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April 29, 2002


The opinion of the court was delivered by: Charles S. Haight, Jr., U.S. District Judge


Following full discovery, defendant Seymour Cohn moves pursuant to Rule 56(b), Fed. R. Civ. P., for summary judgment dismissing the plaintiffs' sole remaining claim alleging violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78 (b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

Plaintiffs cross-move for partial summary judgment (a) dismissing defendant's first affirmative defense based upon the statute of limitations, (b) dismissing defendant's second affirmative defense alleging that plaintiffs lack standing, and (c) granting cross-relief by finding that plaintiffs are the sellers of a security under § 10(b) of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

This bitterly litigated case has generated a number of prior opinions, cited in the margin,*fn1 by this Court and by Magistrate Judge Dolinger. Familiarity with those opinions is assumed. This opinion recites the factual background only to the extent necessary to elucidate the present issues and the Court's bases for decision.


The surviving claim in the case, for securities fraud, arises from the purchase of a 40% interest in a Limited Partnership known as the Ninety-Five Wall Street Company (the "LP"), whose principal asset was an office building located at 95 Wall Street in Manhattan. The late Sylvan Lawrence and Seymour Cohn were brothers. Prior to the death of Lawrence, Lawrence and Cohn were the LP's only general partners, each owning 30% of the LP's assets. The remaining 40% was owned by the so-called "Aron Group" of limited partners. The Aron Group was comprised of a businessman named Jack Aron and members of his family or business associates.

Paragraph 9 of the Limited Partnership Agreement (the "LPA") provided that upon the death of Lawrence his interest as a general partner in the LP would automatically be converted to a 30% limited partnership in favor of his estate (the "Lawrence Estate" or the "Estate"). Cohn, in his individual capacity, would become the sole general partner with the exclusive right to manage and control the affairs of the LP. Cohn was also named the sole executor of the Lawrence Estate. Lawrence died in December 1981, thereby triggering the provisions of ¶ 9. Cohn qualified under the Lawrence will, and thereafter acted in the dual capacities of general partner of the LP and executor of the Lawrence Estate. Plaintiffs are the beneficiaries of the Estate.

In May 1983, Cohn agreed to purchase the Aron Group limited partners' interests, totalling 40% of the LP assets. That purchase agreement was exclusive of the 30% limited partnership interest Cohn controlled as legal representative of the Estate. According to the transaction documents, Cohn purchased the Aron Group limited partnership interests "as nominee for Seymour Cohn, as Executor of the Estate of Sylvan Lawrence, for Seymour Cohn individually, and for any combination thereof."

One may detect in those varied and alternative designations of Cohn's capacity the desirability of obtaining authoritative guidance with respect to the proper allocation of the 40% LP interests Cohn purchased from the Aron Group. For that guidance Cohn looked to the Surrogate. In August 1983, Cohn commenced an "advice and direction proceeding" in the Surrogate's Court (Roth, S.) regarding who, as between Cohn individually and the Estate, should own the 40% Aron Group limited partnership interests Cohn purchased in May 1983. Cohn named plaintiffs as respondents in the advice and direction proceeding.

Surrogate Roth never had to decide the question because in May 1984, Cohn and the plaintiffs entered into a settlement taking the form of a purchase and sale agreement which provided for the final distribution of the 40% limited partnership interests. Pursuant to that agreement, which the Surrogate endorsed, the Estate obtained one-half of the 40% limited partnership interests, and Cohn acquired one-half individually.

These events set the stage for plaintiffs' securities fraud claim. According to plaintiffs, they were misled into agreeing to the settlement distribution because Cohn fraudulently concealed the fact that Chemical Bank was prepared to take a net lease on the entire 95 Wall Street building on extremely favorable terms. Plaintiffs assert that if they had known of the Bank's position, they would have insisted on taking the entire 40% limited partnership interests, rather than sharing that 40% with Cohn.

