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LEWIS v. ROSENFELD

March 8, 2001

MICHAEL P. LEWIS, PLAINTIFF,
v.
ERIC D. ROSENFELD, ROBERT BERNSTEIN, ROBERT B. TANNENHAUSER, AND ROSENFELD, BERNSTEIN & TANNENHAUSER, L.L.P., DEFENDANTS.



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

  OPINION AND ORDER

Michael P. Lewis brings this action against Eric D. Rosenfeld, Robert Bernstein, Robert B. Tannenhauser (collectively "Individual Defendants") and Rosenfeld, Bernstein & Tannenhauser, L.L.P. ("RBT"), the law firm in which the Individual Defendants were general partners. Lewis asserts state law claims of breach of fiduciary duty, common law fraud, civil conspiracy, and negligent misrepresentation. Jurisdiction is based on diversity of citizenship pursuant to 28 U.S.C. § 1332.*fn1 Defendants now move to dismiss the Amended Complaint on the grounds that it is time-barred and that it fails to state a claim on which relief can be granted. For the foregoing reasons, defendants' motion is granted in part and denied in part.

I. LEGAL STANDARD

To properly rule on a 12(b)(6) motion, the court must accept as true all material facts alleged in the complaint and draw all reasonable inferences in the plaintiff's favor. See ICOM Holding, Inc. v. MCI Worldcom, Inc., No. 00-7660, 2001 WL 46675, at *1 (2d Cir. Jan. 22, 2001). "At the Rule 12(b)(6) stage, `[t]he issue is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleading that a recovery is very remote and unlikely but that is not the test.'" Sims v. Artuz, 230 F.3d 14, 20 (2d Cir. 2000) (quoting Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir. 1998)). The task of the court is "merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Sims, 230 F.3d at 20 (quotation marks and citation omitted). Therefore, dismissal of a complaint pursuant to Rule 12(b)(6) is proper only where "`it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief.'" ICOM Holding, 2001 WL 46675, at *1 (quoting Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999)).*fn2

II. BACKGROUND

This action arises out of a $650,000 loan plaintiff made to Mad Martha's Ice Cream, Inc. ("Mad Martha's") in June 1995 - a loan which was never repaid because Mad Martha's filed for bankruptcy on February 27, 1996. See Am. Compl. ¶¶ 52, 62. Plaintiff agreed to loan Mad Martha's these funds upon the advice of David M. Fresne, a Managing Director and broker at Bear, Stearns & Co., Inc. ("Bear Stearns"), who handled plaintiff's Bear Stearns accounts from April 1992 until April 1996. See id. ¶¶ 10, 46. Neither Fresne nor Bear Stearns are named as defendants in this action.

A. Mad Martha's Fund Raising Needs

In 1993, Tom Quinn began negotiating with Robert Young for the purchase from VSL of the Mad Martha's Ice Cream Stores ("Ice Cream Stores") on Martha's Vineyard.*fn3 See id. ¶ 12. Quinn contacted Rosenfeld, seeking both legal assistance and help raising the funds to purchase Mad Martha's. See id. Mad Martha's Management Corp. ("MMMC") was formed for the purpose of soliciting the funds. Id. The Individual Defendants and Fresne also formed a general partnership, Tower Hill Associates ("Tower Hill"), for the purpose of conducting activities relating to the purchase of Mad Martha's. See id. ¶ 13.

Although MMMC failed to raise sufficient funds to make the full down payment, it purchased Mad Martha's in late August 1993 by issuing a short-term note for the difference. See id. ¶ 15. This left MMMC with little working capital. See id. Nevertheless, in 1994, its first year of operation, MMMC expanded and opened ice cream stores on Nantucket Island and on Block Island. See id. ¶ 18. Quinn signed the lease for the Nantucket Store. See id. ¶ 21. However, due to the "negligence and incompetence" of Rosenfeld, Bernstein and RBT, the lease to the Nantucket Store was never transferred to MMMC.*fn4 See id. Because of this, Quinn was able to retain possession of and operate the Nantucket Store as if it were his own, despite being discharged from MMMC and accused of stealing $400,000 from MMMC. See id. ¶¶ 20, 22. As a result, by the end of the 1994 Season,*fn5 MMMC was absolutely broke. See id. ¶ 19. A new corporation, Mad Martha's Ice Cream, Inc. was formed and took over all the assets, activities and operations of MMMC. See id. ¶ 23. Mad Martha's stock was issued to Tower Hill, even though Tower Hill contributed no capital to Mad Martha's. See id.

