The opinion of the court was delivered by: BATTS
DEBORAH A. BATTS, United States District Judge.
Plaintiff, on behalf of a class,
brings this action for recovery pursuant to Sections 11, 12(2) and 15 of the Securities Act of 1933. Defendants
now move to dismiss the sections 11 and 12(2) claims pursuant to Rule 12(c) of the Federal Rules of Civil Procedure.
Plaintiff brings her claim as a class action on behalf of all persons and entities who purchased the common stock of PDG Remediation, Inc. ("PDG") from February 9, 1995, when PDG's initial public offering ("Public Offering") of 1,000,000 shares of common stock $ 5.00 per share became effective, through and including May 23 1995. (Compl. P 1.) The Defendants include PDG, its officers and directors, and several broker-dealers who bought stock from PDG and then sold it to the investing public. (Id. PP 13-32.)
PDG's Registration Statement and Prospectus represented that most of PDG's revenues were derived from a Florida State-funded reimbursement program, which program was established to finance the upgrade and clean-up of sites contaminated by petroleum leakage in underground storage tanks ("UST"). (Id. P 2.) PDG represented in the Prospectus that it was not aware of any planned discontinuation or alteration of this Florida reimbursement program which would adversely impact PDG's financial condition. (Id. P 3.) In fact, revenues were predicted to be between seven and nine million for that fiscal year and up to fifty million within the next four years. ( Id.)
Plaintiff alleges that the Defendants failed to disclose that the Florida reimbursement program had operated at a deficit of $ 60,000,000 for the past two years, and hence, was being revised to eliminate funding for lower priority sites, which accounted for a major portion of PDG's business. (Id. P 4.) Furthermore, the Defendants failed to disclose that three different Florida agencies -- a statewide grand jury, the Florida Department of Environmental Protection, and the Florida House Committee on Natural Resources -- had conducted separate investigations relating to the program and released reports calling for modifications of the program and a moratorium on any payments. (Id. P 5.)
On March 8, 1995, the Governor of Florida issued an executive order suspending any reimbursement payments. (Id. P 6.) On March 17, 1995, the Florida Legislature enacted legislation reestablishing the priority system based on the level of site contamination. (Id.) The effect of these actions eliminated reimbursement for approximately 50% of the low priority sites on which PDG had rendered remediation. (Id. P 7.) PDG then suffered losses. On May 23, 1995, the stock price closed at $ 1 3/8. (Id. P 8.)
The prospectus laid out several areas that were considered risk factors, beginning with the following paragraph:
The Securities offered hereby are speculative in nature and involve a high degree of risk. The securities should be purchased only by persons who can afford to lose their entire investment. Attention should be paid to the following risk factors in evaluating the company and the offering before purchasing any security offered hereby.
The areas of risk were labelled as follows: a limited operating history, potential environmental liability, dependence on continued environmental regulation, time lag on accounts receivable, intense competition, need for additional financing, potential inadequacy of insurance, reliance on management, conflicts of interest, voting control, and dividend restrictions. One further section, particularly applicable here, reads as follows:
Currently a majority of the [PDG]'s business is directly or indirectly related to the Florida UST remediation reimbursement program. Under this program [PDG] is paid for environmental services rendered by the state fund created for that purpose from excise taxes on fuels. . . . Although [PDG] is not aware of any planned discontinuance or alteration of the Florida UST remediation reimbursement program to exclude payment to service providers such as [PDG], any such discontinuance or alteration could result in a material adverse change in its business, operating results and financial condition.
"On a motion to dismiss under Rule 12(b)(6), [as with a 12(c) motion,] the court must accept as true the factual allegations in the complaint, and draw all reasonable inferences in favor of the plaintiff." Bolt Elec., Inc. v. City of N.Y., 53 F.3d 465, 469 (1995) (citations omitted); Sheppard v. Beerman, 18 F.3d 147, 150 (2d Cir. 1994) (citing Ad-Hoc Comm. of Baruch Black and Hispanic Alumni Ass'n v. Bernard M. Baruch College, 835 F.2d 980, 982 (2d Cir. 1987) for the proposition that courts are to apply the same standards used in a 12(b)(6) motion to a 12(c) motion). "The district court should grant such a motion only if, after viewing plaintiff's allegations in this favorable light, 'it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Walker v. City of N.Y., 974 F.2d 293, ...