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June 27, 1990


The opinion of the court was delivered by: Leisure, District Judge:


Plaintiffs filed this action against more than sixty defendants, claiming that their investments in four limited partnerships were fraudulently induced. Plaintiffs have alleged violations of § 10(b) of the Securities Exchange Act of 1934, the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), and state law in connection with the issuance of private placement memoranda (the "Memoranda") used in the sale of the partnership interests. Defendants Price Waterhouse, an accounting firm, and Howard Jackson Associates, Inc. ("Howard Jackson"), a professional appraiser, have filed motions to dismiss the complaint against them pursuant to Fed.R.Civ.P. 9(b), 12(b)(6), and based on the relevant statutes of limitations.*fn1


Plaintiffs invested in four limited partnerships involved in the acquisition and operation of shopping malls. The partnerships were similarly structured, and sought to achieve tax and other benefits for the investors. Briefly stated, an affiliate of one of the limited partnership sponsors would purchase a shopping mall for a small cash downpayment and a note, and then sell it at a slightly higher price to one of several defendant pension plans. The limited partnership sponsors would then solicit investment from the public through the Memoranda, and purchase the shopping mall from the pension plan at a still higher price. This third successive purchase was funded by a wraparound mortgage issued at an above-market rate of interest, which provided for increasingly high payments during the early years of the partnerships. In many of the transactions, the partnership would enter into a Master Lease agreement with one of the defendant sponsors or an affiliate. Under the Master Lease, the partnership would be paid a fixed amount by the lessee, alleged by plaintiffs to be below the estimated actual rents. See generally Third Amended Class Action Complaint, ¶ 21.*fn2

Plaintiffs allege that Price Waterhouse, an accounting firm not officially affiliated with any other defendant, "assisted in the preparation of the Memoranda and reviewed all of the Memoranda, including the financial forecasts in the Memoranda, and beginning in or about 1982, opined on the reasonableness of every such forecast." Third Complaint, ¶ 24. More specifically, plaintiffs allege that Price Waterhouse falsely represented that it had undertaken procedures to test the reasonableness of certain economic assumptions provided by the partnership sponsors and relied on by Price Waterhouse in making the financial projections. Third Complaint, ¶ 29. Plaintiffs also claim that Price Waterhouse, as auditor of the partnerships, was aware of the impending financial difficulties of the partnerships, yet continued to opine on the reasonableness of the financial projections in subsequent partnership offerings. Third Complaint, ¶ 30. Plaintiffs claim that Price Waterhouse's expertise in tax and financial matters creates a strong inference that these alleged misrepresentations and omissions were intentionally or recklessly made. Third Complaint, ¶¶ 31-32.

Plaintiffs allege that Howard Jackson participated in the fraudulent scheme by "repeatedly provid[ing] written appraisals which stated that the fair market value of the properties was approximately equal to or exceeded the artificial price paid by the . . . partnerships for the properties." Third Complaint, ¶ 33. As with the claims against Price Waterhouse, the complaint alleges that Howard Jackson misrepresented that it had investigated and analyzed economic data provided by the partnership sponsors which was used as a basis for the appraisals. Third Complaint, ¶ 34. Finally, plaintiffs claim that Howard Jackson, as a professional appraiser, was aware that the "same day stepped-up multiple price transactions" used by the partnership sponsors were "unique to abusive tax shelters," and could not provide a competitive equity return to investors. Third Complaint, ¶¶ 35-36.

On August 10, 1989, this Court granted previous motions filed by Price Waterhouse and Howard Jackson to dismiss the Second Complaint against them pursuant to Fed.R. Civ.P. 9(b). See O'Brien v. National Property Analysts, 719 F. Supp. 222 (S.D. N Y 1989) ("O'Brien"). The Court ruled that plaintiffs had lumped the roles of the various defendants, had failed to allege scienter sufficiently, and had not shown how the alleged misrepresentations and omissions by Price Waterhouse and Howard Jackson were misleading given the cautionary language included in the Memoranda. Id. at 227-29. The reasoning of the 1989 Opinion, and a comparison of the two complaints against Price Waterhouse and Howard Jackson, will be discussed with regard to the specific points mentioned below. The dismissal was ordered without prejudice, and plaintiffs filed the Third Complaint on October 30, 1989.


A. Standard Under Fed.R.Civ.P. 9(b)

Although the Court set out in detail the Rule 9(b) standard in its previous opinion, see O'Brien, supra, 719 F. Supp. at 225-26, the following discussion will serve to highlight the aspects of the law which bear most strongly on the pending motion. Rule 9(b) states:

  In all averments of fraud or mistake, the
  circumstances constituting fraud or mistake shall
  be stated with particularity. Malice, intent,
  knowledge, and other condition of mind of a
  person may be averred generally.

As in a motion to dismiss the complaint pursuant to Rule 12(b)(6), the plaintiff's allegations must be taken as true in a motion under Rule 9(b). See, e.g., Luce v. Edelstein, 802 F.2d 49, 52 (2d Cir. 1986).

The complaint's fraud allegations must be specific enough to allow the defendant "a reasonable opportunity to answer the complaint" and must give "adequate information" to allow the defendant "to frame a response." Ross v. A.H. Robins, Co., 607 F.2d 545, 557-58 (2d Cir. 1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980). Rule 9(b) is designed to provide the defendant fair notice of the plaintiff's claims, and to enable the defendant to prepare a suitable defense, protect his reputation or goodwill from harm, and reduce the number of strike suits. DiVittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); Spier v. Erber, No. 89 Civ. 1657 (PKL), slip op. at 11, 1990 WL 71502 (S.D.N.Y. May 24, 1990).

As previously noted, courts have required complaints brought under the federal securities laws to identify the allegedly fraudulent statements, and the time, place, and content of those statements to survive a motion pursuant to Rule 9(b). See O'Brien, supra, 719 F. Supp. at 225 (citations omitted). The Second Circuit has held that "reference to an offering memorandum satisfies 9(b)'s requirement of identifying time, place, speaker, and content of representation where . . . defendants are ...

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