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ROER v. OXBRIDGE INC.
September 26, 2001
CRAIG ROER AND MARGARET ROER, PLAINTIFFS,
OXBRIDGE INCORPORATED, WIN CAPITAL CORP., FREDERICK L. GORSETMAN, BARRY L. HAWK AND ZACHARY YOSEF LIEBMAN, DEFENDANTS.
The opinion of the court was delivered by: Seybert, District Judge.
Craig Roer and Margaret Roer ("plaintiffs") commenced this
action on August 23, 1999, alleging multiple violations of
federal securities laws under Sections 10(b) and 20 of the
Securities Exchange Act of 1934 (the "'34 Act"),
15 U.S.C. § 78j(b) and 78t, and Sections 12(2) and 15 of the Securities Act
of 1933 (the "'33 Act"), 15 U.S.C. § 771(2) and 770. Plaintiffs
additionally assert state law claims pursuant to Section 349 of
the New York General Business Law as well as common law claims
sounding in breach of fiduciary duty, negligence, fraud and/or
negligent misrepresentation, and breach of contract.
Pending before the Court are the defendants' respective
motions to dismiss all claims against them in the Amended
Complaint.*fn1 Specifically, defendants Oxbridge Incorporated
("Oxbridge"), Win Capital Corp. ("Win Capital"), Frederick L.
Gorsetman ("Gorsetman"), Barry L. Hawk ("Hawk")*fn2 and
Zachary Yosef Liebman ("Liebman") seek to dismiss all claims
against them pursuant to Federal Rules of Civil Procedure 9(b),
12(b)(1) and 12(b)(6), and The Private Securities Litigation and
Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4(b).
The following factual allegations are taken from plaintiffs'
Amended Complaint and accepted as true for purposes of this
motion to dismiss. See Zinermon v. Burch,
494 U.S. 113, 118, 110 S.Ct. 975, 108 L.Ed.2d 100 (1990);
Charles W. v. Maul, 214 F.3d 350, 356 (2d Cir. 2000). In
addition, the Court deems the Amended Complaint to include all
documents incorporated by reference, to the extent submitted by
the parties, public disclosure documents required by law to be,
and have been, filed with the SEC, as well as documents the
plaintiffs either possessed or knew about and upon which they
relied in commencing suit. See Rothman v. Gregor, 220 F.3d 81,
88 (2d Cir. 2000) (citing Cortec Indus., Inc. v. Sum Holding
L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); Kramer v. Time
Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991); Cosmas v.
Hassett, 886 F.2d 8, 13 (2d Cir. 1989)).
On or about May 11, 1998, Craig Roer met with defendants Hawk
and Liebman in Melville, New York, at which time Hawk and
Liebman recommended that Craig Roer invest in United Recycling,
Inc. ("URI"), a Minnesota corporation engaged in the business of
recovering fibers from used carpet for sale as feedstock to
compounders and manufacturers for thermoplastic and nonwoven
textile applications. Am. Compl. ¶ 19. During their meeting,
Hawk stated to Craig Roer that he "was a registered
representative and Director of [Oxbridge]" and further provided
Craig Roer with an Oxbridge business card which had Hawk's name
on it. Id. At all times relevant, defendant Gorsetman was the
President, majority shareholder, and Chairman of the Board of
Oxbridge. Am. Compl. ¶¶ 38-40. Gorsetman was also the President
and Director of Oxbridge Funding, Inc. which, in turn, was the
Manager of Oxbridge Investors, L.L.C. Am. Compl. ¶¶ 41-42.
Gorsetman likewise was President and Chairman of the Board of
Oxbridge Investors, L.L.C. Am. Compl. ¶¶ 44-45. Oxbridge
Investors, LLC was the General Partner of Oxbridge URI, L.P.
which, in turn controlled URI through its General Partner
Oxbridge Investors, LLC. Am. Compl. ¶ 46. Gorsetman was the
General Partner of Oxbridge URI, L.P. Id. Defendant Hawk
maintained an office at Oxbridge's place of business. Am. Compl.
During their May 11, 1998 meeting, Craig Roer informed Hawk
and Liebman that "he was presently unemployed and that he could
not afford to lose any money." Am. Compl. 20. In response, Hawk
and Liebman told Craig Roer that an investment in URI would
return between one hundred percent and four hundred percent of
his original investment. Am. Compl. ¶ 22. At the May 11, 1998
meeting, both Hawk and Liebman individually stated to Craig Roer
that "they had a company waiting in the wings to buy [URI]" and
that "he would receive a return on his investment between one
hundred percent to four hundred percent. . . ." Id. According
to Hawk and Liebman, the buyout of URI would occur by October or
November of 1998. Id. Hawk and Liebman also told Craig Roer
that URI would be profitable within sixty days. Id. In
reliance on Hawk and Liebman's statements, on May 11, 1998,
plaintiffs purchased 396,963 common stock purchase warrants of
URI ("warrants") and a $100,000 Senior Secured Note of URI with
a maturity date of June 30, 1998 ("URI Note"). Am. Compl. ¶ 23.
