Denny v. Carey
United States District Court for the Eastern District of Pennsylvania
72 F.R.D. 574 (E.D. Pa. 1976)
The plaintiff brought a class action suit against defendants on behalf of all individuals who purchased First Pennsylvania Corporation (First Penn) securities. The plaintiff alleged that the defendants made false and fraudulent statements in an attempt to hide First Penn’s financial condition. Specifically, the plaintiff alleged that First Penn: included as income interest accruals when borrowers had already defaulted; sold foreclosed properties at not arm’s length terms to avoid reporting a loss on the properties; failed to account for certain uncollectibles in real estate loans; and hid loan defaults by entering into modifications with borrowers. The defendants filed a motion to dismiss for failure to state a claim based on Rule 9(b) of the Federal Rules of Civil Procedure, arguing that the 9(b) standard is a “rigorous” one. Rule 9(b) provided that when a plaintiff alleges fraud or mistake he must plead the circumstances of that fraud or mistake specifically, but may plead conditions of the defendant’s mind such as intent or knowledge generally.
Rule of Law
Holding and Reasoning (Lord, III, C.J.)