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October 23, 1990


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

  Plaintiff, Ralph Heineman, brought this action against individual and corporate defendants, seeking damages for federal securities and common law fraud, violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), breach of plaintiff's employment contract, and a derivative action for waste of corporate assets. Jurisdiction was predicated on the federal law claims and diversity of citizenship. By decisions issued on May 26, 1988, and August 17, 1988, this Court dismissed (1) plaintiff's RICO claims as time-barred, (2) the derivative claim, and (3) seven defendants for failure to allege any wrongdoing by them.

Following a hearing in February 1990, this Court reserved decision on defendants' motion to dismiss the federal securities claim as time-barred under the New York borrowing statute. That motion is now granted based on the conclusions of law set forth in this Court's opinion dated February 6, 1989, and the factual finding, made on the evidence introduced at the hearing, that plaintiff was not at the time the action accrued or thereafter a resident of New York State. While plaintiff's lease on his apartment on Third Avenue in Manhattan had not expired at the time of the events in question, he quite clearly no longer regarded the place as his residence. The lease was not renounced simply in order to accommodate a close friend who coincidently needed a place to stay when plaintiff determined to move to New Jersey. Plaintiff's limited use of the apartment as a pied à terre on the few occasions he chose to stay overnight in the City does not persuade me that he regarded the place as a residence. He did not use the apartment as a place to live in any full sense of the term as, for example, a home to which to invite friends or in which to read the Sunday papers, work or watch TV. The principal use to which the apartment was put was to sleep in it on occasion. The other activities of life for which a residence are generally used were performed in New Jersey. The listing of New York as plaintiff's residence on tax returns and legal documents signed by plaintiff in the face of this pattern of activity simply persuades me that plaintiff either did not understand or misused the term "residence" in these papers.

This matter is also before the Court on the motions for summary judgment of the remaining defendants, S & S Machinery Corp. ("S & S"), Amro Industries, Inc. ("Amro"), American Edelstaal ("Edelstaal"), Simon Srybnik, and Saul Waller, to dismiss the common law fraud and contract claims.

The following facts, except where otherwise noted, are not in dispute. Until 1981, Heineman owned all of the twenty outstanding shares of American Edelstaal, a machine tool importer and manufacturer and acted as its president and chief executive officer. In 1977, Edelstaal entered into contracts with Masinexportimport ("Masin"), a Romanian state-owned company, to sell Masin's lathes and drills in the United States. Edelstaal acquired exclusive distributorship agreements for certain Romanian SNA and DLZ lathes, and DC industrial drills. However, these contracts provided that, if Edelstaal did not sell a sufficient volume of products, the contracts would become non-exclusive. By 1980, Masin's machines accounted for 80% of Edelstaal's business, while the remaining 20% consisted of sales of lathes manufactured by Edelstaal itself.

Plaintiff claims that defendant S & S Machinery Co. had for some time been interested in establishing a business relationship with the Romanians. According to plaintiff, after S & S and its principals failed to establish their own relationship with the Romanians, they determined to acquire Edelstaal's rights to the exclusive distributorships by whatever means were necessary and ultimately resorted to widespread deception and fraud to achieve these ends.

During the time in question, S & S was the largest United States importer and distributor of machine tools and was primarily controlled by Simon Srybnik and his two brothers. In 1977 or 1978, S & S began discussions with the Romanian government to import and distribute Romanian machinery in the United States. In November 1979, Srybnik and the Romanians agreed to form Amro Industries under a joint venture agreement for the purpose of selling Romanian machine tools and other industrial products to North America. While the agreement respected current distributorship contracts, it provided that, if the distribution rights held by another distributor were terminated, the rights in that line would automatically revert to Amro. Heineman claims that he knew little about these negotiations.

In 1979, at the same time he was negotiating with the Romanians, Srybnik also initiated negotiations with Heineman and proposed that he and Heineman form a new, jointly owned company. Under this proposal, which was never agreed to, American Edelstaal would continue to manufacture and sell its Machinex lathe and any other domestic machines but would assign its exclusive rights to Romanian machines to the new company.

