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LAWRENCE v. COHN

November 14, 1991

ALICE LAWRENCE, SUZANNE LAWRENCE, RICHARD LAWRENCE, AND MARTA JO LAWRENCE, INDIVIDUALLY, AND ON BEHALF OF THE ESTATE OF SYLVAN LAWRENCE, INCLUDING THE RESIDUARY TRUST, PLAINTIFFS,
v.
SEYMOUR COHN, DEFENDANT.



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

MEMORANDUM OPINION

Plaintiffs are beneficiaries under the will of the late Sylvan Lawrence, who died in December, 1981. Defendant Seymour Cohn, Lawrence's brother, is sole executor of the Lawrence estate (the "Estate") and trustee of a residuary trust created by the will. The Lawrence will was admitted to probate by the Surrogate of New York County on January 29, 1982. On February 1, 1982, Letters Testamentary and Letters of Trusteeship were issued to defendant as sole executor and sole Trustee.

Plaintiffs accuse defendant Cohn of numerous acts of fraud and breaches of fiduciary duty. The parties have been engaged in litigation in the Surrogate's Court (Hon. Renee R. Roth) since 1983.

In 1990 plaintiffs filed the captioned action in this Court. They charge Cohn with violations of § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; and with violations of the RICO statute, 18 U.S.C. § 1962(a)(b) and (c).

To these federal claims plaintiff append claims for common law fraud, breach of contract, and unjust enrichment. They pray for the imposition of a constructive trust on certain partnership interests acquired by defendant; a conveyance of those interests to plaintiffs and/or the Estate; an accounting; compensatory damages (trebled under RICO); punitive damages; and attorneys' fees and costs.

Subject matter jurisdiction in this Court depends on the viability of the § 10(b) and RICO claims.*fn1 Defendant moves to dismiss the complaint under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. In the alternative, defendant asks that this Court abstain from exercising jurisdiction in deference to the Surrogate's Court, or stay proceedings here pending litigation there.

BACKGROUND

These factual recitations derive from the amended complaint's allegations, accepted as true on defendant's motion to dismiss.

Prior to the death of Sylvan Lawrence, Lawrence and Cohn were the sole general partners of a limited partnership known as Ninety-Five Wall Street Company (the "Limited Partnership"). The Limited Partnership's principal asset was and remains an office building located 95 Wall Street. At the inception of the Limited Partnership, Lawrence and Cohn owned at 60% interest as general partners; Jack R. Aron owned an 11% interest as a limited partner; Marvin H. Schur owned a 4% interest as a limited partner; Edward D. Roberts owned a 1% interest as a limited partner; Schur and Bernard E. Brandes, as trustees for the benefit of Robert Aron, owned a 12% interest as limited partners; and Schur and Brandes, as trustees for the benefit of Peter Arthur Aron, owned a 12% interest as limited partners.

The Limited Partnership agreement provided in ¶ 9:

  If either Sylvan Lawrence or Seymour Cohn shall
  die, retire, or be adjudicated incompetent, the
  partnership shall not terminate and the other of
  them shall continue as the sole General Partner.
  The retired General Partner or the legal
  representatives of the deceased or incompetent
  General Partner shall be and become a Limited
  Partner and the share of such retired Partner or
  of such representatives in the profits, losses
  including depreciation, and the distributions
  shall be 30%. The interest of the remaining
  General Partner shall thereafter be 30%.

Under this provision, upon the death of Sylvan Lawrence his interest as a general partner in the Limited Partnership was automatically converted to a 30% limited partnership interest in favor of his Estate; and Cohn, individually, became the sole general partner with the exclusive right to manage and control the affairs of the Limited Partnership.

The Limited Partnership also provided in ¶ 8(b) as follows:

  In the event that any one or more of the Limited
  Partners (hereinafter called "Offering Limited
  Partner") shall receive and wish to accept a bona
  fide offer for the purchase of his interest in the
  partnership (hereinafter called the "Outside
  Offer"), the Limited Partner shall promptly notify
  the other Limited Partners thereof giving the name
  and address of the offeror ("Outside Offeror") and
  a copy of the Outside Offer containing all the
  terms and provisions thereof, and the other
  Limited Partners shall be privileged to purchase
  the interest of the Limited Partner on the same
  terms as the Outside Offer in the proportion that
  their respective interests bear to the aggregate
  interests of all of the Limited Partners other
  than the interest of the Offering Limited Partner.

On May 23, 1983, Cohn agreed with all of the then existing limited partners to purchase their limited partnership interests, exclusive of the 30% of the limited partnership interest Cohn held as legal representative of the Estate. As of that date, the following limited partners held a total 40% interest in the Limited Partnership: Robert Aron; Peter A. Aron; Marvin H. Schur; Edward R. Roberts; Jerome A. Manning, as trustee for the benefit of Tracy Elizabeth Aron, Michael Thomas Aron and Stephen Jack Aron; and Jacqueline A. Morrison and Jerome A. Manning as Trustees for the benefit of Sean Patrick Morrison. Cohn purchased those limited partnerships, totalling 40%, "as nominee for Seymour Cohn, as Executor of the Estate of Sylvan Lawrence, for Seymour Cohn individually, and for any combination thereof."

By order to show cause dated August 18, 1983, Cohn commenced a proceeding in the Surrogate's Court seeking the court's advice and direction (the "advice and direction proceeding") regarding who, as between him and the Estate, should own the 40% limited partnership interests acquired pursuant to the limited partners buy-out agreement entered into in ...


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