The URI Note provided for payment on June 30, 1998 of $100,000
plus interest on the outstanding principal amount at a rate of
12% per annum. Affidavit of Frederick L. Gorsetman dated October
21, 1999 ("Gorsetman Aff."), Ex. C (URI Note). The warrants
included in the deal entitled plaintiffs to purchase URI common
stock at $.25 per share between May 11, 1998 and May 11, 2008.
Gorsetman Aff., Ex. B (warrants). Plaintiffs paid a total of
$100,000 for both
the warrants and the URI Note. Am. Compl. ¶ 23.
Following the May 11, 1998 meeting, Craig Roer spoke
individually to both Hawk and Liebman who each again represented
to him that they "had a company waiting in the wings ready to
buy out [URI]" and that he would receive a return of one hundred
percent to four hundred percent on his "$100,000 investment" and
that the buyout of URI would occur by October or November of
1998. Am. Compl. ¶ 24.
Thereafter, in or about June 1998, Hawk telephoned Craig Roer
and recommended that the plaintiffs "invest in a Secured
Promissory Note and Additional Understandings" of Firestorm
Pictures, LLC ("Firestorm"), a California company involved in
the production of motion pictures. Am. Compl. ¶ 25. In the
course of their conversation, Hawk informed Craig Roer that "he
would receive a 50% return on his money within a two month
period." Id. Additionally, Hawk further stated to Craig Roer
that Firestorm was going to produce movies with Miramax and that
Firestorm had an insurance policy with "Oppenheimer" on any
movies made such that plaintiffs' investment with Firestorm
would be protected from any losses. Id. Hawk also told Craig
Roer that he would be investing his own money into Firestorm,
that he was an attorney and, as such, plaintiffs should trust
his advice and invest in Firestorm. Id. Lastly, Hawk told
Craig Roer that there was a motion picture deal pending with
respect to Firestorm. Id.
On July 10, 1998, plaintiffs "agreed to invest in, and did
invest in," a Secured Promissory Note dated July 9, 1998 in the
amount of $50,000 ("July 9, 1998 Firestorm Note") and a letter
of "Certain Additional Understandings" dated July 9, 1998 ("July
9, 1998 Letter Agreement"), by mailing a check for $50,000 to
the main office of Oxbridge and made payable to Firestorm. Am.
Compl. ¶ 26. The July 9, 1998 Firestorm Note provided for
payment of the principal amount plus interest at an annual rate
of 12% no later than October 30, 1998. Gorsetman Aff., Ex. F
(July 9, 1998 Firestorm Note). Pursuant to the terms of the July
9, 1998 Firestorm Note, plaintiffs were to receive a "production
fee" and an interest in the "producer's net profit", as those
terms were defined by the July 9, 1998 Letter Agreement, as
"Additional Consideration" for their investment. Id.
Plaintiffs agreed to the investment in reliance upon the
statements and representations made by Hawk. Id.
During their conversation, Hawk advised Craig Roer that he
should invest an additional $25,000.00 in Firestorm and "assured
Craig Roer that Firestorm . . . would pay him a seventy [-]five
percent return on his total investment in Firestorm . . . in two
months." Id. Thereafter, on or about October 15, 1998,
plaintiffs "agreed to invest and believed at the time that they
did invest an additional $12,500.00 . . . in Firestorm." Am.
Compl. ¶ 28. Specifically, in exchange for the July 9, 1998
Firestorm Note, Firestorm Pictures, LLC issued plaintiff a new
Secured Promissory Note dated October 29, 1998 ("October 29,
1998 Firestorm Note"), which promised to pay plaintiffs
principal and interest in the total sum of $87,500 and a new
letter of Certain Additional Understandings dated October 29,
1998 ("October 29, 1998 Letter Agreement") which superseded the
previously issued July 9, 1998 Letter Agreement.*fn3
Gorsetman Aff., Ex. H (October 29, 1998 Letter Agreement).
Plaintiffs allege that the additional $12,500.00 they intended
to invest in Firestorm was diverted to an entity called
Stourbridge Investments, Ltd. ("Stourbridge"). Id. Plaintiffs
base their belief on a "Paying Agent and Security Agreement"
between Firestorm and other parties listing the address of
Stourbridge and a personal check, dated October 15, 1998, made
payable to Stourbridge in the amount of $12,500.00 and signed by
Craig Roer. Id; see also Affidavit of Craig Roer dated
February 21, 2000 ("Roer Aff.") at Ex. E.
