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ADES v. DELOITTE & TOUCHE

February 7, 1994

MORRIS ADES, APMONT GROUP, INC., THE EQUITY GROUP, INC. PROFIT SHARING TRUST, JEROME I. FELDMAN, S. MARCUS FINKLE, SANDRA GLICKSMAN, GOLDSTEIN, GOLUB & KESSLER PROFIT SHARING TRUST, PHILIPPE GRELSAMER, RICHARD KESSLER, JAMES J. MANNING, MARKIN TRADING CORP. PENSION TRUST, RANDOLPH K. PACE, ANNA B. ROSEN, DENNIS SILBERMAN and MARTIN STERN, Plaintiffs,
v.
DELOITTE & TOUCHE, WINIFRED SCHUBERTH, JOHN HANNY, DAVID F. RANDALL and LUIS SANTACATERINA, Defendants. DELOITTE & TOUCHE, Defendant/Third-Party Plaintiff v. BOLAR PHARMACEUTICAL CO., INC., ROBERT SHULMAN, EASTLAKE SECURITIES, INC., WILLIAM T. HULTQUIST, LAWSON MARDON GROUP LIMITED, LAWSON MARDON, INC., and GARRETT CRONIN, Third-Party Defendants.


SWEET


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

Sweet, D. J.

 Third-party defendants Eastlake Securities Inc. ("Eastlake") have moved, pursuant to Rule 3(j) of the Civil Rules of the Southern District of New York ("Local Rule 3(j)") for an order granting them leave to reargue that portion of their motion, filed January 6, 1993, relating to the dismissal of the Rule 10b-5 claims under the Securities Exchange Act of 1934 alleged in Deloitte & Touche's ("D&T") third party complaint against Eastlake (the "Third Party Complaint"), and, upon reconsideration, for an order pursuant to Rules 56(c) and 12(b)(6) of the Federal Rules of Civil Procedure dismissing the claims alleged against Eastlake under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 ("10b-5"), in the Third Party Complaint.

 For the following reasons, the motions are denied.

 The Parties

 The parties, facts, and prior proceedings in this matter are more fully discussed in this Court's opinion in this matter reported at 1993 U.S. Dist. LEXIS 12901 (S.D.N.Y. Sept. 16, 1993) (the "September 16 Opinion"), familiarity with which is assumed. Third Party plaintiff D&T is a partnership of certified public accountants with a place of business in New York State. It is the successor in interest to Touche Ross & Co., a national accounting firm which acted as Qmax Technology Group, Inc's ("Qmax") independent auditor at all relevant times.

 The plaintiffs in the underlying action are purchasers of the Notes on which Qmax defaulted (the "Investors"). They have sued D&T and four former officers and directors of Qmax, alleging among other things that D&T recklessly failed to correct the misimpressions created by D&T's approval of an opinion for Qmax for use in the private placement of the Notes.

 Third Party defendant Eastlake is a New York corporation and licensed underwriter which acted as the placement agent for the private placement of Qmax's notes offered in August, 1988.

 Prior Proceedings

 The Investors originally filed two complaints, Ades v. Deloitte & Touche, 90 Civ. 4959 (filed July 26, 1990), and Lane v. Deloitte & Touche, No. 90 Civ. 5056 (filed July 30, 1990), which were later consolidated and amended into one complaint filed on February 14, 1992 (the "Complaint").

 The portions of the Complaint relevant to D&T relate to alleged misrepresentations in an accountants' review report issued by D&T dated August 4, 1988 (the "Review" or the "Review Report") which stated, among other things, that D&T found no material change in Qmax's finances from Qmax's financial statements from the previous year.

 D&T's first motion to dismiss the Investors' complaints for failure to plead fraud with particularity was granted in full. D&T's second motion to dismiss the Investors' new Amended Complaint, however, was denied in an opinion dated August 11, 1992, familiarity with which is assumed. See Ades v. Deloitte & Touche, 799 F. Supp. 1493 (S.D.N.Y. 1992).

 After its motion to dismiss the Investors' Amended Complaint was denied, D&T filed an answer and cross-claims on September 14, 1992, controverting the central allegations of the complaint. In December 1992, pursuant to Fed. R. Civ. P. 14(a), D&T filed the Third Party ...


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