IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 96-20461

 

DENNIS WILLIAMS,

RICHARD DREILING, 

Plaintiffs-Appellees,

versus

WMX TECHNOLOGIES, INC. formerly known as

Waste Management, Inc. and

ENVIRONMENTAL INDUSTRY ASSOCIATIONS,

formerly known as National Solid Waste Management

Association; DEAN L. BUNTROCK,

Defendants-Appellants.

 

Appeals from the United States District Court

For the Southern District of Texas

 

April 24, 1997

Before HIGGINBOTHAM, DAVIS, and BARKSDALE, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This is a class action suit alleging fraud in the sale of

securities. WMX, EIA, and Dean Buntrock bring this interlocutory

appeal from the district court’s denial of their motion to dismiss

Williams and Dreiling’s complaint. We find that the amended

complaint failed to allege fraud with particularity, reverse the

order of the district court, and remand with instructions to

dismiss.
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I.

In 1987, news services over much of the world followed the

plight of a barge heaped with New York state garbage off the coast

with no landfill willing to take its waste. This event seeded a

public perception that the United States was running out of space

to dispose of its trash. Much public discussion followed.

Finally, on January 19, 1995, the Wall Street Journal published an

article detailing the history of this “crisis,” postulating that we

were never really running out of disposal space. This article also

attributed much of the media’s attention about declining landfill

space to large garbage companies willing to exploit public fear of

a garbage crisis. 

On February 24, 1995, Dennis Williams and Richard Dreiling

filed this suit alleging that WMX, a national garbage hauling

service, and its president, Dean Buntrock, defrauded the public,

government agencies, and local trash haulers who sold out to WMX by

perpetuating the “garbage crisis” myth. Plaintiffs also sought to

represent a class of purchasers of “securities, including the

common stock of WMX for a period beginning January 1, 1987, and

ending December 31, 1993.” The putative class has not been

certified. Williams and Dreiling were co-owners of Texas

Sanitation Industries, sold to WMX in exchange for WMX stock. On

June 6, 1995, Williams and Dreiling filed an amended pleading,

adding EIA, a trade group formed to lobby for the interest of the

garbage companies, as a defendant and modifying its claims to

allege violations of RICO and aiding and abetting a 10b-5
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violation. Williams and Dreiling alleged that EIA was liable for

the fraud committed by WMX because it is linked both operationally

and financially with WMX and that it participated in disseminating

false and misleading material in the market.

In their amended complaint, Williams and Dreiling alleged that

during the time they were contemplating whether to sell TSI for

stock, an employee of WMX, Lynn Lantrip, stated that: 1) there

existed a shortage of landfill capacity; 2) TSI would soon have no

place to dump the trash it hauled; 3) WMX could soon be unable to

accept any trash hauled by TSI; and 4) WMX owned and controlled

more landfill capacity than any other company in the United States.

Their brief also alleged that WMX’s January 1992 prospectus falsely

stated that:

Suitable sanitary landfill facilities have become

increasingly difficult to obtain because of land

scarcity, local resident opposition and expanding

governmental regulation. The scarcity of sites and

increased volume of wastes have resulted in more

intensive use of existing sanitary landfill facilities.

As its existing facilities become filled, the solid waste

disposal operations of the Company are and will continue

to be materially dependent on its ability to purchase,

lease or obtain operating rights for additional sites and

obtain the necessary permits from regulatory authorities

to operate them. There can be no assurance that

additional sites can be obtained or that existing

facilities can continue to be operated. However,

management believes that the facilities currently

available to the Company are sufficient to meet the needs

of its current operations for the foreseeable future.

Attached to the amended complaint were 62 newspaper articles

alleged to contain public misrepresentations by WMX and EIA, some

of which were excerpted in the body of the amended complaint.

Williams and Dreiling urged that these articles demonstrated that
4

WMX and EIA conspired to perpetrate the “mass deception” that there

was a garbage crisis. 

 The district court denied a motion to dismiss the amended

complaint under Fed. R. Civ. P. 9(b) and 12(b)(6), and a motion to

reconsider, but granted a request to certify the interlocutory

ruling for appeal. Judge Hittner found that whether the pleading

of fraud met the particularity requirement presented a close

question. We granted the requested leave to appeal.

