Opinion
Civil Action No. 3:02-CV-0641-G
January 16, 2003
MEMORANDUM ORDER
Before the court are following motions: (1) the motion of the defendant Paul Bagley ("Bagley") to dismiss this case on grounds of res judicata and collateral estoppel; (2) the renewed motion of Bagley to dismiss this case for failure to plead fraud with particularity; and (3) the motion of the plaintiffs American Realty Trust, Inc. ("ART") and Basic Capital Management, Inc. ("BCM") (collectively, "the plaintiffs") to dismiss their claims against Bagley without prejudice. For the reasons stated below, Bagley's renewed motion to dismiss this case for failure to plead fraud with particularity is granted. Bagley's motion to dismiss the case on res judicata and collateral estoppel grounds, as well as the plaintiffs' motion to dismiss the case without prejudice, are denied as moot.
I. BACKGROUND
On October 24, 2002, this court found that the plaintiffs' original complaint against Bagley failed to satisfy the heightened pleading requirement imposed by Federal Rule of Civil Procedure 9(b). Memorandum Order (entered on October 24, 2002) ("October Order") at 10-11. The court, however, denied Bagley's motion to dismiss pursuant to Rule 9(b) and instead granted his motion for a more definite statement. Id. at 11-12. In granting this motion, the court followed the well-settled principle in this circuit that dismissal for failure to plead fraud with particularity should be avoided until the plaintiffs have been permitted an opportunity to amend their complaint. Id. at 12 (citing cases). On November 14, 2002, the plaintiffs filed an amended complaint. See Plaintiffs' Amended Complaint ("Amended Complaint"). Believing the amended complaint failed to cure the Rule 9(b) deficiencies of the original complaint, Bagley now renews his motion to dismiss for failure to plead fraud with particularity. See Memorandum of Law in Support of Defendant Paul Bagley's Motion to Dismiss on Grounds of Res Judicata and Collateral Estoppel, and Renewed Motion to Dismiss for Failure to Satisfy Rule 9(b) ("Motion") at 1-2.
This court's memorandum order of October 24, 2002, dismissing the defendants Hamilton Lane Advisors, Inc. and Leslie A. Brun from this case for lack of personal jurisdiction, contains a discussion of the underlying facts.
II. ANALYSIS A. Standard for Dismissal Under Rule 9(b)
A complaint need only recite a short and plain statement of the claim showing that the pleader is entitled to relief. FED. R. Civ. P. 8(a)(2). When, however, a defendant is charged with fraud, the plaintiff must state the circumstances constituting fraud with particularity. FED. R. Civ. P. 9(b).
Rule 9(b) provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Id.
What constitutes particularity will "necessarily differ with the facts of each case." Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir. 1992). Although Rule 9(b) permits a plaintiff to allege generally the defendant's intent to commit fraud, a mere allegation that the defendant had the requisite intent will not satisfy Rule 9(b). See Melder v. Morris, 27 F.3d 1097, 1102 (5th Cir. 1994); Tuchman v. DSC Communications Corporation, 14 F.3d 1061, 1068 (5th Cir. 1994) ("[The] case law amply demonstrates that pleading scienter requires more than a simple allegation that a defendant had fraudulent intent."). To adequately plead fraudulent intent, the plaintiff must set forth specific facts that support an inference of fraud. Tuchman, 14 F.3d at 1068. At a minimum, courts require the plaintiff to specifically state the time, place, and contents of the alleged false representation, as well as the identity of the person making the alleged misrepresentation and what that person obtained thereby. See Williams v. WMX Technologies, Inc., 112 F.3d 175, 177 (5th Cir.) (citing Tuchman, 14 F.3d at 1068), cert. denied, 522 U.S. 966 (1997); Shushany v. Allwaste, Inc., 992 F.2d 517, 521 (5th Cir. 1993); see also United States ex rel. Johnson v. Shell Oil Company, 183 F.R.D. 204, 206 (E.D. Tex. 1998) (explaining that, under Rule 9(b), the complaint must contain the "who, what, when, where, and how" of the false representation). Dismissal of a fraud claim for failure to plead the claim with particularity under Rule 9(b) is treated as a dismissal for failure to state a claim under Rule 12(b)(6). See Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1017 (5th Cir. 1996).
