The opinion of the court was delivered by: ROBERT W. SWEET
Plaintiffs Kinley Corporation; Kinley Corporation Profit Sharing Plan; Kinley Corporation Deferred Benefit Plan; Kinley Corporation Employee Benefit Plan; Edith Kinley, Independent Executrix of the Estate of John C. (Jack) Kinley; Edith Kinley; Karl Kinley; and Melinda Kinley (collectively, "Kinley" or "Plaintiffs") have moved for a suggestion of remand of this case to the Judicial Panel on Multidistrict Litigation (the "Panel"). In the alternative, the Plaintiffs move for leave to amend their complaint (the "Complaint"). Also, the Plaintiffs request the Court to stay this action pending certain developments in the Integrated Resources bankruptcy proceedings.
Defendant Mellon Bank, N.A. ("Mellon") has moved for an order, pursuant to Rule 12, Fed. R. Civ. P., dismissing the Complaint. Defendants John A. ("Jack") Sorcic and The Select Group f/k/a Planning Ahead, Inc. (collectively, "Sorcic"), have moved for an order, pursuant to Rules 12 and 56, Fed. R. Civ. P., granting summary judgment in their favor and dismissing the Complaint. Defendants Satellite Equipment Trust "A" and Satellite Equipment Trust "B" (collectively, "Satellite") have moved for an order, pursuant to Rules 12, 9, and 17, Fed. R. Civ. P., dismissing the Complaint. Defendant Mid-Atlantic Residential Investors Limited Partnership ("Mid-Atlantic") has moved for an order, pursuant to Rules 12 and 9, Fed. R. Civ. P., dismissing the Complaint.
Defendant Royal Alliance Associates, Inc. has moved for an order, pursuant to Rule 59, Fed. R. Civ. P., dismissing the Complaint.
For the following reasons, the Plaintiffs' motion for a suggestion of remand is denied, the Plaintiffs request for a stay is denied, and the Plaintiffs are granted leave to replead. The Defendants' motions are granted with the exception of their demands that the dismissal of the Complaint be with prejudice.
The background of the cases involved in this multidistrict litigation has been extensively described in previous opinions of this Court, familiarity with which is assumed. See, e.g., In re Integrated Resources Real Estate Ltd. Partnerships Secs. Litig., MDL No. 897, Misc. 21-61, 1994 U.S. Dist. LEXIS 4116 (S.D.N.Y. April 4, 1994); In re Integrated Resources Real Estate Ltd. Partnerships Secs. Litig., MDL No. 897, Misc. 21-59, 1993 U.S. Dist. LEXIS 18141 (S.D.N.Y. Dec. 22, 1993) ("Global III & IV"); In re Integrated Resources Real Estate Ltd. Partnerships Secs. Litig., 815 F. Supp. 620 (S.D.N.Y. 1993) ("Global I & II").
The Plaintiffs are the Kinley Corporation (the "Corporation") and its affiliates, all of whom are domiciled or resident in Harris County, Texas. John C. ("Jack") Kinley, now deceased, and his widow, Edith Kinley, were directors, officers, and principal stockholders of the Corporation and allegedly individually invested with the Defendants. Edith Kinley is the duly appointed independent executrix of the estate of Jack Kinley.
Karl S. Kinley, the son of Jack and Edith, is an officer, director, and stockholder of the Corporation. Karl, with his wife Melinda Kinley allegedly individually invested with the Defendants.
Kinley Corporation Profit Sharing Plan, Kinley Corporation Deferred Benefit Plan, and Kinley Corporation Employee Benefit Plan are each benefit plans created for the officers and employees of the Corporation and each allegedly invested with the Defendants.
In connection with their investments, Plaintiffs Jack, Edith, Karl, and Melinda Kinley executed subscription agreements pursuant to which they represented that they were sophisticated with regard to financial matters, that they had received the offering memoranda, read and understood the contents thereof, and were afforded a chance to review it with their own purchaser representatives, advisors, attorneys, and/or accountants.
