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KRAVETZ v. BRUKENFELD

August 6, 1984

DAVID KRAVETZ, Plaintiff, against M. RONALD BRUKENFELD, et al., Defendants.


The opinion of the court was delivered by: GOETTEL

AMENDED OPINION*

GOETTEL, D.J.:

 Before the Court are motions to dismiss the amended complaint of plaintiff David Kravetz, in which he charges the defendants with violating the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78 et seq. (1982), the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962 (1982), and state law. The defendants move to dismiss the complaint pursuant to Rule 9(b) and Rule 12(b) (6) of the Federal Rules of Civil Procedure.

 BACKGROUND

 Krevetz had a securities account with L. F. Rothschild, Unterberg, Towbin ("Rothschild"), an investment banking firm. The complaint alleges that M. Ronald Brukenfeld, a partner in Rothschild, and Laura Gould, an independent investment advisor, had trading authorization to act as Kravetz's agent and attorney-in-fact and, thus, to buy, sell, trade, and otherwise deal in stocks, bonds, and other securities for his account.

 Kravetz alleges that Brukenfeld and Gould devised and executed the following scheme to defraud him. They withdrew money from his account several times to purchase what he alleges were worthless securities of two corporations, Safelon Corporation ("Safelon") and Multifilm Corporation of America ("Multifilm"). As part of their scheme, Brukenfeld and Gould made several false statements to Kravetz that his investments in these two corporations were sound because they were financially strong and would provide security.

 Also allegedly involved in the scheme was Ernest Eckstein, the officer, director, and/or more than ten percent stockholder of Safelon and almost one hundred percent stockholder of Multifilm. Eckstein supposedly conspired with Brukenfeld and Gould to withdraw and misuse funds from Kravetz's account.

 Kravetz further alleges that when he initially asked Brukenfeld to liquidate the securities account because the value of the portfolio was deteriorating, Brukenfeld responded by advising against liquidation. Later when Kravetz insisted that the account be liquidated, Brukenfeld allegedly refused to do so on the ground that only Gould had the power to make that decision.

 In response, Kravetz has sued Brukenfeld, Gould, Eckstein, and all the other general partners of Rothschild (the "other Rothschild partners").

 DISCUSSION

 A. Section 10(b) Claim

 Brukenfeld, Gould, and the other Rothschild partners *fn1" move to dismiss Kravetz's section 10(b) claim in the first cause of action, pursuant to Rule 9(b) of the Federal Rules of Civil Procedure, for failure to plead fraud with particularity. For the following reasons, the Court finds that Kravetz has pleaded this claim with sufficient particularity and that this aspect of the defendants' motion should be denied.

 A complaint alleging fraudulent violations of section 10(b) and Rule 10b-5 must satisfy the particularity requirement of Rule 9(b). *fn2" Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir. 1982); Ross v. A.H. Robins Co., 607 F.2d 545, 557 (2d Cir. 1979), cert. denied, 446 U.S. 946, 64 L. Ed. 2d 802, 100 S. Ct. 2175 (1980); Segal v. Gordon, 467 F.2d 602, 607 (2d Cir. 1972). Rule 9(b) provides that "[i]n all averments of fraud . . ., the circumstances constituting fraud . . . shall be stated with particularity." Fed.R.Civ.P. 9(b). Therefore, mere conclusory allegations that the defendants' conduct was fraudulent is not enough. Decker v. Massey-Ferguson, Ltd., supra, 681 F.2d at 114; Ross v. A.H. Robins Co., supra, 607 F.2d at 557; Segal v. Gordon, supra, 467 F.2d at 607. Instead, the complaint must allege with some specificity the act or statements constituting the fraud. *fn3" Decker v. Massey-Ferguson, Ltd., supra, 681 F.2d at 114; Ross v. A.H. Robins Co., supra, 607 F.2d at 557. "[T]his means that the pleader must state the time, place and content of the false misrepresentations, the fact misrepresented and what was obtained or given up as a consequence of the fraud." 2A J. Moore & J. Lucas, Moore's Federal Practice P9.03, at 9-20 through 9-24 (1984) (footnote omitted); see also Pocahontas Supreme Coal v. National Mines Corp., 90 F.R.D. 67, 73 (S.D.N.Y. 1981) ("[Rule 9(b)] requires that in addition to pleading the time, place and contents of the allegedly fraudulent statements, the identity of the maker of the misrepresentation must be disclosed.").

 When reviewing the complaint, however, Rule 9(b) must be reconciled with Rule 8 of the Federal Rules of Civil Procedure which provides that the complaint should contain only "a short and plain statement of the claim," and with the consequence that Rule 9(b) does not require the pleading of detailed evidence. See Credit & Finance Corp. v. Warner & Swasey Co., 638 F.2d 563, 566 (2d Cir. 1981); Ross v. A.H. Robins Co., supra, 607 F.2d at 557 ...


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