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FIRST INTERREGIONAL EQUITY CORP. v. HAUGHTON

October 28, 1992

FIRST INTERREGIONAL EQUITY CORPORATION, a New Jersey corporation, Plaintiff,
v.
GABRIEL F. HAUGHTON, an individual, GERARD CAHILL, an individual, VICTOR LOMBARDI, an individual, STANLEY SCHWARTZ, an individual, MERLIN BAINES & CO., INC., a Delaware Corporation, OTRA CLEARING, INC., a wholly-owned subsidiary of OTRA Securities Group, Inc., a Delaware Corporation, JOHN WHITESIDE, an individual, HASSAN GROWNEY CO., formerly doing business as CASTLETON-RHODES, INC., a New York Corporation, GATEWAY BANK, a Connecticut Corporation, RAYMOND T. BOGERT, an individual, JULES LIPOW, an individual, and WARREN SCHREIBER, an individual, Defendants.


SWEET


The opinion of the court was delivered by: ROBERT W. SWEET

Sweet, D. J.

 Defendant Gateway Bank ("Gateway") has moved to dismiss the counts against it in the Third Amended Complaint of First Interregional Equity Corporation ("First Interregional") for lack of subject-matter jurisdiction and failure to state a claim pursuant to Rule 12(b)(1) and (6) of the Federal Rules of Civil Procedure. For the reasons set forth below, Gateway's motion is denied.

 Parties

 First Interregional is a New Jersey corporation with its principal place of business in Short Hills, New Jersey. It is a broker-dealer licensed by the Securities Exchange Commission ("SEC") and a member of the National Association of Securities Dealers, Inc. ("NASD").

 Merlin Baines & Co. ("Merlin Baines") is allegedly a Delaware corporation with executive offices in Massapequa Park, New York. Victor Lombardi ("Lombardi") is its president.

 Stanley Schwartz ("Schwartz") is allegedly an attorney who was licensed to practice in the State of New York.

 Hassan Growney Co. is allegedly a New York corporation which does business as a broker-dealer in the Southern District of New York. It is the successor to Castleton-Rhodes, Inc. ("Castleton-Rhodes"). Jules Lipow ("Lipow") was a principal at Castleton-Rhodes in December 1989 and January 1990.

 OTRA Clearing, Inc. ("OTRA"), is allegedly a wholly-owned subsidiary of OTRA Securities Group, Inc. ("OTRA Securities"). OTRA Securities is a Delaware corporation doing business in the Southern District of New York. OTRA is a member of NASD.

 Gabriel Haughton ("Haughton") was allegedly a director of Decisive Ventures, Inc. Decisive Ventures at one point acquired all the outstanding common stock of Stonehill Publishing, Inc., a company allegedly controlled by Cahill.

 Gateway Bank ("Gateway") is allegedly a bank organized under the laws of Connecticut with a place of business in South Norwalk, Connecticut. Raymond T. Bogert ("Bogert") was a vice-president of Gateway Bank.

 Prior Proceedings

 First Interregional filed its first complaint on December 28, 1990, within a year of the alleged fraud (so as to come within the one-year/three year statute of limitations under 10(b); see Ceres Partners v. GEL Assoc., 918 F.2d 349 (2d Cir. 1990)), but did not serve any of the Defendants at that time. It filed its First Amended Complaint on April 16, 1991, and served it on all of the Defendants except Haughton. Gateway Bank moved to dismiss the federal securities laws violations against it in July 1991, while First Interregional moved to amend that complaint in August 1991. Gateway Bank consented to the filing of a Second Amended Complaint in October 1991, and then renewed its motion to dismiss. All federal claims against Gateway were dismissed on April 30, 1992.

 First Interregional filed a Third Amended Complaint on May 20, 1992, alleging that Gateway was negligent in its hiring, retention and supervision of Bogert and that, because Bogert acted as an agent with the apparent authority of Gateway Bank, Gateway is liable under the doctrine of vicarious liability, or respondeat superior. Gateway has moved to dismiss on the grounds that this court has no supplemental jurisdiction over these state-law claims and that First Interregional has failed to state a claim upon which relief could be granted.

 Facts

 The Defendants are alleged to have defrauded First Interregional out of several hundred thousand dollars by manipulating the price of shares of Merlin Baines common stock, a "penny stock". The facts of the alleged scheme were stated in the prior opinion and familiarity with them is assumed, but for clarity's sake a certain amount of repetition is necessary. Since the plaintiff's version of the facts must be accepted as true on a motion to dismiss, these facts are taken entirely from the pleadings submitted by First Interregional and do not represent any findings of fact by this court.

 Lawrence Doherty ("Doherty") was a registered representative of First Interregional. On December 13, 1989, he allegedly received a phone call from Lombardi in which Lombardi told Doherty that he and a number of other persons intended to execute a trade under SEC Rule 144, 17 C.F.R. ยง 230.144. *fn1" Doherty told Lombardi that he could offer a competitive ...


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