN Striking Pleading or Matter Therein l7OAkl 125 Immaterial, Irrelevant or Un responsiveMatter l7OAkl 126 k. Particular Allegations. Most CitedCases FederalCivil Procedure 170A 1127 170A FederalCivil Procedure 170AVII PleadingsandMotions 17OAVIIN Striking Pleading or Matter Therein l7OAkl 127 k. Impertinent or Scandalous Matter.MostCitedCases Allegation madein answerby competitorwho was previously associatedwith manufacturer,that chief executive officer CEO used manufacturer"as his personalpiggy bank" from time he startedworking for manufacturer,lacked specificity and contained inflammatoiy language,and, consequently,was re quired to be stricken from answer, in lawsuit brought by manufacturerclaiming trademark in fringement, breach of contract, tortious interfer ence, breachof fiduciary duty, and injurious false hood. Fed.Rules Civ.Proc.Rule 12c, f, 28 U.S.C.A. [7] Federal Civil Procedure 170A ‘1126 170A FederalCivil Procedure 17OAVII PleadingsandMotions 17OAVIIN Striking Pleading or Matter Therein l7OAkl 125 Immaterial, Irrelevant or Un responsiveMatter © 2008Thomson/’.Vest.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.comlprintlprintstream.aspx?rsWLW8.03&destination=atp&prft=HT... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 3 of 12 Page4 of 12 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page3 l7OAkl 126 k. Particular Allegations. MostCitedCases Allegations madeby competitor in her answer,that manufacturer’sattorney was listed in professional directory as entertainmentattorney and that he was of counselto law firm specializing in trademarks, was not relevant, and, consequently, would be stricken, in lawsuit brought by manufacturerclaim ing trademarkinfringement,breachof contract, tor tious interference,breach of fiduciary duty, and in jurious falsehood. Fed.Rules Civ.Proc.Rule 12c, f,28 U.S.C.A. 181 FederalCivil Procedure170A ‘1126 170A FederalCivil Procedure 170AVII PleadingsandMotions I7OAVIIN Striking Pleading or Matter Therein l7OAkl 125 Immaterial, Irrelevant or Un responsiveMatter l7OAkl 126 k. Particular Allegations. Most CitedCases Allegations madein answerby competitorwho was formerly associatedwith manufacturer,that chief executive officer CEO and attorneyemployedby manufacturerconcealedprior licensing agreement by filing trademark application for "Ulla-Maija" mark in nameof manufacturer,and that they falsely claimedownership of mark, were relevant to trade mark claims assertedby both parties and,therefore, would not be stricken from answer. Fed.Rules Civ.Proc.Rule12c,f, 28 U.S.C.A. [9] FederalCivil Procedure 170A ‘773 l7OA FederalCivil Procedure 1 70AVII PleadingsandMotions 17OAVIIC Answer 17OAVIIC3 Set-Offs, Counterclaims and Cross-Claims 170Ak772Set-Offs 1 70Ak773 k. Counterclaims. Most CitedCases Additional parties can be joined to an action only through a counterclaimwhenthat counterclaimalso is asserted against an existing party. Fed.Rules Civ.Proc.Rule13, 28 U.S.C.A. MEMORANDUMORDER SCHWARTZ, J. *1 Plaintiff, a manufacturerof wedding gowns and accessories,filed the aboveentitled action alleging, inter alia, trademark infringement, breachof con tract, tortious interference,breachof fiduciary duty, and injurious falsehood.Currently before the court are: i plaintiffs motion, pursuantto Fed.R.Civ.P. 12c and f, to strike certain allegationscontained in defendants’ Answer and Counterclaims "Answer", and for judgmenton the pleadingswith respect to defendant’s sixth and eighth counter claims; ii plaintiffs motion, pursuant to Fed.R.Civ.P. 12c and f, to strike defendants’ Amended Answer and Counterclaims "Amended Answer" in its entirety; iii a motion, filed by in dividual plaintiffs/counterclaim defendants Otto Felber, W. Bruce Bailey, Thomas Bachmannand Charles Bunstine, to strike the Amended Answer pursuantto Fed.R.Civ.P.12c, f, and ii, as well as Fed.R.Civ.P. 13, 15, and 21; iv plaintiffs mo tion for sanctionsand defendants’cross-motionfor sanctions; and v individual plaintifl7counterclaim defendant Henry Welt’s motion, pursuant to Fed.R.Civ.P.12c and h, to dismissthe Amended Answer with respectto defendants’claims against Welt. For the reasonsset forth below, i plaintiffs mo tion to strike the AmendedAnswer in its entirety is granted; ii the four individual plaintiffs’! counter claim defendants’ motion to strike the Amended Answer in its entirety is denied as moot; iii plaintifflcounterclaim defendantHenry Welt’s mo tion to dismissthe AmendedAnswer as againsthim is deniedas moot; iv plaintiffs motion to strike certainparts of the Answer is grantedin part and denied in part; iv plaintiffs motion for sanctions and defendants’ cross-motion for sanctions are denied. © 2008 Thomson/West.NoClaim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?rs=WLW8.03&destination=atp&prft=HT...4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 4 