abet a violation of § 10(b) or Rule 10b-5. Id. at 177, 180. Because "the text of the statute controls our decision" as to the scope of the conduct prohibited by § 10(b), the Court refused to infer a private right of action for aiding and abetting absent an express statutory creation. Id. In doing so, the Court held that the enactment of a statute creating private civil liability for a primary violation of a statute does not give rise to a presumption that such liability extends to aiders and abettors. Id. at 182. Moreover, the Court noted that Congress has not enacted a general civil aiding and abetting statute. Id.
Following the reasoning in Central Bank, this Court declines to create a private right of action for aiding and abetting a RICO violation. Nowhere in the text of Section 1962 is there any indication that Congress intended to impose aiding and abetting liability for a violation of the RICO statute. Indeed, the only reference to aiding and abetting is found in section 1962(a), which incorporates the general criminal aiding and abetting statute, 18 U.S.C. § 2, with specific reference to the collection of an unlawful debt.
Plaintiffs have not alleged that Price in any way violated § 1962(a). Indeed, the reference to Section 2, in that limited connection, cuts strongly against a conclusion that Congress intended to create Section 2 liability for other RICO violations. See also Department of Econ. Dev., 924 F. Supp. at 477 (concluding that no private civil cause of action for aiding and abetting RICO exists).
Nor does RICO's proscription of participation "directly or indirectly" in a RICO enterprise give rise to private civil liability for aiding and abetting. The Court in Central Bank noted that § 10(b) and Rule 10b-5 employ the term "directly or indirectly" and expressly rejected the argument that this language creates a private right of action for aiding and abetting. Central Bank, 511 U.S. at 176. The Court reasoned that "aiding and abetting liability extends beyond persons who engage, even indirectly, in a proscribed activity; aiding and abetting liability reaches persons who do not engage in the proscribed activities at all, but who give a degree of aid to those who do." Id. (emphasis added). The Court adopted similar reasoning in Reves. See Reves, 507 U.S. at 179 (requiring affirmative directing of enterprise affairs before imposing RICO liability).
Plaintiffs also argue that since civil liability under RICO turns on whether a criminal violation has occurred, that criminal concepts of aiding and abetting should be construed to be applicable to RICO even if they are not applicable to securities violations. However, this argument, if accepted, would undermine Central Bank, since its holding could be circumvented by the simple expedient of alleging a pattern of criminal securities law violations as predicate acts, and based upon that pattern seek to impose civil liability under RICO on the basis of aiding and abetting a RICO violation when, under Central Bank, that conduct could not be a basis for civil liability under the securities laws. See Arthur Anderson, 924 F. Supp. at 476 (citing Bowdoin Constr. Corp. v. Rhode Island Hosp. Trust Nat'l Bank, 869 F. Supp. 1004, 1009 (D.Mass. 1994), aff'd 94 F.3d 721 (1st Cir. 1996)). In any event, since the arguments for inferring aiding and abetting liability under § 10(b) are stronger than in the case of RICO because the common law doctrine of aiding and abetting is presumably more readily applied to a judicially implied cause of action under § 10(b) than a statutory right of action under RICO, the reasoning of Central Bank should have even more force when applied to RICO. See Arthur Anderson, 924 F. Supp. at 476; cf. Bowdoin Constr. Corp., 869 F. Supp. at 1009; see also New England Data Serv. v. Becher, 829 F.2d 286, 291 (1st Cir. 1987)("We certainly do not intend to create two bodies of law by making it easier to bring a charge of racketeering than securities fraud.")
Finally, plaintiff's claim for a primary violation of § 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder, must be also be dismissed because Price has demonstrated an absence of any genuine issue of material fact as to causation. In order to support a 10b-5 claim based solely on material omissions or misstatements, plaintiffs must establish "both loss causation -- that the misrepresentations or omissions caused the economic harm -- and transaction causation -- that the violations in question caused [plaintiffs] to engage in the transaction in question."
Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380 (2d Cir. 1974)(emphasis added), cert. denied, 421 U.S. 976, 44 L. Ed. 2d 467, 95 S. Ct. 1976 (1975); see also Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1495 (2d Cir. 1992). Indeed, loss causation, or the equivalent concept of proximate cause,
is an essential element of each of the plaintiffs' claims against Price, including plaintiffs' pendent state law claims. See id. at 1494-96 (§ 10(b) and common law fraud); Bennett v. United States Trust Co., 770 F.2d 308, 315-16 (2d Cir. 1985), cert. denied, 474 U.S. 1058, 106 S. Ct. 800, 88 L. Ed. 2d 776 (1986) (§ 10(b) and common law fraud); Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 267, 117 L. Ed. 2d 532, 112 S. Ct. 1311 (1992) (RICO); First Nationwide Bank, 27 F.3d at 769 (RICO); Sperber v. Boesky, 672 F. Supp. 754, 758 (1987), aff'd, 849 F.2d 60 (2d Cir. 1988)(RICO); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985) (RICO); Bernstein v. Crazy Eddie, Inc., 702 F. Supp. 962, 986 (E.D.N.Y. 1988)(negligence cross-claims), vacated in part by, 714 F. Supp. 1285 (1989).