II.

The amended complaint alleged violations of RICO predicated on

mail and wire fraud, misrepresentations in violation of 10b-5, and

state law claims of fraud and negligent misrepresentation. We must

decide if the amended complaint was detailed enough to survive the

motion to dismiss, an attack leveled at all claims, resting as they

do upon the same asserted “fraud”.

Fed. R. Civ. P. 9(b) applies to securities fraud and RICO

claims resting on allegations of fraud. Tuchman v. DSC

Communications Corp., 14 F.3d 1061, 1068 (5th Cir. 1994)(securities

fraud); Tel-Phonic Serv., Inc. v. TBS Int’l, Inc., 975 F.2d 1134,

1139 (5th Cir. 1992)(RICO). WMX contends that 9(b) also applies to

the state law claims of common law fraud and negligent

misrepresentation. Because Williams and Dreiling do not attempt to

distinguish these claims in their brief, and because the state law

claims rely upon the same misrepresentations as the federal claims,

we do not distinguish between them here. See Shushany v. Allwaste,

Inc., 992 F.2d 517, 520 n.5 (5th Cir. 1993). We see no principled
5

reason why the state claims of fraud should escape the pleading

requirements of the federal rules, and the parties have not urged

a separate focus upon state law claims of negligent

misrepresentation. 

The elements of fraud include: 1) a misstatement or omission;

2) of material fact; 3) made with the intent to defraud; 4) on

which the plaintiff relied; and 5) which proximately caused the

plaintiff’s injury. Cyrak v. Lemon, 919 F.2d 320 (5th Cir. 1990).

Pleading fraud with particularity in this circuit requires “time,

place and contents of the false representations, as well as the

identity of the person making the misrepresentation and what [that

person] obtained thereby.” Tuchman v. DSC Communications Corp., 14

F.3d 1061, 1068 (5th Cir. 1994); see also Melder v. Morris, 27 F.3d

1097, 1100 n.5 (5th Cir. 1994); Shushany v. Allwaste, 992 F.2d 517,

520 (5th Cir. 1993).

As the Second Circuit has noted, articulating the elements of

fraud with particularity requires a plaintiff to specify the

statements contended to be fraudulent, identify the speaker, state

when and where the statements were made, and explain why the

statements were fraudulent. Mills v. Polar Molecular Corp., 12

F.3d 1170, 1175 (2d Cir. 1993). We agree with the Second Circuit’s

approach. This suit was filed prior to the effective date of the

Private Securities Litigation Reform Act, and while its provisions

do not apply, the Act adopted the same standard we apply today.

See H.R. Conf. Rep. No. 369, 104th Cong., 1st Sess. 41 (1995); 15

U.S.C. § 78u-4(b). 
6

The cry of pleading technicalities must be put in perspective.

The rules of civil procedure adopted in 1938 implemented a profound

change in the role of pleading in defining issues for trial. In

the main, the complaint became an ignition point for discovery.

Issues were to be “defined” by discovery, not pleading. Our

reverential treatment of the large achievements of the 1938 rules

may not have fully counted its price, or at least the price over

time seems to have gone up as pretrial process dwarfs actual

trials. We do not fully understand the extent of these

difficulties or their cause. It does remain clear that ready

access to the discovery engine all the while has been held back for

certain types of claims. An allegation of fraud is one. Rule 9(b)

demands a larger role for pleading in the pre-trial defining of

such claims. 

That said, the requirement for particularity in pleading fraud

does not lend itself to refinement, and it need not in order to

make sense. Directly put, the who, what, when, and where must be

laid out before access to the discovery process is granted. So

today we neither set springs for the unwary nor insist on

“technical” pleading requirements. We remind that this bite of

Rule 9(b) was part of the pleading revolution of 1938. In short,

we apply the rule with force, without apology. At the same time,

we read Rule 9(b) as part of the entire set of rules, including

Rule 8(a)’s insistence upon “simple, concise, and direct”

allegations. Relatedly, while 9(b) stands as an exception to an
7

overarching policy of immediate access to discovery, it did not

reflect a subscription to fact pleading. 