of 12 Page5 of 12 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reported in F.Supp.2d Background ProceduralHistory Page4 TheParties Plaintiff Ulla-Maija, Inc. "Plaintiff’, is a New York corporation with its principal place of busi ness in New York City. Plaintiff produceswedding gowns and accessories using the trademark "Ulla-Maija." Defendant Ulla-Maija Kivimaki "Kivimaki", an individual, is a designer of bridal gowns and even ing wear, and was formerly employed by plaintiff as its PresidentandChiefDesigner.1 FN1. Though Kivimaki is no longer em ployed by plaintiff Ulla-Miaja, Inc., she is still one of thecompany’sshareholders. Defendant Ulla-Maija Holding, LLC "Ulla-Maija Holding" is a New York limited liability company controlled by defendantKivimaki. Though the cur rent ownership rights with respect to the "Ulla-Maija" trademarkare in dispute, it is undis puted that as of May 5, 1997, Ulla-Maija Holding was the owner of the mark. On that date, plaintiff and Ulla-Maija Holding signed an agreement whereby the "Ulla-Maija" trademark was licensed to plaintiff in perpetuity, subject to certain condi tions. SeeAnswer,Exh. A. DefendantKivimaki, Inc. is a New York corpora tion through which defendant Kivimaki has al legedly producedandsold wedding dressesbearing the "Ulla-Maija" trademarkand/orsimilarmarks. DefendantBruce Barton Bulcott is an individual residing in New York City who allegedly servesas an employee or agent of Kivimaki and Kivimaki, Inc. Though Bulcott was servedwith a summons and complaint on May 16, 2002, he has not ap pearedin thisaction. *2 DefendantGus Young is a foreign citizen. By order dated September 12, 2002, the Court dis missedtheactionas againstdefendantYoung. Plaintiff filed this action on May 13, 2002. The complaint assertsfourteen causesof action, mostof which arise primarily out of defendants’production and sale of wedding dressesthat allegedly infringe plaintiffs trademark rights. On August 12, 2002, defendants Kivimaki, Ulla-Maija Holding, LLC, and Kivimaki, Inc. hereinafter,"defendants"filed their Answer. The Answer asserts nine counter claims, including claims pertaining to the "Ulla-Maija" trademark and the 1997 licensing agreement,as well as claims for breachof contract, breachof fiduciary duty, unfair competition, punit ive damages,and attorneys’ fees. On September6, 2002, plaintiff filed a Reply to defendant’scounter claims. On SeptemberIl, 2002, the Court held a confer ence regardingdefendants’motion for a preliminary injunction.2At that conferencethe Court granted plaintiff leave to file a motion to strike certainparts of defendants’ Answer pursuant to Fed.R.Civ.P. 12f. Transcript of Proceedings, September 11, 2002 at 25-26. By noticeof motion datedSeptem ber 18, 2002,plaintiff filed suchmotion, which also soughtjudgment on the pleadings with respectto defendants’sixth and eighth counterclaimsbreach of fiduciary duty and punitive damages,and re questedthat the Court grant sanctionsagainstde fendants. FN2. Such motion sought temporary relief allowing defendantsto continue to manu facture wedding dresses during the pen dencyof thisaction. On September24, 2002-eighteendaysafter plaintiff had filed its Reply to defendants’Answer and six days after plaintiff had filed its motion to strike parts of the Answer-defendantsfiled their Amended Answer although they had not obtainedleave from the Court to do so. The AmendedAnswer names Ulla-Maija, Inc. as a plaintiff, but also includes Bunstine, Welt, Felber, Bailey and Bachmann as plaintiffs in the caption. The factual allegations in © 2008 Thomson/West.No Claimto Orig. U.S. Govt. Works. https://web2.westlaw.comlprintlprintstream.aspx?rs=WLW8.03&destinationatp&prftllT... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 5 of 12 Page6 of 12 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page5 the AmendedAnswer are nearly identical to those containedin the Answer although the causesof ac tion in the two pleadings differ. While the eighth and ninth counterclaimsin the Answer seekpunit ive damagesand attorneys’ fees, respectively, the eighth and ninth counterclaimsin the AmendedAn swer are for retaliatory dischargeand breachof fi duciary duty,3 respectively. By letter dated Oc tober 8, 2002, plaintiff requestedleaveto file a mo tion to strike defendants’AmendedAnswer and to seeksanctionsagainst defendants.The Court gran ted such leave by order datedOctober 8, 2002. De fendants’ cross-moved for sanctions against plaintiffs on December4, 2002. FN3. Defendants’ breach of fiduciary duty claim is asserted on behalf of Kivimaki and plaintiff Ulla-Maija, Inc. against the individuals Bunstine, Welt, Felber, Bailey andBachmann. By notice of motion dated November 1, 2002, HenryWelt movedto dismissthe AmendedAnswer asagainsthim on thegroundsof improperservice. Discussion 1. Plaintj/J’s Motionto