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BORDEN, INC. v. SPOOR BEHRINS CAMPBELL & YOUNG

July 30, 1993

BORDEN, INC., ALFRED S. CUMMIN, A.S. D'AMATO, ANN FORRESTAL and W. DONALD NYLAND as Executors of the Estate of FRANK V. FORRESTAL, Deceased, ROBERT GUTHEIL, JON HETTINGER, DAVID KELLY, WALTER KOCHER, AUGUSTINE MARUSI, RUTH MARUSI, ALLAN MILLER, BERNARD NEMTZOW, HERMAN PEED, EDWARD I. PIERNICK, JOSEPH SAGGESE, EUGENE SULLIVAN and GLORIA SULLIVAN, Plaintiffs,
v.
SPOOR BEHRINS CAMPBELL & YOUNG, INC.; FIRST INTERSTATE BANK, LTD.; FIRST INTERSTATE INVESTMENT SERVICES, INC.; KENNETH R. BEHRINS, T. RICHARD SPOOR; ROBERT L. CAMPBELL and MICHAEL D. YOUNG, Defendants.


Conner


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

Conner D.J.:

 Plaintiffs Borden, Inc., et. al. bring this action against Spoor Behrins Campbell & Young, Inc. ("SBCY"), each of SBCY's principals (T. Richard Spoor, Kenneth R. Behrins, Robert L. Campbell, and Michael D. Young), First Interstate Investment Services, Inc. ("FIIS"), and First Interstate Bank, Ltd. ("FIB") for violations of section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5 promulgated thereunder; *fn1" violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq; and for numerous common law violations. The action is presently before the Court on the parties' cross motions for partial summary judgment. The motions are denied.

 BACKGROUND

 SBCY is a personal financial planning boutique established in 1978 which was acquired by FIB, through FIB's subsidiary FIIS, on May 25, 1983, and operated as a wholly owned subsidiary from that date until the end of 1987. On February 2, 1979, Borden, Inc. ("Borden") retained SBCY to provide financial advice to a selected group of its executives ("the individual plaintiffs") for a period of one year, and the contract was renewed annually through the end of 1985. During the course of this relationship, SBCY recommended that these Borden executives purchase interests in a number of limited partnerships as tax shelters. The gravamen of the complaint is that by failing to disclose payments SBCY received from each of these partnerships, defendants fraudulently induced 51 purchases by the individual plaintiffs of interests in 20 separate limited partnerships.

 In support of the instant motions, plaintiffs argue that the undisputed facts show that SBCY received undisclosed commissions on 40 of their purchases in 15 of the limited partnership at issue, *fn2" and defendants FIB and FIIS ("the FIB defendants") argue that they can not be held liable for SBCY's alleged fraudulent behavior that occurred prior to their acquisition of SBCY. Both summary judgment motions are denied.

 DISCUSSION

 I. Plaintiffs' Motion For Partial Summary Judgment

 Plaintiffs seek partial summary judgment on the following claims: Rule 10b-5, (direct, aiding and abetting, and control person liability) (Counts I, II, XVI), RICO (Counts XIV, XV), common law fraud (Count IV), breach of fiduciary duty (Count VIII); aiding and abetting common law tort (Court XIII); breach of contract (Count VI); and imposition of a constructive trust (Count XII). *fn3" In urging us to grant their motion, plaintiffs argue that summary judgment in this case is particularly appropriate because if the case were to go to trial, the Court and not a jury would sit as the finder of fact. Pls.' Br. in Reply at 7. Contrary to plaintiffs' counsel's insinuation, the standard for granting summary judgment under Rule 56, Fed. R. Civ. P., remains the same whether a jury trial or a bench trial is anticipated. In either case summary judgment may be granted only when, after drawing all reasonable inferences in favor of the party opposing the motion, no reasonable trier of fact could find for the nonmoving party. Lund's, Inc. v. Chemical Bank, 870 F.2d 840, 844 (2d Cir. 1989). A summary judgment is not appropriate where material factual matters are in dispute. National Union Fire Ins. Co. v. Turtur, 892 F.2d 199, 203 (2d Cir. 1989). In support of their motion, plaintiffs contend that the undisputed facts demonstrate that SBCY received undisclosed commissions on the investments at issue. However, a review of the discovery materials submitted pursuant to this motion reveals that the matter of SBCY's alleged commissions is hotly contested. Since only the finder of fact at trial may weigh the credibility of contradictory evidence, the submissions of plaintiffs' counsel are not the stuff of which summary judgments are made. *fn4"

 A. There Is A Question Of Fact As To Whether SBCY Received Undisclosed Commissions.

 Defendants do not dispute that SBCY received fees from a number of the limited partnerships at issue for various types of services and, at trial, plaintiffs may contend that there was inadequate disclosure of each of these payments which created a conflict of interest for SBCY. However, plaintiffs' basis for the instant motion is much narrower. The evidence presented by plaintiffs shows only that, for the subset of investments at issue, SBCY did not disclose that it would receive any fees in the form of commissions. Plaintiffs unsuccessfully attempt to show from undisputed evidence that SBCY received commissions on these investments.

 1. SBCY's Disclosure Of Payments Received From The Partnerships At Issue.

 Pursuant to this motion the totality of SBCY's fee disclosure is not before the Court. Each of the 15 limited partnerships that are the subject of this motion was distributed pursuant to a private placement memorandum ("PPM"). However, out of these lengthy documents, plaintiffs submit only the two or three selected pages which discuss the commission, if any, that would be paid to purchasing representatives. As plaintiffs point out, none of the PPMs discloses commissions paid to SBCY. *fn5" In addition, purchasing questionnaires were executed by the individual plaintiffs in connection with a number of the limited partnerships at issue, and plaintiffs selectively cite these documents as well. The placement questionnaires for two of the limited partnerships are attached as exhibits to the motion, and plaintiffs' counsel purports to have copied into plaintiffs' brief selected paragraphs from the questionnaires for seven other limited partnerships. *fn6" Every excerpt plaintiffs cite from SBCY's disclosure documents is designed to show that SBCY represented to ...


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