b. Third party status
In addition, Blank, Rome contends that it lacked the third party status with respect to Deloitte's contract with Sunrise necessary to support a claim for tortious interference.
Under Florida law, one who is a party to a contract cannot be liable for interference with that contract. Genet Co. v. Annheuser-Busch, Inc., 498 So.2d 683, 684 (Fla.Dist.Ct.App. 1986). Therefore, initially the determination as to whether a cause of action for unlawful interference with a contractual relationship has been alleged depends on whether the defendant is or is not to be considered a party to the contractual relationship. Buckner v. Lower Florida Keys Hospital District, 403 So.2d 1025 (Fla.Dist.Ct.App. 1981). Florida courts have held that, in certain circumstances, a party's agent can be considered a party and thus protected from liability for tortiously interfering with the party's contract with a third party. See Sloan v. Sax, 505 So.2d 526 (Fla.Dist.Ct.App. 1987); Covert v. Terri Aviation, Inc., 197 So.2d 12, 13 (Fla.Dist.Ct.App. 1967) (controlling shareholder of company could not be sued in tort for allegedly inducing breach of contract by company because shareholder was representative of company).
However, in Peacock v. General Motors Acceptance Corp., 432 So.2d 142 (Fla.Dist.Ct.App. 1983), a Florida District Court of Appeal held that a wholly owned subsidiary (GMAC) of a corporation (GM) was not immune from suit for tortiously interfering with the corporation's contract with another party. The Court reached this conclusion despite the subsidiary's contention that it was in privity with the corporation and thus not a third party to the contract. Id., at 143. The Court stated:
We reject GMAC's reasoning and hold that GMAC's subsidiary relationship to GM does not in itself negate the possibility of GMAC's having intentionally interfered with Peacock's and Peacock Chevrolet's business relationships with GM. GMAC is a distinct legal entity, and its being a wholly owned subsidiary of GM does not alter that status. GMAC does not claim, much less has it established, that GM's control is such that GMAC is but an instrumentality of the parent GM . . . . If GMAC's tortious acts would not ordinarily subject its parent to liability, it can hardly be argued in the same circumstances that GMAC's relationship to GM immunizes GMAC from separate liability on account of tortiously interfering with GM's contracts with third persons.
In addition, in Connell v. Weiss, LEXIS (S.D.N.Y. March 9, 1985) slip op., the District Court rejected an attorney's motion to dismiss a third-party's contract with the attorney's client. The Court held:
The fact that Weiss was acting as an attorney when he allegedly interfered with the contract does not defeat the cause of action. It cannot be said, as a matter of law, that the alleged torts of an attorney are privileged or are otherwise insulated from suit. An attorney may be held liable to third parties if he or she has been "guilty of fraud, or collusion, or of a malicious or tortious act."
Id., slip op. at 4, quoting Koger v. Weber, 116 Misc. 2d 726, 455 N.Y.S.2d 935, 936 (1982).
Blank, Rome asserts that as general legal counsel for Sunrise it was the representative of Sunrise and, "vis a vis third parties, Blank, Rome was an extension of Sunrise." Blank, Rome Memorandum, at 69. Following the reasoning of both the Peacock and Connell cases, however, I am persuaded that this argument must fail. Just as in Peacock, Blank, Rome is a distinct legal entity from Sunrise. Moreover, Sunrise's control over Blank, Rome was not such that it was merely an instrumentality of the corporation. Blank, Rome cannot claim to be immune from liability because of its relationship to Sunrise when Blank, Rome would not be subject to liability for the independent wrongs committed by Sunrise.
In light of Peacock, therefore, I predict that the Florida Supreme Court would accept the reasoning of Connell and hold that the fact that Blank, Rome was Sunrise's counsel is not sufficient to dismiss Deloitte's claim for tortious interference.
Blank, Rome contends that some of the losses for which the Outside Directors and Deloitte seek damages, i.e. investment losses, litigation costs and reputation damages, are not recoverable.
It need not appear in the pleadings that the cross-claimants can obtain all of the relief demanded so long as it can be ascertained from the face of the complaint that some relief can be granted. Doe v. United States Dept. of Justice, 753 F.2d 1092, 1104 (D.C.Cir. 1985); 5A Wright & Miller § 1357. Thus, so long as some element of the damages that the cross-claimants seek can be granted, it is improper to dismiss the pleadings on this ground.
a. Investment Losses
Initially, Blank, Rome argued that if the Outside Directors were seeking damages for "investment losses" because their stock had become worthless, the claims could be asserted only derivatively. Blank, Rome Memorandum, at 73. However, Blank, Rome subsequently conceded that if the damage claims are confined to the loss the Directors allegedly suffered by purchasing over-priced stock, the claim is not derivative. Blank, Rome Supplemental Memorandum, at 66.
Therefore, the claims seeking damages for investment losses is proper. As it appears from the pleadings that some relief can be granted, the cross-claims will not be dismissed on this ground.
