The opinion of the court was delivered by: BRIEANT
Defendants David Rothkopf and Phillip S. Wess, here sued both individually and as partners formerly doing business as the accounting firm of Rothkopf & Wess, have brought these motions pursuant to Rule 12(b)(1), F.R.Civ.P., to dismiss this action for want of federal jurisdiction over the subject matter. Though so denominated, the motion in actuality is a motion pursuant to Rule 12(b)(6), F.R.Civ.P. to dismiss for failure to state a claim upon which relief may be granted. The complaint adequately alleges subject matter jurisdiction (see note 2 infra, p. i), and, accordingly:
"the court must assume jurisdiction to decide whether the allegations state a cause of action on which the court can grant relief . . . .
. . . If the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction." Bell v. Hood, 327 U.S. 678, 682, 90 L. Ed. 939, 66 S. Ct. 773 (1946).
In 1972, Rusch Factors, Inc., now merged into BVA Credit Corporation and not a party here, entered into a financing arrangement with Lucien Piccard Industries, Inc. (hereinafter sometimes "Piccard"), whereby Rusch Factors was to make revolving loans to Piccard, secured by Piccard's inventory and accounts receivable.
On February 19, 1974, Lincoln First Commercial Corporation ("Lincoln First") bought virtually all of Rusch Factors' commercial financing portfolio, including the revolving loan arrangement with Piccard. Shortly thereafter, the National Bank of North America and the First Pennsylvania Bank each became 25% participants in the loan to Piccard, with Lincoln First as lead lender. Both of these are now additional plaintiffs on Lincoln First's cross-claims against the accounting defendants.
On April 19, 1974 Commercial Discount Corporation ("CDC"), plaintiff here, bought from Lincoln First a 25% participation in Lincoln First's outstanding and future advances to Piccard, with Lincoln First again acting as lead lender.
In its complaint, CDC alleges that in deciding to become a participating lender it relied on statements made by Lincoln First's officers and on the 1973 and 1974 year-end financial statements of Piccard which Rothkopf & Wess had certified without qualification. CDC alleges that these statements were deceptive and that the financials failed fairly to present Piccard's financial position in conformity with generally accepted accounting principles.
Under the Participation Agreement signed by Lincoln First and CDC on April 19, 1974, CDC bought a 25% participation in all of Lincoln First's outstanding advances to Piccard, and bound itself to take a like percentage of subsequent advances, unless on 60 days notice it declined to participate in additional advances. CDC in its turn was to receive from Lincoln First its proportional share (i.e. 25%) of the interest earned from Piccard. This was paid at a rate of 14% per annum, which is 4% over the New York Bank Prime Rate.
CDC's contractual relationship under this Agreement was with Lincoln First, not with Piccard. CDC did not lend money to Piccard, nor did it hold evidence of indebtedness signed by Piccard. Furthermore, CDC had no direct interest in the collateral (the accounts receivable and the inventory) pledged by Piccard, though it did have a right to participate in any "[amounts] received by [Lincoln First] through realization upon the Specific Collateral, in repayment of the principal amount of the Advances," and even though Lincoln First agreed to hold the collateral "as agent of and trustee for" CDC. Participation Agreement §§ 2.2(b) and 3.5.
The Participation Agreement assigned the management of the underlying loan to Lincoln First:
"[Lincoln First] will have the right to manage, perform and enforce the terms of the [loans to Piccard] . . . for the joint benefit of [Lincoln First] and [CDC], according to [Lincoln First's] discretion and the exercise of its business judgment . . . ." Participation Agreement § 4.1.
As part of its management, Lincoln First alone determined the amounts to be advanced to Piccard; collected and disbursed all monies; and had the power to determine whether Piccard was in default or should be so treated. Lincoln First received and analyzed daily reports on the status of the debtor, and in turn made weekly or monthly reports to the participants. Finally, while CDC could conduct or participate in audits of Piccard, and indeed did so on occasion, the primary responsibility for auditing the financial condition of Piccard ...