The opinion of the court was delivered by: DONALD E. ZIEGLER
Pending before the court is the motion of defendants, County NatWest Global Securities Limited, NatWest Capital Markets, National Westminster Bank PLC, County NatWest Securities USA, and County NatWest Securities Corporation USA, ("NatWest")
to dismiss plaintiff's Amended and Supplemental Complaint with respect to NatWest, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. In addition, defendants seek Rule 11 sanctions against plaintiff for the allegations involving NatWest in the tenth claim of the complaint.
Plaintiff, T. Rowe Price, has asserted claims against NatWest for violations of sections 12(2) and 15 of the Securities Act of 1933 [first claim], section 1-501 of the Pennsylvania Securities Act [third claim], section 11-703 (a)(1)(ii) of the Maryland Securities Act [fourth claim], and the common law theories of negligent misrepresentation, innocent misrepresentation and mutual mistake [fifth, sixth and seventh claims]. Price's ninth claim is an alternative claim for damages in which some of these claims are repeated. In addition, plaintiff has asserted a contingent claim under section 12(1) of the Securities Act of 1933 and section 11-703(a)(1)(ii) of the Maryland Securities Act [tenth claim]. In resolving a motion to dismiss, we must accept all factual allegations and reasonable inferences as true when viewed in the light most favorable to the non-moving party. Sturm v. Clark, 835 F.2d 1009, 1010 (3d Cir. 1987). We may dismiss the complaint only if it appears beyond doubt that a plaintiff can prove no set of facts in support of the claims. Conley v. Gibson, 355 U.S. 41, 45, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1954).
NatWest contends that Price's first claim must be dismissed because plaintiff has failed to sufficiently plead each of the elements of a claim under section 12(2). In order to state a claim for Rule 12 purposes, a plaintiff must allege (1) the sale or offer to sell securities by the defendant; (2) pursuant to a prospectus or oral communication; (3) the use of mails or the facilities of interstate commerce in connection with the sale or offer; (4) a false or misleading statement of material fact or omission of a material fact that makes the statements misleading, in light of the circumstances under which they were made; and (5) lack of knowledge by the plaintiff. Wright v. National Warranty Co., 953 F.2d 256, 262 n.3 (6th Cir. 1992); see also, Ballay v. Legg Mason Wood Walker, Inc., 925 F.2d 682, 687-88 (3d Cir. 1991). For the reasons that follow, we hold that Price has alleged a claim under section 12(2) of the Securities Act of 1933 on which relief can be granted.
NatWest relies on the disclaimer contained in the Private Placement Memorandum, namely, defendants did not independently verify any information or make any warranties as to the accuracy or completeness of the information contained in the document, to support its contention that the information in the memorandum cannot be attributed to NatWest. We agree with plaintiff that NatWest's reliance on the disclaimer in the PPM is misplaced because the general language of the disclaimer does not bar a claim under section 12(2). In Re: Donald J. Trump Casino Securities Litigation - Taj Mahal Litigation, 7 F.3d 357, slip. op. at 23 (3d Cir. 1993). Liability is imposed under the statute if a party offers or sells a security by means of a prospectus containing a material misstatement or omission. The party providing such a prospectus bears the burden of proving that it "did not know, and in the exercise of reasonable care could not have known, of such untruth or omission". Barnebey v. E.F. Hutton & Co., 715 F. Supp. 1512, 1524 (M.D.Fla. 1989).
NatWest's arguments with respect to the disclaimer are also without merit because (1) Price does not rely exclusively on information contained in the PPM as a basis for its claim; (2) the allegations of the complaint control our review at this juncture, rather than the blanket disclaimer, and we must accept the allegations as true; and (3) the disclaimer is only part of the "mix" of information that we must consider in resolving a motion to dismiss. In Re: Donald J. Trump - Taj Mahal Litigation, 7 F.3d 357, slip. op. at 22-23 (3d Cir. 1993). A brief review of the complaint supports our conclusion.
T. Rowe Price alleges that its belief as to Phar-Mor's financial success was not based solely on the PPM provided by NatWest but on other documents and materials, including the "County NatWest Information Memorandum". Amended and Supplemental Complaint P 47 and P32. In addition, in our judgment, the disclaimer does not trump the allegations of the complaint in deciding a motion to dismiss because T. Rowe Price does not accuse NatWest of supplying the information in the materials; rather, plaintiff alleges that NatWest knew, or in the exercise of reasonable care, should have known of the untruths and omissions. Amended and Supplemental Complaint P 48. Since the information contained in the PPM does not contradict the allegations of the complaint, we must accept those allegations as true in reviewing a motion to dismiss. Finally, since reliance is not an element of a section 12(2) cause of action, NatWest may not rely on the disclaimer as evidence of plaintiff's non-reliance. Id. at 16-17, n.10.
In In Re: Donald J. Trump - Taj Mahal Litigation, 7 F.3d 357 (3d Cir. 1993), the Court of Appeals affirmed the dismissal of a complaint alleging violations of the federal securities laws because the alleged misstatements and omissions in the prospectus were not material. The Court concluded that the cautionary disclaimers and warnings set forth in the prospectus were sufficient to advise the investors that the investment was risky and therefore the alleged misstatements and omissions viewed in context did not state a cause of action as a matter of law. The Court emphasized that the tension between alleged misstatements, omissions and disclaimers must be reviewed on a case-by-case basis. Id. at 22.
NatWest next argues that the complaint fails to plead fraud with particularity as required by Rule 9(b). The argument is based on the mistaken view that plaintiff's claim for violation of section 12(2) sounds in fraud. We agree with Price that the authorities cited by NatWest are inapposite. For example, in Shapiro v. UJB Fin. Corp., 964 F.2d 272 (3d Cir.) cert. denied, 121 L. Ed. 2d 278, U.S. , 113 S. Ct. 365 (1992), the Court of Appeals noted that the pleadings referred to defendants' "intent" and did not allege negligence. There, the factual allegations on which the court focused recited that the defendants "intentionally", "knowingly" or "recklessly" misrepresented and omitted certain material information. Nowhere in this action does Price allege that NatWest acted knowingly, intentionally, willfully or recklessly. Unlike the complaint in Shapiro, the complaint here specifically alleges negligence and tracks the statutory language of section 12(2), namely, NatWest either "knew, or, in the exercise of reasonable care could have known". Amended and Supplemental Complaint P 48. We agree with plaintiff that a section 12(2) claim sounds in negligence and, as such, Rule 9(b) is inapplicable.
NatWest also contends that Price has failed to state a claim under section 1-501 of Chapter 1.5 of the Pennsylvania Securities Act of 1972 because plaintiff does not allege that the transactions took place in Pennsylvania. In addition, defendants argue that plaintiff fails to properly allege a claim due to lack of direct privity with NatWest. We disagree.
Price specifically alleges that NatWest is liable under the Pennsylvania Act by "offering or selling a security to plaintiff in Pennsylvania. . .". Amended and Supplemental Complaint P 58. Viewing the allegations as true, as we must, the facts state a cause of action under the Pennsylvania Act. We express no opinion whether the allegations of the complaint with respect to the Pennsylvania Securities Act will survive a motion for summary ...