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NEWMAN v. ROTHSCHILD

December 12, 1986

BARRY NEWMAN and VIVIAN NEWMAN, Plaintiffs,
v.
L. F. ROTHSCHILD, UNTERBERG, TOWBIN and ARTHUR LEVINE, Defendants



The opinion of the court was delivered by: SWEET

SWEET, D.J.

Defendants L. F. Rothschild, Unterberg, Towbin ("Rothschild) and Arthur Levine ("Levine) have moved to dismiss Counts II through V of a five count complaint filed by plaintiffs Barry and Vivian Newman (the "Newmans") pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6). *fn1" Count I of the complaint is a churning claim, Count II a RICO claim, Count III an "unsuitability" claim based on alleged violations of the rules of the New York Stock Exchange and the National Association of Securities Dealers, Count IV is a Section 10(b) claim based on alleged mistatements and omissions in connection with the purchase of securities, and Count V is a pendent common law fraud claim.

 For the reasons set forth below, the defendants' motion is granted with regard to all counts.

 Rothschild and Levine have also requested that Rule 11 sanctions be imposed on the Newmans on the grounds that Count III of their complaint is not warranted by existing law. This motion is denied.

 Count II

 Count II of the Newmans' complaint is a civil RICO action based on predicate acts of mail and wire fraud. The claim is dismissed for failure to plead these acts of fraud with the particularity required by Fed.R.Civ.P. 9 (b).

 Rule 9(b) provides, "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." This court has said that, "'Circumstances' have been defined to include such matters as the time, place and contents of false representations . . . ." Hudson v. Larouche, 579 F. Supp. 623, 628 (S.D.N.Y. 1983). In addition, it is particularly important to require such specificity when the fraud allegations also constitute the predicate acts underlying RICO claims, and implicate the reputation interests of defendants accused of committing racketeering offenses." Terra Resources l v. Burgin, Fed.Sec.L.Rep. (CCH) P92,703, at 93,434 (S.D.N.Y. Apr. 1, 1986). See also Gregoris Motors v. Nissan Motor Corp., 630 F. Supp. 902, 912 (E.D.N.Y. 1986). The Newmans have alleged that Rothschild and Levine used the mails to effectuate a fraudulent scheme through:

 "a) the mailing of monthly statements of accounts from defendants to the plaintiffs; and

 b) the mailing of other documents from defendants to plaintiffs."

 (Complaint P22). The clause "the mailing of these documents from defendants to plaintiffs" lacks the required specifity as to time and contents, and thus fails to meet the 9(b) requirements.

 The other alleged group of mailings "the mailing of monthly statements of accounts from defendants to plaintiffs" is also deficient. Aside from the fact that the complaint fails to allege the period during which the statements were mailed, it also fails to specify their contents, and, most importantly, fails to allege any facts to indicate how these mailings furthered, or in any way contributed, to a fraudulent scheme. Rule 9(b) does not allow this, particularly in the context of a RICO predicate act.

 The same flaw exists with regard to the Newmans' allegations of the predicate acts of wire fraud. The complaint alleges:

 Defendants, for the purposes of executing the scheme to defraud plaintiffs of their property, transmitted and caused to be transmitted communications by means of wire in interstate commerce. Such interstate communications by wire included without limitation, telephone calls between defendant LEVINE and other L.F. ROTHCHILD agents and employees and each of the plaintiffs.

 (Complaint P23). Again, lacking specifics of time, place, and contents, this allegation does not meet rule 9(b) ...


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