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FEZZANI v. BEAR

United States District Court, S.D. New York


August 9, 2004.

MOHAMMED FEZZANI, CIRENACA FOUNDATION, DR. VICTORIA BLANK, LESTER BLANK, JAMES AND JANE BAILEY, BAYDEL LTD., MARGARET AND PATRICK BURGESS, BOOTLESVILLE TRUST and ADAM CUNG, Plaintiffs,
v.
BEAR, STEARNS & COMPANY, INC., BEAR STEARNS SECURITIES CORP., RICHARD HARRITON, ANDREW BRESSMAN, ARTHUR BRESSMAN, RICHARD ACOSTA, GLENN O'HARE, JOSEPH SCANNI, BRETT HIRSCH, GARVEY FOX, MATTHEW HIRSCH, RICHARD SIMONE, CHARLES PLAIA, JOHN McANDRIS, JACK WOLYNEZ, ROBERT GILBERT, FIRST HANOVER SECURITIES, INC., BANQUE AUDI SUISSE GENEVE, FOZIE FARKASH, RAWAI RAES, BASIL SHABLAQ, KEN STOKES, ISSAC R. DWECK, INDIVIDUALLY and as custodian for NATHAN DWECK, BARBARA DWECK, MORRIS I. DWECK, RALPH I. DWECK, MILLO DWECK, BEATRICE DWECK, RICHARD DWECK, JACK DWECK, ISSAC B. DWECK, HANK DWECK, MORRIS WOLFSON, ARIELLE WOLFSON, AARON WOLFSON, ABRAHAM WOLFSON, TOVIE WOLFSON, ANDERER ASSOCIATES, BOSTON PARTNERS, WOLFSON EQUITIES, TURNER SCHARER, CHANA SASHA FOUNDATION, UNITED CONGREGATION MESARAH, FAHNESTOCK & CO., INC., DONALD & CO., BARRY GESSER, MICHAEL RYDER and APOLLO EQUITIES, Defendants.

The opinion of the court was delivered by: RICHARD CASEY, District Judge

Memorandum Opinion & Order

On April 6, 2004, the Court issued a Memorandum Opinion & Order granting in part and denying in part the defendants' motions to dismiss. The plaintiffs now move for reconsideration on two issues. First, they contend that the Court erroneously applied the statute of limitations applicable to their claims for aiding and abetting breach of fiduciary duty under New York State law. Second, they maintain that the Court incorrectly denied them the opportunity to replead their common-law fraud claims. For the reasons that follow, the plaintiffs' motion for reconsideration is GRANTED IN PART AND DENIED IN PART.

I. BACKGROUND

  This suit, filed on February 2, 1999, arises out of the conduct of A.R. Baron & Co. ("Baron"), a now-bankrupt securities broker-dealer. The plaintiffs were Baron customers who were allegedly harmed by Baron's fraudulent activities. Most of the defendants are alleged to have aided Baron and its employees in defrauding the plaintiffs. The Court set forth the background of the case in detail in its prior opinion and will not do so here. See Fezzani v. Bear, Stearns & Co., No. 99 Civ. 0793 (RCC), 2004 WL 744594 (S.D.N.Y. Apr. 6, 2004). The complaint includes claims under the federal securities laws, the Racketeer Influenced and Corrupt Organizations Act, for aiding and abetting breach of state-law fiduciary duties, and for common-law fraud.

  The claims relevant to the instant motion allege that the defendants aided and abetted Baron in violating its fiduciary duties owed to the plaintiffs, and that the defendants' conduct constituted common-law fraud. On the aiding and abetting claims, the plaintiffs sought damages in the amount of $6,500,000. (Compl. ¶ 317.) The defendants filed various motions to dismiss, which the Court granted in part and denied in part. With regard to aiding and abetting, the Court held that New York law imposes a three-year statute of limitations on claims for breach of fiduciary duties. See Fezzani, 2004 WL 744594, at *24. Therefore, the Court dismissed as time-barred any claim arising out of Baron's conduct occurring prior to February 2, 1996. See id. In addition, the Court dismissed the plaintiffs' common-law fraud claims on the grounds that the complaint failed to allege the necessary elements under New York law and was insufficiently specific. See id. at **25-26.

