Mountain on December 26, 1980, they were on notice as to any supposed fraud as of that date. Accordingly, the limitation periods for bringing federal securities and RICO claims ran from that date and have expired.
Nor do plaintiffs' conclusory allegations of fraudulent concealment provide them any relief from these time bars. "The doctrine of fraudulent concealment has no applicability at all if the plaintiff was on notice of the wrong complained of." Foltz v. U.S. News & World Report, Inc., 627 F. Supp. 1143, 1150 (D.D.C. 1986) (citing Hobson v. Wilson, 737 F.2d at 35). Moreover, the limitation period is not tolled if a plaintiff has a reasonable basis to suspect a wrong, and fails to exercise due diligence to investigate the matter. Id.; General Builders Supply Co. v. River Hill Coal, 796 F.2d 8, 13 (1st Cir. 1986).
Here, the essential "wrong complained of" is that plaintiffs were not informed that the price Mitchell Petroleum paid Rocky Mountain for the Terra-Drill sublicense was significantly higher than the price Rocky Mountain had recently paid to acquire a master license for the device. Complaint, para. 23. The Offering Memorandum, however, explained that Mitchell Petroleum had agreed to pay $1.6 million for the Terra-Drill master license and that Rocky Mountain would be obligated to pay Mitchell Petroleum up to $84 million for the sublicense it would receive. Offering Memorandum at 5, 9, 10, 22, 24, 29, 30, 46. Further, the Offering Memorandum disclosed that Mitchell Petroleum had acquired the license only shortly before. Id. at 2N.
Plaintiffs also argue that the statutes of limitations were tolled until June 1985 because the Law Firm failed "to correct or withdraw the Tax Opinion when they knew or should have known that the assumptions contained [in the Tax Opinion] were no longer valid." Complaint, para. 37. Despite the fact that plaintiffs nowhere specify when the Law Firm supposedly learned of this information,
they have cited no authority for the notion that the Law Firm was arguably under a continuing duty to withdraw the tax opinion if they learned anything contrary to the factual assumptions on which they relied. Plaintiffs' Memorandum in Opposition to Motions to Dismiss at 43.
The sole authority plaintiffs submit in support of this idea is a decision in a Securities and Exchange Commission ("SEC") disciplinary proceeding, not a civil fraud case. That decision dealt with an attorney's failure to (1) reflect changed facts in new opinions he issued concerning whether particular securities could be traded without registration, and (2) consider, in issuing those new opinions, whether he should also revise existing opinions on file at the SEC and the American Stock Exchange, on which people were currently relying in making sales of the securities without registration, concerning the need to register the securities. Morris Mac Schwebel, 40 S.E.C. 347 (1960). The Court is unable to discern the rationale whereby this case establishes any duty to withdraw a past opinion that does not purport to offer present advice to be relied upon in present transactions.
C. Plaintiffs' Fraud Allegations Are Not Pled With the Necessary Particularity
Furthermore, plaintiffs have not made any allegation of fraud by the defendants with the particularity mandated by Federal Rules of Civil Procedure, Rule 9(b) ("Rule 9(b)"). Rule 9(b) requires that "in all averments of fraud . . . the circumstances constituting the fraud . . . shall be stated with particularity." Rule 9(b) applies as well to plaintiffs' assertions of fraudulent concealment. See, e.g., Caribe Trailer System, Inc. v. Puerto Rico Maritime Shipping Authority, 1978-2 Trade Cas. (CCH) para. 63, 133 at 74,996 (D.D.C. 1978). Rule 9(b) is intended to prevent a plaintiff from pursuing a lawsuit founded on unsupported allegations of fraud. It bars a plaintiff from "alleging fraud by hindsight," Denny v. Barber, 576 F.2d 465, 470 (2d Cir. 1978), and from bringing a groundless "strike suit" in the hope of forcing a defendant to settle in order to avoid the cost of discovery. See Ross v. A.H. Robins Co., 607 F.2d 545, 557 (2d Cir. 1979), cert. denied, 446 U.S. 946, 64 L. Ed. 2d 802, 100 S. Ct. 2175 (1980); see also United States ex rel. Joseph v. Cannon, 206 U.S. App. D.C. 405, 642 F.2d 1373 1385 n.103 (D.C. Cir. 1981), cert. denied, 455 U.S. 999, 102 S. Ct. 1630, 71 L. Ed. 2d 865 (1982) (need for protection against allegations of fraud is most acute where the potential defendants are professionals with reputations to protect); Moss v. Morgan Stanley, Inc., 719 F.2d 5, 18-19 (2d Cir. 1983), cert. denied, 465 U.S. 1025, 104 S. Ct. 1280, 79 L. Ed. 2d 684 (1984) (when a RICO charge "contains no valid allegations of 'fraud' . . . it necessarily must fail.").
