about their investment objectives and the Partnership.
Id. at ¶¶ 4, 17. Plaintiffs allegedly conveyed to the account
executives their interest in low-risk securities providing
either income or capital appreciation. Id. at ¶ 4. The brokers
allegedly told them that there was "low" risk or "no" risk. Id.
In making their investment decisions, plaintiffs were provided
with the written offering materials for the Partnership,
including the Prospectus, a Supplement describing some of the
initial acquisitions of producing properties made by the
Partnership, and a Brochure highlighting certain aspects of the
Partnership. Id. at ¶¶ 16, 17.
The goal of the Partnership, as represented by the account
executives and in the offering materials, was the provision of
regular cash distributions to the investors. That goal has
never been realized, and plaintiffs to date have received
either zero or minimal returns, and their investments are
allegedly worthless. Id. at ¶¶ 27, 35, 38. Defendants, however,
have had use of the money and have earned some return from it,
via sales commissions to Hutton and EFH & Co. and management
fees and other expenses to Hutton Energy, IWPC and IWOC. Id. at
¶¶ 29, 31; Plaintiffs' Brief at 5-6.
Plaintiffs' claims of fraud are based upon allegations that
the written offering materials contained material
misrepresentations and omissions of which defendants were aware
or were reckless in not being aware. They allege that the
materials represented that the investment would generate a
steady income stream and was low risk, when in fact it was
extremely risky, and indeed there was a virtual certainty that
the investors would never recover anything more than their
original investments. Id. at ¶ 18. Plaintiffs allege that the
Partnership was "fatally flawed" because of the prevailing
industry conditions: a clear downward trend in oil and gas
prices and excessively high operating costs. Id. at ¶¶ 18, 20.
Allegedly, oil and gas prices would have had to rise about 33
percent — to their historical highs of several years earlier
— in order for the Partnership to produce the hoped-for
profits, and because prices had been dropping for two years and
there was no indication of a change in that trend, the chance
that the 33 percent rise would occur was practically zero. Id.
To support their claim that the offering materials
represented the Partnership as low-risk and conservative
plaintiffs point to statements in the Brochure that the
Partnership featured "Regular Cash Distributions," "No
Exploration Risk," and "Low Minimum Investment;" that the
investment was one which "has been carefully structured to
offer benefits that meet the needs of an income-oriented
investor." Id. at ¶ 16.
They also point to as misleading representations in the
Prospectus that the limited partners would receive an annual
cash distribution of 15 percent of their investment; that the
Partnership would reduce distributions to the general partners
up to 50 percent in order to increase distributions to the
limited partners to ensure them of receiving their 15 percent
return per year; and that the Partnership was obligated, if
asked, to repurchase up to $500,000 in units each year.
Id. at ¶¶ 16, 18. Plaintiffs claim that these representations
were designed to lull investors into a false sense of security
and were misleading because investors would get these benefits
only if enough money was available to trigger them, which would
occur only in the unlikely event of a 33 percent oil and gas
Generally, they allege that the written materials are
misleading and fraudulent because they either understate,
obscure or omit discussion of the real risks of the investment.
Defendants, of course, assert that none of these or any other
statements are misleading and that there are no material
omissions in the offering materials.
Plaintiffs assert that defendants either knew, or were
reckless in not knowing, of the "fact" that the Partnership
never had any realistic chance of producing profits and was in
fact doomed to failure. They base this allegation on
defendants' alleged knowledge of the industry and prior
experience with similar oil and gas partnerships. Id. at ¶¶ 20,
38. Hutton in particular had
previously offered two oil and gas limited partnerships
involving the acquisition of producing oil and gas properties.
Id. at ¶ 38. Also, they cite defendants' own due diligence
investigation into the planned operations of the Partnership as
a basis of knowledge. Id. at ¶ 20.
Despite their supposed knowledge and expertise, defendants
proceeded to distribute materials that were allegedly designed
to lure investors looking for conservative investments and
omitted mention of both the specific "fatal flaw" and the
exceedingly speculative nature of the investment generally.
Id. at ¶¶ 9, 15. Indeed, they assert that Hutton specifically
targeted the Partnership to the elderly on fixed incomes and
other unsophisticated investors who would be more easily fooled
by the misrepresentations and omissions. Id. at ¶ 43.
