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MCCOY v. GOLDBERG

March 31, 1995

ROSE McCOY, Plaintiff, against GARY M. GOLDBERG and GARY GOLDBERG & COMPANY, INC., Defendants, GARY M. GOLDBERG and GARY GOLDBERG & COMPANY, INC., Third-Party Plaintiffs, - against - STEPHEN RUFFINO, et al., Third-Party Defendants.


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

 CONNER, D.J.

 Third-party defendants NTS Properties IV ("NTS IV"), NTS Properties Associates IV, NTS Properties V ("NTS V"), and NTS Properties Associates V (collectively, "NTS") seek dismissal pursuant to Fed. R. Civ. Pro. 12(b)(6) of those portions of the Amended Third-Party Complaint that seek contribution from NTS. For the reasons set forth below, NTS's motion is denied.

 BACKGROUND

 As part of an investment plan recommended to her by defendant Gary Goldberg, plaintiff Rose McCoy purchased 83 interests in NTS IV, a Kentucky limited partnership, for $ 85,000 on September 6, 1983 and 75 interests in NTS V, a Maryland limited partnership, for $ 75,000 on November 30, 1984. On December 8, 1989, after discovering that all of the investments that Goldberg had recommended to her were worth substantially less than she had believed, McCoy filed suit against Gary Goldberg and Gary Goldberg & Company, Inc. (collectively, "Goldberg"). This Court dismissed that complaint, and McCoy subsequently filed an amended complaint (the "Complaint") on November 27, 1990.

 In it, she alleged that Goldberg, a Certified Financial Planner, solicited her to invest the proceeds of her deceased husband's life insurance policy in twelve different limited partnerships that dealt in real estate. McCoy claimed that this investment strategy was contrary to the low-risk, liquid investment program that she, a widow, sought from Goldberg in order to provide a secure income for herself and her children. The Complaint alleged claims under Rule 10b-5, promulgated under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b); various sections of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq.; and the common law of New York.

 On January 28, 1991, Goldberg filed a third-party complaint against eleven of the twelve partnerships in which McCoy had invested, including NTS IV and NTS V. In October 1992, this Court severed the third-party claims from the underlying action pursuant to Fed. R. Civ. Pro. 42(b), and the underlying action was tried to a jury. The jury found for McCoy, awarding compensatory damages of $ 872,714. Because the jury completed a special verdict form, we know that it found Goldberg liable only for breach of his fiduciary duty to McCoy, and not for violations of Rule 10b-5, RICO, or common law fraud. This Court granted Goldberg's motion for remittitur and reduced the award to $ 579,677.85. While an appeal was pending, Goldberg paid McCoy $ 555,000 in settlement of all claims. Satisfaction of judgment was entered on April 9, 1993.

 The third-party claims remained dormant until September 1993, when discovery and settlement negotiations began in earnest between Goldberg and the limited partnerships. On October 11, 1994, Goldberg filed an amended third-party complaint (the "Third-Party Complaint") seeking contribution from nine of the limited partnerships and their related entities, including NTS IV and NTS V. *fn1" On November 18, 1994, NTS filed the instant motion to dismiss those portions of the Third-Party Complaint that request contribution from NTS.

 The Third-Party Complaint alleges that, in connection with the sale of 24,000 limited partnership interests at $ 1,000 each, NTS IV prepared and disseminated a Prospectus, dated August 1, 1983, and a Summary of Offering to brokers and to the public. NTS V also prepared and disseminated a similar Prospectus, dated August 1, 1984, and Summary of Offering in connection with the sale of 24,000 interests for $ 1,000 each. The Prospectuses and Summaries of Offering represented, inter alia, that NTS IV and NTS V were safe investments, offering tax benefits, a return of investment in four or five years, 8-12% income, liquidity and experienced management. Goldberg further alleges that John Nordstrom and Barry Farmer, both general partners of NTS Properties Associates IV *fn2" and NTS Properties Associates V, *fn3" made similar oral statements to Goldberg for the purpose of inducing him to become a Soliciting Dealer of NTS interests. Goldberg claims that Nordstrom and Farmer knew that these statements were false when they were made.

 Furthermore, Goldberg alleges that, contrary to NTS's representations of experienced and professional management, Nordstrom and Farmer were enriching themselves at the expense of investors by, inter alia, misappropriating funds, improperly competing with NTS IV and NTS V, charging personal expenses to the partnerships, and making false statements about NTS IV and NTS V to brokers and to the public. Goldberg contends that in December 1984, Nordstrom and Farmer were forced to resign their executive positions with NTS Corp., *fn4" although they retained their positions as general partners of NTS Properties Associates IV and NTS Properties Associates V. Despite NTS's representations to brokers and investors that the two men merely left to pursue other interests, NTS IV and NTS V subsequently filed suit against Nordstrom and Farmer for fraud, breach of fiduciary duty, conversion of assets, diversion of partnership opportunities, misappropriation of funds, and other common law causes of action. Goldberg claims that, as of the time that McCoy invested in NTS IV and NTS V, Nordstrom, Farmer and NTS knew of and failed to disclose Nordstrom and Farmer's misconduct.

