Complaint includes only one paragraph relevant to the RICO claim against it, and that this paragraph contains little more than the bare allegation that Primerica "exercised general supervision and control over the business of Berg Harmon." Am. Cmplt. para. 90.
This court has previously held that in order to connect a controlling person with a RICO claim, a plaintiff must establish facts that show criminal liability on the part of the controlling person for the controlled person's acts, because section 1961 defines acts to be racketeering only if they are among the enumerated felonies punishable under the laws of the United States See Frota v. Prudential-Bache Sec., Inc., 639 F. Supp. 1186, 1192 (S.D.N.Y. 1986); Levine v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 639 F. Supp. 1391, 1396 (S.D.N.Y. 1986). "In order for a controlling person to be held criminally liable under (section 20 of the 1934 Act), it must be shown that the controlling person knowingly used the controlled person to commit the illegal act."
Plaintiffs attempt to distinguish Frota and Levine by asserting that "the Mekhjians do not argue that the knowledge of Berg Harmon is to be imputed to Primerica on the basis of its status, but rather that Primerica actually exercised management control over the conduct of the Berg Harmon enterprise." But even if plaintiffs are correct in their assertion that Primerica was the manager of the day-to-day operations of Berg Harmon, this would not neutralize Frota and Levine. Here, as in those cases, "there is no allegation that (the controlling party) played any part in the alleged misdeeds" or had any knowing involvement in the purported fraud. Levine, 639 F. Supp. at 1395. Having failed to allege that Primerica itself committed any of the requisite predicate acts or acted with the requisite criminal intent, plaintiffs cannot maintain their RICO claim as against Primerica. Accordingly, the RICO claim as against Primerica is dismissed.
III. Aiding and Abetting under the Investment Advisers Act
Leventhal has moved to dismiss plaintiffs' claim against it for aiding and abetting under the Investment Advisers Act, 15 U.S.C. §§ 80b-6, 80b-15. Essentially, plaintiffs claim Leventhal aided and abetted Wollin, the Mekhjians' investment advisor, in allegedly obtaining some $ 425,000 in undisclosed commissions from Berg Harmon by failing to note the false and misleading nature of a footnote to a forecast it reviewed. Defendant correctly notes, however, that the applicable caselaw renders plaintiffs' claim untenable.
In Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 62 L. Ed. 2d 146, 100 S. Ct. 242 (1979), the Supreme Court held that "there exists a limited private remedy under the Investment Advisers Act of 1940 to void an investment advisors contract, but that the Act confers no other private causes of action, legal or equitable." Id. at 24. Leventhal maintains that this narrow interpretation of the Act is enough to preclude plaintiffs' claim here, citing Wellington International Commerce Corp. v. Retelny, 727 F. Supp. 843 (S.D.N.Y. 1989) as additional support for its view. In Wellington, Judge Sand, relying on the Supreme Court's decision in Transamerica, dismissed plaintiff's claim for aiding and abetting a violation of the Investment Advisors Act. In reaching his decision, Judge Sand noted that "it is clear from the Supreme Court's opinion in Transamerica that the Investment Advisers Act only provides a private cause of action for rescission of the contract and recovery of consideration paid. . . . The traditional contract remedy of rescission does not include a tort claim against other entities who are not parties to the contract." Id. at 845-46. Judge Sand went on to explain that even if the defendant investment bank had aided and abetted the defendant investment advisor, no recovery could be had against the investment bank because none of the recoverable consideration was paid to the investment bank. Id. at 846. Here, as in Wellington, the Court finds that plaintiffs have no private remedy for aiding and abetting under the Investment Advisers Act. None of the claimed illegal commissions are alleged to have been paid to Leventhal and plaintiffs do not allege that Leventhal was itself acting as an advisor.
IV. Rule 11 Sanctions
Concurrent with its motion to dismiss, Leventhal has also moved this Court to impose Rule 11 Sanctions on the plaintiffs. The Court denies this motion because it does not appear that the pleadings have been interposed for any improper purpose. See O'Malley v. New York City Transit Auth., 896 F.2d 704, 705-06 (2d Cir. 1990).
V. Pendent Jurisdiction over Remaining Common-Law Claims
Because all of the federal claims as against Primerica and Leventhal are dismissed pursuant to the discussion above, the remaining common-law claims against Primerica and Leventhal are also dismissed pursuant to this Court's discretion under the doctrine of pendent jurisdiction. See Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350, 98 L. Ed. 2d 720, 108 S. Ct. 614 (1988); United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966); Mayer v. Oil Field Sys. Corp., 803 F.2d 749, 756-57 (2d Cir. 1986); Goldman v. McMahan, Brafman, Morgan & Co., 706 F. Supp. 256, 263 (S.D.N.Y. 1989): Goodman v. Shearson Lehman Bros. Inc., 698 F. Supp. 1078, 1087 (S.D.N.Y. 1988); Roebuck v. Guttman, 678 F. Supp. 68, 69 (S.D.N.Y. 1988).
For the reasons stated, plaintiffs' securities fraud claim is timed-barred and is thus dismissed as against all defendants. The motion by Leventhal and Primerica to dismiss the RICO claims against them is granted as is Leventhal's motion to dismiss the claim against it for aiding and abetting violations of the Investment Advisers Act of 1940. Leventhal's motion for Rule 11 sanctions is denied. The remaining common-law claims as against Leventhal and Primerica are dismissed without prejudice.
William C. Conner
United States District Judge
Dated: January 15, 1992
New York, New York