The opinion of the court was delivered by: DAVID G. LARIMER
Plaintiff Mary E. Dodds commenced this securities fraud action seeking recision and damages against her former investment advisor, Martin Palumbos ("Palumbos"), and the companies he represented -- Cigna Securities, Inc., Cigna Individual Financial Services Company, Inc., Connecticut General Life Insurance Company, and Cigna Corporation (collectively, the "Cigna Companies"). This action revolves around plaintiff's investment in five limited partnerships -- Technology Funding Secured Investors III ("TFSI"), Berry and Boyle Development partners III (Berry and Boyle"), Krupp Cash Plus V ("Krupp"), PLM Equipment Growth Fund V ("PLM"), and Net 2 -- and her purchase of a single premium annuity policy and a whole life insurance policy in the spring of 1990. Plaintiff alleges that Palumbos and the Cigna Companies recommended that she invest in these limited partnerships and purchase the annuity and life insurance policies despite knowing that they were unsuitable for her financial needs, in that the investments were, inter alia, too risky, too expensive, and not liquid enough.
In her amended complaint, plaintiff alleges that Palumbos and the Cigna Companies violated federal securities laws, including section 12(2) of the Securities Act of 1933 (the "1933 Act"), 15 U.S.C. §§ 77l(2) (Count one), section 10(b) of the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. §§ 78j(b), and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5 (Count three), and that the Cigna Companies are liable as controlling persons under section 15 of the 1933 Act, 15 U.S.C. § 77o (Count two), and section 20 of the 1934 Act, 15 U.S.C. § 78t (Count four), or, alternatively, as aiders and abettors. Plaintiff further alleges several pendant state law claims against Palumbos and the Cigna Companies, including breach of fiduciary duty, common law fraud, negligent misrepresentation, and a violation of § 349 of the General Business Law of the State of New York (Counts five-eleven).
Pending before me now are defendants' motion to dismiss the amended complaint and plaintiff's motion for leave to replead if the amended complaint is dismissed. Defendants contend that plaintiff's federal securities claims should be dismissed because they are untimely under the applicable one-year/three-year limitations period, or, alternatively, because they fail to state a claim upon which relief may be granted, Fed.R.Civ.P. 12(b)(6), or because they fail to plead fraud with sufficient particularity, Fed.R.Civ.P. 9(b). Defendants further contend that if the federal claims are dismissed, the pendent state law claims should be dismissed for lack of jurisdiction.
For the reasons discussed below, defendants' motion to dismiss is granted, and plaintiff's motion for leave to file a second amended complaint is denied.
The facts alleged in the amended complaint, which must be accepted as true for purposes of this motion, are as follows. On April 18 and 24, 1990, plaintiff purchased shares and units in various securities recommended to her by Martin Palumbos, including 230 units of TFSI for $ 23,000; 32 units of Berry and Boyle for $ 16,000; 800 units of Krupp for $ 16,000; 500 units of PLM for $ 10,000; and 400 units of Net 2 for $ 40,000.
Plaintiff also purchased a $ 25,000 single premium annuity policy, and a $ 250,000 whole life insurance policy with a premium of $ 36,700.
Plaintiff, an inexperienced first-time investor, was looking to invest approximately $ 445,000
in insurance and retirement benefits that she had received after her husband's death in February, 1990. She sought to invest this money in conservative investments that could generate enough income for her living expenses and for her to pay for the education of her four daughters.
Before making these investments, plaintiff met with Palumbos on several occasions. Plaintiff and Palumbos met for the first time on March 14, 1990. At this meeting, Palumbos told plaintiff that he was a representative of Cigna and that he had helped a number of Eastman Kodak employees with their financial planning. Plaintiff's husband was employed at Kodak before his death. Palumbos told plaintiff that after assessing her financial situation he would consult with other Cigna representatives and together they would develop an investment plan that would suit her needs. He also told plaintiff that rather than charging her a fee he would be paid through commissions on the investments she made.
Palumbos and plaintiff met again on April 1, 1990. At this meeting, Palumbos gave plaintiff a number of prospectuses and marketing materials that detailed the securities and insurance products that he was recommending. Included with these materials were the prospectuses on TFSI, Berry and Boyle, Krupp, PLM, and Net 2. Palumbos told plaintiff that he would return in two weeks to complete the transactions.
Palumbos returned on April 18, 1990. He asked plaintiff whether she had any questions concerning the investments he had recommended. Plaintiff responded that she had not read the prospectuses because "they looked like Greek" to her. Palumbos assured her that the investments were suitable. Plaintiff, consequently, authorized Palumbos to invest the funds she had received from her husband's SIP and IRA accounts. Plaintiff then signed the required purchase orders, disclosure statements, and subscription agreements. However, plaintiff claims that she did not read any of these documents, and Palumbos did not review them with her. At Palumbos' direction, she did not date these forms when she signed them. Palumbos left a copy of the purchase agreement with plaintiff, but took the originals, the disclosure statements, and the subscription agreements with him.
Palumbos and plaintiff met again in early June 1990. At this meeting, Palumbos sorted the documentation concerning plaintiff's investments and disposed of the copies of the purchase agreements. After this meeting, plaintiff did not concern herself with her investments until February 7, 1991 when she met with her accountant, who told her that, in his opinion, the investments were unsuitable for her financial and personal situation. Plaintiff subsequently commenced this action on February 4, 1992, and filed an amended complaint on April 30, 1992.
In her amended complaint, plaintiff alleges that Palumbos made fraudulent statements and omissions, and induced her to invest in securities - the five limited partnerships - that were completely unsuitable for her needs because they were too risky, not liquid, and not intended for someone in her situation. Plaintiff contends that there is no public market in which she can sell her partnership units and that she has already lost $ 3,850 on her investment in the partnerships. She also alleges that Palumbos and the Cigna Companies induced her to invest in the partnerships to generate substantial commissions, contending that defendants earned $ 8,005 in commissions on her purchase of units in the five partnerships. Plaintiff also alleges that the annuity and insurance policy Palumbos induced her to buy were too expensive and reduced the amount of cash currently available to her. Thus, the claims raised by this action fall essentially into one category -- a claim for unsuitability, i.e. that defendants, despite knowing that the five limited partnerships, the annuity, and the life insurance policy were unsuitable investments for plaintiff, still recommended that she invest in them.
I. Motion to Dismiss: The Legal ...