The opinion of the court was delivered by: GOETTEL
In this action, plaintiff Whitbread (US) Holdings, Inc. ("Whitbread") alleges that defendants Baron Philippe de Rothschild, S.A. ("Rothschild") and Oy Alko Ab ("Alko") fraudulently induced Whitbread to purchase Buckingham Corporation ("Buckingham"). The amended complaint asserts claims under both federal and state securities laws and under the common law of fraud. Before the Court is defendant Alko's motion to dismiss the amended complaint.
The amended complaint alleges the following facts which we must accept as true for purposes of evaluating the motions to dismiss. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).
Defendant Alko is the Finnish state monopoly corporation for the production and sale of alcoholic beverages, including "Finlandia" vodka. Defendant Rothschild is a French corporation principally engaged in the manufacture and export of wines, including "Mouton-Cadet," the largest selling French appellation controllee wine in the world.
In June 1984, Beatrice Companies, Inc. ("Beatrice") announced its intention to sell Buckingham, one of its subsidiaries. Buckingham, an importer and distributor of wines and liquors, had previously entered into distribution agreements with Rothschild and Alko. Both suppliers could terminate their distribution agreement upon three months notice in the event that Buckingham underwent a "change in control." By the end of July or early-August 1984, both Alko and Rothschild had decided to terminate their respective agreements upon a sale of Buckingham. Although Alko had earlier expressed interest in purchasing Buckingham, it abandoned that interest after a July 26 meeting with Beatrice representatives in Chicago.
Rothschild, Alko, and Steven Karp ("Karp"), then Buckingham's Senior Vice-President, thereafter discussed and agreed to establish a joint venture to directly distribute the Rothschild and Alko products in the United States. Karp, Rothschild, and Alko met on several occasions during August, September, and October. On August 18 and 19, 1984, Karp met with representatives of Rothschild and Alko in Biarritz, France. At the conclusion of the Biarritz meeting, Rothschild and Alko agreed in principle to act together to distribute the Rothschild and Alko products once the sale of Buckingham was completed. They also allegedly agreed to cooperate to ensure that Buckingham sold Beatrice, thereby activating the termination provisions in their distribution contracts with Buckingham. Karp again met with representatives of Alko and Rothschild on September 20, 1984, in Lausanne, Switzerland. At this meeting, the participants reviewed draft agreements, prepared by Karp's attorney, for implementing the joint venture. At an October 2 meeting in New York, the co-venturers further refined their arrangements.
In order to achieve their objectives, it was necessary for Alko, Rothschild, and Karp to ensure that no one, especially a potential purchaser of Buckingham, would discover their plans until Buckingham was sold. Rothschild and Alko recognized that a prospective purchaser would not enter into a transaction for Buckingham unless it believed that a long-term arrangement to distribute their brands would be available. If a potential purchaser knew it had no chance of keeping the Rothschild and Alko distribution rights, the sale of Buckingham would not include those rights, and Rothschild and Alko would be unable to terminate their distribution agreements.
During August, September, and October 1984, Whitbread, whom Alko knew to be interested in purchasing Buckingham, arranged a series of meetings with Alko to ascertain if Whitbread would retain the Finlandia distribution rights following a Buckingham purchase. During these meetings, Alko representatives allegedly made numerous misrepresentations concerning Alko's future plans for United States distribution. During three August meetings, Alko stated that it could not negotiate with Whitbread because Alko was itself a serious contender for Buckingham. At formal and informal meetings during September and October, Alko representatives told Whitbread that serious "corporate/political" problems were impeding possible negotiations between Alko and Whitbread. Whitbread was assured that, notwithstanding Alko's formal representations to the contrary, Alko was not a serious contender for the purchase of Buckingham and would not, in fact, acquire Buckingham. Whitbread's representatives were further assured by Alko's representatives that if and when Whitbread acquired Buckingham, Alko would accord Buckingham a fair and equal opportunity to retain the exclusive United States distribution rights to Finlandia vodka.
In August and September 1984, Whitbread held similar meetings with Rothschild representatives, who assured Whitbread that Rothschild had no plans to directly distribute their products in the United States. The Rothschild representatives also stated that if Rothschild was satisfied with the new owner's performance during a trial period following the sale of Buckingham, a long-term agreement would be implemented. The Rothschild representatives also told Whitbread that, in order to protect their options, Rothschild would exercise the change in control termination provisions upon a sale of Buckingham, but that this termination was designed to assure a trial period in which Rothschild could evaluate the new owner. Of course, neither Alko nor Rothschild told Whitbread of their agreement with Karp.