  The plaintiffs now move the Court to reconsider its decisions on the fiduciary-duty and common-law fraud claims. The plaintiffs argue that the Court clearly overlooked controlling precedent recognizing a six-year statute of limitations on breach-of-fiduciary-duties claims, rather than the three-year statute the Court applied. The Court also erred, according to the plaintiffs, when it refused leave to replead the common-law fraud claims that arose from the defendants' conduct before February 2, 1996.

  II. DISCUSSION

  A. Standard on Motion for Reconsideration

  Motions for reconsideration are permitted under Local Rule 6.3 and Federal Rule of Civil Procedure 59(e) on the grounds that the Court overlooked factual matters or controlling legal decisions. See Fed.R.Civ.P. 59(e); S.D.N.Y.R. 6.3; Kunica v. St. Jean Fin., Inc., 63 F. Supp.2d 342, 345 (S.D.N.Y. 1999). Such motions are not permitted to repeat arguments already considered by the Court, and are not a substitute for an appeal. Allen v. Pataki, 207 F. Supp.2d 126, 126 (S.D.N.Y. 2002); Kunica, 63 F. Supp.2d at 346; Morser v. AT&T Info. Sys., 715 F. Supp. 516, 517 (S.D.N.Y. 1989). The rules are to be strictly applied to avoid repetitive arguments that the Court has already fully considered. Ameritrust Nat'l Ass'n v. Dew, 151 F.R.D. 237, 238 (S.D.N.Y. 1993) (interpreting Local Rule 3(j), the predecessor to Rule 6.3).

  B. Breach-of-Fiduciary-Duty Claims

  In their memorandum in support of the motion, the plaintiffs argued that the Court overlooked the doctrine of equitable tolling, which preserves common-law fraud claims until a plaintiff is on actual or constructive notice of the actionable conduct. (See Pls. Mem. of Law in Support of Mot. for Reconsideration or Re-Argument at 3.) The plaintiffs cite for this proposition Meredith International Bank Ltd. v. Government of the Republic of Liberia, 23 F. Supp.2d 439, 451 (S.D.N.Y. 1998). As the defendants correctly point out, however, this is not controlling legal authority and thus not a proper basis on which to grant reconsideration. See McCullaugh v. Merrill, Lynch & Co., No. 01 Civ. 7322 (DAB), 2004 WL 744484, at *1 (S.D.N.Y. Apr. 7, 2004) (refusing reconsideration because, among other things, other district court cases not controlling precedent).

  Recognizing this deficiency, the plaintiffs raise a different argument in their reply brief. They argue in their reply that the Court overlooked the controlling precedent of Golden Pacific Bank Corp. v. FDIC, 273 F.3d 509 (2d Cir. 2001). (See Pls. Reply Mem. of Law in Support of Mot. for Reconsideration or Re-Argument at 2.)*fn1 In Golden Pacific the Second Circuit noted, "The statute of limitations in New York for claims of unjust enrichment, breach of fiduciary duty, corporate waste, and for an accounting is generally six years." Id. at 518. The statutory provision that the Second Circuit cited in coming to this conclusion states in relevant part, "The following must be commenced within six years: 1. an action for which no limitation is specifically prescribed by law. . . ." N.Y.C.P.L.R. 213(1). However, Golden Pacific is not controlling here because C.P.L.R. 213(1) only governs claims for breach of fiduciary duties when the plaintiff is seeking equitable, not monetary, relief. See Loengard v. Santa Fe. Indus., Inc., 514 N.E.2d 113 (N.Y. 1987).

  In Loengard, a case on which the Golden Pacific court relied, the Second Circuit certified to the New York Court of Appeals the question whether claims for unjust enrichment from a breach of fiduciary duty were governed by a six-year statute of limitations under C.P.L.R. 214(4) or a three-year limitations period under C.P.L.R.213(1).*fn2 See id. at 114. The Court of Appeals first stated, "We have held that the choice of the applicable Statute of Limitations depends on the substantive remedy which the plaintiff seeks." Id. at 115. The plaintiffs in Loengard were minority shareholders alleging that the majority shareholders breached fiduciary duties by forcing the plaintiffs to sell their shares in a freeze-out merger at an undervalued price. Id. The relief sought in the plaintiffs' complaint was restoration of the plaintiffs to their status as shareholders or a determination of their shares' fair value and an order directing the defendants to pay that value, both equitable remedies. See id. The Court of Appeals held that the plaintiffs sought equitable relief and therefore the six-year statute of limitations applied rather than the three-year period. See id.; see also Carlingford Ctr. Point Assocs. v. MR Realty Assocs. L.P., 772 N.Y.S.2d 273, 274 (App. Div. 2004) ("A breach of fiduciary duty claim is governed by either a three-year or six-year limitation period, depending on the nature of the relief sought. . . . The shorter time period applies where monetary relief is sought, the longer where the relief sought is equitable in nature. . . .").

