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COPLAND v. GRUMET

August 26, 1999

ROGER COPLAND, ET AL., PLAINTIFFS,
v.
JACK GRUMET, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Mary L. Cooper, United States District Judge.

MEMORANDUM OPINION

BACKGROUND

Because the Court is aware that the parties to this litigation are familiar with the surrounding facts and circumstances of this case, we need not repeat them herein. Instead, the Court refers the parties to our prior Memoranda and Orders entered in this case for a full recitation of the facts pertinent to the underlying dispute. We will, however, provide a brief procedural history to put the instant motion in proper context.

This Court issued a Memorandum and Order dated January 8, 1998 which dismissed claims against the moving defendants based upon (1) §§ 10(b) and 20 of the Exchange Act and Rule 10b-5, and (2) §§ 11 and 15 of the Securities Act. We also granted plaintiffs leave to file a Second Amended Complaint, identifying in the Memorandum which counts could be amended and in what manner.*fn1 However, we did not specify in the Order portion which counts of the Complaint could be amended. Our Order also stated that the moving defendants' motion to dismiss was granted, but did not specify whether the enumerated claims were dismissed against them with or without prejudice.

Plaintiffs filed a Second Amended Complaint which included,
inter alia, five counts against the moving defendants based upon
alleged violations of:  (1) § 15 of the Securities Act (Count I);
(2) § 10(b) and Rule 10b-5 of the Exchange Act (Counts II and
IV); (3) § 20 of the Exchange Act (Count II); (4) § 20A of the
Exchange Act (Count V); and (5) Section 12(2) of the Securities
Act (Count III).*fn2  The moving defendants filed a motion to
strike each of those counts from the Second Amended Complaint as
well as a motion to dismiss those counts pursuant to Federal
Rules of Civil Procedure 12(b)(6) and 9(b). This Court granted
the moving defendants' motion to strike, finding that this
Court's prior Memorandum and Order had not granted plaintiffs
leave to file a Second Amended Complaint which contained new and
improved allegations against the moving defendants. (Order dated
5-14-99 at 3.)  We also stated that if plaintiffs intended to
plead additional allegations and claims against the moving
defendants, it would be necessary for plaintiffs to file a formal
motion seeking leave to amend their Complaint in that manner.
(Id. at 4.)  In addition, we denied the motions to dismiss as
moot. (Id. at 6.)
Plaintiffs counter that the motion to amend is timely, in that
plaintiffs' counsel filed it as soon as counsel became aware of
the effect of this Court's ruling on the original motions to
dismiss. In other words, plaintiffs' counsel claims that he
understood our dismissal of the counts asserted against the
moving defendants to have been without prejudice to plaintiffs'
right to file an amended complaint curing the pleading
inadequacies we identified therein. Moreover, plaintiffs point
out that defense counsels' assertion that the motion should be
denied because they do not have a copy of the proposed amended
pleading is without merit, as they have had notice of the new
claims asserted against their clients in the Third Amended
Complaint because the claims against the moving defendants which
are at issue in the instant motion are the same ones asserted
initially in the Second Amended Complaint dated April 8, 1998.
(Pls.' Reply Br. at 5 & n. 6.)  With respect to the moving
defendants' request to renew the motion to dismiss, plaintiffs
state that they do not oppose that procedural request, provided
that the Court consider their additional letter submitted by
their counsel after briefing on that motion had been completed.
(Id. & n. 7.)

DISCUSSION

Under Federal Rule of Civil Procedure 15, leave to amend shall be freely given in the absence of bad faith, dilatory motive, undue prejudice to the opposing party, or futility of amendment. See, e.g., Jablonski v. Pan American World Airways, Inc., 863 F.2d 289, 292 (3d Cir. 1988). Amendment of a complaint is futile if, as amended, it would not withstand a future motion to dismiss. Massarsky v. General Motors Corp., 706 F.2d 111, 125 (3d Cir. 1983), cert. denied, 464 U.S. 937 (1983).

In view of the fact that the Court's January Memorandum and Order admittedly did not specify whether the dismissal of the counts against Boren and Cano was with or without prejudice to plaintiffs' right to file an amended pleading relating to those claims, we find no merit to defendants' argument that the instant motion is untimely. It is clear that once our decision on the motion to strike was filed in this case, plaintiffs reacted in a timely manner. Moreover, there is no evidence of bad faith or dilatory motive on plaintiffs' part in waiting to this point to file the instant motion. Similarly, there does not appear to be undue prejudice to the opposing defendants, as they have been aware since plaintiffs filed the Second Amended Complaint in April 1998 that plaintiffs not only sought to provide additional factual information with respect to those claims dismissed by our Memorandum and Order dated January 8, 1998, but also intended to include new counts against defendant Boren.

The Court notes, however, that as to the last inquiry, that of the futility of amendment, we must determine whether plaintiffs' proposed amended pleading is sufficient to withstand a motion to dismiss pursuant to Rule 12(b)(6). In this connection, we are compelled to analyze the merits of defendants' motion which we dismissed as moot. We will turn our attention to that analysis next.*fn4 The Court will analyze each proposed claim asserted against the moving defendants and test the allegations pertaining to those counts against the standard of dismissal under Rule 12(b)(6) and 9(b).*fn5

 I.  Count II:  Liability of Boren and Cano under § 10(b) of the
                   Exchange Act and Rule 10b-5
The moving defendants argue that they cannot be exposed to
primary liability under § 10(b) and Rule 10b-5 because the
gravamen of plaintiffs' allegations against these defendants in
this connection is that they were directly involved in the
process of creating and reviewing the financial statements of
MB's subsidiary, I&J, which contained false and misleading
information concerning I&J's 1995 year-end figures. (Pls.' Br.
in Opp'n at 6.)  Defendants argue specifically that in order to
state a claim for primary liability under § 10(b) and Rule 10b-5
of the Exchange Act, plaintiffs must plead facts which show (1)
that each defendant made a false or misleading statement, and (2)
that the misstatements which are the subject of the action were
publicly attributed to that particular defendant at the time of
their dissemination. (Defs.' Br. in Supp. at 5-8; Defs.' Reply
Br. at 3-4 (citing Wright ...

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