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September 28, 1982

William Freschi, Jr., As Trustee of William Freschi Trust, Plaintiff
Grand Coal Venture, Bandler & Kass, Ground Production Corporation, William J. Werner, Jack Mitnick, Robert Sylvor, William C. Sherr, Mineral Resources Development, Inc., and H. Jean Baker, Defendants

Sweet, District Judge.

The opinion of the court was delivered by: SWEET

SWEET, District Judge:

Defendants have moved for summary judgment on the first count of plaintiff's amended complaint and in the alternative, for partial dismissal of plaintiff's first and second counts and summary judgment on the third count. Defendants' motion to dismiss the first claim will be denied except that the claim shall be limited as indicated below and defendants' motion with respect to the second and third claims will be denied.

 This action was commenced on July 13, 1981. Simultaneously with filing his summons and complaint, William Freschi, Jr. ("Freschi") moved for a preliminary injunction to prevent defendants from dissipating their assets while the action was pending. In a decision dated August 7, 1981, this court denied that motion. Thereafter, defendants moved to dismiss the complaint under Fed. R. Civ. P. 9(b) and 12(b) (6). This court granted the motion in a decision dated November 24, 1981, with leave to replead the claims of securities and common law fraud. The breach of contract claim as to all defendants except Grand Coal and Mitnick was dismissed. *fn1" The court also dismissed Freschi's claim under New York's deceptive advertising statute (General Business Law § 349) as barred by the statute of limitations.

 Thereafter Freschi moved pursuant to Fed. R. Civ. P. 15(a) to amend the first three counts of his complaint and to reargue the dismissal of the fourth count. In a decision dated May 26, 1982, this court granted the motion to amend the three counts and denied the motion to reargue the fourth. Freschi filed an amended complaint on March 10, 1982.

 In his first claim, Freschi, as trustee of the William Freschi Trust, seeks damages for alleged fraud in connection with the offer and sale of certain coal leases, under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, promulgated thereunder, 17 C.F.R. § 240.10b-5. Freschi's second claim alleges fraud in contravention of state common law and the third claim alleges breach of contract.

 Defendants are Grand Coal Venture ("Grand Coal"), a New York incorporated organization; Ground Production Corporation ("Ground"), a Florida corporation; Jack Mitnick ("Mitnick"), a New York accountant and the venture administrator of Grand Coal; Bandler & Kass, a New York partnership engaging in the practice of law; William Werner ("Werner"), Robert Sylvor ("Sylvor") and William C. Sherr ("Sherr"), partners at Bandler & Kass as well as officers and stockholders of Ground; Mineral Resources Development, Inc. ("Mineral Resources"), a Wyoming corporation; and H. Jean Baker ("Baker"), its principal stockholder.

 Freschi claims that Ground and Grand Coal were organized by certain of the defendants to fraudulently induce investment by third parties such as Freschi in a joint venture that would own leases to certain lands purportedly containing recoverable coal and provide tax shelter advantages to its investors. Freschi invested large sums in the joint venture which currently holds subleases to lands in Wyoming and previously held subleases to property in North Dakota, pursuant to a sublease agreement with Ground, which is alleged to be controlled by Werner, Sylvor and Sherr. Freschi claims that his decision to invest was based on defendants' representations that there would be sufficient quantities of economically recoverable coal discovered and mined to make a profit. He further claims that defendants warranted minimum coal reserves of 30,000,000 tons in the leaseholds in which he invested. Freschi asserts that neither the North Dakota land nor the lands for which they were exchanged contain any coal, nor did defendants ever attempt to explore a mine for coal or even concern themselves with whether coal was there. Defendants dispute Freschi's claim of fraud and argue that they have acted in accordance with the terms of the venture agreement.