Meanwhile, as part of a Protocol signed on October 11, 1989, S & S and Masin agreed to prices and delivery dates for a number of Romanian lathes and other machine tools. Under this Protocol, S & S ordered several machines covered by Edelstaal's agreements. However, on January 10, 1980, Masin cabled S & S that certain orders could not be filled because Edelstaal had just informed them that no agreement between Edelstaal and S & S had been reached. Plaintiff also claims that other documents indicate that Srybnik again attempted to circumvent Edelstaal's exclusive contracts by ordering machines under the pretext that they were to be distributed in countries other than the United States. Thus, in January and February 1980, S & S ordered large quantities of Romanian machines for distribution in Argentina or other countries in Latin America, where plaintiff claims it had no established dealer network.

S & S resumed negotiations with Heineman in August 1980 with the view of acquiring a controlling interest in Edelstaal. According to Heineman, Srybnik and other representatives of S & S promised Heineman that, in exchange for an 80% interest in Edelstaal, S & S would contribute $100,000 in capital to the company, obtain additional letters of credit for Edelstaal, and provide it with additional lines of machine tools to sell. They also represented that Heineman would remain Edelstaal's president, that Edelstaal would maintain its own identity, that defendants would guarantee 80% of Edelstaal's existing indebtedness, that Edelstaal would be built into a company with $10 million in sales, and that Edelstaal's securities would be sold to the public.

On January 26, 1981, Heineman and Amro entered into a written agreement pursuant to which Edelstaal sold Amro one hundred twenty shares of its unissued stock for $100,000 and Heineman purchased ten shares in exchange for which he transferred his rights in the Edelstaal trademark to Edelstaal and capitalized a $160,000 loan previously made by him to the company. On the same day, Heineman entered into a five-year employment contract with Edelstaal pursuant to which he was to remain its president.

Heineman alleges that, subsequent to entering into the agreement, defendants diverted and appropriated Edelstaal's assets and business into companies which they controlled, including S & S and Amro; sabotaged Edelstaal's relationship with its bank and the Romanians; failed to provide additional capital, lines of credit, and new machinery; and ultimately forced him to resign his position as president of the company. Plaintiff asserts that defendants' conduct with respect to their specific promises constitutes fraudulent misrepresentation and breach of contract. Plaintiff additionally claims that defendants' failure to reveal their true intentions of undermining his company and appropriating its exclusive Romanian distributorships states a claim for fraudulent non-disclosure.


Summary judgment may be granted if there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party has the burden of demonstrating the absence of any disputed material facts, Schering Corp. v. Home Insurance Co., 712 F.2d 4, 9 (2d Cir. 1983), and the Court must resolve all ambiguities and draw all inferences in favor of the party against whom summary judgment is sought. Beacon Enterprise, Inc. v. Menzies, 715 F.2d 757, 762 (2d Cir. 1983) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962) (per curiam)). To defeat a motion for summary judgment, however, the opposing party may not rest upon the conclusory allegations or denials set forth in the pleadings but must set forth specific facts showing that there is no genuine issue for trial. Rule 56(e); Schering, supra, 712 F.2d at 9. If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986).

The Supreme Court has instructed that "[i]n ruling on a motion for summary judgment, the judge must view the evidence presented through the prism of the substantive evidentiary burden." Anderson, 477 U.S. at 254, 106 S.Ct. at 2513. Under New York law, a plaintiff is required to prove a fraud claim through "clear and convincing evidence." Weinberger v. Kendrick, 698 F.2d 61, 78 (2d Cir. 1983); Simcuski v. Saeli, 44 N Y2d 442, 406 N.Y.S.2d 259, 265, 377 N.E.2d 713, 718-19 (1978). Thus, there is no genuine issue of material fact if the evidence presented by plaintiff is insufficient to allow a rational finder of fact to find fraud by clear and convincing evidence. Anderson, 477 U.S. at 254, 106 S.Ct. at 2513. However, this Court's cognizance of plaintiff's ...

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