Baldwin v. Kulch Assoc. CV-98-333-SD 10/29/98 P UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF NEW HAMPSHIRE

William R. Baldwin; Joan S . Baldwin

v. Civil No. 98-333-SD

Kulch Associates, Inc.; Charles Kulch

O R D E R

The plaintiffs, William R. Baldwin and Joan S. Baldwin,

have individually brought this civil action for damages against

the defendant-accountants, Kulch Associates, Inc., and Charles

Kulch, alleging various theories of recovery arising out of the

plaintiffs' purchase of stock in a company named National Wood

Products, I n c . The complaint forwards seven theories of

recovery: (I) Rule 10b-5 of the Securities Exchange Act of 1934,

15 U.S.C. § 78j and regulations at

.10b-5; (II)

sections 12(1) and 12(2) of the Securities Act of 1933,

(a)(1), (a)(2); (III) the New Hampshire Uniform Securities

Act, Revised Statutes Annotated (RSA) 421-B:3, B:5; (IV)

fraudulent performance of accounting services; (V) negligent

performance of accounting services; (VI) unauthorized practice of accountancy, RSA 309-B; and (VII) breach of fiduciary duty.

Jurisdiction is invoked under 15 U.S.C. §78aa.

Before the court is defendants' motion to dismiss counts II

(in part), III, VI, and VII for failure to state a claim upon

which relief may be granted.

Background1

Approximately eighteen months after plaintiffs made their

second and final investment in National Wood Products, Inc.

("National Wood"), the Baldwins learned that their investment was

worthless. The company was bankrupt. Although the Baldwins had

considered liquidating their investments less than one year

before National Wood filed for bankruptcy, they decided not to do

so based on advice they received from Kulch Associates, Inc.,

and its agent Charles Kulch, National Wood's accountants. It was

also the defendants Kulch and Kulch Associates, Inc.

(collectively referred to as "defendants" or "Kulch") who

originally solicited and advised the Baldwins to invest in

National Wood.

Prior to its demise. National Wood was a wood products

manufacturing company located in New Hampshire. Kulch first

1The facts are recited as alleged by plaintiffs and accepted as true for the purposes of this motion.

2 contacted the Baldwins in October of 1995 and informed them that

National Wood was a profitable investment which would generate

generous returns. The Baldwins were also informed that Kulch was

a certified public accountant (CPA). Based on these assurances,

the Baldwins invested five thousand dollars in National Wood's

stock.

Kulch solicited a second investment from the Baldwins in

December of 1995. Again Kulch held himself out as a CPA and

represented to the Baldwins that the financial condition of

National Wood was such that generous returns could be made on an

investment. Based on these representations, the Baldwins

invested another fifteen thousand dollars in National Wood.

At a stockholders' meeting in July of 1996, Kulch again

solicited the Baldwins to invest more money in National Wood. At

this meeting Kulch presented the Baldwins with financial

statements, prepared on Kulch Associates letterhead, that showed

National Wood as having positive cash flow and assets in excess

of liabilities. They did not make an additional investment, but

decided against liquidating their current twenty thousand dollar

investment based on Kulch's representations.

In June of 1997 National Wood filed a voluntary Chapter 11

petition for reorganization, and in September of 1997 the case

was converted to a Chapter 7 liquidation. It is expected that

3 there will be no assets to distribute to creditors and investors,

and the Baldwins have also learned that Kulch himself was not a

licensed accountant.2

Discussion

1. Standard of Review

When reviewing a motion to dismiss, the court's task is

limited. "The issue is not whether a plaintiff will ultimately

prevail but whether the claimant is entitled to offer evidence to

support the claims." Scheuer v. Rhodes,

(1974). When considering the issue, a court must "take the

well-pleaded facts as they appear in the complaint, extending

plaintiff every reasonable inference in his favor." Pihl v.

Massachusetts Dep't of Edu c . ,

(1st Cir. 1993).

The court may properly dismiss a claim "only if it clearly

appears, according to the facts alleged, that the plaintiff

cannot recover on any viable theory." Garita Hotel Ltd.

