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IN RE TOWERS FIN. CORP. NOTEHOLDERS LITIG.

August 1, 1996

In re TOWERS FINANCIAL CORPORATION NOTEHOLDERS LITIGATION, and Related Cases.


The opinion of the court was delivered by: KNAPP

 WHITMAN KNAPP, SENIOR D.J.

 Before us is a Second Consolidated Amended Class Action Complaint ("the Complaint") in an action brought by plaintiffs on behalf of all persons who purchased or reinvested in notes issued by defendant Towers Financial Corporation during the period from February 15, 1989 through February 9, 1993.

 One of the many defendants, the law firm of Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin (hereinafter "this defendant") has moved to dismiss the Complaint. Magistrate Judge Andrew J. Peck has filed a Report and Recommendation (the "Report") recommending that we grant such motion.

 Having reviewed the Report de novo, we adopt it in its entirety and dismiss the Complaint as against this defendant. However, for reasons that follow, we shall allow plaintiffs to file a third amended complaint under specified conditions.

 DISCUSSION

 A. THE MAGISTRATE JUDGE'S REPORT

 We shall briefly note our reasons for adopting Judge Peck's truly masterful Report. The entire Complaint consists of 172 pages and 569 paragraphs alleging 12 separate counts against various defendants. Four of these counts (consisting of 20 paragraphs) charge various violations of statutory and common law by this defendant, all based on the activities of Ira Sorkin, Esq., one of its partners.

 The basic difficulty with plaintiffs' position is that nowhere in the entire Complaint is it suggested -- let alone alleged -- that (with the exception of a certain offer to repurchase securities which Sorkin is said to have drafted back in 1988, long before any possible statute of limitations would have taken effect) Sorkin ever made a specific statement which he knew or had reason to suspect was incorrect and which conceivably could have come to the attention of any member of plaintiff class. *fn1"

 Moreover, the Complaint contains no suggestion -- let alone allegation -- that Sorkin had a fiduciary relationship with anyone but his own client.

 B. THE CONSPIRACY THEORY DEVELOPED BY PLAINTIFFS AT ORAL ARGUMENT

 At oral argument of the instant motion to dismiss, plaintiffs' counsel developed a theory that this defendant could be held liable as the member of a conspiracy.

 Before entering into a discussion of this theory, we wish to emphasize that our statement of assumed facts is based wholly upon assertions made by counsel in oral argument. While we were impressed with counsel's apparent sincerity, it is altogether possible that what a lawyer might say in the heat of argument will not survive the careful consideration necessary to the making formal allegations subject to sanctions. Accordingly, should a third amended complaint be filed, its validity would be judged by the allegations contained within its four corners, without reference to counsel's oral argument on any other extraneous source.


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