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BEATUS v. GEBBIA

July 15, 1998

BETTY BEATUS, IDA Z. SMALL, and HOWARD BEATUS, Plaintiffs, against JOHN J. GEBBIA, DANIEL CUNNINGHAM, ROBERT MANNION, JESUP JOSEPHTHAL SECURITIES GROUP, INC., THE JESUP GROUP, INC., HOWARD R. CURD, SR., HOWARD F. CURD, JR., KEITH E. JOHNSON, THOMAS E. CONSTANCE, JONATHAN R. FURER, RONALD P.E. LEEDS and ROBERT WENINGER, Defendants.

John E. Sprizzo, United States District Judge.


The opinion of the court was delivered by: SPRIZZO

MEMORANDUM OPINION AND ORDER

SPRIZZO, D.J.:

 Plaintiffs Betty Beatus, Ida Z. Small and Howard Beatus (collectively the "Beatus plaintiffs") bring the instant action against Howard R. Curd, Sr. ("Curd, Sr."), Keith E. Johnson ("Johnson"), *fn1" Thomas E. Constance ("Constance"), Ronald P.E. Leeds ("Leeds"), Jonathan R. Furer ("Furer") and Robert Weninger ("Weninger") (collectively, the "Jesup Group Defendants"), and against The Jesup Group, Inc. ("The Jesup Group") and Howard F. Curd, Jr. ("Curd, Jr."). *fn2" The Beatus plaintiffs assert, inter alia, that Curd, Jr. violated Section 10(b) of the Securities and Exchange Act ("the Exchange Act"), 15 U.S.C. § 78(b), and Rule 10b-5 promulgated thereunder ("Rule 10b-5"), see Beatus Amended Complaint dated October 23, 1992 ("Beatus Am. Compl.") PP 30-50; that The Jesup Group and the Jesup Group Defendants conspired to violate Section 10(b) of the Exchange Act and Rule 10b-5, and to commit common law fraud, see id. at PP 65-72; that The Jesup Group, Curd, Sr. and Curd, Jr. violated Section 20(a) of the Exchange Act, 15 U.S.C. § 578(e) ("Section 20(a)"), id. at PP 73-76; that Curd, Sr. and Curd, Jr. committed common law fraud and fraudulently converted assets, id. at PP 51-64; and, that The Jesup Group, the Jesup Group Defendants and Curd, Jr. violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961(a), (b) and (c), and conspired to violate RICO, 18 U.S.C. § 1962(d). Id. at PP 77-85.

 Pursuant to Fed. R. Civ. P. 56, The Jesup Group, the Jesup Group Defendants and Curd, Jr. move for summary judgment on the grounds of collateral estoppel. For the reasons set forth below, defendants' motion for summary judgment is granted.

 BACKGROUND

 The reader is referred to this Court's Memorandum Opinion and Order dated March 31, 1998, entered in JSC Securities, et al. v. Gebbia, et al., 91 Civ. 8647 (JES) (the "JSC action"), and Horgan, et al. v. Gebbia, et al., 92 Civ. 7101 (JES) (the "Horgan action") (collectively with this action, the "related actions") for a detailed description of the underlying facts and events. See JSC Securities, Inc. v. Gebbia, 4 F. Supp. 2d 243, 1998 U.S. Dist. LEXIS 4123, 1998 WL 152935 (S.D.N.Y. 1998).

 Briefly, the Beatus plaintiffs' claims arise out of a purchase and sale agreement entered into by Josephthal & Co., Jesup Josephthal Securities Group, Inc. ("JJSG"), and Jesup & Lamont, Inc. ("J&L"), a subsidiary of JJSG. Pursuant to this agreement, Josephthal & Co. sold its operating assets to J&L in exchange for $ 6 million in cash and a $ 3 million contingent note issued by JJSG (hereinafter the "JSC Transaction"). Upon the closing, Josephthal & Co. changed its name to JSC Securities, Inc. ("JSC"), a plaintiff in the related JSC action.

