The opinion of the court was delivered by: TENNEY
The plaintiff, Index Fund, Inc. ("Index Fund"), began this action in 1973 against various parties including First National City Trust Company (Bahamas) Limited ("Cititrust") and First National City Bank ("Citibank"). The plaintiff alleges that Cititrust and Citibank violated the federal securities laws and common law principles of fraud and fiduciary duty by causing the plaintiff to purchase stocks that were worthless or were sold at inflated prices.
The plaintiff is seeking damages of $1,010,151.
Cititrust and Citibank ("defendants") now move for summary judgment pursuant to Federal Rule of Civil Procedure ("Rule") 56, or alternatively, for judgment on the pleadings under Rule 12(c) for failure to state a claim. The plaintiff has made a cross-motion for summary judgment and has moved for leave to amend the complaint under Rule 15.
The plaintiff's motion for leave to amend the complaint is granted to the extent set forth below, but the plaintiff's cross-motion for summary judgment is denied. The defendant's cross-motion for summary judgment or to dismiss on the pleadings is granted in part and denied in part. The motion is denied insofar as the plaintiff alleges that the defendants are secondarily liable under the securities laws and the common law, as will be discussed hereinafter. In all other respects, the motion is granted.
The history of this case is set forth at length in the Court's previous Opinion, 417 F. Supp. 738 (S.D.N.Y. 1976), and will not be repeated here. A brief recital of the facts will suffice.
Essentially, the complaint alleges that in 1970 -- between June and October -- the plaintiff purchased certain securities that were worthless or overvalued, and consequently suffered a loss of $1,010,151. According to the plaintiff, the defendant's liability is based on the defendants' relationship with the Armstrong Fund ("Armstrong"); Armstrong is an off-shore mutual fund which, allegedly, caused the plaintiff's loss by means of market manipulation and bribery.
Cititrust, a wholly-owned subsidiary of Citibank, was Armstrong's trustee.
The plaintiff claims that Cititrust and Citibank failed to exercise proper supervision and control over Armstrong and Armstrong's investment adviser, Everest Management Corporation ("Everest").
The plaintiff alleges that Armstrong -- acting through Everest -- (1) manipulated the market, thereby causing certain securities purchased by the plaintiff to be worthless or overpriced, and (2) fraudulently induced the plaintiff to purchase the securities in question from Armstrong and others by giving the plaintiff's employee, Robert R. Hagopian ("Hagopian"), a bribe of approximately $500,000.
The defendants have moved for summary judgment and for judgment on the pleadings. In response, the plaintiff has made a cross-motion for summary judgment and, pursuant to Rule 15(a), has moved for leave to amend the complaint to hold the defendants -- Cititrust and Citibank -- liable for the fraud perpetrated by Armstrong and Everest.
Leave to amend a complaint should be freely given, absent bad faith, undue delay, or undue prejudice to the opposing party. Foman v. Davis, 371 U.S. 178, 182, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962). The pleading rules should be applied liberally, rather than narrowly. Id. Leave to amend should be granted "if the plaintiff has at least colorable grounds for relief. . . ." S. S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 42 (2d Cir. 1979). In determining whether an amendment is justified, the court "should normally focus on the resultant prejudice to [the] defendant." Middle Atlantic Utilities Co. v. S. M. W. Dev. Corp., 392 F.2d 380, 384 (2d Cir. 1968).
Despite the defendants' argument that the plaintiff should not be permitted to amend the complaint in the case at bar, the defendants have made no showing that they would be unduly prejudiced by the proposed amendment. Essentially, the defendants had notice that they could be charged with secondary liability for the acts of Armstrong and Everest. The plaintiff's claims concerning secondary liability are based on the same facts and circumstances as those outlined in the original complaint. See Rule 15(c); 6 C. Wright & A. Miller, Federal Practice and Procedure § 1497, at 490 (1983). All of the elements of secondary liability were effectively set forth in the original complaint, even though the plaintiff did not specifically denominate the theory or statutory basis of secondary liability. In addition, both the plaintiff and the defendants addressed the question of secondary liability at length and in detail in their briefs for the instant motion.
It appears from the record that the plaintiff's claims against Cititrust and Citibank for secondary liability are at least colorable, and there is no suggestion that the plaintiff has acted in bad faith or is guilty of undue delay in seeking to amend the complaint.
The plaintiff's request to amend the complaint is therefore granted. The plaintiff may amend the complaint to the extent necessary to allege that Cititrust and Citibank are secondarily liable under the doctrine of aiding and abetting, and the doctrine of controlling parties.