In or about November 1998, Hawk informed Craig Roer that
Firestorm's deal with Miramax fell through, but that another
company would eventually be found to produce the motion picture.
Am. Compl. ¶ 29. At that time, Hawk reiterated to Craig Roer
that his investments in Firestorm were protected because the
motion picture Firestorm intended to produce was insured with
Oppenheimer. Id. Also in November 1998, Hawk further informed
Craig Roer that the company waiting in the wings to purchase URI
"never materialized." Am. Compl. ¶ 30.
Subsequently, in January 1999, Hawk told Craig Roer that a
group of investors from Florida was planning to invest money in
Firestorm and that Craig Roer's investment would be returned to
him with the previously promised seventy-five percent return.
Am. Compl. ¶ 31. In March 1999, Hawk advised Craig Roer that the
anticipated investors from Florida, with respect to the
Firestorm investment, "never materialized," but that he should
not be concerned because "they were working on deals in
California and his investment in Firestorm . . . would be
returned with the previously promised 75% return." Am. Compl. ¶
In or about February 1999, Hawk informed Craig Roer that URI
would be sending him an interest payment due on the $100,000
Senior Secured note "shortly." Am. Compl. ¶ 33. The interest
payment was never made. Id.
Following this turn of events, in March 1999, Craig Roer met
with Gorsetman and informed him that he wanted all of the money
he and his wife invested in URI and Firestorm returned. Am.
Compl. ¶ 34. In response, Gorsetman allegedly assured Craig Roer
that he "would find someone to take [plaintiffs] out of their
positions and return their money." Id. Gorsetman also told
Craig Roer during their meeting that URI "was going to be doing
a big deal with Allied Signal Corp." Id. During the months of
March and April of that same year, Gorsetman advised Craig Roer
to "push defendant Hawk to find someone to buy out his positions
and that defendant Hawk should take on some of the
responsibility of returning the moneys invested by
[plaintiffs]." Am. Compl. ¶ 35. Thereafter, in May 1999,
Gorsetman allegedly "insisted" that Allied Signal Corp. would be
providing URI with a substantial contract that would "put [URI]
in the black." Am. Compl. ¶ 36.
At present, plaintiffs claim the common stock purchase
warrants of URI are worthless and that URI has defaulted on the
URI Note. Am. Compl. 147. Additionally, plaintiffs claim that
Firestorm also has defaulted on the October 29, 1998 Firestorm
Note. Am. Compl. 48. Based on these allegations, plaintiffs
claim defendants have violated §§ 10(b) and 20 of the '34 Act,
and §§ 12(2) and 15 of the '33 Act as well as several state
Specifically, with respect to plaintiffs' purchase of the URI
Note and URI common stock purchase warrants, plaintiffs allege
that defendants Hawk and Liebman knowingly and/or recklessly
made material misrepresentations of fact in connection with that
transaction because oral statements made by Hawk and Liebman
during and after the May 11, 1998 meeting "were untrue when
made" and "material to the [p]laintiffs' investment decision and
relied upon by the [p]laintiffs." Am. Compl. ¶ 51 and ¶
51(a)-(g), 1 61 and ¶ 61(a)-(d), (g). Plaintiffs additionally
allege that, in connection with the purchase of the URI Note and
URI common stock purchase warrants, defendants Hawk and Liebman
made several omissions of fact that would have been material to
plaintiffs' investment decisions. In particular, plaintiffs
allege that Hawk and Liebman failed to disclose (1) that the URI
transaction was "highly speculative and involved a high degree
of risk and involved a high degree of risk of loss of the entire
investment" and (2) that previously issued notes of URI were in
default at the time of plaintiffs' purchase. Am. Compl. ¶ 53,
62. Plaintiffs also contend that defendants Oxbridge, Gorsetman,
and Win Capital likewise are primarily liable to plaintiffs
under § 10(b) and/or liable as controlling persons under § 20(a)
based on their involvement in the URI transaction.
With respect to plaintiffs' purchase of the July 9, 1998
Firestorm Note and October 29, 1998 Firestorm Note, plaintiffs'
allege that defendant Hawk knowingly and/or recklessly made
several material misrepresentations of fact because the oral
statements made by Hawk and relied upon by defendants in
connection with that transaction "were untrue when made". Am.
