author: HUYETT, District Judge.

text:
    Randolph M. HOWES, Janice Kinchen Howes and Arrow International, Inc. v. MEDICAL COMPONENTS, INC. and American Hospital Supply Corp.
    Civ.A. No. 84-4435.
    United States District Court, E.D. Pennsylvania.
    July 22, 1985.

      Thomas A. Masterson, Philadelphia, Pa., for plaintiff.
    Wm. H. Eilberg, Philadelphia, Pa., for Components.
    John W. Chestnut, Chicago, 111., for American Hosp. Supply.
   MEMORANDUM AND ORDER

HUYETT, District Judge.

Plaintiffs Randolph M. Howes, Janice Kinchen Howes, and Arrow International, Inc. brought this action pursuant to 35 U.S.C. § 271(a) against defendants Medical •Components, Inc. (“MedComp”) and American Hospital Supply Corporation for infringement of Claim 7 of United States Patent No. 4,072,146 entitled “Venous Catheter Device”, which was issued on February 7, 1978 to plaintiff Randolph M. Howes.

Presently pending before me is Med-Comp’s motion for summary judgment and request for attorney’s fees. MedComp contends that the patent in question is not infringed, that there are no material factual issues in dispute, and that the question of infringement is purely a matter of law. For the reasons stated below, MedComp’s motion for summary judgment will be granted but its motion for fees will be denied.

Background

The Howes patent is for a triple lumen infusion catheter. A catheter is basically a tube which is inserted into the body for one or more purposes, such as draining fluids, injecting drugs or nutrients, or measuring blood pressure within veins or arteries. The tubes which carry these substances to or from the body are called “lumens”. Dr. Howes’ device is a multi-lumen catheter consisting of three tubes or channels, each of which is capable of carrying a different fluid, or performing a different diagnostic function simultaneously. Howes did not originate the multi-lumen catheter. In fact, Howes was compelled to amend his patent application to avoid infringing prior patents.

Howes first applied for the patent on September 8, 1976. The application described and illustrated a “venipuncture” device which included a hollow needle to insert a catheter into a vein, and a triple lumen venous catheter. This application contained ten claims defining the scope of the invention. The patent examiner denied the application and cited several prior patents that would be infringed by the Howes device. Ballard United States Patent 3,055,361 was cited against claims 1-4 and 9 which described the venipuncture device including the needle. The examiner also cited Blake United States Patent 3,995,623 and Bielinski United States Patent 3,437,-088 against claims 5-8 which describe the catheter itself. Each of these devices has protuberances along its distal end portion (the part of the tube that enters the body). In response to the examiner’s citation of this prior art, plaintiff Randolph Howes dropped several claims and amended others to specify that the distal end portion- of his catheter would have a “uniform outer diameter.”

Plaintiff subsequently filed a reissue application. During the reissue proceeding, the patent examiner held all of the claims but Claim 7 to be unpatentable. Plaintiff then cancelled the remaining claims. There is only a slight difference between the patented Howes device and the prior art but, in this technical area, small yet significant differences are enough to prevent infringement. On February 7, 1978, plaintiff was issued a patent for the amended Claim 7 of his device. Claim 7, with its amended portions underlined, is as follows:

7. (Amended) A venous catheter device including an elongated, flexible catheter tube provided with a distal end portion generally circular in cross-section and having a uniform outer diameter constructed for insertion into and capable of being fed longitudinally of a vein, a plurality of independent lumens extending freely through said catheter tube, each of said lumens having a distal terminus adjacent the distal terminus of the catheter tube and spaced from each other, one of said lumens having its distal end substantially coextensive with the distal end of said tube, the other of said lumens exiting at lateral openings in said tube and being joined thereto, at least one of said lumens providing means for infusing fluids into the blood stream, the proximate ends of the lumens extending beyond the proximate end of said catheter tube and being fitted with a lumen adapter for connection to independent fluid devices.

Discussion

Summary judgment may only be granted when it has been established that there are no issues of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Small v. Seldows Stationary, 617 F.2d 992 (3d Cir.1980). The court does not decide issues of fact, but merely determines if there is an issue of fact to be tried. Ettinger v. Johnson, 556 F.2d 692 (3d Cir.1977). The facts must be viewed in the light most favorable to the non-moving party and any reasonable doubt as to the existence of a genuine issue of fact is to be resolved against the moving parties. Continental Insurance Co. v. Bodie, 682 F.2d 436 (3d Cir.1982).

There is nothing inherent in patent actions which makes summary judgment inappropriate per se. Non-infringement as a matter of law may be decided upon a motion for summary judgment when it is possible to understand without extrinsic expert evidence the nature of the patented invention. The court must also be able to determine whether the alleged infringing device contains all the elements set forth in the patent claim, or the mechanical equivalents thereof. Graphicana Corp. v. Baia Corp., 472 F.2d 1202 (6th Cir.1973); Strahle v. Dillard’s Department Stores, 459 F.Supp. 396 (W.D.Tex.1978).

The most important issues in the present case involve the interpretation of certain words and phrases in the patent claim. Construction of a patent claim is a question of law, and if infringement depends upon proper construction of a claim, the court may decide the issue of infringement as one of law. Ebeling v. Pak-Mor Manufacturing Co., 683 F.2d 909 (5th Cir.1982).

The first area in dispute is plaintiffs use of the phrase “uniform outer diameter” in reference to the distal end portion of their venous catheter device. MedComp contends that because its catheter device has a tapered distal end it falls outside of plaintiff R. Howes’ patent claim. It argues that plaintiffs are estopped from asserting that Claim 7 includes a catheter having a tapered tip because the “uniform outer diameter” language was inserted by amendment in response to the patent examiner’s initial rejection of the Howes patent. In Coleco Industries, Inc. v. United States International Trade Commission, 573 F.2d 1247 (C.C.Pa.1978), the Court held that if a patentee argued a narrow claim construction before the United States Patent and Trademark Office (“PTO”), he is precluded from arguing a broader construction for the purposes of infringement. See also Powell v. Kenner Products, 213 U.S.P.Q. 1072 (M.D.Fla.1980). Because plaintiffs argued a narrow construction before the PTO, MedComp argues they are estopped from arguing a broader construction now.

Furthermore, MedComp argues that “file wrapper estoppel” precludes the application of the “doctrine of equivalents” to this case. Under the doctrine of equivalents, two devices that do the same work in substantially the same way and accomplish substantially the same result are the same, even though they differ in name, form, or shape. See Graver Tank and Manufacturing Co., Inc. v. Linde Air Products Co., 339 U.S. 605, 70 S.Ct. 854, 94 L.Ed. 1097 (1050); Martin v. Barber, 755 F.2d 1564 (Fed.Cir.1985). Defendant relies on Builders Concrete Inc. v. Bremerton Concrete Products Co., 757 F.2d 255 (Fed.Cir. 1985) for the proposition that file wrapper estoppel precludes applying the doctrine of equivalents when the patentee has previously narrowed his claims in response to an objection by the PTO. The Court in Builders Concrete granted summary judgment for defendant, stating that file wrapper estoppel prevented plaintiff from broadening the scope of his claim. The distinguishing feature was inserted by amendment into Claim 1, but not into Claim 10. Although Claim 10 was not amended to recite the critical feature, the Court held that Claim 10 must be interpreted in view of the amendment to Claim 1. The present case presents an even stronger argument for the application of file wrapper estoppel because the “uniform outer diameter” language was added to every claim in the application. Therefore, defendant contends that the doctrine of equivalents does not apply to this case.

Plaintiffs, on the other hand, contend that the “uniform outer diameter” language does not prevent a catheter with a tapered tip from infringing the patent. Plaintiffs emphasize that patent construction is not a matter of pure literalism and slavish adherence to the words used. “A patent is to be construed as a contract with the intent of the parties as the lodestar.” Centaur Chemical Co. v. Abbott Laboratories, 553 F.Supp. 62, 64 (N.D.Ill.1982). It appears that plaintiff R. Howes intended the “uniform outer diameter” phrase to distinguish the Bielinski catheter which had protuberances along its length. He argues that “uniform outer diameter” must be construed in light of its intent to distinguish the Bielinski patent. Plaintiffs contend that the amendment which distinguishes the present patent from Bielinski was intended to promote comfort and safety, which a catheter with a uniform outer diameter would provide. They further contend that a tapered distal end is within the scope of this amendment because it is consistent with their intentions.

Moreover, amendment of claims is a common practice in prosecution of patent applications. There is no reason for limiting application of the doctrine of equivalents to those comparatively few claims allowed exactly as originally filed. Hughes Aircraft Co. v. United States, 717 F.2d 1351 (Fed. Cir.1983). Therefore, considering plaintiff R. Howes’ intentions and reasons for the amendment, it is reasonable to include tapered catheters within Claim 7 of the patent.

The next important dispute involves interpreting the words “joined” and “freely” as used in Claim 7. The word “joined”, as defined in Webster’s Third New International Dictionary, means: (1) “To put or bring together and fasten;” and (2) “To put or bring into close contact, association, or relationship.” MedComp interprets “join” to mean fasten, as in the first definition. It supports this interpretation by referring to language appearing at the top of column four of the patent: “lumens 21, 23 preferably are joined to the tube 18 at openings 25, 27 using an adhesive, or by fusing.” (emphasis added). The plain meaning of this statement is that the inner lumens are physically fastened to the outer tube at the specified openings. Interpreting this statement to mean that the lumens and tube would merely be in close contact is strained at best. Accepting MedComp’s interpretation, Claim 7 can only be referring to figure 3 of the patent and not to figure 5. This latter figure resembles the MedComp catheter more closely than does figure 3.

In figure 3, the inner lumens are independent tubes and must be physically attached to the outer casing by an adhesive or by fusing. The lumens in figure 5, however, are not independent of the outer casing which, infact, forms their outer wall. The lumens in figure 5 are, therefore, already attached to the outer wall of the catheter at openings 25 and 27.

Plaintiff argues that the proper interpretation of “joined” is “allowing the inner lumens to communicate or associate with the outside world.” In support of this interpretation, plaintiffs refer to statements made by Randolph Howes at his deposition as well as the depositions of David Markel (MedComp’s president) and Patrick Maloney (the designer of the MedComp catheter). The reliance of these depositions is, however, misplaced. The questions were much too narrow and misleading to provide much support for plaintiffs’ interpretation. For example, although Mr. Maloney agreed that the hole in the accused catheter enables the lumen to communicate with the outside world, it does not mean that this is his interpretation of the word “joined” in the patent claim. Claims must be clearly supported in the description so that the meaning of the terms in the claims may be ascertainable by reference to the description. 37 C.F.R. § 1.75(d)(1). In light of the description, the more reasonable interpretation of “joined” appears to be the fastening required in figure 3 of the patent claim.