  The Second Circuit has recognized that a six-year statute of limitations only controls claims for breach of fiduciary duties seeking equitable relief. See Cooper v. Parsky, 140 F.3d 433, 440-41 (2d Cir. 1998). As the Cooper court put it, "Ordinarily, under New York law, a claim for breach of fiduciary duty would be governed by a three-year limitations period if the action sought monetary relief but by a six-year period if the action sought equitable relief." Id. When the court in Golden Pacific noted that the New York statute of limitations on claims for breach of fiduciary duty is "generally" six-years, it was speaking of claims for equitable remedies consistent with Loengard, which it cited, and with its earlier decision in Cooper. See Golden Pacific, 273 F.3d at 518. Here, the plaintiffs seek only damages for the alleged aiding and abetting breach of fiduciary duties, and thus the Court correctly applied the three-year statute of limitations. (See Compl. ¶ 317.) The plaintiffs' motion for reconsideration on this issue is accordingly without merit.

  C. Common-Law Fraud Claims

  The plaintiffs argue that the Court erred by refusing leave to replead their pre-1996 claims for common-law fraud. The claims for common-law fraud alleged that the defendants manipulated the market in particular securities. The Court concluded that case law in this district supported the plaintiffs' argument that common-law fraud could be established on a market manipulation theory based on a defendant's actions. See Fezzani, 2004 WL 744594, at *25 (citing Minpeco, S.A. v. Conti Commidty Servs., Inc., 552 F. Supp. 332, 336-38 (S.D.N.Y. 1982)). The Court determined that, despite the availability of such a cause of action, most of the plaintiffs' fraud allegations were insufficiently pled because they failed to specify which defendants committed what acts that allegedly manipulated the securities market. See id. The plaintiffs argued in their memorandum of law in opposition to the motions to dismiss that the defendants were liable for the acts of Baron on the basis of civil conspiracy. The Court rejected this argument because the plaintiffs did not plead civil conspiracy in their complaint. See id.

  The only claims pled with sufficient detail were those against Barry Gesser, Michael Ryder, and Apollo Equities ("the Apollo Defendants"); however, the plaintiffs did not satisfy the elements of common-law fraud. See id. at *26. Under New York law, a plaintiff must establish reasonable reliance on the defendant's representations (or, in this case, conduct). See S.Q.K.F.C., Inc. v. Bell Atl. TriCon Leasing Corp., 84 F.3d 629, 633 (2d Cir. 1996). The plaintiffs' transactions in the securities that the Apollo Defendants allegedly manipulated were executed without the plaintiffs' consent. The Court therefore concluded that the plaintiffs failed to state a cause of action based on the unauthorized trades because the Apollo Defendants' conduct could not have caused the plaintiffs to make the trades when the plaintiffs never made any such decision. See Fezzani, 2004 WL 744594, at *26.

  The plaintiffs now argue that the Court should have granted leave to replead those claims which the Court found to be insufficiently specific. The Court agrees. Leave to amend a complaint dismissed on pleading grounds should be granted unless amendment would be futile or another valid ground for denial exists. See In re Am. Express Co. S'holder Litig., 39 F.3d 395, 402 (2d Cir. 1994); Ronzani v. Sanofi, S.A., 899 F.2d 195, 198 (2d Cir. 1990). While the Court determined that the plaintiffs failed to state a claim arising from the unauthorized trades, the Court's dismissal of those common-law fraud claims not arising out of the unauthorized transactions was based on the complaint's lack of specificity. Additionally, the plaintiffs may be able to state a claim for civil conspiracy.*fn3 Thus, it cannot be said that amending the plaintiffs' common-law fraud allegations would be futile. The plaintiffs' motion for reconsideration on this issue is therefore granted.

  III. CONCLUSION

  For the foregoing reasons, the plaintiffs' motion for reconsideration is GRANTED IN PART AND DENIED IN PART. The Court's decision on the timeliness of the claims for aiding and abetting breach of fiduciary duties stands, but the plaintiffs are granted leave to replead the common-law fraud claims other than those arising from unauthorized transactions. So Ordered.


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