On October 20, 1984, Whitbread agreed to purchase Buckingham. The sale was consummated on November 26, 1984, when Whitbread paid Beatrice $110 million for all of Buckingham's outstanding stock.
Whitbread alleges that the defendants' misrepresentations and omissions had a definite and calculable impact on the price that Whitbread paid for Buckingham. Had it known the truth, Whitbread allegedly would have paid less. Conversely, it allegedly received less than it paid for.
Whitbread commenced this action on March 26, 1985. On July 12, 1985, the Court dismissed the original complaint, with leave to replead, for failure to plead fraud with the particularity that Fed. R. Civ. P. 9(b) demands. The plaintiff filed its first amended complaint on September 6, 1985.
The amended complaint alleges that Alko made material misrepresentations and omissions thereby inducing Whitbread to purchase Buckingham in violation of section 10(b) of the Securities Act of 1934, 15 U.S.C. § 78j(b) (1982), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10(b)-5 (1985), and in violation of the common law of fraud. Alko is also alleged to have aided and abetted Rothschild's similar statutory and common law wrongs. Alko is also allegedly liable for Rothschild's wrongs as a co-conspirator. The amended complaint seeks punitive damages on the common law fraud claim, and attorney's fees on the securities act claim. It also purports to state a claim under the "applicable state securities laws," which, the plaintiff informs us, include sections 339-a 352-c of New York's "Martin Act," N.Y. Gen. Bus. Law §§ 339-a & 352-c (McKinney 1968 & 1984).
2. Motions Before the Court
Defendant Alko now moves, pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss each of Alko's claims for failure to state a claim on which relief can be granted.
Alternatively, it asks the Court to again dismiss the amended complaint for failure to plead fraud with particularity. Finally, Alko asks the Court to strike the plaintiff's demand for punitive damages and attorney's fees.
A. The Primary Securities Law Violation
1. Motion to Dismiss for Failure to State a Claim
"In order to state a claim for relief under Section 10(b) and Rule 10b-5,
a plaintiff must allege that, in connection with the purchase or sale of a security, the defendant, acting with scienter, made a false material representation or omitted to disclose material information and that plaintiff's reliance on defendant's actions caused him in. jury." Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57, 61 (2d Cir. 1985). "To establish causation, the plaintiff must show 'both loss causation -- that the misrepresentations or omissions caused the economic harm -- and transaction causation -- that the violations in question caused the [plaintiff] to engage in the transaction in question.'" Bennett v. United States Trust Co., 770 F.2d 308, 313 (2d Cir. 1985), cert. denied, 474 U.S. 1058, 106 S. Ct. 800, 88 L. Ed. 2d 776 (1986) (quoting Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380 (2d Cir. 1974), cert. denied, 421 U.S. 976, 44 L. Ed. 2d 467, 95 S. Ct. 1976 (1975)) (emphasis in original). The defendant contends that the complaint does not allege (1) an actionable misrepresentation or omission, (2) reliance, or (3) loss causation. It also argues that the plaintiff's damages are so speculative as to warrant dismissal of its Rule 10b-5 claim as a matter of law.
Alko's contention that the amended complaint alleges no more than a refusal by Alko to negotiate with Whitbread is incorrect. In fact, the amended complaint alleges a series of false statements by Alko, each of which expressly or implicitly represented to Whitbread that it would eventually have an opportunity to negotiate for the Finlandia distribution rights.
initially stated to Whitbread that Alko could not negotiate with Whitbread because Alko was itself negotiating for Buckingham. Alko thereby indicated that Whitbread would have a fair opportunity to negotiate for the Finlandia distribution rights if Whitbread purchased Buckingham.
Alko later admitted that it was no longer bidding for Buckingham. However, it maintained that it could not negotiate with Whitbread because the possible acquisition of Buckingham had become a "corporate/political" issue within Alko. This excuse allegedly was a lie. Together with Alko's representation that the issue would eventually resolve itself, the false excuse encouraged Whitbread to believe that it would eventually have an opportunity to negotiate. Were these subtle misrepresentations not sufficient, the amended complaint alleges that, on three occasions, Alko's representatives expressly stated ...