Plaintiff also argues that the doctrine of equivalents applies in case the Court finds literal infringement lacking. The doctrine of equivalents was designed to prevent an infringer from stealing the benefit of a patented invention by making unimportant and insubstantial changes. Foster Wheeler Corp. v. Babcock and Wilcox Co., 512 F.Supp. 792 (S.D.N.Y.1981). Whether the patented and accused devices are equivalent is a question for the trier of fact. Martin v. Barber, 755 F.2d 1564. The changes made to the patented invention in the instant case are, however, neither unimportant nor insubstantial. The Howes patent differed only slightly from the prior art, yet the difference was considered substantial enough to prevent infringement. In the present case, Med-Comp’s device differs from the Howes catheter in the overall design of its lumens. Although these changes may not be massive, small changes have been enough to distinguish new catheters from prior art. MedComp’s changes meet the test of being important and substantial.' No material issues of fact could be reasonably in dispute as to prevent summary judgment from being granted.

The last interpretation dispute involves the word “freely” which the plaintiffs use to describe the inner lumens. Plaintiffs interpret this to mean that the lumens are unobstructed channels. MedComp, on the other hand, contends that this interpretation is flawed. A lumen by its definition is an unobstructed passage for fluid and following plaintiffs’ definition would, therefore, be redundant. The more reasonable interpretation is that “freely” means the lumens are independent of each other as they extend down the catheter tube. In figure 5, the lumens are not independent of each other, but are part of the same piece of material. The lumens in this drawing are merely channels formed by partitioning the main catheter tube. Only in figure 3 do the lumens truly extend “freely” through the catheter tube. Because Claim 7 of the Howes patent refers to figure 3, but not figure 5, and only Claim 7 was actually accepted by the PTO, MedComp’s device does not infringe the Howes patent on this point.

[7,8} Even if only one of the two or three reasons for non-infringement is sustained, the conclusion of non-infringement remains intact. American Hoist and Derrick Co. v. The Manitowoc Co., Inc., 603 F.2d 629 (7th Cir.1979). Every element of a claim alleged to be infringed must be found in the accused device and omission of any one element precludes infringement, even if the same results are achieved. Sears, Roebuck & Co. v. Minnesota Mining and Manufacturing Co., 243 F.2d 136 (4th Cir.1957); Graphicana Corp. v. Baia Corp., 472 F.2d 1202 (6th Cir.1973).

Plaintiffs’ catheter and MedComp’s catheter differ substantially in the construction of their inner lumens. The lumens in the plaintiffs’ device are independent tubes that must be “joined” to the outer casing. Also, the lumens in the Med-Comp catheter do not extend “freely” as do the lumens in the Howes catheter. Therefore, summary judgment must be granted in favor of MedComp.

Finally, in exceptional patent infringement cases the court may award reasonable attorney fees to the prevailing party. 35 U.S.C. § 285. The purpose of this provision is to prevent gross injustice from unjustified litigation. The award of fees is remedial in nature, however, not penal, and should be invoked only when vexatious and unjustified litigation is clearly shown. Phillips Petroleum Co. v. Esso Standard Oil Co., 91 F.Supp. 215 (D.C.Md.1950). In the present case, the disputes in question were substantial enough to be considered justified. This case does not warrant awarding MedComp its attorney fees.

An appropriate order follows.


source: Caselaw Access Project

author: ZAMPANO, Senior District Judge.

license: Public Domain

text:
    David Edwin EDGERTON, Plaintiff, v. Pat SPINOLA, Group Manager, Internal Revenue Service, Rudy’s Limousine Service, and Roy Spezzano, President, and Richard W. Farrell, Attorney at Law, Defendants.
    Civ. A. No. B-83-773 (RCZ).
    United States District Court, D. Connecticut.
    Aug. 16, 1985.
    David Edwin Edgerton, pro se.
    Albert J. Barr, Abate, Fox & Farrell, Stamford, Conn., for defendants Farrell and Spezzano.
    Deborah S. Meland, Tax Div., Washington, D.C., Barry K. Stevens, Asst. U.S. Atty., Bridgeport, Conn., Gary P. Cahill, Farrell & Barr, Stamford, Conn., for defendants, Rudy’s Limousine, Roy Spezzano and Richard W. Farrell.
   MEMORANDUM ORDER OF DISMISSAL

ZAMPANO, Senior District Judge.

Plaintiff David Edwin Edgerton, pro se, seeks the return of a $500 civil penalty plus interest imposed on him pursuant to 26 U.S.C. § 6682(a) (prohibiting filing of false information on income tax withholding forms). The penalty was collected through a levy placed on plaintiff’s salary from defendant Rudy’s Limousine Service (“Rudy’s) by the Internal Revenue Service (“IRS”). Rather than file an action for refund pursuant to 26 U.S.C. § 7422, he filed the instant “Demand for Tempory [sic] Injunction and Claim for Damages.” It appears from the record that no claim for refund or credit has been duly filed with the IRS, which is a prerequisite to filing an action for refund. 26 U.S.C. § 7422(a). Because the complaint does not state a cause of action, it is hereby ordered dismissed.

The following assertions set forth in the complaint are assumed to be true. Plaintiff was assessed a $500 civil penalty by the IRS for reporting on a W-4 form that he was exempt from federal income taxes, when in the view of the IRS he was not exempt. On November 10, 1983, the IRS ordered defendant Roy Spezzano, the president of Rudy’s, to levy upon the salary of plaintiff the amount of $513.13. This action was filed on December 21, 1983, and seeks the return of funds levied, an order preventing further collection from plaintiff, and unspecified damages.

On March 22, 1984, defendant Pat Spinola, an IRS Group Manager, filed a motion to dismiss. Judge Eginton granted that motion on April 13, 1984, for the reasons set forth in Spinola’s moving papers and absent objection by plaintiff. No further action in this matter occured until the Clerk mailed on January 15, 1985, a notice pursuant to Local Rule of Civil Procedure 16(a) that the case was subject to dismissal. Plaintiff responded to the Rule 16 notice by asking that a default judgment be entered against all defendants except Spinola, or that the case be transferred to another judge of the Court. Plaintiff's Reply to the Notice to Counsel and Claim for Default Judgment (Feb. 4, 1985). A status conference was held on March 19, 1985, and Judge Eginton transferred the case to the undersigned on March 21, 1985.

This Court placed the case on the May trial calendar. Prior to the calendar call, the remaining defendants filed a motion to dismiss and a motion to adjourn jury selection. Plaintiff objected to that motion in a “Claim and Demand” dated May 10, 1985, and he further asked in a filing dated May 9,1985, that Judge Eginton’s order dismissing Spinola be vacated. Because of the motions filed by all parties prior to the calendar call, the Court orally continued the case at the call on May 13, 1985.

As to plaintiff’s request that the order dismissing Spinola be vacated, the Court is normally reluctant to dismiss pro se complaints pursuant to Local Rule 9(a) for failure to respond to motions to dismiss. However, after careful examination of the papers submitted by both plaintiff and Spinola, the Court is satisfied that the complaint states no claim against Spinola. Suits for the recovery of taxes against collection officers are expressly barred by 26 U.S.C. § 7422(c).

Plaintiff’s arguments that Spinola’s actions were unlawful because, among other reasons, the Internal Revenue Code “is not now law,” and because the sixteenth amendment is “null and void” have been rejected in each case, to this Court’s knowledge, in which they have been raised. See, e.g., Donald K. Williams and Nancy S. Williams Trust, Civil No. H-84-1025 (D.Conn. Feb. 25, 1985) (ruling on motion to dismiss); Upton v. Burke, Civil No. N-84-254 (D.Conn. Nov. 28, 1984) (memorandum order of dismissal), appeal dismissed, 767 F.2d 908 (2 Cir.1985); Schiff v. United States, 628 F.Supp. 9 (D.Conn.1984); United States v. Zuger, 602 F.Supp. 889 (D.Conn.1984). Plaintiff's claim against Spinola has no basis in the law, and the motion to vacate the order dismissing Spinola is denied. Plaintiff retains whatever right to file an action for refund under 26 U.S.C. § 7422 that he may have had when this action was filed. See Riley v. Commissioner, 566 F.Supp. 21, 24 (S.D.Ohio 1983). If such an action is filed following an administrative appeal, it must be brought against the United States of America, and not against individual employees of the IRS. Tibbetts v. Secretary of the Treasury, 577 F.Supp. 911, 913 (W.D.N.C.1984).

As to the remaining defendants, Rudy’s Limousine Service, its president Roy Spezzano, and its attorney Richard W. Farrell, it is clear that they simply obeyed the lawful levy order of the IRS. Their action pursuant to the IRS levy order cannot form the basis for civil liability to plaintiff. For these reasons the motion to dismiss on behalf of these defendants is granted.

It is hereby ORDERED that the complaint be dismissed. The Clerk shall enter judgment for all defendants forthwith.


author: LYNCH, District Judge.

text:
    Howard FINE, Plaintiff, v. Irwin RUBIN, et al., Defendants.
    No. C-85-2335 EFL.
    United States District Court, N.D. California.
    Aug. 20, 1985.

      Carl Ahrens Price, Westmont, N.J., Mil-berg, Weiss, Bershad, Specthire & Leach, San Diego, Cal., Bernstein, Litowitz, Berger & Grossmann, New York City, for plaintiff.
    Stephen M. Schatz, Wilson, Sonsini, Goodrich & Rosati, Palo Alto, Cal., for defendants.
   ORDER RE MOTION TO DISMISS

LYNCH, District Judge.

This is an uncertified class action securities case brought by a purchaser of common stock of Computer Memories, Inc. (“CMI”) during a public offering two years ago. Named as defendants are: (1) CMI and certain of its present and former directors and officers (“CMI defendants”); (2) a customer and principal shareholder of CMI, Intel Corporation, and one of Intel’s vice-presidents, Lawrence Hootnick, who is also a member of CMI’s Board of Directors (“Intel defendants”); and (3) a proposed class of all underwriters who participated in CMI’s August 23, 1983 public offering (“underwriter defendants”).

