The opinion of the court was delivered by: Mukasey, District Judge.
Plaintiff CL-Alexanders Laing & Cruickshank ("Alexanders"),
a London investment banker, arranged for certain of its clients
to purchase in Great Britain 2 million shares in Container
Industries, Inc. ("Container" or "CII"), a Delaware corporation
with its principal place of business in New Jersey. The
purchase was part of a private placement in June 1986.
Plaintiff hired defendant Arthur Andersen & Co. of England
("Andersen-U.K.") to provide a "comfort letter"*fn1 for
inclusion in the prospectus. Plaintiff alleges that defendant
Arthur Andersen & Co., an Illinois corporation
("Andersen-U.S."), substantially assisted Andersen-U.K. in the
preparation of the comfort letter. The parties have stipulated
that, for purposes of this case, Andersen-U.K. and
Andersen-U.S. are part of one international organization.
Defendants Seymour B. Goldfeld and Hyman Katz, now both
deceased, served as Container corporate officers. Defendant
Goldfeld & Charak, a New York law firm and Container's legal
counsel, provided an opinion letter warranting that there were
no material misstatements or omissions in the prospectus.
Goldfeld & Charak and Goldfeld, the corporate officer, are
referred to collectively as "the Goldfeld defendants."
Plaintiff charges that defendants conspired to issue
misleading and false statements about Container's sales
projections for "Exxel" self-pressurized spray containers;
plaintiff's primary claims arise under § 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1982), and
Rule 10b-5, 17 C.F.R. § 240.10b-5 (1989), with pendent claims
for breach of contract and fraud. Additionally, plaintiff
claims that Katz violated § 12(2) of the Securities Act of
1933, 15 U.S.C. § 77l(2) (1982). The court on March 30, 1989
denied defendants' motion to dismiss for lack of subject matter
jurisdiction and forum non conveniens, CL-Alexanders Laing &
Cruickshank v. Goldfeld et al., 709 F. Supp. 472 (S.D.N Y
1989), and later denied plaintiff's motion for class
certification, CL-Alexanders Laing & Cruickshank v. Goldfeld et
al., 127 F.R.D. 454 (S.D.N.Y. 1989). Familiarity with those
opinions is assumed herein. Defendants Goldfeld, the firm of
Goldfeld & Charak, Andersen-U.S. and Andersen U.K. have moved
for summary judgment. After that motion was fully briefed,
plaintiff moved to amend its complaint. For the reasons stated
below, plaintiff's motion to
amend is denied and defendants' motion for summary judgment is
Container was established in 1980 to develop, manufacture,
and market various spray containers under the trademark
"Exxel." In 1986, Container sought to raise funds in England
through a private placement of securities. Between June 9 and
June 29, 1986, plaintiff arranged a private placement of 2
million common shares and related warrants. Plaintiff itself
bought 631,700 shares for a total of $1,263,400. (First Amended
Complaint ¶ 19, hereinafter "Complaint") The prospectus, dated
June 9, 1986, included projections for unit sales and net
income for the second, third, and fourth quarters of 1986. (Id.
¶ 21) It represented that by mid-1986, Container's plant would
produce at full capacity. (Id. ¶ 23)
During the spring of 1986, plaintiff and the directors of
Container agreed that Andersen would review the Company's
projections and provide a comfort letter to be included in the
prospectus. (Id. ¶ 26) Plaintiff alleges that Andersen actively
participated in the development of the projections. (Id. ¶ 30)
In the comfort letter, however, Andersen specifically
disclaimed responsibility for the projections. (Zirin Aff.,
Exh. 1 at 24)
Container failed to meet the projections for the second
quarter. (Complaint ¶ 37) Whereas the prospectus projected
second quarter unit sales of 1,730,000 units and a loss of
$474,367, Container sold fewer than 350,000 units and sustained
a loss of $885,339. (Id.) Plaintiff argues that when Katz and
Goldfeld published the prospectus on June 29, 1986, they knew
of the discrepancy between the projected and actual results for
the second quarter but failed to disclose it. (Id. ¶ 38) They
allegedly knew also that the machinery necessary to achieve the
projected production was not in place.
