The opinion of the court was delivered by: ROBERT P. PATTERSON, JR.
ROBERT P. PATTERSON, JR., U.S.D.J.
This is an action alleging violations of the federal securities laws and various state law claims sounding in fraud, breach of fiduciary duty, and breach of contract. Two of the defendants move jointly to dismiss the Complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, or, in the alternative, for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons set forth below, the motion to dismiss is granted.
Based on the allegations in the Complaint, this action arises from a 1990 acquisition transaction (the "Acquisition") between Plaintiff Triumph Ventures, Inc. ("Triumph") and Defendant Privat Capital Corporation ("Privat"). Triumph, a Delaware corporation with offices in New York, was the purchaser in the Acquisition, and Privat, also a Delaware corporation with offices in New York, was the seller in the Acquisition.
Plaintiffs Ralph Manela, Debra Gallaro, and Daniel Venditto (the "individual plaintiffs") were the principal shareholders of Triumph prior to the Acquisition, and they continue to hold some Triumph shares. Manela was Triumph's president, treasurer, and board chairman, and Venditto was a Triumph officer and director. Randall Perry, not a party to this action, is an attorney who represented Triumph and is escrow agent in connection with the Acquisition.
Defendant McLaughlin & Stern, Ballen and Ballen ("MSBB") is a New York law firm which represented Privat in connection with the Acquisition. Defendant Leon Lipkin is a lawyer at MSBB and was the attorney primarily responsible for work in connection with the Acquisition. Defendant Allen Gottlieb is an attorney who served as special counsel to MSBB in relation to the Acquisition. Prior to the Acquisition, Gottlieb was an officer and director of Privat, and after the Acquisition, he became an officer, director, and controlling person of Triumph. Defendant Benjamin Marcovitch was the former president and director of Privat, and, following the Acquisition, he became president, board chairman, and controlling person of Triumph.
At the June 19, 1990 Closing of the Acquisition, Manela and Venditto, for Triumph, and Gottlieb and Marcovitch, for Privat, signed an "Agreement of Purchase and Sale (Assets)" (the "Agreement"). Pursuant to the Agreement, Privat would convey to Triumph its assets and business, represented to be medical receivables of a face value in excess of $ 20 million, subject only to certain "Assumed Liabilities."
In return, Triumph would issue to Privat 89.5% of its outstanding common stock. The transaction required that at the Closing, Triumph have in its corporate bank account at least $ 100,000, less certain defined expenses. It appears that the transaction was structured such that this cash would be used to pay expenses incurred in attempting to collect, evidently as a collection agent, the medical receivables of various doctors or medical institutions totalling $ 20 million.
At the Closing, Manela and Venditto resigned their positions as officers and directors of Triumph. Manela, Gallaro, and Venditto burned 874,000 shares of Triumph stock to Triumph for retirement, ensuring that upon completion of the transaction Privat or its designee would control 89.5% of Triumph's outstanding common stock. In return, Triumph issued warrants to the individual plaintiffs entitling them to repurchase 874,000 shares for 5 years at an exercise price of $ 1 per share.
The Agreement provided that, as security for the faithful performance of its obligations in the Agreement, Privat would deposit in escrow, subject to some conditions (which are indecipherable due to the illegibility of portions of the Exhibit to the Plaintiffs' Complaint): (1) one half of the first $ 400,000 collected from the medical receivables, and (2) the Triumph shares of common stock designated for Privat, together with a suitable pledge/escrow agreement and a stock power to be executed in blank with respect to said shares.
The Agreement also required Privat: to present at closing certain due diligence documentation to Triumph; to present audited financial statements, including audits of the medical receivables, to Triumph within 60 days after the closing of the transaction; and after the closing to file with the Securities and Exchange Commission ("SEC") a post-effective amendment to Triumph's registration statement.
Plaintiffs' Complaint is prolix, vague, unorganized, and repetitive. Nevertheless, the Court reads Plaintiffs' allegations as follows.
Plaintiffs claim that the entire transaction was a "pure scam" in that Privat represented that it owned the $ 20 million of medical receivables or any other assets or business. The Complaint alleges that there was a plan, scheme, and conspiracy between Gottlieb and Marcovitch, aided and abetted by MSBB and Lipkin, to defraud the Plaintiffs. Pursuant to this conspiracy, Gottlieb, Marcovitch, and Privat, aided and abetted by MSBB and Lipkin, made materially false and misleading statements. These statements fraudulently induced the individual plaintiffs to turn over control of Triumph and its cash balance by divesting themselves of their controlling shares and by resigning as Triumph's officers and directors. The Defendants are also alleged to have engaged in certain actions after the Closing which were a subterfuge and cover-up of their fraud, designed to lull Plaintiffs into inaction and to deter them from commencing litigation.
Plaintiffs charge that Privat breached the Agreement in that, among other things, it:
(1) never deposited with the escrow agent any of the required funds;