CIVIL ACTION NO: 03-1545, SECTION: "J"(2)
September 5, 2003
ORDER AND REASONS
Before the Court is a Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim filed by defendant American Skandia Life Assurance Company ("American Skandia"). Plaintiffs oppose this motion. The motion, set for hearing on Wednesday, September 3; 2003, is before the Court on briefs without oral argument. The defendant seeks dismissal of plaintiffs' claims under Federal Rule of Civil Procedure 12(b)(6) and 9(b), and under the Private Securities Litigation Reform Act of 1995 15 U.S.C. § 78u-4 (b) ("The Reform Act"). Upon consideration of the pleadings, memoranda, and applicable law, the Court finds that American Skandia's motion should be GRANTED IN PART and DENIED IN PART.
BACKGROUNDPlaintiffs are the children and grandchildren of Kenneth S. Christensen, a recently deceased man, who allegedly purchased various investment products from American Skandia, through co-defendants Trang Shawn Nguyen, WMA Consumer Services, Inc., WMA Securities, Inc., and WMA Group Securities. Plaintiffs allege that "Defendants" induced them to purchase the products for "Defendants'" own benefit and contrary to the interests of Mr. Christensen and Plaintiffs. Specifically, Plaintiffs assert the following state law claims against "Defendants": (1) breach of the duty of loyalty and fidelity; (2) breach of fiduciary duty; (3) fraud; (4) negligent and/or intentional misrepresentation; (5) unfair trade practices; (6) negligence; and (7) breach of contract. Plaintiffs also assert a claim for violation of the federal securities laws. In response, American Skandia filed the instant motion arguing that Plaintiffs failed to allege specific facts to support their claim that American Skandia fraudulently induced them to purchase investment products. Additionally, American Skandia argues that Plaintiffs made no attempt to identify the specific statements, omissions, or actions of American Skandia (in comparison to "Defendants") to support the fraud claims.
Standard of Review
A court may dismiss a claim for "failure to state a claim upon which relief can be granted" pursuant to Fed.R.Civ.Pro. 12(b)(6). In reviewing a motion to dismiss under Rule 12(b)(6), a district court is to take as true all material allegations in the complaint and construe them in the light most favorable to the plaintiff. Kaiser Aluminum Chem. Sales. Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982), cert. denied, 459 U.S. 1105, 103 S.Ct. 729 (1983). A dismissal under Rule 12(b)(6) is appropriate only if it appears to a certainty that the plaintiff is not entitled to relief under any set of facts that could be proven.Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99 (1957). In that case, a district court must dismiss the complaint. Baton Rouge Bldg. Constr. Trades Council AFL-CIO v. Jacobs Constructors, Inc., 804 F.2d 879, 881 (5th Cir. 1986).
In this motion, American Skandia contends that the plaintiffs have failed to allege specific facts to support their claim of fraudulent inducement by American Skandia. Having reviewed the record, memoranda of counsel, and applicable law, the Court agrees with American Skandia and finds that according to Fed.R.Civ.Pro. 9 and The Reform Act, plaintiffs have not alleged specific facts to support their claim.
I. Pleading Fraud Claims Under Federal Securities and Louisiana Law
To state a claim for federal securities fraud under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, or for fraud under Louisiana law, a plaintiff must essentially allege the same elements.See Williams v. WMX Technologies, Inc., 112 F.3d 175, 177 (5th Cir. 1997) (holding that the elements of a claim for fraud under federal law include: "1) a misstatement or omission; 2) of material fact; 3) made with the intent to defraud; 4) on which the plaintiff relied; and 5) which proximately caused the plaintiff's injury."); LA. CIV. CODE art. 1953 (stating that "[f]raud is a misrepresentation or suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other. Fraud may also result from silence or inaction.")-Additionally, a fraud claim filed in federal court is subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). Williams, 112 F.2d at 177. Rule 9(b) requires that "[i]n all averments of fraud . . ., the circumstances constituting fraud . . . shall be stated with particularity." "[A]rticulating the elements of fraud with particularity requires a plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." Williams, 112 F.2d at 177. Furthermore, a plaintiff must specifically allege what the speaker obtained by making the fraudulent statements. Id. "Mere rote conclusions . . . fail to satisfy the requirements of Rule 9(b)."Tarica v. McDermott Int'l, Inc., 2000 WL 1346895 at *6 (E.D. La. 2000). The particularity required by Rule 9(b) differs with the facts of each individual case. Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir. 1994).
As to allegations of fraudulent intent, Rule 9(b) provides that "[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally." However, the Fifth Circuit has stated that "more than a simple allegation that a defendant had fraudulent intent" is required. Tuchman, 14 F.3d at 1068. To adequately plead fraudulent intent, a plaintiff must allege "specific facts that support an inference of fraud." Id. This can be done by alleging facts that show that the defendant had a motive to commit fraud or by "identifying circumstances that indicate conscious behavior on the part of the defendant, though the strength of the circumstantial allegations must be correspondingly greater." Id.