The amended complaint (“complaint”) alleges claims under Sections 11 (Count I) and 12(2) (Count II) of the 1933 Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 (Count III), common law fraud and deceit (Count IV), and negligent misrepresentation (Count V). Defendants move to dismiss the complaint in its entirety on the ground that it fails to plead fraud with particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure, and to dismiss the federal securities laws counts on several independent grounds.

I. Failure to tie alleged “omissions” under Section 11, Section 12(2), and Rule 10b-5 to particularized misleading statements

The complaint is structured so as (1) to describe favorable representations about CMI made in the company’s annual and interim reports and in the registration statement and prospectus filed in connection with the public offering (Complaint ¶¶ 41-47), and (2) to detail, in subsequent paragraphs, the facts that were allegedly misrepresented or not disclosed (Complaint U1Í 49(a)-(p)). Defendants contend that in order to plead an actionable omission under the securities laws, the complaint must specifically tie the information allegedly omitted to the particular statement rendered misleading because of the omission.

Although defendants cite a number of cases which stand for the general proposition that an omission cannot be misleading unless it adversely affects the reliability of other statements made to the purchaser, see, e.g., Greenapple v. Detroit Edison Co., 468 F.Supp. 702, 708 (S.D.N.Y.1979), aff'd, 618 F.2d 198 (2d Cir.1980), none of those cases require, as a matter of pleading, that the plaintiff draft his complaint so as to match in rigid succession each piece of omitted information with all of the statements allegedly rendered misleading. While dismissal may be appropriate where it is clear from the pleadings that the alleged omission could not possibly have been material, see Hayden v. Walston & Co., 528 F.2d 901 (9th Cir.1975), or the not to provide a “nexus between the doc-allegations are so vague and conclusory as uments alleged to be false or misleading and the manner they are allegedly false or misleading,” Gross v. Diversified Mortgage Investors, 438 F.Supp. 190, 193 (S.D.N.Y.1977), plaintiffs averments here are sufficient to inform defendants of the reasons why plaintiff contends that the alleged omissions were materially misleading.

II. Failure to allege sufficient facts to support a ‘fraud on the market” theory under Rule 10b-5

In his Rule 10b-5 cause of action, plaintiff does not plead actual reliance. Instead, he apparently seeks to rely upon a recognized exception to the reliance requirement by alleging that his stock was purchased on the open market and that the defendants perpetrated a “fraud on the market.” To state this theory properly, defendants argue that plaintiff must either plead that the statements were false when made and for what reasons, or, if the statements only became misleading after they were made, when each statement became misleading and what development or fact made each statement misleading.

Plaintiff concedes in his opposition brief that he does not intend to predicate liability on the failure to correct statements rendered misleading because of information discovered after the statements were made. Rather, as his complaint appears to state quite clearly, plaintiff is relying exclusively on the theory that the defendants knew the statements were false at the time the documents were released. Moreover, contrary to defendants’ assertion, plaintiff adequately alleges the reasons why such statements were false and need not plead in any greater detail the basis for his allegation that defendants had knowledge of the falsity. See Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir.1985).

III. Failure to allege a buyer-seller relationship between plaintiff and defendants under Section 12(2)

In order to establish the requisite degree of privity under Section 12(2), the Ninth Circuit requires that the defendant have been a “substantial factor” in the sale of the securities. Admiralty Fund v. Jones, 677 F.2d 1289, 1294 (9th Cir.1982). Although the meaning of the “substantial factor” test has not been clearly set forth by the Court of Appeal, several well-reasoned decisions in this District have construed it narrowly to require that the defendant “play a substantial role in the process leading to the specific sales transaction in issue.” In re Diasonics Sec. Litig., 599 F.Supp. 447, 458 (N.D.Cal.1984) (Peckham, C.J.) (emphasis added). See also In re Fortune Sys. Sec. Litig., 604 F.Supp. 150, 160-64 (N.D.Cal.1984) (Orrick, J.); Hudson v. Capital Management Ink, Inc. [1983-1984 Binder] Fed.Sec.L.Rep. (CCH) if 99,222 at 95,904 (N.D.Cal.1982) (Patel, J.).

Plaintiff’s factual allegations regarding the involvement of the CMI defendants in the sale of stock to plaintiff consist of the following: drafting the registration statement and prospectus, signing the registration statement, and entering into agreements with the underwriters (Complaint ¶ 62(a)-(c)). As the cases cited above make clear, a Section 12(2) claim against the issuing corporation and its officers and directors may not be based solely upon the activities alleged here. To permit the case to go forward on these facts alone would be “tantamount to holding that a corporation participates for purposes of § 12 in every open-market transaction in its shares.” Deneau v. Walter, No. C-82-3132 MHP, slip op. at 4 (N.D.Cal. Sept. 30, 1983). The statute does not contemplate such an extension of liability. The CMI defendants are therefore dismissed with prejudice from Count II.

Plaintiffs claims against two of the underwriter defendants, Prudential-Bache Securities, Inc. (“Bache”) and Cable, Howse & Ragen (“Cable”), are similarly inadequate to establish a basis for liability under Section 12(2). To hold these defendants liable, there must be an allegation that the firms sold stock to plaintiff. In re-Fortune Sys., 604 F.Supp. at 160 n. 20, 161-62. Because it is clear from the complaint that plaintiff bought all of his stock from Ladenburg, Thalman & Co., Inc., Bache and Cable must be dismissed with prejudice from Count II.

Finally, for all of the reasons discussed above, it is apparent that plaintiffs allegations against the Intel defendants are wholly inadequate to state a cause of action against those defendants under Section 12(2). The Intel defendants are therefore also dismissed with prejudice from Count II.

IV. Failure to plead fraud with particularity

Defendants object to the sufficiency of plaintiffs fraud allegations on several grounds: (1) the failure to particularize the claims against each individual defendant; (2) the failure to plead any basis for the imposition of secondary liability; (3) the failure to plead any basis for a conspiracy theory; and (4) the failure adequately to allege “controlling person” liability under Section 15.

Defendants’ arguments are not well-taken. The complaint clearly describes the relationship of each defendant to the occurrences set forth in the complaint. The information is sufficient to permit defendants to prepare an answer to all of plaintiff’s claims. If defendants contend that they have no responsibility for the fraudulent statements alleged in the complaint, the appropriate vehicle for raising that objection is a motion for summary judgment. See Walling v. Beverly Enters., 476 F.2d 393, 397 (9th Cir.1973).

The motion to dismiss is therefore granted in part and denied in part, as set forth above. All parties are hereby ordered to appear for a status conference at 8:45 a.m. on September 24, 1985.

IT IS SO ORDERED.


text:
    Jack H. SHAPIRO, et al., Plaintiffs, v. AMERICAN HOME ASSURANCE COMPANY, Pacific Indemnity Company, Certain Underwriters at Lloyds of London, and Surplus Lines Insurance Company, Defendants and Third-Party Plaintiffs, v. Clinton W. BENNETT, et al., Third-Party Defendants.
    Civ. A. No. 75-2728-K.
    United States District Court, D. Massachusetts.
    Aug. 28, 1985.
   FINAL JUDGMENT

For the reasons stated in the Opinions dated April 25, 1984, 584 F.Supp. 1245, December 31, 1984, and August 12, 1985, 616 F.Supp. 906, it is ORDERED:

I.

Judgment for defendant American Home Assurance Company.

II.

Judgment for plaintiff Mario DePalo against defendants Pacific Indemnity Company, Certain Underwriters at Lloyds of London, and International Surplus Lines Insurance Company in the following amounts:

a. Fees and expenses incurred in connection with the Massachusetts and New York securities fraud actions $17,684.99
b. Interest at 12% on item a. from September 16,1975, to date of judgment, August 28,1985 $20,760.99
c. Fees and expenses incurred in connection with the New Jersey action, H. Rosenblum, Inc. v. Jack F. Adler, et al. v. Giant Stores Corp., et al., Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5968-74 $ 2,841.00
d. Interest at 12% on item c. from March 6, 1985, to date of judgment, August 28,1985 $ 162.51
e. Fees and expenses incurred in connection with this action after December 31,1984 $ 6,066.13

Judgment for plaintiff Alfred H. Bloom against defendants Pacific Indemnity Company, Certain Underwriters at Lloyds of London, and International Surplus Lines Insurance Company in the following amounts:

a. Fees and expenses incurred in connection with the Massachusetts and New York securities fraud actions $35,774.69
b. Interest at 12% on item a. from September 16, 1975, to date of judgment, August 28, 1985 $41,997.42
c. Fees and expenses incurred in connection with the New Jersey action, H. Rosenblum, Inc. u Jack F. Adler, et al. v. Giant Stores Corp., et al., Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5968-74 $ 4,414.75
d. Interest at 12% on item e. from March 6, 1985, to date of judgment, August 28, 1985 $ 252.60
e. Fees and expenses incurred in connection with this action after December 31,1984 $ 8,812.00

Judgment for Touche Ross & Co. against defendants Pacific Indemnity Company, Certain Underwriters at Lloyds of London, and International Surplus Lines Insurance Company in the following amounts:

a. Amount agreed to as part of settlement agreement of March 14,1985 $200,000.00
b. Interest at 12% on item a. from March 29, 1985, to date of judgment, August 28,1985 $ 10,000.00

Touche Ross & Co. and the above defendants shall execute and exchange forthwith all settlement documents called for under the agreement of March 14, 1985.

Defendants Pacific Indemnity Company, Certain Underwriters at Lloyds of London, and International Surplus Lines Insurance Company shall reimburse plaintiffs for all fees and expenses reasonably incurred in this action and in connection with the Massachusetts, New York, and New Jersey actions, as to which no adjudication has been made in this action and as to which demand for payment is hereafter made. After the date of judgment, defendants shall discharge their obligation to plaintiffs under the insurance policies either by providing plaintiffs with a defense in the Massachusetts, New York, New Jersey, and New Hampshire actions or by paying the costs associated with plaintiffs’ defense in those actions. Defendants shall pay any future fees and expenses on a monthly basis as they become due.

Touche Ross & Co. is enjoined from proceeding to effect collection on any judgments against Mario DePalo and Alfred H. Bloom in the following two actions: H. Rosenblum, Inc. v. Jack F. Adler, et al. v. Giant Stores Corp., et al., Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5968-74; and Treisman, et al. v. Brophey, et al., Superior Court of New Hampshire, Docket No. C-76-3-104; however, Touche Ross & Co. is not enjoined from obtaining judgments against Mario DePalo and Alfred H. Bloom in the aforesaid actions.

