Unlike these cases, where there is a questionable linkage
between the defendants' false statements and the plaintiffs'
damages due to external events like falling stock prices, there
is a clear and direct connection between Comerica's fraudulent
statements and the Islanders' damages. While Comerica argues that
the direct cause of the damages to the Islanders was Spano's
mismanagement, the acts of a third person intervene between the
defendant's conduct and the plaintiff's injury, the causal
connection is not automatically severed; in such a case,
liability turns upon whether the intervening act is a normal or
foreseeable consequence of the situation created by the
defendant's acts. Derdiarian v. Felix Contr. Corp., 51 N.Y.2d 308,
315, 434 N.Y.S.2d 166, 414 N.E.2d 666 (1980). Because
questions concerning what is foreseeable and what is normal may
be the subject of varying inferences, these issues generally are
for the fact finder to resolve. Id. While the Court agrees
that, in cases like Citibank and Bennett, a decline in stock
prices was not a foreseeable consequence of a person making false
statements about matters unrelated to the stock itself, the Court
is not willing to decide that a jury could not find that the
looting of a professional hockey team by an established con
artist could not be foreseen by a bank that, knowing the
propensities of the con artist, purposefully assisted him in
obtaining and preserving his ownership of the team. On the face
of the amended complaint, drawing inferences in favor of the
Islanders, the Court finds that the Islanders have adequately
pled that Defendants' acts were the proximate cause of its
(iii) False representations
Finally, the Defendants allege that the numerous post-closing
statements allegedly made by them are non-actionable statements
of opinion or predictions of future events. The Defendants are
correct that statements which are mere "puffery" or opinions as
to future events are not sufficient to state a fraud claim.
Cohen v. Koenig, 25 F.3d 1168 (2d Cir. 1994), citing Quasha v.
American Natural Beverage Corp., 171 A.D.2d 537, 537,
567 N.Y.S.2d 257, 257 (1st Dep't 1991). However, a relatively
concrete representation as to a defendant's future performance,
if made at a time when the speaker knows that the represented
performance cannot be achieved, may ground a claim of fraud.
Id., citing Goldman v. Belden, 754 F.2d 1059, 1068-69 (2d Cir.
Here, the Islanders have alleged that Rolley's phone calls to
Barrett Pickett, assuring him that Spano's $16.8 million loan
was completed and that the proceeds would be wired to the
Islanders later in the day, were made with knowledge that those
representations were false. These are clearly statements of fact,
not opinions or predictions. Likewise, the amended complaint
asserts that, when Lynch told Barrett Pickett that there was no
reason why Spano's $17 million check on the Augusta Leasing
account would not clear, Lynch knew that the Augusta Leasing
account did not contain sufficient funds to honor the check and
that Spano did not have sufficient personal resources to make
good on the check. Reading the complaint in the light most
favorable to the Islanders, it is fair to say that these
representations predicted future business transactions that
Comerica knew could not be performed. As such, these statements
may be actionable fraudulent misrepresentations.
Therefore, the Defendants' motions to dismiss the fraud causes
of action for failure to state a claim are denied.
D. The motion to dismiss the negligent misrepresentation causes
Next, the Defendants move to dismiss the negligent
misrepresentation claim under Rule 12(b)(6) on the grounds that
no "special relationship" existed between the Islanders and
Under New York law, a cause of action for negligent
where there is carelessness in imparting words upon
which others were expected to rely and upon which
they did act or failed to act to their damage . . .,
but such information is not actionable unless
expressed directly, with knowledge or notice that it
will be acted upon, to one whom the author is bound
by some relation of duty, arising out of contract or
otherwise, to act with care if he acts at all. . . .
Mallis v. Bankers Trust Co., 615 F.2d 68, 81 (2d Cir. 1980).
