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GORDON & CO. v. ROSS

September 3, 1999

GORDON & CO., PLAINTIFF,
v.
ARTHUR H. ROSS, DEFENDANT.



The opinion of the court was delivered by: Cedarbaum, District Judge.

OPINION

Gordon & Co. ("Gordon") sues Arthur H. Ross, the former Chief Executive Officer of Hanover Square Securities Group, Inc. ("Hanover Square"), for allegedly fraudulent representations that led Gordon to make two loans to Hanover Square.

Gordon's amended complaint was dismissed by then Magistrate Judge Gershon, based on a grant of partial summary judgment and a verdict following a bench trial. The Second Circuit vacated the judgment and remanded the case, holding that the magistrate judge did not follow established principles of New York law with respect to fraud and misapplied the test of reliance. Ross now moves to amend his answer to assert a statute of limitations defense based on New York's borrowing statute and, on that ground, seeks summary judgment dismissing the amended complaint.

UNDISPUTED FACTS

The following facts are undisputed except where otherwise noted.

Gordon, a broker-dealer, is a Massachusetts limited partnership, whose sole office is in Newton, Massachusetts. (Def. & Pl. 56.1 Stmt. ¶ 1). All of Gordon's partners are residents of Massachusetts. (Id. ¶ 2).

Ross was the CEO of Hanover Square, a New York broker-dealer, at all times relevant to this suit. Id. ¶ 4). He was a New York resident at all relevant times. (Id. ¶ 5).

Gordon maintained a margin account with Hanover Square. (Id. ¶ 6). On October 17, 1983, Gordon alleges that the New York Stock Exchange informed Hanover Square's principals that their brokerage business would be closed on Friday, October 21, unless they raised substantial capital, stopped hypothecating fully-paid securities, and corrected shoddy bookkeeping practices. On October 21, 1983, Gordon's CEO, Michael B. Salke, heard a rumor that Hanover Square was having financial problems and allegedly requested that Hanover Square transfer to Gordon the full available cash balance in its margin account. He was told that Hanover Square could not comply with this request. (Salke Aff. ¶ 3).

Salke traveled to New York to meet with Hanover Square representatives over the weekend of October 22-23, 1983. (Salke Aff. ¶ 4). Gordon agreed to advance $1,950,000 to Hanover Square by increasing the debit balance (the amount Gordon owed to Hanover Square) in its margin account by that amount. (Def. & Pl. 56.1 Stmt. ¶ 8).

Although Hanover Square did open for business on October 24, it did not deliver any of Gordon's securities until October 26 and did not complete deliveries until November 7, when Gordon (through Bear Stearns) advanced additional money to two banks holding the remainder of Gordon's securities hypothecated by Hanover Square. (Pl. & Def. 56.1 Stmt. ¶ 10).

Gordon knew that Ross's representations were false no later than November 7, 1983. (Id. ¶ 11).

Gordon commenced this action in New York State Supreme Court on approximately August 31, 1987, and the action was subsequently removed ...


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