The opinion of the court was delivered by: HAIGHT
HAIGHT, Senior District Judge:
This complex case, arising out of the administration of the estate of a New York resident, has engaged and continues to engage the attention of this Court and the Surrogate's Court for New York County.
In 1994, after extensive motion practice in this Court, trial was scheduled to begin in the Surrogate's Court. In that circumstance, Magistrate Judge Grubin signed an order on May 18, 1994, placing the captioned case on this Court's suspense calendar. Counsel were instructed to notify this Court when trial in the Surrogate's Court was concluded. Counsel have not given such notice.
At the time Judge Grubin signed the order placing the case on suspense, a motion by defendant challenging the amended complaint on various grounds was pending, fully submitted, in this Court. I conclude that it is appropriate to file an Opinion deciding this motion now. To do so does not contravene the suspense order, the motion being sub judice before the order was signed. Resolving the issues before this Court at this time will assist in the further administration of the case.
Plaintiffs are beneficiaries under the will of the late Sylvan Lawrence, who died in December, 1981. The will grants plaintiff Alice Lawrence, the decedent's wife, 50% of the Lawrence Estate (the "Estate") in the form of an outright bequest, and directs that the other 50% be placed in a residuary trust for the decedent's three children. Defendant Seymour Cohn, Lawrence's brother, is sole executor of the Estate and trustee of the residuary trust created by the will. Cohn is also the sole general partner of a partnership in which the Estate has a substantial stake.
The Lawrence will was admitted to probate by the Surrrogate of New York County on January 29, 1982. On February 1, 1982, Letters Testamentary and Letters of Trusteeship were issued to defendant as sole executor and sole trustee.
In 1990, plaintiffs filed the instant action in this Court. They charge Cohn with violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (the "Exchange Act" or "1934 Act"), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; and with violations of the RICO statute, 18 U.S.C. §§ 1962(a),(b) and (c).
To these federal claims, plaintiffs append claims for common law fraud, breach of contract and unjust enrichment. They pray for the imposition of a constructive trust on certain partnership interests acquired by defendant; a conveyance of those interests to plaintiffs and/or the Estate; an accounting; compensatory damages (trebled under RICO); punitive damages; and attorneys' fees and costs.
Subject matter jurisdiction in this Court depends on the viability of the § 10(b) and RICO claims.
Defendant moves to dismiss the complaint pursuant to Rule 12(b)(1) and Rule 12(b)(6), arguing that plaintiff has failed to state a federal securities or RICO claim, and that therefore jurisdiction is lacking. Defendant also asserts that plaintiffs lack standing to bring the section 10(b) claim, and that they are collaterally estopped from doing so. Finally, defendant asks the Court to abstain from exercising its jurisdiction over all claims in deference to the Surrogate's Court.
The following factual recitations are based on allegations in the amended complaint, which are taken as true for the purposes of defendant's Rule 12(b)(6) motion.
Prior to the death of Sylvan Lawrence, Lawrence and Cohn were the sole general partners of a limited partnership known as Ninety-Five Wall Street Company (the "Limited Partnership"). The Limited Partnership's principal asset was and remains an office building located at 95 Wall Street. At the inception of the Limited Partnership, Lawrence and Cohn owned a combined 60% interest as general partners; Jack R. Aron owned an 11% interest as a limited partner; Marvin H. Schur owned a 4% interest as a limited partner; Edward D. Roberts owned a 1% interest as a limited partner; Schur and Bernard E. Brandes, as trustees for the benefit of Robert Aron, owned a 12% interest as a limited partners; and Schur and Brandes, as trustees for the benefit of Peter Arthur Aron, owned a 12% interest as limited partners.
In paragraph 9, the Limited Partnership agreement provides:
If either Sylvan Lawrence or Seymour Cohn shall die, retire of be adjudicated incompetent, the partnership shall not terminate and the other of them shall continue as the sole General Partner. The retired General Partner or the legal representatives of the deceased or incompetent General Partner shall be and become a Limited Partner and the share of such retired Partner or of such representatives in the profits, losses including depreciation, and the distributions shall be 30%. The interest of the remaining General Partner shall thereafter be 30%.
Under this provision, Sylvan Lawrence's interest as a general partner in the Limited Partnership was, upon his death, automatically converted into a 30% limited partnership interest in favor of his Estate; Cohn became the sole general partner with the exclusive right to manage and control the affairs of the Limited Partnership.
The Limited Partnership agreement also provided in paragraph 8(b):
On May 23, 1983, Cohn agreed with all of the then-existing limited partners, aside from the Estate, to purchase their Limited Partnership interests. Cohn purchased those interests, totalling 40% of the Limited Partnership, "as nominee for Seymour Cohn, as Executor of the Estate of Sylvan Lawrence, for Seymour Cohn individually, and for any combination thereof." Plaintiffs allege that the provision above vested the Estate with a right of first refusal over that purchase.
By order to show cause dated August 18, 1983, Cohn commenced a proceeding in the Surrogate's Court seeking the court's advice and direction regarding who, as between him and the Estate, should own the 40% limited partnership interests acquired pursuant to the limited partners buy-out agreement entered into in May 1983 (the "advice and direction proceeding"). In connection with that proceeding, Cohn submitted an affidavit outlining his opinion of the value of the limited partnership interests, and the wisdom of the Estate purchasing all or part of the interests up for sale. Cohn named the plaintiffs as respondents in the advice and direction proceeding.
