Baldwin v . Kulch CV-98-333-M 09/29/00 UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE
William R. Baldwin; and Joan S . Baldwin, Plaintiffs
v. Civil N o . 98-333-M Opinion N o . 2000 DNH 208 Kulch Associates, Inc.; and Charles Kulch, Defendants
O R D E R
Having reviewed the defendants’ “Motion for Findings
Pursuant to 15 U.S.C. § 78u-4(c) and for Award of Attorneys’
Fees,” as well as the host of memoranda, affidavits, rebuttals,
supplemental memoranda, and sur-replies filed, it would appear
that defendants’ motion is not meritorious.
First, defense counsel appear to assert that plaintiffs’
amended complaint alleges, without factual basis, the seemingly
impossible: that before Kulch ever met with, or spoke t o ,
plaintiffs, he personally made false material statements to
plaintiffs that induced them to purchase NPW stock. But, the
amended complaint actually makes clear that plaintiffs alleged that false material statements were made by defendants (Kulch and
his corporation) “and their agents and intermediaries.” See,
e.g., First Amended Complaint (document n o . 1 3 ) , paragraphs 7 , 8 ,
9, 1 5 , and 1 6 . Given plaintiffs’ counsel’s affidavit, it would
also appear that defendants’ counsel (and presumably defendants
themselves) were not confused on that point since, very early on
they were informed as to just who the “agent” and “intermediary”
was (Donald J. McCarthy), and why plaintiffs believed his
statements were legally attributable to defendants. Nothing
inconsistent appears in the discovery cited by defendants, nor
does it appear that plaintiffs’ factual allegations lacked
evidentiary support – they swear under oath, and presumably would
have testified at trial, that McCarthy held himself out as an
apparent agent of defendants, soliciting investors on their
behalf.
If a jury credited McCarthy’s alleged comments as true, it
could well have been found that defendants sent him out to
encourage investments in NPW by people like plaintiffs (his
family members), and to relate defendants’ encouraging factual
2 representations, derived from their alleged superior knowledge
gained from their stock ownership i n , and the accounting services
provided to NPW (i.e., statements to the effect that NPW was
financially solid and poised for growth). Indeed, it is
reasonably plain from the Report of the Parties’ Planning Meeting
(document n o . 10) that defense counsel were fully aware of
plaintiffs’ agency allegations and theory, as well as the facts
they believed supported that theory.
Defendants also appear to be wrong in arguing that
plaintiffs “do not and cannot dispute the sworn statements of
both M r . Kulch and Donald McCarthy.” Actually, plaintiffs very
unambiguously contest both. See Affidavit of Plaintiff Joan S .
Baldwin, attached as an exhibit to document n o . 29 (“Finally,
Donald McCarthy acknowledged that defendants had encouraged him
to seek out investors, including friends and family members, to
take advantage of this ground floor opportunity.”).1
1 Plaintiffs’ counsel had informed defendants’ counsel that McCarthy was Mrs. Baldwin’s brother-in-law.
3 And, of course, the complaint’s federal claims were
dismissed for failure to satisfy the heightened pleading
requirements mandated by the Private Securities Litigation Reform
Act, 15 U.S.C. § 78u-4(b), and Federal Rule of Civil Procedure
9(b). The failure was one of pleading, not necessarily the
absence of a factual basis for bringing the complaint. Since
plaintiffs alleged only that NPW failed after the rosy
representations were made, the complaint was inadequate. But
every dismissal of a securities fraud case based on failure to
meet the applicable heightened pleadings standards does not, ipso
facto, establish frivolity within the meaning of Fed. R. Civ. P.
11(b). See, e.g., Kalnit v . Eichler, 99 F. Supp. 2d 327
(S.D.N.Y. 2000).
Defendants also suggest they raised issues related to Rule
11(b) and the complaint’s lack of facial merit with plaintiffs’
counsel early in the litigation, but they apparently did not
invoke the provisions of Rule 11(c)(1)(A); that i s , they did not
formally put plaintiffs on notice of their position and extend
the 21 day opportunity provided by the Rule to withdraw or
4 correct any perceived deficiencies in the complaint. And, it
does not appear that defendants complied with Local Rule
16.2(b)(10), which provides that final pretrial statements shall
contain “a statement of a claim for attorney’s fees, if
applicable.” See document n o . 1 0 . S o , it does not appear that
defense counsel was of the view that the complaint was frivolous
as of the filing of the final pretrial statement.
Nevertheless, although the motion probably will not be
successful, the court has not decided the merits of the motion
because a preliminary issue related to the court’s jurisdiction
presents itself – one that has not been addressed or briefed by
the parties. Specifically, the record discloses that judgment
was entered on August 2 7 , 1999 (without any factual findings
having been made under § 78u-4(c)). The time for filing a motion
under Fed. R. Civ. P. 59 to open the judgment, amend findings of
fact and conclusions of law, or to make new findings and
conclusions, expired on or about September 1 0 , 1999, without any
such motion having been filed. And, no motion for attorneys’
fees was filed within 14 days of the entry of judgment as
5 required by Fed. R. Civ. P. 54(d)(2)(B). Finally, the period in
which an appeal could have been taken by defendants expired on
September 2 7 , 1999, without an appeal having been filed.
