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June 4, 1990


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 granted.


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 ...

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