The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge
Plaintiffs JHW Greentree Capital, L.P. and TMI Integrated Holdings Corp. (collectively "Greentree") brought this action against defendants Whittier Trust Company ("Whittier"), William C. Johnson ("Johnson"), Todd B. Loftis ("Loftis") and Linda Loehr ("Loehr") for, inter alia, violations of sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 ("Exchange Act"). On November 10, 2005 I granted Whittier and Linda Loehr's motion to dismiss the complaint in its entirety. See JHW Greentree Capital, L.P. v. Whittier Trust Co., No. 05 Civ. 2985, 2005 U.S. Dist. LEXIS 27156 (S.D.N.Y. Nov. 10, 2005). I denied Johnson and Loftis' motion to dismiss plaintiff's federal claims, but granted their motion with respect to certain common law claims. Id. Familiarity with my prior Opinion and Order and the recitation of facts therein is assumed. Plaintiffs have now filed an amended complaint, permission for which was afforded in my prior Opinion, and Loehr, Whittier and Johnson move to dismiss this complaint in its entirety.*fn1
I held oral argument on this motion on April 10, 2006. At the conclusion of argument, I granted Whittier's motion to dismiss plaintiffs' section 10(b) claim and denied defendants' motion to dismiss the remaining federal claims. I write now to elucidate my reasons for so holding.
A. Section 10(b) of the Exchange Act
"To state a cause of action under section 10(b) and Rule 10b-5, a plaintiff must plead that the defendant made a false statement or omitted a material fact [in connection with the purchase or sale of securities], with scienter, and that plaintiff's reliance on defendant's action caused plaintiff injury." Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2000) (internal quotation omitted). "The requisite state of mind, or scienter, in an action under section 10(b) and Rule 10b-5 that the plaintiff must allege is an intent to deceive, manipulate or defraud." Id. (internal quotation omitted). The Private Securities Litigation Reform Act of 1995 ("PSLRA") imposed heightened pleading requirements for securities fraud actions. Id. The PSLRA provides that:
In any private action . . . in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.
To establish fraudulent intent, a plaintiff may either allege facts showing "that defendants had both motive and opportunity to commit fraud" or allege "facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Kalnit, 264 F.3d at 138 (internal quotation omitted). A plaintiff may establish the requisite circumstantial evidence of scienter by alleging that the defendants: "(1) benefited in a concrete and personal way from the purported fraud . . .; (2) engaged in deliberately illegal behavior . . .; (3) knew facts or had access to information suggesting that their public statements were not accurate . . .; or (4) failed to check information they had a duty to monitor." Novak v. Kasaks, 216 F.3d 300, 311 (2d Cir. 2000).
I granted Linda Loehr's motion to dismiss plaintiffs' original complaint, finding that based on the allegations then plead, Loehr was not responsible for any affirmative misrepresentations made to plaintiffs in connection with the sale of Tools & Metals, Inc. ("TMI"). I also found that plaintiffs had failed to allege that Loehr had a duty to disclose any material adverse information about TMI to the plaintiffs. See Greentree, 2005 U.S. Dist. LEXIS 27156, *20-26. Plaintiffs' amended complaint contains numerous new allegations against Loehr. Plaintiffs now allege, inter alia, that: Linda Loehr attended Andrew Loehr's 1998 deposition in the California action at which Andrew Loehr discussed Loftis' fraud on Lockheed (Am. Compl. ¶ 35); Linda Loehr received an email from Loftis in 1999 boasting that TMI's reported cost savings to Lockheed was just "smoke and mirrors" (Id. ¶ 39); in May 2000, Linda Loehr received several emails from another TMI employee warning her of malfeasance involving Loftis and the Lockheed contract (Id. ¶¶ 40-45); and that Linda Loehr received an email from an outside director of TMI, Alan Dunn, stating that Loftis' behavior was "close to the line of criminality." (Id. ¶ 49).
These allegations "constitute strong circumstantial evidence of . . . recklessness." Kalnit, 264 F.3d at 138. However, plaintiffs must also allege that Linda Loehr was responsible for a material misrepresentation or omission. Primary liability for violations of section 10(b) of the Exchange Act "may be imposed. . . on persons who made fraudulent misrepresentations [and] on those who had knowledge of the fraud and assisted in its perpetration." Wright v. Young, 152 F.3d 169, 176 (2d Cir. 1998) (internal quotation omitted). Under the "group pleading doctrine," "plaintiffs may rely on a presumption that statements" in jointly published materials "are the collective work of those individuals with direct involvement in the everyday business of the company." In re Vivendi Universal, S.A. Securities Litigation, 381 F. Supp. 2d 158, 191 (S.D.N.Y. 2003) (Baer, J.) (internal quotation omitted). "Thus, a member of the upper level management . . . who had knowledge of the fraud, and assisted in its perpetration" may be liable under section 10(b). Id.
In granting Loehr's motion to dismiss the original complaint as to her, I noted that "[p]laintiffs [had] not alleged that . . . Loehr was involved in the day to day operations of TMI, nor that she was directly involved in negotiating or drafting the Merger Agreement." Greentree, 2005 U.S. Dist. LEXIS 27156, *22. The amended complaint remedies these defects. Plaintiffs allege that "TMI paid the majority of its operating profits to the Loehr Trust[,]" of which Linda Loehr was the income beneficiary, and that the "[t]rustees were required to distribute all investment income to Linda Loehr." (Am. Compl. ¶ 53). Plaintiffs also allege that Loehr received frequent updates from Loftis regarding TMI's operations and fiscal health. (Id. ¶¶ 56-60). Loehr became a Vice President of TMI in 1997 and remained an officer of the company until it was sold to the plaintiffs. (Id. ¶ 55). In addition, Loftis' communications to other TMI employees evidence Loehr's significant influence over TMI's affairs. In an email from Loftis to another employee dated February 15, 2002, Loftis discussed TMI's cash flow and stated that "[w]henever we have more than $2[million] in cash Linda's attorney starts going deep end [sic.], we need to start burning it quick." (Id. ¶ 61).
Plaintiffs' amended complaint also alleges that Loehr was involved in drafting the Merger Agreement. Plaintiffs allege that Loehr's attorney reviewed and commented on the agreement, and that the trust beneficiaries (including Loehr) approved the deal. (Id. ¶¶ 63-65, 94-96). Plaintiffs further allege that Dunn, who attended various board meetings at which the terms of the merger were discussed, recalls that Loehr was well ...