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ANISFELD v. CANTOR FITZGERALD & CO.

April 7, 1986

RICHARD C. ANISFELD, ART HOCHMAN, HOWARD BALLEN, ROBERT GREENDORFER, MARY GAGLIANO, RICHARD WILDSTEIN, LAWRENCE ROBINSON, JAMES GALLAGHER, THEODOR KALINKA, ANN SKAPACZ, MORRIS MACY, LEWIS GOODKIN, JACK GOLDSTEIN, BERNARD GOLDSMITH, ANN RABINOWITZ, LEONARD RABINOWITZ and "JOHN DOE 1," "JOHN DOE 2" and "JOHN DOE 3" (First and last names being fictitious intending to designate Limited Partners in CALAIS ASSOCIATES, INC.), Plaintiffs,
v.
CANTOR FITZGERALD & CO., INC., CANTOR FITZGERALD GROUP, LTD., CANTOR FITZGERALD REALTY CORP., CANTOR FITZGERALD PROPERTIES, TARK INCORPORATED, TARK VII, INC., WILLIAM P. MILLER, FREDDA WEISBARD, GERALD L. CHASIN, RONALD W. JEFFREY and BERNARD CANTOR, Defendants



The opinion of the court was delivered by: POLLACK

MILTON POLLACK, Senior United States District Judge

 Two of eleven-named defendants *fn1" move to dismiss the complaint or, alternatively, for summary judgment in their favor on the eight counts of the complaint herein purporting to assert claims of (1) violations of Section 11 of the Securities Act of 1933, as amended, 15 U.S.C. § 77a, et seq.; (2) violations of Section 12(2) of the Securities Act; (3) violations of Section 10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder; (4) common law fraud and deceit; (5) negligence and negligent misrepresentation and breach of contract; (6) common law breach of contract; (7) fraudulent concealment and breach of fiduciary duty; and, (8) violation of 18 U.S.C. § 1962(c), the RICO statute.

 The grounds of the motion are: a) legal insufficiency of the claims, as well as insufficient pleading thereof under the Rules; b) the bar of applicable periods of limitation; c) existence of general releases executed and delivered covering the claims in suit; and d) lack of jurisdiction of the pendent state-created claims. For the reasons shown hereafter, the suit will, in all respects, be dismissed.

 This action arises out of an offering of $2,500,000 of limited partnership interests in Calais Associates (Calais), of which the 16 plaintiffs claim to have purchased a total of 13 1/2 units at $100,000 per unit, for a total investment of $1,350,000. Calais was formed as a limited partnership, pursuant to the laws of Texas, to acquire and operate a 498 unit garden apartment complex in Pasadena, Texas, a suburb of Houston. The interests in the partnership were offered pursuant to a Confidential Investment Memorandum dated October 5, 1979. This was a non-public offering exempt from registration, pursuant to SEC Rule 146. Each investor was advised of this fact and executed a "Purchaser-Investor Statement" acknowledging it.

 The gist of the complaint appears to be that the Confidential Investment Memorandum, which was sent to plaintiffs before they purchased, was false and misleading.

 Count I. Section 11 of the Securities Act

 Count I is dismissed. The securities involved were not registered and Section 11 does not apply to unregistered securities. Section 11 of the Securities Act, 15 U.S.C. § 77k, provides a remedy for false and misleading statements contained in a registration statement. Recovery under the statute is limited to purchasers of securities issued pursuant to a registration statement claimed to be defective. See Barnes v. Osofsky, 373 F.2d 269, 271-72 (2d Cir. 1967). Private offerings are not embraced by this section of the Securities Act.

 Count II. Section 12(2) of the Securities Act

 An essential condition of liability under Section 12(2) of the Securities Act is that the plaintiff tender the securities he purchased, if they are still held by him. While the language of the section does not indicate the time, place or manner of tender, see Wigand v. Flo-tek, Inc., 609 F.2d 1028, 1034 (2d Cir. 1979), and an offer in the complaint to tender the securities is sufficient to satisfy the condition, id. at 1034, the complaint herein does not contain an offer to tender, and is therefore insufficient. This count is, accordingly, subject to dismissal on that aspect alone.

 Moreover, claims for recovery under § 12(2) must be "brought within one year after discovery of the untrue statements or the omissions, or after such discovery should have been made by the exercise of reasonable diligence. . . ." 15 U.S.C. § 77m. In addition, the statute provides that in no event shall any such action be brought to enforce a liability created under § 12(2) more than three years after the sale. This suit was brought beyond the limited life of such a claim since the partnership interests were sold in December 1979 and the action was not filed until November 27, 1985. The three year period is an absolute bar. See Summer v. Land & Leisure, Inc., 664 F.2d 965 (5th Cir. 1981); Homburger v. Venture Minerals, Inc., [1982] CCH Fed. Sec. L. Rep. P 98,858 at 94,426 (S.D.N.Y. 1982). Count II is, accordingly, dismissed.

 Count III. Violations of Section 10(b) of the Exchange Act and Rule 10b-5

 The Complaint fails to allege fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure, requiring the dismissal of the claims under Rule 10b-5 and under RICO. However, all claims under Rule 10b-5 are barred by the applicable statute of limitations, and consequently Count III will be dismissed without leave to replead.

 There is no limitary period specified for claims asserted under Rule 10b-5; consequently, courts refer to the statute of limitations of the forum state. See Armstrong v. McAlpin, 699 F.2d 79, 86-87 (2d Cir. 1983).

 The plaintiffs in this suit reside outside New York, and consequently New York's borrowing statute applies. See Arneil v. Ramsey, 550 F.2d 774, 779-80 (2d Cir. 1977). According to the borrowing statute, an action accruing outside New York is time-barred if commenced after the expiration of the limitary period provided by the law of either New York or the place where the cause of action accrued. A claim for securities fraud accrues in the state where the loss resulting from the misrepresentation was sustained and not where the defendant committed the wrongful act. See Sack v. Low, 478 F.2d 360, 366 (2d Cir. 1973). Normally, the economic impact is sustained in the plaintiff's state of residence. See Arneil 550 F.2d at 779. Thus, the claim for fraud under the federal securities ...


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