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FRIEDMAN v. HARTMANN

March 30, 1992

JAY FRIEDMAN, TAMIKO SHIBAMURA, SHIN NAGASE, and REALTY GROUP INTERNATIONAL (U.S.A.), INC., Plaintiffs, against ROBERT D. HARTMANN, GERARD J. MURO, WILLIAM P. FARRELL, STEVEN WITTEN, JOSEPH R. DALY, REAL ESTATE PLUS, INC., HARLEY ASSOCIATES, LTD., 714 MAIN ASSOCIATES, COLONY BEACH ASSOCIATES, NEWBRITE ASSOCIATES LIMITED PARTNERSHIP, and NEWBRITE ASSOCIATES, Defendants. ROBERT D. HARTMANN, REAL ESTATE PLUS, INC., HARLEY ASSOCIATES, LTD., 714 MAIN ASSOCIATES and COLONY BEACH ASSOCIATES, Third-Party Plaintiffs, - against - KATHY K. PRIEST, SNYDER AND PRIEST, and JAMES M. O'CONNOR, Third-Party Defendants.

Leisure


The opinion of the court was delivered by: PETER K. LEISURE

LEISURE, District Judge:

 The third-party defendants in this action have moved, pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss the third-party complaint for failure to state a claim upon which relief can be granted. For the reasons stated below, the motion of the third-party defendants is granted.

 Background

 I. The Main Action

 Plaintiffs have brought this action against defendants for fraud; violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68; conspiracy to violate RICO; conversion; breach of contract; money had and received/unjust enrichment; and breach of fiduciary duty, arising out of an aborted real estate transaction. Plaintiffs seek, inter alia, compensatory damages of $ 600,000, treble damages under RICO, and punitive damages.

 Plaintiffs allege, inter alia, that Hartmann secured their agreement to invest as limited partners in partnerships that were to purchase and develop a number of commercial properties located in Connecticut. These properties included the Newbrite Plaza shopping center, located in New Britain, Connecticut (the "Newbrite Shopping Center"). Plaintiffs allege that defendants Hartmann, 714 Main Associates, Colony Beach Associates, and Witten obtained $ 600,000 from plaintiffs by knowingly misrepresenting to plaintiffs material facts concerning the purchase of the Newbrite Shopping Center and by actively concealing from plaintiffs material facts concerning the purchase of the Newbrite Shopping Center. According to the complaint, on or about September 11, 1989, the Seller entered into a purchase agreement (the "purchase agreement") with defendants Hartmann and Witten, whom it described as general partners of a partnership to be formed known as Newbrite Associates, pursuant to which the Seller agreed to convey the Newbrite Shopping Center for $ 10.1 million. Plaintiffs claim that although the purchase agreement express represented that neither the Seller nor Hartmann, Witten, or Newbrite dealt with any broker in connection with the sale of the Newbrite Shopping Center other than The Beazley Company and Brooks Properties, Inc., on or about September 11, 1989 (the same day on which the purchase agreement was executed), defendant Farrell -- on behalf of Real Estate Plus, of which he was president -- executed a written brokerage agreement with the Seller that provided that the Seller would pay at the closing a $ 1 million brokerage commission to Real Estate Plus. Plaintiffs refer to this agreement as the "Secret Commission Agreement."

 Plaintiffs contend that defendants Hartmann and Witten signed the "Secret Commission Agreement," guaranteeing Real Estate Plus's fulfillment of obligations under it; that defendants "actively concealed" the existence and terms of the "Secret Commission Agreement" from plaintiffs; that the existence and terms of the "Secret Commission Agreement" were material facts that defendants had a continuing duty to disclose to plaintiffs; and that this "active concealment" constituted a fraudulent concealment of material facts. According to the complaint, plaintiffs did not learn of the existence of the "Secret Commission Agreement" until approximately May 21, 1990, the day before the scheduled closing on the Newbrite Shopping Center transaction. Plaintiffs further claim that Friedman demanded, on behalf of plaintiffs, that Hartmann advise the Bell Atlantic TriCon Leasing Corporation (the "Lender") *fn1" of the "Secret Commission Agreement," but that Hartmann refused, after which plaintiffs refused to participate in the purchase of the Newbrite Shopping Center. Plaintiffs seek, inter alia, the return of the $ 600,000 they paid to Hartmann, 714 Main Associates, and Colony Beach Associates, on the ground that they would not have executed the partnership agreement or paid the $ 600,000 had they known of the existence and terms of the "Secret Commission Agreement" with respect to the purchase of the Newbrite Shopping Center.

