specificity, their position is weakened by their failure to allege any facts, other than the subsequent failure to conclude the negotiations, to support their claim that the comment as to the negotiations' status was false.
Even factoring the unattributed quotations into the complaint's allegations, then, the complaint still alleges no more than the company's enthusiastic statements about ongoing negotiations and its silence concerning a stock offering, followed by a sudden and surprising announcement of a stock offering with no realization of the hoped-for strategic alliances. These actions do not violate the securities laws.
2. "Off the record" dissemination of false information
The last asserted basis for plaintiffs' allegations of fraud is a collection of reports and recommendations by market analysts and journalists, all of which allegedly drew on background information disseminated by Time Warner in an attempt to shore up its stock price. As with the anonymous statements quoted in various sources and in the complaint, Time Warner argues both that these statements cannot be attributed to the defendants and that, at any rate, they fail to state a claim. Both points are well taken.
First, the allegation of unspecified "disinformation" being spread by unnamed persons supposedly involved with Time Warner utterly fails to "specify the time, place, speaker, and content of the alleged misrepresentations," as is required by Rule 9(b) and Di Vittorio, 822 F.2d at 1247. See also Schwartz v. Novo Industri, A/S, 658 F. Supp. 795, 799 (S.D.N.Y. 1987) (not "fair" to infer fraud "from a statement appearing in a news article over which defendant had less than complete control").
Moreover, review of the various reports and analyses from which plaintiffs derive their conclusion that Time Warner was planting falsely optimistic disinformation throughout the investment community does not in fact reveal actionable misstatements or omissions by Time Warner or anyone. The reports in question indicate that "serious negotiations" were ongoing and that the company "continued to explore joint ventures . . . which would help Time Warner reduce its debt," Compl. P44, or that "Management has said that those negotiations involve the potential sale of minority equity interests in Time Warner assets," Compl. P49, or that as of February 13, 1991 the company appeared closer to completing such a deal. Compl. P58. Similarly, various analysts recommended purchasing Time Warner stock because they believed the company would soon accomplish restructuring or alliances that would bring in needed cash and would enhance its business prospects. Compl. P69. Some of these analyses went on to speculate as to the amount of capital Time Warner's strategic alliances could bring in. Compl. P67.
As with plaintiffs' other allegations, these reports, even if entirely the result of Time Warner communications with analysts and journalists, merely state that negotiations were ongoing and offered great potential reward for Time Warner and its shareholders. Accordingly, they were neither materially misleading nor inconsistent with the omitted information alleged to have defrauded plaintiffs, and neither worked a fraud directly on plaintiffs nor triggered a duty to disclose the allegedly withheld information. As has been noted, the company's mere failure to achieve the goals it openly had been pursuing, and its subsequent adoption of plans harmful to plaintiffs, is not actionable. See, e.g. Denny, supra, 576 F.2d at 470; Hershfang, supra, 767 F. Supp. at 1257.
In addition to their securities fraud claim, plaintiffs claim that the facts alleged constitute common law fraud and negligent misrepresentation under New York law. Defendants argue that the complaint insufficiently alleges violations of state law and should be dismissed on the merits, or, in the alternative, that the state claims should be dismissed for want of pendent jurisdiction in light of the dismissal of plaintiffs' federal claims.
A. Common Law Fraud
The elements of fraud in New York are "representation of a material fact, falsity of that representation, scienter, reliance, and damages." Freschi v. Grand Coal Venture, 767 F.2d 1041, 1050 (2d Cir. 1985), vacated on other grounds, 478 U.S. 1015, 106 S. Ct. 3325, 92 L. Ed. 2d 731 (1986). Defendants owe plaintiffs no greater duty under New York common law than they do under § 10(b). See Starkman v. Warner Communications, Inc., 671 F. Supp. 297, 308 (S.D.N.Y. 1987). Accordingly, the same defects which afflict plaintiffs' § 10(b) claims doom their common law fraud claims.
B. Negligent Misrepresentation
The ordinary rule under New York law is that a cause of action for negligent misrepresentation requires "actual privity of contract between the parties or a relationship so close as to approach that of privity." Ossining Union Free School Dist. v. Anderson Larocca Anderson, 541 N.Y.S.2d 335, 338, 73 N.Y.2d 417, 539 N.E.2d 91 (Ct. App. 1989). New York courts have acknowledged that this is a stringent requirement but nevertheless have imposed it "as a means of fixing fair, manageable bounds of liability" in an area of law where "what is objectively foreseeable injury may be vast and unbounded, wholly disproportionate to a defendant's undertaking or wrongdoing." Id., 541 N.Y.S.2d at 337. Federal courts typically have dismissed negligent misrepresentation claims brought by members of the investing public. See In re Par Pharmaceutical, Inc. Sec. Litig., 733 F. Supp. 668, 686 (S.D.N.Y. 1990).
