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Bloor v. Carro

January 21, 1985

JAMES BLOOR, PLAINTIFF-APPELLANT,
v.
CARRO, SPANBOCK, LONDIN, RODMAN & FASS, DEFENDANT-APPELLEE



Appeal from a judgment entered in the United States District Court for the Southern District of New York, Conner, J., granting judgment on the pleadings for defendant-appellee and dismissing appellant's claims. Affirmed.

Author: Meskill

Before: FEINBERG, Chief Judge, MESKILL and NEWMAN, Circuit Judges.

MESKILL, Circuit Judge:

This action is before us on appeal from a judgment entered in the United States District Court for the Southern District of New York, Conner, J., dismissing certain claims by James Bloor, Trustee for Investors Funding Corporation of New York (IFC) against defendant Carro, Spanbock, Londin, Rodman & Fass (Carro Spanbock). Plaintiff-Appellant asserts that the district court erred in ruling that section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1982), is inapplicable. Because we agree that section 10(b) provides no remedy for IFC's alleged injury, we affirm.

BACKGROUND

This case is the latest in a series of actions resulting from the insolvency of Investors Funding Corporation of New York and related corporations. In re Investors Funding Corp. of New York Securities Litigation, 523 F. Supp. 533 (S.D.N.Y. 1980) (IFC I); In re Investors Funding Corp. of New York Securities Litigation, No. 76 Civ. 4679 (S.D.N.Y. Jan. 12, 1982 (IFC II); In re Investors Funding Corp. of New York Securities Litigation, 566 F. Supp. 193 (S.D.N.Y. 1983) (IFC III); In re Investors Funding Corp. of New York Securities Litigation, 36 Bankr. 1019 (S.D.N.Y. 1983) (IFC IV). In October 1974 IFC filed a petition for reorganization under Chapter X of the Bankruptcy Act. In November of that year, plaintiff-appellant James Bloor (Bloor or Trustee) was appointed Reorganization Trustee for IFC. Bloor filed suit in 1976 against a number of defendants alleging that a massive fraud had precipitated IFC's downfall. He alleged that the principal officers and controlling stockholders of IFC, the Danskers, had mismanaged and looted corporate funds, resulting in IFC's insolvency. Apparently because the alleged fraud involved the issuance of stock, the Trustee's suit partially premised on securities law violations and included as defendants the Danskers, IFC's auditors, Peat, Marwick, Mitchell and Co. (PMM), and Carro Spanbock, counsel to IFC.

Although familiarity with the earlier district court opinions of Judge Conner is presumed, we will summarize the highlights. In IFC I, the court, in disposing of PMM's motions for partial judgment on the pleadings or for partial summary judgment, divided the allegations into those concerning "mismanagement" and those concerning "looting." 523 F. Supp. at 539. The court held that the "in connection with the purchase or sale of a security" requirement of Section 10(b) of the Securities Exchange Act of 1934 had not been met on the mismanagement claims. Id. On the looting claims, the court found that, even if the "in connection with" requirement were met, the actions of PMM were not the proximate cause of IFC's damages. Id. Therefore, the court held that the Trustee's allegations concerning PMM were not sufficient to state a claim under section 10(b) of the Securities Exchange Act of 1934. IFC I at 540. The court also rejected the Trustee's allegations of secondary liability, concluding that PMM could not be held liable as an aider and abettor of a securities law violation. Id. at 542-43.*fn1 In an order dated December 10, 1980, Judge Conner directed all defendants to file motions to dismiss, for judgment on the pleadings or for summary judgment on the grounds discussed in IFC I. J. App. at 307.

In January 1982, in response to a motion for judgment on the pleadings from the Danskers, the court answered a question that it had left open in IFC I: whether the looting claims were adequate to satisfy the "in connection with the purchase or sale of a security" requirement of section 10(b). The court concluded that there was a sufficient connection between the looting and the purchase or sale of securities, IFC II, Opinion and Order at 7, and denied the Danskers' motion for dismissal of the securities law claims.

In IFC III, the court considered additional dismissal motions from a number of defendants, including appellee Carro Spanbock. Because it found that the Trustee's claims against the law firm suffered from the same causation defects as those against PMM, the court granted Carro Spanbock's motion. 566 F. Supp. at 201.

Following this dismissal, the Trustee moved for reargument in the district court or, in the alternative, for certification of questions of law to this Court under 28 U.S.C. § 1292(b). IFC IV, 36 Bankr. at 1020. The court denied the motion for reargument, stating that "even accepting arguendo the truth of those allegations, there is no legal basis for permitting a recovery by the Trustee against . . . the . . . attorneys for a violation of the securities laws." Id. at 1022. The court also refused to certify the orders for interlocutory appeal to this Court because the issue in question was not "controlling" and because such an appeal would delay the ultimate resolution of the matter. Id. at 1022-23.

The Trustee then moved, pursuant to Fed. R. Civ. P. 54(b), for entry of final judgment as to the portion of the court's order in IFC III that dismissed the securities law claims against Carro Spanbock.*fn2 That motion was granted in order dated April 30, 1984. J. App. at 362. This appeal followed.

Discussion

On appeal the Trustee contends that the district court erred in dividing the claims into "mismanagement" and "looting" categories and in its reasoning as to the legal significance of those characterizations.*fn3 Because we believe that the causation issue is dispositive, we need not consider this contention.

In considering a Rule 12(c) motion, the court must accept as true all of the well pleaded facts alleged in the complaint and may not dismiss the action unless the court is convinced that "'the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 553 ...


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