Ramsey, 550 F.2d 774, 780 (2d Cir. 1977). Since the Second Circuit follows the objective standard for inquiry notice, the information provided must trigger notice "with sufficient storm warnings to alert a reasonable person to the [probability] that there were either misleading statements or significant omissions involved in the sale of the [securities]"; Armstrong, supra, 699 F. Supp. at 88; Quantum Overseas N.V. v. Touche Ross & Co., 663 F. Supp. 658, 664 (S.D.N.Y. 1987) (citations omitted). The triggering financial data must be such that it relates directly to the misrepresentations and omissions the Plaintiffs later allege in their action against the defendants. Compare Freschi v. Grand Coal Venture, 583 F. Supp. 780, 785 (S.D.N.Y. 1987) (disclosures of the high-risk nature of the investment did not trigger inquiry notice when Plaintiffs' claims were based on alleged misrepresentations not related to the riskiness of the investment) with Farr V. Shearson Lehman Hutton, Inc., 755 F. Supp. 1219, 1225-26 (S.D.N.Y. 1991) (disclosures of the high-risk nature of the investment did trigger inquiry notice when Plaintiffs' claims were based on alleged misrepresentations related to the unsuitability of the investment as too risky). Here, the Plaintiffs have alleged specific nondisclosure and misrepresentations, not merely inadequate characterizations of the safety of their investment.
Continental also claims that the four-year statute of limitations begins to run no later than 1986 because the Complaint does not attribute any conduct to either Organek or Continental after that year. This argument is unavailing, for notice of the RICO claims begins to run only when the Plaintiffs know or have reason to know of the injury that is the basis of the action. Zola v. Gordon, 701 F. Supp. 66, 68-69 (S.D.N.Y 1988). There was nothing readily discoverable about Continental's allegedly fraudulent brokerage fee. Organek and Continental's motion to dismiss based on inquiry notice is denied.
II. THE MORIN ACTION
The Morin Plaintiffs are sixty-three investors in limited partnership interests in nine unsuccessful Florida limited partnerships formed to own and operate commercial real estate (the "Investor Partnerships") and in four trusts formed to purchase and own helicopters (the "Airjet Trusts"). The Investor Partnerships were organized to acquire interests in four other limited partnerships, which in turn were organized to own and operate commercial real estate located in Sarasota, Florida; Grand Rapids, Michigan; Dallas, Texas; and Indianapolis, Indiana (collectively, the "Properties"). The Third Amended Consolidated Complaint (the "Morin complaint") alleges that Trupin, Rothschild Reserve and numerous other defendants, including the Moving Defendants, fraudulently induced the Morin Plaintiffs to invest in the Investor partnerships and the Airjet Trusts through allegedly unlawful securities offerings promoted by allegedly fraudulent private placement memoranda (the "118-119, 130 Series and 218 PPM's") and other offering materials (collectively, the "Morin Offering Materials"). The Morin action is a consolidation of various related litigations involving the Investor Partnerships and Airjet Trusts. Despite differences in the subject matter of the limited partnerships and trusts involved in the Morin action, the schemes, various misdeeds, acts allegedly attributable to each of the Moving Defendants and the substance of the 118-119, 130 Series and 218 PPM's are substantially similar to those involved in the Alberti action.
