(3d Cir. 1988)). Hence, a violation of section 10(b) and
Rule 10b-5 "can take place before and up to the time when the sale of
securities take place, but not after the investment is made."
Cohen v. McAllister, 688 F. Supp. 1040, 1044 (W.D.Pa. 1988).
Reading Plaintiffs complaint liberally, defendants made their
first allegedly false statements to Plaintiff prior to his
purchase and continued making these false statements to him
until June of 1999. However, once plaintiff made his investment
with Defendants in reliance upon these statements, the statute
of limitations applicable to section 10(b) and Rule 10b-5 began
to run and any statements made thereafter by Defendants are
inapplicable to this Court's statute of limitations analysis.
Accordingly, as Plaintiffs certification indicates that he made
his investment with Defendants on or about February 1995 the
statute of limitations on his section 10(b) and Rule 10b-5
claims began to run, at the latest, during that month.
This means that Plaintiff had, at most, until February 1998 to
file his section 10(b) and Rule 10b-5 claims against Defendants.
The instant suit was not filed, however, until late August of
1999. The Court therefore holds that his section 10(b) and
Rule 10b-5 claims against Defendants are time barred.
Moreover, Plaintiffs section 10(b) and Rule 10b-5 claims are
not saved by his assertion that the statute of limitations for
them began to run on January 27, 1997, the date he was offered
1900 shares from Defendants for his sales work for them. It is
black letter law that the one year period contained in
15 U.S.C. § 78i(e) "begins to run once a plaintiff is put on either
inquiry notice or constructive notice of the facts giving rise
to his claim." See Menowitz v. Brown, 991 F.2d 36, 41 (2d Cir.
1993). As a result, a rule l0b-5 plaintiff bears an affirmative
duty of diligent inquiry into the facts of the alleged
securities fraud and is not entitled to "leisurely discovery of
the full details of the alleged scheme." Klein v. Bower,
421 F.2d 338, 343 (2d Cir. 1970). Instead, when circumstances
suggest "to an investor of ordinary intelligence the probability
that she has been defrauded, a duty of inquiry arises, and
knowledge will be imputed to the investor who does not make such
an inquiry." Dodds v. Cigna Sec., Inc., 12 F.3d 346, 350 (2d
Cir. 1993); see Hirschfeld v. Total Health Sys., Inc.,
775 F. Supp. 574, 578 (E.D.N.Y. 1991).
Assuming arguendo that Plaintiff made a second
"purchase"*fn8 of securities when Defendants paid him the
additional 1900 shares in 1997 and that Defendants' continued
misrepresentations induced him into accepting these shares in
lieu of money for his services, Plaintiff cannot reasonably
claim that he should not have been aware of the possibility of
fraud against him. In particular, Plaintiffs complaint alleges
that Defendants promised to buy equity in SPGL in "early 1995."
By 1997, the date of Plaintiffs second "purchase," Defendants
still had not provided him with any direct evidence of an
ownership interest in SPGL.
Nevertheless, Plaintiff, a full two years after Defendants
were supposed to have provided him with evidence of an ownership
interest in SPGL, accepted these shares. Moreover, even after
accepting these shares, he waited another two and one half years
before instituting suit. Plaintiff provides no explanation as to
why he continued to rely on Defendants' continued statements
about his investments nor does he offer any reason why a person
of "ordinary intelligence" would not have made additional
inquiries about the status of their purchases after the target
date of 1995 passed without any indication that Defendants
purchased equity in SPGL.
Once 1995 came and went without any concrete evidence
regarding Defendants' disposition of Plaintiffs money, Plaintiff
had a duty to inquire further about its status and should not
have accepted the additional shares without satisfying himself
that the shares "purchased" were not tainted by fraud. He did
not. Consequently, the Court holds that because Plaintiff did
not satisfy his duty of inquiry in the requisite time period
established by 15 U.S.C. § 78i(e), his section 10b and
Rule 10b-5 claims against Defendants for his receipt of 1900 shares
of stock are time barred and Count 1 is dismissed with
ii. Statute of Limitations on Plaintiffs Section 12(2)
The Securities Act, in relevant part, states that claims
arising under section 12(2) cannot be brought more than three
years after sale of the security to the injured investor. See
15 U.S.C. § 77m. For purposes of analysis under 15 U.S.C. § 77m,
sale occurs when the parties to the transaction obligate
themselves to perform the purchase even if formal performance of
their agreement happens at some later date. See Finkel v.
