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FURMAN v. CIRRITO

January 6, 1984

AARON J. FURMAN, MARTIN J. JOEL, JR., ALVIN KATZ, FRANCIS P. MAGLIO, HARVEY SHEID, EVERARD M.C. STAMM and ROBERT C. STAMM, Plaintiffs,
v.
JOHN CIRRITO, HAROLD S. COLEMAN, JOHN A. MILLER, FRANCIS G. REA, PETER M. TOCZEK and A. J. YORKE, Defendants.



The opinion of the court was delivered by: COOPER

IRVING BEN COOPER, D.J.

Defendants-movants seek an order pursuant to Fed. R. Civ. P. 12(b)(1) and (6) dismising the complaint; or, in the alternative, compelling arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq. For reasons set forth below, the motion to dismiss is granted on the ground hereinafter indicated.

 The gravamen of the factual allegations contained in the complaint arise from the sale of Bruns, Nordeman, Rea & Co. ("Bruns") to Bache, Halsey, Stuart, Shields, Inc. ("Bache"). Plaintiffs, *fn1" the disgruntled, former Bruns' general partners, maintain that defendants, the former managing directors and executive committee for Bruns, *fn2" sold out to Bache on terms which were more favorable to defendants than plaintiffs.

 Bruns, a limited partnership formed under the laws of the State of New York, carried on a general brokerage and commission business which included the buying and selling of stocks, bonds and other securities. *fn3" The infrastructure of Bruns was such that the managing directors were charged with the responsibility of selecting members of the executive committee; removing members of the executive committee, for or without cause; conferring voting rights relating to partnership business on such members of the executive committee as they saw fit; and most importantly, selling all or substantially all the assets of Bruns on such terms and conditions as they, in their exclusive discretion, approved. *fn4" The executive committee formulated Bruns' management policies and ran Bruns' business from day-to-day. *fn5"

 Plaintiffs aver that in or about May or June 1981, defendant Rea commenced negotiations with Bache, a large brokerage firm, for the purchase of substantially all of Bruns' assets. *fn6" Shortly thereafter, Rea disclosed to several other members of the executive committee his intention to sell to Bache; and formed a negotiating committee comprised of defendants Miller, Toczek and himself to work out the details of the contemplated transfer. *fn7" By June 30, 1981 Bache and Bruns' negotiating committee had reached an agreement as to the basic terms of the transfer. Significantly, one of the essential terms of the purchase was that all partners at Bruns, including the limited partners, sign the purchase agreement -- a fact, plaintiffs allege, they were never apprised of until it was too late. *fn8" Plaintiffs maintain that had they known their failure to sign the purchase agreement would have effectively blocked the deal, they never would have signed it.

 On July 2, 1981, Bache and Bruns entered into a letter of intent describing the basic terms of the purchase. *fn9" Four days later, on July 6, 1981, the managing partners called a meeting of the entire partnership to apprise the remaining partners of the purchase. *fn10" Plaintiffs maintain that the clear tenor of the presentation was as a fait accompli. Indeed, several of defendnts unequivocally stated that, "the deal was final and unchangeable." Additionally, plaintiffs maintain that defendant Rea spoke to several of plaintiffs at or immediately after the partnership meeting to describe their respective terms of employment at Bache. *fn11" Here, too, plaintiffs aver that it was made clear that the terms of employment -- the unfairness of which was unknown to plaintiffs at that time -- could not be altered. *fn12"

 The very next day, a congratulatory cocktail party was held at the Waldorf Astoria Hotel for the partners and principals of both companies -- a ploy, a plaintiffs maintain in hindsight, to further convey the fraudulent notion of finality. *fn13" Additionally, news articles were published in the Wall Street Journal and the New York Times announcing the agreement between Bache and Bruns. *fn14"

 It was not until July 23, 1981 that another partnership meeting was called to further discuss the then impending transfer. *fn15" It was at this meeting that plaintiffs allege they learned for the first time that their signatures were required on the contract as well as the first time they actually saw a copy of the purchase agreement. *fn16" Plaintiffs maintain that the notification to them, on July 23rd, that all their signatures were required effectively operated as no notice at all. By that time, Bruns' key personnel had heard the news and had already made alternative employment arrangements. Simply put, Bruns could not go on without them. *fn17"

 In addition to a discussion of the signature requirements, plaintiffs steadfastly denied the soundness of the accepted purchase price: $3,500,000 over the book value plus additional sums depending upon future performance. *fn18" Apparently, on July 13, 1981, another brokerage house, Gruntal & Co., had offered Bruns a higher price. *fn19" Finally, plaintiffs took great exception to the employment and consultation agreements certain defendants had made with Bache. *fn20"

 Notwithstanding all of the foregoing and based on the representations made by the executive committee, plaintiffs signed the purchase agreement on July 27, 1981. *fn21" Once the purchase agreement was signed, plaintiffs allege that defendants Rea and Coleman made certain illicit payments to several defendants for the purposes of inducing their consent to the transfer to Bache as well as their earlier agreement not to disclose the critical need for plaintiffs' signature. *fn22"

 * * *

 Plaintiffs commenced this otherwise garden variety business fraud action in federal court on the basis of an alleged violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Plaintiffs have also pleaded, as pendent state law claims, fraud and breach of fiduciary duty. The threshold question then, as raised by defendants' motion to dismiss, is whether or not plaintiffs have sufficiently pleaded a claim for relief under the RICO statute. We are constrained to answer in the negative. *fn23"

 We begin our analysis with the applicable RICO provision, 18 U.S.C. § 1964(b), which reads:

 "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the ...


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