 According to Freschi in December, 1977 he was investigating various investment opportunities which had tax write-off advantages and profit potential. He was presented with materials for Spruce Productions, Inc. ("Spruce Productions") and considered investing in that offering until December 15, 1977 when he spoke with Werner, the president of Spruce Productions, and learned that the offering had been withdrawn purportedly because it did not comply with I.R.S. Rulings. In that same conversation Werner informed Freschi about a new offering, Grand Coal, which was to be similar to Spruce Productions. On December 19, 1977 Freschi's agent met with Werner at the offices of Bandler & Kass, and satisfied that the firm was a viable organization, tendered Freschi's check for $130,000. On December 29, 1977 Freschi executed the Grand Coal Venture Subscription Agreement ("Subscription Agreement"). In his affidavit, Freschi states that he did not receive any written documentation concerning Grand Coal until March 31, 1978 at which time he received (a) the Mining Venture Operating Agreement, (b) the Participating Sublease, (c) the Non-Recourse Promissory Note, (d) the Security Agreement, and (e) the Offering Memorandum which was dated December 23, 1977.

 Between July, 1978 and December, 1980 on various occasions Freschi claims to have inquired about the project and received information from certain of the defendants. For instance, on August 22, 1978, Mitnick sent Freschi a letter ("August 22, 1978 letter") stating that the geological evaluation of the lands in North Dakota had been completed and because there were no recoverable coal resources contained there, steps would be taken to find other property to substitute for the North Dakota land. On March 31, 1979, Mitnick again sent Freschi a letter ("March 31, 1979 letter") stating that Grand Coal had been assigned a lease in Wyoming lands as "partial replacement" for the North Dakota land. Defendants continued to make various representations concerning the progress of the venture through December, 1980. *fn2"

 Defendants argue that summary judgment pursuant to Fed. R. Civ. P. 56 on Freschi's securities law claim is appropriate because the claim is barred by the statute of limitations. Alternatively, defendants move pursuant to Rule 12(b) (6) to dismiss Freschi's securities and common law fraud claims to the extent that they are based on alleged misrepresentations and omissions occurring after December 29, 1977, and for summary judgment on Freschi's breach of contract claim.


 Defendants submit that Missouri's two-year statute of limitations *fn3" bars Freschi's securities law claim. Freschi contends that his claim survives under application of New York's six-year statute of limitations, *fn4" or in the alternative, under California's three-year limitations period. *fn5" This court finds that California's three-year statute of limitations governs in the instant action.

 The federal securities laws under which plaintiff's first cause of action is brought do not provide for a statute of limitations. As such, this court must apply the applicable limitations period of New York, Cope v. Anderson, 331 U.S. 461, 464-67, 91 L. Ed. 1602, 67 S. Ct. 1340 (1947), along with New York's borrowing statute, C.P.L.R. § 202 (McKinney 1972), id.; Sack v. Low, 478 F.2d 360 (2d Cir. 1973); Arneil v. Ramsey, 550 F.2d 774, 779-80 (2d Cir. 1977). The borrowing statute reads as follows:

An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the state shall apply.

 Thus it must be determined where the cause of action accrued.

 Some federal courts have followed Arneil v. Ramsey, 550 F.2d 774 (2d Cir. 1977) and Sack v. Low, 478 F.2d 360 (2d Cir. 1973) and have applied the traditional "place of injury" test to select the place of accrual. E.g., Bache Halsey Stuart, Inc. v. Namm, 446 F. Supp. 692 (S.D.N.Y. 1978). Others have applied the modern conflicts "significant contacts" test. E.g., Natural Resources Corp. v. Royal Resources Corp., 427 F. Supp. 880 (S.D.N.Y. 1977).

 In Haberman v. Tobin, 466 F. Supp. 447, 450 (S.D.N.Y. 1979) (dictum), I expressed my preference for the modern approach and in State Teachers Retirement Bd. v. Fluor Corp., 500 F. Supp. 278, 288 (S.D.N.Y. 1980), aff'd in part, rev'd in part on other grounds, 654 F.2d 843 (2d Cir. 1981), I chose to follow the modern conflicts approach in the class action context where unlike the "place of injury" test, the "significant contacts" test "provides a reasoned means for selecting one statute of limitations applicable to the entire class." Id.6 However, in Stafford v. International Harvester Co., 668 F.2d 142 (2d Cir. 1981), the Second Circuit, recognizing that the federal courts are divided on this issue, id. at 148, approved the district court's "conclusion that the ...

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