UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
May 7, 2013
MOHAMMED FEZZANI, CIRENACA FOUNDATION, DR. VICTORIA BLANK, LESTER BLANK, JAMES BAILEY, JANE BAILEY, BAYDEL LTD., MARGARET BURGESS, PATRICK BURGESS, BOOTLESVILLE TRUST, AND ADAM CUNG, PLAINTIFFS-APPELLANTS,
BEAR, STEARNS & CO. INC., BEAR STEARNS SECURITIES CORP., RICHARD HARRITON, MORRIS WOLFSON, ARIELLE WOLFSON, ABRAHAM WOLFSON, TOVIE WOLFSON, ANDERER ASSOCIATES, BOSTON PARTNERS, WOLFSON EQUITIES, TURNER SCHARER, CHAN SASHA FOUNDATION, UNITED CONGREGATION MESERAH, ISAAC DWECK, INDIVIDUALLY AND AS CUSTODIAN FOR NATHAN DWECK, BARBARA DWECK, MORRIS I. DWECK, RALPH I. DWECK, JACK DWECK, FAHNESTOCK & CO. INC., BARRY GESSER, MICHAEL REITER, AND APOLLO EQUITIES, DEFENDANTS-APPELLEES, ARTHUR BRESSMAN, ANDREW BRESSMAN, RICHARD ACOSTA, GLENN O'HARE, JOSEPH SCANNI, BRETT HIRSCH, GARVEY FOX, MATTHEW HIRSCH, RICHARD SIMONE, CHARLES PLAIA, JOHN MCANDRIS, JACK WOLYNEZ, ROBERT GILBERT, FIRST HANOVER SECURITIES, INC., BANQUE AUDI SUISSE GENEVE, FOZIE FARKASH, RAWAI RAES, BASIL SHIBLAQ, IYAD SHIBLAQ, KEN STOKES, MILLO DWECK, BEATRICE DWECK, RICHARD DWECK, ISAAC B. DWECK, HANK DWECK, AND DONALD & CO., DEFENDANTS.*FN1
Appeal from a September 22, 2008 order and a September 30, 2009 judgment entered in the United States District Court for the Southern District of New York (Paul A. Crotty, Judge).
Fezzani v. Bear, Stearns & Co.
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this Court's Local Rule 32.1.1. When citing a summary order in a document filed with this Court, a party must cite either the Federal Appendix or an electronic database (with the notation "summary order"). A party citing a summary order must serve a copy of it on any party not represented by counsel.
1 At a stated term of the United States Court of Appeals for the Second Circuit, held at the 2 Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 7th 3 day of May, two thousand thirteen.
4 PRESENT: 5 RALPH K. WINTER, 6 JOSE A. CABRANES, 7 RAYMOND J. LOHIER, JR., 8 Circuit Judges.
9 UPON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, 10 ADJUDGED, AND DECREED that the judgment of the District Court be AFFIRMED IN 11 PART and VACATED IN PART AND REMANDED for further proceedings consistent with 12 this order.
13 The instant action began on February 2, 1999, when Mohammed Fezzani, Cirenaca 14 Foundation, Dr. Victoria Blank, Lester Blank, James Bailey, Jane Bailey, Baydel Ltd., Margaret 15 Burgess, Patrick Burgess, Bootlesville Trust, and Adam Cung (jointly "plaintiffs") filed suit against 16 more than fifty corporate and individual defendants. The complaint asserted claims for securities 17 fraud, market manipulation, RICO, aiding and abetting breach of fiduciary duty, and common law 18 fraud, all arising out of the criminal conduct of A.R. Baron & Co. ("Baron"), a now-defunct broker- 19 dealer. From 1992 to 1996, Baron manipulated the share prices of a few small, unknown companies 20 that it helped to take public.*fn1 The complaint accused the defendants--each in various ways through 21 different capacities--of assisting Baron in perpetuating its securities fraud. 22 Plaintiffs filed their First Amended Complaint on April 7, 2005. The Amended Complaint 23 included all of the previously named defendants, broken into six groups: (1) the Baron defendants;*fn2
1 (2) the Bear Stearns defendants;*fn3 (3) Fahnestock & Co. Inc. ("Fahnestock"); (4) the Dweck 2 defendants;*fn4 (5) the Wolfson defendants;*fn5 and (6) the Apollo defendants.*fn6 The causes of action also 3 remained unchanged, except that plaintiffs dropped one aspect of their market manipulation 4 claim--based on Section 9 of the Securities Exchange Act--and added a claim for civil conspiracy 5 to commit fraud. Once again, different causes of action were advanced against different groupings 6 of defendants.
7 On September 22, 2008, the District Court granted the motions to dismiss of all defendants, 8 save for the Apollo defendants. Fezzani v. Bear, Stearns & Co., 592 F. Supp. 2d 410 (S.D.N.Y. 2008). 9 A year later, the District Court dismissed the entire action sua sponte after the case had been dormant 10 for nearly a year. Plaintiffs now appeal these separate orders. We decide plaintiffs' appeal with 11 respect to the Dwecks in an opinion filed simultaneously with this summary order, and we address 12 the remainder of the appeal in this summary order. We assume the parties' familiarity with the facts, 13 procedural history, and legal issues currently before us.