Plaintiffs actually allege an entire scheme to defraud
investors of their money. Id. at ¶¶ 29, 36, 39, 40.
Defendants have moved to dismiss the amended complaint for
failure to state a claim and for failure to plead fraud with
particularity, and in the alternative have moved for summary
judgment. The Court believes that on a motion to dismiss it
could not consider the written offering materials submitted by
defendants' as exhibits in support of their motions.*fn4 For
convenience the Court will assess plaintiffs' claims from the
standpoint of summary judgment, always mindful, of course, that
it can dismiss a claim as legally insufficient on the basis of
the pleadings. Rule 9(b) also stands as an independent
requirement of particularity addressed to the face of the
In considering whether a claim is legally sufficient the
Court must read the complaint very generously, taking the facts
alleged as true and resolving all factual doubts in favor of
the pleader. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99,
101-02, 2 L.Ed.2d 80 (1957). See also, Connecticut Nat'l Bank
v. Fluor Corp., 808 F.2d 957, 962 (2d Cir. 1987), citing, Yoder
v. Orthomolecular Nutrition Institute, 751 F.2d 555, 558 (2d
Cir. 1985). In considering a motion for summary judgment the
Court must decide whether there are genuine issues of material
fact requiring a trial, or whether one side is entitled to
judgment as a matter of law. Fed.R.Civ.P. 56(c). A genuine
issue exists if "a reasonable jury could return a verdict for
the nonmoving party." Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). On a
motion for summary judgment the Court must look beyond the face
of the complaint, considering all pleadings, memoranda,
affidavits and other materials submitted by the parties.
A. Section 10(b) Claims
To state a claim for fraud under Section 10(b) plaintiffs
must allege (1) material misstatements or omissions, (2)
indicating an intent to deceive or defraud ("scienter"), (3) in
connection with the sale or purchase of any security, (4) upon
which the plaintiffs reasonably relied to their detriment.
See Luce v. Edelstein, 802 F.2d 49, 55 (2d Cir. 1986); Feinman
v. Schulman Berlin & Davis, 677 F. Supp. 168, 170-71 (S.D.N Y
Plaintiffs have asserted two separate claims under 10(b) of
the Exchange Act: "unsuitability" of the investment for these
plaintiffs, and fraud in the sale of the units. Aside from the
limitation of the first claim to Hutton, these two claims
substantially overlap, both in the factual bases alleged and as
a matter of logic, because they are both based on fraud. And as
evidenced by the parties' briefs, the legal arguments under
each count substantially
overlap. Thus this Court believes that there is no meaningful
distinction between the two claims for purposes of assessing
the legal issues raised by defendants' motions. In its
discussion below the Court will treat the amended complaint as
if there were only one claim under Section 10(b).
Notwithstanding the Court's treatment of the two Section
10(b) counts as one, the Court believes that in substance
plaintiffs are trying to allege two types of fraud that do
require separate consideration by this Court. Plaintiffs' fraud
allegations can be meaningfully divided into two groups: those
asserting that defendants misrepresented the investment as low
risk when they knew or should have known it was not, and those
asserting that they knew that the Partnership had absolutely no
chance of producing profits and was really an economic sham.
The former group is the general, standard misrepresentation
claim; the latter is a further charge of a conscious scheme to
defraud investors. The Court will consider each claim in turn.
1. Misrepresentation of Risks in Offering Materials
To the extent that the amended complaint alleges the standard
misrepresentation claim, this Court concludes that though it
states a legally sufficient claim, it cannot withstand a motion
for summary judgment. When viewing in isolation the statements
relied upon by plaintiffs, this Court cannot say that, as a
matter of law, they are not misleading. The picture is much
different, though, when the Court considers the whole of the
Despite the existence of the statements pointed to by
plaintiffs, the Court concludes that the offering materials
taken as a whole "bespeak caution" and sufficiently disclose
the relevant risks of the investment. Thus with regard to the
standard misrepresentation claim, the Court concludes that the
offering materials are not misleading as a matter of law, or,
to the same effect, that plaintiffs' reliance on certain
portions of the materials was not reasonable as a matter of
law. Summary judgment for defendants is therefore appropriate
on this claim.
The Brochure was contained in a "jacket," which on the inside
cover contained the warning that:
The use of this material is authorized only when
preceded or accompanied by [the Prospectus].