Partnership v. Ponce Fed. Bank, F.S.B.,

(1st Cir.

1992) (citation omitted).

2A1though not included in their complaint, plaintiffs also allege in their memorandum in opposition that defendants were also shareholders of National Wood.

4 Cases alleging fraud are subject to the additional

requirements of Federal Rule of Civil Procedure 9(b),3 which

states: "In all averments of fraud or mistake, the circumstances

constituting fraud or mistake shall be stated with particularity.

Malice, intent, knowledge, and other condition of mind of a

person may be averred generally." When dealing with securities,

"the court will not render any decision as to whether a

particular statement is rendered misleading by a particular

omission. It will merely determine whether plaintiffs have

sufficiently alleged circumstances under which plaintiffs could

conceivably prove their claims." Schaffer v. Timberland C o . ,

(D.N.H. 1996) (citation omitted). In any

fraud case, however, whether general fraud or securities fraud.

Fed. R. Civ. P. 9(b) "requires that plaintiffs specify the time,

place, and content of an alleged false misrepresentation."

Manchester Mfg. Accruisitions, Inc. v. Sears, Roebuck & C o . , 802

inexplicably, defendants' memorandum fails to address Rule 9(b). Furthermore, it would appear to the court that plaintiffs' federal claims are subject to the Private Securities Litigation Reform Act (PSLRA) of 1995, 15 U.S.C. § 78u-4, which imposes further pleading requirements upon plaintiffs bringing securities actions. At minimum, the pleading requirements of the PSLRA apply to the plaintiffs' § 10-b claim, 15 U.S.C. § 78j, and at least arguably govern their count based on §§ 12(1) and 12(2),

. The court, however, need not reach this issue at this time as it finds that plaintiffs' § 12(1) claim fails to meet the minimal notice-pleading standard and defendants have not moved to dismiss the other claims based on federal law.

(D.N.H. 1992) (citations ommitted). See also

Havduk v . Lanna,

(1st Cir. 1985) (when fraud

lies at the core of the action. Rule 9(b) requires that the

circumstances of the fraud be stated with particularity). When

the claim is based upon state law, "although state law governs

the burden of proving fraud at trial, the procedure for pleading

fraud in federal courts . . . is governed by the special pleading

requirements of Federal Rule of Civil Procedure 9 (b)."

Allegations based on "information and belief" are not enough, and

the complaint must contain "specific allegations of fact which

strongly imply a fraudulent intent." Maldonado v. Dominguez, 137

F .3d 1, 10 (1st Cir. 1988).

2. Defendants' Motion to Dismiss

a. Count II ~ Securities Act of 1933

Defendants argue that the alleged violation of section 12(1)

of the Securities Act of 1933,

(a)(1), must be

dismissed. According to Kulch, the section is inapplicable

because the securities were not publicly registered, and in any

event, plaintiffs have not stated a claim under that section

because they have not alleged a violation of 15 U.S.C. § 77e

(section 5 of the Securities A c t ) . Defendants do not challenge

the portion of Count II alleging a violation of section 12(2),

6

{a) (2). The Baldwins respond that because the

securities were indeed not registered, a viable claim has been

asserted under section 12(1) of the Act.

Section 12(1) of the 1933 Securities Act provides a private

right of action against "[a]ny person who . . . offers or sells a

security in violation of [section 5]4 of this title."

(a)(1). A violator of section 12(1) or 12(2) "shall be

liable . . . to the person purchasing such security from him . .

. at law or in equity."

§ 771(a). Section 5 in turn

contains three subsections which prohibit selling securities

without first filing a registration statement and prohibit

selling registered securities without a prospectus meeting the

requirements of section 77j . See 15 U.S.C. § lie.

Defendants' conclusion that section 12(1) only applies to

the sale of a registered security without a prospectus is

patently incorrect. Although section 5 does prohibit the sale of

a registered security unaccompanied by a prospectus, it also

plainly prohibits the offer or sale of any unregistered

security.5 See Pinter v. D a h l ,

(1988).