15 We review de novo a district court's dismissal of a complaint for failure to state a claim under 16 Rule 12(b)(6). Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009). "In conducting this 17 review, we assume all 'well-pleaded factual allegations' to be true, and 'determine whether they 18 plausibly give rise to an entitlement to relief.'" Id. (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 1 (2009)). A complaint alleging securities fraud must satisfy Rule 9(b), which requires that "the 2 circumstances constituting fraud . . . shall be stated with particularity." Fed. R. Civ. P. 9(b).
3 Additionally, we have interpreted the pleading standards of the Private Securities Litigation Reform 4 Act, codified at 15 U.S.C. § 78u-4(b), to require that a defendant's intent be pleaded and based on 5 "facts [either] (1) showing that the defendants had both motive and opportunity to commit the fraud 6 or (2) constituting strong circumstantial evidence of conscious misbehavior or recklessness." ATSI 7 Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007).
8 Having conducted an independent and de novo review of the record in light of these 9 principles, we affirm the judgment of the District Court as it concerns the Bear Stearns defendants 10 and Fahnestock for substantially the reasons stated by the District Court it its thorough opinion. 11 Fezzani v. Bear, Stearns & Co., 592 F. Supp. 2d 410 (S.D.N.Y. 2008). This leaves only plaintiffs' 12 claims against the Wolfson defendants and Apollo defendants for our review in this summary order.
III. The Wolfson Defendants
14 The Wolfsons*fn7 are investors who are alleged to have made an express agreement with Baron 15 to help facilitate Baron's fraud by engaging in manipulative "wash sales" and stock parking in 16 exchange for sweetheart stock purchasing opportunities and other agreements. The Wolfsons, who 17 are also alleged to have invested in Baron, were accused of (1) committing securities fraud in 18 violation of Section 10(b) and Rule 10b-5, based on alleged material misrepresentations and 19 omissions; (2) committing securities fraud in violation of Section 10(b) and Rule 10b-5, based on 20 alleged market manipulation; and (3) committing various types of state law fraud.
21 Plaintiffs do not pursue their material misrepresentation claim against the Wolfson 22 defendants on appeal, and they also acknowledge that their market manipulation claim is foreclosed 1 by the relevant statute of limitations (since all of the relevant stock "parking," etc., took place prior 2 to February 2, 1996, more than three years before the complaint was first filed).
3 This leaves only the state law claims--civil conspiracy to defraud and aiding and abetting 4 fraud--to consider.*fn8 Although a close call, after reviewing the complaint, we are persuaded that 5 plaintiffs sufficiently pleaded with particularity the involvement of Morris, Aaron, and Abraham 6 Wolfson in the alleged conspiracy such that plaintiffs can survive a motion to dismiss as to these 7 three defendants' state law claims only.*fn9
IV. The Apollo Defendants
9 The District Court's order of September 22, 2008, granted every defendant's motion to 10 dismiss save for that of the Apollo defendants. However, plaintiffs took absolutely no action on this 11 pending matter for over a year, when the District Court sua sponte dismissed the action. 12 We review a district court's decision to dismiss an action for failure to prosecute for an 13 abuse of discretion. See Shannon v. GE, 186 F.3d 186, 193 (2d Cir. 1999). In making this 14 determination, we examine five principal factors: (1) the duration of the plaintiff's failures, (2) 15 whether plaintiff had received notice that further delays would result in dismissal, (3) whether the 16 defendant is likely to be prejudiced by further delay, (4) whether the district judge has taken care to 17 strike the appropriate balance between alleviating court calendar congestion and protecting a party's 18 right to due process and a fair chance to be heard, and (5) whether the judge has adequately assessed 19 the efficacy of lesser sanctions. Id. at 193-94.
20 The District Court's terse sua sponte order was given without notice and was not accompanied 21 by any meaningful justification or explanation. However, this matter has been pending since early 1 1999. Most importantly, on appeal, plaintiffs offer no compelling justification or explanation 2 whatsoever for their delay. Accordingly, we find no error in the District Court's decision to dismiss 3 plaintiffs' claims against the Apollo defendants.
5 For the foregoing reasons, the judgment of the District Court is hereby AFFIRMED as to 6 every defendant save for the Dwecks, Morris Wolfson, Aaron Wolfson, and Abraham Wolfson. 7 The judgment of the District Court dismissing plaintiffs' state law claims against Morris Wolfson, 8 Aaron Wolfson, and Abraham Wolfson for civil conspiracy to defraud and aiding and abetting fraud 9 are hereby VACATED.
The cause is REMANDED to the District Court for proceedings
consistent with this order.
FOR THE COURT,
Catherine O'Hagan Wolfe, Clerk of Court