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January 14, 1986


The opinion of the court was delivered by: WEXLER

WEXLER, District Judge

Plaintiff shareholders of various classes and series of LILCO stock bring their actions, tentatively a proposed consolidated class action, against defendants LILCO, present and past corporate officers and directors (Individual Defendants), the twelve underwriters of certain offerings of stock (Underwriters), and Price Waterhouse, the accounting firm that certified certain public financial statements by LILCO. The defendants now move for dismissal of the First Amended and Consolidated Class Action Complaint (Complaint) in whole or in part for failure to state a claim, Rule 12(b)(6), failure to plead fraud with sufficient particularity, Rule 9(b), and insufficient pleadings, Rule 8(a). 28 U.S.C. Fed.R.Civ.P.


 The Complaint is 129 pages long and alleges eleven counts. Counts 1 to 7 allege violation of § 11 of the Securities Exchange Act of 1933, 15 U.S.C. § 77k. Each of these counts concerns a separate offering of stock, and the plaintiffs and defendants named in the counts vary. Count 8 alleges violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), by LILCO, the defendant officers, and the defendant insider directors. Count 9 alleges common law fraud against LILCO, the officers, and insider directors. Count 10 alleges common law negligent misrepresentation against all the defendants. Count 11 is a stockholder derivative claim under § 10(b).


 The accounting firm of Price Waterhouse moves for dismissal on the ground that plaintiffs having alleged fraud in all counts against them must now particularize it as required by Rule 9(b), Fed.R.Civ.P., in Counts 1 to 7 (§ 11 claims). Price Waterhouse maintains the remaining Counts 8 to 10 also must be dismissed as deficient under Rule 9(b), and as failing to meet the minimum notice pleading requirement of Rule 8(a), Fed.R.Civ.P. Finally, defendant contends that Count 10 not only fails to give notice as required by Rule 8(a), Fed.R.Civ.P., but is unacceptable as to form.

 A reading of the Complaint reveals that Counts 8 and 9 (alleging § 10(b) violation and common law fraud respectively) are asserted against defendants LILCO, the officers, and insider directors only (Complaint PP 183, 194). As Counts 8 and 9 have not been alleged against Price Waterhouse, their motion to dismiss those claims is unnecessary.

 As to Counts 1 to 7 (§ 11 claims), the Court does not find that these claims against Price Waterhouse incorporate allegations of fraud. The problem appears to be that among the 102 paragraphs of the Complaint that precede the enumerated counts is a general allegation of fraud is to all defendants regarding all the acts complained of (P 14). Counts 1 to 7 allege false statements and misrepresentations in particular prospectuses, annual reports, and other public statements of LILCO's financial condition. Fraud, however, is not a necessary element of a § 11 violation, and the Court will not read it into the statute or the Complaint. Rather, as the United States Supreme Court has explained, under § 11 of the 1933 Act, "If a plaintiff purchased a security issued pursuant to a registration statement, he need only show a material misstatement or omission to establish his prima facie case. Liability against the issuer of a security is virtually absolute, even for innocent misstatements." Herman & MacLean v. Huddleston, 459 U.S. 375, 103 S. Ct. 683, 687, 74 L. Ed. 2d 548 (1983). Therefore, as fraud is not required for a § 11 claim, it need not be pleaded pursuant to Rule 9(b) in Counts 1 to 7 of the Complaint.

 Count 10 complains of common law negligent misrepresentation based on the allegations in the preceding 195 paragraphs. The Court notes that among those preceding claims are allegations of particular acts Price Waterhouse failed to perform, of specific accounting standards they failed to fulfill, *fn1" and of specific statements for which they lacked support. A straightforward reading of Count 10 leads the Court to conclude that plaintiffs state a claim against Price Waterhouse for negligent misrepresentation. The Court agrees that realleging paragraphs 1 to 195 is not the best of form. Nevertheless, as Count 10 is alleged against all the defendants and the Complaint is already quite lengthy, a balance must be struck between repetition for the sake of clarity and overwhelming redundancy. While it is not artfully drafted, it is clear that Count 10 as it applies to Price Waterhouse states that the claims outlined against them in Counts 1 to 7 also constitute claims for negligent misrepresentation under the common law. Under the circumstances, the pleading is sufficient for the purposes of Rule 8(a), Fed.R.Civ.P

 Accordingly, the Price Waterhouse defendant's motion to dismiss the Complaint is denied.


 Two groups of Underwriters are delineated in the Complaint. The first group, denominated Lead Underwriters, are Paine Webber, E.F. Hutton, Lehman Brothers, and Prudential Bache, who formed the principal and managing underwriters of the syndicate underwriting two 1982 public offerings of common shares and the public offerings of Series V and X preferred stock (P 12). The second group of eight investment banking firms underwrote the public offerings of Series W preferred stock and are called the Series W Underwriters (P 13). Together these are a purported Underwriter Class. Counts 2, 4, 5, and 7 allege violation of § 11 of the 1933 Act by the Lead Underwriters. The Series W Underwriters are named in Count 6 as violating § 11. All the Underwriters are included as defendants to the Count 10 charge of common law negligent misrepresentation. The Underwriters move for dismissal of the claims against them pursuant to Rule 9(b) and 12(b), Fed.R.Civ.P.

 Specifically, the Underwriters echo the Price Waterhouse argument that since P 14 of the Complaint, which precedes the enumerated counts, generally alleges a conspiracy and scheme to defraud the plaintiffs, fraud must be pleaded with particularity in the counts of the Complaint under Rule 9(b), Fed.R.Civ.P. Again, the Court will not read a fraud requirement into § 11. See Herman & MacLean v. Huddleston, U.S. , 103 S. Ct. at 686-90. While proof of fraud in connection with an offering of a registered security will support an action under § 11, it is not necessary for maintaining the claim. Id., 103 S. Ct. at 687. The plaintiffs here need not plead the particularized elements of fraud in order to maintain their § 11 claims against the defendant Underwriters.

 Count 10 alleges negligent misrepresentation and inartfully incorporates all the preceding paragraphs, including the P 14 allegations of fraud. Fraud requires proof of scienter, generally that means knowledge of the falsity of a representation or knowing that one does not have a basis for asserting the truth of a representation with the intention that another party rely on the representation. In contrast, negligence lacks the element of intention and does not require proof of scienter, but only a lack of due ...

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