415 U.S.C. § lie (prohibiting the sale of unregistered securities).

5Section 5, 15 U.S.C. § 77e, provides in part as follows:

(a) Unless a registration statement is in effect as to a security, it shall be unlawful for any

7 Therefore, defendants' argument that the securities at issue must

have been publicly registered misses the point--this allegation

actually states a claim under section 12(1). The registration

requirement is stated broadly, and presumptively applies to all

sales.

Of course, defendants may avoid the broad registration

requirements of section 5 by proving the affirmative defense that

the securities were exempt under 15 U.S.C. § 77d. See Pennaluna

& Co. v. S E C ,

(9th Cir. 1969) (person claiming

the exemption has the burden) (citing SEC v. Ralston Purina C o . ,

(1953)). For example, so-called "private offerings"

are exempt from the registration requirements. See

.(2) (exempting from section 5 "transactions by an issuer not

involving any public offering"). Perhaps defendants' argument

that the securities must have been "publicly registered" is an

attempt to argue this affirmative defense. Defendants have

stated in their memorandum that "[u]pon information and belief.

person, directly or indirectly -- (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or (2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale.

8 the securities at issue were not publicly registered," but in any

event they have not argued nor proven that the securities were

exempt from registration. Moreover, whether a particular sale is

a "public offering" is a fact-specific inquiry, and it is

established that secondary or over-the-counter transactions may

constitute "public offerings." See Pennaluna & C o . , supra, 410

F .2d at 864; SEC v. Dolnick,

(7th Cir.

1974) .

Nevertheless, defendants correctly state that "nowhere in

their Complaint do the Plaintiffs allege that the securities were

issued in violation of Section 5 . . . ." Memorandum of Law in

Support of Defendants' Motion to Dismiss at 4. Although the

Baldwins now argue that defendants violated section 5 by selling

securities without complying with the registration requirements,

their complaint does not contain anything that could be construed

as alleging a violation of section 5. Oddly enough, the

allegation that the securities were unregistered came from

defendants themselves. Accordingly, defendants' motion to

dismiss the section 12(1) claim must be granted. Pursuant to

plaintiffs' request, however, the court grants leave to amend the

complaint.

9 b. New Hampshire Uniform Securities Act

The complaint, according to defendants, fails to state a

claim under RSA 421-B:3 due to lack of contractual privity.

Defendants also argue that plaintiffs have failed to state a

claim under RSA 421-B:5 because none of the facts as alleged are

proscribed by this statute. Plaintiffs respond that privity is

not necessary to state a claim under RSA 421-B:3 and that

sufficient facts have been alleged to state a claim under RSA

421-B:5.

New Hampshire has adopted the Uniform Securities Act for its

Blue Sky Law. The New Hampshire law, however, "contains numerous

variations, omissions and additional matter . . . ." 7B U.L.A.

513 (1985). Section 421-B:3 was adopted from the Uniform

Securities Act without change. "This section is substantially

the Securities and Exchange Commission's Rule X-10B-5, [

.10b-5], which in turn was modeled upon § 17(a) of the

Securities Act of 1933, 15 U.S.C. § 77q(a) . . . except that the

rule was expanded to cover the purchase as well as the sale of

any security." Unif. Sec. Act § 101 Comment, 7B U.L.A. 516

(1985). The New Hampshire statute departs from the Uniform Act

by providing an explicit private cause of action for violations

of RSA 421-B:3. See RSA 421-B:25. Defendants' privity argument

10 is grounded in the language of RSA 421-B:25, II, which in

relevant part provides:

II. Any person who violates RSA 421-B:3 in connection with the purchase or sale of any security shall be liable to any person damaged by the violation of that section who sold such security to him or to whom he sold such security, and any person who violates RSA 421-B:5 in connection with the purchase or sale of any security shall be liable to any person damaged by the conduct proscribed by RSA 421-B:5. . . . Damages in an action pursuant to this paragraph shall include the actual damages sustained plus interest from the date of payment or sale, costs, and reasonable attorney's fees. (Emphasis by defendant.)