Prospective investors are encouraged to read the
prospectus, including the section entitled "Risk
In its description of the benefits of the investment, the
Brochure referenced the appropriate sections of the Prospectus
for fuller explanations.
On the first page of the Prospectus it is stated that, "THIS
OFFERING INVOLVES CERTAIN RISKS. See `RISK FACTORS'." Under the
"RISK FACTORS" section there is a description of "Risks
inherent in Oil and Gas Operations":
There can be no assurance that properties selected
will produce oil or gas in the quantities or at
the cost anticipated, or that they will not cease
producing entirely, and assumptions concerning the
prices at which oil and gas will sell in the
future may prove incorrect. In the event that oil
and gas prices fall or do not rise, profit
potential may be limited. Oil prices and the price
of certain categories of natural gas declined over
the past two years.
Following this was a description of the "highly competitive"
nature of the oil and gas industry and the great degree of
regulation and potential for operating and environmental
hazards, all of which could impact profitability. Later, in
describing acquisition of investment properties, the Prospectus
stated that, "there is a risk that estimates of future prices
or costs, reserves, production rates or other criteria upon
which decisions are based may prove to be inaccurate."
In a section about the limited experience of the general
partners in oil and gas ventures, there was a warning that,
"[s]ince the General Partners have only limited experience in
[identifying and acquiring producing properties], there can be
that the Partnership will be able to acquire Producing
Properties on a timely or profitable basis."
Further, plaintiffs' claims of misleading "promises" made to
lure investors are without merit, as it is abundantly clear
from the materials that such statements were not guarantees but
only goals. In a section entitled "Limited Liquidity," the
Prospectus stated that, "[t]here will be no ready market for
the Units. . . . There can be no assurance that the Partnership
will have the financial resources to honor its repurchase
commitments." Similarly, the materials never purported to
"guarantee" regular distributions of 15% per year, as
plaintiffs suggest (Amended Complaint at ¶ 16); the clear
implication was that the Partnership hoped that such results
would obtain. Moreover, though certain statements in the
Brochure were clearly designed to attract investors — "No
Exploration Risk", "Low Minimum Investment" — such statements
were true and the Court concludes that, when viewed in light of
the whole of the offering materials, they are not misleading as
a matter of law.
Finally, the Supplement contained a chart of cash flow
projections under both a level price scenario and a 6% annual
rate of escalation scenario. Immediately following are a series
of caveats that are thorough to the point of redundancy in
their qualification of the projections:
The actual amount and timing of the distributions
received by Limited Partners may differ
significantly from those indicated above. Among
the factors which may affect the . . .
distributions . . . are fluctuations in oil and
gas production costs and oil and gas prices. . . .
There can be no assurance that the Partnership
will be able to acquire additional Producing
Properties comparable to [those] described in this
Supplement. . . . Estimates of economically
recoverable oil and gas reserves and of the future
net revenues therefrom are based on a number of
variable factors and assumptions, such as
historical production of the properties . . ., the
assumed effects of regulation . . . and
assumptions concerning future oil and gas prices
and future operating costs. . . . All such
estimates are to some degree speculative. . . .
[E]stimates of the economically recoverable
reserves of oil and gas . . ., the classification
of such reserves and estimates of the future net
revenues . . . may vary considerably.
In sum, the offering materials are replete with statements
emphasizing the speculative nature of the investment. Anyone
who had taken even a cursory glance at the Prospectus and
Supplement would have been alerted to the many risks and
uncertainties inherent in the investment. Thus the written
offering materials given to plaintiffs are not misleading
within the meaning of Section 10(b).
A prospectus that "bespeaks caution" will not support an
allegation of misrepresentation under Section 10(b). See Luce,
802 F.2d at 56. When an "offering memorandum . . .
unequivocally warns potential investors of the risks involved
with investing in the limited partnership," Section 10(b)
liability will not lie. Feinman, 677 F. Supp. at 171; Luce, 802
F.2d at 56 (no Section 10(b) claim stated since offering
memorandum "made it quite clear that its projections of
potential cash and tax benefits [were] `necessarily speculative
in nature'"). The securities laws' policy of "full disclosure",
see, Santa Fe Industries v. Green, 430 U.S. 462, 478, 97 S.Ct.
1292, 1303, 51 L.Ed.2d 480 (1977), has been met when the
relevant documents fully disclose the risks involved. See
Feinman, id. at 170.
