Eaton v. Coal Par of West Virginia, Inc.

580 F. Supp. 572, 1984 U.S. Dist. LEXIS 19526
CourtDistrict Court, S.D. Florida
DecidedFebruary 13, 1984
Docket82-8491-CIV-JAG
StatusPublished
Cited by5 cases

This text of 580 F. Supp. 572 (Eaton v. Coal Par of West Virginia, Inc.) is published on Counsel Stack Legal Research, covering District Court, S.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Eaton v. Coal Par of West Virginia, Inc., 580 F. Supp. 572, 1984 U.S. Dist. LEXIS 19526 (S.D. Fla. 1984).

Opinion

ORDER

GONZALEZ, District Judge.

I. Background

In February 1981, plaintiff Richard Eaton viewed defendant Dale Jackson discussing financial investments on a television program. Eager to establish an immediate cash flow to satisfy his alimony payments, Mr. Eaton paid Mr. Jackson a visit in the brokerage office of the latter’s employer, First Florida Securities, Inc. (“FFS”). Attracted by alleged promises that his investment would return $40,000 per month, on March 13, 1981 Mr. Eaton purchased eight promissory notes totaling $200,000 issued by defendant Coal Par of West Virginia, Inc. (“Coal Par”). Coal Par was to use the proceeds from the sale of the notes for the mining and marketing of coal. Instead of paying Mr. Eaton the interest, Coal Par was to pay him a royalty of $0.10 per ton of coal mined until the termination of the program. Amended Complaint 1HÍ14-18, 22 (filed Sept. 19, 1983).

Much to Mr. Eaton’s dismay, as time progressed there proved to be a substantial disparity between the promised and the actual return. Rather than realize a return of $40,000 per month, plaintiff claims to have received barely $12,000 in over two years, a return of only $600 per month. Id. *574 11 22(a), (g). 1 Plaintiff has turned to this Court in an attempt to recoup his losses.

In addition to naming Mr. Jackson, FFS, and Coal Par as defendants, Mr. Eaton also has sued the three top officers in Coal Par: President Sergio Oliver, Vice-President David Reed, and Secretary-Treasurer Patrick Shepherd. Plaintiff has filed a nine count Amended Complaint, which breaks down into four general areas. Counts 1, 4, 5, and 6 allege statutory or common-law fraud; counts 2, 3, and 9 charge defendants with securities law violations flowing from their failure to register the Coal Par offering; and counts 7 and 8 charge only defendant FFS 'with failing to comply with an administrative rule promulgated by the Florida Department of Banking and Finance, and negligence, respectively. This Court has subject matter jurisdiction by virtue of the federal questions presented. Jurisdiction over the state claims is made possible by the doctrine of pendent jurisdiction. United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).

In response to plaintiff’s Amended Complaint, defendants have filed motions to dismiss. Additionally, defendant Reed has filed a cross-claim for indemnification or contribution, which defendants FFS, Oliver, and Jackson oppose.

In reviewing the defendants’ motions to dismiss, the Court is cognizant that plaintiff’s various actions “should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts that would entitle him to relief.” McKinnis v. Mosley, 693 F.2d 1054, 1058 (11th Cir.1982) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99,103, 2 L.Ed.2d 80 (1957)).

II. Sufficiency of Allegations Sounding in Fraud

Plaintiff’s statutory and common-law fraud claims require different allegations. Section 12(2) of the Securities Act of 1933, 15 U.S.C.A. § 77/(2) (1981), 2 is a broad anti-fraud provision that permits a purchaser of a security to recover against his immediate seller for false or misleading statements. Supplementing 3 the prohibitions of *575 section 12(2) is Rule 10b-5, 4 which implements section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j (1981). 5 As applied here, section 10(b) and Rule 10b-5 provide a purchaser with a private cause of action 6 against a seller whose sale of a security was fraudulently induced by intentional misstatements of material fact, or omissions of material facts necessary to make the statements made not misleading. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976).

Plaintiff also charges defendants with fraud under Florida law. In count 5, plaintiff seeks rescission under section 517.-211(2), Florida Statutes, for defendants alleged violations of the anti-fraud provisions of section 517.301, Florida Statutes. 7 Finally, plaintiff charges all defendants with common-law fraud in count 6.

The allegations in counts 1, 4, 5, and 6 charge defendants with either direct participation in, or aiding and abetting, the allegedly fraudulent Coal Par scheme.

Rather than argue that plaintiff fails to plead the elements of a prima facie case of statutory or common-law fraud, defendant FFS challenges the basic sufficiency of all of plaintiffs allegations. Citing Benoay v. Decker, 517 F.Supp. 490 (E.D.Mich.1981), FFS contends that in a multi-defendant securities case, each defendant “must be apprised separately of the specific acts of which he is accused.” Id. at 492. Rule 9(b) of the Federal Rules of Civil Procedure also supports FFS’s position: “In all aver-ments of fraud ..., the circumstances constituting fraud ... shall be stated with particularity.” “Thus, ‘[mjere conclusory allegations of fraud, couched in the bare statutory language of the Securities Act *576 will not satisfy Rule 9(b). Rather, the allegations must be accompanied by some delineation of the underlying acts and transactions which are asserted to constitute the fraud.’ ” Merrill Lynch, Pierce, Fenner & Smith v. Del Valle, 528 F.Supp. 147, 149 (S.D.Fla.1981) (quoting duPont v. Wyly, 61 F.R.D. 615, 630 (D.Del.1973)).

After reviewing plaintiff’s Amended Complaint, however, the Court finds the allegations of fraud or aiding and abetting to be sufficiently particularized, and as direct as is reasonable at this early juncture in the case. In support of his claims sounding in fraud, Mr. Eaton has alleged that FFS is a registered broker-dealer and the employer of defendant Jackson, Amended Complaint H 8; in selling the Coal Par notes, Mr. Jackson was acting within the actual or apparent scope of his employment, id. ¶¶ 11, 59; at various times between February and November 1981, Mr. Eaton visited Mr. Jackson at FFS’ office to discuss the Coal Par project, id. ¶¶ 15, 19, 22, 27; Mr. Jackson kept the Coal Par offering circular at FFS’ office, id. ¶ 61; and Mr. Eaton signed the Coal Par subscription agreement at FFS’ office, id. For additional alleged material misstatements and omissions, see n. 1.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Sagehorn v. Engle
46 Cal. Rptr. 3d 131 (California Court of Appeal, 2006)
Klaskala v. U.S. Department of Health & Human Services
889 F. Supp. 480 (S.D. Florida, 1995)
Knight v. EF Hutton and Co., Inc.
750 F. Supp. 1109 (M.D. Florida, 1990)
Finn v. Davis
602 F. Supp. 801 (S.D. Florida, 1985)
Viscomi v. Paine, Webber, Jackson & Curtis, Inc.
596 F. Supp. 1537 (S.D. Florida, 1984)

Cite This Page — Counsel Stack

Bluebook (online)
580 F. Supp. 572, 1984 U.S. Dist. LEXIS 19526, Counsel Stack Legal Research, https://law.counselstack.com/opinion/eaton-v-coal-par-of-west-virginia-inc-flsd-1984.