 Goldberg also claims that, as of the time that McCoy invested, NTS IV had failed to disclose that, in December 1983, NTS/Orlando Development Company ("NTS/Orlando") entered into an option agreement on a property in Florida as nominee, agent and trustee for the benefit of NTS IV. Goldberg alleges that J.D. Nichols, the Managing General Partner of NTS Properties Associates IV, caused that property to be conveyed to NTS/Orlando, in which he was the sole and controlling stockholder. Goldberg contends that this transaction was contrary to representations in the Prospectus, including representations that the managing general partner of NTS IV would exercise its judgment consistent with its fiduciary duty to NTS IV and that NTS IV funds would not be used to acquire property for any affiliated entity.

 Goldberg also alleges that Nordstrom wrote and issued to him a series of press releases for NTS V that reiterated the representations made in the NTS V Prospectus and Summary of Offering regarding the strength of NTS V's real estate holdings, the income that investors could expect to receive, and the safety and liquidity of their investment.

 Furthermore, Goldberg alleges that in recommending NTS IV and NTS V to McCoy he relied on the NTS IV and NTS V Prospectuses and Summaries of Offering and on the oral representations made by Nordstrom and Farmer. He contends that the statements that McCoy's Complaint alleged to be false/--that NTS IV and NTS V were safe, liquid investments that would provide a steady, tax-sheltered income to McCoy/--were expressly set forth in the information that NTS provided to him and that he was, in effect, merely repeating to McCoy the statements made by NTS IV and NTS V. He also claims that he sent the Prospectuses and Summaries of Offering to McCoy before she invested. Goldberg alleges that he and McCoy were misled by NTS's intentional and/or negligent misstatements and omissions, and that NTS's acts were a proximate and contributing cause of the damages awarded to McCoy. Finally, Goldberg alleges that but for NTS's representations, which he relied on and repeated to McCoy, she would not have invested in NTS.

 DISCUSSION

 In evaluating NTS's motion to dismiss for failure to state a claim, this Court's task "is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980). In order to prevail, the moving party must demonstrate "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); Anderson v. Coughlin, 700 F.2d 37, 40 (2d Cir. 1983). A court must accept as true the allegations of the complaint and draw all reasonable inferences in favor of the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974).

 Under New York law, "two or more persons who are subject to liability for damages for the same personal injury, . . . may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought." N.Y. Civ. Prac. L. & R. § 1401. Courts have consistently read this statute expansively, interpreting it to apply "not only to joint tortfeasors, but also to concurrent, successive, independent, alternative, and even intentional tortfeasors." Board of Educ. v. Sargent, Webster, Crenshaw & Folley, 71 N.Y.2d 21, 523 N.Y.S.2d 475, 478, 517 N.E.2d 1360 (N.Y. 1987).

 Before addressing NTS's arguments on these points, we must first dispose of a threshold issue. In her Complaint, McCoy alleged that Goldberg had made numerous material misstatements and omissions during his dealings with her. See Complaint, PP 29, 31(a), 31(k). The jury in the underlying action, however, found that Goldberg had made no material misstatements or omissions to McCoy. See Transcript of December 1, 1992, at 114-17. NTS points out that in the Third-Party Complaint, Goldberg describes McCoy's allegations and then states that NTS made each of those statements in its Prospectuses, Summaries of Offering, or oral conversations with Goldberg. See Third-Party Complaint, PP 20-21, 142-43. NTS asserts that because Goldberg argued successfully at the trial of McCoy's claims that his statements were not misleading, we should apply the doctrine of judicial estoppel to prevent him from arguing, in order to obtain contribution, that the same statements were misleading when made by NTS.

 Judicial estoppel "allows a court to preclude a party from asserting a position contrary to one upon which it prevailed in a prior Proceeding." Long Island Lighting Co. v. Transamerica Delaval, Inc., 646 F. Supp. 1442, 1447 (S.D.N.Y. 1986). The doctrine has been adopted in the Second Circuit, but used only rarely. Loral Fairchild Corp. v. Matsushita Electric Industrial Co., 840 F. Supp. 211, 219 (E.D.N.Y. 1994). It "exists to protect the court, not a party, from [another] party's chicanery," id.; see also Petition of Transrol Navegacao S.A., 782 F. Supp. 848, 852 (S.D.N.Y. 1991), and applies "only if the party against whom the estoppel is claimed actually obtained a judgment as a result of the inconsistent position," Merrill Lynch, Pierce, Fenner & Smith Inc. v. Georgiadis, 903 F.2d 109, 114 (2d Cir. 1990).

 In this case, Goldberg certainly did not obtain a judgment in his favor in the underlying action as a result of his position. Although the special verdict form indicates that he convinced the jury that the statements alleged by McCoy were not sufficiently misleading to ground liability under Rule 10b-5 or for common law fraud, Goldberg had judgment entered against him in the amount of $ 579,677.85. Furthermore, we see no signs that Goldberg is attempting to play fast and loose with the judicial system by arguing that NTS made misleading statements and omissions to him about NTS IV and NTS V. The jury verdict in the underlying action dealt only with the question of whether Goldberg had made misleading statements to McCoy. See Transcript dated December 1, 1992, at 114-18. NTS was not a party to that proceeding and no question was presented to the jury regarding NTS's conduct or culpability, or whether Goldberg actually relied on the statements made by NTS. While we may have doubts about the likelihood that a jury will find NTS's ...


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