Under the insurance policies of defendants Pacific Indemnity Company, Certain Underwriters at Lloyds of London, and International Surplus Lines Insurance Company, Mario DePalo and Alfred H. Bloom are entitled to coverage in the actions entitled H. Rosenblum, Inc. v. Jack F. Adler, et al. v. Giant Stores Corp., et al., Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5968-74, and Treisman, et al. v. Brophey, et al., Superi- or Court of New Hampshire, Docket No. C-76-3-104, and in any other action, as to any claims related to and arising out of the false financial statements in the registration statement of Giant Stores Corp. filed in connection with Giant’s issuance of stock in 1972.

III.

All other claims, counterclaims, cross-claims, and third-party claims are dismissed. Post-judgment interest shall be computed at the rate of 8.18% per annum.


author: NEAHER, District Judge.

text:
    Michael M. RAND, John Costello, Steven J. Costello, Gregory T. Frese, Edward Lavin, Peter A. Milano, and Vincent F. Servello, Plaintiffs, v. ANACONDA-ERICSSON, INC., Ericsson, Inc., L.M. Ericsson Telephone Co., Nordic American Bank, Citibank, N.A., Price-Waterhouse & Co., Sullivan & Cromwell, Richard Howe, Richard G. Lyon, L. Stanton Towne, Telecom Equipment Corp., and Stephen R. Cohen, Defendants.
    No. 83 CV 4268 (ERN).
    United States District Court, E.D. New York.
    Aug. 30, 1985.
    On Motion To Reargue Dec. 2, 1985.

      Carl E. Person & Walter C. Reid, New York City, for plaintiffs.
    Sullivan & Cromwell, by Robert M. Osgood, Robinson B. Lacy, Maria Foscarinis, New York City, for defendants Anaconda-Ericsson, Inc., Ericsson, Inc., L.M. Ericsson Telephone Co., Sullivan & Cromwell, Richard R. Howe, Richard G. Lyon, and L. Stanton Towne.
    Richard G. Lyon, Greenwich, Conn., pro se and as Attorney for defendants Anaconda-Ericsson, Inc., Ericsson, Inc., and L.M. Ericsson Telephone Co.
    White & Case by Allan L. Gropper, New York City, for defendant Nordic American Bank.
    Howard, Darby & Levin by Philip K. Howard, New York City, for defendant Price Waterhouse.
    Shearman & Sterling by William B. Pennell, New York City, for defendant Citibank, N.A.
    Paul S. McDonough, Long Island City, N.Y., for defendants Telecom Equipment Corp. and Stephen R. Cohen.
   MEMORANDUM AND ORDER

NEAHER, District Judge.

Plaintiffs are seven shareholders of the bankrupt Teltronics Services, Inc. They seek to represent a class of all such shareholders to redress various claims stemming from Teltronics’ business relationships with defendant L.M. Ericsson Telephone Co. (Ericsson or Ericsson defendants).

The allegations of the present complaint are familiar to the Court. They involve the same series of events which furnished the basis for the litigation in Teltronics Services, Inc. and Edward M. Beagan v. Anaconda-Ericsson, Inc., et al., 587 F.Supp. 724 (E.D.N.Y.1984), aff'd 762 F.2d 185 (2d Cir.1985), except that no claims are raised on behalf of Edward M. Beagan, Teltronics’ founder, former president and substantial stockholder. In brief, plaintiffs claim that through a conspiracy originating with the Ericsson defendants, all of the defendants contributed to a plot to bankrupt Teltronics after the corporation would not succumb to takeover efforts.

According to the present complaint, from which the facts hereinafter related are derived, the friction between Teltronics and Ericsson, a Swedish based manufacturer of telephone equipment, began in 1978 when Teltronics, Ericsson’s New York distributor of “interconnect” telephone equipment, opened an office to compete with Ericsson New England, a subsidiary Ericsson distributor. At about this time, one Gerald Tsai, a financier, sought to purchase 20% of Teltronics’ stock and thereby represented a substantial source of alternative financing. Teltronics’ then current method of financing equipment purchases was through a security agreement in which Ericsson held a secured interest in the revenues generated by the leases of equipment to Teltronics’ customers. Defendant Nordic American Bank (Nordic), which is an affiliate of Ericsson, and defendant Citibank supplied the money through notes, which contained an acceleration clause and the payment of which Ericsson guaranteed. The key component or aspect of the security agreement is illustrated in the allegations of ¶ 47 of the complaint, viz.,

“47. Under the terms of the Loan Agreement, Teltronics was required to purchase a specific dollar amount of Ericsson’s telephone equipment. If Teltronics failed to make purchases in the designated amount, Teltronics’ loan repayment schedule under the Loan Agreement could be accelerated by Ericsson. Thus, in addition to assigning a security interest in its leases to Ericsson for the loan guarantees under the Loan Agreement, Teltronics was also required to buy telephone equipment from Ericsson in a dollar amount which far exceeded the amount of the loan which Ericsson guaranteed. For example, under the terms of the Loan Agreement with Nordic, Teltronics was required
‘during the 12-month period commencing on the date of each Loan hereunder, Borrower (Teltronics) shall purchase from Guarantor (Ericsson USA) telephone switch equipment having an aggregate purchase price of not less than 175% of the amount of such Loan.’ ”

Plaintiffs add that this arrangement permitted Ericsson to overcharge Teltronics for equipment that was not state of the art.

Concerned about Tsai’s offer and the decrease in prices caused by Teltronics’ competition in New England, Ericsson expressed interest in acquiring equity in Teltronics. In exchange for Teltronics’ foregoing financing opportunities from Tsai, Ericsson agreed to provide debt financing for Teltronics’ sales of Ericsson equipment. This offer was made only after Ericsson had insisted that Teltronics withdraw from New England, had refused to furnish vital “support” letters, by which Ericsson would have guaranteed service of the equipment, and had demanded that its loans to Teltronics not be used in the New England operation.

Apparently Ericsson’s new business methods were having a sufficient effect that from December 1978 until February 1979 Teltronics and Ericsson discussed Ericsson’s purchase of Teltronics stock. Teltronics, however, was opposed to Ericsson’s acquiring a controlling interest.

In February 1979 the specter of a catastrophe loomed when Teltronics learned that the “ASB100” a machine intended to replace Ericsson’s obsolete line of mechanical equipment, was a failure. As a result, Teltronics proposed a joint venture with Ericsson to develop a new product line, for which Ericsson would furnish a $25 million dollar loan. Alternatively, Teltronics would have to locate a new supplier to serve its substantial client base. Negotiations continued, and at this juncture plaintiffs reason that Ericsson, facing Teltronics’ undesirable competition in New England and the possibility that Teltronics would engage a new supplier, thus cutting Ericsson out of the Northeastern United States market, had two choices: purchase Teltronics’ shares at market prices or bankrupt the corporation through the security interest in the equipment leases. After choosing the latter option, according to plaintiffs, Ericsson continued to negotiate, assertedly in bad faith, while it set in motion the events which would secure Teltronics’ demise.

In January 1979, by letter to Nordic, Ericsson told the bank that if Teltronics did not make an interest payment of $230,000 due on February 28, 1979, the bank should charge Ericsson’s account. During this same period, Ericsson assured Teltronics that as long as negotiations continued, financing would be forthcoming, so much so, that Ericsson agreed to a moratorium of principal and interest payments until March 31, 1979.

The due date of the interest payment also coincided with an exchange between defendant Price-Waterhouse & Co., Ericsson’s accountants, and Blonder, Seymour and Shapss, Teltronics’ accountants, who represented that they would give Teltronics an “unqualified” or “clean” opinion in the March 31, 1979 10-K filing with the Securities and Exchange Commission (SEC). As the complaint explains, this opinion placed an obstacle in Ericsson’s way:

“70. “ * * * A ‘clean’ or ‘unqualified’ opinion would have resulted in at least a doubling of Teltronics’ lines of credit. Indeed Sterling National Bank had already agreed to increase its loan commitment to Teltronics from $1,000,000 to $2,000,000. And it would also have ensured receipt by Teltronics of a $3,000,-000 loan committed to Teltronics by Toshiba, a major Japanese trading company, in January 1979.
“71. Price-Waterhouse asked Blonder, Seymour whether they were aware that certain notes and interest payments were coming due for Teltronics, including the interest payment of $230,000 on the Nordic note which, Price-Waterhouse stated was due March 31,1979. Blonder, Seymour told Price-Waterhouse that it still felt Teltronics would have no difficulty arranging adequate financing ‘to meet commitments.’
“72. Price-Waterhouse by its telephone call was attempting to coerce Teltronics’ accountants into withdrawing its unqualified opinion. If Price-Water-house had been successful in intimidating Teltronics’ accountants into withdrawing their unqualified opinion, Teltronics’ stock would have fallen (a result desired by Ericsson) and any increase in Teltronics’ lines of credit would have evaporated.”

In response, Ericsson allegedly hatched the fabrication of a non-existent bank default concerning the February 28, 1979 interest payment. This plan had been accelerated from March 31, 1979 in part to prevent Teltronics from publicly announcing that the ASB100 was an incurable failure, and thus an embarrassment to Ericsson’s reputation in the industry. On February 28, 1979 defendant Richard Lyon, a member of the defendant law firm of Sullivan & Cromwell, told Nordic not to charge Ericsson’s account because Ericsson wanted Teltronics to be in default. The grace period to make the interest payment extended to March 5, 1979, when an attorney for Ericsson telephoned Teltronics to inquire whether the interest payment had been made. Teltronics, of course, had not made the payment and only then realized that Ericsson’s prior assurances were no longer reliable.

Efforts to gather the necessary cash proved futile. Plaintiffs claim that because Teltronics had until March 31, 1979 to pay the interest, on the basis of Ericsson’s representations, it could easily have sought assistance from other telephone equipment manufacturers that had already offered financing. This time period was unavailable because Nordic had declared a default according to plan. Ericsson paid Nordic $4,945,360.63. In response, Citibank accelerated its loans to Teltronics and on March 7, 1979 received a check from Ericsson for $3,008,632.10. The following press release, disseminated over the Dow Jones Wire Service, announced the event:

“L.M. Ericsson Telecommunications says it filed Teltronics suit.
‘NY — DJ—LM Ericsson Telecommunications, Inc. announced that it commenced an action against Teltronics Services, Inc. to recover $4.9 million which Ericsson as guarantor of Teltronics indebtedness had paid to Nordic American Bank, Inc.
‘As part of that action, Ericsson had filed a motion seeking to attach certain Teltronics assets.
‘That motion will be heard on March 9th in New York State Supreme Court in Queens County where the action was filed.
‘On March 5th Ericsson said it declared Teltronics to be in default under a security agreement between them and today notified certain customers of Teltronics— whose leases are subject to the security agreements — that payment should be made to Ericsson.
‘1:43 p.m. E.S.T. March 6, 1979.’ ”

Complaint ¶ 111.