StriketheAmendedAnswer [1] UnderFed.R.Civ.P.15a a party may amendits pleading once as matter of right, as long as such amendmentis madebefore the opposing party has filed a responsivepleading.4However,if the op posing party has already filed a responsiveplead ing, a party seekingto amendits pleadingmust ob tain leave of court, or consentof its adversary,be fore filing an amendedpleading. Here it is undis puted that plaintiff filed its Reply to defendants’ Answer on September 4, 2002, and under Fed.R.Civ.P.7a, such a Reply constitutesa re sponsive pleading.SeeCappiellov. Cappiello, 1998 WL 242716,at *2 Terr.V.I. Feb. 25, 1998; Ran dolph EngineeringCo. v. FredenhagenKommandit Gesellschaft, 476 F.Supp. 1355, W.D. Pa.1979. Thus, defendantswere required under Fed.R.Civ.P. 15a to obtain either leave from the Court or con sent from the plaintiff before filing their Amended Answer. Sincedefendantsdid not obtain such leave or consent,the AmendedAnswer was not properly filed. FN4. If the pleading at issue does not re quire a responsivepleading,then the party seeking to amend the pleading may do so at any time within twenty days after ser vice. Fed.R.Civ.P. 15a. However, this portion of Rule 15a does not apply here since defendants’ Answer and Counter claims clearly required a responsiveplead- ing from plaintiff. *3 [2] Despite their non-compliance with the Fed.R.Civ.P. 15, defendantsadvanceseveral argu ments in opposition to plaintiffs motion to strike the Amended Answer. First, defendants contend that the AmendedAnswer was a timely filed re sponseto plaintiffs motion to strike the original an swer, and cite Fed.R.Civ.P. 12a4 in support of that argument.SeeDeclarationof RaymondDowd, dated November22, 2002 at ¶ 7. However, Rule 12a4 addressesthe impact of a court’s decision on the schedulefor pleadings; it does not provide for the revision of pleadingschedulesbasedon the filing of a Rule 12 motion. Fed.R.Civ.P 12a4.FN5 In this case,the Court has not issued any decision on any Rule 12 motion prior to the in stantdecision,and thusRule l2a4 is not relev ant to the issue of whether defendant’sAmended Answerwas timely filed. FN5. Thoughthe first part of Rule 12a4 mentions the "service" of a Rule 12 mo tion, the prescriptive portions of the rule subsectionsa and b deal only with court decisionson Rule 12 motions. Thus, plaintiffs filing of the Rule 12f motion with respect to the original Answer did not, in and of itself, create a window of time in which defendants could amend their original Answer. © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprintlprintstream.aspx?rs=WLW8.03&destinationatp&prftHT... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 6 of 12 Page7 of 12 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page6 Defendants also argue that plaintiffs motion to strike the Amended Answer is barred under Fed.R.Civ.P. 12g since the motion is duplicative of an earlier motion. See Dowd Declaration, November 22, 2002, at ¶11 9-11, 17. Specifically, defendantsassertthat the reply affidavit submitted by plaintiffs counsel in support of plaintiffs mo tion to strike portions of defendants’original An swer constituted a motion to strike the Amended Answer. Id. This argumentis basedon the fact that plaintiffs reply affidavit on the earlier motion discussesportions of defendants’AmendedAnswer. However, the reply affidavit on the earlier motion clearly statesthat a full discussionof the Amended Answer was"beyond the scopeof this motion," and also specifically statesthat plaintiff would fully ad dress issuesrelating to the AmendedAnswer in a later motion to strike. See Reply Affidavit of Lawrence E. Fabian,datedOctober 15, 2002 at ¶11 10, 12-16. It is clear that plaintiff did not intend the earlier reply affidavit to constitutea motion to strike the AmendedAnswer,and the Court does not considerit to be such a motion. Thus, the motion to strike the AmendedAnswer, filed on November 1, 2002, is not duplicativeofany earliermotion. Finally, defendantsargue that plaintiffs motion to strike the AmendedAnswer was untimely. Dowd Declaration, November 22, 2002, at ¶11 12-15. However, at a conferenceon October 22, 2002, the Court specifically directed that plaintiff make any such motion by November 1, 2002. Plaintiff com plied with that direction the motion was filed on November 1, 2002, and thus defendants’timeliness argumentfails. Accordingly, becausethe Amended Answer was not properly filed plaintiffs motion to strike the AmendedAnswer in its entirety is granted.6 FN6. Because the Court fmds that the AmendedAnswer must be stricken on pro ceduralgrounds,it does not reachthe issue of whether any of the specific counter claims contained in the Amended Answer state a claim upon which relief can be granted. However, the Court notes that de fendant Kivimaki’s failure to obtain a right to sue letter