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MANN v. LEVY

November 1, 1991

RONY MANN, PLAINTIFF,
v.
ROY G. LEVY, BERNARD BEYDA, LARRY SILVERSTEIN, STEVEN COHN AND REPUBLIC FACTORS CORPORATION, DEFENDANTS.



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

  OPINION AND ORDER

Invoking diversity jurisdiction, plaintiff brings this action to recover damages resulting from defendants allegedly fraudulently inducing it to invest in Genesis Marketing Corporation ("Genesis"), a clothing manufacturing company which became worthless one month after plaintiff purchased 49% of its common stock. Defendants Roy Levy, Larry Silverstein and Republic Factors Corporation ("Republic") move to dismiss the action on various grounds. Pursuant to Fed.R.Civ.P. 12(b) and Rule 9(b), all three move to dismiss the complaint for failure to state a claim upon which relief can be granted, for failure to allege fraud with particularity, and as barred by the statute of limitations. Levy and Silverstein also move pursuant to Rule 19 to dismiss for failure to join an indispensable party, namely David Cohn. Pursuant to Local Rule 39 Republic and Levy also move for an order requiring plaintiff to file a bond for costs prior to proceeding with this action. For the reasons that follow these motions are granted in part and denied in part.

We address each of defendants' motions in turn. However, we note at the outset that although the complaint alleges several securities law violations, see First Count, Second Count, plaintiff now concedes that such claims are barred by the applicable statute of limitations. Accordingly only plaintiff's state law fraud claims are presently before us, specifically: common law fraud, aiding and abetting common law fraud, and fraudulent concealment. See Third Count; Fourth Count; Fifth Count.*fn1

Defendants' Motions to Dismiss

BACKGROUND

Accepting, as we must, all allegations as true, the facts are as follows.

In November 1987 defendant Bernard Beyda introduced plaintiff to David Cohn, and to defendants Steven Cohn and Roy Levy*fn2, officers and directors of Genesis, for the purpose of discussing the possibility of plaintiff's investing in Genesis*fn3. During this initial meeting, defendants "made numerous unqualified representations and statements concerning the growth and future profit potential of Genesis." In particular, the complaint states that "David Cohn and the other individual defendants":

  a) "depicted Genesis as a company with `great
  potential' which had solved all of its financial
  difficulties and had `turned the corner' toward
  financial success";
  b) represented that "the financial difficulty
  Genesis had experienced in the past was due to an
  overstock of poor quality winter merchandise", and
  that Genesis "had solved this problem by
  discontinuing purchases from these particular
  manufacturers";
  c) represented that much of Genesis' financial
  problems were also the result of the large
  operating expenses it had incurred from owning an
  overseas manufacturing plant which it intended to
  sell; and,
  d) represented that Genesis was going to
  substantially alter its marketing strategy in the
  future.

Plaintiff at this time declined to invest in Genesis.

Sometime prior to this meeting Republic, Genesis' sole factor since 1984, had notified it of an intention to cancel as of January 23, 1988 its factoring agreement due to its poor financial condition. Plaintiff had no knowledge of this fact. On the contrary, several days after the November meeting, "at the specific request of the Genesis defendants" Republic phoned plaintiff's attorney in order to convince plaintiff that Genesis was still a good investment. During this call, Republic made numerous representations to the effect that:

  a) "[it] had great `confidence' in Genesis and
  viewed it as a company with tremendous ...

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