The "special relationship" or "duty" element of the cause of
action is satisfied by showing: (1) an awareness by the maker of
the statement that it is to be used for a particular purpose; (2)
reliance by a known party on the statement in furtherance of that
purpose; and (3) some conduct by the maker of the statement
linking it to the relying party and evincing its understanding of
that reliance. Doehla v. Wathne Limited, Inc., 1999 WL 566311
at * 20 (S.D.N.Y. 1999), citing Prudential Ins. Co. of America
v. Dewey, Ballantine, 80 N.Y.2d 377, 382, 590 N.Y.S.2d 831,
605 N.E.2d 318 (1992).
Here, Lynch prepared the November 14, 1996 letter well aware
that John Pickett would be relying upon it in deciding whether to
continue negotiations with Spano; indeed, the letter is addressed
directly to Pickett, indicating that Lynch was aware of both the
intended recipient and the purpose for which the letter was
sought. Lynch knew that the letter would be relied upon by
Pickett, and in the Court's view, the necessary elements of a
special relationship exist under New York law.
In this respect, the case is similar to Credit Alliance Corp.
v. Arthur Andersen & Co., 65 N.Y.2d 536, 493 N.Y.S.2d 435,
483 N.E.2d 110 (1985). There, the New York Court of Appeals reversed
the dismissal of a complaint that alleged a negligent
misrepresentation cause of action against an accounting firm that
had provided audits of a client's books to the client's bank. The
Court held that because the accounting firm knew of the bank's
reliance on its auditing, and the accounting firm had numerous
communications with the bank regarding the client's financing,
the requisite special relationship existed between the bank and
the accounting firm, so that there could be held liability under
this theory. Id., 65 N.Y.2d at 554, 493 N.Y.S.2d at 445,
483 N.E.2d 110. Almost the identical situation is presented here:
Spano solicited the services of Comerica, just as the client in
Credit Alliance solicited the accounting firm, to draft papers
so that another party could accurately assess his financial
status. Moreover, like the defendant in Credit Alliance who
continued to meet with the bank to discuss the client's finances,
after making the initial false representation here, Comerica
continued to communicate with the Islanders concerning matters
related to Spano's finances. Under these circumstances, where the
New York Court of Appeals found a claim of negligent
misrepresentation to lie, the Defendants' motions to dismiss the
negligent misrepresentation causes of action for failure to state
a claim must be denied.
E. The motion to dismiss the respondeat superior claim
Comerica moves to dismiss the respondeat superior cause of
action under Rule 12(b)(6). Under the doctrine of respondeat
superior, an employer is answerable for the torts of an employee
who acts within the scope of his or her employment. Rausman v.
Baugh, 248 A.D.2d 8, 682 N.Y.S.2d 42 (2d Dept. 1998), citing
Riviello v. Waldron, 47 N.Y.2d 297, 418 N.Y.S.2d 300,
391 N.E.2d 1278 (1979). The purpose of the rule is to render the employer
responsible, in proper cases, for the employee's tortious acts,
which although errant, were done in furtherance of the employer's
business. Id., citing Sauter v. New York Tribune, 305 N.Y. 442,
113 N.E.2d 790 (1953).
Comerica first alleges that the Islanders have failed to allege
a tort by any Comerica employee. As this Court finds that
sufficient allegations of fraud and negligent misrepresentation
have been pleaded against Lynch, this contention is rejected.
Comerica also argues that the amended complaint does not allege
that Comerica had knowledge of the alleged torts of Lynch, and
thus could not have ratified the acts, thereby relieving it of
respondeat superior liability. Such a proposition is absurd.
There is no indication that Lynch, a Senior Vice President of
Comerica, concealed his dealings with the Islanders from the
company. Moreover, the Second Circuit has held that a firm is
more appropriately liable for the tortious behavior of a vice
president than for a routine employee. First Interregional
Equity Corp. v. Haughton, 805 F. Supp. 196, 202 (S.D.N.Y. 1992),
citing S.E.C. v. Management Dynamics Inc., 515 F.2d 801, 813
(2d Cir. 1975) and S.E.C. v. Geon Indus. Inc., 531 F.2d 39,
54-55 (2d Cir. 1976). On this basis, the Islanders have
adequately alleged a basis for holding Comerica liable for the
torts of Lynch. The motion by Comerica to dismiss the respondeat
superior claim is denied.
F. The motion to dismiss the negligent supervision claim
Comerica moves to dismiss the Islanders' claim that it was
negligent in failing to closely supervise Lynch's dealings
involving Spano. Comerica alleges that it had no knowledge of any
objectionable conduct by Lynch, and thus, no duty to require
heightened scrutiny of his actions on Spano's behalf.
