The opinion of the court was delivered by: LOUIS J. FREEH
In these related actions, over two hundred individual plaintiffs seek to recover their losses as limited partners in shopping centers organized and sold by defendants.
Defendants Alan Talansky ("Talansky"), United Growth Properties, L.P. ("United Growth"), AST Properties, Inc. ("AST"), First Atlantic Investment Corp. ("First Atlantic"), United Properties of America, L.P. ("United"), National Community Centers ("NCC or Partnership") III, IV, VII, VIII, IX, X, XI-a, XIV, XV and XVI, National Property Analysts, Inc. ("NPA"), Price Waterhouse & Company ("Price Waterhouse"), Hutton Nelson & Edward ("Hutton Nelson"), Wharton Econometric Forecasting Associates Inc. ("Wharton"), Weiner Zuckerport Weiss & Brecher ("Weiner Zuckerport"), Spengler Carlson Gubar Brodsky & Fischling, ("Spengler Carlson"), Credit Lyonnais, Lincoln National Corporation ("Lincoln"), Lincoln National Life Insurance Company, Security Connecticut Life Insurance Company, First Penn Pacific Life Insurance Company and American States Life Insurance Company (collectively the "Lincoln defendants"), Travelers Indemnity Corp. ("Travelers"), Edward P. Lipkin ("Lipkin"), Howard N. Brownstein ("Brownstein"), Melvin Spitz ("Spitz"), and Charles Chrein ("Chrein") move to dismiss the complaints pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(6) and 9(b). Credit Lyonnais moves in the alternative for summary judgment pursuant to Fed. R. Civ. P. 56. For the reasons stated at oral argument and below, defendants' motions to dismiss the federal securities and civil RICO claims are granted. Defendants' motions to dismiss the remaining pendent state law claims are granted in part and denied in part, as explained below.
From 1985 to June 1986, a number of individual investors -- including plaintiffs -- purchased interests in twelve separate limited partnerships. The purpose of the partnerships was to acquire and operate shopping centers around the country. In 1989, ten of the partnerships were consolidated into a single partnership known as "United Growth".
Plaintiffs allege that defendants committed fraud in the initial formation and subsequent "roll-up" of the twelve limited partnerships. Specifically, plaintiffs allege that the private placement memoranda ("PPM's") for both the individual partnerships and the United Growth roll-up contained material misrepresentations and omissions which induced them into purchasing their initial investments and then agreeing to the roll-up.
Assuming, as the Court must, that the allegations in the two complaints are true, the facts are as follows. From March 1985 to June 1986, twelve National Community Center limited partnerships were created for the purpose of purchasing and operating shopping centers around the United States. Each of the individual plaintiffs purchased interests in the limited partnerships by relying on, inter alia, the PPMs and other offering materials prepared, distributed and communicated by NPA, its majority shareholders Lipkin and Brownstein, NPA's general partner Talansky, and Talansky's broker, First Atlantic. (hereinafter sometimes referred to as "the Sellers"). The PPMs provided plaintiffs with financial projections and reports prepared by Price Waterhouse, Hutton Nelson, and Wharton (collectively "the Accountants") which were based upon computed financial predictions concerning the future of the shopping centers. The PPMs cautioned plaintiffs that the financial projections were based upon estimates and assumptions made by the Sellers and their accountants. The PPMs also disclosed the fees and benefits to the Sellers.
The Sellers arranged for Credit Lyonnais, Lincoln and the Lincoln defendants (collectively the "Lenders") to loan plaintiffs, should they need it, the money necessary to finance their capital contributions to the partnerships. Travelers acted as a surety for certain plaintiffs, issuing surety bonds covering plaintiffs notes and agreeing to make payments to the Lenders in the event of a plaintiff's default. The Investor Bond Agreement permitted Travelers to collect, from the plaintiffs involved, the amounts paid by Travelers to the lender on behalf of the defaulting plaintiff. In some cases Travelers demanded that a particular plaintiff's obligation to Travelers be guaranteed by NPA through indemnification agreements. The existence of the indemnification agreements was never disclosed to plaintiffs.
Because the performance of the limited partnerships was not meeting the Sellers original expectations, on or about July 17, 1989, plaintiffs and other investors in each of the NCC Partnerships, except those in NCC XII, received a new private placement memorandum relating to the United Growth roll-up. The United Growth PPM was prepared by United, serving as general partner of United Growth, AST, the general partner of United, Talansky, and United Growth's counsel, Spengler Carlson. The United Growth PPM was intended to induce the NCC limited partnerships into exchanging their interests in their respective NCCs for interests in the United Growth partnership. The United Growth PPM informed the investors that NPA was withdrawing as manager of the shopping centers. In reliance upon the United Growth PPM, plaintiffs in ten of the twelve NCCs agreed to exchange their partnership interests for a new interest in the United Growth roll-up. Under the management of United Growth, Talansky, and his corporate affiliates United and AST, the shopping centers continued to fail to meet the Sellers initial forecasts.