According to defendants, the above-underlined language

indicates that contractual privity with the seller is required to

establish liability under RSA 421-B:3. Plaintiffs, however, give

a broader reading to RSA 421-B:25, focusing on the liability to

"any person damaged."

Although 421-B:25 is not identical to the Uniform Act's

Civil Liability provision, the Uniform Act similarly restricts

its application, making "any person who offers or sell a security

. . . liable to the person buying the security from him." Unif.

Sec. Act § 410, 7B U.L.A. 643. Identical language is also found

in section 12 of the Securities Act. See

.

Although this language "contemplates a buyer-seller relationship

11 not unlike traditional contractual privity,"

(interpreting section 12), the court does not read

the language so restrictively. In Pinter, the Supreme Court

considered whether the similar language in section 12 so

restricted its application, and concluded that liability extended

to any "person who successfully solicits the purchase, motivated

at least in part by a desire to serve his own financial interest

or those of the securities owner."

. Before

reaching this conclusion, the court examined the language of

section 12, including the definition of the terms "sale" and

"sell." See Pinter,

. The New Hampshire Act

contains the same definition of "sale" and "sell." Compare RSA

421-B:3, XIX, with 15 U.S.C. § 77b(3). Thus the Supreme Court's

conclusion that the buyer-seller relationship contemplated by

section 12 was satisfied when the defendant solicited the sale

is illuminating. The court finds no meaningful distinction

between the requirement found in section 12 and that found in RSA

421-B:25; thus plaintiffs do not have to allege strict

contractual privity to state a claim under RSA 421-B:3. Cf.

Dinco v. Dylex L t d ,

(1st Cir. 1997) (noting

that New Hampshire's Blue Sky law explicitly recognizes several

types of vicarious liability). Although the qualifying language

of RSA 421-B:25, II, restricts the scope of RSA-B:3, it appears

12 to mean something broader than contractual privity.6 Plaintiffs'

allegation that defendants solicited the sale states a claim

under RSA 421-B:3.

Defendants also argue that plaintiffs have failed to allege

any facts which, if proved, would establish a violation of RSA

421-B:5. Defendants argue that all of the claims allude to

misstatements of material fact (in connection with the purchase

or sale of a security), which more properly fall under RSA 421-

B:3, rather than RSA 421-B:5, which deals with market

manipulation. Plaintiffs point to specific representations made

by defendants which properly state a claim under RSA 421-B:5.

The section in question is not found in the Uniform

Securities Act, and there are no reported New Hampshire cases

interpreting the section. The court is left scant guidance as

to the proper interpretation of the statute. By its own terms,

RSA 421-B:5 prohibits any "manipulative, deceptive or otherwise

fraudulent device or contrivance," including "fictitious

quotations." The section then goes on to illustrate,

nonexhaustively, what types of practices are meant to be

unlawful. The illustrations include "inducing the purchase or

6A1though RSA 421-B:30, VI, also seems to limit 421-B:3 by referring to "investment advisors," compared to "any person" for 421-B:5, it is still possible for an accountant to fit this definition if the services are not "solely incidental to the practice of his profession." See RSA 421-B:2, IX.

13 sale of any security" based on "information to the effect that

the price of the security will or is likely to rise or fall

because of market operations . . . conducted for the purpose of

raising or depressing the price of the security." RSA 421-B:5,

III. At first glance, this section appears to mirror section

10(b) of the Securities Exchange Act of 1934, which also

prohibits the use of "any manipulative or deceptive device or

contrivance." See Pope v. Steinberg & Lym a n , CV-88-119-L, slip

op. at 15 (D.N.H. Sep. 9, 1990). If, however, this section was

intended merely to duplicate the protections of section 1 0 (b), it

would be superfluous since RSA 421-B:3 is essentially 10-b(5),

which interprets section 1 0 (b). Thus the court is persuaded the

legislature intended something more specific. The illustrations

provided in RSA 421-B:5 use language similar to that found in

section 9(a) of the Securities Exchange Act of 1934, which

prohibits market manipulation. See 15 U.S.C. § 78i. The most

natural conclusion to draw from this is that the legislature

intended the section to apply specifically to various forms of

market manipulation.7

7Similarly, the 1988 amendments to the Uniform Securities Act added a third section under the heading "Fraudulent and Other Prohibited Practices" specifically dealing with market manipulation.

