Opinion
Civil No. 01-142-HA
December 20, 2001
OPINION AND ORDER
Presently before the court are defendant Georges C. St. Laurent Jr. and defendant William C. St. Laurent's motions (#10, 18) to dismiss the plaintiffs' first amended complaint.
STANDARD OF REVIEW
Pursuant to Fed.R.Civ.P. 12(b), a complaint may be dismissed if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Tanner v. Heise, 879 F.2d 572, 576 (9th Cir. 1989) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In making this determination, this court accepts all allegations of material fact as true and construes the allegations in the light most favorable to the nonmoving party. Id.
BACKGROUND
The plaintiffs have filed claims for securities violations under ORS 59.115, fraud, breach of contract and rescission. Briefly, assuming the truth of the allegations in the complaint, the defendants sold the plaintiffs asset-backed collateralized notes (the TAC Notes) in December, 1998. These notes were issued by an affiliate of Vitech. The defendants are all officers, directors, or major stockholders of Vitech.
After purchase of the TAC Notes, the defendants again solicited the plaintiffs, and again the plaintiffs invested. The second investments were 9% debentures which the defendants transferred to the plaintiffs in exchange for the TAC Notes by means of individual Exchange Agreements. Although the debentures and the Exchange Agreements were effective March 1, 2001, it appears that Susan Mann executed two of the Exchange Agreements on December 20, 2000, and Paul Farago signed his Exchange Agreement on January 8, 2001.
All seven of the debentures appear to be identical except for the amounts of the transactions. The Exchange Agreements also appear to be identical except for the amounts of the transactions. The total amount of debentures is approximately 2.4 million dollars.
Vitech has filed for bankruptcy, and is unable to fulfill its obligation of paying the debentures.
The defendants have moved to dismiss plaintiffs' claims against them based on the mutual releases contained in the Exchange Agreements, which state:
Except for the breach of this Agreement, each party, on behalf of themselves and their respective administrators, successors, agents, attorneys, assigns, employees and affiliates hereby releases and forever discharges, waives and relinquishes the other party, its administrators, successors, agents, attorneys, officers, directors, employees, assigns and affiliates from any and all claims, demands, lawsuits, causes of action, obligations, damages, debts, liabilities, sums of money, including attorneys' fees and costs, whether in law or in equity, whether known or unknown (collectively, "Claims"), occurring at any time prior to and including the date hereof.
The plaintiffs argue that the Exchange Agreements were not incorporated into the complaint and thus cannot be considered by the court.
The Exchange Agreements are the documents that the plaintiffs seek to rescind, and are the documents by which the debentures were transferred. The plaintiffs refer to the Exchange Agreements in their complaint.
DISCUSSION
As a preliminary matter, the court finds it appropriate to consider the Exchange Agreements in deciding this motion to dismiss. Although the plaintiffs did not include the entire text of those agreements in the complaint, they were referenced in the complaint and are clearly material to the plaintiffs' claims of fraud in the inducement and rescission, as it is the Exchange Agreements into which the plaintiffs were allegedly fraudulently induced to enter.The defendants rely on Ristau v. Wescold, Inc., 318 Or. 383 (1994), which does hold that "the mutual release agreement bars plaintiff's claim that the stock sale agreement fraudulently was induced . . ." Id. at 390. However, the defendants misunderstand Ristau. In Ristau, the stock sale agreement and the release agreement were separate documents. The plaintiff "conceded that the release was not fraudulently induced." Id. at 389. Therefore, the court did not address the claim presented by the plaintiffs in this case, that is, that the release was fraudulently induced. Until the validity of the release is determined, it appears that any motion to dismiss is premature.
Defendants are correct that the complaint does not plead the fraud claim with sufficient specificity as required by Rule 9 of the Federal Rules of Civil Procedure. The basis for the fraud claim should be contained within the paragraphs specific to that claim, and should set forth the circumstances of the fraud with specificity, including the statements made by particular defendants which constitute the fraud.
The claim for fraud in the inducement is developed in the plaintiffs' memorandum in opposition to the defendants' motions rather than in the complaint.
CONCLUSION
The defendants' motions (#10, #18) to dismiss are denied. The plaintiffs shall have 30 days from the date of this order to file an amended complaint which sets forth the fraud claim with the specificity required by Fed.R.Civ.P. 9(b).