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May 22, 1993

LARRY STINSON, Defendant. (Pro Se)

The opinion of the court was delivered by: WILLIAM C. CONNER

 Conner, D.J.:

 On August 17, 1983, Totlee Brown *fn1" (Brown) instituted this suit against Larry Stinson (Stinson) which began a ten-year odyssey of disappearing witnesses, counsel substitutions, settlements made and broken, and other intractable delays. A bench trial was held in April 1991, but no judgment was entered because the parties reported that they had settled the matter. Unfortunately, the settlement was never consummated and the case was reopened. This decision will finally put the dispute to rest.


 For the relevant period, plaintiff was employed by ABC Television as a camera operator and electronic graphics engineer, but possessed a minimal level of sophistication regarding financial matters. T. 17, 22, 28, 155-56. By contrast, defendant held a degree from the University of Pennsylvania's Wharton School of Business and Commerce and, as an account officer at Citibank, managed loan requests for large depositors. T. 116-17, 152-55.

 Once plaintiff decided to purchase the art work, the parties agreed that defendant would execute the transaction and hold the mask for resale on plaintiff's behalf. T. 40-41, 126. Plaintiff delivered to defendant two checks (of $ 2,000 and $ 5,000) payable to defendant along with $ 3,000 in cash. T. 41-43, 126, 128. Defendant used these funds to purchase the African mask from Zango. T. 55, 128. Plaintiff presented expert testimony that the retail value of the piece of art purchased could not have exceeded $ 4,000 to $ 6,000. *fn2" T. 107. Defendant received no invoice or receipt to memorialize the sale. T. 138. Defendant stored the mask in his home until Zango indicated that he had an unnamed buyer for the mask somewhere in Europe. T. 129, 59-60. In order to effectuate its resale, defendant gave plaintiff's mask back to Zango taking only a backdated invoice from the original sale as a receipt. T. 136-38. At trial there was no evidence that defendant ensured plaintiff's interest in the mask through a formal contract or consignment agreement with Zango, and it is unclear what transpired once the mask was given to Zango. Plaintiff never received any payment from defendant or Zango, and when plaintiff complained to defendant, he told her to pursue her claim against Zango alone. T. 63-64, 141.


 Plaintiff's amended complaint states claims for fraud, conversion, and breach of the duty of fair dealing. *fn3" In addition, plaintiff makes a post trial motion pursuant to Rule 15(c)(2), Fed. R. Civ. P., to amend the pleading to include claims for negligent misrepresentation and negligence. *fn4" We grant the motion and find for plaintiff on the fraud, negligent misrepresentation and negligence claims.

 I. Fraud

 The elements of common law fraud are a material, false representation, an intent to defraud thereby, and a reasonable reliance on the representation, causing damage to plaintiff. Katara v. D.E. Jones Commodities, Inc., 835 F.2d 966, 970 (2d Cir. 1987). We find that plaintiff has established all elements of common law fraud by clear and convincing evidence. Leucadia, Inc v. Reliance Ins. Co., 864 F.2d 964, 971 (2d Cir. 1988), cert. denied, 490 U.S. 1107, 104 L. Ed. 2d 1023, 109 S. Ct. 3160 (1989) (fraud must be shown by clear and convincing evidence).

 To support a claim for fraud, plaintiff must prove that defendant made statements that were either false or made in reckless disregard of the truth. Idrees v. American University of the Caribbean, 546 F. Supp. 1342, 1342 (S.D.N.Y. 1982); see DiRose v. PK Management Corp., 691 F.2d 628, 633 (2d Cir. 1982), cert. denied, 461 U.S. 915, 77 L. Ed. 2d 285, 103 S. Ct. 1896 (1983) (a fraudulent misrepresentation may consist of a reckless statement made with the pretense of knowledge that it was true when statement was actually made in ignorance). Plaintiff credibly testified that defendant assured her she would not lose her initial investment. T. 30. Nonetheless defendant admitted that, as a financial professional, he knew that there is a trade-off between risk and return and, since he expected a return of 50% to 90% over a three to four month period, *fn5" he knew or should have known the investment involved substantial risk. T. 155. Furthermore, defendant knew that financial institutions would not invest in art because they considered the medium too speculative. T. 132-33. Thus, defendant represented that African art was a safe investment either knowing or recklessly disregarding the likelihood that it was not. In addition, defendant recklessly represented that African art would yield an exorbitant rate of return. Defendant had no expertise in the African art market, and he knew of no one who had achieved such a return. Indeed defendant based his statement only on the unsupported assertion of the man from whom he would buy the mask and made this representation before he had even seen the item which he was recommending. Therefore, we find defendant made sufficient knowing or reckless misstatements to support plaintiff's fraud claim.

 To establish scienter plaintiff must show an intentional or reckless misstatement made with the intent that plaintiff rely upon it. Revlon, Inc. v. Carson Products Co., 602 F. Supp. 1071, 1101 (S.D.N.Y. 1985), aff'd, 803 F.2d 676 (Fed. Cir.), cert. denied, 479 U.S. 1018, 93 L. Ed. 2d 722, 107 S. Ct. 671 (1986) (scienter may be proven by a showing of acts, the natural consequence of which are presumably intended by the actor, or by showing gross negligence in making a misrepresentation). At the trial defendant testified that he intended plaintiff to act on his advice. T. 133. Therefore, his knowing and reckless misstatements, discussed above, were made with scienter. *fn6"

 The facts above clearly show that plaintiff relied on defendant's statements by purchasing the masks and that the advice caused plaintiff to lose $ 10,000. Thus, we ...

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