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Divittorio v. Equidyne Extractive Industries Inc.

decided: June 26, 1987.

VINCENT DIVITTORIO, INDIVIDUALLY, AND AS REPRESENTATIVE OF A CLASS OF INVESTORS WHO PURCHASED THE SECURITIES OF EQUIDYNE EXTRACTIVE INDUSTRIES 1979 PETRO/COAL PROGRAM II, AND ALSO DERIVATIVELY ON BEHALF OF THE AFORESAID PARTNERSHIP, PLAINTIFF-APPELLANT,
v.
EQUIDYNE EXTRACTIVE INDUSTRIES, INC.; EASTERN MINING SYSTEMS, INC.; EASTLAND DRILLING CORP.; EASTLAND INDUSTRIES, INC.; EQUIDYNE CORPORATION; EQUIDYNE PROPERTIES, INC.; STUART R. ROSS; JOEL I. BEELER; PETER P.R. ROCK; ROBERT L. LIEBMANN; WOFSEY CERTILMAN HAFT AND LEBOW; MARKS SHRON AND COMPANY; ARNOLD GRUBER, INDIVIDUALLY AND AS A PARTNER OF MARKS SHRON AND COMPANY; INLAND DRILLING COMPANY, INC.; AND EQUIDYNE EXTRACTIVE INDUSTRIES 1979 PETRO/COAL PROGRAM II, DEFENDANTS-APPELLEES



Appeal from an order of the United States District Court for the Southern District of New York (Owen, judge) dismissing plaintiff's complaint for failure to plead fraud with particularity. Affirmed in part; reversed and remanded in part.

Author: Mahoney

Before: MANSFIELD, VAN GRAAFEILAND and MAHONEY, Circuit Judges.

MAHONEY, Circuit Judge:

In this action, plaintiff Vincent DiVittorio complains of an alleged fraud in the public solicitation of purchasers of interests in defendant Equidyne Extractive Industries 1979 Petro/Coal Program II, a New York limited partnership (the "Partnership") formed to obtain and exploit various coal properties and oil leases. DiVittorio, suing individually and on behalf of a class of investors, filed an amended complaint on or about January 10, 1986. He alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b) (1982)) and Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5 (1986)); Section 17 of the Securities Act of 1933 (15 U.S.C. § 77q (1982)); and Section 1962 of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. § 1962 (1982)). Various pendent claims were also asserted, including breach of fiduciary duties, fraudulent misrepresentation, negligence, and legal and accounting malpractice.

All of the defendants thereafter either made or joined in motions to dismiss the amended complaint. In a memorandum and order dated August 18, 1986, the district court dismissed the complaint for failure to plead fraud with particularity, as required by Fed. R. Civ. P. 9(b). Plaintiff was given leave to replead within sixty days. This appeal followed. We affirm in part, and reverse and remand in part.

I. BACKGROUND

We assume the truth of the plaintiff's allegations. Luce v. Edelstein, 802 F.2d 49, 52 (2d Cir. 1986).

A. The Defendants.

Plaintiff has divided all but one of the various defendants into three groups, and we shall do the same for ease of reference. The "Equidyne defendants" are:

(1) the Partnership;

(2) Equidyne Extractive Industries, Inc. (the "General Partner"), a New York corporation serving as general partner in the Partnership;

(3) Eastern Mining Systems, Inc. ("Eastern"), a new York corporation affiliated with the General Partner and the contract miner for the Partnership's coal properties;

(4) Eastland Drilling Corp. ("EDC"), and affiliate of the General Partner and a co-contracting driller under an agreement for the development of the Partnership's oil and gas properties;

(5) Eastland Industries, Inc. ("Eastland"), an affiliate of the General Partner that sublet coal properties to the Partnership;

(6) Equidyne Corporation ("Equidyne"), a New York corporation and the parent of the General Partner;

(7) Equidyne Properties, Inc. ("Equidyne"), a New York corporation and subsidiary of Equidyne serving as a manager and syndicator of Equidyne's real estate investments;

(8) Stuart R. Ross, a controlling stockholder and president of Equidyne, president of the General Partner and secretary-treasurer and a director of Properties;

(9) Joel I. Beeler, president or former president and a director of Properties, and present or former ...


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