from either the EqualEmploy ment Opportunity Commission or the New York State Human Rights Commission, and her inadequate explanation for such failure, would be fatal to her claim under 42 U .S.C. § 2000e. See, e.g.Shahv. New York State Dept. of Civil Service, 168 F.3d 610 2d Cir.l999. The Court also notes that the AmendedAnswer’s claim for breachof fiduciary duty does not contain the requisiteparticularity with respectto a demand for actionmadeby Kivimaki on the boardof Ulla Maijia, Inc., nor does it contain particular allega tions as to why such demandwould have beenfu tile. Thus, the Amended Answer would not meet the pleadingrequirementsof N.Y. Bus. Corp. Law § 626c with respect to Kivimaki’s shareholder’s derivative claim for breachof fiduciary duty. See N.Y. Bus. Corp. Law § 626c; see alsoCharos v. Charos, 264 A.D.2d 495, 694 N.Y.S.2d 702 2" Dep’t. 1999. 2. Individual Plaintffs’/Counterclaim Defendants’ Motion to StriketheAmendedAnswer Because the Court has already granted corporate plaintiff Ulla-Maija, Inc.’s motion to strike defend ants’ AmendedAnswer in its entirety, the motion to strike filed by four of the individual plaintiffs! counterclaim defendantsBunstine, Felber, Bailey andBachmannis deniedas moot. 3. Welt’sMotion to DismisstheAmendedAnswer *4 Becausethe Court has alreadygrantedcorporate plaintiff Ulla-Maija, Inc.’s motion to strike defend ants’ Amended Answer, individual plaintiff! counterclaimdefendantHenry Welt’s motion to dis missthe AmendedAnswer is deniedas moot. 4. Plaintiffs Motion to Strike Certain Portions of Defendants’Answer [3] Plaintiffs motion with respect to defendants’ © 2008ThomsonlWest.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?rsWLW8.03&destinationatp&prft=HT... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 7 of 12 Page8 of 12 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page7 Answer seeksthe following relief: i an order, pur suant to Fed.R.Civ.P.12f, striking paragraphs32, 109, 137, 138-163, 165, 166-174, 179-182, 184-187, 191, 217-223, 228-231, and paragraphs6 and 8 of the "Wherefore" clauseon pages31-32; ii an order, pursuantto Fed.R.Civ.P.12c, grant ing plaintiff judgmenton the pleadingswith respect to defendants’Sixth and Eighth counterclaims;iii sanctions against defendants pursuant to Fed.R.Civ.P. 11 ."As plaintiffs counsel states in his affidavit in support of the motion, "the essence of [the] motion is that defendantsincorporatedinto their counterclaims certain redundant, immaterial, scandalousand scurrilous allegations[,] and asser ted at least [two] counterclaims"againstseveralin dividuals andone corporationthat arenot partiesto this action. See Affidavit of LawrenceE. Fabian, datedSeptember18, 2002,at ¶ 6. FN7. By letter dated December 10, 2002, plaintiff withdrew the sanctionsportion of its motion in light of its secondmotion for sanctions,which was filed on November 1, 2002. As an initial matter, the Court notes that motionsto strike "are not favored and will not be grantedun less it is clear that the allegationsin questioncan haveno possiblebearingon the subjectmatter of the litigation."Schrammv. Krischell, 84 F.R.D. 294, 299 D.Conn.l979.However, a court should strike the disputedmatter if it is " ‘irrelevant’ under any state of facts which could be proved in support’ of the claims being advanced."Reiter’s Beer Distrib utors, Inc. v. Christian Schmidt Brewing Co., 657 F.Supp. 136, 144 E.D.N.Y.1987, quoting Trust- houseForte, Inc. v. 795 Ffih AvenueCorp., 1981 WL 1113 S.D.N.Y. Aug.31, 1981. Accordingly, the Court must assesswhether each of the para graphs enumeratedin plaintiffs motion has any rel evanceto thesubjectmatterof the litigation. a Final ClauseofParagraph32 In paragraph32 of the Complaint plaintiff alleges that it has spent a significant amount of time pro moting "itself, ["the Ulla-Maija"] trademark, and its distinctive products."Complaint¶ 32. In their Answer, defendantsdeny this allegation, except to admit that "up until July 17, 2000, plaintiff spent time and money promoting the ULLA-MAIJA trademark,after which CharlesBunstineand Henry Welt commencedlooting the company."Answer¶ 32. Plaintiff arguesthat becauseBunstineandWelt are not partiesto this action, the allegation that they "looted" the company is irrelevant and scandalous. However, plaintiffs twelfth cause of action injurious falsehood,alleges that defendant Kivi maki told plaintiffs accountantthat "the ownersof plaintiff had ‘ruined [her] company’ and that the shareholdersof plaintiff ‘stole [her] nameandnow [she] can’t work anywhere." ‘ Complaint ¶ 111. Bunstine was the Chainnan and Chief Executive Officer of Plaintiff Bunstine Affidavit ¶ 1, and Welt was an attorney employed by plaintiff. Clearly, if either of those individuals stole monies from plaintiff, such fact would be relevantto the is sue of whetherKivimaki’s