not direct the outcome in any particular case.
This Section merely changes the law with respect to a specific defense by creating an express statute of limitations for claims filed prior to June 19, 1991 and leaves the application of the changed law to the courts. See United States v. Sioux Nation of Indians, 448 U.S. 371, 65 L. Ed. 2d 844, 100 S. Ct. 2716 (1980) (Court affirmed Congress' power to waive res judicata defense and authorize relitigation of previously dismissed claim). As the Court observed in Axel Johnson, Inc., "the mere fact that legislation reaches even a very few cases that existed at the time of enactment and were intended to be influenced by the legislation does not render the legislation an unconstitutional 'rule of decision.'" Axel Johnson, Inc., 790 F. Supp. 476, at 480.
In addition to the Statute of Limitations argument, defendant Marshall and Stevens argues that plaintiffs' claims that are based on alleged fraudulent activity fail to plead fraud with the particularity contemplated by Rule 9(b). Rule 9(b) requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." The Rule further provides that "malice, intent, knowledge and other conditions of the mind of a person may be averred generally."
Our Court of Appeals has held that "the primary purpose of Rule 9(b) is to afford defendant fair notice of the plaintiff's claim and the factual ground upon which it is based." Ross v. Bolton, 904 F.2d 819, 823 (2d Cir. 1990).
The Consolidated Class Action Complaint consists of 141 numbered paragraphs in which plaintiffs have adequately identified the nature and essential factual elements of the alleged fraud of defendant Marshall and Stevens. Plaintiffs allege that "MARSHALL AND STEVENS grossly overvalued the Property and represented to Plaintiffs and the Class Members that the Property had a fair market value of Fifty-Four Million Dollars ($ 54,000,000) as of January 8, 1986," which appraisal "was arrived at with the participation of SHEARSON and was not an independent objective appraisal." Complaint, PP 37, 53. Specifically, plaintiffs allege that "in connection with the appraisal, Shearson suggested a target value prior to the completion of the appraisal," Complaint, P 52, and that Marshall and Stevens employed inaccurate occupancy, rental and growth rates for the Nashville market in preparing the appraisal Complaint, PP 54, 56.
Plaintiffs further allege that "the knowing or reckless employment of the appraisal by the Defendants was the window dressing utilized to justify the over leveraging of the Property." Complaint, P 54. The Complaint states that defendants, including Marshall and Stevens, "knew at the time of the [Private Placement Memorandum's] dissemination, but did not disclose to Plaintiffs and proposed Class members that the Property was actually highly speculative in nature and had serious fundamental problems," including the fact that the property was located in a highly competitive market with low occupancy and rental rates and that the property was contaminated with asbestos which required removal and/or reduced rental rates. Complaint, P 56.
Since the Consolidated Class Action Complaint alerts defendant Marshall and Stevens as to the nature of the alleged fraud, this Court concludes that plaintiffs have alleged sufficient facts to satisfy the requirements of Rule 9(b) and to apprise defendant Marshall and Stevens of the claims against it.
With respect to Marshall and Stevens' scienter argument, plaintiffs clearly allege that Marshall and Stevens had reason to know that its appraisal was inaccurate and would be used to sell partnership units to plaintiffs and other investors. See, e.g. Complaint, PP 51-52. In addition, plaintiffs have pleaded a sufficient factual basis to support these allegations, including Marshall and Stevens' conscious disregard of the relevant market information. Breard v. Sachnoff & Weaver, Ltd., 941 F.2d 142, 144 (2d Cir. 1991) ("Allegations of scienter are sufficient if supported by facts giving rise to a 'strong inference' of fraudulent intent."); Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46, 49 (2d Cir. 1987), cert. denied 484 U.S. 1005, 98 L. Ed. 2d 650, 108 S. Ct. 698 (1988) ("A common method for establishing a strong inference of scienter is to allege facts showing a motive for committing fraud and a clear opportunity for doing so. Where motive is not apparent, it is still possible to plead scienter by identifying circumstances indicating conscious behavior by the defendant, though the strength of the circumstantial allegations must be correspondingly greater." (citations omitted)).
Finally, defendant Marshall and Stevens moves to dismiss the Complaint on the grounds that plaintiffs have failed to state a claim for misrepresentation either under Section 10(b) (Count I) or under state law for fraud (Count III), negligent misrepresentation (Count IV), negligence (Count V) or professional negligence (Count VIII). In particular, defendant argues that the Private Placement Memorandum contains sufficient details and information regarding the risks of this investment.
Marshall and Stevens maintains that in the fourteen page section of the Private Placement Memorandum entitled "risk factors" potential investors were given sufficient information to evaluate the risk associated with investing in First American Center. Marshall and Stevens further maintains that the appraisal contained in the Private Placement Memorandum is clearly described as a Summary Appraisal. See Private Placement Memorandum, Table of Contents. The Appraisal states in relevant part:
Set forth below is a summary of our findings regarding the subject property. While the summary reflects the salient points of our methodology and valuation conclusions, complete details of the property and analyses are contained in our full narrative report.
Marshall and Stevens also directs the Court's attention to the cautionary language contained throughout the Private Placement Memorandum. For instance, the Private Placement Memorandum contains the following warning:
THE FINANCIAL FORECAST SHOULD NOT BE RELIED ON TO INDICATE ACTUAL RESULTS WHICH MAY BE ACHIEVED OR THAT THE TAX BENEFITS OR DISTRIBUTIONS REFLECTED WILL BE INDICATIVE OF THE RESULTS THE PARTNERSHIP AND THE OWNER PARTNERSHIP WILL ACHIEVE. THE ACTUAL RESULTS OF OWNING AND OPERATING THE PROJECT MAY VARY MATERIALLY FROM THOSE SET FORTH IN THE FINANCIAL FORECAST.
Private Placement Memorandum, at 46-47.
Defendant, relying on the Second Circuit's opinion in Luce v. Edelstein, 802 F.2d 49, at 56 (2d Cir. 1986), argues that this Court should not impose liability on the basis of a Private Placement Memorandum which clearly "bespeaks caution." Such disclaimers, however, do not necessarily shield a defendant from liability and are insufficient to sustain a motion to dismiss, if plaintiffs allege particular facts demonstrating the defendant knew that such statements were false at the time they were made. Luce v. Edelstein, 802 F.2d 49, 57 (2d Cir. 1986). In the instant case, the allegation with respect to Marshall and Stevens is not that the projections and forecasts regarding potential cash and tax benefits were misleading but that the actual appraisal of the property by Marshall and Stevens was false and misleading, as of the date it was made, January 8, 1986.
As the Court has already found, plaintiffs have alleged particular facts demonstrating that Marshall and Stevens knew that the claim that the property had a fair market value of $ 54 million dollars on January 8, 1986 was false and misleading when it was made. While plaintiffs may not ultimately be successful in proving this at trial, they certainly have alleged sufficient facts to withstand defendant's motion to dismiss.
For the foregoing reasons, defendant Marshall and Stevens' motion is denied in all respects.
Dated: White Plains, New York
Corrected October 23, 1992 and issued
nunc pro tunc as of October 13, 1992
Charles L. Brieant