Plaintiff asserts that all defendants breached their
responsibilities by not disclosing the shortfall in the second
quarter projections. (Id. ¶ 40) Plaintiff argues that had it
been apprised of the discrepancy between projected and actual
second quarter performance, it would have cancelled the placing
agreement, which it had a right to do until June 30, 1986. (Id.
¶ 41) Plaintiff alleges that defendants knew and intentionally
or recklessly failed to disclose that the projections for the
second quarter were too high (id. ¶¶ 56-58), and contends that
these omissions operated as a fraud in violation of § 10(b) of
the Exchange Act and Rule 10b-5. (Id. ¶ 55)
If "there is no genuine issue as to any material fact and .
. . the moving party is entitled to a judgment as a matter of
law," Fed.R.Civ.P. 56(c), summary judgment is appropriate. The
moving party bears the burden of proving that no genuine issue
of material fact exists. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202
(1986). All ambiguities are resolved against the moving party,
and all reasonable inferences are drawn in favor of the party
against whom summary judgment is sought. Adickes v. S.H. Kress
& Co., 398 U.S. 144, 158-69, 90 S.Ct. 1598, 1609-15, 26 L.Ed.2d
142 (1970); Ramseur v. Chase Manhattan Bank, 865 F.2d 460, 465
(2d Cir. 1989). Summary judgment is permissible only in
circumstances where "the evidence is such that a reasonable
jury could not return a verdict for the nonmoving party."
Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.
Notwithstanding these rules and presumptions, courts need not
be reluctant to grant summary judgment in appropriate cases.
One of the purposes of summary judgment is "to isolate and
dispose of factually insupportable claims." Celotex Corp. v.
Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91
L.Ed.2d 265 (1986). Although cases where state of mind is at
issue sometimes are not susceptible of summary judgment, the
Second Circuit has held that "[s]ummary judgment is appropriate
when the non-moving party has come forward with no evidence
from which a reasonable fact-finder could find that the
defendant had the requisite state of mind." Mayer v. Oil Field
Systems Corp., 803 F.2d 749, 756 (2d Cir. 1986). When there is
no material issue of fact, summary judgment may be used as an
appropriate remedy in a Rule 10b-5 case involving the
preparation of financial projections. Estate of Detwiler v.
Offenbecher, 728 F. Supp. 103 (S.D.N.Y. 1989).
To defeat a motion for summary judgment, the adverse party
may not rest upon mere allegations or denials in its pleading,
but must set forth specific facts showing that there is a
genuine issue for trial. Fed.R.Civ.P. 56(e). A genuine issue
cannot be raised by statements in affidavits not based on
personal knowledge, Sellers v. M.C. Floor Crafters, Inc.,
842 F.2d 639, 643 (2d Cir. 1988), or by statements of counsel
unsupported by the record. Beyah v. Coughlin, 789 F.2d 986,
989-90 (2d Cir. 1986).
Although cautionary language in a prospectus does not bar
claims under Section 10(b), see In re Frank B. Hall & Co.,
693 F. Supp. 1460 (S.D.N.Y. 1988), it does limit the extent to which
a plaintiff may reasonably rely on the statements and data in
the prospectus. In a recent case in this district, the court
noted that "warnings and disclaimers . . . clearly limit[ed]
the degree to which an investor could reasonably rely on these
[offering] documents as a forecast of the future." Friedman v.
Arizona World Nurseries Ltd. Partnership, 730 F. Supp. 521, 541
(S.D.N.Y. 1990). A prospectus which clearly states the risks
involved will not support an allegation of misrepresentation
under Section 10(b). Luce v. Edelstein, 802 F.2d 49, 56 (2d
Cir. 1986) (citations omitted); see also Stevens v. Equidyne
Extractive Industries, 694 F. Supp. 1057, 1063 (S.D.N.Y. 1988)
("no liability attaches to an offering memorandum that purports
to be speculative").
The "Risk Factors" at the beginning of the Container
prospectus virtually bristle with warnings:
"1. The Company does not presently have sufficient
customer orders to operate at a break-even level.
. . . [N]o assurance can be given that the
Company's business will be successful. . . .
4. The financial projections contained in Appendix
II anticipate certain levels of sales. These sales
will only be achieved upon the successful
conversion of the interest in the Company's
products into firm ...