Appeal from an order and judgment of the United States District Court for the Southern District of New York, Carter, J., dismissing appellant's amended complaint for failure to plead fraud with sufficient particularity and to state claims upon which relief could be granted. Affirmed in part and reversed in part.
TIMBERS, VAN GRAAFEILAND and NEWMAN, Circuit Judges.
VAN GRAAFEILAND, Circuit Judge:
This is an appeal from an order of the United States District Court for the Southern District of New York, Carter, J., dismissing plaintiff's amended complaint. Plaintiff John Decker alleges that in September 1976 he purchased 200 shares of the common stock of the defendant company, Massey-Ferguson, Ltd. (Massey). He instituted this action pursuant to section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and Rule 10b-5, promulgated thereunder, 17 C.F.R. § 240.10b-5, on behalf of all persons who purchased Massey common stock between February 1, 1976 and February 14, 1978.*fn1 The gravamen of his complaint was that the defendants disseminated false and misleading information about the Company and omitted material information from annual reports and SEC filings, thereby creating an inflated market price for the Company's common stock. Named as defendants with Massey were fourteen individuals, identified as directors and/or officers of the Company, and Clarkson, Gordon & Co., Massey's Canadian accountants.
The action was commenced in the Eastern District of Pennsylvania on February 9, 1979, and the parties stipulated that it might proceed as a class action. Before answering the complaint, all of the defendants moved to dismiss it for failure to plead fraud with the specificity required by Fed. R. Civ. P. 9(b) and for failure to state a claim upon which relief could be granted, Fed. R. Civ. P. 12(b) (6). Eleven of the individual defendants also moved under Rule 12(b) (2) to dismiss for lack of personal jurisdiction. Before these motions were decided, the action was transferred to the Southern District of New York.
On December 21, 1979, Judge Carter dismissed the complaint with leave to replead for failure to satisfy the requirements of Rule 9(b). The other motions were dismissed without prejudice as moot. Plaintiff's response to this order was the filing of the amended complaint which is before us on this appeal. On May 28, 1981, Judge Carter dismissed the amended complaint for failure to comply with Rule 9(b) and perforce to state claims upon which relief could be granted. See Mooney v. Vitolo, 435 F.2d 838, 839 (2d Cir. 1970); Perma Research & Development Co. v. Singer Co., 410 F.2d 572, 576 n.12 (2d Cir. 1969). This appeal followed.
Because many of plaintiff's allegations of wrongdoing center upon Massey's 1975 Annual Report which is in the record, we may properly refer to its contents. Denton Construction Co. v. Missouri Portland Cement Co., 507 F.Supp. 53, 54 (E.D. Mo. 1981) (citing 5 Wright & Miller, Federal Practice and Procedure § 1327, at 491 n.18 (1969)).*fn2
The Report shows that Massey, a Canadian corporation with its principal offices and headquarters in Toronto, is a holding company with over 100 subsidiaries scattered about the world. Through these subsidiaries and associated companies in which Massey holds minority interests, it manufactures farm machinery, industrial and construction machinery, and diesel engines. It products are manufactured in thirty countries and sold in 190 countries. The Company's total assets at the end of 1975 were valued at $1,982M, and approximately 67% of them were located outside of North America. Its total sales for 1975 were $2,513M, approximately 70% of which were made outside of North America and 78% outside the United States. Between 1966 and 1975, the Company's total net sales had increased from $862M to $2,513M, and 44% of this increase, or $728M, occurred between 1974 and 1975. In 1974, Massey's net income was $68.4M; in 1975 it was $94.7M. These were not the kind of figures which ordinarily would cause company officials to wring their hands in despair.
However, the ensuing years have not been happy ones for the manufacturers of agricultural and construction equipment. Massey's common stock, which sold at more than $20 a share in 1975, is now selling for less than $3 a share. International Harvester, whose 1975 was over $30, is now selling for less than $5. Deere & Co., the strongest of the three major manufacturers, which sold near $52 in 1975, is now around $30. Moreover, Deere recently has announced substantial employment and production cutbacks, cancellation of a stock purchase plan, and salary freezes. See Williams, Even Deere Feels the Pinch, N.Y. Times, May 6, 1982, at D1, Col. 2. This is the type of economic climate in which section 10(b) litigation flourishes.
In Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 740 (1975), Justice Rehnquist made the much quoted observation that a securities law "complaint which by objective standards may have very little chance of success at trial has a settlement value to the plaintiff out of any proportion to it prospect of success at trial so long as he may prevent the suit from being resolved against him by dismissal or summary judgment." Strike suits in this area, Justice Rehnquist continued, permit plaintiffs with groundless claims to abuse liberal federal discovery provisions, with the right to do so representing "in terrorem" increments in the settlement values of the alleged claims. Id. at 740-41.
Cognizant of the considerations thus expressed and of the irreparable damage to reputations and goodwill which results from charges of fraud, this Court has insisted that a complaint alleging fraudulent violations of section 10(b) and Rule 10b-5 satisfy the particularity requirement of Fed. R. Civ. P. 9(b). Ross v. A.H. Robins Co., 607 F.2d 545, 557-59 (2d Cir. 1979), cert. denied, 446 U.S. 946 (1980); Denny v. Barber, 576 F.2d 465, 468-69 (2d Cir. 1978); Segal v. Gordon, 467 F.2d 602, 606-08 (2d Cir. 1972). To pass muster in this Circuit a complaint "must allege with some specificity the acts constituting the fraud", Rodman v. Grant Foundation, 608 F.2d 64, 73 (2d Cir. 1979); conclusory allegations that defendant's conduct was fraudulent or deceptive are not enough. Segal v. Gordon, supra, 467 F.2d at 607.
In a prolix and discursive 69 page complaint, which is anything but the simple, direct, and concise statement mandated by Fed. R. Civ. P. 8(e), plaintiff's battery of lawyers seeks to charge Massey with liability for the losses substained by class members who purchased Massey stock between 1976 and 1978. The complaint is an "everything but the kitchen sink" type of pleading which would give plaintiff's attorneys carte blanche in the area of liberal federal discovery. Because the "in terrorem" effect of such unfettered discovery would, to say the least, be substantial, it is important that the wheat in plaintiff's pleading be separated from the chaff.
We agree with the district court that many of the charges in plaintiff's complaint do not satisfy the requirements of Rule 9(b) and that others simply do not state actionable claims. Moreover, we find no abuse of discretion in the district court's refusal to give plaintiff's attorneys a third attempt to restate the defective allegations. Denny v. Barber, supra, 576 F.2d at 470-71. However, a Rule 12(b) (6) motion to dismiss need not be granted nor denied in toto but may be granted as to part of a complaint and denied as to the remainder. Fielding v. Brebbia, 399 F.2d 1003, 1006 (D.C. Cir. 1968); Drewett v. Aetna Casualty & Surety Co., 405 F. Supp. 877, 878 (W.D. La. 1975); 12 Wright & Miller, Federal Practice and Procedure § 1358 (1969). Accordingly, ...