statementsregardingthe "stealing of her name" and the "ruining of her busi ness"were false. Thus, even though Bunstine and Welt are not parties to the litigation as individuals, their conductas representativesof plaintiff is relev ant to plaintiffs injurious falsehoodclaim. Accord ingly, the motion to strike the fmal portion of para graph32 oftheAnswer is denied. bFinal Portion ofParagraph 109 andAccompa nyingExhibit *5 [4] In paragraph109 of the Answer, defendants respond to plaintiffs allegation regarding the al leged false statements made by Kivimaki to plaintiffs accountant. See supra; Complaint ¶ Ill. Defendantsdeny plaintiffs allegations, and also allege that: i Bunstine, Welt, andOtto Felber an investor in Ulla-Maija, Inc. locked Kivimaki out of the company’s offices; ii Bunstine can celled Kivimaki’s health insurance; iii Kivimaki expressedconcerns that Bunstine had "stolen her businessandwasgoing to ruin it"; and iv plaintiff © 2008 Thomson/West.No Claim to Orig.U.S. Govt. Works. https://web2.westlaw.com/printlprintstream.aspx?rs=WL8.03&destinationatp&prft=HT... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 8 of 12 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page9 of 12 Page8 did not furnish Kivimaki with designsfor approval, as requiredunder the 1997 trademarklicenseagree ment. Answer ¶ 109. In support of those allega tions, defendantshaveattacheda "memorandumof the conversation"betweenKivimaki and plaintiffs accountantas Exhibit D to the Answer. That exhib it, which is actually a letter, written by defendant Kivimaki on October 25, 2000 and addressedto an individual named Gary Lyman, describes how on September28, 2000, Kivimaki told plaintiffs book keeperthat i Bunstine had"stolen [her] business"; and ii plaintiff had not presenteddressdesignsto Kivimaki as it was requiredto do. Answer,Exh. D. As with the fmal clauseof paragraph32, the allega tions in paragraph109 andExhibit D pertainto the issue of whetherKvimiaki’s statementsto plaintiffs accountantcan be deemed falsehoods.The letters containedin Exhibit D are evidenceof what Kivi maki actually said in her conversation with plaintiffs accountantand thus are clearly relevant to plaintiffs injurious falsehood claim. Similarly, the allegations in paragraph109 regarding the con duct of Bunstine, Welt, andFelber, are relevant to the issue of whetherplaintiffs statementregarding the "ruining of her business" and the "stealing of her name" were made maliciously and recklessly, and whether Kivimaki knew the statementsto be false at the time she allegedly madethem. Accord ingly, plaintiffs motion to strike is deniedwith re spect to paragraph109 of the Answer and its ac companyingExhibit. c Paragraphs137, 138-163, and165 [5] As discussedsupra, allegationsregardingthe al leged "ruining" of Kivimaki’s businessand the al leged "stealing of her name" by Bunstine, Welt, and the Ulla-Maija, Inc. investors are relevant to plaintiffs injurious falsehood claim. Paragraphs 137, 138-157,159-160, 163, and 165 of the Answer contain such allegations,or contain factual allega tions relevant to the creation of the trademark agreementbetween plaintiff and defendant Ulla Maija Holding, and are thus relevant to the claims in this action." FN8. Paragraph160 refers to an Exhibit F, which defendants allege to be a memor andum written by Bunstine on June 8, 2000 and sent to defendant Kivimaki. However, the exhibit attachedas Exhibit F to the Answer is a facsimile transmission, dated October 3, 1997, sent by Bruce Bailey to a Patricia Kiuge. It appearsthat the memorandumreferred to in paragraph 160 is actually attached to the Answer as ExhibitH. However, in paragraph 158 defendantsallege that "Welt, Bunstine, Felber and Bailey embarkedon a campaignto take over the careersof other fashion designers ... and exploit their names,leaving them with nothing."Answer ¶ 158. This allegation, which relates to alleged conductundertakenby the named individuals in their individual capacities, is not relevant to any of the claims assertedby either plaintiff or defendantsin this action. And although paragraph161 and the first two sentencesof para graph 162 relate to Bunstine’s conduct as CEO of plaintiff, the factual allegations contained therein are scurrilous and unsupportedby fact. Accord ingly, plaintiffs motion to strike is grantedwith re spectto paragraphs158, 161, and the first two sen tencesof paragraph162. *6 The fmal sentenceof paragraph162 refers to notes taken by defendantKivimaki after plaintiffs boardmeeting on July 17, 2000, and which are at tached to the Answer as an exhibit.’N9Thesenotes are clearly relevant to the trademark claims made by both plaintiff and defendants,as well as to Kivi maki’s counterclaimsfor breachof her employment contract.Accordingly, the referenceto the notes in paragraph162, as well as the exhibit itself, should