The opinion of the court was delivered by: WILLIAM G. BASSLER
Defendants move to dismiss Plaintiff, Veronica Zucker's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. This Court possesses jurisdiction over this action under 28 U.S.C. § 1331.
For the reasons set forth in this Opinion, Defendants' motion is granted.
In deciding this motion to dismiss for failure to state a claim, the Court must accept all allegations made in the Complaint as true. Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990). Plaintiff, Veronica Zucker, purchased 3,000 shares of common stock of Defendant, Hanover Direct, Inc. ("HDI"), in a public offering that took place on March 31, 1994. Compl. P 4. HDI conducts a mail-order retail business through numerous catalogs published by HDI, including Domestications, Colonial Garden Kitchens, The Company Store, Hanover House, Gumps, and Tweeds. Compl. P 5.
At the public offering, Defendant, Sun Life Insurance Company of America ("SLIC"), sold 654,604 shares of common stock of HDI. Compl. P 6. These shares were registered pursuant to a Form S-3 Registration Statement (No. 33-52353) ("Registration Statement") which became effective on March 31, 1994 and were offered for sale pursuant to a Prospectus dated March 30, 1994, distributed to the Plaintiff and others. Compl. P 6. Each of the individually named Defendants is an executive of HDI who signed the Registration Statement. Compl. PP 7-18. Defendants, Merril, Lynch, Pierce, Fenner & Smith, Inc. ("Merril Lynch") and Alex Brown & Sons, Inc. ("Alex Brown"), acted as underwriters in connection with the public offering. Compl. PP 19-20.
On March 31, 1994, HDI common stock was publicly offered at $ 6.375 per share. On August 15, 1994, the day after HDI filed a 10-Q quarterly report for the quarter and six month period ended July 2, 1994, the closing price of its stock on the New York Stock Exchange was $ 4.06 per share, representing a decline in value of 36% over four and a half months. Compl. PP 61-62.
Plaintiff brings this suit as a class action under Federal Rules of Civil Procedure 23(a) and (b)(3) "on behalf of all persons other than defendants, their family members, agents, and affiliates, who purchased the common stock of HDI on the Public Offering or thereafter through and including August 15, 1994 and who suffered damages as a result . . ." Compl. P 21. Plaintiff awaits class certification.
According to Plaintiff, Defendants violated applicable securities laws in connection with the public offering of HDI common shares held on March 31, 1994 because both the Registration Statement and the Prospectus were materially false and misleading in violation of 15 U.S.C. §§ 77k and 77l.
A. Standards Governing Motion to Dismiss
Federal Rule of Civil Procedure 12(b)(6) allows a party to move for a dismissal based upon the pleader's "failure to state a claim upon which relief can be granted." Since the long-established federal policy of civil litigation is to decide cases on the proofs, district courts generally disfavor Rule 12(b)(6) motions. Melo-Sonics Corp. v. Cropp, 342 F.2d 856 (3d Cir. 1965); Panek v. Bogucz, 718 F. Supp. 1228, 1229 (D.N.J. 1989).
In deciding a motion to dismiss for failure to state a claim, all allegations in the pleadings must be accepted as true and the plaintiff must be given the benefit of every favorable inference that can be drawn from those allegations. See Conley v. Gibson, 355 U.S. 41, 48, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 83 n.1 (3d Cir. 1987); Markowitz, 906 F.2d at 103. "All the rules require is a short and plain statement of the claim that gives the defendant fair notice of the plaintiff's claim and the grounds upon which it rests." Conley, 355 U.S. at 47.
Rule 12(b)(6) does not countenance "dismissals based on a judge's disbelief of a complaint's factual allegations." Neitzke v. Williams, 490 U.S. 319, 326-27, 104 L. Ed. 2d 338, 109 S. Ct. 1827 (1989). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974).
Accepting the facts in the pleadings as true and giving them all reasonable inferences, a court must dismiss under Rule 12(b)(6) "if as a matter of law 'it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Neitzke, 490 U.S. at 326-27.
Ordinarily, when a court relies upon matters outside of the pleadings, it must convert the motion to dismiss into a motion for summary judgment pursuant to Federal Rule of Civil Procedure 12(c). An exception to this rule, however, permits a Court to consider documents that are referred to in the complaint. E.g., Pension Benefit Guaranty Corp. v. White Consolidated Industries, Inc., 998 F.2d 1192, 1196-97 (3d Cir. 1993). Relying upon this exception, this Court will consider the Registration Statement, Prospectus, and 10-Q quarterly reports that are referred to in the Complaint and have been submitted as attachments to the declaration of Stephen R. Lang.
B. Alleged Securities Fraud
In Count I of the Complaint, Plaintiff alleges that Defendants violated section 11(a) of the Securities Act of 1933, which provides a cause of action to purchasers of securities where:
In Count II of the Complaint, Plaintiff asserts that Defendants violated § 12 of the Securities Act of 1933, which authorizes a cause of action against:
Any person who . . . offers or sells a security . . . by means of a prospectus . . . which includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements, in light of the ...