14 In this case, plaintiffs have not alleged that the

defendants' acts were done for the purpose of manipulating the

market. Indeed, as National Wood stock apparently was not traded

publicly, it is difficult to envision how defendants could have

committed market manipulation. Nonetheless, as plaintiffs have

requested leave to amend their complaint, the court will grant

such leave. To state a claim under RSA 421-B:5, however, the

plaintiffs must allege both that there was a market for National

Wood stock and that defendants acted for the purpose of

manipulating such market.

c. Count VI - Unauthorized Practice of Accountancy

Plaintiffs in Count VI allege that defendants engaged in the

unauthorized practice of accountancy in violation of RSA 309-B.

This count must be dismissed because, according to defendants,

there is no private right of action for a violation of RSA 309-B.

Chapter 309-B, the New Hampshire Accountancy Act, is a

comprehensive statutory scheme regulating the conduct and

licensing of public accountants. See RSA 309-B:1 to -B:16.

Administration and enforcement of 309-B is the responsibility of

the New Hampshire board of accountancy (the "board"). See id. at

-B:3. The board has the "power to take any action necessary and

proper to carry out the purposes of [RSA 309-B]," and also has

15 broad rule-making authority. Id. at -B:3, VII-VIII. Complaints

of violations go to the board, which has the discretion to

investigate into the probable cause of any alleged violations and

conduct subsequent disciplinary hearings. See id. at -B:7 to

- B :8 .

There are no express provisions in Chapter 309 providing for

a private right of action. The board may seek injunctive relief

from the appropriate court or may encourage the department of

justice to pursue criminal proceedings, see RSA 309-B:11 to

-B:12, but the statute is void of any language creating a private

right of action. Nonetheless, plaintiffs request that this court

recognize such a private right of action for a violation of

Chapter 309.

The New Hampshire Supreme Court has developed a three-factor

test to determine whether liability may be based upon a statutory

violation, which requires the following: (1) the plaintiff

belongs to the class protected by the statute; (2) the injury is

of the type intended to be protected by the statute; and (3) the

legislature has either expressly or impliedly expressed an intent

to give rise to a private right of action. See Marcruav v . E n o ,

,

(1995). When the

legislature intends to provide for such liability, it is

generally expected that it will expressly do so. See

For

16 example, certain deceptive trade practices and securities

violations give rise to an express statutory private right of

action. See RSA 358-A:10 (deceptive trade practices); RSA 421-

B:25 (securities violations).

Even assuming the first two prongs of Marcruav, supra, are

satisfied, plaintiffs have not pointed to any legislative intent

to create a private right of action, and Chapter 309 does not

expressly provide for such a right. Under the New Hampshire

Accountancy Act, the board of accountancy is charged with

enforcement of its provisions, and specific provisions provide

for injunctions and criminal enforcement, but nothing speaks to a

private right of action or civil liability. Given this

regulatory scheme of Chapter 309 and the lack of express

language, it is unlikely that the legislature intended to give

rise to a private right of action for a violation of its

provisions. C f . Spherex , I n c . v . Alexander Grant & C o .,

,

(1982) (legislative regulation

of accountants is not intended as the only means to protect the

public interest). The court therefore finds no explicit or

implicit legislative intent to create a private right of action

for violations of RSA 309-B. C f . Bacon v. Smith Barney Shearson,

Inc.,

(1996) (no intent by legislature to

create a cause of action for violation of unauthorized practice

17 of law statute, RSA 311:7-a to -c); Heritage Home Health, Inc. v.

Capitol Region Health Care Cor p . , Civ. No. 95-558-JD,

, *5 (D.N.H. Oct. 1, 1996) (no intent by legislature to

create cause of action for violation of statute imposing

ownership disclosure requirements on health care practitioners,

RSA 125:25-a to -c) .

