Monday, December 10, 2007
On Friday, the Southern District of Florida dismissed a group of plaintiffs' fraud case case against brokerage and financial services firms. The court held that the plaintiffs had failed to allege fraud with particularity under Rule 9(b) in part because they pled in the passive voice.
Also, a plaintiff's use of the passive voice in alleging a fraud can impermissibly obscure allegations such that the allegations fail to satisfy the particularity requirements of Rule 9(b). Strategic Income Fund, L.L.C. v. Spear, Leeds & Kellogg Corp., 305 F.3d 1293, 1297 (11th Cir.2002); Pension Committee of University of Montreal Pension Plan v. Banc of America Securities, L.L.C., 446 F.Supp.2d 163, 186 n. 153 (S.D.N.Y.2006) (“Plaintiffs must allege the speaker of a misrepresentation with particularity and may not obscure pleading deficiencies by casting allegations in the passive voice.”); In re Keithley Instruments, Inc. Securities Litigation, 268 F.Supp.2d 887, 898 (N.D.Ohio 2002). Plaintiffs' repeated use of the passive voice when describing misrepresentations or fraudulent acts obscures exactly who made the statements or committed the fraudulent acts. In many instances, it appears that the representations or fraudulent acts are properly attributable to PFA but, by using the passive voice (e.g., stating that misrepresentations “were made” to investors), Plaintiffs attempt to broaden responsibility and make it appear that each Defendant is responsible for each of PFA's and/or another Defendants' statements, misrepresentations, and fraudulent acts or omissions.
For more information, you can find the entire opinion with this citation (2007 WL 4287729) or by reading Ben Spencer's post on the subject here.--Counseller