Defendants’ motion for findings pursuant to 15 U.S.C. § 78u-4(c)
and for attorneys’ fees was not filed until October 2 9 , 1999, or
some two months after judgment had entered.
All of which raises a question as to the court’s
jurisdiction since, although the findings required by 15 U.S.C.
§ 78u-4(c) were not included in the record “upon final
adjudication,” no timely motion to amend the judgment under Rule
59 was filed. Moreover, no timely appeal was taken by defendants
on grounds that the judgment was legally insufficient or in
error, and no motion for sanctions under Rule 11 or otherwise was
pending when judgment entered, and no timely motion for
attorneys’ fees had been filed. Whether under these
circumstances a “motion” filed two months later is either timely
or falls within the court’s jurisdiction to resolve is probably
open to some debate, and at least should be explored before
resolving the merits of the motion. A brief review suggests that
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Baldwin v . Kulch CV-98-333-M 09/29/00 UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE
William R. Baldwin; and Joan S . Baldwin, Plaintiffs
v. Civil N o . 98-333-M Opinion N o . 2000 DNH 208 Kulch Associates, Inc.; and Charles Kulch, Defendants
O R D E R
Having reviewed the defendants’ “Motion for Findings
Pursuant to 15 U.S.C. § 78u-4(c) and for Award of Attorneys’
Fees,” as well as the host of memoranda, affidavits, rebuttals,
supplemental memoranda, and sur-replies filed, it would appear
that defendants’ motion is not meritorious.
First, defense counsel appear to assert that plaintiffs’
amended complaint alleges, without factual basis, the seemingly
impossible: that before Kulch ever met with, or spoke t o ,
plaintiffs, he personally made false material statements to
plaintiffs that induced them to purchase NPW stock. But, the
amended complaint actually makes clear that plaintiffs alleged that false material statements were made by defendants (Kulch and
his corporation) “and their agents and intermediaries.” See,
e.g., First Amended Complaint (document n o . 1 3 ) , paragraphs 7 , 8 ,
9, 1 5 , and 1 6 . Given plaintiffs’ counsel’s affidavit, it would
also appear that defendants’ counsel (and presumably defendants
themselves) were not confused on that point since, very early on
they were informed as to just who the “agent” and “intermediary”
was (Donald J. McCarthy), and why plaintiffs believed his
statements were legally attributable to defendants. Nothing
inconsistent appears in the discovery cited by defendants, nor
does it appear that plaintiffs’ factual allegations lacked
evidentiary support – they swear under oath, and presumably would
have testified at trial, that McCarthy held himself out as an
apparent agent of defendants, soliciting investors on their
behalf.
If a jury credited McCarthy’s alleged comments as true, it
could well have been found that defendants sent him out to
encourage investments in NPW by people like plaintiffs (his
family members), and to relate defendants’ encouraging factual
2 representations, derived from their alleged superior knowledge
gained from their stock ownership i n , and the accounting services
provided to NPW (i.e., statements to the effect that NPW was
financially solid and poised for growth). Indeed, it is
reasonably plain from the Report of the Parties’ Planning Meeting
(document n o . 10) that defense counsel were fully aware of
plaintiffs’ agency allegations and theory, as well as the facts
they believed supported that theory.
Defendants also appear to be wrong in arguing that
plaintiffs “do not and cannot dispute the sworn statements of
both M r . Kulch and Donald McCarthy.” Actually, plaintiffs very
unambiguously contest both. See Affidavit of Plaintiff Joan S .
Baldwin, attached as an exhibit to document n o . 29 (“Finally,
Donald McCarthy acknowledged that defendants had encouraged him
to seek out investors, including friends and family members, to
take advantage of this ground floor opportunity.”).1
1 Plaintiffs’ counsel had informed defendants’ counsel that McCarthy was Mrs. Baldwin’s brother-in-law.
3 And, of course, the complaint’s federal claims were
dismissed for failure to satisfy the heightened pleading
requirements mandated by the Private Securities Litigation Reform
Act, 15 U.S.C. § 78u-4(b), and Federal Rule of Civil Procedure
9(b). The failure was one of pleading, not necessarily the
absence of a factual basis for bringing the complaint. Since
plaintiffs alleged only that NPW failed after the rosy
representations were made, the complaint was inadequate. But
every dismissal of a securities fraud case based on failure to
meet the applicable heightened pleadings standards does not, ipso
facto, establish frivolity within the meaning of Fed. R. Civ. P.
11(b). See, e.g., Kalnit v . Eichler, 99 F. Supp. 2d 327
(S.D.N.Y. 2000).
