of the Plaintiffs' claims are directed at MSBB and Lipkin:
(1) violation of § 12(2) of the Securities of the Securities Act of 1933 ("the Securities Act), 15 U.S.C. § 771(2);
(2) violation of § 17(a) of the Securities Act, 15 U.S.C. § 77q(a);
(3) violation of § 10(b) of the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10(b)5;
(4) common law fraud;
(5) breach of warranty;
(6) intentional and negligent misrepresentation;
(7) rescission; and
(8) common law negligence and legal malpractice.
MSBB and Lipkin move jointly to dismiss the Complaint, or, in the alternative, for summary judgment. The Court has excluded all matters outside of the pleadings and so does not convert the motion to dismiss to one for summary judgment. See Kopec v. Coughlin, 922 F.2d 152, 154-155 (2d Cir. 1991). Because the motion to dismiss is granted, the Court does not reach the motion for summary judgment.
I. § 17(a) CLAIM
This Court has previously held that there is no private right of action under § 17(a) of the Securities Act of 1933. Epstein v. Haas Securities Corp., 731 F. Supp. 1166, 1180 (S.D.N.Y. 1990). Accord Varnberg v. Minnick, 760 F. Supp. 315, 324 (S.D.N.Y. 1991). Therefore, the motion pursuant to Rule 12(b)(6) to dismiss this claim is granted.
II. § 12(2), § 10(b) AND Rule 10b-5, COMMON LAW FRAUD, AND INTENTIONAL MISREPRESENTATION CLAIMS
Plaintiffs' § 12(2), § 10(b) and Rule 10b-5, common law fraud, and intentional misrepresentation claims sound in fraud, and therefore must satisfy the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b) provides:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and any other condition of mind of a person may be averred generally.
As interpreted by the Second Circuit and courts of this district, Rule 9(b) places strict requirements on pleadings of fraud. A pleader may not allege fraud on the basis of information and belief.
Di Vittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987). Rule 9(b) also requires plaintiffs to plead fraud with specificity by indicating: (1) precisely what statements or omissions were made, and in what documents or through what oral representations those statements were made, (2) the time and place of each such statement and the persons responsible for making (or, in the case of omissions, for not making) each such statement, (3) the content of such statements and the manner in which the statements misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud. Lasky v. Shearson Lehman Brothers, Inc., 1991 U.S. Dist LEXIS 17602 (S.D.N.Y. November 25, 1991), citing Todd v. Oppenheimer & Co., 78 F.R.D. 415, 420-1 (S.D.N.Y 1978). See also Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); Moran v. Kidder Peabody & Co., 609 F. Supp. 661 (S.D.N.Y. 1985), aff'd 788 F.2d 3 (2d Cir. 1986). Furthermore, when fraud is alleged against multiple defendants, a plaintiff must plead with particularity by setting forth separately the acts complained of by each defendant. Zerman v. Ball, 735 F.2d 15, 22 (2d Cir. 1984).
Plaintiffs have failed to heed the pleading requirements of Rule 9(b). Many of the 140 allegations in the Complaint are made on information and belief. Those which are not do not address actions taken or statements made by either Lipkin or MSBB with the requisite specificity. Furthermore, many of the allegations are made against multiple defendants lumped together and fail to distinguish among them. Accordingly, Plaintiffs' § 12(2),
§ 10(b) and Rule 10b-5, common law fraud, and misrepresentation claims as to Lipkin and MSBB are dismissed for failure to comply with Rule 9(b).
III. STATE LAW CLAIMS
Having dismissed all of Plaintiffs' federal law claims, only state law cause of action against MSBB and Lipkin remain. The decision to dismiss these claims or to retain them pursuant to supplemental jurisdiction is committed to the district court's sound discretion.
Title 28 U.S.C. § 1367 provides, in part:
(a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
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(c) The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if -
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(3) the district court has dismissed all claims over which it has original jurisdiction.
Because there is not complete diversity of citizenship between all Plaintiffs and all Defendants, the only bases for the Court's original jurisdiction were Plaintiffs' federal law claims. 28 U.S.C. §§ 1331 and 1332. Having dismissed those claims as to MSBB and Lipkin, the Court now declines to exercise jurisdiction over the remaining state law claims alleged against those defendants. 28 U.S.C. § 1367(c)(3).
IV. RULE 11 MOTION FOR SANCTIONS AND ATTORNEYS' FEES
MSBB and Lipkin move pursuant to Rule 11 of the Federal Rules of Civil Procedure for sanctions against Plaintiffs' counsel. The Complaint is so poorly drafted, being both redundant and overly complex, that the Court is unwilling to make a finding that counsel failed to conduct reasonable factual inquiry as to these claims. Accordingly, the motion for sanctions is denied.
V. MOTION TO REQUIRE PLAINTIFFS TO POST AN UNDERTAKING
The notion to require Plaintiffs to post an undertaking pursuant to § 11(e) of the Securities Act is similarly denied. In view of the poorly drafted Complaint, the Court cannot be sure that Plaintiffs' claims are "without merit" or "bordering on frivolity. " Klein v. Shields & Co., 470 F.2d 1344, 1347 (2d Cir. 1972).
The joint motion of MSBB and Lipkin to dismiss is granted. Plaintiffs are granted leave to file an amended complaint within 30 days from the date of entry of this Opinion and Order.
IT IS SO ORDERED.
Dated: New York, New York
February 10, 1992
Robert P. Patterson, Jr.