Plaintiffs argue that their pleadings are sufficient under Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536, 493 N.Y.S.2d 435, 483 N.E.2d 110 (1985), which held that privity was not required to state a negligent misrepresentation claim where:
(1) The [defendants] must have been aware that the financial reports were to be used for a particular purpose or purposes; (2) in the furtherance of which a known party or parties was intended to rely; and (3) there [was] some conduct on the part of the [defendants] linking them to that party or parties, which evinces the [defendants'] understanding of that party or parties' reliance.
Credit Alliance, 65 N.Y. 2d at 551, 493 N.Y.S.2d at 443.
Credit Alliance does not save plaintiffs' claim. The non-privity cases that favor plaintiffs all involve dealings among a small number of parties known to the defendants, and whose reliance on defendant's representations was immediate and obvious. See Credit Alliance, supra, 493 N.Y.S.2d at 444-445 (dismissing claim against accountant where existing creditor of corporation relied on financial statement prepared by defendant in extending additional credit but where defendants did not know of a particular purpose for the reports or of contact between defendant and plaintiff; allowing claim against auditor that knew securing financing from plaintiff was primary purpose of audit); Ossining School District, supra (allowing claim by district that had contract with architects who in reliance on report of defendant engineering consultant wrongly advised district that facility needed to be vacated). As we read those cases, members of the investing public such as the present plaintiffs enjoy no such close relationship with Time Warner or its officers and were not specifically known to defendants until this suit was filed. Accordingly, the negligent misrepresentation claim is dismissed pursuant to Rule 12(b).
The sole remaining question as to plaintiffs' dismissed securities and common law fraud claims is whether or not plaintiffs are entitled to replead their allegations. Fed. R. Civ. P. 15(a) provides that "leave [to amend] shall be freely given when justice so requires." Ordinarily, dismissals under Rule 12(b) are with prejudice, but those under Rule 9(b) are without prejudice until plaintiffs have had the opportunity to restate their claims with greater particularity. See Luce, supra, 802 F.2d at 56; see also Ronzani v. Sanofi S.A., 899 F.2d 195, 198 (2d Cir. 1990). Indeed, it has been held to be an abuse of discretion for a district court to deny plaintiffs' request to replead more particularly when the complaint is dismissed pursuant to Rule 9(b), even where defendants had once replied their complaint before any responsive pleading was filed. See Ronzani, 899 F.2d at 198.
Here, the complaint has been dismissed for numerous overlapping reasons, many of them within the rubric of Rule 12(b)(6), some within that of Rule 9(b). Each statement or omission alleged has been found deficient in at least one respect under Rule 12(b). Accordingly, there is no doctrinal requirement that the dismissals be without prejudice.
Moreover, here several factors suggest that such leave might not be appropriate even if some small portion of the complaint were dismissed solely pursuant to Rule 9(b). Plaintiffs already have enjoyed a generous opportunity to replead, with their first complaint having been filed nearly a year ago. This is the third complaint plaintiffs have filed, and it therefore appears unlikely that they can do better. Moreover, plaintiffs have enjoyed fairly substantial although not complete discovery, and thus have had a greater than usual opportunity to develop their claims. Finally, the dismissal here goes so overwhelmingly to the merits of plaintiffs' claim, as opposed to the niceties of their pleading, that there would be little to be gained by allowing them to attempt to breathe new life into a complaint based even on any isolated allegations that may have fallen beyond the reach of Rule 12(b).
The fact that dismissals under Rule 9(b) ordinarily are without prejudice is in large part due to the desirability of allowing plaintiffs full opportunity to express potentially valid claims. If a case is dismissed for errors of wording, the policy favoring liberal pleading requirements dictates that plaintiffs receive at least one chance to state their claims more appropriately. However, because Rule 9(b) governs all allegations of fraud and of scienter, dismissals under the Rule may also occur for deficiencies more substantive than formal. In such cases the compelling reasons for allowing repleading carry less force; plaintiffs may well have pled all facts and circumstantial indications of fraud they can muster and still fall short of the mark, because the circumstances by which they claim to have been aggrieved simply do not allow an inference of fraud. This is one such case. When plaintiffs appear to have alleged all they are able, and where, as here, they have repleaded not once but twice, the ordinary presumption of plaintiffs' entitlement to replead following dismissal pursuant to Rule 9(b) is vitiated.
* * *
The complaint is dismissed.
It is so ordered.
DATED: New York, New York
May 29, 1992