Plaintiffs' assertion inevitably prompts this question: What would have entitled the Lawrence Estate to insist on taking the entire 40% of Aron Group limited partnership interests, leaving nothing for Cohn as individual sole general partner? Plaintiffs contend that entitlement derives from a right of first refusal in the Estate's favor contained in ¶ 8(b) of the LPA. Defendant contends that ¶ 8(b) did not confer a right of first refusal on the Estate, and that without such a right plaintiffs have no claim, a conclusion plaintiffs do not accept, since their brief asserts an alternative common law theory of recovery. It is clear, however, that the existence vel non of a right of first refusal in the Estate's favor is a question of central importance.

A time came when defendant moved to dismiss the complaint under Rule 12(b)(6) for failure to state a claim upon which relief could be granted. I considered that motion in an opinion dated July 12, 1996 and reported at 932 F. Supp. 564 ("the July 1996 Opinion"). The July 1996 Opinion concluded that plaintiffs' complaint stated a viable claim under section 10(b) of the 1934 Securities and Exchange Act and Rule 10-b5, but the Court would abstain from exercising jurisdiction over federal RICO and state law claims. 932 F. Supp. at 581-82.

Extensive discovery then ensued, under the able supervision of Magistrate Judge Dolinger. Defendant now moves for summary judgment in his favor on plaintiffs' surviving securities claim. Plaintiffs resist that motion.


A. Standard of Review

Summary judgment may be granted in favor of a defendant only where there are no genuine issues as to any material fact. Windham v. Time Warner, Inc., 275 F.3d 179, 187 (2d Cir. 2001). Summary judgment is inappropriate if a review of the record shows sufficient evidence, when viewed in the light of the governing law, to permit a rational juror to find in plaintiff's favor. Id. The court must resolve all ambiguities and draw all inferences in favor of the non-moving party. Golden Pacific Bancorp v. F.D.I.C., 273 F.3d 509, 514 (2d Cir. 2001).

The case at bar turns upon a question of contractual interpretation. "Summary judgment may be granted when the provisions of a contract convey a definite and precise meaning, absent any ambiguity." Mellon Bank, N.A. v. United Bank Corp. of New York, 31 F.3d 113, 115 (2d Cir. 1994) (citation and internal quotation marks omitted). Moreover, Second Circuit case law makes it plain that summary judgment may also be appropriate even where the contract is ambiguous. "The relevant inquiry in deciding a motion for summary judgment is whether `there is no genuine issue as to any material fact,' Fed.R.Civ.p. 56(c), `a situation that obtains not only when the language is unambiguous, but also when the language is ambiguous and there is relevant extrinsic evidence, but the extrinsic evidence creates no genuine issue of material fact and permits interpretation of the agreement as a matter of law.'" Shepley v. New Coleman Holdings Inc., 174 F.3d 65, 72 n. 5 (2d Cir. 1999) (citing and quoting Nycal Corp. v. Inoco PLC, 988 F. Supp. 296, 299 & nn.9-11 (S.D.N.Y. 1997), aff'd, 166 F.3d 1202 (2d Cir. 1998)).

B. The Import and effect of the July 1996 Opinion Denying Cohn's Motion to Dismiss the Complaint

The brief n of counsel reveal an entertaining threshold dispute with respect to the import and effect of the Court's July 1966 Opinion, which inter alia denied defendant's motion to dismiss plaintiffs' securities claim.

Defendant Cohn, now moving for summary judgment after discovery, says of the Court's July 1996 Opinion, on the core issue of the existence vel non of a right of first refusal, in favor of the Estate, "[T]his Court was unwilling to find that the language [of paragraph 8(b) of the LPA] unambiguously supported Cohn's position such that the Court could rule as a matter of law on this issue on a motion to dismiss," with the result that "this Court must apply the rules of construction applicable to the interpretation of ambiguous contractual provisions." Defendant's Main Brief at 13.

