Co., 1995 U.S. Dist. LEXIS 1399, 1995 WL 46691, at *11 (S.D.N.Y. Feb. 7, 1995); Lee v. Kim, 1994 WL 586436, at *7 (S.D.N.Y. Oct. 25, 1994); Schwartz v. Michaels, 1992 U.S. Dist. LEXIS 11321, 1992 WL 184527, at *30 (S.D.N.Y. July 23, 1992); Milin Pharmacy, Inc. v. Cash Register Systems, Inc., 173 A.D.2d 686, 570 N.Y.S.2d 341, 341-42 (App. Div. 1991). The claim accrues when the misrepresentation is made. See Toto 1995 U.S. Dist. LEXIS 1399, 1995 WL 46691, at *11; Schwartz, 1992 U.S. Dist. LEXIS 11321, 1992 WL 184527, at *30. The AUSA plaintiffs' remaining negligent misrepresentation claim against E&Y clearly sounds in fraud, as they contend that although E&Y knew of or recklessly disregarded widespread accounting fraud at JWP, E&Y's no-default certificates falsely stated that JWP was not in default of any covenants in the note agreements. The earliest no-default certificate at issue in this case was dated February 22, 1989. Under the tolling agreement signed by E&Y and the AUSA plaintiffs, this action is deemed to have been filed on September 23, 1993. Therefore, the AUSA plaintiffs' negligent misrepresentation claim is based on statements that were made within six years of the filing date of the claims, and the claim is timely.
B. Audit Committee Defendants' Motion
The audit committee defendants are Innis C. O'Rourke, Jr., a member of JWP's audit committee from 1988 through 1992; Edmund S. Twining, Jr., a member from 1988 through 1991; Craig C. Perry, a member from 1990 through 1992; and George M. Duff, Jr., a member from 1987 to 1988 and from 1991 to 1992. According to JWP's proxy statements, the audit committee defendants were responsible for recommending to JWP's Board of Directors the engagement and discharge of JWP's independent auditor, analyzing the auditor's reports and making appropriate reports and recommendations to the Board. See Ex. 84 (1987-91 proxy statements), attached to Brown Steinberg Aff. Beginning with the 1992 proxy statement, JWP also stated that the audit committee was responsible for meeting with JWP's internal auditor and consulting with the outside auditor concerning matters relating to internal financial controls. See id. (1992 proxy statement). The class plaintiffs, the Aronoff plaintiffs and the AUSA plaintiffs contend that the audit committee defendants failed to fulfill their duties, recklessly disregarded a number of red flags that should have alerted them to JWP's fraudulent accounting and consequently made materially false or misleading representations about JWP's financial situation.
The class plaintiffs, the Aronoff plaintiffs and the AUSA plaintiffs have asserted claims against the audit committee defendants under §§ 10(b) and 20 and for common law fraud. The Aronoff plaintiffs and the AUSA plaintiffs each add a claim for negligent misrepresentation, and the AUSA plaintiffs also assert claims under § 12(2) and § 15 and for tortious interference with contract. The audit committee defendants seek summary judgment dismissing each of the claims.
1. Section 10(b)
All three sets of plaintiffs have asserted claims against the audit committee defendants under § 10(b). The audit committee defendants advance three arguments in favor of their motion for summary judgment: 1) they did not make many of the alleged misrepresentations, 2) the plaintiffs have failed to demonstrate the existence of a question of fact regarding whether the audit committee defendants acted with scienter, and 3) the AUSA plaintiffs' claims are barred by the applicable statute of limitations.
i. Existence of Misrepresentations
The audit committee defendants contend that they cannot be held liable under § 10(b) because they did not make a number of the alleged misrepresentations. They argue that the plaintiffs have alleged, at most, that they aided and abetted violations of § 10(b). In Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 128 L. Ed. 2d 119, 114 S. Ct. 1439 (1994), the Supreme Court overruled several decades of case law in this and other circuits that recognized a cause of action for aiding and abetting liability under § 10(b). Central Bank has generated some confusion among the lower courts over where to draw the line separating claims for primary violations from aiding and abetting claims.
A number of courts have held that a defendant may not be held primarily liable unless it has actually made a misrepresentation. See Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1225-27 (10th Cir. 1996); In re MTC Elec. Technologies Shareholders Litigation, 898 F. Supp. 974, 985-87 (E.D.N.Y. 1995); In Re Kendall Square Research Corp. Securities Litigation, 868 F. Supp. 26, 28 (D. Mass. 1994). These courts have focused on the Supreme Court's holding that § 10(b) "prohibits only the making of a material misstatement (or omission) or the commission of a manipulative act. . . . The proscription does not include giving aid to a person who commits a manipulative or deceptive act." Central Bank, 114 S. Ct. at 1448. Certain courts in the Ninth Circuit, however, have held that a defendant's substantial participation or intricate involvement in the preparation of misrepresentations that are actually made by someone else are sufficient to ground primary liability under § 10(b). See In Re Software Toolworks Inc. Securities Litigation, 50 F.3d 615, 628-29 & n.3 (9th Cir. 1994), cert. denied, 116 S. Ct. 274 (1995); Adam v. Silicon Valley Bancshares, 884 F. Supp. 1398, 1401 (M.D. Cal. 1995); In Re ZZZZ Best Securities Litigation, 864 F. Supp. 960, 968-72 (C.D. Cal. 1994).
We agree with the Tenth Circuit's recent determination that:
To the extent that these cases allow liability to attach without requiring a representation to be made by defendant, and reformulate the "substantial assistance" element of aiding and abetting liability into primary liability, they do not comport with Central Bank of Denver.