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SEIPPEL v. SIDLEY

June 14, 2005.

WILLIAM H. SEIPPEL and SHARON A. SEIPPEL, Plaintiffs,
v.
SIDLEY, AUSTIN, BROWN & WOOD, LLP; R.J. RUBLE; DEUTSCHE BANK, A.G.; and DEUTSCHE BANK SECURITIES, INC., d/b/a DEUTSCHE BANK ALEX BROWN, Defendants.



The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

I. INTRODUCTION

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

  III. DISCUSSION

  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 ...


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