Plaintiffs say that in the July 1996 Opinion "the Court (a) construed the [LPA] as conferring a right of first refusal upon the Estate,(b) determined that such right of first refusal constituted a security, and (c) concluded that the Estate sold that security by relinquishing its right of first refusal in connection with a settlement agreement reached between the parties in a prior proceeding." Plaintiffs' Main Brief at 1-2.

Since the judge who wrote an opinion is uniquely qualified to interpret what he meant by it, I am able to say with some confidence that the defendant's understanding of the July 1996 Opinion is the correct one. Specifically, the intended meaning of the July 1996 Opinion, perhaps incompletely expressed, is that ¶ 8(b) of the LPA was ambiguous with respect to the creation of a right of first refusal in the Estate.

The July 1996 Opinion began by quoting from ¶ 8(b) of the LPA. 932 F. Supp. at 567-68. The question then, and the question now, is whether the language in that paragraph conferred upon the Lawrence Estate (of which plaintiffs are the beneficiaries) a right of first refusal in respect of any interest in the Limited Partnership. Defendant contended then and contends now that it did not. The July 1996 Opinion summarized the contentions of the parties, id. at 576-77, observed that "[c]ontrary to defendant's assertion, the language above does not unmistakably restrict the right of first refusal to transactions initiated by the buyer rather than the seller," id. at 577, and completed the discussion of the point by stating: "I am therefore unwilling to conclude as a matter of law that defendant's construction of the right to first refusal is correct." Id.

While the July 1996 Opinion did not explicitly characterize ¶ 8(b)'s language as "ambiguous," that adjective is, it seems to me, clearly implicit in the Opinion's analysis; in any event, that is the characterization I sought to convey. Precisely for that reason, defendant's Rule 12(b)(6) motion to dismiss the complaint failed; but it also follows that the post-July 1996 Opinion discovery properly focused upon evidence probative of the signatories' intent with respect to the meaning of ambiguous provisions in the LPA. As noted in Part II.A., supra, that ambiguity does not preclude summary judgment in defendant's favor. The remaining question is whether, given the evidence adduced, defendant is entitled to it.

C. Plaintiffs' Asserted Right of First Refusal under the LPA

Plaintiffs principally contend that the LPA gave them a right of first refusal with respect to Cohn's purchase of the Aron Group's 40% limited partnership interest. Evaluation of that assertion requires a detailed examination of the language used and the surrounding circumstances.

The LPA had its genesis in negotiations in 1967 between Sylvan Lawrence and Seymour Cohn, on the one hand, and the Aron Group on the other. At that time the Aron Group owned two contiguous parcels of land on Wall Street. Ultimately Lawrence and Cohn purchased that land from the Aron Group, upon which the building known as 95 Wall Street was subsequently constructed.

The LPA was an integral part of the documents drafted by counsel to effectuate the transaction. The law firm of Stroock & Stroock & Lavan ("Stroock") represented the Aron Group. Robert D. Steefel, a Stroock partner now deceased, was the principal draftsman for the Aron Group. He was assisted by a Stroock associate, Richard Siegler, who survives and is a Stroock partner. The attorney representing Lawrence and Cohn was Max Chertoff.

While the negotiations were taking place, Steefel prepared a memorandum to his file dated October 9, 1967. Ex. A to Siegler Affidavit dated March 29, 2001 ("Siegler Aff."). The memorandum considered the form that the transaction documents might take. Paragraph 5 stated:

Part of the Aron interests will receive without cost a 40% participation in the equity, RDS [Steefel] to consider whether the equity should be owned by a limited partnership of which the Arons will be the limited partners and a corporation controlled by Lawrence and Cohen [sic] will be the general partner.

Paragraph 11 stated in part:

The limited partnership, or if some entity other than a limited partnership is used, then the controlling agreement, will provide among other things
(b) Before either group can sell its interest, it must give the other side a right of first refusal. One entity shall represent each of the two interests in this connection. There shall be the normal right of transfer between families.

