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ERNST & CO. v. MARINE MIDLAND BANK

March 21, 1996

ERNST & COMPANY, PAINEWEBBER, INC., and SHARPE CAPITAL, INC., Plaintiffs, against MARINE MIDLAND BANK, N.A., Defendant.


The opinion of the court was delivered by: SWEET

 Sweet, D.J.

 Defendant Marine Midland Bank ("Marine") moves to dismiss the first claim in the complaint filed by Plaintiffs Ernst & Company ("Ernst"), PaineWebber, Inc. ("PaineWebber") and Sharpe Capital, Inc. ("Sharpe") (collectively the "Plaintiffs") for failure to state a claim under Section 10 and Rule 10b-5 of the Securities Exchange Act of 1934. In addition, Marine moves to dismiss the remaining state claims on the grounds that there is no jurisdictional basis for them other than Title 28, Section 1367(c) of the United States Code. For the reasons that follow, the motion to dismiss is granted.

 Parties

 Ernst is a Delaware corporation with its principal place of business in New York, New York and is generally engaged in the business of buying, selling and brokering securities.

 PaineWebber is a Delaware corporation with its principal place of business in New York, New York and is generally engaged in the business of buying, selling and brokering securities.

 Sharpe is a New York corporation with its principal place of business in New York, New York and is generally engaged in the business of buying, selling and brokering securities.

 Defendant, Marine Midland, is a national banking association with offices in New York, New York.

 Prior Proceedings

 The Plaintiffs filed this action on September 28, 1995. The complaint alleged violations of the 1934 Act and additional state law claims.

 This motion to dismiss was filed on December 11, 1995 and by consent of the parties was adjourned until March 6, 1996. Oral argument was heard on March 6 and the motion was considered fully submitted at that time.

 Facts

 For the purpose of this motion to dismiss the allegations of the complaint are taken as true. According to the complaint, each of the three plaintiffs did business with Armor Pension Managers ("Armor"), IILP, d/b/a Westside Fund ("Westside"). Armor was a California limited partnership with offices located in Los Angeles, California. Armor was the "alter-ego" of Stanley I. Berk ("Berk"), Armor's general partner, who was a professional money manager. Armor/Westside are often referred to, hereinafter, as "Berk's alter-egos".

 Blech & Company ("Blech"), not a party in this action, is a brokerage firm in New York. At all relevant times herein, Blech was a broker-dealer and underwriter of securities, and was regarded as a major market maker in over-the-counter biotechnological securities (the "Securities").

 According to the complaint, on September 22, 1994 Blech failed to open for business. With the closing of Blech, prices of approximately one dozen Securities, for which Blech appeared to be the primary market maker, plummeted, leaving a number of brokerage houses holding hundreds of thousands of shares of these Securities ...


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