It is true that the Brochure highlighted the hoped-for
benefits of the Partnership and did not stress the risks. But
it does not, as plaintiffs contend, suggest a conservative
investment, and it clearly directed the reader to consult the
Prospectus for full information. In evaluating whether a
statement is misleading under the federal securities laws, a
court must consider the total mix of information possessed by
the investors. See Diamond v. Arend, 649 F. Supp. 408, 415
(S.D.N.Y. 1986) (claim of fraud in tender offer materials under
Section 14(e)); Basic Inc. v. Levinson,
485 U.S. 224, 230-32, 108 S.Ct. 978, 982-83, 99 L.Ed.2d 194 (1988)
(standard for material misrepresentation under Section 10(b)
same as under Section 14).
Thus any reader who relied on the Brochure to conclude that
the Partnership was low-risk did so unreasonably. "Reliance on
statements which are directly contradicted by the clear
language of the offering memorandum through which plaintiffs
purchased their securities cannot be a basis for a federal
securities fraud claim." Feinman, id. at 170, citing, Kennedy
v. Josephthal & Co., 814 F.2d 798, 804-05 (1st Cir. 1987)
(affirming summary judgment for defendants because offering
memorandum's candid warnings made any reliance unjustified as a
matter of law). Moreover, all investors, no matter how
"unsophisticated", would know or at least suspect that there
would be risks associated with an oil and gas investment at
that time, given the much-publicized downward trend in the
These same considerations would apply to the alleged oral
representations by Hutton account executives that the
investment was low-risk. Any investor who relied on those
statements, which flew in the face of the numerous cautionary
statements in the written offering materials, clearly did so
unreasonably. Moreover, any reasonable investor knows to be
somewhat wary of a selling agent's oral representations and to
check them against the written materials. Indeed, such
statements are well recognized as merely nonactionable
"puffing" on the part of salesmen. See Metzner v. D.H. Blair &
Co., 689 F. Supp. 262, 264 (S.D.N.Y. 1988); Center Sav. & Loan
Ass'n v. Prudential-Bache Securities, 679 F. Supp. 274, 277
Any reader who relied on the escalated price scenario
projections was clearly unreasonable in light of the level
price scenario in the adjacent column and the slew of warnings
accompanying the chart. Moreover, faulty economic projections
alone will not support a Section 10(b) claim. See Decker v.
Massey-Ferguson, Ltd., 681 F.2d 111, 117 (2d Cir. 1982); Boley
v. Pineloch Associates, 700 F. Supp. 673, 679 (S.D.N.Y. 1988);
Quantum Overseas, N.V. v. Touche Ross & Co., 663 F. Supp. 658,
668 (S.D.N.Y. 1987).
2. Knowledge of Economic Sham
Plaintiffs, however, have also alleged that defendants
specifically knew that the Partnership was a sham and would
never earn profits, and were engaged in a scheme to defraud
investors. On its face, this allegation seems sufficient to
state a claim for fraud. If it is true, then no amount of risk
disclosure in the offering materials would be adequate to avoid
liability, as any representation of the Partnership as a
legitimate investment, even a risky one, would be a
misrepresentation. But there are problems with this allegation,
problems which cast doubts on plaintiffs' ability to satisfy
the particularity requirement for pleading fraud under Rule
9(b). It is unclear how the plaintiffs would ever be able to
prove the "fact" that there was absolutely no chance of
economic success for the partnership, or how they would prove
that the defendants had knowledge of such fact. Plaintiffs
would have severe difficulty in demonstrating the specific
misrepresentation or omission, and defendants' scienter
As the complaint currently stands, plaintiffs allege that
prevailing economic conditions and trends dictated that there
was but an infinitesimal chance that prices would rise so as to
allow for reasonable economic profits. But given the nature of
prices in a market economy, such an assertion is simply not
capable of legal "proof". With domestic oil and gas prices so
dependent on world supply and demand, and with the often
volatile history of the industry in the 1970s, there is no way
it could be shown with any degree of certainty that this
partnership was going to fail, or that anyone should have known
that it would fail. Even if plaintiffs' complaint could be
construed as alleging that defendants would or should have
known that there was a likelihood that the investment would
fail, these same considerations would apply to make such an
assertion incapable of proof.