B. Standard for Dismissal Under Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint for "failure to state a claim upon which relief can be granted." However, a motion under Rule 12(b)(6) should be granted only if it appears beyond doubt that the plaintiff could prove no set of facts in support of its claims that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Leffall v. Dallas Independent School District, 28 F.3d 521, 524 (5th Cir. 1994); see also Kaiser Aluminum Chemical Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982) (citing WRIGHT MILLER, Federal Practice and Procedure: Civil § 1357 at 598 (1969), for the proposition that "the motion to dismiss for failure to state a claim is viewed with disfavor and is rarely granted"), cert. denied, 459 U.S. 1105 (1983). In determining whether dismissal should be granted, the court must accept all well-pleaded facts as true and view them in the light most favorable to the plaintiff. See Capital Parks, Inc. v. Southeastern Advertising and Sales System, Inc., 30 F.3d 627, 629 (5th Cir. 1994); Norman v. Apache Corporation, 19 F.3d 1017, 1021 (5th Cir. 1994); Chrissy F. by Medley v. Mississippi Department of Public Welfare, 925 F.2d 844, 846 (5th Cir. 1991). However, the plaintiff "must plead specific facts, not mere conclusory allegations." Guidry, 954 F.2d at 281 (quoting Elliott v. Foufas, 867 F.2d 877, 881 (5th Cir. 1989)).
C. Grounds for Dismissal
Bagley argues that the plaintiffs' amended complaint, like the original complaint, fails to satisfy the heightened pleading requirement imposed by Rule 9(b). Motion at 17. After a careful review of the plaintiffs' amended complaint, the court agrees. The plaintiffs allege that during a meeting in New York on April 5, 2000, former-defendant Leslie A. Brun ("Brun") made a number of statements to the plaintiffs regarding potential financial assistance that Bagley knew were false, yet he "failed to notify ART and BCM that the statements were false." Amended Complaint ¶¶ 10-11, 14-15, 17. To support a connection between Bagley and Brun's allegedly fraudulent conduct, the plaintiffs offer only a rehash of the bare allegations of conspiracy first rejected in this court's October Order. Compare Amended Complaint ¶¶ 14-15 ("Bagley knew that Brun's statements were not true, and in fact, set up the April 5th meeting for the purpose of communicating these false statements to ART and BCM"), with Plaintiff's Original Complaint ("Original Complaint") ¶ 15 ("Brun's statements were made not to effectuate a deal between ART and Hamilton Lane but to further Bagley's credibility and induce ART and BCM to enter into [a consulting agreement]."), and Plaintiffs' Response to Defendant Paul Bagley's Motion to Dismiss or for More Definite Statement and Brief in Support (filed June 17, 2002) ¶ 11 ("[Bagley] knew of the falsity of Brun's representations to ART and BCM; moreover, he conspired with Brun and Hamilton Lane because all three parties shared the common purpose of intending to defraud ART and BCM."). Apparently, the plaintiffs continue to believe — despite the court's prior admonition to the contrary, see October Order at 8-10 — that broad unsupported allegations of conspiracy can satisfy the pleading requirements of the Federal Rules of Civil Procedure. The plaintiffs are misguided in that belief. See Jefferson v. Lead Industries Association, Inc., 106 F.3d 1245, 1250 (5th Cir. 1997) ("conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss"); Guidry v. United States Tobacco Company, 188 F.3d 619, 631-32 (5th Cir. 1999) ("a general allegation of conspiracy without a statement of the facts constituting that conspiracy is only an allegation of a legal conclusion"); cf. Hale v. Harney, 786 F.2d 688, 690 (5th Cir. 1986) ("Mere conclusory allegations of conspiracy cannot, absent reference to material facts, state a substantial claim of federal conspiracy under 42 U.S.C. § 1983.") (internal quotation marks omitted).
