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LANDY v. HELLER

December 18, 1991

THOMAS M. LANDY, ET AL., PLAINTIFFS,
v.
HELLER, WHITE & COMPANY AND WORLD INFORMATION SYSTEMS, DEFENDANTS.



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

  OPINION AND ORDER

This is an action under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968, and principles of common law fraud. Defendant World Information Systems ("WIS") now moves the Court to dismiss the RICO claim against it pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6), for failure to plead fraud with particularity and for failure to state a claim upon which relief can be granted. For the following reasons, the motion is granted.

BACKGROUND

As originally filed in 1988, this was an action by 56 investors in Petro-Tech Limited Partnerships I, II, III & V ("the partnerships"), against 12 defendants that allegedly established and solicited investments in the partnerships. By Opinion and Order dated April 5, 1990, see Landy v. Mitchell Petroleum Technology Corp., 734 F. Supp. 608 (S.D.N.Y. 1990), this Court dismissed certain of the causes of action asserted in the First Amended Complaint. On May 22, 1990, plaintiffs filed a Second Amended Complaint; subsequently, on August 9, 1990, the Court received the instant motion to dismiss the Second Amended Complaint. Although it became fully submitted on October 30, 1990, the motion was stayed while the parties attempted to negotiate settlements in these matters. In fact, the parties' discussions resulted in stipulations, signed by this Judge on September 11, 1990 and December 6, 1991, dismissing the action as against all defendants except WIS.*fn1

In considering WIS' instant motion, the Court examines the face of the complaint, assuming the truth of the facts alleged by plaintiffs. See O'Brien v. National Property Analysts Partners, 936 F.2d 674, 677 (2d Cir. 1991); DiVittorio v. Eguidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987). The Second Amended Complaint, like the two Complaints before it, alleges the existence of a scheme perpetrated by Henry Finesod ("Finesod"), and various others, to sell interests in the partnerships. The partnerships allegedly sought to exploit the exclusive marketing rights in a patented oil reclamation process; they were seen as an attractive investment based on the tax benefits to be reaped from the probable losses that would be suffered by the partnerships in their first years. However, in July 1986, three years after the partnerships were formed, one of the major risk factors cited in the offering memorandum came to pass, when the Internal Revenue Service disallowed all income tax deductions associated with the partnerships. Soon thereafter, this litigation ensued.

The Court next turns to examine the role of WIS, the only defendant remaining in this suit. Plaintiffs allege that "WIS provided consulting services to Mitchell Petroleum and provided Mitchell Petroleum with . . . summar[ies] of market analys[es and] with information which was included in a document entitled `Business Plan & Income Proforma Scenario.'" Second Amended Complaint ¶ 6(B). It is thus clear, from the face of the complaint, that WIS played only a minor role in the purported scheme, limited to the alleged production of a small number of reports and to the provision of consulting services.

The Second Amended Complaint alleges that WIS participated in preparing the following documents:

  WIS prepared a report of market analysis of the
  oil reclamation industry and of the Aquanetics
  Mini-Reclamation Unit for Mitchell Petroleum
  [that] concentrated on the potential market and
  not on the feasibility of the system [and that]
  relied

  on the false and unreasonable assumptions in the
  Heller, White report. WIS knew or recklessly
  disregarded that the assumptions were unreasonable
  and could not truthfully be utilized as a basis
  for its reports. The Reports were false because
  the fair value of the system to Mitchell Petroleum
  was no more than $330,000, and was nil to the
  limited partnerships.

Second Amended Complaint ¶ 13.

  WIS prepared a projection of profits which was
  included in a document entitled `Business Plan &
  Income Proforma Scenario,' which was circulated to
  brokers and advisors of plaintiffs. . . . The
  Business Plan concluded that the Petro-Tech II's
  net profits over a five-year period would be
  approximately 19.5 million dollars. The Business
  Plan was false and misleading in that the value of
  the Limited Partnership's sublicense was, in fact,
  nil or minimal . . .

Second Amended Complaint ¶¶ 14-16.

  Prior to the Petro-Tech Partnership, WIS had
  previously prepared for Finesod in or about 1980,
  1981 and 1982 an inflated appraisal for
  Finesod-promoted offerings which involved
  overvalued assets and which were abusive tax
  shelters, such as the Terra Drill . . . and
  subsequent to the Petro-Tech Partnerships, WIS
  prepared inflated and false reports for Finesod
  for the World Nurseries Program in late 1984. . .
  . The promoters, with the knowledge of WIS . . .
  used these reports to substantiate the potential
  revenues that Mitchell Petroleum and [the
  partnerships] could expect to receive. . . .
  Without these reports the fraudulent scheme could
  not have been perpetrated.

Second Amended Complaint ¶¶ 17-18.

Plaintiffs further allege that:

  Defendants conspiring with and aiding and abetting
  each other, also committed two or more
  racketeering acts [of mail fraud, using the mails]
  in furtherance of the schemes and artifices to
  defraud plaintiffs. . . . The uses of the mails
  included, but were not limited to, transmittal of
  the private placement memoranda [and] the WIS . .
  . Report[] to the plaintiffs in 1983; the World
  Nurseries private placement memoranda and the WIS
  report for ...

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