Defendants also suggest they raised issues related to Rule
11(b) and the complaint’s lack of facial merit with plaintiffs’
counsel early in the litigation, but they apparently did not
invoke the provisions of Rule 11(c)(1)(A); that i s , they did not
formally put plaintiffs on notice of their position and extend
the 21 day opportunity provided by the Rule to withdraw or
4 correct any perceived deficiencies in the complaint. And, it
does not appear that defendants complied with Local Rule
16.2(b)(10), which provides that final pretrial statements shall
contain “a statement of a claim for attorney’s fees, if
applicable.” See document n o . 1 0 . S o , it does not appear that
defense counsel was of the view that the complaint was frivolous
as of the filing of the final pretrial statement.
Nevertheless, although the motion probably will not be
successful, the court has not decided the merits of the motion
because a preliminary issue related to the court’s jurisdiction
presents itself – one that has not been addressed or briefed by
the parties. Specifically, the record discloses that judgment
was entered on August 2 7 , 1999 (without any factual findings
having been made under § 78u-4(c)). The time for filing a motion
under Fed. R. Civ. P. 59 to open the judgment, amend findings of
fact and conclusions of law, or to make new findings and
conclusions, expired on or about September 1 0 , 1999, without any
such motion having been filed. And, no motion for attorneys’
fees was filed within 14 days of the entry of judgment as
5 required by Fed. R. Civ. P. 54(d)(2)(B). Finally, the period in
which an appeal could have been taken by defendants expired on
September 2 7 , 1999, without an appeal having been filed.
Defendants’ motion for findings pursuant to 15 U.S.C. § 78u-4(c)
and for attorneys’ fees was not filed until October 2 9 , 1999, or
some two months after judgment had entered.
All of which raises a question as to the court’s
jurisdiction since, although the findings required by 15 U.S.C.
§ 78u-4(c) were not included in the record “upon final
adjudication,” no timely motion to amend the judgment under Rule
59 was filed. Moreover, no timely appeal was taken by defendants
on grounds that the judgment was legally insufficient or in
error, and no motion for sanctions under Rule 11 or otherwise was
pending when judgment entered, and no timely motion for
attorneys’ fees had been filed. Whether under these
circumstances a “motion” filed two months later is either timely
or falls within the court’s jurisdiction to resolve is probably
open to some debate, and at least should be explored before
resolving the merits of the motion. A brief review suggests that
6 there is scant precedent discussing jurisdiction under these
circumstances, but some cases seem to suggest, implicitly, that
defendants’ failure to timely move to amend the judgment, file a
Rule 11 or other sanction motion prior to entry of judgment, take
a timely appeal, or file a timely motion for attorneys’ fees
might result in the absence of jurisdiction. But, it is by no
means clear.
That i s , the judgment was arguably legally deficient for
failure to comply with § 78u-4(c), but counsel did not raise the
issue by timely Rule 59 motion or by a timely appeal, and there
were no pending motions related to post-judgment relief. See
e.g. Gurary v . Winehouse, 190 F.3d 37 (2d Cir. 1999)(timely
appeal was taken from judgment not in compliance with § 78u-
4(c)); see generally Hallwood Realty Partners, L.P. v . Gotham
Partners, L.P., 2000 WL 528633 (S.D.N.Y. May 2 , 2000)(premature
motion under § 78u-4(c) denied without prejudice to “renewing at
an appropriate time”); Goldstein v . Malcolm G. Fries & Assoc.,
Inc., 72 F. Supp. 2d 620 (E.D.Va. 1999)(§ 78u-4(c) issue raised
in the motion to dismiss complaint); Cooter & Gell v . Hartmarx
7 Corp., 496 U.S. 384 (1990) (court’s jurisdiction to consider Rule
11 motion filed with motion to dismiss extends beyond voluntary
dismissal of complaint); Inter-County Resources, Inc. v . Medical
Resources, Inc., 49 F. Supp. 2d 682 (S.D.N.Y. 1999)(motion for
fees unnecessary under PSLRA as it is self-executing); Richter v .
Achs, 174 F.R.D. 316 (S.D.N.Y. 1997)(implicitly suggests timely
motion to amend judgment filed where court did not include § 78u-
4(c) findings in judgment). Certainly, the time available to
raise issues related to judgments entered without complying with
§ 78u-4(c) is not unlimited, and the question here is whether two
months is too long.
The motion for findings and attorneys’ fees (document n o .
27) is denied without prejudice to refiling after the
jurisdictional and timeliness issues raised herein are resolved.
Counsel for defendants may, but are not required t o , file a
thorough legal brief within 30 days of this order establishing
the legal bases for this court’s exercise of jurisdiction over
their motion for findings and attorneys’ fees. If such a brief
is filed, plaintiffs shall respond within 30 days of the filing
8 of defendants’ brief, providing their position on the
jurisdictional issues raised. If defendants elect not to file a
further brief within the prescribed time, the case will be
closed. If the court finds, after considering the briefs that
may be filed, that it has jurisdiction to consider defendants’
motion, it will be deemed refiled nunc pro tunc, without the need
for counsel to physically refile any pleadings.
SO ORDERED.
Steven J. McAuliffe United States District Judge September 2 9 , 2000
cc: Leonard W . Foy, Esq. Andrew W . Serell, Esq.