As a result of these events, Teltronics’ stock plunged from $9 per share to $1 a share, causing the SEC to suspend its trading and leaving the corporation unable to find a source of financing. Customers can-celled $6 million in contracts, creditors demanded immediate payment of $2 million, accounts receivable not pledged to Ericsson refused to pay $3 million, and five banks offset $1 million in cash deposits. By September 1979 Ericsson had also persuaded creditors, of which it was the largest, to place Teltronics in involuntary bankruptcy.

Prior to that event, Ericsson had established its New York division on March 6, 1979, which recruited Teltronics’ employees and solicited its former accounts. In June Ericsson interfered with Teltronics’ attempt to salvage itself through a merger with Stromberg-Carlson, a division of General Dynamics. Teltronics also made a second attempt at revival in August through agreements with defendant Telecom Equipment Corp., of which defendant Cohen is chairman of the board. Teltronics assigned a long term office lease to Telecom in exchange for $50,000, $10,000 per month for 66 months, and a total of 3200 feet of space. Teltronics also became the exclusive sales representative for Telecom on a commission basis, servicing some 500 former accounts. On learning of this arrangement, Ericsson threatened to cut off Telecom’s supply of parts needed to repair the equipment used by the aforementioned 500 accounts. Allegedly, Cohen joined the conspiracy when he acceded to Ericsson’s demands, as conveyed by the attorneys, and then evicted Teltronics from the building.

In sum, plaintiffs conclude that this was but one example of a pattern Ericsson followed to take over its subsidiary distributors for a modest amount. Allegedly, formerly independent businesses in Florida, Philadelphia, and Boston had been acquired in this manner.

Teltronics’ litigation has been catalogued and summarized elsewhere. Teltronics, supra, 587 F.Supp. at 727-29; 762 F.2d at 187-88. On this motion for summary judgment, the Court will treat only the claims raised by plaintiffs.

At the outset, plaintiffs assert that defendants violated the Racketeer Influence and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962(a), (b), (c), 1964(c). As predicate felonies to support a pattern of racketeering activity, they allege securities fraud, bankruptcy fraud, wire fraud, mail fraud, obstruction of justice, and obstruction of a criminal investigation by the SEC. Complaint 11103.

“There can be little doubt that Fed.R.Civ.P. 9(b), which requires that allegations of fraud specify ‘with particularity’ the circumstances of the alleged fraud, applies to fraud allegations in civil RICO complaints.”

Haroco v. American Nat. Bank, etc., 747 F.2d 384, 405 (7th Cir.1984), aff'd—U.S.-, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985) (per curiam).

“In order to allege mail fraud [or any other fraud], [plaintiffs] must state such matters as the time, place, and contents of the purported false representations. Additionally, [they] must ‘specify in what respect each of the statements were false and misleading, and the factual .basis for believing that the defendant acted with an intent to defraud.’ ”

Doxie v. Ford Motor Credit Co., 603 F.Supp. 624, 627 (S.D.Ga.1984) (citation omitted).

Concerning RICO, the complaint alleges, “99. Defendants, through the use of telephones, wire services and the mails, committed the fraud alleged in the complaint above and related activities of obtaining financial control over Teltronics, declaring a non-existent default, and employing false claims, defenses and testimony in the courts and bankruptcy proceedings against Teltronics and before the Securities and Exchange Commission during its investigation for the purpose of requiring Teltronics, against its will, to turn over its business assets and good will to Ericsson without Ericsson having to pay for Teltronics’ stock or assets at their fair market or reasonable value.
“100. Using the telephones, wire services and the mails, defendants (a) issued a fraudulent press release over the Dow Jones Wire Service; (b) solicited, encouraged and assisted some employees of Teltronics to file criminal charges against Teltronics’ officers for alleged non-payment of wages; (c) injured Teltronics’ reputation with its customers; (d) acquired Teltronics’ service contracts; (e) bribed Teltronics’ personnel and removed its customer files; (f) prevented Teltronics from meeting its payroll; (g) closed down Teltronics’ banking relationships; (h) acquired Teltronics’ highly lucrative add-on business; (i) drove Teltronics into bankruptcy to be able to obtain the Teltronics’ installed base or whatever was left through the bankruptcy court; (j) took over Teltronics’ work in progress which at substantial expense to Teltronics had been substantially completed without corresponding payment to Teltronics and requested the Teltronics’ customers to send the balance owed to defendant; and (k) made misrepresentations to Teltronics’ customers saying that Teltronics could not service the account (which was false) and that Ericsson as the manufacturer could service the account, and through the making of such statements took over the servicing of the accounts.”
Courts have recognized that
“[t]o meet the Rule 9(b) standard a claimant must identify the circumstances constituting the fraud. This in turn involves identification of the particular defendant with whom the plaintiff dealt; designation of the occasions on which the fraudulent statements were made, and by whom; and designation of what misstatements or half-truths were made and how. (citations omitted). * * * As one court has recently pointed out, a ‘[pjlaintiff is under a Rule 9(b) obligation when dealing with more than one defendant to specify which defendant told which lie under what circumstances.’ Mauriber v. Shearson/American Express, Inc., 546 F.Supp. 391, 394 (S.D.N.Y.1983).”

Saine v. A.I.A., Inc., 582 F.Supp. 1299, 1303 (D.Colo.1984).

In respect to the allegations of mail fraud and bankruptcy fraud, the deficiencies about which defendant did exactly what and when are apparent and totally lacking any alternative means of imparting precision or other measure of substantiation. Compare Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786, 791 (3d Cir.1984), cert. denied,—U.S.-, 105 S.Ct. 1179, 84 L.Ed.2d 327 (1985). The allegations of ¶ 100 of the complaint clearly add no specificity. See Harris Trust, etc. v. Ellis, 609 F.Supp. 1118, 1123 (N.D.Ill.1985); see also Hudson v. Larouche, 579 F.Supp. 623, 629 (S.D.N.Y.1983); Friedlander v. Nims, 571 F.Supp. 1188, 1194 (N.D.Ga.1983), aff'd on other grounds, 755 F.2d 810, 813 n. 2 (11th Cir.1985). In contrast, other portions of the complaint attribute the authorship of the allegedly deceptive and false press release to the firm of Sullivan & Cromwell.

The specificity requirement for pleading RICO predicate acts derives not only from Fed.R.Civ.P. 9(b), relating to allegations of fraud, but also from the definition of racketeering activity. Each act listed under 18 U.S.C. § 1961(1)(B) refers to a section of Title 18, which in turn contains the definition of a criminal offense.

“Because a private damage action under RICO may be based on alleged criminal activity from ten years earlier, the factual basis of that activity must be pled with particularity. Otherwise the court is unable to determine whether the acts are ‘indictable’ and the defendant is unable to prepare its defense.”

Bache, Halsey, etc. v. Tracy Collins Bank, 558 F.Supp. 1042, 1046 (D.Utah 1983). Nothing in II99 or anywhere else in the complaint alleges any acts which constitute the obstruction of justice referred to in 18 U.S.C. § 1503 or obstruction of a criminal investigation under 18 U.S.C. § 1510. Essentially, ¶99, similar to prior litigation, accuses the defendants of lying under oath to the bankruptcy court and to the SEC. Perjury, however, is not a RICO predicate act.

As explained below, the securities fraud claim offers no basis for a RICO predicate act; consequently, there being only one predicate act properly alleged, wire fraud, the RICO claim must be dismissed. See Moss v. Morgan Stanley, Inc., 719 F.2d 5, 19 (2d Cir.1983), cert. denied sub nom. Moss v. Newman, 465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984).

The complaint also suffers from an additional flaw. All of defendants’ alleged acts were directed at Teltronics; consequently, plaintiffs are shareholders suing to redress injuries inflicted upon their corporation. Drawing an analogy to the antitrust laws, the court in Warren v. Manufacturers Nat. Bank, etc., 759 F.2d 542 (6th Cir. 1985), ruled, in the context of RICO, that “ ‘diminution in value of the corporate assets [what plaintiffs allege occurred here] is insufficient direct harm to give the shareholder standing to sue in his own right.” Id. at 544 (citations omitted). In so ruling, the court observed that this aspect of standing to pursue a RICO claim is unrelated to the type of injury required to support a RICO claim. Id. at 545. While the court did not have the benefit of the decision in Sedima, S.P.R.L. v. Imrex Co., Inc.,-U.S.-, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), nothing in the Court’s interpretation of the RICO statute there addresses the issue at bar. As the court in Warren also noted,

“Whether RICO should or should not be interpreted to ‘federalize’ common law fraud is an issue distinct from whether it should be interpreted to materially expand the standing requirement applicable to such claims. Allowing every shareholder, employee and creditor a cause of action for injuries derivative of those suffered directly by a corporation does not just permit a vast amount of litigation to be brought in federal court that previously could only have been brought in state court, but creates a potential avalanche of suits that previously could not have been brought at all.

759 F.2d at 545 (original emphasis).

Here, Teltronics’ bankruptcy trustee litigated, lost, and then settled the corporation's claims against the Ericsson defendants and is pursuing to settlement claims against Telecom. Defendants’ alleged activities in furtherance of the asserted conspiracy were directed at Teltronics; consequently, as shareholders, plaintiffs’ rights, if any, are only derivative. Were it not for a broad interpretation of 18 U.S.C. § 1964, which this Court declines to adopt because such interpretation would ignore the traditional principle of corporation law that shareholders may not sue for claims their insolvent corporation has settled, most of the instant suit could not have been brought at all.

The state and federal securities claims urged by plaintiffs are identical to the claims Edward Beagan raised in prior litigation. Teltronics Services, Inc., supra, 587 F.Supp. at 731-32. Plaintiffs have presented nothing which compels or merits a different result. Accordingly, the Court incorporates its earlier discussion of these claims by reference. Id.