 II. The Third-Party Action2

 After plaintiffs commenced this action, defendants Hartmann, Real Estate Plus, Harley Associates, 714 Main Associates, and Colony Beach Associates filed and served a third-party complaint upon Kathy K. Priest ("Priest"), her law firm ("Snyder & Priest"), and James M. O'Connor ("O'Connor"). The third-party complaint asserts five claims for relief. The first, second, and third claims -- for indemnity based on negligence, for indemnity based on breach of contract, and for contribution -- are asserted pursuant to Fed. R. Civ. P. 14(a), on the ground that the third-party plaintiffs are entitled to indemnity or contribution from the third-party defendants for any judgment or recovery obtained by plaintiffs against the third-party plaintiffs in the main action.

 The third-party plaintiffs allege that they retained the third-party defendants to provide legal advice with respect to, inter alia, the Newbrite Shopping Center transaction. The third-party plaintiffs claim that the third-party defendants specifically advised Hartmann that the $ 1 million brokerage commission that Real Estate Plus was to receive upon the closing of the Newbrite Shopping Center transaction did not have to be disclosed; that the third-party defendants further advised Hartmann that all appropriate disclosure had been made to the limited partners; and that Hartmann relied on this advice in structuring the transaction. The third-party plaintiffs contend that the third-party defendants were negligent in their advice to Hartmann concerning his disclosure obligations and that the negligent legal advice resulted in plaintiffs' lawsuit. The third-party plaintiffs seek to hold the third-party defendants liable for all or part of any judgment that plaintiffs obtain against the third-party plaintiffs in the main action.

 The fourth and fifth claims for relief -- for negligence and for breach of contract -- are direct claims against the third-party defendants and are joined in this action pursuant to Fed. R. Civ. P. 18(a). The third-party complaint alleges that the third-party defendants' negligence was the proximate cause of the failure of the Newbrite Shopping Center transaction to close, resulting in the loss of funds invested in the project as well lost profits. Similarly, the third-party complaint alleges that the third-party defendants' breach of their contractual obligation to render competent legal advice caused the failure of the Newbrite Shopping Center transaction to close, thereby resulting in actual and consequential damages to the third-party plaintiffs, including lost profits.

 The third-party defendants have now moved, pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss the third-party complaint for failure to state a claim upon which relief can be granted. The third-party defendants argue that (1) as to the RICO claims, the third-party plaintiffs cannot obtain contribution or indemnity because neither remedy exists under RICO; (2) as to the state-law claims asserted by plaintiffs against defendants, defendants cannot obtain contribution or indemnity under Connecticut law for their allegedly intentional misconduct; and (3) because the impleader claims asserted pursuant to Fed. R. Civ. P. 14(a) must be dismissed for failure to state a claim upon which relief can be granted, the fourth and fifth claims for relief against the third-party defendants, which were joined pursuant to Fed. R. Civ. P. 18(a), must also be dismissed.

 Discussion

 I. Motion to Dismiss Pursuant to Rule 12(b)(6)

 "In ruling on a motion to dismiss for failure to state a claim upon which relief may be granted, the court is required to accept the material facts alleged in the [third-party] complaint as true, and not to dismiss unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Frasier v. General Electric Co., 930 F.2d 1004, 1007 (2d Cir. 1991) (citations and quotation omitted); accord Castellano v. Board of Trustees of Police Officers' Variable Supplements Fund, 937 F.2d 752, 754 (2d Cir.), cert. denied, 116 L. Ed. 2d 329, 112 S. Ct. 378 (1991). "The court's function on a Rule 12(b)(6) motion is not to weigh the evidence that might be presented at a trial but merely to determine whether the [third-party] complaint itself is legally sufficient." Festa v. Local 3, International Brotherhood of Electrical Workers, 905 F.2d 35, 37 (2d Cir. 1990); see also Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) ("The function of a motion to dismiss 'is merely to assess the legal feasibility of the [third-party] complaint, not to assay the weight of the evidence which might be offered in support thereof.'") (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)).

 II. Contribution or Indemnity on the RICO Claims

 The third-party plaintiffs seek contribution or indemnity from the third-party defendants with respect to any judgment the plaintiffs ultimately obtain against the third-party plaintiffs on the RICO claims in the main action. The third-party plaintiffs contend that, if they are held liable to plaintiffs in the main action, they will be entitled to contribution or indemnity from the third-party defendants because the third-party defendants committed legal malpractice by failing to provide competent legal advice regarding the third-party plaintiffs' obligations to disclose the "Secret Commission Agreement."

 A. Contribution

 "Contribution is the proportionate sharing of liability among tortfeasors. Typically, a right to contribution is recognized when two or more persons are liable to the same plaintiff for the same injury and one of the joint tortfeasors has paid more than his fair share of the common liability." In re "Agent Orange" Product ...


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