with the requisite particularity. Plaintiff's Memorandum in Support at 10-11. Plaintiff points out that Rule 9(b) controls pleading fraud with particularity and argues that if defendant had made a motion to dismiss or strike pursuant to the rule, the complaint would withstand such motion. Id. at 10.
Defendant contends that he has included this defense in his pleadings only because he "wishes to preserve this argument for a later date." Defendant's Response at 10. Defendant argues that the defense deserves a liberal reading which will allow it to remain in the pleadings until after discovery.
Rule 9(b) states 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." However, even though the rule states that conditions of mind may be averred generally, the complaint still must "plead the factual basis which gives rise to a 'strong inference' of fraudulent intent." O'Brien v. National Property Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991) (quoting Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990)). Rule 9(b) does not allow speculation to be the basis of an action for fraud. O'Brien v. National Property Analysts Partners, 936 F.2d at 676; Wexner v. First Manhattan Co., 902 F.2d at 172.
The SEC contends that it has presented a factual argument that gives rise to a strong inference of fraudulent intent. Plaintiff's Memorandum in Support at 9, 10. The SEC has provided dates of stock transfers and alleged relationships which, if accepted as true, would likely withstand a motion to strike pursuant to Rule 9(b). The SEC's factual claims would be accepted as true if defendant had made a motion to strike the complaint. However, in this instance, it is the SEC that has made a motion to strike and not defendant. Therefore, the Court must ascertain whether there is any possibility that additional evidence could allow the defense to succeed.
The Court cannot be completely certain, even though it is extremely unlikely, that the defense could not succeed. The Second Circuit's interpretation of the purpose of Rule 9(b) sheds some light on the reason why the defensive pleading cannot be stricken before discovery:
The purpose of Rule 9(b) is threefold - it is designed to provide a defendant with fair notice of a plaintiff's claim, to safeguard a defendant's reputation from "improvident charges of wrongdoing," and to protect a defendant against the institution of a strike suit.
O'Brien v. National Property Analysts Partners, 936 F.2d at 676 (citations omitted). While plaintiff has certainly placed defendant on notice of the fraud charge, it is possible that after discovery the fraud allegation would be revealed as an "improvident charge of wrongdoing" which would injure defendant's reputation. Defendant has denied all of plaintiff's accusations. Only discovery will shed additional light on the strength of the fraud claim.
Moreover, the Court will not strike a defense in any case where, though the defense might be certain to fail, the Court should hear the evidence on that point. "[A] motion to strike will be denied if . . . it fairly presents a question of law or fact which the court ought to hear." Durham Industries v. North River Insurance Co., 482 F. Supp. at 913. If defendant can present any evidence that the fraud claim has been improperly pled then the Court should hear such evidence. Moreover, plaintiff does not appear to be prejudiced in any way by the inclusion of this defense. For these reasons, plaintiff's motion to strike defendant's fourth affirmative defense is denied.
(4) Fifth, Sixth, Ninth and Tenth Affirmative Defenses
Toomey concedes that these defenses are variations of the seventh and eighth affirmative defenses, which have not been stricken. Defendant's Response at 11. As such, they are redundant. Accordingly, plaintiff's motion to strike defendant's fifth, sixth, ninth and tenth affirmative defenses is granted.
For the foregoing reasons, plaintiff's motion is denied with respect to defendant's first and fourth affirmative defenses and granted with respect to defendant's second, third, fifth, sixth, ninth and tenth affirmative defenses, which are hereby stricken. The parties are directed to complete discovery on or before November 30, 1992 and to file a pretrial order by December 30, 1992.
It is so ordered.
Dated: New York, New York
August 7, 1992
Robert J. Ward