Moss v. Morgan Stanley Inc.

719 F.2d 5 (2nd Cir. 1983)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

Warner-Lambert Company (Warner) desired to acquire Deseret Pharmaceutical Company (Deseret). On November 23, 1976, Warner retained the investment banking firm of Morgan Stanley (D), to assess the desirability of acquiring Deseret, to evaluate Deseret's stock and to recommend an appropriate price per share for the tender offer. Courtois, Jr. (D), was then employed by Morgan Stanley (D) in its mergers and acquisitions department. Courtois acquired knowledge of Warner's plan to purchase Deseret stock. Courtois (D) informed defendant Antoniu (D), an employee of Kuhn Loeb & Co., of the proposed tender offer and urged him to purchase Deseret stock. Antoniu (D) in turn informed Newman (D), a stockbroker, that Warner intended to bid for Deseret. Pursuant to an agreement with Antoniu (D) and Courtois (D), Newman (D) purchased 11,700 shares of Deseret stock at approximately $28 per share for his and their accounts. Newman (D) also advised certain of his clients to buy Deseret stock. On November 30, 1976, with approximately 143,000 shares changing hands, P was among the active traders, having sold 5,000 shares at $28 per share. On the following day, December 1, 1976, the New York Stock Exchange halted trading in Deseret stock pending the announcement of the tender offer. Trading remained suspended until December 7, 1976, when Warner publicly announced its tender offer for Deseret stock at $38 per share. Newman (D) and the other defendants tendered their shares to Warner and reaped a substantial profit. P commenced this action and stated three causes of action: (1) P sought to recover damages from Newman (D) for allegedly violating section 10(b) of the 1934 Act and rule 10b-5 thereunder by purchasing Deseret shares with knowledge of the imminent tender offer and without disclosing such information to Deseret shareholders; (2) P sought to recover damages from Morgan Stanley (D) on the ground that as a 'controlling person' under section 20(a) of the 1934 Act, 15 U.S.C. § 78t(a) (1976), Morgan Stanley (D) should be derivatively liable for Courtois' (D) wrongdoing; and (3) pursuant to RICO, 18 U.S.C. § 1964(c) (1976), P sought to recover treble damages from Newman (D) on the ground that he engaged in 'at least two acts of fraud in connection with the purchase and sale of securities and as such represent a pattern of racketeering activity within the meaning of RICO.' Newman (D) moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the complaint for failure to state a claim upon which relief could be granted. Morgan Stanley (D) filed a rule 12(b)(6) motion to dismiss, alternatively styled as a Fed. R. Civ. P. 56 motion for summary judgment, and also requested attorneys' fees and costs pursuant to Fed. R. Civ. P. 11. The court granted both motions to dismiss and awarded costs to both defendants. P appealed.