beset with numerous severe difficulties which it was unable to overcome. The complaint's allegations of defendants' scienter are stated generally and are supported only by the inference drawn form the severity and long-term nature of West-ward's problems that defendants must have known of such problems when they made the complained-of statements.
One may sympathize with the defendants, who are here subjected to serious allegations that entail significant litigation expense and effort based on a sparsely stated and somewhat conclusory complaint. Nevertheless, plaintiffs' allegations are sufficient under Rule 9(b). Plaintiffs have specified all elements of a § 10(b) claim which they can be expected to know at this point. They have alleged in general terms and on information and belief those elements which they cannot be expected to know now, namely the material information which they believe was available earlier to defendants and the defendants' scienter. Nothing more is required of them. See Luce v. Edelstein, 802 F.2d at 54 n.1; see also Rule 9(b) (scienter may be pled generally).
Plaintiffs have met the requirement of O'Brien that a complaint must contain "an ample factual basis" for claims of scienter. 936 F. Id at 676. The complaint alleges that when Moore Medical finally announced its sale of West-ward it revealed problems that by nature were ongoing and that were far more severe than any previously announced or hinted at, and that Moore Medical suffered losses of a far greater magnitude than those previously announced. These claims support the inference that information as to the severity and causes of West-ward's troubles likely were known to defendants earlier but were concealed in order to support the price of Moore Medical stock.
B. Permissibility of Pleading on Information and Belief
Moore Medical argues that allegations based on information and belief are generally not permissible in fraud cases, see Stern v. Leucadia Nat'l Corp., 844 F.2d 997, 1003 (2d Cir.), cert. denied, 488 U.S. 852, 102 L. Ed. 2d 109, 109 S. Ct. 137 (1988), and that Robbins' complaint does not fall within the exception to this rule permitting pleadings on information and belief as to facts which are "peculiarly within the opposing party's knowledge." Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990). It is claimed that plaintiffs' allegations of fraud pleaded on information and belief are insufficient because they have not been "accompanied by a statement of facts upon which the [plaintiffs'] belief is founded." Stern, 844 F.2d at 1003.
As previously noted, plaintiffs have specified in detail the statements that were made and how plaintiffs were deceived and harmed by those statements, and have alleged generally the material information allegedly withheld and defendants' scienter based on inferences which, although far from certain in light of the facts alleged, are adequately supported at this stage in the proceedings.
C. Fraud by Hindsight
Finally, defendants argue that the complaint alleges nothing more than "fraud by hindsight," which has been held an insufficient basis for pleading fraud under Rule 9(b).
It is firmly established that "there . . . must be more than vague allegations that, as shown by subsequent developments, the corporation's true financial picture was not so bright in some respects as its annual reports [and interim financial statements] had painted and that the defendants knew, or were reckless in failing to know this." Denny v. Barber, 576 F.2d 465 (2d Cir. 1978); see also Schwartz v. Novo Industri, A/S, 635 F. Supp. 1463 (S.D.N.Y. 1986). Defendants have cited numerous cases dismissing securities fraud complaints which, when described in broad outline form, appear similar to this one: the complaints allege that serious flaws which eventually surfaced in a business must have been known earlier and were not revealed, and that such omissions, or affirmative statements that all was well, support an inference of fraud. See, e.g., Denny; Schwartz; Hershfang v. Citicorp, 767 F. Supp. 1251 (S.D.N.Y. 1991).
However, not every complaint which follows this broad outline need be invalid; the Denny court recognized that fraud by hindsight decisions "may or may not be consistent and . . . necessarily rest on [their] particular facts." 576 F.2d at 470. Here plaintiffs have alleged specified statements to be false or misleading both in their affirmative optimism and in their omission of known problems; they have alleged the existence, severity and irremediability of certain problems which were not revealed; they have pointed to the eventual sudden revelation of problems of a far greater magnitude than was foreshadowed by any statements defendants did make; and the problems they allege are of a sort that it is not unreasonable to believe were ongoing and thus likely known to defendants before they were acknowledged.
To conclude that the complaint is sufficient does not constitute any finding as to the merits of the claim, but only that the plaintiffs have made allegations which meet the pleading requirements of the Federal Rules of Civil Procedure.
Accordingly, the motion to dismiss is denied.
It is so ordered.
DATED: New York, New York
March 24, 1992