FNBR, other than by focusing on the fact that the financial condition of the bank subsequently deteriorated and that certain of these events came to pass.
Noticably absent are details about specific delinquent loans, whether to an unrelated third party or to an insider, that were so substandard when made as to suggest that FNBR's financial condition was not as rosy as portrayed prior to the economic downturn. Although plaintiff alleges that the individual defendants fraudulently sought to hide the true condition of FNBR, he does not allege that any defendant officer or director attempted to, or succeeded in, unloading their stock in FNBR, a fact from which one could infer knowledge and fraud. Indeed, at oral argument, counsel for certain of the individual FNBR defendants stated that the defendants purchased some $ 4.5 million of the 10% debentures, a fact which hardly suggests that the defendants knew FNBR was a financial institution in serious trouble.
Given the absence of facts in plaintiff's complaint, the Court refuses to infer that the FNBR defendants purposefully misrepresented the company's financial condition during the class period, and will not speculate that plaintiff was defrauded simply because FNBR suffered more losses than predicted. Plaintiff cannot rely upon a presumption of fraud as a substitute for the specific requirements of Rule 9. Decker v. Massey-Ferguson, Ltd., 681 F.2d at 114. No facts have been proferred to suggest that the true financial condition of FNBR was other than as reported prior to the economic downturn in 1990-91. Accordingly, plaintiff's Complaint is dismissed as against the FNBR defendants for failure to meet the Rule 9(b) threshold. Moreover, inasmuch as plaintiff has already had the opportunity to file an amended Complaint, the Court is not inclined to give leave to replead.
III. The § 10(b) Claims Against Yapi
Yapi, a Turkish banking company, was for a time a prospective purchaser of FNBR. However, citing an adverse change in FNBR's financial condition, Yapi terminated the merger talks and thus the agreement with FNBR never reached the proxy stage. Plaintiff argues that Yapi is primarily liable for securities fraud because it failed to disclose whatever adverse information it had learned about the actual financial condition of FNBR when announcing that the merger would not take place. Plaintiff also alleges that Yapi is secondarily liable for aiding and abetting FNBR's fraud.
I find that plaintiff has failed to state a claim under either theory. With respect to the non-disclosure and concealment charge, I find Judge Ditter's well-reasoned decision in Gordon v. Diagnostek, Inc., 812 F. Supp. 57 (E.D.Pa. 1993) not only helpful with this issue, but also directly on point. In a case which is strikingly similar to this case, Judge Ditter held that an acquiring company in a failed acquisition had no duty to disclose to the target company's shareholders that the target company had inflated earnings. Citing Chiarella v. United States, 445 U.S. 222, 232-34, 63 L. Ed. 2d 348, 100 S. Ct. 1108 (1980), Judge Ditter found that the duty to disclose arises only from a specific relationship between two parties which either explicitly or implicitly requires such disclosure, and that the acquiring company "had no relationship with, and therefore no duty to, the shareholders of Diagnostek." 812 F. Supp. at 60.
As in Gordon, plaintiff does not allege that Yapi had a duty to disclose which arose from a relationship of trust and confidence between Yapi and FNBR shareholders. Consequently, I find that plaintiff fails to state a claim for Yapi's direct liability under § 10(b).
With respect to plaintiff's theory that Yapi is secondarily liable for aiding and abetting FNBR's fraud, this claim must be dismissed because of my finding that there were no securities law violations by the primary actors, the FNBR defendants.
IV. Pendent Common Law State Claims
Having dismissed plaintiff's federal claims, I decline to exercise jurisdiction over his common law state claims in Counts III and IV, which are accordingly dismissed. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966).
For the reasons set forth above, the motions of the FNBR defendants for dismissal pursuant to Fed.R.Civ.P. 12(b)(6) and 9 are granted, and the Complaint is dismissed without leave to replead. The separate motion of Yapi for dismissal of all claims against it pursuant to Rule 12(b)(6) is granted as well. In addition, plaintiff's common law claims are dismissed.
ALL OF THE ABOVE IS SO ORDERED.
MICHAEL A. TELESCA
UNITED STATES DISTRICT JUDGE
Dated: Rochester, New York
September 28, 1993