Denny v. Carey – Case Brief
Denny v. Carey, 72 F.R.D. 574 (E.D. Pa. 1976).
Facts: Denny (P) brought a class action suit on behalf of himself and other purchasers of First Pennsylvania Corporation securities. Denny charged that Carey (D) and others had violated state and federal securities laws. Denny alleged that Carey fraudulently concealed the financial condition of First Pennsylvania and issued false financial statements that avoided the accrual of losses, thereby leaving loan reserves in deficit and inflating equity and net income. Carey claimed that Denny’s allegations failed to state the circumstances constituting fraud with the particularity required to satisfy FRCP 9(b). D contended that P’s allegations were conclusory and did not allege facts establishing fraud.
Issue: In a class action suit for securities fraud, what must a pleading contain in order to satisfy the requirements of FRCP 9(b)?
Holding and Rule: In a class action suit for securities fraud, FRCP 9(b) is satisfied when a pleading adequately identifies the circumstances of a fraud in a manner that allows a defendant to answer.
A complaint alleging fraud requires giving slightly more notice to parties than other types of complaints. Rule 9(b) must be interpreted in light of FRCP 8. Rule 8 merely requires a short and plain statement of the claim. The court held that the strict application of Rule 9(b) in class action securities fraud cases could result in substantial unfairness to the victims of fraudulent conduct.
The court held that P had met the requirements of Rule 9(b) and could complete the details of the allegations in discovery. As for the allegations that professionals need some type of special privilege or deference in such situations, the court held that there is no merit to such a position when there may be an entire class of plaintiffs harmed.
Disposition: For P.
Notes: Most states require that facts supporting a claim of fraud be pleaded with great particularity.