The heightened pleading standard of Rule 9(b) "provides defendants with fair notice of the plaintiffs' claims, protects defendants from harm to their reputation and goodwill, reduces the number of strike suits, and prevents plaintiffs from filing baseless claims and then attempting to discover unknown wrongs." Id. Thus, "the who, what, when, and where must be laid out before access to the discovery process is granted." Williams, 112 F.2d at 178.
The heightened requirements of Rule 9(b) are reinforced by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b). Under the Reform Act, a plaintiff must "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). Additionally, a plaintiff must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). Under the Reform Act, the required state of mind is "a strong inference of either intentional misconduct or severe recklessness." Nathenson v. Zonagen, Inc., 267 F.3d 400, 409 (5th Cir. 2001). A strong inference "requires pleading of facts that "constitute persuasive, effective, and cogent evidence from which it can be logically deduced that defendants acted with intent to deceive, manipulate or defraud." In re MCI Worldcom, Inc. Securities Litigation. 191 F. Supp.2d 778, 783 (S.D. Miss. 2002) (citing Coates v. Heartland Wireless Communications, Inc., 100 F. Supp.2d 417, 422 (N.D. Tex. 2000)). Allegations of motive and opportunity standing alone are "rarely "sufficiently persuasive to give rise to a [strong inference] of scienter." Worldcom, 191 F. Supp.2d at 791 (quoting Nathenson, 267 F.3d at 412). Accordingly, to "survive a motion to dismiss, a plaintiff alleging a section 10(b)/Rule 10b-5 claim must . . . plead specific facts giving rise to a `strong inference' of scienter." Nathenson, 267 F.3d at 407 (quoting Tuchman, 14 F.3d at 1067).
As American Skandia correctly argues, a plaintiff is further required to plead with specificity which allegedly fraudulent statements were made by each defendant. Unimobil 84, Inc. v. Spurney, 797 F.2d 214, 217 (5th Cir. 1986). General allegations that do not specify the individual defendant responsible for the fraudulent statements or the lumping of all defendants together is insufficient for purposes of Rule 9(b). United States ex rel. Stewart v. The Louisiana Clinic, 2002 WL 1066745 at *2-3 (E.D. La. 2002); In re Urcarco Securities Litigation, 148 F.R.D. 561, 569 (N.D. Tex. 1993), aff'd, 27 F.3d 1097 (5th Cir. 1994) (holding that allegations that "lump all defendants together failing to segregate the alleged wrongdoing of one from those of another," do not satisfy Rule 9(b)).
In the complaint, plaintiffs allege that they were fraudulently induced by the defendants to purchase investment products. Complaint. ¶ 4 and ¶ 9. Plaintiffs fail to specify the statements that were allegedly fraudulent, identify the speakers, state when and where the statements were made, and explain why the statements were fraudulent. Moreover, plaintiffs repeatedly refer to the fraudulent conduct of the defendants. Complaint. ¶ 4-20. As such, the complaint does not specify the particular defendant responsible for the allegedly fraudulent conduct. The only defendant specifically identified by the plaintiffs is Trang Shawn Nguyen. Complaint, ¶ 5. As a result, the complaint fails to provide Defendants with proper notice of the claims against them.
II. Relief Available When Heightened Pleading Requirements Have Not Been Met
In Hart v. Bayer Corp., 199 F.3d 239, 247 n. 6 (5th Cir. 2000), the Fifth Circuit recently noted that "a plaintiff's failure to meet the specific pleading requirements [of Rule 9(b)] should not automatically or inflexibility [sic] result in dismissal of the complaint with prejudice to re-filing." A district court should not dismiss a claim with prejudice under Rule 9(b) "unless the defect is simply incurable or the plaintiff has failed to plead with particularity after being afforded repeated opportunities to do so." Id.
In the context of federal securities litigation, the Reform Act states that "[i]n any private action arising under this chapter, the court shall, on the motion of any defendant, dismiss the complaint if the [heightened pleading requirements] are not met." 15 U.S.C. § 78u-4 (b)(3)(A). However, as Judge Vance of this Court has held, this language does not restrict a district court's discretion whether to grant leave to a plaintiff to amend his complaint. Tarica, 2000 WL 1346895 at *12. The decision whether to allow an amendment to a complaint is within the sound discretion of the district court. Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th Cir. 1994). Some of the factors a district court is to take into account when determining whether to allow an amendment are undue delay, undue prejudice, timeliness of the amendment, and futility of the amendment. Tarica, 2000 WL 1346895 at *12 (citing Forman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227 (1962); Chitimacha Tribe of La. v. Harry L. Laws Co., 690 F.2d 1157, 1163 (5th Cir. 1982)).
After considering the aforementioned factors, the plaintiffs should be given the opportunity to amend the complaint when they have not previously been given the opportunity to do so.
IT IS HEREBY ORDERED that American Skandia's motion to dismiss is GRANTED IN PART, as to its request that the Court order Plaintiffs to amend their complaint, and DENIED IN PART, as to American Skandia's request for a dismissal with prejudice of Plaintiffs' fraud claims.
The Plaintiffs shall file an amended complaint within 20 days from entry of this order, failing which the original complaint will be dismissed.