10. Section 10(b) Claim
Finally, Blank, Rome argues that the claims of the Outside Directors arising under Section 10(b) of the Securities and Exchange Act of 1934 must be dismissed because they are barred by the statute of limitations and, additionally, they have not been pleaded with sufficient particularity.
a. Statute of Limitations
The Supreme Court recently held that litigation instituted pursuant to Section 10(b) and Rule 10b-5 of the Securities and Exchange Act of 1934 must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation. Lampf Pleva Lipkind Prupis & Petigrow v. Gilbertson, 115 L. Ed. 2d 321, 111 S. Ct. 2773 (1991).
Sunrise was incorporated on March 10, 1980. By agreement, the parties tolled the statute of limitations in 1986. In light of the Court's decision in Lampf, the Directors concede that any of their fraud claims that preceded 1983, three years before the statute was tolled, are barred.
Blank, Rome contends that any alleged misrepresentation or omission which induced the Directors to purchase stock must have occurred at the latest on March 10, 1980, the date of incorporation, and as a result, all of the Directors' § 10(b) claims are barred. Blank, Rome Supplemental Memorandum, at 72. The Directors argue that the omissions continued throughout the life of Sunrise, from 1980 through 1986, and that these omissions caused the Directors to purchase securities after 1983. Transcript, Oral Argument, at 64. In addition, the Directors assert that their cross-claims refer to all of the allegations in the FDIC and shareholders' complaints, which allege misrepresentations spanning the entire life of Sunrise. Certain Non-Settling Defendants' Sur-reply, at 43-44.
I conclude that the Outside Directors have pleaded allegations of fraud after 1983, and those claims remain. As the parties agree, the allegations of misrepresentations or omissions prior to 1983 are barred by the statute of limitations.
In addition to arguing that the Directors' § 10(b) claims must be dismissed because they fail to plead fraud with particularity as required by Fed.R.Civ.P. Rule 9(b), see Section II(B)(1)(b), supra, Blank, Rome asserts that the Directors did not plead with particularity any misrepresentations by Blank, Rome in connection with the Directors' purchases of Sunrise stock. Blank, Rome Supplemental Memorandum, at 69.
A claim brought under § 10(b) or Rule 10b-5 requires that the misrepresentation be made "in connection with" the purchase or sale of a security. Angelastro v. Prudential-Bache Secur., Inc., 764 F.2d 939, 942 (3d Cir.), cert. denied, 474 U.S. 935, 88 L. Ed. 2d 274 , 106 S. Ct. 267 (1985). The Supreme Court has interpreted the "in connection with" language of § 10(b) "to require that the plaintiff has 'suffered an injury as a result of deceptive practices touching [the purchase or] sale of securities.'" Id., at 943, quoting Superintendent of Insurance v. Bankers Life and Casualty Co., 404 U.S. 6, 12, 30 L. Ed. 2d 128 , 92 S. Ct. 165 (1971). The Court of Appeals for the Third Circuit has construed the "touching" requirement as mandating that there be some "causal connection between the alleged fraud and the purchase or sale" of a security. Angelastro, 764 F.2d at 943, citing Tully v. Mott Supermarkets, Inc., 540 F.2d 187, 194 (3d Cir. 1976).
Here, the Outside Directors have alleged that they purchased and held Sunrise stock at artificially inflated prices "as a result" of the misrepresentations. See Outside Directors' Amended Cross-Claims para. 35. Thus, they have satisfied the "in connection with" requirement of Rule 10b-5.
Finally, Blank, Rome contends that the § 10(b) claims must be dismissed for failure to plead reliance, arguing that the Directors are not entitled to take advantage of the fraud-on-the-market theory, under which reliance is presumed.
The Supreme Court explained the fraud-on-the-market theory in Basic Inc. v. Levinson, 485 U.S. 224, 99 L. Ed. 2d 194 , 108 S. Ct. 978 (1988):
An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price. Because most publicly available information is reflected in market price, an investor's reliance on any public misrepresentations, therefore, may be presumed for purposes of a Rule 10b-5 action.
Id., at 225. In addition, in Peil v. Speiser, 806 F.2d 1154, 1161 (3d Cir. 1986), the Court of Appeals for the Third Circuit held that if plaintiffs make a showing that defendants had made material misrepresentations the Court will presume that the misrepresentations occasioned an increase in the stock's value that induced plaintiffs to purchase the stock. The Court stated that there were several appropriate defenses to the presumption, including that the market did not respond to the alleged misrepresentations, or that plaintiffs knew of the falsity of defendants' representations or would have purchased the stock even if they had known of them. Id. See also In re Phillips Petroleum, 881 F.2d at 1236.
Blank, Rome asserts that it is not logical for this Court to presume reliance on the market price by the directors of the issuer. Blank, Rome Supplemental Memorandum, at 68. Under the rationale stated in Peil, however, the Directors are entitled to a presumption of reliance because they have pleaded a material misrepresentation.
Even if I were to conclude that the fraud-on-the-market theory is not appropriate here, the Directors' claims would not be dismissed because the Directors have alleged that they actually relied on the misrepresentations.
This is sufficient to satisfy Rule 9(b).
For the reasons stated herein, the non-settling defendants' claims for contribution, implied indemnity under the federal securities laws, breach of contract, and negligence will be dismissed. The claims for securities fraud under Section 10(b) and Rule 10b-5 of the Securities Exchange Act will be dismissed to the extent that they are barred by the statute of limitations. In all other respects, Blank, Rome's motion will be denied.