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JONES v. TSAI INV. SERVS.

November 28, 1973

Clinton O. and Lura Curtis Jones Memorial Trust, Plaintiff
v.
Tsai Investment Services, Inc., Defendant


Levet, District Judge.


The opinion of the court was delivered by: LEVET

LEVET, District Judge.

This is an action by the above-named four trustees ("Trustees") against defendant Tsai Investment Services, Inc. ("TISI").

 After plaintiff's case had been submitted and with the consent of plaintiff's counsel the Complaint against the two individual defendants, Gerald Tsai, Jr. and Robert Campbell, Jr., was dismissed, leaving TISI as the sole defendant.

 Jurisdiction is based on diversity. Plaintiff filed this action under the "anti-fraud provisions of the Investment Adviser's Act of 1940 (15 USC § 80b-6(1), (2), and (4)), New York General Business Law § 352-c and New York State common law." Frederick M. Myers, Frederick T. Francis, James C. Hart and H. George Wilde sued as trustees of the "Clinton O. and Lura Curtis Jones Memorial Trust" ("Trust"). The Trust is said to be a "tax exempt charitable Trust created by a Trust Agreement on August 18, 1966 to award college scholarships to students from Berkshire County, Massachusetts." TISI is an "investment advisory company."

 Plaintiff claims to be entitled to damages based upon the difference between the fair market value of the securities in the Trust's portfolio on or about November 27, 1968, to wit, $1,006,507, when TISI began performing its investment advisory services pursuant to contract with the Trust, and the fair market value of the securities in the Trust's portfolio on or about December 31, 1970, when the Trust terminated its contract with TISI, to wit, $643,757, less allowance of a credit for profits gained in the Trust's portfolio during the period June 1, 1970 to December 31, 1970. (85-86, 88-89, 315-316.) *fn1"

 DEFENSES

 The defenses raised by the Answer of TISI include denials and certain affirmative defenses, including:

 (1) That the Complaint fails to state a claim upon which relief can be granted (Paragraph 38 of Answer);

 (2) That the trustees gave prior approval of, acquiesced in, had knowledge of and/or ratified the transactions of which they now complain and thereby waived the claims asserted in the Complaint (Paragraphs 39-42 of Answer);

 (3) That "By reason of such prior approval, acquiescence, knowledge and/or ratification the plaintiff is estopped from asserting the claims contained in the Complaint" (Paragraph 44 of Answer);

 (4) That for the reasons asserted in (3) hereinabove the doctrine of ratification bars plaintiff from asserting the claims alleged in the complaint;

 (5) Other defenses relating to plaintiff's lack of standing to sue and lack of jurisdiction are raised in defendant's Answer (Paragraphs 47 and 48); neither of these defenses is valid;

 (6) Another affirmative defense is stated in paragraph 51 of the Answer and is as follows:

 
"51. With respect to any transaction complained of, the plaintiff agreed with TISI as follows:
 
"* * * we agree that you will not incur any liability in respect to any recommendation, act, or failure to act, made, taken or omitted hereunder in good faith, and we and our successors hereby agree to indemnify you and your successors and to hold harmless you and your successors from and against all loss, damage and cost incurred by you or your successors by reason of any action taken hereunder or in reliance hereon prior to the receipt by you of written notice of revocation of this authorization by us."

 The case was tried to the court without a jury.

 After hearing the testimony of the parties, examining the exhibits and the Proposed Findings of Fact and Conclusions of Law submitted by counsel, this court makes the following Findings of Fact and Conclusions of Law:

 FINDINGS OF FACT

 1. This court has jurisdiction over the subject matter and the parties to this action. 28 USC § 1332.

 2. The Trust is a tax-exempt trust created by Clinton O. Jones for the purpose of making loans to college students from Berkshire County, Massachusetts. (6, 12, 22-24; Ex. 3, 3, Ex. D.) *fn2" Said Trust was created by a Trust Agreement dated August 18, 1966. (Ex. 3, 3.) Frederick M. Myers ("Myers"), Frederick T. Francis ("Francis"), James C. Hart ("Hart"), and H. George Wilde ("Wilde") are the Trustees of the Trust. (5, 9-10; Ex. 3, 4; Ex. D.) All four Trustees are citizens and residents of Berkshire County, Massachusetts. (3, 9-10; Ex. 3, 4.) The original Trust corpus was $100. Subsequently it was increased by a bequest of approximately $1,000,000 from said settlor Clinton O. Jones, who died in the fall of 1967. (12-13; Ex. 3, 3.)

 3. At all relevant times to this action, TISI was a corporation chartered in the State of New York with its principal place of business in the State of New York and was a registered broker-dealer under the Securities Exchange Act of 1934 and a registered investment advisor under the Investment Advisers Act of 1940. (Ex. 3, 7.)

 4. At all times relevant to this action Gerald Tsai, Jr., Robert T. Campbell, Jr. ("Campbell") and Paul H. Jenkel ("Jenkel") were employed by TISI. (Ex. 3, 10, 12, 13.) At the time that Campbell and Jenkel began working on the Trust's portfolio they were both experienced in recommending investments for client's discretionary accounts. (165, 253, 255; Ex. 3, 12-15.) ...


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