Furthermore, the New Hampshire Supreme Court has recognized

no such private right of action under RSA 309-B. Creating such

"novel causes of action . . . is a practice best left to the New

Hampshire Supreme Court." Heritage Home Health, I n c ., supra, at

*5 (internal citation omitted). See also Kassel v. Gannett C o . ,

(1st Cir. 1989) ("federal court applying

state law must be hesitant to blaze a new trail"); Peck v . NGM

Ins. C o . . No. 94-90-B,

, *10 (D.N.H. June 21, 1995)

(declining to recognize right of action not yet authorized by New

Hampshire Supreme Court); Dennis v. Husgvarna Forest & Garden

C o . , Civ. No. 94-309-M,

, *6 (D.N.H. Dec. 27, 1994)

(same) .

The court therefore declines plaintiffs' request to create a

private cause of action for a violation of RSA 309-B, and Count

VI is accordingly dismissed.

18 d. Count VII - Breach of Fiduciary Duty

Defendants Kulch and Kulch Associates argue in support of

their motion to dismiss Count VII that an accountant does not owe

any fiduciary duty to third parties who may rely upon financial

statements prepared by the accountant. Plaintiffs reply that

under the circumstances of this case, further fact-finding is

necessary to determine whether a fiduciary duty exists.8

The issue then is whether the facts as alleged could support

any viable theory that a fiduciary duty arose between plaintiffs

and defendants. New Hampshire law imposes upon a fiduciary the

"duty, created by his undertaking, to act primarily for another's

benefit in matters connected with such undertaking." Appeal of

Concerned Corporators of Portsmouth Sav. B a n k ,

,

(1987). In considering whether a fiduciary

relationship exists, the New Hampshire Supreme Court has adopted

the following rule:

"A fiduciary relation does not depend upon some technical relation created by, or defined in, law. It may exist under a variety of circumstances, and does exist in cases where there has been a special confidence reposed in one who, in equity and good conscience, is bound to act in good faith and with

8A1though not alleged in its complaint, plaintiffs now assert that National Wood was a closely-held corporation and that defendants were also shareholders. Thu s , the argument goe s , defendants owed plaintiffs a fiduciary duty as co-shareholders of a closely-held corporation.

19 due regard to the interests of the one reposing the confidence."

,

(quoting Lash v. Cheshire County Sav.

B a n k ,

,

(1984)). In doubtful

cases, whether such a relationship exists is a question of fact

for the trier of fact. See

,

.

Although the issue of an accountant's fiduciary duties to

third parties does not appear to have been addressed in New

Hampshire, other courts addressing the issue are generally

reluctant to recognize such a duty to clients,9 let alone third

9As to an accountant's fiduciary relationship with clients, s e e , e . g . . Fleet Nat'l Bank v. H&D Entertainment, In c . ,

(D. Mass. 1996) (accountant-client relationship usually does not involve fiduciary duties), a f f 'd ,

(1st Cir. 1996) (if the accountant "had been engaged as the receiver's financial advisor on the sale, our view might be different"), cert, denied,

(1997); Myers v. Finkle,

(4th Cir. 1991) (genuine issue of fact as to accountant-client fiduciary duty resulting from advice and recommendation to make investments; client alleged that the firm had served them for ten years, that they had worked closely on business matters, and that they were social friends); Burdett v. M ill e r ,

(7th Cir. 1992) (fiduciary duty arose as business relationship shaded into social friendship while accountant provided investment advice which cultivated relation of trust and confidence over period of years); Dominguez v. Brackev Enterprises, In c . ,

(Tex. Ct. App. 1988) (fiduciary relationship between accountant and client where accountant recommended an investment and there existed long association of being guided by and placing confidence in accountant).

20 parties.10 The common thread running through these decisions is

that an accountant will only be considered a fiduciary when there

was a close relationship between the plaintiff and the accountant

--something more than a mere business relationship. Generally,

this close relationship is something which develops over the

years from previous dealings between the parties, such that a

position of trust, confidence, and influence is created. In

addition to the history of the relationship of the parties,

factors such as whether the accountant provided investment advice

or exercised managerial control are also considered.

