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MCCOY v. GOLDBERG

November 27, 1991

ROSE MCCOY, PLAINTIFF,
v.
GARY M. GOLDBERG AND GARY GOLDBERG & COMPANY, INC., DEFENDANTS AND THIRD-PARTY PLAINTIFFS, V. STEPHEN RUFFINO, ET AL., THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: William C. Conner, District Judge:

OPINION AND ORDER

Third-party defendants Phoenix Leasing Income Fund VI and Phoenix Leasing Incorporated (collectively, "Phoenix Leasing") move pursuant to Fed.Rule.Civ.P. 12(b)(6) for dismissal of the Third-Party Complaint insofar as it purports to assert claims for contribution and indemnity for common law fraud and punitive damages and for alleged violations of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). Third-party defendants also move to dismiss the Third-Party Complaint insofar as it may seek relief against them for causes of action other than those set forth in Count III of the Third-Party Complaint relating specifically to investments in Phoenix Leasing Income Fund VI.

FACTS

In her Amended Complaint, dated November 27, 1990, plaintiff Rose McCoy, a part-time nurse, asserts six causes of action against Goldberg & Co., a securities brokerage and financial planning concern, and Gary M. Goldberg, its President, (collectively, "Goldberg") in connection with plaintiff's purchases of interests in twelve different limited partnerships. On January 28, 1991, defendants filed a third-party complaint against eleven of the limited partnerships, including Phoenix Leasing Income Fund VI, alleging that if the allegations of the Amended Complaint are true, then each of the partnerships made material representations and/or omissions of fact in connection with plaintiff's investments. Thus, third-party plaintiffs allege that the third-party defendants were direct participants in the misconduct alleged in the Amended Complaint and should be made to reimburse defendants, to the extent authorized by law, for any award rendered in plaintiff's favor against defendants in this action.

The Third-Party Complaint alleges that, in connection with a public offering of limited partnership interests in an equipment leasing program, Phoenix Leasing prepared and disseminated the prospectus to brokers and the public. T.P.C. ¶ 33. The Third-Party Complaint further alleges that Phoenix Leasing prepared a "Marketing Guide" and "Fact Sheet" for use by brokers. Id. These materials highlighted, inter alia, the following features of the program: (1) high predictable cash flow with average cash distribution of 21.5% per year; (2) a redemption feature to facilitate liquidation of the units; (3) minimization of investment risk through all-cash equipment purchases; (4) partial sheltering of investment through depreciation and investment tax credit; (5) an experienced General Partner of Phoenix Leasing knowledgeable in all areas of equipment leasing and partnership operations; and lessees consisting primarily of "Blue Chip" corporations and federal and state governments. Id.

Plaintiff alleges that Goldberg made essentially the same representations, both orally and in writing, prior to her investment in Phoenix Leasing, and that these representations were false and misleading. Am.Cmplt. ¶¶ 29, 31(c), 43(a); T.P.C. ¶¶ 35, 37. In the Third-Party Complaint, Goldberg alleges that if the plaintiff's allegations are true, then the representations contained in the Phoenix Leasing materials were false. T.P.C. ¶ 36. Goldberg further alleges that it read and relied upon the offering material prepared by Phoenix Leasing and merely repeated and transmitted that information to the plaintiff. T.P.C. ¶¶ 34, 36, 38. Thus Goldberg contends that if it is liable to plaintiff under RICO, Section 10(b) and the common law causes of action, it is entitled to contribution and/or indemnity from Phoenix Leasing. T.P.C. ¶ 41.

DISCUSSION

Failure to State a Claim

In considering a motion to dismiss for failure to state a claim, the court "is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). In order to prevail on a motion to dismiss, the moving party must demonstrate "beyond doubt that the [non-moving party] can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Dahlberg v. Becker, 748 F.2d 85, 88 (2d Cir. 1984), cert. denied, 470 U.S. 1084, 105 S.Ct. 1845, 85 L.Ed.2d 144 (1985). A court must accept as true the factual allegations accompanying the complaint and draw all reasonable inferences in favor of the non-moving party. See Cosmas v. Hassett, 886 F.2d 8, 12 (2d Cir. 1989).

Third-party plaintiffs concede that indemnification and contribution are not available for violations of RICO and that indemnification is not available for violations of Section 10(b) of the Exchange Act or for common law fraud. Op.Mem. at 11. Third-party plaintiffs also concede that they are not entitled to indemnification or contribution for punitive damages. Id. As to these uncontested issues, third-party defendants' motion to dismiss is granted.

A. Contribution Under Section 10(b)

The most significant contested issue remaining is whether third-party plaintiffs' Section 10(b) and common law fraud claims for contribution can withstand third-party defendants' motion to dismiss. The Court first addresses third-party plaintiffs' claim for contribution under the federal securities laws.

It is well settled that there is a cause of action for contribution under the federal securities laws. See, e.g., Stratton Group, Ltd. v. Sprayregen, 466 F. Supp. 1180, 1185 (S.D.N.Y. 1979). For violations of § 10(b) and Rule 10(b)-5 promulgated thereunder, this right of contribution exists between "joint tortfeasors." See Greene v. Emersons, Ltd., 102 F.R.D. 33, 36 (S.D.N.Y. 1983), aff'd sub nom. Kenneth Leventhal & Co. v. Joyner Wholesale Co., 736 F.2d 29, 31 n. 1 (2d Cir. 1984).

Considerably less well-settled, however, is the question of how to define "joint tortfeasor" in this context. Third-party defendants contend for a narrow definition of "joint tortfeasor" that would essentially exclude contribution claims in all cases except those between knowing participants in the same fraud. Goldberg urges a less stringent approach, one that would allow contribution for independent tortfeasors. The Second Circuit has provided little guidance on the question. In fact, the ...


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