The opinion of the court was delivered by: David G. Larimer, Chief Judge.
Plaintiff, John P. Lowe, appearing pro se,*fn1 filed the complaint in
this action on September 1, 2001, alleging claims under federal and New
York law for securities fraud. Defendants, Salomon Smith Barney, Inc.
("SSB") and B. Alex Henderson ("Henderson"), have moved to dismiss the
complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil
The complaint alleges the following facts, which must be accepted as
true for the purposes of deciding the motion to dismiss. At all times
relevant to the complaint, plaintiff held 13,680 shares of common stock
of Nortel Networks Corp. ("Nortel"), in an account with SSB. Defendant
Henderson has been employed by SSB as a Managing Director in equity
research since June 29, 2000, and is an analyst in the telecommunications
equipment sector. As part of his duties, Henderson assumed coverage of
Nortel for SSB in July 2000. Complaint ¶ 7.
Plaintiff alleges that Henderson's recommendations, articulated through
his own research reports and the advice of Alfred F. Kelly, Jr., the SSB
broker on plaintiff's account, caused plaintiff to hold his Nortel shares
to his detriment. Plaintiff alleges that defendants knowingly
misrepresented that the outlook for Nortel stock was favorable, and that
they were motivated to do so by a desire to obtain investment banking
fees from Nortel and to "condition the market" to accept Nortel
securities that SSB was planning to underwrite. In January 2001, SSB
acted as co-lead underwriter of a $2.5 billion debt and equity offering
Plaintiff further alleges that SSB failed to inform plaintiff that,
contrary to traditional practice in the brokerage industry, SSB no longer
maintained an "ethical screen" or "Chinese wall" between its research
analysts and its investment bankers, in order to ensure that its
analysts' recommendations would not be influenced by SSB's own business
Because of these acts and omissions on the part of defendants,
plaintiff alleges, he continued to hold his Nortel shares, the value of
which declined from $86 a share on July 26, 2000 to $6 a share on
September 4, 2001. The total value of plaintiff's Nortel shares declined
by over $1 million.
Based on these allegations, plaintiff asserts six causes of action, all
based on plaintiff's allegation that Henderson knowingly made false and
misleading statements about Nortel's prospects, which led plaintiff to
hold rather than sell his Nortel shares. The first four causes of action
allege violations of, respectively, § 9(e) of the Securities Exchange
Act of 1934 ("the Act"), 15 U.S.C. § 78i; § 10(b) of the Act and
Rule 10b-5, 17 C.F.R. § 240.10b-5; § 15(c) of the Act,
15 U.S.C. § 78o; and § 20(a) of the Exchange Act,
15 U.S.C. § 78t(a). The fifth cause of action asserts a claim for
fraud and misrepresentation
under New York law. The sixth cause of action asserts a claim for breach
of fiduciary duty, also under New York law.
I. Claim under § 15(c) of the Act
Plaintiff's third cause of action asserts a claim under § 15(c) of
the Act, 15 U.S.C. § 78o. The Second Circuit, however "has held that
there is no private right of action under § 15(c)(1)." Boguslavsky
v. Kaplan, 159 F.3d 715, 722 n. 6 (2d Cir. 1998) (citing Asch v.
Philips, Appel & Walden, Inc., 867 F.2d 776, 777 (2d Cir.) (per curiam),
cert. denied, 493 U.S. 835 (1989)). Plaintiff himself apparently concedes
that Asch bars his claim, since he contends that "the holding of Asch
should be reconsidered in this Circuit." Plaintiff's Memorandum of Law at
9. This Court, however, is bound to follow Second Circuit precedent, and
I have no discretion to "reconsider" decisions of the Court of Appeals.
Plaintiff's third cause of action must therefore be dismissed.
II. Claim under § 9 of the Act
Defendant contends that plaintiff lacks standing to assert claims under
§§ 9(e) and 10(b) of the Act, and under Rule 10b-5, because plaintiff
does not allege that defendants' alleged misrepresentations were
connected with the purchase or sale of any security by plaintiff.
Defendant maintains that plaintiff's allegation that he continued to hold
securities that he already owned is not enough to give rise to a claim
under any of these provisions.
Section 9(a) of the Act, 15 U.S.C. § 78i(a), makes it "unlawful for
any person, . . . [f]or the purpose of creating a false or misleading
appearance of active trading in any security registered on a national
securities exchange, or a false or misleading appearance with respect to
the market for any such security," to engage in certain deceptive
practices, in order to "induce the purchase or sale of any security. . . ."
Section 9(e), 15 U.S.C. § 78i(e), creates a private right of
action, making any person who violates § 9 "liable to any person who
shall purchase or sell any security at a price which was affected by such
act or transaction . . ." on the part of the defendant. Thus, "the cause
of action expressly established by § 9(e) ...