A breach of fiduciary duty claim was brought against an

accountant by a third party (i.e. not a client) who made an

investment based on the accountant's advice in Barber v . Somers,

,

(1959). The issue on appeal was

whether rescission was an appropriate remedy for the plaintiff,

and thus the validity of the underlying fiduciary duty claim was

10As to an accountant's fiduciary relation to third parties, s e e , e . g . . Standard Chartered PLC v. Price Waterhouse,

(Ariz. Ct. App. 1996) (no fiduciary duty from accountant to third party buyer, because mere reliance on accountant's superior knowledge does not transform a duty of ordinary care into a fiduciary duty); Venturtech II v. Deloitte Haskins & Sells,

(E.D.N.C. 1992) (no fiduciary duty from accountant to third party investors because, although element of trust or confidence present, no element of superiority or influence), a f f 'd ,

(4th Cir. 1993), cert, denied,

(1994); Gutfreund v. Christoph,

(N.D. 111. 1987) (no fiduciary duty from accountant to third party without "close relationship" with accountant).

21 never discussed. Noteworthy, however, and consistent with the

principles gleaned from the cases cited above, supra nn.9-10, the

accountant and plaintiff in Barber were friends and had a

previous business relationship. It is in this manner that the

instant case is distinguishable.

The court fails to see the "tell-tale signs of a fiduciary

relationship which have been identified in the Complaint."

Memorandum of Law in Opposition to Defendants' Motion to Dismiss

at 12. At best, the complaint alleges facts which allude to the

breach of a fiduciary duty, but not facts which allude to the

creation of a fiduciary duty. Reference is made to the alleged

intentional misrepresentations, the misleading financial

statements, and the undisclosed commissions. But the complaint

is fatally void of any specific allegations as to how this

particular relationship entailed a "special confidence" reposed

by the Baldwins such that Kulch was bound to act in the Baldwins'

best interest. See Appeal of Concerned Corporators, supra,

,

.

Rather, the complaint simply assumes its conclusion by

stating that the defendants "held themselves out to be Certified

Public Accountants . . . were engaged in the practice of

accountancy, and as such were Plaintiffs' fiduciaries."

Complaint at 5 59. The only contacts between the parties

22 apparent from the complaint were the three separate instances

when Kulch solicited investments from the Baldwins, one of which

occurred at a stockholders' meeting. There are, however, no

allegations of a previous business or personal relationship that

would support a position of special confidence, influence, and

trust. See Seymour v. N.H. Sav. B a n k ,

,

(1989) ("there simply are no factual premises

upon which the acquisition of influence and confidence could be

predicated as a source of fiduciary responsibility").

There is another twist, however. Plaintiffs raise for the

first time in their objection to the motion to dismiss that

defendants were also shareholders in National Wood, a closely-

held corporation, and as such were fiduciaries. While it may be

a "familiar principle" of general corporate law, as plaintiffs

assert, that shareholders of a closely-held corporation owe each

other fiduciary duties, they have not pointed to any--and the

court does not find any--cases suggesting that New Hampshire has

adopted this principle of corporate law. Even if New Hampshire

had adopted this principle, it is difficult to see how the

Baldwins could have justifiably reposed a special confidence in

the defendants as co-shareholders in National Wood, since they

did not discover the defendants' alleged shareholder status until

after the investments were made. Certainly there can be no

23 influence acquired or confidence reposed, based on Kulch's

position as a shareholder, if the Baldwins were never aware of

Kulch's unique position. Thus, because the facts alleged by

plaintiffs do not support the existence of a fiduciary duty,

plaintiffs' Count VII must be dismissed.

Conclusion

For the reasons mentioned above, defendants' motion to

dismiss (document 6) is granted in part and denied in part;

plaintiffs are granted leave to amend counts II and III.

SO ORDERED.

Shane Devine, Senior Judge United States District Court

October 29, 1998

cc: Leonard W. Foy, Esq. Andrew W. Serell, Esq.

24