notbestrickenfrom theAnswer. FN9. Though the Answer refers to the notes as Exhibit G, the notes are actually containedin Exhibit I. © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?rs=WLW8.03&destination=atp&prft=HT...4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 9 of 12 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reportedin F.Supp.2d Page10 of 12 Page9 d Paragraphs166-174 Theseparagraphsrefer to Bunstine’s allegedsexual harassment of an Ulla-Maija employee named Chani Sanchez.These allegations do not relate to any of the claims assertedby the parties in this ac tion and are thus irrelevant. Accordingly, plaintiffs motion to strike is grantedwith respect to para graphs166-174of the Answer. e Paragraphs179-182 In paragraph179 of the Answer, defendantsallege that on two occasionsprior to the filing of this ac tion, attorney Welt recommended to defendant Kivimaki that she hire plaintiffs current counsel, LawrenceB. Fabian.However, the Answer doesnot allege that Fabian ever actually representedKivi maki, nor does it allege that Kivimaki ever even contacted Fabian about representingher. Thus, Welt’s alleged recommendationof attorney Fabian is irrelevantand such allegation is stricken from the Answer. [6] The first sentenceof paragraph180 allegesthat "[f]rom the time Bunstinejoined Ulla-Maija, Inc., he started using it as his personal piggy bank."Answer ¶ 180. This sentence lacks spe cificity and contains inflammatory language and should therefore be stricken from the Answer. However, the second sentence of the paragraph containsa specific allegation regarding allegedmis managementof Ulla-Maija, Inc. by Bunstine andis thus relevant to plaintiffs claim for injurious false hood. Seesupra. Paragraphs181 and 182 contain specific allegations regarding Bunstine’s conduct with respect to the "Ulla-Maija" trademarkapplication and plaintiffs compliancewith the 1997 trademarklicenseagree ment. Such allegations are relevant to both plaintiffs and defendants’ trademark claims, and thereforeshouldnot be stricken.’"’° FN1O. The Court notes that althoughpara graphs 181 and 182 refer to Exhibits I and J, respectively, the documents referred to in those paragraphsi.e. a letter from attor ney David Kashmandated July 14, 2000, and a printout from the U.S. Patent and TrademarkOffice website dated August 9, 2002 are in fact attachedto the Answer as ExhibitsL andM. Accordingly, plaintiffs motion is grantedwith re spect to paragraph 179 and the first sentenceof paragraph180 of the Answer; the motion is denied with respect to the secondsentenceof paragraph 180 andparagraphs181 and182. 1 Paragraphs184-187 [7] Paragraphs184-186 contain allegationsregard ing plaintiffs counsel, Lawrence B. Fabian. Spe cifically, defendantsallege that Fabian i is listed in the Martindale-Hubbell directory as an "entertainmentattorney"; ii is of counselto a law firm specializing in trademarks;iii has worked, andcontinuesto work, under the supervisionof at torney Welt; and iv is taking direction from Welt andBunstineregardinglitigation strategyin this ac tion. However, the substanceof Fabian’s listing in a professionaldirectory as well as his statuswith re spectto a particularlaw firm is irrelevant to this ac tion. His associationwith Welt and his consultation with Bunstine are also irrelevant to the parties’ claims. Indeed, it would be surprising if Bunstine, as CEO of plaintiff, was not involved in planning plaintiffs litigation strategy.Accordingly, the mo tion to strike theseparagraphsfrom the Answer is granted. *7 [8] Paragraph187 allegesthat Fabian,Welt, and Bunstine were involved in filing a trademark ap plication for the "Ulla-Maija" mark in the nameof plaintiff. Defendantsmaintain that such filing con cealed the 1997 licensing agreementand falsely claimed ownership of the mark. Such allegations are clearly relevantto the trademarkclaims asserted by both parties and thereforeshouldnot be stricken from the answer. © 2008Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.westlaw.comlprint/printstream.aspx?rs=WLW8.03&destination=atp&prft=HT... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 10 of 12 Page11 of 12 Not Reportedin F.Supp.2d Not Reportedin F.Supp.2d,2003 WL 169777S.D.N.Y. Cite as: Not Reported in F.Supp.2d Page10 Accordingly, plaintiffs motion to strike is granted with respectto paragraphs184-186 anddeniedwith respectto paragraph187. g Paragraph 191 In paragraph 190, defendantsallege that in April 2002, Bunstine sent a letter to "all bridal storesin the USA and all bridal industry clients falsely claiming that [Kivimaki] violated Ulla-Miajia, Inc.’s trademarkrights and was ripping off Ulla Maija’s designs and using ‘inferior’ quality." Answer ¶ 190. The next paragraphalleges that "[d]ue to Bunstine’sactions and his threatsoflegal action against potential customersand suppliers, [Kivimaki] has beenseverely damaged."Id.