The opinion of the court was delivered by: MOTLEY
Plaintiff, Robert Baffa ("Baffa"), commenced this action on January 26, 1996 against defendants, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), EOS Partners, L.P. ("EOS"), General Electric Capital Corporation ("GE Capital"), A. Andrew Levison ("Levison"), Steven M. Friedman ("Friedman"), Douglas R. Korn ("Korn"), Jules A. Borshadel ("Borshadel"), and John K. Henry ("Henry"), alleging securities fraud.
This action arises out of the 1994 initial public offering ("Offering") of units of Rickel Home Centers, Inc. ("Rickel"). The Offering was made pursuant to a registration statement and prospectus which was declared effective by the Securities and Exchange Commission on October 28, 1994. The Offering was consummated on November 4, 1994.
Baffa alleges that on November 9, 1994, five days after the Offering had closed, he purchased 10 units at a cost of $ 998.75 per unit. Baffa alleges that the price of the stock suffered a huge decline soon thereafter. Baffa sold his units on December 28, 1995 at a price of $ 350 per unit.
According to Baffa's complaint,
the registration statement contained materially false and misleading facts about Rickel. In addition, the registration statement allegedly omitted several material facts about Rickel. Baffa alleges that all defendants have violated § 15 of the Securities Act of 1933 ("1933 Act"), and § 10(b) and § 20(a) of the Securities Exchange Act of 1934 ("1934 Act"). Baffa also alleges that some of the defendants have violated § 11 of the 1933 Act. Furthermore, Baffa alleges that defendants have engaged in common law fraud in connection with Baffa's purchase of these securities.
Defendants are various individuals and entities associated with the Offering of the Rickel units. Friedman, Korn, Borshadel, Henry and Levison were all Rickel directors and/or officers at the time of the Offering. Defendant DLJ was the underwriter for the Offering. Defendants EOS and GE Capital each owned 44.2% of Rickel's common stock at the time of the Offering.
Defendants have filed a motion seeking to dismiss Baffa's complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure ("FRCP").
For the reasons set forth below, defendants' motion to dismiss is denied.
II. THE STANDARD FOR DISMISSAL UNDER RULE 12(B)(6)
A motion to dismiss for "failure to state a claim upon which relief can be granted" pursuant to Rule 12(b)(6) should be granted only if it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); see Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993); Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985); Seagoing Uniform Corp. v. Texaco, Inc., 705 F. Supp. 918, 927 (S.D.N.Y. 1989). Therefore, on a motion to dismiss, all factual allegations of the complaint must be accepted as true. See Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984); Frasier v. General Elec. Co., 930 F.2d 1004, 1007 (2d Cir. 1991). Additionally, all reasonable inferences must be made in plaintiff's favor. See Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); Meilke v. Constellation Bancorp, 1992 U.S. Dist. LEXIS 2368, 1992 WL 47342 (S.D.N.Y. 1992). As the Second Circuit noted, "the court's function on a Rule 12(b)(6) motion is not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d at 1067.
III. REQUIREMENTS UNDER SECTION 10(b) AND RULE 10b-5
In order to have a cause of action for securities fraud under Section 10(b) and Rule 10b-5 of the 1934 Act, a plaintiff "must plead that the defendant made a false statement or omitted a material fact, with scienter, and that plaintiff's reliance on defendant's action caused plaintiff injury." San Leandro Emergency Medical Group Profit Sharing Plan ...