Contrary to defendants’ argument, and in support of its earlier statement that “in certain circumstances, a bankruptcy liquidation may constitute a sale for purposes of § 10(b) and Rule 10b-5 of the Securities Exchange Act of 1984,” 587 F.Supp. at 731, the Court refers defendants to Alpex Computer Corp. v. Pitney-Bowes, Inc., 417 F.Supp. 328, 330-32 (S.D.N.Y.1976) (eases cited and discussed therein). The concept of the “forced seller”, which furnishes the basis for the securities claims, is applicable only when a stockholder has been forced by fraudulent means into a situation offering no alternative but to dispose of his stock for cash. Mayer v. Oil Field Systems Corp., 721 F.2d 59, 65 (2d Cir.1983). Since a bankruptcy liquidation often results in no cash for the shareholders, it is unlike other “forced seller” situations. See Landy v. F.D.I.C., 486 F.2d 139, 159 (3d Cir.1973), cert. denied, 416 U.S. 960, 94 S.Ct. 1979, 40 L.Ed.2d 312 (1974) (discussion therein). But whatever the merit in plaintiffs’ argument that they may proceed despite the absence of a sale of their shares, subsequent case law supports the Court’s earlier decision concerning the lack of proximate causation between plaintiffs’ allegedly “forced sale” and the defendants’ alleged misrepresentations. Bennett v. United States Trust Co., 770 F.2d 308, 315 (2d Cir. 1985); Bloor v. Carro, Spanbock, etc., 754 F.2d 57, 61 (2d Cir.1985).

The parties have submitted lengthy affidavits concerning the oral argument of Beagan’s appeal (762 F.2d 185) accompanied by a promise to furnish the transcript. Plaintiffs contend and defendants dispute that the panel, and especially Judge Timbers, expressed disagreement with this Court’s rulings on plaintiffs’ securities claims in the context of the Beagan case. Assuming arguendo that this Court’s view of plaintiffs’ securities claims is erroneous, neither their remedy nor their strategy for successful persuasion lie in the citation of remarks made by appellate judges during the give and take of oral argument.

Plaintiffs also assert a claim pursuant to 15 U.S.C. § 78n(e) (§ 14(e) of the Williams Act), which concerns tender offers. In their memorandum of law at 19 they state,

“The complaint delineates the making of a tender offer for Teltronics’ shares by (a) the Tsai interests; (b) the Loral Corporation; (c) Ericsson’s formal tender offer prepared by Sullivan & Cromwell; and (d) Ericsson’s and Sullivan & Cromwell’s widespread solicitation of Teltronics’ shareholders after issuance of the Dow Jones press releases by Ericsson, Sullivan & Cromwell and Kleban. Defendants’ manipulative and fraudulent conduct was in connection with all of these tender offers.”

Kleban was an employee of Teltronics, allegedly fired for issuing an unauthorized press release on March 5, 1979, which confirmed that Teltronics was in default on the interest payment. Whatever the significance of this second press release, the plaintiffs’ basis for the § 14(e) claim and, as best as the Court can discern, all of their securities fraud claims, see plaintiffs’ memorandum of law at 24-26, is Ericsson’s press release. Assertedly, it failed to disclose material facts and constituted a successful manipulative device, because it artificially affected the market in Teltronics’ stock and thereby misled investors. See plaintiffs’ memorandum of law at 20. The complaint does not allege the existence of any tender offer or actions suggesting a tender offer at the time of the press release, see S.E.C. v. Carter Hawley Hale Stores, Inc., 760 F.2d 945, 950 (9th Cir. 1985); therefore, plaintiffs fail to meet the “in connection with any tender offer, etc.,” requirement of § 14(e).

Plaintiffs’ antitrust claim pursuant to § 1 of the Sherman Act must suffer the same fate as Beagan’s similar claim in the prior litigation. The Court incorporates herein its earlier discussion of this matter by reference to 587 F.Supp. at 729-30. In brief, as stockholders, plaintiffs have not established their standing to sue for antitrust claims arising from injuries to Teltronics.

For the foregoing reasons, defendants’ motion for summary judgment is granted in its entirety, and the complaint is dismissed. As a result, the Court need not consider plaintiffs’ motion to disqualify the firm of Sullivan & Cromwell and its members named as defendants. The Court, however, must consider defendants’ request for costs, attorneys fees, and an injunction barring plaintiffs and their counsel from commencing any additional litigation based upon matters alleged in the complaint.

As to the need for an injunction, the same attorneys, who represented Beagan in thé prior action brought on his behalf, represent the instant plaintiffs. Despite this Court’s injunction, which prohibited Beagan from further litigating claims belonging to Teltronics, these attorneys filed an appeal on Teltronics’ behalf without first seeking a stay of that order from this Court. The appeal resulted in the affirmance of this Court’s dismissal of Beagan’s complaint, including the entering of the injunction, and the affirmance of the Bankruptcy Court’s approval of the settlement of Teltronics’ claims, which includes the antitrust claim alleged in the complaint. Despite the fact that Beagan was not permitted to litigate claims belonging to Teltronics, plaintiffs’ attorneys’ continued attempts to relitigate those claims by substituting other Teltronics shareholders must be deemed a flagrant attempt to circumvent the order of the Court of Appeals and the prior rulings of this Court.

At least as to claims not belonging to Teltronics, i.e., securities fraud, plaintiffs’ attorneys were obligated to submit authority which showed that the Court had erred in addressing these same claims as raised by Beagan. Instead, this Court has found that recent cases, not cited by plaintiffs, render their securities fraud contentions more dubious than when they were asserted on behalf of Beagan and rejected. See National Survival Game v. Skirmish U.S.A., Inc., 603 F.Supp. 339, 341-42 (S.D.N.Y.1985).

In short, plaintiffs’ attorneys have sought to rehash what has been reviewed twice in the Southern District of New York, twice in the Bankruptcy Court in the Eastern District of New York (the second time resulting in a settlement by the Trustee), and now twice in the Eastern District of New York. In so doing, they have also filed many irrelevant documents related to matters concluded in other courts. See Limerick v. Greenwald, 749 F.2d 97, 101 (1st Cir.1984). Given those circumstances, and the fact that this Court’s prior decision, 587 F.Supp. 724, and its opinion on reargument should have communicated the frivolity of that suit to any reasonable attorney, plaintiffs’ attorneys’ opposition to the instant motion for summary judgment, premised upon nothing new, cannot be sanctioned.

As pointed out in Tedeschi v. Smith Barney, etc., 579 F.Supp. 657, 661 (S.D.N.Y.1984), aff'd 757 F.2d 465 (2d Cir.1985) (per curiam) (citations omitted; emphasis added):

“An essential requirement underlying fee shifting, contrary to the general American Rule, is a finding of bad faith on the part of the unsuccessful litigant. An action is brought in bad faith when the claim is entirely without color and has been asserted wantonly, for the purpose of harassment or delay, or for other improper reasons. The bad faith exception justifying an award of counsel fees and other expenses of litigation extends both to the filing and the prosecution of the litigation. The sanction is imposed under the court’s inherent equitable power when the interests of justice so require.
“The assessment of fees for bad faith conduct, when exercised under the court’s equitable power, may be imposed upon the errant litigant and his lawyer.”

A clear showing of bad faith has been made here. Given the punitive nature of the Court’s power to charge an attorney, who acts in bad faith, with costs and fees, the punishment should be limited to the excess costs, expenses, and fees of the prevailing party. See Knorr Brake Corp. v. Harbil, Inc., 738 F.2d 223, 226 (7th Cir.1984). Cognizant of this standard, the Court finds that its opinion and the Court of Appeals’ opinion in the Beagan lawsuit, along with all the other related litigation concerning Teltronics, should have convinced plaintiffs’ attorneys of the lack of merit in the instant suit and persuaded them not to oppose the instant motion for summary judgment.

Accordingly, defendants’ request for reimbursement for their reasonable attorneys fees and expenses, to be paid by plaintiffs’ attorneys, is granted for all such fees and expenses incurred after March 22, 1985, the date the Court of Appeals issued its decision. Additionally, plaintiffs and their attorneys are enjoined from pursuing any new or pending litigation which concerns Teltronics Services, Inc.

SO ORDERED.

ON MOTION TO REARGUE

The case is again before the Court, this time upon plaintiffs’ motion to reargue the Court’s decision and order of August 30, 1985, which granted defendants’ motion for summary judgment and awarded attorneys fees against plaintiffs’ attorneys.

Plaintiffs’ attorneys contest the Court’s dismissal of their clients’ claims. They also challenge the assessment of fees against them personally. Specifically, they ask for a specification of the charges of bad faith/misconduct which support the award of fees and for an opportunity to be heard on this matter at an evidentiary hearing. The Court will first address their contentions concerning asserted errors in dismissing plaintiffs’ claims.

Typical of the manner in which plaintiffs’ attorneys have pursued this case, in the memorandum of law in support of this motion at 5 they state,

“Although this Court in its opinion (Op. pg. 17) apparently agrees with plaintiffs’ argument that the conditions necessary for a “forced sale” exist in this case, it nonetheless argues — for the first time— not that the Ericsson press releases were not ‘in connection with’ the forced sale of plaintiffs’ stock (which was the Court’s holding in the Beagan case) but that the issuance of the press releases and defendants’ subsequent attempts to perpetuate the collapse of plaintiffs’ stock were not causally related to the forced sale of that stock. The concepts of ‘proximate causation’ and the ‘in connection with’ requirement are distinct and this Court is unclear in its opinion as to whether it has abandoned its earlier reliance on the ‘in connection with’ requiremnt which it used to dismiss plaintiffs’ Rule 10b-5 claim in the Beagan case.”

On the contrary, proximate causation is an integral aspect of the “in connection with” requirement.

“The precise meaning of ‘in connection with’ is provided neither by section 10(b) [of the Securities and Exchange Act of 1934] nor rule 10b-5. The case law reveals that in order for this element to be satisfied there must be some causal relationship between the alleged deception and some consequent purchase or sale. Courts have spoken of this connection in terms of reliance and causation.”

Liberty National Insurance Holding Co. v. Charter Co., 734 F.2d 545, 555 (11th Cir.1984) (citations omitted); see Angelastro v. Prudential-Bache Securities Inc., 764 F.2d 939, 943 (3d Cir.1985). In recognition of this requirement, speaking of the plaintiffs’ claims in Bennett v. United States Trust Co., 770 F.2d 308 (2d Cir.1985), the Court of Appeals stated,

“They fail to establish the necessary loss causation; there is simply no direct or proximate relationship between the loss and the misrepresentation. See Bloor v. Carro, Spanbock, Rodman & Fass, 754 F.2d 57, 61-62 (2d Cir.1985).”

Id. at 314.