¶ 191, emphasisadded.Clearly, the letters allegedly sent by Bunstine and the effect of these letters on de fendants’ businessare relevantto defendants’coun terclaim for unfair competition. However, para graph 190 of the Answer does not mention any threats of legal action made by Bunstine. And al though that paragraphstates that a copy of one of the letters allegedly sent by Bunstine was attached to the Answer, there is no such attachment.Thus, there are no specific factual allegations indicating that Bunstine made any threats of legal action against potential customers.Accordingly, the por tion of paragraph191 referring to such threats as the basis for damagessustained by defendantsare stricken. However, plaintiffs motion to strike is deniedwith respectto the portion of paragraph191 that refers to "Bunstine’s actions," Id, since the sendingof the allegedletters would constitutesuch actions. h Paragraphs217-223,228-231 [9] Defendants’sixth counterclaim Id. ¶f 2 17-223 is asserted against the individuals Welt, Felber, Bunstine,Bailey, and Bachmann,as well as against Global Design Holdings a corporation. Defend ants’ eighth counterclaim Id ¶11 228-231 is asser ted against Welt, Felber, Bunstine, Bailey, and Fa bian. However, while factual allegationsregarding theseparties may be relevant to defendants’coun terclaims against plaintiff, the individuals them selvesare not partiesto this actionand thus are not proper counterclaim defendants.Furthermore,un der Fed.R.Civ.P. 13, additional parties can only be joined to an action through a counterclaim when that counterclaim is also assertedagainstan exist ing party. SeeConnellv. Bernstein-McCauley,Inc., 67 F.R.D. 111 S.D.N.Y.l975; Invest-Import v. Seaboard Surety Co., 18 F.R.D. 499 S.D.N.Y.1955;4 Wright & Miller, FederalPrac tice and Procedure§ 1435 1990. Here it is undis putedthat the sixth and eighth counterclaimsin the AmendedAnswer are not assertedagainst plaintiff Ulla-Maija, Inc. Accordingly, defendants’sixth and eighth counterclaims are dismissed pursuant to Fed.R.Civ.P. 12c, and paragraphs 217-223, 228-231, as well as paragraphs6 and 8 of the "wherefore" clauseon page32 of the Answer, are strickenas immaterialpursuanto Fed.R.Civ.P.12f. 5. Cross-Motionsfor Sanctions *8 By notice of motion datedNovember 1, 2002, plaintiff moved for an order, pursuant to Fed.R.Civ.P. 11b, sanctioning defendants Kivi maki, Ulla-Maija Holding, Kivimaki, Inc., and their counsel Dowd & Marrotta LLC for: i serving frivolous pleadingswithout basis in fact or law; ii refusing to withdraw those pleadings after notice from plaintiff, and iii forcing plaintiff to file mo tions to dismiss the frivolous pleadings.By notice of cross-motiondated December4, 2002, defend antscross-movedfor sanctionsagainstplaintiff and it’s counsel, Lawrence B. Fabian, for i serving motions and other papers for improper purposes; and ii failing to withdraw such papersafter notice and thuscausing defendantsto incur attorneys’fees and costs.Defendants’cross-motionseeksmonetary sanctionsas well as an order disqualifying attorney Fabian from simultaneous representation of plaintiff and any of the individuals named in de fendants’ Amended Answer i.e. Bunstine, Bach- © 2008 Thomson/West.No Claimto Orig. U.S. Govt.Works. https://web2.westlaw.comlprint/printstream.aspx?rs=WLW8.03&destination=atp&prft=HT...4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 11 of 2 Page12 of 12 Not Reportedin F.Supp.2d Page11 Not Reportedin F.Supp.2d,2003 WL 169777 S.D.N.Y. Cite as: Not Reported in F.Supp.2d mann,Bailey, andFelber. The decision as to whetherto award sanctionspur suantto Rule 11 is subject to the Court’s discretion. SeeMargov. Weiss, 213 F.3d 55, 64 2d Cir.2000; Schlafer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 333 2d Cir.1999. Given the totality of the circumstances,the Court finds that sanctionsare not warranted at this time. Accordingly, both plaintiffs motion and defendants’ cross-motionfor sanctionsaredenied. Conclusion For the reasonsset forth above, i plaintiffs mo tion to strike the AmendedAnswer in its entirety is granted; ii the four individual plaintiffs’/ counter claim defendants’motion to strike the Amended Answer in its entirety is denied as moot; iii plaintiff7counterclaim defendant Henry Welt’s mo tion to dismissthe AmendedAnswer as againsthim is denied as moot; iv plaintiffs motion to strike certain parts of the Answer is granted in part and denied in part; iv plaintiffs motion for sanctions and defendants’ cross-motion for sanctions are denied. Defendantsare directed to file a SecondAmended Answer and Counterclaims,in accordancewith this order see Discussion Section 4., supra , within twenty20 daysof thedateof this order. SO ORDERED. S.D.N.Y.,2003. Ulla-Maija, Inc. v. Kivimaki Not Reported in F.Supp.2d, 2003 WL 169777 S.D.N.Y. END OFDOCUMENT © 2008 Thomson/West.No Claim to Orig.U.S.Govt. Works. https://web2.westlaw.com/print/printstream.aspx?rs=WLW8.03&destination=atp&prftHT... 