implicit representations that they were made in good faith and were based upon a reasonable method of preparation, and those representations constitute 'facts' actionable under Rule 10b-5." Estate of Detwiler v. Offenbecher, 728 F. Supp. 103, 137 (S.D.N.Y. 1989). The facts implicit in forecasts are linked to the scienter requirement of a securities fraud claim. Id.
The Complaint recites numerous allegations of the facts underlying the representations made by Reuters. Plaintiffs allege that Reuters repeatedly touted Dealing 2000 as an important advancement in its transaction products during the class period. As a result, the price of Reuters ADRs rose from $ 25-3/4 to $ 70-5/8. Throughout the early part of 1990, Reuters predicted that Dealing 2000-2 would begin to contribute to its revenue stream by the third quarter of 1990. In turn, the investment community pointed to the Dealing 2000 as a key to Reuters' double digit growth by the early 1990's. The Complaint alleges that the Defendants knew or should have known that their statements were misleading because Dealing 2000-2 had not reached the point were it could be released for customer testing. A published report indicated that there were problems with the development of Dealing 2000-2 as early as May 1, 1989. Therefore, the Court concludes that the Plaintiffs have satisfied the "scienter" requirement.
The Defendants also argue that statements made after the date the class representatives purchased Reuters' ADRs are not actionable because the Bharucha and Kesten purchases were not made in reliance upon them. This argument would be persuasive if Bharucha and Kesten were bringing this action solely as individuals. In a class action where the class representative sues on behalf of a class of persons who purchase stock during the entire class period, post-statements are relevant to the course of wrongful conduct alleged. See Nicholas v. Poughkeepsie Savings Bank/FSB, [Current]Fed. Sec. L. Rep. (CCH) P 95, 606 (S.D.N.Y. Sept. 27, 1990). If Defendants argument were taken to its natural conclusion, only those individuals who purchased stock on the last day of the class period could act as a representative of the class. Bharucha and Kesten have alleged that Reuters engaged in a common course of conduct to mislead the Plaintiff class. Id. Therefore, even those statements made after their purchases are actionable. Based on the foregoing set of facts, the Court must find that the Plaintiff has succeeded in stating a claim under 10(b) and 10b-5.
2. Rule 9(b)
Defendants also seek to dismiss the securities fraud claim for failure to plead fraud with particularity under Rule 9(b). Rule 9(b) was promulgated to ensure that (1) defendants get fair notice of plaintiffs' claim; (2) defendants' reputation or goodwill is protected; and (3) to reduce the number of strike suits. Cosmas v. Hassett, 886 F.2d 8, 10-11 (2d Cir. 1989); Certilman v. Hardcastle, Ltd., 754 F. Supp. 974, 978 (E.D.N.Y. 1991). Allegations of fraud must be specific enough to give defendants "a reasonable opportunity to answer the complaint" and must give defendants "adequate information" to allow defendants to frame a response. Ross v. A.H. Robins Co., 607 F.2d 545, 557 (2d Cir. 1979), cert. denied, 446 U.S. 946, 64 L. Ed. 2d 802, 100 S. Ct. 2175 (1980). On a Rule 9(b) motion, the court must "read the complaint generally and draw all inferences in favor of the pleader." Cosmas, 886 F.2d at 11. Rule 9(b) requires that the time, place, speaker, and sometimes even the content of the alleged misrepresentation must be alleged specifically. Id.
After reviewing the Complaint, the Court finds that it satisfies Rule 9(b). Plaintiffs have painted a picture from which it is not unreasonable to infer that Defendants had knowledge of the defects in Dealing 2000 - 2 when they continued to promote it as a product which would produce revenue in late 1990 and early 1991. The Complaint alleges that the Defendant made numerous statements and provides the time, place, speaker and content of each statement. Many of the allegations in the Complaint are pled upon information and belief. Where as here the facts evidencing fraud are almost exclusively within Reuters' knowledge, pleading on information and belief is appropriate. Wexner v. First Manhattan Co., 902 F.2d 169, 172 (1990). Furthermore, the Court finds that the Complaint adduces specific facts supporting a strong inference of fraud. See Wexner v. First Manhattan Co., 902 F.2d at 172. Therefore, the Complaint adequately provides Defendants with notice of the allegations they must answer and satisfies Rule 9(b).
B. Negligent Misrepresentation
Defendants contend that the negligent misrepresentation claim should be dismissed because there is an absence of privity between the defendants and the plaintiffs. New York courts have refused to hold defendants liable "to a plaintiff who belongs to a large and 'faceless' class of incipient purchasers of a publicly traded security." Ballan v. Wilfred American Educational Corp., 720 F. Supp. 241 (E.D.N.Y. 1989). This argument may be valid if this Court finds that New York law applies. Many courts choose to wait and decide the choice of law issue when the plaintiff moves for Rule 23 certification. See Zimmerman v. Prime Medical Services, Inc. 729 F. Supp. 23, 26 (S.D.N.Y. 1990). This Court chooses to do the same.
C. Common Law Fraud Claim
Defendants also seek to dismiss Plaintiffs' common law fraud claim pursuant to Rule 9(b) for failure to plead fraud with particularity. The Court has already discussed the standards for Rule 9(b). Because the elements of the common law fraud claim are almost identical to those of the securities fraud claim, the Court finds that the Plaintiffs' common law fraud claims meets the standards of Rule 9(b) for the reasons stated earlier.
For the reasons stated above, Defendants' motion to dismiss is hereby denied.
Sterling Johnson, Jr.
United States District Judge
Dated: Brooklyn, New York
January 13th, 1993
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