In this case the misrepresentation is alleged to be omissions in a press release issued in March 1979. Its relationship to plaintiffs’ subsequent “loss”, which occurred after Teltronics was ordered liquidated in April 1980, is remote. By analogy, the relationship between the press release and the asserted “forced sale” created through Teltronics’ liquidation is similarly remote.

Also contrary to plaintiffs’ argument in their memorandum of law, the Court did not conclude that the conditions for a forced sale existed in this case. Unlike the short form merger which occurred in Vine v. Beneficial Finance Corp., 374 F.2d 627 (2d Cir.), cert. denied, 389 U.S. 970, 88 S.Ct. 463, 19 L.Ed.2d 460 (1967), where the Court found a forced sale, after the misrepresentation alleged to have occurred here, plaintiffs had neither the right to judicial appraisal of their stock nor the option of selling it pursuant to a preexisting offer, nor any equivalent rights.

Furthermore, the liquidation of Teltronics did not convert plaintiffs’ stock into a claim for cash. As the Court noted in Vine,

“We do not have here a stockholder who refused to accept a fraudulent offer to purchase his stock but remains a stockholder in an existing corporation; whether to label this hypothetical person a ‘seller’ under the Rule is a much different question. Due to defendant’s acts, Crown has now disappeared and plaintiff’s stock has, in effect, been involuntarily converted into a claim for cash.”

Id. at 634. Here, by contrast, plaintiffs could only exchange their stock for money from the Bankruptcy Court in the event money were available from the Teltronics estate for this purpose. In its prior order the Court merely refused to rule, as defendants had requested, that the liquidation of a corporation in bankruptcy can never result in a forced sale. Further exposition of the concept would be a meaningless academic exercise, injecting dicta into a decision derived from the circumstances of this case. To summarize and reiterate: the Court finds that plaintiffs have not met the “in connection with” requirement of § 10(b) or Rule 10b-5 and plaintiffs have not presented facts which establish a forced sale of their stock.

Having failed to persuade the Court of the viability of their securities fraud claims, plaintiffs’ reargument concerning the RICO claim fails. As the Court con-eluded earlier, plaintiffs present only one RICO predicate act. Moreover, as previously noted, any injuries to plaintiffs’ shares in Teltronics resulted from activities (alleged fraud and antitrust violations) directed at Teltronics. But for plaintiffs’ ownership of those shares in that corporation and that corporation’s business relationships with Ericsson, plaintiffs would have no loss. As recently pointed out by Judge Edelstein, RICO is not available to shareholders to redress injuries done to their corporation. Nordberg v. Lord, Day & Lord, 107 F.R.D. 692, 697, (S.D.N.Y. 1985) (cases cited and discussed therein).

Concerning plaintiffs’ claim pursuant to § 14(e) of the Williams Act, the Court stands by its prior ruling that the motion papers disclose no tender offer.

“Although the Williams Act does not define the term ‘tender offer’, the characteristics of a typical offer are well-recognized. They are described in the House Report of the Committee on Interstate and Foreign Commerce, which held hearings on the proposed Act.
The offer normally consists of a bid by an individual or group to buy shares of a company — usually at a price above the current market price. Those accepting the offer are said to tender their stock for purchase. The person making the offer obligates himself to purchase all or a specified portion of the tendered shares if certain conditions are met.
H.R.Rep. No. 1711, 90th Congress, 2d Sess., reprinted in [1968] U.S.Code Cong. & Admin.News, pp. 2811, 2811.
“This definition of a conventional tender offer has received general recognition in the courts.”

Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F.2d 1195, 1206 (2d Cir.1978). The alleged tender offers from Tsai and Loral Corp. never actually materialized, thus the parties never executed contingent provisions in which Ericsson would have acted as a “White Knight” to prevent the takeover of Teltronics. Ericsson’s own negotiations to purchase stock from plaintiffs and Teltronics chief stockholder, Beagan, never contemplated a public solicitation of shares.

In construing § 14(d) of the Williams Act, the disclosure provisions, the Court of Appeals recently stated,

“The borderline between public solicitations and privately negotiated stock purchases is not bright and it is frequently difficult to determine whether transactions falling close to the line or in a type of a ‘no man’s land’ are ‘tender offers’ or private deals____[S]ince the purpose of § 14(d) is to protect the ill-informed solicites, the question of whether a solicitation constitutes a ‘tender offer’ within the meaning of § 14(d) turns on whether viewing the transaction in the light of the totality of circumstances, there appears to be a likelihood that unless the preacquisition filing strictures of that statute are followed there will be a substantial risk that solicitees will lack information needed to make a carefully considered appraisal of the proposal put before them.”

Hanson Trust PLC v. SCM Corp., 774 F.2d 47, 56, 57 (2d Cir.1985). Through five private sales and one open market purchase, Hanson had accumulated 25% of SCM’s stock. After stating the above test, the Court advanced seven reasons or factors which illustrated why those transfers were not considered a tender offer.

Six of those factors parallel the instant case as follows: (1) the number of proposed sellers consisted of Edward Beagan and the Teltronics Board of Directors, which collectively held a substantial portion of the corporation’s stock; (2) the proposed offerees knew or should have known about Teltronics financial condition and the security interest which Ericsson held in the equipment leases; (3) any pressure to sell indirectly originated from Ericsson’s allegedly illegal activities against Teltronics in the marketplace; (4) there was no active or widespread advance publicity or public solicitation, which is one of the earmarks of a conventional tender offer; (5) the proposed purchase price was never a premium; and (6) Ericsson never proposed a purchase of outstanding shares. See Beaumont v. American Can Co., 621 F.Supp. 484, 499 (S.D.N.Y.1985).

In their memorandum of law at 6, plaintiffs state,

"... [T]he Court’s ruling is contrary to the evidence in the record which clearly indicates that Ericsson has sought to acquire the stock of many of Teltronics’ shareholders and had taken ‘substantial steps’, including the preparation of a letter by its attorneys, Sullivan & Cromwell, toward that end.”

They do not identify the exhibit which contains this evidence and the Court cannot locate any such letter in the two volumes of documentary exhibits which accompany plaintiffs’ original motion papers. From the context, however, the Court comprehends that this letter refers to an offer to buy made by Ericsson after the price of Teltronics stock had fallen. Nevertheless, prior to the default, the evidence discloses that Ericsson’s proposal to acquire an equity interest in Teltronics never contemplated a tender offer. Plaintiff’s Exh. F, Affidavit of Edward Beagan, W 32-34, appendix at 499-500; plaintiff’s Exh. Y. As Beagan further explains, negotiations consisting of proposal and counterproposal continued, but no agreement was reached. Beagan Affidavit at ¶ 40, appendix at 502.

Perhaps the most vexatious and ill-founded claim repeatedly advanced by plaintiffs is that they have standing to sue Ericsson for alleged violations of the antitrust laws. Not unsurprisingly, they accuse the Court of having determined the facts in the context of summary judgment. They characterize the Court’s finding that Ericsson’s alleged activities were directed at Teltronics as “mistaken” because they contend that as shareholders the injury was direct and personal to themselves. Their reliance on Blue Shield of Virginia v. McCready, 457 U.S. 465, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982) is misplaced. As this Court noted in Beagan’s action, 587 F.Supp. 729-30, the rules for antitrust standing are stated in the later case of Associated General Contractors of California v. California Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983). Rather than undercutting established antitrust law, these rules reinforce the principle that shareholders are not the victims of activities, allegedly violative of the antitrust laws, which are directed at their corporation. Plaintiffs have not identified any activity which was violative of the antitrust laws and directed solely at them.

In a broad sweeping claim, plaintiffs also assert that Ericsson aimed its activities at plaintiffs to collapse the price of their stock. The facts and circumstances do not support such a conclusion. The price of the stock collapsed only after the default. Moreover, plaintiffs’ entire theory of a conspiracy to depress the price of Teltronics stock ignores the undisputed facts. Beagan, undoubtedly with consent of Teltronics board members, several of whom are plaintiffs in this suit, gave Ericsson a secured interest in Teltronics assets, the ability to influence the acceleration of a substantial portion of the corporation’s debts, and most importantly, the opportunity to profit from an acceleration of that debt. Once Citibank and Nordic American Bank had assigned their rights as holders of Teltronics loans, Teltronics owed the money directly to Ericsson. This situation gave Ericsson the significant interest it had desired in Teltronics, whether Teltronics stock traded for $9 a share or $.09 a share. Undeniably, Ericsson had attained the functional equivalent of an equity position in Teltronics without ever purchasing a single share; consequently, the Court still fails to understand how depressing the price of Teltronics stock was necessary to the success of the alleged takeover scheme.

Plaintiffs’ attorneys’ response to the award of fees against them also misperceives the record. They accuse the Court of applying the equivalent of res judicata to bar their clients’ claims on the basis of prior litigation. Nothing of the sort occurred. The instant plaintiffs raised the same claims raised by Edward Beagan and neither they nor their attorneys should be surprised that this Court dismissed their claims, in part, in reliance upon its prior exhaustive treatment of these matters. These claims were as meritless when raised by shareholder Beagan as they are when raised by any other Teltronics shareholder.

Additionally, nothing in this Court’s decision suggests or permits the inference that plaintiffs’ attorneys solicited Teltronics shareholders to sue Ericsson after this Court dismissed Beagan’s lawsuit. The need or desirability for the multiplicity of actions filed by plaintiffs’ attorneys has been attributed by them to unidentified “procedural reasons”. Its effect has been to harass Ericsson which prevailed in a trial of many of these same issues in the Bankruptcy Court.

“Under the law in this Circuit, to award fees under the bad faith exception a court must find clear evidence that the losing party’s claims were ‘entirely without color and made for reasons of harassment or delay or for other improper purposes.’ The test is conjunctive and neither meritlessness alone nor improper purpose alone will suffice. Under this test, a claim is ‘entirely without color’ when it lacks any legal or factual basis. While there is no precise definition of ‘improper purpose’ it may be evidenced by conduct occurring either before or during trial.”

Sierra Club v. U.S. Army Corp. of Engineers, 776 F.2d 383, 390 (2d Cir.1985) (citations and footnote omitted).

This standard aptly characterizes plaintiffs’ attorneys’ opposition to Ericsson’s motion for summary judgment in this action. Rather than opposing that motion, they should have agreed to the entry of judgment without prejudice to their rights to an appeal; thus saving defendants the costs and fees of preparing additional papers. The Court’s sanction is limited and discretely applies only after the Court of Appeals rendered its decision published at 762 F.2d 185.