4/9/2008 Case 1:08-cv-02018-LAK Document 16-4 Filed 04/11/2008 Page 12 of Case 1:08-cv-02018-LAK Document 16-5 Filed 04/11/2008 Page 1 of 3 Page2 of 3 Not Reportedin F.Supp. Not Reportedin F.Supp.,1993 WL 535120S.D.N.Y. Cite as: Not Reportedin F.Supp. Page1 H Piusv. L. EpsteinofNew York, Inc. S.D.N.Y.,1993. Only the Westlawcitation is currently available. United StatesDistrict Court, S.D. New York. StevenM. PIUS, Plaintiff, V. L. EPSTEINOFNEW YORK, INC., Express,Inc., d/b/aJLimited, Defendants. L. EPSTEINOFNEW YORK, INC., Metro Interior Demolition, Inc. Third-PartyPlaintiffs, v. CHARLES PANKOW BUILDERS, LTD., Pem brookManagements/h/aPembrookManagement, Inc., Third-PartyDefendants. No. 92 CIV. 0802 RPP. Dec. 17, 1993. Roemer & Featherstonhaugh,New York City, by JeffreyJ. Conklin,for plaintiff. White, Quinlan, Staley & Ledwith, Garden City, NY by Terence M. Quinlan, for defendantL. Ep stein. Law Offices of JamesBarron, New York City by RaymondJ. Sofield, for defendantMetro Interior Demolition, Inc. Amhuty, Demers & McManus, Albertson, NY by FranicJ. Pecorelli, Jr., for defendantExpress,Inc. Callahan, Shepp, Yuhas, Adams & Carfora, New York City, for third-party defendant Charles PankowBuilders,Ltd. Stockfield, Fixier & Gulino, New York City, for defendants/third-partyplaintiffs CorporateProperty InvestorsandPembrookManagement,Inc. OPINION AND ORDER ROBERTP. PATFERSON,JR.,District Judge. *1 Subsequento a jury verdict on October 8, 1993, awarding damagesto plaintiff, defendantL. Epstein of New York, Inc. "Epstein" moves for summary judgment on its cross-claim against defendant Metro Interior Demolition, Inc. "Metro" filed herein on July 16, 1993. The cross-claim is based on a contract between those defendantsdatedJuly 15, 1991, pursuanto which Metro, the subcontract or, agreedto procure insurancefor the benefit of Epstein, the contractor,and to haveEpstein named as an additional insured for any personalinjuries or propertydamagearising out of the work performed underthe constructioncontract, including the oper ationsof Epstein. Contractualprovisionsfor such insurancedo not vi olate Section 5-322.1 of the General Obligations Law of the State of New York and are enforcedby the courts of New York. Kinney v. G. W. Lisk Com pany, Inc., 557 N.Y.S.2d 283, 284 N.Y.1990; Wil liamson v. Borg FlormanDev. Corp., 594 N.Y.S.2d 778, 779 1st Dep’t 1993, appeal denied,601 N.Y.S.2d580 N.Y.1993. Metro’s answeringpapers point out that Epstein’s cross-claim was not containedin its answer which was served on or about April 21, 1992, although other cross-claimswere assertedin that answerand that, accordingly, the cross-claim was not properly pled. Langer v. Monarch Life Ins. Co., 966 F.2d 786, 810 3d Cir.1992. Metro points out further that Epstein did not obtain the Court’s consentto amend its answer,although more than twenty days hadelapsedsince the filing of the answerin viola tion of Rule 15a of the FederalRulesof Civil Pro cedure. Metro also claims that summary judgment cannot be grantedbecausethere are genuineissuesof ma terial fact relating to whetherMetro failed to adhere to the terms of the contract. Lastly, Metro argues that the contract provision that "any controversyor claim arising out of or relating to the contract or breach thereof shall be submitted to Alternative Dispute Resolution or to the American Arbitration Association" requiresthis matterbe sent to arbitra tion. In Langer the district court struck "cross-claims" © 2008 Thomson/West.No Claim to Orig. U.S.Govt. Works. https://web2.westlaw.com/printlprintstream.aspx?prft=HTMLE&destination=atp&sv=Split...4/9/2008 Case 1:08-cv-02018-LAK Document 16-5 Filed 04/11/2008 Page 2 of 3 Page3 of 3 Not Reportedin F.Supp. Page2 Not Reportedin F.Supp.,1993 WL 535120S.D.N.Y. Cite as: Not Reported in F.Supp. which had been improperly pleaded. Id at 808. The Third Circuit approved the striking of the cross- claims stating, "Federal Rules of Civil Procedure 12b and 13g require that cross-claimsbe stated in a pleading and under Rule 7a cross-claims shouldbe containedin a defendant’sanswer. Id. at 810 citing In re CessnaDistributorshipLitigation, 532 F.2d 64, 67 & n. 7 8thCir.1976. Accordingly, Epstein’s motion for summary judg ment is groundedon an improper cross-claimwhich is hereby stricken. Epstein’s motion for summary judgmentis denied. IT IS SO ORDERED. S.D.N.Y.,1993. Pittsv. L. Epsteinof New York, Inc. Not Reported in F.Supp., 1993 WL 535120 S.D.N.Y. END OFDOCUMENT © 2008 Thomson/West.No Claim to Orig. U.S. Govt. Works. https://web2.west1aw.comIprint/printstream.aspx?prftHTMLE&destinationatp&svSp1it...4/9/2008 Case 1:08-cv-02018-LAK Document 16-5 Filed 04/11/2008 Page 3 of 3