Moreover, for the purpose of the current motion, the Court will consider the complaint as though it were already amended. See 10A C. Wright and A. Miller, supra, § 2722 at 47-48 (1983) ("[W]hen plaintiff's motion to amend the complaint and defendant's motion for summary judgment are presented together, the court may consider the [summary judgment motion] as [being] addressed to the complaint in the form in which it is sought to be amended."); accord Marbury Management, Inc. v. Kohn, 629 F.2d 705, 711-12 (2d Cir.), cert. denied sub nom. Wood Walker & Co. v. Marbury Management, Inc., 449 U.S. 1011, 66 L. Ed. 2d 469, 101 S. Ct. 566 (1980). Because the parties have thoroughly briefed the question of secondary liability, the defendants will not be prejudiced as a result of the Court's treating the complaint as though it were already amended.
Judgment on the Pleadings
The defendants have moved for summary judgment under Rule 56, and for judgment on the pleadings -- for failure to state a claim -- under Rule 12(c).
Where outside material is presented to the court on a motion to dismiss under Rule 12(c), the motion should be treated as one for summary judgment, and the court should proceed under Rule 56. See Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984); Slevin v. Pedersen Assoc., Inc., 540 F. Supp. 437, 438 n.2 (S.D.N.Y. 1982); 10 C. Wright and A. Miller, supra, § 2713 at 599-600 (1983).
In the case at bar, the parties have submitted affidavits, interrogatories, and substantiating documentation in support of the current motions. Because the Court has considered all of the material submitted, including the matter presented which is outside of the pleadings, the defendants' entire motion will be treated as one for summary judgment.
Summary judgment, which cuts off the right to trial, may be granted only if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Rule 56(c); see generally 6 J. Moore, W. Taggart and J. Wicker, Moore's Federal Practice P56.15 [1.-0] (2d ed. 1983). The court will not try issues of fact on a motion for summary judgment, but, rather, will merely determine whether there are issues of fact that need to be tried. See Heyman v. Commerce and Indus. Ins. Co., 524 F.2d 1317, 1319-20 (2d Cir. 1975).
It is well settled that summary judgment should not be granted unless the entire record shows a right to judgment with such clarity as to leave no room for controversy and establishes affirmatively that the adverse party cannot prevail under any circumstances. Neither should summary judgment be granted if the evidence is such that conflicting inferences may be drawn therefrom, or if reasonable men might reach different conclusions.
Phoenix Sav. and Loan, Inc. v. Aetna Casualty and Sur. Co., 381 F.2d 245, 249 (4th Cir. 1967).
The party moving for summary judgment has the burden of showing that there are no material facts in dispute, see Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970), and the court will resolve all ambiguities and draw all reasonable inferences in favor of the party opposing the motion. Heyman v. Commerce, 524 F.2d at 1319-20. It should be noted that "[i]ssues of motive and intent are usually inappropriate for disposition on summary judgment." Wechsler v. Steinberg, 733 F.2d 1054, 1058 (2d Cir. 1984). Summary judgment, however, will not be denied on the basis of mere conclusory allegations made without factual support. See Project Release v. Prevost, 722 F.2d 960, 968 (2d Cir. 1983). Concrete particulars must be set forth in opposition to the motion. See SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir. 1978).
The plaintiff's complaint alleges that the defendants are liable as principals under §§ 10(b) and 15(c) of the Securities Exchange Act, §§ 12(2) and 17(a) of the Securities Act, and under the common law.
The plaintiff, however, has failed to allege any facts that would give rise to an inference that either Cititrust or Citibank was a direct participant in manipulating the market or bribing Hagopian.
In fact, plaintiff's counsel stated in an affidavit that the plaintiff had "not charged . . . Citibank or Cititrust with having sold any securities to plaintiff or having misrepresented any facts regarding the sale and purchase of those securities which were the subject of the securities manipulations of Galanis and Yamada." Rebuttal Affidavit of Charles E. McGuinness, sworn to August 31, 1983, P44.
The record indicates that neither Cititrust, nor Citibank, engaged in any independent fraudulent conduct; thus, neither defendant can be held primarily liable for the plaintiff's loss. See Savino v. E. F. Hutton & Co., 507 F. Supp. 1225, 1241-42 (S.D.N.Y. 1981). At most, they may be found secondarily liable under the doctrine of aiding and abetting, or controlling parties. See Lanza v. Drexel & Co., 479 F.2d 1277, 1289 (2d Cir. 1979) (en banc); Hackett v. Continental Can Co., 518 F. Supp. 1281, 1284 (E.D.N.Y. 1981). Accordingly, summary judgment is granted in favor of ...