The inferior courts have emphasized that Rule 9(b)’s ultimate

meaning is context-specific. When a limitation period looms large

and the context strongly suggests that claimed “fraud” walks close

to non-actionable expression of opinion, 9(b) takes on especial

force. Finally, we must not dim the beacon of Rule 8(f) that “all

pleadings shall be construed as to do substantial justice.” We

must give a fair opportunity to plead. 

A complaint can be long-winded, even prolix, without pleading

with particularity. Indeed, such a garrulous style is not an

uncommon mask for an absence of detail. The amended complaint

here, although long, states little with particularity. Williams

and Dreiling allege that the “fraud” was implemented by false

statements in WMX’s prospectus, its face-to-face negotiations for

the purchase of competitors’ companies, and in false disseminations

to the market. First, they claim that a representative of WMX,

Lynn Lantrip, made face-to-face misrepresentations to them at a

meeting to discuss the sale of their trash hauling company to WMX.

Second, they claim that WMX’s prospectus contained

misrepresentations, presumably in the only language from the

prospectus included in the amended complaint. This is an excerpt

from a section of the prospectus entitled “Risk Factors.” The

final basis for Williams and Dreiling’s allegations of fraud is a

collection of newspaper articles, few of which are excerpted in the
8

complaint. We will consider each of these allegations for their

particularization of fraud.

A. The Discussion with Lynn Lantrip

Williams and Dreiling claim that they sold their company in

large part on the perception of a landfill crisis and

misrepresentations made by Lynn Lantrip that encouraged this

perception. The amended complaint does not state a place or time

that these representations were made. WMX suggests a motive for

Williams and Dreiling’s apparent reluctance to be particular:

because they received WMX stock on February 26, 1992, and this suit

was filed on February 24, 1995, the allegedly fraudulent

misstatements occurred outside the limitations period established

in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S.

350 (1991). Because we do not reach the question of limitations,

we do not address WMX’s assertion. At a minimum, Rule 9(b)

requires that the plaintiff specify the particulars of “time,

place, and contents of the false representations.” Tuchman, 14

F.3d at 1068. The allegations of face-to-face fraudulent acts by

Lantrip fail for lack of particularity.

B. The Prospectus

Williams and Dreiling broadly allege that WMX’s prospectus, as

excerpted in their complaint, contained fraudulent statements about

the future of landfill availability. However, it is not clear from

the amended complaint which assertions in the excerpted prospectus

statement they are challenging as false. The amended complaint

merely excerpts the prospectus and provides no analysis of its
9

contents or falsity. On its face, the statement seems to say no

more than the future of WMX as a waste disposal company is

materially dependent on its ability to find space to dump its

waste. The statement also says that new landfills have been hard

to locate, but that WMX presently has sufficient facilities

available for the disposal of waste. The language of the excerpt

is equivocal, which is appropriate because the “risk factors”

section of a prospectus is not intended to make promises or claims

regarding the future, but is meant to warn investors of factors

that can affect a company’s future performance. Williams and

Dreiling’s lack of specificity as to which portion is false and why

prevents this portion of the complaint from meeting the standard of

pleading set out in Rule 9(b).

C. The Newspaper Articles

The allegations of fraud perpetrated in the press suffer from

the same deficiencies as Williams and Dreiling’s other allegations.

They do not attempt to parse the articles to demonstrate which

statements were fraudulent and attributable to WMX, EIA, or

Buntrock. Although newspaper articles attached to a pleading may

be considered by this court, Lovelace v. Software Spectrum, Inc.,

78 F.3d 1015, 1017 (5th Cir. 1996), plaintiffs must also “set forth

an explanation as to why the statement or omission complained of

was false or misleading.” In re GlenFed, Inc., Sec. Litig., 42

F.3d 1541, 1548 (9th Cir. 1994)(en banc).

The articles are referenced in a section of the complaint

titled “The Myth is Perpetrated in the Marketplace,” which reads:
10

WMX and its trade association the NSWMA were

disseminating the false and fraudulent myth of a landfill

crises [sic] in a huge number of ways and means.