Absent some showing of a specific flaw peculiar to this
partnership, such as known
problems with certain properties, or some specific economic
facts known only to one of the defendants and not to the rest
of the market, plaintiffs cannot prevail as a matter of law.
Their general assertions regarding prevailing economic trends
and conditions simply cannot suffice to prove the "fact" of
certain failure, or defendants' knowledge thereof. As a matter
of pleading, Rule 9(b) requires that fraud be pled with
particularity; the complaint as currently written does not pass
muster under the relevant standards and therefore must be
Rule 9(b) requires that,
In all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall
be stated with particularity. Malice, intent,
knowledge, and other condition of mind of a person
may be averred generally.
The rule serves several important purposes in securities fraud
cases: it ensures that a defendant will be informed of the
actions upon which the allegations of fraud are based; it acts
to protect a defendant's reputation by preventing a plaintiff
from baldly alleging fraud; and it helps prevent strike suits.
Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); DiVittorio v.
Equidyne Extractive Industries, 822 F.2d 1242, 1247 (2d Cir.
1987); Ross v. A.H. Robins Co., 607 F.2d 545, 557 (2d Cir.
1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d
802 (1980). See also, Segal v. Gordon, 467 F.2d 602, 606-08 (2d
Cir. 1972). But courts cannot require too precise a form of
pleading from plaintiffs, as Rule 8 and the spirit behind the
Federal Rules generally requires that pleadings be simple and
construed liberally. See Fed.R.Civ.P. 8; Ross, 607 F.2d
at 557 n. 20; Eickhorst v. American Completion and Development,
706 F. Supp. 1087, 1091 (S.D.N.Y. 1989).
For liability to attach under Section 10(b) the plaintiff
must plead and prove scienter on the part of defendants.
See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct.
1375, 1383, 47 L.Ed.2d 668 (1976) ("[Section] 10(b) was
intended to proscribe knowing or intentional misconduct");
Connecticut Nat'l Bank v. Fluor Corp., 808 F.2d 957, 961-62 (2d
Cir. 1987); Luce v. Edelstein, 802 F.2d 49, 55; Decker v.
Massey-Ferguson, Ltd., 681 F.2d 111, 115 (2d Cir. 1982); Ross
v. A.H. Robins, 607 F.2d 545, 555-56. Indeed, a showing of
scienter is so important in federal securities fraud actions
that courts have required a plaintiff to allege facts that
support a "strong inference" of knowledge on the part of
defendants. Cosmas v. Hassett, 886 F.2d 8, 12-13 (2d Cir.
1989); Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46, 50
(2d Cir. 1987), cert. denied, 484 U.S. 1005, 108 S.Ct. 698, 98
L.Ed.2d 650 (1988), overruled on other grounds, United States
v. Indelicato, 865 F.2d 1370 (2d Cir. 1989) (in banc); Devaney
v. Chester, 813 F.2d 566, 568-69 (2d Cir. 1987); Connecticut
Nat'l Bank, 808 F.2d at 962; Ross, 607 F.2d at 558.
Although Rule 9(b) allows knowledge and state of mind to be
averred more generally, this Circuit has held that a plaintiff
must still provide in his complaint specific facts which
support this strong inference of knowledge. Cosmas v. Hassett,
id.; DiVittorio v. Equidyne Extractive Industries,
822 F.2d 1242, 1248 (2d Cir. 1987); Beck, 820 F.2d at 50; Devaney, 813
F.2d at 568; Connecticut Nat'l Bank, 808 F.2d at 962
("plaintiffs [have] the[ ] burden of pleading circumstances
that provide at least a minimal factual basis" which gives rise
to a strong inference of scienter); Ross, 607 F.2d at 558.
Under these standards plaintiffs have not pled fraud
regarding the "fatal flaw" with sufficient particularity. Their
allegations regarding prevailing economic conditions are
plainly insufficient to demonstrate any "fact" which defendants
misrepresented or omitted, especially not the "fact" that the
partnership would definitely or was likely to fail. As
discussed above, the circumstances alleged by plaintiff cannot
establish any "fact" regarding the prospects of success for the
partnership. And these allegations are also not sufficient to
provide even a minimal factual basis supporting a strong
inference of scienter. The economic circumstances pointed to by
plaintiff are just not sufficient to give rise to an inference
defendants knew that the partnership would or was likely to
Plaintiffs' allegations here really boil down to charges of
bad faith and wicked motives: that defendants knew that the
investment would fail and wanted that result so that they could
benefit through fees and use of the money.*fn5 But such claims
could be made in any failed investment case, and simply
alleging bad faith clearly cannot suffice under 9(b). Moreover,
recitals of general economic conditions will not suffice as
factual support for the alleged bad faith.