Stratton, 962 F.2d 169, 173 (2d Cir. 1992); Radiation
Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 891 (2d Cir. 1972);
Ackerman v. National Prop. Analysts, Inc., 887 F. Supp. 494,
503 (S.D.N.Y. 1992). As a result, the formality of a
transaction's closing date or the date of the stock
certificate's issuance is irrelevant to the Court's
determination of when the statute of limitations for Plaintiffs
section 12(2) claim began to run. See Finkel, 962 F.2d at 173.
Plaintiff relies on a host of cases from the 1970's and from
outside this Circuit to assert that the "sale" under
15 U.S.C. § 77m occurs on the last date of the relevant transaction. As the
above cases indicate, Plaintiffs assertion is in direct
contradiction to the law of this Circuit. The relevant inquiry
courts in this Circuit must undertake is to determine when the
parties obligated themselves to perform the purchase. Using this
standard, the Court concludes that the parties became obligated
to perform at the time of Plaintiff's transfer of funds to
Defendants in February 1995.
Indeed, the investor memorandum provided to the Court, notably
containing Plaintiffs name as a contact person, and the attached
subscription form indicate that upon transfer of funds to
Defendants, Plaintiff was locked into the deal for a period of
three years. In short, upon Plaintiffs transfer of funds to
Defendants he "lost the ability to withdraw from the deal" and
the statute of limitations on any section 12(2) claim he had
against Defendants began to run. Finkel, 962 F.2d at 173.
Consequently, his claim became time barred in February of 1998,
long before the instant suit was filed.*fn10 The Court
therefore dismisses Count 2 against Defendants with
C. Defendant Brij Bharteey's Motion to Dismiss the
Remaining Claims Against Him
i. Pleading Requirements for Plaintiff to Assert a Claim of
Fraud Against Defendant Bharteey
The Federal Rules of Civil Procedure require that "the
circumstances constituting fraud . . . be stated with
particularity. Malice, intent, knowledge, and other conditions
of mind of a person may be averred generally." Fed.R.Civ.P.
9(b). To meet his burden of pleading a claim of fraud against
defendant Bharteey, Plaintiff must adequately specify the
misleading or fraudulent statements he alleges he relied upon as
well as the location, time frame, and identity of those
responsible for making the statements in his complaint. See
Goldman v. Belden, 754 F.2d 1059, 1069-70 (2d Cir. 1985);
DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242,
1247 (2d Cir. 1987).
However, the requisite intent of the alleged perpetrator of
the fraud need not be alleged with great specificity as a
plaintiff cannot be expected to plead a defendant's actual state
of mind. See Wight v. Bankamerica Corp., 219 F.3d 79, 91
(2000). The Court may infer scienter when the facts alleged show
that the claimant possessed a motive to defraud the opposing
party and had a clear opportunity to do so. See Goldman v.
Belden, 754 F.2d 1059, 1070 (2d Cir. 1985).
Under these standards, the complaint is utterly deficient as
applied to defendant Bharteey. Of the 101 paragraphs in the
complaint, only four mention Bharteey. Of those four paragraphs,
only paragraph seventy-seven attempts in any way to link him to
the alleged fraud at issue in the current case. That paragraph
merely states that "Mr. Bharteey is separately and personally
liable to plaintiffs for fraud as a willing participant in the
fraud, and/or by virtue of having acquiesced in and accepted the
benefits of the fraud with full knowledge thereof."
Nowhere does Plaintiffs complaint indicate specific misleading
or fraudulent statements that defendant Bharteey made to
Plaintiff that Plaintiff reasonably relied upon. Nowhere does
Plaintiff specify the location of any such statements, nor does
he mention any time frame for any such statements. In order to
counter these deficiencies, Plaintiff argues in his opposition
papers that any alleged fraud committed by the Corporate
Defendants is presumed to have been committed by defendant
Bharteey. In essence, Plaintiffs papers appear to rely on the
"group pleading doctrine" in order to avoid the necessity of
identifying specific fraudulent acts of defendant Bharteey that
expose him to liability. See generally Elliott Assocs, L.P. v.