In point of fact, a limited partnership was the vehicle used for the venture, with members of the Aron Group as limited partners holding a total of 40% of the equity and the general partners, Lawrence and Cohn, each individual holding 30%.*fn2 The intended function of the LP was to erect 95 Wall Street, an office building, on the two contiguous parcels of land, and to lease office space to third parties.

The attorneys continued their drafting exercises. Eventually the Aron Group, Lawrence, and Cohn signed a "Purchase and Sale Agreement" dated February 29, 1968, Ex. B to Siegler Aff., which recited that they were "entering into a contract for the sale and purchase" of the two Wall Street land parcels. Annexed to the Purchase and Sale Agreement was "a form of limited partnership agreement." The parties to the Purchase and Sale Agreement agreed that "at the closing of title" they would cause the limited and the general partners, as the case may be, to execute the limited partnership agreement and to make the required capital contributions.

Paragraph 8(b) of the proposed form of limited partnership agreement provided in pertinent part:

In the event that any one or more of the Limited Partners (hereinafter called "Offering Limited Partner") shall receive and wish to accept a bona fide offer for the purchase of his interest in the partnership (hereinafter called the "Outside Offer"), the Limited Partner snail promptly notify the other Limited Partners thereof giving the name and address of the offeror ("Outside Offeror") and a copy of the Outside Offer containing all the terms and provisions thereof, and the other Limited Partners shall be privileged to purchase the interest of the Limited Partner on the same terms as the Outside Offer in the proportion that their respective interests bear to the aggregate interests of all of the Limited Partners other than the interest of the Offering Limited Partner. If some but not all of the Limited Partners choose to purchase the interest of such Limited Partner, those Limited Partners who do choose, may purchase the entire interest of the Offering Limited Partner in the proportion that their interest in the partnership bears to the aggregate interests of all Limited Partners who are purchasing. If the Limited Partners have not agreed to purchase the interest of the Offering Limited Partner within 15 days after the Offering Limited Partner has advised them of the Outside Offer, then the rights of the Limited Partners or any of them to purchase the interest of the Offering Limited Partner shall cease and thereupon at the expiration of such 15 days, the Offering Limited Partner shall advise the General Partner of the Outside Offer, giving to the General Partner the name and address of the Outside Offeror and a copy of the Outside Offer containing all the terms and provisions thereof, and the General Partner shall have the right to purchase the interest of the Offering Limited Partner at the same price and terms as contained in the Outside Offer, provided the General Partner agrees so to do within 15 days after the giving of such notice to it.

Paragraph 8(b) went on to provide that if the other limited partners and the general partners did not exercise their rights of first refusal, the "Offering Limited Partner" was free to accept the "Outside Offer."

If either Sylvan Lawrence or Seymour Cohn shall die, retire, or be adjudicated incompetent, the partnership shall not terminate and the other of them shall continue as the sole General Partner. The retired General Partner or the legal representative of the deceased or incompetent General Partner shall be and become a Limited Partner and the share of such retired Partner or of such representatives in the profits, losses including depreciation, and the distributions shall be 30%. The interest of the remaining General Partner shall thereafter be 30%.

At the closing on June 26, 1968, the parties executed the LPA in the form revised by Steefel. Paragraph 8(b), containing the quoted provisions for rights of first refusal, was not changed.

As noted, Sylvan Lawrence died in 1981. In 1983, after Cohn and Jack Aron had discussed the possibility for several years, Cohn and the Aron Group negotiated the sale of the Aron Group's interests in the LP to Cohn. The Stroock firm represented Cohn. Siegler was the Stroock partner primarily responsible for the transaction. The law firm of Weil, Gotshal & Manges ("Weil Gotshal") represented Cohn in his capacity as executor of the Lawrence Estate. Carl Bellows was the Weil Gotshal partner in charge of the matter. The Stroock and Weil Gotshal lawyers had numerous conversations with each other and exchanged numerous letters concerning the negotiations, which came to fruition in a written agreement dated May 23, 1983, Ex. E to Siegler Aff. (the "Aron Sale Agreement"). For a purchase price of $10,000,000, the Aron Group members sold their ...

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