Integrated Resources, Inc. ("Integrated") allegedly sponsored certain investment vehicles purchased by the Plaintiffs, but has not been joined in this action due to its having filed for protection under the federal bankruptcy statutes. Defendant Integrated Resources Equity Corp. is a wholly owned and controlled corporate subsidiary of Integrated Resources, Inc.
John A. Sorcic ("Sorcic") is a resident of Houston, Texas. Defendants The Select Group f/k/a Planning Ahead, Inc. and Royal Alliance Associates, Inc. ("Royal") are, or were, Texas corporations. The Plaintiffs allege that Sorcic is the controlling person and alter ego of Planning Ahead and Royal and their affiliates.
Western Bank ("Western") was a national banking association in Houston, Texas, which has allegedly been closed by the FDIC.
The Plaintiffs allege that, commencing in the late 1970's or early 1980's, Integrated and its affiliates launched a nationwide conspiracy to defraud the investing public. The alleged conspiracy involved Integrated and its affiliates' creating a "project," such as a limited partnership or equipment lease arrangement. Such projects included the investments at issue in the present case.
The alleged conspirators would sell shares in the projects at inflated prices through broker dealers, investment advisors, and other entities who were allegedly being induced to influence their respective clients through undisclosed commissions, front loads, and exorbitant fees. The sales to investors were allegedly made with long term financing through prearranged schemes with financial institutions which would finance the project and thereafter frustrate any claims of the investors. This scheme allegedly contemplated that the investors would, for the most part, pay for the securities with long term investor Notes which would be refinanced, or used as collateral, by the holder through Mellon and its co-lenders, and with Integrated and its affiliates guaranteeing the Notes.
The Plaintiffs further allege that, at some time prior to 1984, Sorcic became a registered investment advisor and commenced holding himself out to the public as an independent expert in the field of investments and actively soliciting investors to utilize his services. Sorcic allegedly utilized Planning Ahead, Royal, and other controlled entities to market his services and conduct his business. Sorcic also allegedly caused financial institutions, including Western, to make presentations to the institutions' customers, including the Plaintiffs, and that, in furtherance of the conspiracy, these institutions represented and confirmed the veracity, good faith, and expertise of Sorcic and his affiliates.
At these presentations, Sorcic allegedly represented that securing the services of an investment advisor was the safest and best way for an investor to invest and maintain a portfolio, since they were independent and without conflicts of interest, did not have holdings in the particular securities which could be influenced by their recommendations, would not be dependent upon commissions or inducements to recommend specific investments, would not, absent specific disclosure to and consent of the investor, receive commissions, fees or other inducements from the issuers, broker dealers or their affiliates, and would be, and in utmost good faith act as, fiduciaries to the investors and in the investor's best interests.
The Plaintiffs allegedly invested in three different limited partnerships and two grantor trusts sponsored by Integrated. All of these investments were made between November, 1984, and August, 1986. (Compl. P 17, Quinn Aff. P 11.)
Plaintiffs filed their complaint in Texas state court in November 1991. Thereafter, the Defendants removed the action to the United States District Court for the Northern District of Texas, and petitioned the Panel to consolidate the case with others pending in this court. Over the Plaintiffs' objections, the Panel transferred the action to this Court on June 3, 1992. Subsequently, this Court orally stayed motion practice in this case pending its decision on certain motions filed in related cases. Argument was heard on the present motions on February 23, 1994, and they were considered fully submitted as of that date.