Hayes, No. 00 CV 5583, 2000 WL 1886585, 2000 U.S. Dist. LEXIS
18716, at *19 (S.D.N.Y. Dec. 29, 2000).
Under the group pleading doctrine, a plaintiff "may rely on a
presumption that statements in prospectuses, registration
statements, annual reports, press releases, or other
group-published information are the collective work of those
individuals with direct involvement in the everyday business of
the company." In re Oxford Health Plans, Inc., 187 F.R.D. 133,
142 (S.D.N.Y. 1999) (internal quotation marks and citation
omitted); see also In re Livent Inc. Sec. Litig., 78 F. Supp.2d 194,
219 (S.D.N.Y. 1999) (stating that the group pleading
doctrine permits plaintiffs "to allege that misstatements
contained in company documents may be presumed to be the work of
the company's officers and directors") (citations omitted). In
essence, when the individual defendant is part of a "narrowly
defined group of highly ranked officers or directors who
participate in the preparation and dissemination of a
[published document], plaintiffs are not expected to bear the
burden of having to identify the role of each defendant in the
fraud without the benefit of any discovery." Degulis v. LXR
Biotech., Inc., 928 F. Supp. 1301, 1311-12 (S.D.N.Y. 1996).
Plaintiffs subsequent papers do indicate that Plaintiff might
fit the role of an insider under the group pleading doctrine
but, as presently drafted, his complaint fails to meet even this
lessor pleading standard. Thus, the Court has no choice but to
dismiss Plaintiffs fraud claim (Count 3) against defendant
Bharteey without prejudice. While dismissing this fraud claim,
the Court is mindful that Plaintiff has made an application to
replead this claim if necessary and that under Fed.R.Civ.P.
15(a), "leave to amend should be freely given when justice so
requires." Fed.R.Civ.P. 15(a). Accordingly, Plaintiff, pursuant
to L.R. 7.1(a)(4), is granted leave to file a motion to amend
his complaint as to the fraud claim against defendant Bharteey
within thirty days of the date of this order to satisfy the
heightened pleading requirements of Fed.R.Civ.P. 9(b) or the
lessor requirements of the group pleading doctrine.*fn12
ii. Plaintiffs Breach of Contract Claims against Defendant
Plaintiffs fourth cause of action is for specific performance,
a remedy for breach of contract, his fifth cause of action.
Plaintiff has voluntarily withdrawn his fifth cause of action
against defendant Bharteey so the Court does not need to address
defendant Bharteey's motion to dismiss as it relates to that
cause of action. Plaintiff has not, however, withdrawn his
specific performance cause of action against defendant Bharteey.
The core of Plaintiffs specific performance claim is that the
Corporate Defendants refused to honor their contractual promise
and subsequent oral promises to issue SPGL shares to him.
According to Plaintiff, only a court order mandating that
Defendants issue him SPGL shares in exchange for his
SIL-Mauritius shares will grant him the benefit of his bargain
with Defendants. Plaintiff did not withdraw this claim against
defendant Bharteey because he is allegedly a director of SPGL
and a controlling entity of the Corporate Defendants and might
be required to sign documents or otherwise take part in any
court ordered transfer and/or reissuance of SPGL shares to
It is fundamental that corporations are presumed to have an
existence separate and distinct from their shareholders,
directors, and officers. See Billy v. Consolidated Machine Tool
Corp., 51 N.Y.2d 152, 163, 432 N.Y.S.2d 879, 412 N.E.2d 934
(1980). Moreover, it is equally fundamental that courts will not
normally impose personal liability upon these individuals for
acts of the corporation. See id.; see also Prudential-Bache
Metal Co. v. Binder, 121 A.D.2d 923, 926, 504 N.Y.S.2d 646 (1st
Dep't 1986). Since Plaintiff has pled no facts which would
support the imposition of personal liability upon defendant
Bharteey requiring him to specifically perform any breach of
contract or oral promise, the Court dismisses that claim (Count
4) against him with prejudice.*fn13
iii. Plaintiffs Breach of Fiduciary Duty Claim Against
Plaintiffs sixth claim against defendant Bharteey alleges that