In this case summary judgment must be granted because no rational jury could conclude that Price's alleged misrepresentations proximately caused the damage suffered by plaintiffs. To establish proximate cause, plaintiffs must show an adequate nexus between the alleged violative conduct and the injury alleged; i.e. "some direct relation between the injury asserted and the injurious conduct alleged." Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268, 117 L. Ed. 2d 532, 112 S. Ct. 1311 (1992); see also First Nationwide Bank, 27 F.3d at 769; Citibank, 968 F.2d at 1495-96. In sum, to "establish the required causation, the plaintiff[s] must show that the loss was a 'direct result of the defendant's wrongful actions and [that it was] independent of other causes.'" Bennett, 770 F.2d at 316 (alteration in original)(quoting Idrees v. American Univ. of the Caribbean, 546 F. Supp. 1342, 1350 (S.D.N.Y. 1982)).
Ordinarily, loss or transaction causation issues cannot be resolved on a motion for summary judgment. However, in the instant case, summary judgment is warranted because Price has come forward with evidence, in the form of, inter alia, Cralin financial statements and the affidavit of Daniel R. Fischel and Kenneth R. Cone, two experts in the securities industry, establishing that the partnerships' closure in 1985 was caused by Cralin's dramatic and costly expansion during an industry slump. Specifically, adverse conditions in the industry during 1984, the year before Cralin dissolved, resulted in a stagnation of growth of new business, a decrease in the volume of initial public offerings and a corresponding decrease in the total profit of broker-dealers by forty-five percent in the United States. See Fischel Aff. PP 21-23; Def. Evid. App. at A748-49, A1418-19; Feldman Aff. P 24. During this period, Cralin was plagued by high expenses, including expenses associated with the formation of the limited partnerships and their large investment in seeking, unsuccessfully, to become a full-service brokerage and investment banking firm. See Def. Evid. App. at A574, A616, A689, A714. Accordingly, Cralin's rapid expansion in 1984, despite the downward trend in the industry, resulted in large increases in costs during a time where Cralin's businesses failed to produce enough income to meet expenses. See Fischel Aff. PP 24-25; see also First Nationwide Bank, 27 F.3d at 772 ("when the plaintiff's loss coincides with a marketwide phenomenon causing comparable losses to other investors, the prospect that the plaintiff's loss was caused by the fraud decreases."), cert. denied, U.S. , 115 S. Ct. 728 (1995).
None of these facts has been disputed and most of them are not even subject to rational dispute. While ordinarily an affidavit of an expert, even if uncontradicted, might still raise an issue of credibility for the fact finder, where, as here, that affidavit is supported by documentary proof and where a jury verdict rejecting that testimony would be rationally unsupported, a motion for summary judgment should be granted. This is especially true since, in the instant case, plaintiffs have produced no evidence at all that any misrepresentations or omissions by Price caused the partnerships to fail. Nor have they contradicted with specific facts Price's well-supported assertion that the Cralin partnerships' inability to return investor capital was due to Cralin's unsuccessful attempt to become a full service brokerage and investment banking firm. See Fischel Aff. P 14.
Indeed, plaintiffs' only response is the conclusory claim that "[Price's experts'] conclusion is incorrect." Feldman Aff. P 20. Although plaintiffs assert that "Cralin did, in fact, successfully become a full service brokerage and investment banking firm, prepared to earn significant profits, and only went out of business because of Price Waterhouse's actions," Feldman Aff. P 20, they have failed to elicit any facts establishing that the so-called riskless transactions allegedly concealed from them caused them to lose their unrisked capital.
This is especially true because plaintiffs failed to offer any proof that Cralin would have entered into those transactions in the first place had they involved any risk. See Matsushita, 476 U.S. at 587 ("It follows . . . that if the factual context renders [plaintiff's] claim implausible - if the claim is one that simply makes no economic sense - [plaintiff] must come forward with more persuasive evidence to support their claim than would otherwise be necessary."). Indeed, plaintiffs' Fourth Amended Complaint indicates that plaintiffs could not have engaged in these transactions under normal conditions because the amounts involved "far exceeded Cralin's financial capacity to possess the securities or even absorb the risk (assuming no limiting agreements) of the transactions involved." FAC P 20 (parenthesis in original). Furthermore, the undisputed evidence shows that these transactions were entered into only to obtain tax benefits and with the purpose of avoiding any risk of loss or potential profit. "In reality, the Cralin limited partnerships . . . were engaged in a complex series of prearranged or rigged transactions which lacked economic merit and which were constructed merely to give the appearance of substantial losses and without any ability to achieve any economic profit for the partnerships or investors." Id. P 4 (emphasis added).
The Court reserves decision on Price's motion for sanctions, which will be addressed in a separate opinion.
For the reasons stated above, Price's motion for summary judgment is granted, and the Fourth Amended Complaint is dismissed with prejudice. The Clerk of Court is directed to enter judgment accordingly.
It is SO ORDERED.
DATED: New York, New York
February 20, 1997
John E. Sprizzo
United States District Judge