The Plaintiffs have moved this court for a suggestion of remand to the Judicial Panel on Multidistrict Litigation. On October, 10, 1991, the Panel ordered the consolidation and transfer of the Integrated cases. In re Integrated Resources, Inc. Real Estate Limited Partnerships Secs. Litig., Doc. No. 897 (J.P.M.L. Oct. 10, 1991) (the "Transfer Order"). The Kinley case was transferred as a tag-along case in June, 1992. The basis for the Panel's October 10 Transfer Order was as follows:
The actions in this litigation involve common questions of fact and . . . transfer under Section 1407 to the Southern District of New York will best serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation. These common factual questions arise because each of the actions before the Panel focuses on the adequacy of disclosure in connection with limited partnership offerings sponsored and controlled by Integrated Resources, Inc. (Integrated) and its affiliates. Centralization under Section 1407 is thus necessary in order to eliminate duplicative discovery, prevent inconsistent pretrial rulings, and conserve the resources of the parties, their counsel and the judiciary.
Rule 14(c), Fed. R. Jud. Panel, provides that the Panel shall consider the remand of a transferred action upon the "suggestion of the transferee district court." A judge should make such a suggestion when he or she perceives his or her role in the case has ended. In re Holiday Magic Secs. & Antitrust Litig., 433 F. Supp. 1125, 1126 (J.P.M.L. 1977).
Once a transfer order is entered by the Panel, a party seeking remand to the transferor court has the burden of establishing that such remand is warranted. In re Holiday, 433 F. Supp. at 1126. The Panel has made it clear that it will "remand an action . . . prior to completed pretrial proceedings only upon a showing of good cause." In re South Cent. States Bakery Prods. Antitrust Litig., 462 F. Supp. 388, 390 (J.P.M.L. 1978).
The Plaintiffs concede that their "allegations do include the underlying mis-representations and omissions relating to the investment partnerships." (Pls.' Request for Suggestion of Remand P 1.) As noted in the Transfer Order, the original transfer was based on "common questions of fact" related to the "adequacy of disclosure in connection with [Integrated's limited partnership offerings]." Thus, the factors relied on by the Panel for the original transfer remain valid.
The Panel has previously held that a common issue of the propriety of offering materials used to sell a security justifies consolidation. In re Revenue Props. Co., 314 F. Supp. 1255 (J.P.M.L. 1970) (denying remand of tagalong case with local issues and defendants because consolidated cases involved question of whether the securities at issue were registered properly).
The "Texas" nature of this case, created by the fact that the allegations concern misrepresentations and omissions by a Texas investments advisor to Texas Plaintiffs, does not justify a suggestion of remand, since as discussed infra, certain of the Plaintiffs' claims are governed by New York law. The Plaintiffs' motion for a suggestion of remand is denied. Cf. Global III & IV, 1993 U.S. Dist. LEXIS 18141, at *79 (denying similar motions by plaintiffs in other "Integrated" cases).
The standard of review under Rule 12(b)(6) requires the court to accept as true all reasonable inferences which can be drawn from the complaint. A complaint is not to be dismissed unless it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); accord Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied, 112 S. Ct. 1561 (1992).
A motion for summary judgment may be granted only when there is no genuine issue of material fact remaining for trial and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Silver v. City Univ., 947 F.2d 1021, 1022 (2d Cir. 1991). The moving party bears the burden of proving that no genuine issue of material fact exists. Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir. 1988); Pittston Warehouse Corp. v. American Motorists Ins. Co., 715 F. Supp. 1221, 1224 (S.D.N.Y. 1989), aff'd, 954 F.2d 62 (2d Cir. 1992).
The Second Circuit has repeatedly noted that "as a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party." Brady, 863 F.2d at 210; see also Cartier v. Lussier, 955 F.2d 841, 845 (2d Cir. 1992); Burtnieks v. City of New York, 716 F.2d 982, 983-84 (2d Cir. 1983); Swan Brewery Co. v. United States Trust Co., 832 F. Supp. 714, 717 (S.D.N.Y. 1993).
However, the remedy of summary judgment is viewed "as an integral part of the Federal rules as a whole, which are designed "'to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (citations omitted). Once the moving party has met its burden of coming forward with evidence to show that no material fact exists for trial, the nonmoving party must do more than "simply show that there is some metaphysical doubt as to ...