On December 19, 1991, the Ackerman plaintiffs filed this law suit. The Remington complaint was filed in New York State Court a little over a month later on or about January 31, 1992, and removed to this Court on February 24, 1992.
A complaint must be dismissed under Fed. R. Civ. P. 12(b)(1) and (6) only if "it appears 'beyond a reasonable doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985). In addition, in deciding a motion to dismiss, a Court must read the facts alleged in the complaint "generously" drawing all reasonable inferences in favor of the party opposing the motion. Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir 1989). The trial court's role is to appraise the legal merits of the complaint and not to weigh the evidence which might be introduced at trial. See Ricciuti v. N.Y.C. Transit Authority, 941 F.2d 119, 124 (2d Cir. 1991) (plaintiff is not compelled to prove his case at the pleading stage). The ultimate 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, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). Finally, the trial court should grant a Rule 12(b)(6) motion "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957))
In considering a Rule 9 motion in the context of a fraud claim, Rule 9(b) states: "In averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." In every case however, Rule 9(b) must be applied in the spirit of Rule 8(a) which requires a "short and plain statement of the claim." Ouaknine v. MacFarlane, 897 F.2d 75, 79 (2d Cir. 1990).
Because plaintiffs' claims against defendants arise under the federal securities laws, RICO and the common law, the Court will treat each of those claims in turn.
Defendants argue that the securities claims asserted in Counts I, II and III of the Ackerman complaint, which arise out of the initial NCC PPMs, are time-barred.
In addition, the Talansky defendants who include Talansky, First Atlantic, United, AST, and United Growth, contend that, to the extent plaintiffs' securities claims are based on the United Growth PPM, those claims must be dismissed because plaintiffs were not "purchasers" of securities in the United Growth roll-up and therefore lack standing to charge securities claims under § 10(b) of the Securities Act of 1934, 15 U.S.C. § 78j(b).
The entire distribution of the allegedly initial fraudulent NCC PPMs was complete by no later than June 16, 1986. (Compl. P 50). Because plaintiffs' initial complaint was filed on December 19, 1991, four and one half years after the last NCC PPM was distributed, the three-year limitation period applicable to their § 10(b) securities claims has run. See Lampf, Pleva Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 111 S. Ct. 2773, 2780-82, 115 L. Ed. 2d 321 (1991) (Section 10(b) claims must be brought no later than three years after the alleged misconduct).
Plaintiffs do not dispute that under Lampf, their § 10(b) claims are time-barred. Nor do plaintiffs appear to dispute their failure to allege standing with respect to their securities fraud claims based upon the United Growth roll-up. See Ciresi v. Citicorp, 782 F. Supp. 819, 823 (S.D.N.Y. 1991) (amended complaint failed to allege that plaintiff was a "purchaser"). Rather, plaintiffs argue that they should be permitted to revive their time-barred securities claims as well as any other time barred claims under the theory of recoupment. As discussed later in this opinion, the Court is unpersuaded by this argument.
Because plaintiffs filed their initial complaint in December of 1992, the § 10(b) securities claims against Talansky, United AST and United Growth which are based upon the 1989 roll-up (Ackerman Compl. at P 359), satisfy Lampf, However, defendants argue that plaintiffs are not proper parties because they did not "purchase" their limited partnership interests and therefore lack standing to assert securities claims either under §§ 10(b) or 12(2) of the securities statutes. See, e.g., Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731-32, 44 L. Ed. 2d 539, 95 S. Ct. 1917 (1975) (only actual purchasers or sellers of securities have standing to bring securities violations); International Data Bank, Ltd. v. Zepkin, 812 F.2d 149, 151-54 (4th Cir. 1987) (where RICO plaintiff pleads a 10(b)-5 predicate offense, standing is limited to the actual purchaser or seller of securities); Brannan v. Eisenstein, 804 F.2d 1041, 1045-46 (8th Cir. 1986).
The Ackerman complaint does not allege that the Ackerman plaintiffs were purchasers of securities relating to the 1989 roll-up. Nor did their counsel assert such a fact either in their submitted memorandum or oral argument. Rather, plaintiffs allege and contend that Talansky and his affiliated entities deliberately structured the roll-up so that the NCC limited Partnerships rather than the limited partners would receive the units in United Growth. As a result, plaintiffs argue that while they are not technically the purchasers of the units, this fact should not Prevent this Court from finding, under the circumstances of this allegedly fraudulent roll-up, that plaintiffs have standing to assert § 10(b) violations.
Plaintiffs' expansive theory of standing has no support under the law as it is currently codified and interpreted. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 749, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975); 15 U.S.C. §§ 78c(a)(13), 78c(a)(14). While the facts alleged may support some of the common law claims, because plaintiffs' injuries did not arise from their purchase of securities they have incurred no injury cognizable under the federal securities laws. Accordingly, the Ackerman plaintiffs are not "purchasers" and therefore do not have standing to assert their 10(b) securities violations based upon the 1989 roll-up.