Citation. 22 Ill.72 F.R.D. 574 (E.D. Pa. 1976)
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Brief Fact Summary.
Plaintiff brought an action against Defendant alleging securities fraud. Plaintiff alleged certain circumstances in which Defendant allegedly committed fraud. Defendant moved to dismiss on the grounds that Plaintiff’s complaint did not comply with Rule 9(b) of the Federal Rules of Civil Procedure, requiring fraud be pled with particularity.
Synopsis of Rule of Law.
Rule 9(b) of the Federal Rules of Civil Procedure only requires that the plaintiff allege the circumstances of fraud such that the defendant will be able to sufficiently answer the allegations.
Plaintiff brought a class action on behalf of purchasers of securities against Defendant First Penn. The complaint alleged that Defendant improperly included certain sources of funds as “income,” avoided showing losses by conducting improper foreclosures, not accounting for uncollectibles in real estate loans and concealing the default of loans. Defendant moved to dismiss alleging that the allegations of fraud in the complaint do not comply with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure.
Does Rule 9(b) of the Federal Rules of Civil Procedure require application of a rigorous burden on Plaintiff such that Plaintiff’s complaint is insufficient?
No. Motion to dismiss denied.
Rule 9(b) of the Federal Rules of Civil Procedure was not meant to impose a rigorous burden on the plaintiffs.
In securities fraud class actions, when most of the allegations are within the knowledge of the defendant, the plaintiff should be permitted to attempt to prove the allegations once Rule 9(b) of the Federal Rules of Civil Procedure is satisfied.
If the allegations of fraud are sufficiently identified to give the defendant an opportunity to draft an “adequate answer,” Rule 9(b) of the Federal Rules of Civil Procedure is satisfied. Rule 9(b) was not meant to impose a substantial burden over what is required under Rule 8.
The complaint in question is adequate under Rule 9(b) of the Federal Rules of Civil Procedure, especially because the allegations involve information possessed by the defendant.
This case notes that although allegations of fraud require greater particularity, the complaint should be construed as to whether the defendant is able to respond. The court did not focus on whether the defendant was being falsely accused or whether this was a “nuisance” suit.