The Morin Plaintiffs, who brought their claims originally in four separate actions, filed their complaints on August 17, 1988 (the original Morin complaint), November 29, 1988 (the Blaikie complaint), May 23, 1989 (the Petersen complaint) and October 18, 1989 (the Seal complaint). These four complaints were consolidated under index number 88 Civ. 5743 in December of 1989. The Plaintiffs named as defendants (among others) Barry Trupin ("Trupin"), trusts and companies alleged to be controlled by him or members of his family, the appraisers of the limited partnerships, the Mintz Fraade defendants, Organek, Continental, and others. The first Amended Complaint in the Morin action was dismissed for failure to plead fraud with particularity pursuant to Rule 9(b) on September 29, 1990 (747 F. Supp. 1051). The Morin Plaintiffs' Amended Consolidated Complaint was refiled on December 29, 1990, this time without naming Continental or Organek as defendants, and amended again in April, 1991 to add additional Plaintiffs. The Morin Plaintiffs' Second Amended Consolidated Complaint was dismissed for being retroactively time-barred under Lampf on November 18, 1991 ( Morin v. Trupin, 778 F. Supp. 711 (S.D.N.Y. 1991)). After Congress amended § 476 of the FDIC Improvement Act of 1991 to allow retroactively barred securities fraud claims to proceed, the Morin Plaintiffs moved to reinstate their claims. Certain of the Morin Plaintiffs, previously dismissed as timebarred, were reinstated together with certain Alberti Plaintiffs pursuant to this Court's opinion filed on July 28, 1992 (799 F. Supp. 342). The Morin Plaintiffs have since then moved for leave to amend by filing their Third Amended Consolidated Complaint against the original named defendants, including Continental and Organek.
Only the Mintz Fraade defendants have filed a separate opposition against the Third Complaint in the Morin action. The oppose it for precisely the same reasons they oppose the Third Amended Complaint in Alberti, disposed of infra.
This relative lack of response is not surprising, given that the Morin complaint repleads the same allegations with the same new additions as in the Alberti Complaint. The relevant new passages in the Third Amended Consolidated Morin Complaint concerning the Mintz, Fraade defendants are:
190. The identity of the true promoters and sponsors of the 118-119, 130 Series and 218 Offerings as well as the adverse audit history of prior Rothschild Group tax shelters was known to the Mintz Fraade Defendants, Organek, Laventhol and Lesser, Stern, Trupin, Bennett Trupin, Berlin, Bucci, Kaye, Silverstein, Bills and Gary Rogers. In this regard, Gerald Schaffer and Gnesin have testified that the Mintz Fraade Defendants were specifically advised in late 1983 or early 1984 of such tax audit problems by Trupin, Schaffer, Gnesin and Haber and were provided with copies of certain prior Rothschild Group private placement memoranda in which there was disclosure of the adverse audit history. Further, Mintz Fraade advised Trupin at the time of the syndication of each of the 118-119, 130 Series and 218 Offerings that by using Bennett Trupin, Trupin's father, as the owner of the general partner entities in these syndications, there would be no need to disclose the prior adverse audit history of the Rothschild Group in the Private Placement Memoranda.
192. . . . (b) The Mintz Fraade Defendants, who were the attorneys for the Rothschild Group in the acquisition of the Investor Properties and in the syndications of those properties, also acted as attorneys for North American and American Realty.
(c) Neither North American, American Realty or stern negotiated the terms of the transfer of the Investor Properties from the Acquiring Entities to the Stern Partnerships and subsequently, from the Stern Partnerships to the Owning Partnerships.
195. Gerald Schaffer and Gnesin have testified that at the time of the 118-119, 130 Series and 218 Offerings, the Mintz Fraade Defendants were intimately familiar with the operation of the Rothschild Group. In late 1983 or early 1984, Mintz and Fraade met with Gerald Schaffer, Haber and Gnesin to discuss the structure of the Rothschild Group real estate tax shelters. The Mintz Fraade Defendants acted as counsel for the Rothschild Group entities that participated in the 118-119, 130 Series and 218 Offerings and consulted with Trupin, Schaffer, Gnesin and Haber regarding these transactions. As a result, the Mintz Fraade Defendants knew and approved of the use of Stern, North American and American as described in paragraphs 191-194 above.
201. At the time of the preparation of offering documents for the 118-119 Series Offering, the Mintz Fraade Defendants were provided by the Rothschild Group with all relevant Due Diligence Documents including real estate acquisition and sales documents regarding the Sarasota Property. As a result, the Mintz Fraade Defendants knew that the disclosures in the 118-119 Private Placement Memoranda regarding the transactions described in paragraph 200 above involving the Sarasota property were materially false and misleading. In fact, Gerald Schaffer has testified that the decision not to disclose the $ 15,200,000.00 purchase price paid by Whitehall to acquire the Sarasota Property from United First Federal savings and loan Association was made with the advice and approval of the Mintz Fraade Defendants after a series of discussions with Trupin, Haber and Gerald Schaffer.