Compl. ¶ 52 and ¶ 52(a)-(m). In addition, plaintiffs allege
that, in connection with the Firestorm deal, Hawk knowingly
and/or recklessly omitted to state material facts necessary to
make his affirmative statements not misleading, including, (1)
that the purchase of the Firestorm Senior Secured Note was
"highly speculative and involved a high degree of risk and
involved a high degree of risk of loss of the entire
investment"; (2) that Firestorm was a small Limited Liability
Company incorporated in July of 1998; and (3) that the $12,500
plaintiffs intended to invest with Firestorm would be diverted
to Stourbridge. Am. Compl. 154 and ¶ 52(a)-(c). Finally,
plaintiffs further contend that defendants Oxbridge and
Gorsetman also are primarily liable to plaintiffs under § 10(b)
and/or liable as controlling persons under § 20(a) based on
their involvement in the Firestorm transaction.
In response, defendants move to dismiss the Amended Complaint
on the following grounds: (1) plaintiffs have failed to set
forth a prima facie case against defendants Oxbridge, Gorsetman
and Win Capital as "controlling persons" or as "primary
wrongdoers"; (2) plaintiffs have failed to state a claim for a
primary violation of § 12(2) of the '33 Act and § 10(b) of the
'34 Act; (3) neither the URI Note, July 9, 1998 Firestorm Note,
nor October 29, 1998 Firestorm Note are a "security" for
purposes of § 10(b) of the '34 Act; (4) plaintiffs fail to
allege any actionable misrepresentation or omission with respect
to the common stock purchase warrants;
(5) plaintiffs' claims are time barred under the applicable
statute of limitations; and (6) the pendent state law claims
should be dismissed.
A district court should grant a motion to dismiss under
Fed.R.Civ.P. 12(b)(6) for failure to state a claim only if "it
is clear that no relief could be granted under any set of facts
that could be proved consistent with the allegations." H.J.
Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50, 109
S.Ct. 2893, 2906, 106 L.Ed.2d 195 (1989) (quoting Hishon v.
King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81
L.Ed.2d 59 (1984)); Annis v. County of Westchester,
36 F.3d 251, 253 (2d Cir. 1994).
In applying this standard, a district court must "read the
facts alleged in the complaint in the light most favorable" to
the plaintiff and accept these factual allegations as true.
H.J. Inc., 492 U.S. at 249, 109 S.Ct. at 2906; Scheuer v.
Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90
(1974); Christ Gatzonis Elec. Contractor, Inc. v. New York City
Sch. Constr. Auth., 23 F.3d 636, 639 (2d Cir. 1994); see also
Leatherman v. Tarrant County Narcotics Intelligence and
Coordination Unit, 507 U.S. 163, 165, 113 S.Ct. 1160, 1163, 122
L.Ed.2d 517 (1993) (citing Fed.R.Civ.P. 8(a)(2) to demonstrate
liberal system of `notice pleading' employed by the Federal
Rules of Civil Procedure).
The court's duty "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." Geisler v. Petrocelli,
616 F.2d 636, 639 (2d Cir. 1980). Accord Goldman v. Belden,
754 F.2d 1059, 1067 (2d Cir. 1985). The appropriate inquiry,
therefore, is not "whether a plaintiff will ultimately prevail
but whether the claimant is entitled to offer evidence to
support the claims." Scheuer, 416 U.S. at 236, 94 S.Ct. at
1686; Ricciuti v. New York City Transit Auth., 941 F.2d 119,
123-24 (2d Cir. 1991) (plaintiff is not compelled to prove his
or her case at the pleading stage).
Additionally, a claimant is not required to set out in detail
the facts upon which he or she bases a claim. Conley v.
Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957).
A claimant need only give a statement of his or her claim that
will give defendant "fair notice of what the . . . claim is and
the grounds upon which it rests." Id. Therefore, where a
complaint is filed that charges each element necessary to
recover, dismissal of the case for failure to set out evidential
facts can seldom be warranted. United States v. Employing
Plasterers Ass'n of Chicago, 347 U.S. 186, 189, 74 S.Ct. 452,
454, 98 L.Ed. 618 (1954). Individual allegations, however, that
are so baldly conclusory that they fail to give notice of the
basic events and circumstances of which the plaintiff complains
are meaningless as a practical matter and, as a matter of law,
insufficient to state a claim. Barr v. Abrams, 810 F.2d 358,
363 (2d Cir. 1987). Additionally, as previously noted, on a
motion to dismiss a complaint shall be deemed "to include any
written instrument attached to it as an exhibit or any
statements or documents incorporated in it by reference . . . as
well as public disclosure documents required by law to be, and
that have been, filed with the SEC, and documents that the
plaintiffs either possessed or knew about and upon which they
relied in bringing the suit. . . ." Rothman, 220 F.3d at 88-89
It is within this framework that the Court addresses the