Plaintiffs try to rely on Hutton's alleged experience with
oil and gas limited partnerships, knowledge of the industry
generally, and due diligence inquiry into the Partnership, as
a basis for defendants' scienter.*fn6 Plaintiffs allege that
IWOC, Hutton and its affiliates previously engaged in several
similar limited partnership ventures, including two recent ones
involving producing oil and gas properties like the current
one. Plaintiffs are asserting that because of this knowledge
and experience, defendants would understand the structure and
limitations of the oil and gas industry at the time, including
the downward trend in prices, and would know that the
Partnership had no chance of succeeding.
The court is aware that in some cases allegations of
experience or stature of defendants are sufficient to support
a strong inference that they knew or should have know some
fact. See Cosmas v. Hassett, 886 F.2d 8, 13 (2d Cir. 1989)
(allegations that certain foreign import restrictions would
eliminate significant source of income for company, and that
defendants were directors of company, formed sufficient factual
basis for inference that defendants knew of import
restrictions); Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir.
1985) (defendants' public statements and self-portrayals as
industry-wise businessmen sufficient factual basis for
attributing knowledge that prospects were dim for company's key
But in those cases, unlike here, the fact at issue was
reasonably susceptible of being known. The inferential leap
from circumstances to knowledge of "fact" is far greater here
than in those cases and, indeed, impossible to make. Cf.
Blanchard v. Katz, 705 F. Supp. 1011, 1012-13 (S.D.N.Y. 1989)
(allegations that, because defendants were experienced in real
estate they "had to know" that flat roofs would leak, and
because they were familiar with the market they "had to know"
that income projections were too high, were insufficient).
It is conceivable that plaintiffs could allege some more
specific fact or set of circumstances that would support their
allegation of impossibility of success. They make a superficial
attempt in the amended complaint to do so when they assert
as a result of the high ratio of production costs
that necessarily would be paid by the Partnership
as compared to the revenues that could be earned by
the Partnership, it would take most of the best
production years of the Partnership's fields to
generate enough cash flow just to allow the limited
partners to recoup their initial investment and
that, as a consequence, the increasing natural
production decline in the Partnership's fields
would coincide with the period when the Partnership
was at last in a position to begin showing a profit
from its fields
thereby severely limiting or eliminating the
profit potential for the Partnership.
Amended Complaint at ¶ 18(f). But clearly this is just a
dressed-up version of their general allegation that economic
circumstances dictated that the partnership never had any
chance of success. For their "fatal flaw" claim to satisfy Rule
9(b), plaintiffs would have to allege some specific facts which
were known to defendants and which would conclusively establish
that the partnership was doomed. Specific problems known to
defendants regarding particular properties, or specific
economic/market facts known to defendants and not the rest of
the market, might suffice.
Because of this possibility, the Court will grant plaintiffs
leave to replead in order to allege some such specific,
conclusive facts. But the Court wishes to emphasize that it has
serious doubts regarding plaintiffs' ability to plead such
facts. Plaintiffs have submitted their complaint twice already
and have not yet come close to alleging the sort of damning
facts to which the Court is referring here. Plaintiffs are
hereby warned not to replead unless they can satisfy this
requirement of conclusiveness. Should they choose to replead
and fail to make sufficient allegations, this Court will
entertain a motion by defendants for sanctions. Also,
plaintiffs may replead only with respect to the allegations
discussed in this section of the opinion.
B. Common Law Claims
Under principles of pendant jurisdiction, plaintiffs also
assert common law claims for fraud and breach of fiduciary
duty. Because the court is dismissing the federal claims before
trial or discovery, the state law claims also must be
dismissed. If plaintiffs choose to replead their federal fraud
claims consistent with this opinion, they may then include
state law claims based on the same set of relevant facts.
For the foregoing reasons, defendants' motions for summary
judgment and for dismissal pursuant to Rule 9(b) are granted,
the amended complaint is dismissed, but plaintiffs are granted
leave to replead in conformity with this opinion within 30 days
from the date of its entry.