 Pursuant to the purchase agreement, the individual plaintiffs in the JSC and Horgan actions sold and rolled over subordinated debentures issued by Josephthal & Co. in order to purchase subordinated debentures from JJSG, while plaintiffs Betty Beatus and Ida Z. Small each exchanged their $ 200,000 secured demand notes issued by Josephthal & Co. for secured demand notes (the "SDNs") issued by Securities Settlement Corp. ("SSC"), a wholly-owned subsidiary of JJSG that conducted business as a clearing broker. See Beatus Am. Compl. P 24. In January 1991, JJSG defaulted on all of its obligations incurred in the JSC Transaction.

 Claims Asserted in the Related Actions

 Plaintiffs in the related actions contend that former defendants John J. Gebbia, Daniel Cunningham, Robert Mannion, *fn3" and current defendant Curd, Jr. (who was an officer and director of JJSG and a shareholder of JJSG's parent company) made material oral and written misrepresentations to plaintiffs in the JSC action regarding the operating and financial condition of JJSG and SSC. Compare JSC Amended Complaint ("JSC Am. Compl.") PP 28-29, 42-44 and Horgan Complaint ("Horgan Compl.") PP 24-25, 3840 with Beatus Am. Compl. PP 26-28, 32-41. The Beatus plaintiffs claim that these statements were then communicated to them by Raymond Mando, a plaintiff in the JSC action who is alleged to be the Beatus plaintiffs' agent, and relied upon to their detriment. See Beatus Am. Compl. PP 8, 26-29, 32-33, 39, 44-46, 48-49. Thus, the Beatus plaintiffs essentially contend that because the JSC plaintiffs were defrauded, they too were defrauded, albeit derivatively. *fn4" See Beatus Am. Compl. PP 48-49.

 Similarly, the Beatus plaintiffs assert that certain defendants failed to disclose that JJSG was secretly controlled by, inter alia, The Jesup Group, Furer, and the Jesup Group Defendants. Compare JSC Am. Compl. PP 52, 74-79 and Horgan Compl. PP 48, 61-66 with Beatus Am. Compl. PP 29, 67-70.

 The NYSE Arbitration

 Like plaintiffs in the JSC and Horgan actions, the Beatus plaintiffs were bound to arbitrate before the New York Stock Exchange (the "NYSE") all disputes arising from the JSC Transaction by an arbitration clause contained in their SDNs. See Defendants' Notice of Motion for Summary Judgment Dismissing Beatus Amended Complaint, dated April 27, 1998 ("Defs.' Not. Mot.") Exh. D (Secured Demand Note Collateral Agreement) P 23. However, this matter was never actually arbitrated. On August 11, 1994, the Beatus plaintiffs entered into a Settlement Agreement with Gebbia, Cunningham, Mannion, SSC and JJC Holding II, Inc. (the successor-in-interest to JJSG and formerly known as Jesup & Lamont Securities Group, Inc.), dismissing with prejudice all claims raised in the Beatus action, withdrawing with prejudice all claims asserted at arbitration, and agreeing to be bound by the results of the JSC and Horgan actions and the NYSE Arbitration conducted by the JSC and Horgan plaintiffs. See id. Exh. E (Settlement Agreement dated August 11, 1994) (hereinafter, the "Settlement Agreement") at 1, 4, 8. Neither The Jesup Group, Curd, Jr. nor any of the Jesup Group Defendants were joined as parties in the NYSE Arbitration.

 On September 16, 1994, after seventy-one hearing sessions, the NYSE arbitrators issued their unanimous written decision (hereinafter the "NYSE Arbitration Award"), finding that all plaintiffs in the JSC and Horgan actions, except Daniel Flanagan, were entitled to recover from JJSG the defaulted amounts claimed as interest and principal due on the promissory note and debentures issued by JJSG. See NYSE Arbitration Decision dated September 16, 1994 ("NYSE Arbitration Decision"), PP 1-3. All other remaining *fn5" claims, including Section 10(b), Rule 10b-5, common fraud and conspiracy claims asserted against JJSG, Gebbia and Cunningham in connection with the JSC Transaction, were "denied in their entirety." Id. P 4. On July 12, 1995, the NYSE Arbitration Award was confirmed in New York State Supreme Court, New York ...


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