281. . . .(a) Based on their role as attorneys for the Acquiring Entities, North American and American Realty and the Owning Partnerships as described in paragraphs 108-110 hereof and their receipt of the Due Diligence Documents referred to in paragraph 199 hereof from the Rothschild Group, the Mintz Fraade Defendants knew that: (i) each Investor Property had been acquired from independent third party by a Rothschild Group entity at an arms-length price which was materially less than the price described in the 118-119, 130 Series and 218 Private Placement Memoranda as the price paid by the Owning Partnerships; (ii) North American and American Realty were in reality controlled by and affiliated with Trupin and the Rothschild Group because Trupin controlled North American and American's legal work and neither ever negotiated the terms and conditions of their acquisitions or sales of any of the Investor Properties; and (iii) the purported acquisition of the Investor Properties by the Owning Partnerships from North American and American Realty did not constitute sales for tax purposes as freely negotiated transactions that would withstand audit by the IRS because Stern never negotiated those transactions and was completely controlled by Trupin; and
(b) The Mintz Fraade Defendants were advised by Schaffer, Gnesin and Haber that the IRS had routinely disallowed tax deductions in earlier tax shelters promoted by the Rothschild Group which involved similarly structured acquisition arrangements and, further, Mintz Fraade was provided with many of the private placement memoranda for these Rothschild Group tax shelters.
282. The Mintz Fraade Defendants knew that North American and American Realty were affiliated with the Rothschild Group, that the Wrap-Around Notes were not negotiated in arms-length transactions and that the interest on the notes exceeded commercially reasonable rates because, as Gnesin and Schaffer testified, Mintz Fraade assisted Trupin and the Rothschild Group in structuring and designing each of the transactions as part of a cohesive whole and never included North American or American's President Stern, in any conference or meeting regarding those transactions. Nevertheless, the Mintz Fraade Defendants also misrepresented in their tax opinions that it was more likely than not:
(a) that the initial tax basis for the 118-119, 130 Series and 218 Limited Partnerships would include their proportionate share of the Wrap-Around Notes and that the Wrap-Around Notes supported the depreciation deductions described in the 118-119, 130 Series and 218 Private Placement Memoranda;
(b) that the Owning Partnerships would be able to deduct their proportionate share of the interest on the Wrap-Around Notes and that the Wrap-Around Notes supported the interest deductions described in the 118-119, 130 Series and 218 Private Placement Memoranda.
These concern, with slight variations, the same questions as decided in the related action of Alberti. The same allegations are made about Organek and Continental. For the 110-119, 130 Series and the 218 Offering, the Morin complaint states:
201 . . . . (a) Contrary to the representations in the 130 Series Private Placement Memoranda, the acquisition documents reveal that Encore, an entity controlled by Defendant Gary Rogers, as opposed to continental, acted as the broker for the DR Realty Associates purchase of the Dallas Property. The fees paid to Continental were thus not for brokerage services; instead, Continental and Organek assisted Gerald Schaffer in structuring the transactions and acquiring financing for the acquisition of the Dallas Property.
217. This misappropriation of the proceeds of the 130 Series Offering included:
. . . . (e) Continental received approximately $ 235,125.00 and $ 261,450.00 for what was described as brokerage fees for locating the Dallas and Indianapolis Properties when, in fact, Encore was the broker on the "Dallas Property as described by the transactional documents.
218 . . . . (d) Continental received approximately $ 373,500.00 for what was described as a brokerage fee for locating the Indianapolis Property when in fact the fee was in payment for the assignment by a continental affiliate of the purchase contract to the Acquiring Partnership.
The Becker defendants are not named in this Morin complaint, and the other defendants have not moved in opposition.
For the reasons given above, the motion for leave to file the Third Amended Consolidated Complaint and the Third Amended Complaints is granted in Morin and in Alberti.
It is so ordered.
New York, N. Y.
January 6, 1993
ROBERT W. SWEET
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