The amended complaint alleges that both Comerica and Lynch
provided false representations of Spano's assets to others,
including the Dallas Stars hockey team in 1995 and a South
African cookware company in 1996. Taking these allegations as
true for purposes of this motion, it is clear that not only was
Comerica was aware of Lynch's prior fraudulent acts on Spano's
behalf, it actively participated in them.
Therefore, Comerica's motion to dismiss the negligent
supervision claim is denied.
G. The motion to strike the punitive damages claim and other
Finally, Comerica moves under Fed. R.Civ.P. 12(f) to strike
claims from the amended complaint, including the Islanders'
request for punitive damages and the allegations of the prior
frauds committed by Spano on the Dallas Stars hockey team and the
South African cookware company.
A motion to strike allegations in the complaint under
Fed.R.Civ.P. 12(f), on the ground that the matter is impertinent
and immaterial, will be denied unless it can be shown that no
evidence in support of the allegation would be admissible.
Lipsky v. Commonwealth United Corp., 551 F.2d 887 (2d Cir.
1976), citing Gleason v. Chain Service Restaurant, 300 F. Supp. 1241
(S.D.N.Y. 1969), aff'd, 422 F.2d 342 (2d Cir. 1970); Wine
Markets Intl. v. Bass, 177 F.R.D. 128 (E.D.N.Y. 1998); Moy v.
Adelphi, 866 F. Supp. 696, 709 (E.D.N.Y. 1994). Here, the
previous Spano frauds that were allegedly aided by Lynch and
Comerica are potentially admissible in evidence in support of
several allegations. They are relevant to the negligent
supervision claim, to show Comerica's knowledge of Lynch's prior
fraudulent activity. They are also relevant to the fraud causes
of action, to show that Lynch and Comerica were aware, from
previous dealings with Spano, that he lacked significant assets
to complete such large transactions. As these allegations may be
admissible as evidence, the motion to strike them must be denied.
Wine Markets Intl., 177 F.R.D. at 135.
Finally, as to Comerica's motion to strike the claim for
punitive damages, whether there is sufficiently egregious conduct
to support an award of punitive damages is an evidentiary matter
be decided on a motion to dismiss. Vento & Co. of New York v.
Metromedia Fiber Network, Inc., 1999 WL 147732 at * 16 (S.D.N Y
1999). Following discovery, if Comerica still believes that the
evidence against it fails to rise, as a matter of law, to the
requisite level for an award of punitive damages, it may seek
summary judgment dismissing that request. Thus, Comerica's motion
to strike the Islanders' claim for punitive damages is denied
H. As to the objections to Magistrate Judge Lindsay's Order
In addition, Defendants have filed objections to the June 3,
1999 order of United States Magistrate Judge Arlene Lindsay,
which denied the Defendants' requests for a stay of discovery
pending decision on the motions to dismiss. Since those motions
to dismiss are now decided, the issue is moot. Moreover, the
standard of review in hearing objections to decisions of a
magistrate judge under 28 U.S.C. § 636(b)(1)(a) is whether the
Magistrate Judge's decision is "clearly erroneous or contrary to
law." See also Fed.R.Civ.P. 72(a); Bergstein v. Jordache
Enterprises, Inc., 841 F. Supp. 546 (S.D.N.Y. 1994). On the
merits, giving deference to Judge Lindsay's decision, this Court
cannot say that her decision not to stay discovery was either
"clearly erroneous" or "contrary to law."
For the foregoing reasons, it is hereby
ORDERED that the Defendants' motions to dismiss the case for
lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2),
or, in the alternative, to transfer the case to the Northern
District of Texas and to strike allegations of previous frauds by
Spano pursuant to Fed.R.Civ.P. 12(f), are DENIED; and it is
ORDERED that the Defendants' motions to dismiss the fraud and
negligent misrepresentation claims for failure to state a claim
under Fed.R.Civ.P. 12(b)(6) are DENIED; and it is further
ORDERED that the Defendant Comerica's motions to dismiss the
respondeat superior and negligent supervision causes of action
for failure to state a claim are DENIED; and it is further
ORDERED that the Defendant Comerica's motion to strike the
claim for punitive damages is DENIED without prejudice; and it is
ORDERED that the Defendants' objections to the June 3, 1999
decision and order of United States Magistrate Judge Arlene
Lindsay is DENIED as moot.
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