Opinion ID: 52436
Heading Depth: 3
Heading Rank: 3

Heading: Failure to Plead with Particularity

Text: 13 The district court did not expressly state that it was relying on the fiduciary-shield doctrine, but it cited to Donovan when discussing the fraud claims against Individual Defendants. 32 No. 06-20395 A dismissal for failure to state fraud with particularity is a dismissal on the pleadings, which we review de novo.14 Shushany v. Allwaste, Inc., 992 F.2d 517, 520 (5th Cir. 1993). We accept all of the well-pleaded factual allegations as true. Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th Cir. 1994). When a defendant challenges a complaint for failing to plead with the particularity demanded by Rule 9(b), we look to ensure that the identity of the speaker along with the particulars of time place and content are alleged. Tuchman v. DSC Commc’n, 14 F.3d 1061, 1068-69 (5th Cir. 1994) (citing Tel-Phonic Servs. v. TBS Int’l, Inc., 975 F.2d 1134, 1139 (5th Cir. 1992)). “Put simply, Rule 9(b) requires ‘the who, what, when, where, and how’ to be laid out.” Benchmark Elecs., Inc., 343 F.3d at 724 (citation omitted). The plaintiffs brought two different fraud claims against the remaining defendants, Wireless Toyz, JSB and Simtob. First, they alleged that they were fraudulently induced to purchase the Wireless Toyz franchise by “serious misrepresentations,” including misrepresentations concerning the gross level of sales necessary for a franchise to reach a financial “break even” point. In support of this claim, they identified nine alleged misrepresentations in the Offering Circular and marketing materials which they alleged Simtob sent in early 2003. The alleged misrepresentations in the Offering Circular included the: (1) projection that a model retail franchise store was potentially profitable at the annual gross rate of $589,327; (2) description of how the sample numbers in Item 19 were compiled; (3) statement that “the Wireless Toyz business model 14 General Retail challenges the district court’s dismissal of its fraud claims under the heightened pleading requirements of Rule 9(b). On the other hand, the defendants argue in support of the district court’s dismissal of both the fraud and DTPA claims. For a number of reasons, we will only address the fraud claim itself, and remand the case to the district court for further consideration on the DTPA claims. First, the district court’s order only refers to the fraud claim. Second, the scope of the order was inconclusive at best. Third, issues of law potentially distinguish the claims and should be addressed. With regard to the DTPA claim, for example, the parties will have to address whether the heightened pleading standard of Rule 9(b) applies. 33 No. 06-20395 was a profitable one due to economics realizable as the result of being a Wireless Toyz franchisee[]”; and (4) statement that the defendants pass on group purchasing power benefits. The alleged misrepresentations in the marketing materials included the claims that: (1) franchisees would save over $10,000 in the first year and at least $20,000 overall compared to an independent start-up; (2) franchisees need half the working capital to achieve an operational break even point as compared to an independent start-up; (3) Wireless Toyz has the ability to negotiate a lease that would make a large difference in the net financial results; (4) Wireless Toyz can provide reliable assistance with a franchisees’ business plan; and (5) franchisees have greater purchasing power due to the advantages provided by Wireless Toyz’s volume purchasing. Based on these allegations, General Retail has sufficiently put Wireless Toyz and Simtob on notice as to the challenged assertions in the first part of its claim. General Retail has alleged that Wireless Toyz and Simtob stated in the Offering Circular that there were no material differences between the stores being offered for franchise and those being used to complete the schedule in the Offering Circular. It now alleges that was a false statement. Also, General Retail has alleged that Wireless Toyz and Simtob claimed they would pass on the benefits of group buying power, but never intended to pass on those benefits of group purchasing power. In other words, while the model stores disclosed in the Offering Circular received favorable prices and other allowances because of the size of the group’s business, Wireless Toyz’s franchised stores paid normal rates. Whether true or not, these allegations put Wireless Toyz and Simtob on notice of what they must defend. On the other hand, the fraud claim against JSB does not satisfy the heightened pleading requirements. There is not a single allegation that a JSB officer made any representations, much less misrepresentations. The alleged 34 No. 06-20395 misrepresentations identified are in Wireless Toyz’s marketing materials and Offering Circular and cannot be attributed to JSB in the absence of an alter ego claim.