Attached hereto as Exhibit “1" are excerpts of news

articles that either quote WMX and/or NSWMA, or, on

information and belief, rely on information supplied by

these defendants.

The failure of this section of the complaint to identify specific

statements made by any of the defendants is fatal to Williams and

Dreiling’s action. See generally, Hershfang v. Citicorp, 767

F.Supp. 1251, 1259 (S.D.N.Y. 1991)(decrying the use of “a patchwork

of newspaper clippings” to establish a claim of securities fraud).

These vague pleadings illustrate the practical basis for the

requirement that a plaintiff point to specific statements made by

the defendants. Many of the newspaper excerpts attached to

Williams and Dreiling’s complaint quote the NSWMA, the predecessor

to the EIA, without specifying who gave information to the paper.

These excerpts, standing alone, cannot satisfy the “who, what,

when, where, and how” required by Rule 9(b). Melder v. Morris, 27

F.3d 1097, 1100 n.5 (5th Cir. 1994)(citing DiLeo v. Ernst & Young,

901 F.2d 624, 627 (7th Cir.), cert. denied, 498 U.S. 941 (1990)).

San Leandro Emergency Medical Group Profit Sharing Plan v. Philip

Morris Co., 75 F.3d 801 (2d Cir. 1996), is not to the contrary. In

Philip Morris, the court found that unattributed newspaper

statements were actionable where the article contained numerous

other attributed quotes. Id. at 810. Here, the article excerpts

contain no quotes from named officers or directors of WMX.

Many of the other article excerpts cited by Williams and

Dreiling are along the lines of the one from the August 30, 1989,
11

Houston Post. The excerpt of an article titled “Waste firm, 17

subdivisions sharing profits from trash recycling program” reads:

The program to encourage recycling not only gives Waste

Management a cash dividend -- the other 50 percent from

the sale of recyclables -- but saves valuable space in

the company’s landfills. 

 

This excerpt discloses nothing about a statement by an employee of

WMX or EIA. Indeed, it is unclear what fraudulent assertion

Williams and Dreiling are challenging. The only statement that can

be construed as commenting upon landfill availability is that space

in landfills is valuable, hardly actionable.

Other articles are just as innocuous. It is unclear what

purpose Williams and Dreiling have in mind when they cite articles

that attribute to the NSWMA the notion that, although ensuring

adequate garbage disposal now ranks third on a list of problems

facing local officials, it had previously been ranked second.

Similar infirmities pervade all of the articles attached to the

complaint. This lack of specificity stands in contrast to the

widespread nature of the conspiracy that Williams and Dreiling

attempt to allege.

Excerpts of the articles that appear in the body of the

complaint are unaccompanied by specific allegations. No attempt is

made to isolate statements and particularize their falsity. In a

section of the complaint titled “WMX/NSWMA Spread the Myth of a

Landfill Crisis,” Williams and Dreiling cite a Wall Street Journal

article asserting that “Big trash-handling companies certainly knew

there was no landfill crisis but helped spread the word of one
12

anyway. . . .” Complaint, at 8. This section of the complaint

continues, noting that the article stated that:

Dean L. Buntrock, chairman and chief executive

officer of WMX Technologies, Inc., had loaded up on dump

space in the 1970s and 1980s. He had also started a

trade group and lobbying arm, the National Solid Waste

Management Association. After the Mobro voyage, the

group was widely quoted asserting that dump capacity was

shrinking.

. . .

WMX was . . . telling customers as recently as 1993:

“This nation is quickly running out of places to dispose

of trash.”

These excerpts are insufficient to put any of the defendants on

notice as to which of their assertions are challenged. Indeed the

excerpts do not quote a defendant, they merely say that the

defendants were widely quoted or paraphrase previous statements. 

III.

We find that the amended complaint failed to state claims of

fraud with the particularity required by Fed. R. Civ. P. 9(b).

Plaintiffs have failed in two attempts to plead with particularity.

Their efforts have been carefully reviewed by an able district

judge. The order of the district court denying the defendants’

motion to dismiss is REVERSED and this case is REMANDED to the

district court with instructions to dismiss.

REVERSED and REMANDED with instructions.