In November 1994, Young caused VSL to repossess the Ice Cream Stores as the first step in foreclosure proceedings. See id. ¶¶ 25. By agreement dated March 9, 1995, Mad Martha's agreed, inter alia, to pay VSL substantial funds by June 30, 1995, also known as the "Drop Dead Date." See id. ¶ 27. If not paid by then, VSL would be permitted to foreclose without Mad Martha's objection. See id.

In early 1995, Fresne, at Rosenfeld's urging, contacted Lewis almost daily for the purpose of soliciting Lewis as an investor in Mad Martha's. See id. ¶ 39. Rosenfeld knew that Lewis was Fresne's customer at Bear Stearns and that Fresne owed Lewis fiduciary duties. See id. Lewis received a private offering memorandum for a Mad Martha's equity offering. See id. ¶ 40. After reading certain portions of the offering memorandum, Lewis returned it and informed Fresne that he was not interested in investing. See id. ¶ 41. Undaunted, Fresne, again at Rosenfeld's urging, continued to press Lewis. See id. ¶ 42. Plaintiff alleges that Fresne - who was now acting for Tower Hill, not Bear Stearns - was "acting as a conduit between Rosenfeld and Lewis and was `parroting' Rosenfeld; i.e., Rosenfeld was telling Fresne what to say to Lewis to induce Lewis to invest the $650,000 into Mad Martha's." See id.

B. Material Misrepresentations and Omissions

Plaintiff alleges that Fresne and Rosenfeld made numerous oral misrepresentations of material fact during a June 1995 telephone conversation between Fresne, Rosenfeld and Lewis. See id. ¶ 43. After quoting at length from a tape recording of the conversation, plaintiff summarizes these misrepresentations as follows:

a. That Mad Martha's was the owner (free and clear of all claims and encumbrances) of the Nantucket and other Ice Cream Stores, when in fact, it had no interest in the Nantucket Ice Cream Store;
b. That Mad Martha's owed only $390,000 to the party from whom it purchased the Ice Cream Stores on Martha's Vineyard;
c. That Mike Lewis was receiving a first lien on the Nantucket Store and all furniture and fixtures therein (when Mad Martha's was not the owner, operator or in possession of such store);
d. That Mad Martha's stock was worth $1.20/share and had been valued . . . at $1.20/share (when the stock was worthless as shown by the sworn schedules filed in the bankruptcy [proceeding] listing $2,083,850.26 in debts and only $56,303 in assets);
e. That the Nantucket Store is the biggest one (when Mad Martha's was not the owner, operator or in possession of such store);
f. That the Nantucket Store does "$4 grand a week" (when Mad Martha's was not in possession of or operating any of the Ice Cream Stores and had just lost the injunction hearing to require Quinn to return the Nantucket Store to Mad Martha's);
g. That Lewis was receiving a second lien on the Ice Cream Stores on Mad Martha's Island [sic] and that only $400,000 (or $390,000) was owed to the guy with the first lien (when, after receiving over $350,000 out of Lewis' $650,000, over $350,000 was still owed to the holder of the first lien);
h. That Mad Martha's was generating revenues and would "generate a few hundred thousand this summer" (when Mad Martha's was not even in possession of or operating the Ice Cream Stores and was generating no revenues at all);
i. That Lewis' loan of $650,000 was a "no brainer" (when no reasonable person with full knowledge of the facts would have made such investment);
j. That Rosenfeld's role in the transaction was that of the "attorney/of counsel guy" (when Rosenfeld was a partner in Tower Hill Associates and was going to receive a part of the 13% commission ($84,500) that was never disclosed to Lewis).

Id. ¶ 44.

Plaintiff also alleges several examples of written misrepresentations and omissions. For instance, Farkas, with Rosenfeld's assistance, wrote Lewis a letter dated June 14, 1995, which allegedly contained numerous misrepresentations of material facts and omissions. See id. at ¶ 47. Rosenfeld also wrote Lewis a letter dated June 20, 1995, which allegedly contained numerous misrepresentations of material facts and omissions.*fn6 See id. Additionally, the security agreements and UCC forms prepared by Ellen Kaplan*fn7 (the "Kaplan documents"), which were sent to Lewis via Rosenfeld, contained numerous misrepresentations, many of which are similar to the oral misrepresentations outlined above. See id. ΒΆ 48. Finally, Rosenfeld sent Lewis a letter signed by Young (the "Young Letter") which misrepresented that ...


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