As a general rule, general allegations based on "information and belief" do not satisfy Rule 9(b). Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972). Nonetheless, the Court counts no fewer than thirty-one allegations based on "information and belief" in the complaint, not to mention the twelve "knew or should have known" allegations.
The complaint is replete with conclusory and unsubstantiated allegations of fraud, and it fails to specify which defendant committed what allegedly fraudulent acts. Such fraud pleadings are "patently insufficient under Rule 9(b)." Equitable Life Assurance Society v. Alexander Grant & Co., 627 F. Supp. 1023, 1030 (S.D.N.Y. 1985); see also Satellite Financial Planning Corp. v. First National Bank of Wilmington, 633 F. Supp. 386, slip op. at 18 (D. Del. 1986); McFarland v. Memorex Corp., 493 F. Supp. 631, 656-57 (N.D. Cal. 1980). Finally, a comparison of the Offering Memorandum, which plaintiffs acknowledge receiving and reading before they made their investment (Complaint, paras. 31, 46), refutes thoroughly plaintiffs' allegations of misrepresentation and failure to disclose.
Plaintiffs' remaining federal securities claim is subject to a two-year statute of limitations, and their RICO claim is subject to a three-year statute of limitations. Plaintiffs' claims accrued on December 26, 1980, the date on which they purchased their limited partnership interests, because they had sufficient notice then of the facts they now rely on for their allegations of fraud. The pertinent statutes of limitations therefore began to run on the date of those investments and have long since expired. In the absence of those federal claims, the Court lacks pendent jurisdiction over the state-law and common-law claims, and summary judgment must be granted for defendants. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966).
In addition, the complaint is insufficient because of plaintiffs' utter failure to particularize their allegations of fraud. Rule 9(b) does not permit a plaintiff to rely, as do plaintiffs here, on "information and belief" allegations, wholly conclusory allegations of fraud, or contentions that defendants "knew or should have known" facts that were supposedly misrepresented or not disclosed. Rather, it requires a plaintiff accusing a defendant of fraud to set forth specific facts that will support the accusation. See Segal v. Gordon, 467 F.2d at 607-08 ("A complaint alleging fraud should be filed only after a wrong is reasonably believed to have occurred; it should serve to seek redress for a wrong, not to find one.").
"On or about January 3, 1985, the [IRS] disallowed [in full] the sublicense fee paid by Rocky Mountain to Tround because the rights acquired had no value. Thereafter, the tax deductions taken by plaintiffs . . . were also disallowed in full . . . ." Complaint, para. 38. When plaintiffs chose to participate in this venture, its highly speculative nature was made known to them. The fact that their investment has turned out to be unsuccessful will not, without more, give rise to an action for fraud. An order granting summary judgment to defendants is attached. See Federal Deposit Ins. Co. v. Lauterbach, 626 F.2d 1327, 1335 (7th Cir. 1980) (summary judgment appropriate in fraud cases where evidence submitted rebuts allegations); see also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2552-53, 91 L. Ed. 2d 265 (1986) (Fed. R. Civ. P. 56(c) "mandates the entry of summary judgment, . . . upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.").
JUNE L. GREEN, U.S. DISTRICT JUDGE
Upon consideration of defendants' motions to dismiss, plaintiffs' combined opposition thereto, defendants' replies, exhibits and affidavits submitted by the parties, the hearing held in this matter, and for the reasons set forth in the accompanying opinion, it is by the Court this 12th day of November 1986,
ORDERED that defendants' motions to dismiss are converted into motions for summary judgment; it is further
ORDERED that defendants' motions for summary judgment are granted; and it is further
ORDERED that this action is dismissed.
JUNE L. GREEN, U.S. DISTRICT JUDGE