In considering the effect and sweep of the Court of Appeals’ opinion, plaintiffs’ attorneys refer to that appeal and the preceding district court litigation as the “Beagan” action or suit. In so doing, they conveniently ignore the remainder of the Court of Appeals’ decision and its clear implications for the instant suit. For the reasons stated by this Court, the Court of Appeals affirmed this Court's and the Bankruptcy Court’s approval of a settlement by Teltronics’ bankruptcy trustee of Teltronics’ claims against Ericsson. 762 F.2d at 189. Also for the reasons stated by this Court, the Court of Appeals ruled that Edward Beagan, and obviously his attorneys, had no authority to pursue claims settled by Teltronics’ bankruptcy trustee. 762 F.2d at 189-90. Undoubtedly, this Court could not and would not enjoin Beagan from pursuing his own claims, but it did enjoin him from pursuing Teltronics’ claims. Nevertheless, his attorneys, here plaintiffs’ attorneys, appealed this Court’s dismissal of Teltronics without seeking a stay of that injunction. Relying on the same claims and the same allegations, they opposed the instant motion for summary judgment with nothing more than protestations that Ericsson’s activities created liability to Teltronics’ shareholders, the plaintiffs herein. The Court had already ruled to the contrary, and the subsequent motion papers and later case authorities have reinforced the correctness of the prior rulings.

Significantly, too, plaintiffs’ attorneys’ manner of opposing the motion also evidences bad faith. They have not explained how or why the problems of an entity referred to as Datasaab, allegedly an Ericsson subsidiary, concerning illegal exports of technology to the Soviet Union relate to Teltronics or the plaintiffs. The documents submitted appear to be intended to disparage Ericsson as a predatory entity allegedly associated with another entity involved in espionage and to convince the Court that individuals allegedly having some connection to Ericsson were less than forthright to a Federal Judge in the District of Columbia. Mudslinging of this genre is inappropriate under Fed.R.Civ.P. 56 and cannot be tolerated. Such a tactic insults the intelligence of the Court because it suggests that irrelevant and prejudicial matters may influence the Court’s decisionmaking.

Also contrary to their complaints, plaintiffs’ attorneys have not been denied procedural due process. Ericsson has repeatedly reiterated its motion for sanctions against plaintiffs’ attorneys since the first motion in the Beagan action. See Wang v. Gordon, 715 F.2d 1187, 1190-91 (7th Cir.1983). In the instant case, plaintiffs’ attorneys accused Ericsson and its attorneys of bad faith conduct and called for sanctions against them. The court’s finding of bad faith rests upon the undisputed activities of plaintiffs’ attorneys as evidenced by the events of record. They have had ample opportunity to address the Court in person and on paper.

Plaintiffs’ attorneys appeared at a conference held on the record on September 24, 1985. At that time, they offered no explanation, other than zealous representation of their clients, of why they had opposed Ericsson’s motion for summary judgment in light of this Court’s prior rulings and the Court of Appeals’ decision. Concerning the imposition of sanctions, their memorandum of law submitted in support of the motion to reargue is no more enlightening except to assert that the Court has denied them due process of law in imposing sanctions. Despite these opportunities to explain themselves, they have offered nothing to justify their conduct, which wholly disregards the results of the prior proceedings.

This Court dismissed all of the claims of shareholder Beagan on the merits. Plaintiffs’ attorneys have offered no reason why other shareholders (plaintiffs herein) should be treated differently with respect to the same claims. See Wang v. Gordon, supra; compare United States ex rel. United States-Namibia, etc., v. Africa Fund, 588 F.Supp. 1350, 1352 (S.D.N.Y.1984); North American Foreign Trading Corp. v. Zale Corp., 83 F.R.D. 293, 298 (S.D.N.Y.1979). They obstinately disagree with that dismissal and the reasons the Court advanced in support of it, insisting, in essence, that the Court does not understand the nature of the case or the law or asserted liabilities involved. Their remedy lies in an appeal and not in blind pursuit of some hope that the Court will depart from its prior rulings when confronting the same arguments previously rejected and the same authorities previously found either irrelevant or unpersuasive. See In re TCI Ltd., 769 F.2d 441, 445 (7th Cir.1985) (“[Djogged pursuit of a colorable claim becomes actionable bad faith once the attorney learns (or should have learned) that the claim is bound to fail.”).

In sum, plaintiffs’ attorneys have received the notice and opportunity to be heard required prior to the imposition of sanctions, see Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 708-09 (2d Cir. 1985); Hasty v. Paccar, Inc., 583 F.Supp. 1577, 1580 (E.D.Mo.1984); see also Eash v. Riggins Trucking, Inc., 757 F.2d 557, 571 (3d Cir.1985) (en banc), and they have not shown that the sanction is unlawful, clearly erroneous based upon the record, or an abuse of the Court’s discretion. See Sierra Club, supra; United States v. Nesglo, Inc., 744 F.2d 887, 891 (1st Cir.1984); see also Tedeschi v. Smith Barney, etc., 579 F.Supp. 657 (S.D.N.Y.1984), aff'd 757 F.2d 465 (2d Cir.1985) (per curiam); Nemeroff v. Abelson, 94 F.R.D. 136 (S.D.N.Y.1982), aff'd 704 F.2d 652 (2d Cir.1983).

Although not raised in their memorandum of law submitted in support of the instant motion, plaintiffs’ attorneys, at the aforementioned conference, expressed confusion concerning the breadth of the injunction contained in the order and decision of August 30, 1985. The purpose of that injunction is to prohibit them from commencing any new lawsuits concerning Teltronics, (which the Court considers unlikely) and to prohibit them from further pursuing an action entitled, “Teltronies Services, Inc. and Edward M. Beagan against Telecom Equipment Corp. and Stephen R. Cohen, 83 CV 3740,” which they filed in this Court. The injunction does not extend to filing an appeal in this matter and cannot be so misinterpreted.

On the basis of the foregoing, the motion to reconsider is in all respects denied. Accordingly, defendants have 20 days from the date of this order to submit their petition for fees in accord with this Court’s order of August 30,1985. Plaintiffs’ attorneys will have 10 days thereafter to submit a response, if any.

SO ORDERED.

      . Paragraph 96 also refers to the collection of unlawful debts; however, there is no allegation that meets the definition of an "unlawful debt" under 18 U.S.C. § 1961(6).

      . Given the inadequacy of the RICO allegations, the Court need not consider whether this RICO action is time barred by the three year statute of limitations of N.Y.C.P.L.R. § 214 subd. 3. See Durante Bros., etc. v. Flushing Nat. Bank, 755 F.2d 239, 248-49 (2d Cir.), cert. denied,—U.S.-, 105 S.Ct. 3530, 87 L.Ed.2d 654 (1985).

      . In this context the holding of In Re Investors Funding Corp., etc., 523 F.Supp. 533, 544 (S.D.N. Y.1980), upon which this Court relied to dismiss Beagan’s claim pursuant to N.Y.Gen.Bus.Law § 352-c (blue sky statute), has been implicitly approved. See Bloor, supra, 754 F.2d at 60 n. 2.

      . In the Beagan action, the Court observed that, "The fraudulent scheme alleged in the complaint consists of a plot to plunge Teltronics into bankruptcy. [Complaint] ¶ 120. Assuming the success of the plot as alleged in the complaint, the separation of Beagan or any other Teltronics’ shareholder from their shares was hardly integral to bankrupting the corporation. Moreover the asserted misrepresentation contained in a press release, was that Teltronics had defaulted on loans from Nordic and Citibank. Although the default may have been excused, or Teltronics may have had a defense to a suit by the banks [or their successors in interest to the debt instruments], it nevertheless defaulted when it failed to make the interest payment on time. Beagan also cites an omission in that the press release failed to state that Teltronics had adequate assets to pay the loans. The availability of money would not preclude a default, and in these circumstances, the asserted solvency of Teltronics is irrelevant to the fraud alleged to have precipitated its rapid demise. That fraud was defendants’ alleged promise to make the interest payments if Teltronics did not do so. Teltronics' possible State law claim for commonlaw fraud arising from this deceit has been settled. The attenuation between this misrepresentation and the securities involved in any subsequent sale, forced or otherwise, is apparent from the pleaded facts.”
      587 F.Supp. at 731-32. The instant complaint alleges the same facts and merits the same response.

      . For reasons which escape the Court (and defy logic), plaintiffs persist in attempting to persuade the Court that Wilson v. Garcia,—U.S.-, 105 S.Ct. 1938, 85 L.Ed.2d 254 (1985), undercuts the Court's earlier analysis, 587 F.Supp. at 733, and presumably the analysis of Durante Brothers, etc. v. Flushing Nat. Bank, 755 F.2d 239, 248-49 (2d Cir.), cert. denied,—U.S.-, 105 S.Ct. 3530, 87 L.Ed.2d 654 (1985), concerning the appropriate New York statute of limitations for a civil RICO suit. The RICO claim in this case was dismissed upon deficiencies in the merits and not upon any defense of the statute of limitations.

      . As Teltronics has settled all of its claims against Ericsson as part of a bankruptcy, there is no possibility of a shareholders’ derivative RICO suit.

      . Contrary to plaintiffs’ attorneys’ assertions, this Court never encouraged them to take an appeal on behalf of Teltronics.

      . The prior proceedings concerning Teltronics in this Court and the Court of Appeals put plaintiffs’ attorneys on notice that this action was so completely without hope of succeeding that pursuing the matter in this Court, beyond placing the case in an appellate posture, was vexatious to the defendants and indicative of bad faith. See Glick v. Koenig, 766 F.2d 265, 270 (7th Cir.1985).

      ., Plaintiffs’ attorneys submitted their opposition papers (dated July 1, 1985) on July 5, 1985. Apparently, the references to Datasaab were intended to satisfy the RICO requirement of prior criminal convictions, as set out in Sedima S.P.R.L. v. Imrex, Inc., 741 F.2d 482 (2d Cir.1984). Although this requirement was rejected by the Supreme Court in that case on July 1, 1985,—U.S.-, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), in their subsequent papers, plaintiffs’ attorneys have not withdrawn their references to exhibits related to Datasaab. The record discloses that Datasaab’s activities have no legal or factual impact upon Ericsson’s relationship(s) with Teltronics or these plaintiffs.

      . Not only are the claims the same as were raised in the Beagan action, but many of the affidavits and documents submitted by plaintiffs’ attorneys are the same, viz., Plaintiffs' Exhs. D, E, F, H, and K (including Exhs. N and O to Exh. K).