The opinion of the court was delivered by: Sweet, District Judge.
First City National Bank and Trust Company ("FCNB" or "the
Bank"), a defendant in Thornock v. Kinderhill Corp., 87 Civ.
7737 ("Thornock") and a plaintiff in the six cases, First City
National Bank and Trust Co. v. Ratkowski, 88 Civ. 6154, First
City National Bank and Trust Co. v. Dawson, 88 Civ. 6155, First
City National Bank and Trust Co. v. Sanderson, 88 Civ.
6156, First City National Bank and Trust Co. v. Moss, 88 Civ.
6978, First City National Bank and Trust Co. v. Blyleven, 88
Civ. 7020, and First City National Bank and Trust Co. v. DWP
Investment Limited Partnership, 88 Civ. 7547 (collectively,
"the FCNB actions"), has moved to dismiss the Second Amended
Complaint in Thornock. The defendants in the FCNB actions have
moved to vacate the default summary judgments entered in favor
of FCNB in each of those cases. For the reasons stated below,
the motion to dismiss in Thornock is granted, and the motions
to vacate the summary judgments are denied.
The plaintiffs in Thornock are individual investors in
various limited partnerships which were involved in the
business of buying, breeding and selling thoroughbred
racehorses. In both this case and Bruce v. Martin, 87 Civ.
7737, the investors have sued those who organized, promoted,
and managed the partnerships, alleging securities fraud and
other misdeeds. The numerous parties and their claims are
described in further detail in earlier opinions in both cases.
See, e.g., Bruce v. Martin, 712 F. Supp. 442 (S.D.N.Y. 1989);
Thornock v. Kinderhill Corp., 712 F. Supp. 1123 (S.D.N.Y. 1989).
FCNB provided financing to some of the Thornock plaintiffs
for the Kinderhill investments, in exchange for the borrowers'
promissory notes ("the Notes"). The claims against FCNB in
Thornock are based on allegations that the Bank was an aider
and abettor in the primary securities violations. In the FCNB
actions, the borrowers seek to defend against enforcement of
the Notes based on FCNB's alleged fraudulent inducement of the
A complete description of the events and activities which led
up to this litigation is set forth in the May 22, 1989 Opinion,
712 F. Supp. 1123 (S.D.N.Y. 1989). In the original
Thornock complaint, filed on June 8, 1988, FCNB was not named
as a defendant. On July 9, 1988, the Bank sued seven individual
borrowers, six of whom were already plaintiffs in Thornock, in
New York state court to enforce the Notes. Six of these seven
actions were subsequently removed to federal court and
consolidated.*fn2 In October, 1988, the investors filed an
amended complaint in Thornock in which FCNB was added as a
The Bank moved to dismiss the amended complaint, and the
motion was granted with the investors given leave to refile.
Following the filing of the Second Amended Complaint in May,
1989, FCNB again moved to dismiss, and also for summary
judgment in the FCNB actions. On June 9, 1989, the investors'
law firm sought to withdraw from all representation in both
Thornock and the FCNB actions because of a conflict of
interest. Because of the delay and confusion caused by the
change of counsel, the investors and borrowers failed to
respond to any of FCNB's pending motions, and default judgments
were entered in the Bank's favor on the summary judgment
motions on July 10 and on the motion to dismiss on July 17,
One month later, the investors moved to vacate the default
judgments on the grounds of excusable neglect. In January,
1990, the motion to set aside the judgment of dismissal in
Thornock was granted, but the motions to vacate the default
summary judgments in the FCNB actions were denied, because "no
sufficient showing of merit ha[d] yet been made in opposition
to the summary judgment motions" in those cases. Thornock v.
Kinderhill Corp., 88 Civ. 3978, slip op. at 7, 1990 WL 3924
(S.D.N.Y. January 12, 1990). The borrowers were, however,
granted leave to submit
further papers on their motions in the FCNB actions. Following
another round of briefing, the (reopened) motion to dismiss and
the motions to vacate the default summary judgments were argued
on June 22, 1990. Subsequent to this argument, both sides
submitted further material relating to the New York state court
activity in the single collection action which had not been
A court should dismiss a complaint for failure to state a
claim under Rule 12(b)(6), Fed.R.Civ.P., only if it appears
beyond doubt that the plaintiff can prove no set of facts in
support of its claim that would entitle it to relief.
Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229,
2232, 81 L.Ed.2d 59 (1984); Thornock, 712 F. Supp. at 1127
(S.D.N.Y. 1989). The complaint's allegations must be construed
in the light most favorable to the plaintiff and accepted as
true. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683,
1686, 40 L.Ed.2d 90 (1974); Dacey v. New York County Lawyers'
Assoc., 423 F.2d 188, 191 (2d Cir. 1969), cert. denied,
398 U.S. 929, 90 S.Ct. 1819, 26 L.Ed.2d 92 (1970).
As explained more fully in the April, 1989 opinion granting
FCNB's first motion to dismiss, the test in this circuit for a
claim of aiding and abetting a securities violation is that
described in IIT v. Cornfeld, 619 F.2d 909, 922 (2d Cir. 1980)
(Friendly, J.). This test requires that the plaintiff show: (1)
a securities violation by the primary offender; (2) knowledge
by the alleged aider and abettor of the underlying violation;
and (3) substantial assistance by the aider and abettor in
achieving the underlying violation. IIT, 619 F.2d at 922.
In the April 1989 opinion, the investors' (first) amended
complaint was found to satisfy the first two prongs of the
IIT test for aider and abettor liability, but was dismissed
because it did not adequately allege "substantial assistance"
by FCNB in the underlying securities violation. Thornock v.
Kinderhill Corp., 88 Civ. 3978 slip op at 5-6, 1989 WL 40079
(S.D.N.Y. April 13, 1989). In their ...