to execute and deliver to the Bank, Southern Reserve, and any
other person. . . ." Accordingly, leave is granted to amend the
Second Count on the basis of this allegation.
Leave is Granted to Amend the Third, Fourth and Eleventh Counts
As leave was granted in the prior opinion, to the extent the
Cosgrove Defendants can comply with the loss causation
requirements discussed above, leave is granted for the Third
and Fourth Counts. The Eleventh Count, contrary to
Northwestern's assertion, has not been mooted by intervening
The Fifth and Sixth Counts Comply with Rule 8 Pleading
Northwestern opposes the claims of intentional interference
with contract as conclusory and not sufficiently pled and the
aiding and abetting claim on the already rejected 9(b) ground,
the rejected lack of fiduciary ground in the discussion of
count two, and failure to allege the factual underpinnings of
the claim. Nonetheless, the incorporated facts alleged under
Count One are sufficiently pled to withstand this motion, with
the exception of the loss causation requirement discussed above
that must be demonstrated to satisfy pleading the requirements
of aiding and abetting. In Re Gas Reclamation, Inc. Secur.
Litig., 733 F. Supp. at 721.
The Seventh, Eighth, and Ninth Counts
To the extent these claims implicate Rule 9(b) and loss
causation, the same conclusions discussed above hold here as
well. Additionally, with respect to Northwestern's contentions
that it was not a "control person" or "seller" within the
statutory meanings of those appellations, the defendants have
alleged facts incorporated under Count One to sustain a claim
that Northwestern's role qualifies as a "control person" within
the meaning of the New Jersey Statute. The Cosgrove Defendants
have not, however, alleged that Northwestern was a "seller"
within the meaning of Pinter v. Dahl, 486 U.S. 622, 108 S.Ct.
2063, 100 L.Ed.2d 658 (1988), that it "solicited the sales in
question for a financial gain" Wilson v. Saintine Exploration
and Drilling Corp., 872 F.2d 1124, 1126 (2d Cir. 1989).
Although Northwestern admits the financial interest, the
Cosgrove Defendants have not alleged that Northwestern or its
agent personally solicited the sales for each defendant. See In
re Gas Reclamation, 733 F. Supp. at 723 ("Each investor,
therefore, must prove that Esrine, as Northwestern's agent,
personally solicited him or her."). It is not sufficient that
the amended counterclaims merely alleges substantial or active
participation in the sale of the underlying securities. Id.
Consequently, leave to replead the amended claims is granted on
the condition that the Cosgrove Defendants can amend to allege
that Northwestern or its agent personally solicited the sales
for each defendant and meet the loss causation requirement of
The RICO Count
Northwestern contests the Cosgrove Defendants amended
counterclaims with respect to several components*fn2 of a RICO
claim as set forth by the Second Circuit in Moss v. Morgan
Stanley, Inc., 719 F.2d 5, 17 (2d Cir. 1983), cert. denied,
465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984).
The amended complaint sufficiently alleges the RICO
defendants to be Northwestern and Esrine as its agent and the
predicate acts are pled with sufficient particularity.
Pursuant to § 1962(c), defendants in the amended claims have
characterized the enterprise as an "association in fact"
defined as set forth in United States v. Turkette,
452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246 (1981) and
sufficiently have alleged the common ongoing purpose of this
association to the extent that the agreements have continued
and the promissory notes underlying the transactions
contemplated this ongoing relationship. See In re Gas
Reclamation, 659 F. Supp. 493, 517 (S.D.N.Y. 1987).
Similarly, although Northwestern contends that those
predicate acts fail to constitute a "pattern of racketeering
activity" encompassing the continuity requirement, the RICO
Count alleges a scheme, ongoing in nature beginning no later
than July 1986 and continuing through the present. The
relatedness and continuity requirements set forth in H.J. Inc.
v. Northwestern Bell, ___ U.S. ___, 109 S.Ct. 2893, 2906, 106
L.Ed.2d 195 (1989), are met here in that the
scheme alleged contemplated a long-term course of fraudulent
conduct and was executed with over twenty investors in a like
manner for a common goal. See also Proctor & Gamble v. Big
Apple Indus. Bldgs. Inc., 879 F.2d 10, 17 (2d Cir. 1989)
(explaining continuity and relatedness requirements).
Finally, although the Cosgrove Defendants have alleged
injuries ascribed to the RICO violations, for the reasons
discussed with respect to loss causation, it is not clear that
causation has been established as required. See In re Gas
Reclamation, 659 F. Supp. at 518 (causation required to sustain
civil RICO action).
Accordingly, the cross-motions to allege the counterclaims
are granted only to the extent these defects can be cured.
The Discovery Motion
The motion to compel discovery, made over opposition, is
granted as set forth below:
Any correspondence between Northwestern and Best for the
period 1982-1984 will be produced. The Northwestern file
relating to Esrine will be produced with leave granted to apply
for additional discovery based on that file if necessary. The
Finley Kumble invoices related to the GRI matter will be
For the reasons set forth above, the motion to compel
discovery is granted, the motion for leave to amend and
preliminary injunction is granted, and the cross-motion to add
Esrine as a defendant is granted and to amend is granted in
part to the extent not inconsistent with the above discussion.
Settle order on notice.
It is so ordered.
On Motion for Vacatur and Reconsideration
Defendants have moved for vacatur of the July 9th Order (the
"Order") and reconsideration of the June 25th Opinion (the
"Opinion") on which it was based. A portion of this motion was
addressed in an order issued in Part I by the Honorable Kenneth
Conboy on August 10th 1990. A portion of this motion is
withdrawn by an order issued in conjunction with this
memorandum opinion and is currently pending appeal to the
Second Circuit. The remaining issues addressed herein concern
the position of two defendants Norton and Silva, pleading
requirements, and the discovery issues addressed in the Opinion
and the Order.
Defendants Norton and Silva
The Opinion at page 429 states that "each of the defendants
allegedly executed an 'Agreement with Surety' in favor of
Northwestern." The opinion is amended to add the following
footnote after the word "allegedly":
Defendant Norton and Silva both contest the
validity of the Surety Agreement with
Northwestern. Defendant Silva in deposition
testimony testified first that the signature on
the agreement "looked" like his signature and then
that it was not his signature. All parties agree
that Defendant Norton did not actually sign the
agreement but that his secretary signed and
notarized the agreement. A factual hearing must be
held to determine whether Silva did sign the
agreement and whether Norton authorized the
signature of the Surety Agreement (there is no
dispute that Norton signed both the
Power-of-Attorney and the Assumption Agreement and
that Northwestern made payments on behalf of
Norton to the Bank) or is estopped from contesting
the agreement because either a common law
principal/surety relationship had been established
or Northwestern reasonably relied upon the
apparent authority of Norton's secretary who
In the interim, the Order to pay into the Court shall not
apply to either defendant Silva or Norton.