The opinion of the court was delivered by: DUFFY
Plaintiffs, Gemma, Hal, Susan and Lisa Fein, bring this action against the brokerage houses of Shearson Hayden Stone, Inc., (hereinafter referred to as "Shearson"), and Ladenburg Thalmann & Co., Inc., (hereinafter referred to as "Ladenburg"), and the individuals Michael Moss, Gordon Joblan, Marvin Leiter and Peter Stabell, alleging violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), Rule 10b-5 promulgated thereunder, Rule 405 of the New York Stock Exchange, (hereinafter referred to as "NYSE"), Article III, section 27 of the Rules of Fair Practice of the National Association of Securities Dealers, (hereinafter referred to as "NASD"), and, under the principles of pendent jurisdiction, common law fraud and negligence.
PRIOR JUDICIAL PROCEEDINGS
The original complaint in this action was filed in October of 1977 and the case initially assigned to Judge Brieant. The defendants thereafter separately moved before Judge Brieant to dismiss the complaint, pursuant to Rules 12(b) and 9(b) of the Federal Rules of Civil Procedure, for failure to state a claim by virtue of plaintiffs' failure to plead the allegations of fraud with the requisite degree of particularity.
It is apparent that upon oral argument, Judge Brieant was convinced that at the heart of plaintiffs' failure to plead the allegedly fraudulent stock transactions with sufficient particularity were certain brokerage statements sent by defendants Shearson and Ladenburg to plaintiffs over a six-year period, many of which plaintiffs no longer possessed. Since Shearson and Ladenburg had copies of these statements, Judge Brieant made the following order:
Upon oral argument of the motion, counsel have agreed together at the request of the Court, that within two weeks from date hereof plaintiffs' counsel will furnish to defendants' counsel a list of all brokerage statements, copies of which are not available to plaintiffs or their tax adviser because they have been lost or misplaced. Within two weeks thereafter, the defendant stockbroker who issued the statement will supply a copy thereof to plaintiffs' counsel.
Twenty (20) days thereafter plaintiffs will file an amended complaint which shall state with particularity the transactions which are regarded as unauthorized or unlawful. Claims against Shearson Hayden Stone, Inc. shall be pleaded separately from claims against Ladenburg Thalmann & Co., Inc. and separately stated in the amended complaint.
The case was reassigned to me in April, 1978 at approximately the same time plaintiffs served their amended complaint. Since plaintiffs' time to file their amended complaint was keyed upon defendants' furnishing them with all those brokerage statements no longer in plaintiffs' possession, I must assume, the amended complaint having been filed, that defendants fully complied with Judge Brieant's order.
Upon the filing of the amended complaint, the defendants have separately moved, under various theories, attacking the sufficiency of plaintiffs' complaint.
The defendants have all renewed their motions to dismiss the complaint pursuant to Rules 12(b) and 9(b), Fed.R.Civ.P., for failure to state a claim by virtue of plaintiffs' continued failure to plead the allegations of fraud with the requisite particularity. Defendants Shearson, Joblan, Leiter, Stabell and Moss have, in addition, all moved to dismiss the complaint pursuant to Rule 12(b) of the Fed.R.Civ.P. for failure to state a claim upon which relief can be granted by virtue of:
(a) plaintiffs' failure to allege Scienter as a necessary element of fraud under section 10b and Rule 10b-5;
(b) the absence of an implied private cause of action for violation of NYSE Rule 405 and Article III section 27 of the NASD; and
(c) the unavailability of punitive damages with respect to any claim alleged in the complaint.
Defendant Ladenburg has moved, in lieu of my granting its motion to dismiss as set forth above, pursuant to Rules 12 and 20, F.R.Civ.P., to sever the claims asserted against it in the amended complaint from those of the other defendants or, in the alternative, for a more definite statement pursuant to Rules 12(e) and 10(b), Fed.R.Civ.P.
Plaintiffs are all members of the Fein family who have had, at different times between 1969 through 1975, individual "non-discretionary" brokerage accounts with Shearson and Ladenburg respectively.
Shearson and Ladenburg are engaged in the business of buying and selling securities on the national securities exchanges and over-the-counter as brokers, dealers and principals, and ...