fraud, there is no claim that the accountants' Feasibility Study contained false and misleading statements. Also Peat, Marwick makes a timely and relevant observation, namely, that nowhere in the Second Amended Complaint do the plaintiffs ever claim or allege that they read and relied upon the Feasibility Study.
The Deanes seek to bolster their latest effort by including and quoting from portions of a later prepared audit report undertaken by Aucoin, Sanchez and Paul, an independent Louisiana accounting firm. The audit was performed at the request of a Louisiana bank serving as the indenture trustee for the bond issue (Complaint paras. 13-16) and covered the Hospital's financial statements and operations over an 11-months period, through December 31, 1981.
The audit report did not discuss, comment, or criticize Peat, Marwick's Feasibility Study or the Hospital's projections referenced therein. Also, the report disclaimed any opinions on the Hospital's financial statements for the 11-month period ending December 31, 1981. "We are not in a position to, nor was the scope of our work sufficient to enable us to express, and we do not express, an opinion on the financial statements referred to above." (Complaint para. 15).
Count I charges all defendants with a violation of Section 17(a) of the 1933 Securities Act. The plaintiff's reliance upon that section as to Peat, Marwick is premised upon the theory of an implied private damage remedy. The weight of case authority suggests, however, that an implied private right of action is doubtful and unavailable. The Supreme Court decision, Aaron v. SEC, 446 U.S. 680, 689, 64 L. Ed. 2d 611, 100 S. Ct. 1945 (1980) left open the question as to whether 17(a) gives rise to a private right of action. Subsequent to Aaron various courts have held that Section 17(a) provides no implied right of action for damages. See, Keys v. Wolfe, 709 F.2d 413, 416 (5th Cir. 1983); Landry v. All American Assurance Co., 688 F.2d 381, 384-91 (5th Cir. 1982); Summer v. Land & Leisure, Inc., 571 F. Supp. 380, 386-87 (SD Fla. 1983); Kimmel v. Peterson, 565 F. Supp. 476, 482-88 (ED Pa. 1983).
Section 17(a) proscribes unlawful conduct "in the offer or sale of any securities." The plaintiffs do not contend that Peat, Marwick offered or sold any hospital bonds to them and thus the theory of liability as to the accountants is presumably that of secondary liability as an aider or abetter. The criteria for determining Section 17(a) liability of the aider and abetter are well settled and clear. Senior Judge David Bazelon of our Circuit Court noted that the following elements must be established: "1) another party has committed a securities law violation; 2) the accused aider and abetter had a general awareness that his role was part of an overall activity that was improper; and 3) the accused aider and abetter knowingly and substantially assisted the principal violation." Investors Research, et al. v. S.E.C. 202 U.S. App. D.C. 168, 628 F.2d 168, 178 (D.C. Cir.) (citing Woodward v. Metro Bank of Dallas, 522 F.2d 84 (5th Cir. 1975)), cert. denied, 449 U.S. 919 (1980). The same view was announced even more recently, Dirks v. SEC, 220 U.S. App. D.C. 309, 681 F.2d 824, 844 (D.C. Cir. 1982); rev'd on other grounds, 463 U.S. 646, 103 S. Ct. 3255, 77 L. Ed. 2d 911 (1983). In view of this it is clear that as to Peat, Marwick, the present amended complaint must be dismissed for none of the requisite elements of aiding and abetting liability have been alleged in any manner.
Under Section 10(b) of the 1934 Act and Rule 10(b)5 upon which the plaintiffs also rely, scienter is a basic element of a securities fraud claim. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 47 L. Ed. 2d 668, 96 S. Ct. 1375 (1976); Ross v. A. H. Robins, 607 F.2d 545, 556 (2d Cir.), cert. denied, 446 U.S. 946, 64 L. Ed. 2d 802, 100 S. Ct. 2175 (1980). After three efforts, the plaintiffs have not provided sufficient factual support demonstrating scienter as to McKinnon and Peat, Marwick. In Count I the plaintiffs allege that the "Defendants knew, should have known or recklessly disregarded the managerial and accounting difficulties of the [Hospital] and disseminated an Official Statement which painted the management and accounting systems in glowing terms" (Complaint para. 33). Other than this innocuous and meaningless statement the plaintiffs have failed to satisfy the particularity requirements of Rule 9(b) F. R. Civ. P. To establish Section 10(b) and Rule 10(b)5 violations under the civil procedure rule the complaint must allege specific facts; sources that support the alleged specific facts; and a basis from which an inference of fraud may fairly be drawn. Crystal v. Foy, 562 F. Supp. at 423-425 (S.D.N.Y. 1983). The general broadside allegations set out in the plaintiff's amended applications fall short.
The plaintiffs have characterized the Third Count asserted against the underwriter, McKinnon, as a common law claim -- breach of duty. McKinnon rejects that characterization and contends that it is a fraud claim and thus is subject to the more stringent requirements of pleading. Whatever label is utilized, the Count suffers from the same malady as found generally with the plaintiffs' several efforts. It is written loosely and does not provide sufficient information to frame a meaningful response. It does not define or set out the nature and scope of the duty owed or breached and thus McKinnon does not have a fair and adequate notice of the claims asserted by the plaintiffs. Rule 8(a) F.R. Civ. P. provides in part that a claim shall include "(1) a short and plain statement of the grounds upon which the court's jurisdiction depends, unless the court already has jurisdiction and the claim needs no new grounds of jurisdiction to support it, (2) a short and plain statement of the claim showing that the pleader is entitled to relief, . . . ." Even a generous reading of Count III would not support the plaintiffs' last pleading effort charging breach of McKinnon's common law duty owed by an underwriter to a purchaser of securities.
The Deanes have been advised more than once what is required to state a securities fraud claim and have had ample opportunity to comply. Their continual difficulties and inability to satisfy a cause of action perhaps suggest that they do not have a viable cause of action.
Finally, nowhere in the Second Amended Complaint do the plaintiffs allege a cause of action sufficient to support a claim of securities fraud against Business Facilities. And thus the Court on its own initiative dismisses the Complaint against that defendant.
On the basis of the entire record in this proceeding, this action is dismissed with prejudice.
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