The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge
This case arises out of tax and consulting services offered by
several professional law, financial services and accounting
firms. Plaintiffs, William and Sharon Seippel, allege that
defendants*fn1 defrauded plaintiffs through the development, marketing and sale of a tax shelter (a strategy
involving digital options or swaps on foreign currency sometimes
known as "COBRA") which they knew the IRS would challenge as
lacking economic substance. The Seippels filed this suit on
September 10, 2003, alleging that defendants violated the
Racketeer Influenced and Corrupt Organizations Act ("RICO"),
18 U.S.C. § 1962, and are liable for damages and other relief
arising from breach of fiduciary duty, inducing breach of
fiduciary duty, fraud, negligent misrepresentation, breach of
contract, malpractice, "unethical, excessive, illegal and
unreasonable fees," and unjust enrichment.*fn2 The Seippels
allege both federal question jurisdiction pursuant to
28 U.S.C. § 1331 and diversity jurisdiction pursuant to 28 U.S.C. § 1332.
In an Opinion and Order dated August 25, 2004, the Court
granted, in part, the Deutsche Bank and Brown and Wood
Defendants' motions to dismiss.*fn3 The Seippels' factual
allegations are described in detail in that Opinion, familiarity
with which is presumed. The Court held that the Seippels' RICO
claims were barred by Section 107 of the Private Securities Litigation Reform
Act ("PSLRA") of 1995.*fn4 The PSLRA amended RICO to provide
that "no person may rely upon conduct that would have been
actionable as fraud in the purchase or sale of securities to
establish a violation of section 1962."*fn5 Because as
argued by the Deutsche Bank and Brown & Wood defendants the
conduct alleged by the Seippels is "in connection with" the
purchase or sale of securities, and is therefore actionable as
securities fraud, the Court dismissed the Seippels' RICO claims.
However, the Court sustained the Seippels' common law fraud
claim, finding that the Seippels had alleged that claim with the
particularity required by Federal Rule of Civil Procedure 9(b).
The Court also dismissed the Seippels' state law claims for
breach of fiduciary duty, malpractice, negligent
misrepresentation, breach of contract and inducing breach of
fiduciary claims, but sustained the Seippels' state law
disgorgement claim. Finally, the Court granted the Seippels leave
to amend their complaint to state a claim for securities fraud.
The Seippels have filed a Second Amended Complaint, alleging a
securities fraud claim.
The Deutsche Bank Defendants and Brown & Wood Defendants now
move to dismiss the Seippels' securities fraud claim. Defendants
argue, first, that the Complaint does not satisfy the heightened pleading
standards of the PSLRA; second, that the Seippels' securities
fraud claim is time-barred; and third, that the Seippels'
securities fraud claim against Deutsche Bank and Brown & Wood is
an improper claim of aiding and abetting. Deutsche Bank also
argues that Sharon Seippel has no standing to assert a claim of
securities fraud. Finally, Deutsche Bank now moves to dismiss the
Seippels' common law fraud claim as time barred.*fn6
II. THE STANDARD OF REVIEW
A motion to dismiss should be granted only if "`it appears
beyond doubt that the plaintiff can prove no set of facts in
support of [its] claim which would entitle [it] to
relief.'"*fn7 At the motion to dismiss stage, the issue "is
not whether a plaintiff is likely to prevail ultimately, but
whether the claimant is entitled to offer evidence to support the
claims. Indeed, it may appear on the face of the pleading that a
recovery is very remote and unlikely, but that is not the test."*fn8 The task of the court in ruling on a motion to
dismiss is "merely to assess the legal feasibility of the
complaint, not to assay the weight of evidence which might be
offered in support thereof."*fn9 When deciding a motion to
dismiss, courts must accept all factual allegations in the
complaint as true and draw all reasonable inferences in
plaintiff's favor.
A complaint need not state the legal theory, facts, or elements
underlying the claim except in certain instances.*fn10
Pursuant to the simplified pleading standard of Rule 8(a) of the
Federal Rules of Civil Procedure, "a complaint must include only
`a short and plain statement of the claim showing that the
pleader is entitled to relief.'"*fn11 In contrast, the
heightened pleading standard of Rule 9(b) requires that in claims
of fraud or mistake "the circumstances constituting fraud or
mistake shall be stated with particularity."*fn12 A
complaint alleging fraud must: "`(1) specify the statements that the
plaintiff contends were fraudulent, (2) identify the speaker, (3)
state where and when the statements were made, and (4) explain
why the statements were fraudulent.'"*fn13 "Where multiple
defendants are asked to respond to allegations of fraud, the
complaint should inform each defendant of the nature of his
alleged participation in the fraud."*fn14
Rule 9(b) is intended "to provide a defendant with fair notice
of plaintiff's claim, to safeguard a defendant's reputation from
improvident charges of wrongdoing, and to protect a defendant
against the institution of a strike suit."*fn15 Accordingly,
a plaintiff must allege facts that give rise to a strong
inference of fraudulent intent.*fn16 Allegations of fraud
may not be based upon information and belief, except as to
matters peculiarly within the opposing party's knowledge; in such
a case, the allegations must be accompanied by a statement of the
facts upon which the belief is founded.*fn17 "Similarly, the PSLRA ? requires that any securities fraud
complaint alleging misleading statements or omission of material
fact must `specify each statement alleged to have been
misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or
omission is made on information and belief, the complaint shall
state with particularity all facts on which that belief is
formed.'"*fn18 The PSLRA "does not require that plaintiffs
plead with particularity every single fact upon which their
beliefs concerning false or misleading statements are based.
Rather, plaintiffs need only plead with particularity sufficient
facts to support those beliefs."*fn19 "Even with the
heightened pleading standard under Rule 9(b) and the Securities
Reform Act [the Second Circuit does] not require the pleading of
detailed evidentiary matter in securities litigation."*fn20
A. The Seippels Have Pled Their Securities Fraud Claim With
Sufficient Particularity
The Court has already determined that the Seippels have alleged their common-law fraud claims with sufficient particularity to
meet the heightened pleading standards of Rule 9(b). Similarly,
the Seippels' allegations of securities fraud are pled with
sufficient particularity to meet the requirements of the PSLRA.
The Complaint identifies the allegedly false statements made to
the Seippels, explains why they were false, and states when,
where and by whom they were made.
The representations on which the Seippels' claims rely were
made by Charles Paul of Ernst & Young, not directly by Deutsche
Bank or Brown & Wood. However, the Seippels allege, on
information and belief, that Paul was "acting at the behest of
and with the knowledge and authority of" Deutsche Bank and Brown
& Wood.*fn21 The Seippels' Complaint sufficiently supports
that belief. The Complaint describes the role played in the
conspiracy by each defendant, including Brown & Wood and Deutsche
Bank.*fn22 The facts pled regarding the relationship between
defendants and Ernst & Young, and the role played by defendants in devising and marketing COBRA, in addition to the
facts regarding the communications made directly by Brown & Wood
and Deutsche Bank to the Seippels, adequately justify the
Seippels' belief that Deutsche Bank and Brown & Wood were
responsible for the ...