On May 17, 1984, Cohn and the plaintiffs entered into a settlement taking the form of a purchase and sale agreement which provided for the final disposition of the 40% limited partnership interests. Pursuant to that agreement, the Estate obtained one-half of these interests, and Cohn acquired one-half individually. The Surrogate signed a consent decree approving this settlement.
Plaintiffs allege that prior to the May 1984 settlement purchase and sale agreement, Cohn fraudulently concealed from plaintiffs the true facts regarding the status of negotiations with lessees of space at 95 Wall Street, particularly Chemical Bank. The effect of those allegedly fraudulent omissions was to make the building appear less valuable than it was. Plaintiffs allege that had Cohn timely informed them of the true facts,
plaintiffs would not have signed the Purchase and Sale Agreement -- in which the Estate relinquished and conveyed to [Cohn] individually a portion of its right to purchase the entire 40 percent limited partnership interests acquired pursuant to the Limited Partners Buy-Out Agreement -- and would instead have caused the Estate to purchase the entire amount of such interest.
Complaint at P 92. Plaintiffs allege consequent injury to themselves and to the Estate, including the residuary trust created under that will.
These disputes have been the subject, over a number of years, of litigation in the Surrogate's Court. As of the time of the filing of this motion, three such actions were pending.
The first action was commenced by Alice Lawrence in 1987, and alleges, inter alia, that Cohn breached fiduciary duties to the Estate's beneficiaries in failing to distribute the Limited Partnership's cash reserves. The second proceeding was instituted by Cohn in 1988 to settle his account of the administration of the Estate from December 8, 1981 through November 30, 1986. The third suit, commenced by Alice Lawrence in 1988, requests a compulsory final accounting and an order dissolving the Limited Partnership. Underlying this suit are allegations of wrongdoing on the part of Cohn, many of which are similar to allegations in the present complaint.
Since these disputes have also been the subject of extensive litigation in this Court, I will provide a brief procedural sketch of the case before turning to the merits of defendant's motion to dismiss.
The Amended Complaint was previously the subject of a motion to dismiss in 1991. That motion to dismiss was, in large part, similar to the one presently before the Court. Defendant challenged both the 10(b) claim and the RICO claim on 12(b)(6) grounds, and alternatively, argued in favor of abstention.
I granted defendant's motion to dismiss in an opinion dated November 12, 1991. See Lawrence v. Cohn, 778 F. Supp. 678, 686 (S.D.N.Y. 1991). In the first section of that opinion, I held that plaintiff's 10(b) claim was time-barred under the uniform statute of limitations period enunciated by the Supreme Court in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 115 L. Ed. 2d 321, 111 S. Ct. 2773 (1991). See 778 F. Supp. at 682. Lampf required that a federal securities action be brought within one year after discovery of the facts constituting the violation and within three years after the violation itself. At the time of my 1991 opinion, the Second Circuit had held that Lampf "[was] to be applied retroactively to all cases not finally adjudicated on the date when Lampf was decided." Welch v. Cadre Capital, 946 F.2d 185, 188 (2d Cir. 1991).
The present case fell within that category, and was therefore time-barred.
I then declined to assert jurisdiction over the remaining RICO and state law claims. That decision was based on the three separate absention doctrines conceived by the Supreme Court in Younger v. Harris, 401 U.S. 37, 27 L. Ed. 2d 669, 91 S. Ct. 746 (1971) ("Younger abstention), Burford v. Sun Oil Co., 319 U.S. 315, 87 L. Ed. 1424, 63 S. Ct. 1098 (1943) ("Burford abstention"), and Colorado River Water Conservation Dist. v. U.S., 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976) ("Colorado River abstention"). At the most rudimentary level, abstention was appropriate because plaintiff's claims were being fully litigated in the Surrogate's Court. See 778 F. Supp. at 682-86.
The Clerk of the Court entered an order of judgment dismissing the case on November 25, 1991. Plaintiffs noticed their appeal to the Second Circuit on December 12, 1991. Just one week later, on December 19, 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 (codified at Securities and Exchange Act of 1934, § 27A, 15 U.S.C. § 78aa-1), (section 27A), the effect of which was to eliminate the retroactive application of Lampf's one year/three year statute of limitations. The statute instructs a court to apply the statute of limitations of the jurisdiction in which it sits to section 10(b) actions commenced prior to June 19, 1991, the date Lampf was decided. In addition, any pre-Lampf claims which were previously dismissed as time-barred, and which would have been timely under law of the jurisdiction as it existed on June 19, 1991, were reinstated under the terms of the statute.
Relying on the terms of this provision, plaintiffs filed an Order to Show Cause for Vacatur of Judgment and Order pursuant to Rule 60(b), which this Court declined because of the pendency of plaintiffs' appeal. Upon the advice of staff counsel to the Second Circuit, plaintiffs wrote this Court, asking whether I would consider plaintiffs Rule 60(b) motion if the Second Circuit were to remand the case for that purpose. I answered this question in the affirmative, and on February 4, 1992, the Second Circuit remanded the case for consideration of the Rule 60(b) motion, staying all other appellate proceedings pending the disposition of that motion.
In an opinion dated February 23, 1993, I held that section 27A required the vacatur of my November 12, 1991 order. See Lawrence v. Cohn, 816 F. Supp. 191, 195-96. I refused defendant's suggestion to reinstate only the section 10(b) claim, as opposed to the entire complaint. To do so would have contravened the limited purpose of the remand: to decide whether or not my earlier order should be vacated in its entirety. See id. at 196-97
Defendant now renews its motion to dismiss. For reasons that follow, I deny this motion as to plaintiff's 10(b) claim, but abstain from exercising jurisdiction ...