The plaintiffs further allege that on or before April 13, 2000, Bagley made false representations regarding the extent of his business contacts "for the sole purpose of inducing ART and BCM into signing a contract with him and his company." Amended Complaint ¶ 13. Although this allegation suggests a potential motive to commit fraud, the plaintiffs plead no facts in support. See Amended Complaint ¶¶ 8-18; Plaintiffs' Brief in Support of Their Response to Defendant Paul Bagley's Motion to Dismiss on Grounds of Res Judicata and Collateral Estoppel and Motion to Dismiss Pursuant to Rule 9(b) ("Response") at 7-9. The plaintiffs argue that Rule 9(b) does not require the complaint to "state all fact [sic] pertinent to a case in order to satisfy Rule 9(b)" and maintain that the sole purpose of Rule 9(b) is to give "notice to an adverse party." Id. at 8-9. The court disagrees. Although the plaintiffs are correct that one purpose of Rule 9(b) is to provide adequate notice to the defendants, see, e.g., Guidry v. Bank of LaPlace, 740 F. Supp. 1208, 1216 (E.D. La. 1990), aff'd, 954 F.2d 278 (5th Cir. 1992), the complaint must set forth some facts lest it be dismissed as containing mere conclusory allegations that amount "to nothing more than speculation." United States ex rel. Thompson v. Columbia/HCA Healthcare Corporation, 125 F.3d 899, 903 (5th Cir. 1997); see also Williams, 112 F.3d at 178 ("Rule 9(b) demands a larger role for pleading in the pre-trial defining of [fraud] claims."). Here, the plaintiffs leave the court to speculate to whom and when Bagley made these allegedly fraudulent representations, the content of those representations, the specific financial institutions involved, and to assume Bagley's fraudulent intent throughout. These omissions cannot be overlooked. See Thompson, 125 F.3d at 903; Tuchman, 14 F.3d at 1068; see also Williams, 112 F.3d at 178 ("A complaint can be long-winded, even prolix, without pleading with particularity.").
The plaintiffs have had two opportunities to plead fraud with particularity. The amended complaint, which merely echoes the conclusory allegations of fraud and conspiracy found lacking in the original complaint, states little with particularity and instead invites the court to make unwarranted inferences and assumptions. Mindful that Rule 9(b) was enacted to guard against the labeling of "non-actionable expression[s] of opinion" as fraud claims, see Williams, 112 F.3d at 178, the court declines this invitation.
Cf. Nieto v. San Perlita Independent School District, 894 F.2d 174, 176 (5th Cir. 1990) (holding that defendants were entitled to qualified immunity from civil rights claims of plaintiff who, when ordered to plead with more particularity, amended his complaint but "included no significant additional details of his claim"). When the plaintiffs have been given a fair opportunity to plead their case with the required factual specificity, dismissal may properly be considered. See Jacquez v. Procunier, 801 F.2d 789, 792 (5th Cir. 1986) ("plaintiffs cannot be allowed to continue to amend or supplement their pleadings until they stumble upon a formula that carries them over the threshold. . . . At some point a court must decide that a plaintiff has had a fair opportunity to make his case; if, after that time, a cause of action has not been established, the court should finally dismiss the suit."). Nieto and Jacquez were civil rights suits which, in this Circuit, have a heightened pleading requirement similar to that imposed by Rule 9(b). See Schultea v. Wood, 47 F.3d 1427, 1430-34 (5th Cir. 1995) (en banc) (discussing heightened pleading requirement in a civil rights case); Elliott v. Perez, 751 F.2d 1472, 1479-82 (5th Cir. 1985) (same).
III. CONCLUSION
For the reasons discussed above, the renewed motion of Bagley to dismiss for failure to plead fraud with particularity is GRANTED. This dismissal is with prejudice. Bagley's motion to dismiss on grounds of res judicata and collateral estoppel is DENIED as moot. The plaintiffs' motion to dismiss without prejudice is also DENIED as moot.
SO ORDERED.
January 16, 2003.