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Martin A. Schulman, M.D v. : Alvin J. Delaire

February 22, 2011


The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge:


Plaintiffs in this case allege that the Defendant, a securities broker, bears responsibility for losses that they incurred as a result of their investments with non-parties Bernard L. Madoff ("Madoff"), Bernard L. Madoff Investment Securities, LLC ("BMIS"), and the Madoff Fund (collectively, the "Madoff Entities"). The Plaintiffs claim violations of the Section 10(b) of the 1934 Securities Exchange Act (the "Exchange Act"), 15 U.S.C. § 78j(b), an unspecified breach of the 1933 Securities Act (the "Securities Act"), 15 U.S.C. §§ 77a et seq., and a number of related state law claims. Plaintiffs allege that the Defendant's fraudulent misstatements and omissions induced them to invest and ultimately lose $9,600,000. Defendant now moves to dismiss. For the following reasons the motion is granted.


Plaintiffs Dr. Martin Schulman, Martin Schulman Individual Retirement Account ("Schulman IRA"), and Suzanne M. Schulman, Martni Schulman's wife, all invested separately with the Madoff Entities. Am. Compl. ¶¶ 2,3. Defendant Alvin J. Delaire, Jr. is alleged to have been working with the Madoff Entities at the same time that he was a registered securities representative of an entity known as CohMad Securities, Inc. ("CohMad"), a separately registered broker dealer. Am. Compl. ¶ 6.

Schulman first met Delaire in 2002, prior to Schulman's first investment with Madoff. Am. Compl. ¶ 12. Schulman was introduced by a third party to Delaire as a potential source of information regarding the Madoff Entities and a means of introduction to the Madoff Entities' management. Am. Compl. ¶ 14. Prior to meeting Delaire, Schulman had only general information concerning the Madoff Entities, primarily that Madoff had chaired the Board of the NASD, that BMIS was a respected boutique broker dealer and investment advisory firm, that public information indicated that BMIS had billions of dollars under management, and that BMIS accepted only those clients who met certain unknown financial or other standards. Am. Compl. ¶ 13.

According to the Amended Complaint, Delaire made the following representations to Schulman in 2002: (1) that Madoff and BMIS had a system for investing in only the strongest and most liquid of publicly owned companies, while protecting their investors and increasing overall return from such securities (the "Madoff System"); (2) that Delaire was a securities broker with CohMad, an independent company that also invested with Madoff and BMIS; (3) that CohMad had successfully invested many millions of dollars of its own, consistently earning at or above market returns; and (4) that Delaire was personally familiar with the Madoff System and how it worked. Am. Compl. ¶ 16.

Schulman ultimately decided to invest $6,000,000 with Madoff and BMIS at an unspecified time. Am. Compl. ¶ 18. Following this initial investment Delaire kept in irregular contact with Schulman, and intermittently encouraged additional investments by Schulman, Schulman IRA, and eventually Suzanne Schulman. Am. Compl. ¶ 19. Schulman received periodic statements from BMIS that reflected increases in his investment account's value. Am. Compl. ¶ 23. Plaintiffs each made additional investments of millions of dollars between 2006 and 2008. Am. Compl. ¶¶ 26-28.

In December 2009, Madoff confessed that the Madoff Fund was "just one big lie," and "basically, a giant Ponzi scheme." Am. Compl. ¶ 29. The SEC secured injunctive relief against Madoff and BMIS that essentially shut down those entities and rendered them without value. Am. Compl. ¶ 30. Criminal action ensued against Madoff and he has since pled guilty. Am. Compl. ¶ 30.


A motion to dismiss brought under Rule 12(b)(6) will be granted if there is a "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To survive dismissal on this ground, a plaintiff must "plead enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A facially plausible claim is one where "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While the court must "draw all reasonable inferences in the [non-movant's] favor," Roth v. Jennings, 489 F.3d 499, 510 (2d Cir. 2007), it need not accord "[l]egal conclusions, deductions or opinions couched as factual allegations ... a presumption of truthfulness." In re NYSE Specialists Sec. Litig., 503 F.3d 89, 95 (2d Cir. 2007) (quotation marks omitted).

I.The Complaint fails to state a claim for fraud with sufficient particularity The fraud claims alleged here under the Exchange Act, the Securities Act and the common law must satisfy the heightened pleading requirements of Rule 9(b) by stating with particularity the circumstances constituting fraud. See ECA & Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 196 (2d Cir. 2009) (Exchange Act claims); Muller-Paisner v. TIAA, 289 F. App'x 461, 463, 2008 WL 3842899, at *1 (2d Cir. 2008) (common law fraud); Citiline Holdings, Inc. v. iStar Fin. Inc., 701 F. Supp. 2d 506, 513 (S.D.N.Y. 2010) (Securities Act claims sounding in fraud) (quoting Rombach v. Chang, 355 F.3d 164, 166 (2d Cir. 2004).

To comply with Rule 9(b), a plaintiff 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." Rombach, 355 F.3d at 170. "[W]hile Rule 9(b) permits scienter to be demonstrated by inference, this must not be mistaken for license to base claims of fraud on speculation and conclusory allegations. An ample factual basis must be supplied to support the charges." Saltz v. First Frontier, LP, No. 10 Civ. 964 (LBS), 2010 WL 5298225, at *3 (S.D.N.Y. Dec. 23, 2010) (internal citations omitted).

A.The complaint fails to specify fraudulent statements

The Plaintiffs fail to show any statements or misrepresentations that raise their "right to relief above the speculative level." Twombly, 550 U.S. at 555. Indeed, the Plaintiffs' opposition brief points to no facts that support their claims for fraud. See Pl. Mem. Opp. Dismiss at 4-7. The Amended Complaint points vaguely to "oral representations which Defendant Delaire made to Plaintiff Schulman in 2002," to the effect that Madoff and BMIS were successful and reliable investors and ...

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