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Soley v. Wasserman

March 12, 2010


The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge


Plaintiff Judy W. Soley ("Soley") brings this action against her brother, Defendant Peter J. Wasserman ("Wasserman"), asserting claims of securities fraud under Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, in Count I, breach of contract in Count II, breach of fiduciary duty in Count III, common law fraud in Count IV, conversion in Count V, unjust enrichment in Count VI, for an accounting in Count VII, and fraudulent conveyance in Count VIII. Soley contends that over the last three decades Wasserman has consistently defrauded her in connection with a number of loans and securities transactions.

Wasserman moves to dismiss the Complaint under Rules 8(a), 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. He argues that his sister has failed to state a viable claim, that her claims are time barred, and that fraud has not been plead with the requisite particularity. Wasserman also argues that the Complaint is so prolix and confusing that it runs afoul of Rule 8(a)'s directive that pleadings provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2).

For the reasons that follow, the motion is granted in part and denied in part.


I. Facts as Alleged in the Complaint and Assumed to be True

Wasserman is Soley's younger brother, and since 1981 he has repeatedly asked her to invest in, and loan money to, his various business ventures. (Compl. ¶ 10.) According to Soley, Wasserman also continuously served as her "investment advisor." (Id.) Soley asserts that despite her repeated requests, Wasserman has refused to provide an accounting of the various interfamilial business ventures, has neglected to repay many of the loans she made, and has failed to pay her the proceeds of her investments. (Id. ¶ 14.)

In 1981, Soley loaned Wasserman 10,444 shares of Harris Corporation common stock (the "Harris stock"). (Id. ¶ 15.) Wasserman promised to return the Harris stock and to pay Soley between $10,000 and $15,000 for the loan by August 1, 1982. (Id. at 17.) According to the Complaint, at the time of the loan Wasserman was Soley's "investment advisor." (Id. at 19.) When Soley called Wasserman shortly before August 1, 1982 and asked about the return of the Harris stock, Wasserman was incensed and told her that he had "bigger problems to deal with." (Id. at 20.) Over the years, Soley repeatedly asked Wasserman about the Harris stock, and each time Wasserman told her not to worry because he would "make her money" and that she should continue "to trust and rely upon him as her investment advisor." (Id. ¶ 21.) Wasserman, however, never returned the Harris stock, and in a letter dated February 15, 2007, he stated "[a]s to the Harris Corp. stock, after all these years I do not recall with any degree of certainty the precise back and forth on the issue." (Id. ¶ 23.) Soley believes that the Harris stock is now worth $2.5 million. (Id. ¶ 25.)

On February 25, 1991, Wasserman formed Patriot Partners, L.P. ("Patriot Partners") as a Delaware limited partnership, for the stated purpose of investing in securities and other investment instruments on its own account. (Id. ¶ 27.) As Patriot Partner's general partner, Wasserman was responsible for the partnership's investment decisions and management of its investment portfolio. (Id.) On November 23, 1992, Wasserman and John Soley, Wasserman's nephew and Soley's son, formed Patriot Group as a New York general partnership. (Id. ¶ 56.) Patriot Group was formed to distribute, through public offerings, the securities of various companies which trade at a premium on the secondary market. (Id. ¶ 57.) According to the Complaint, Wasserman personally ran Patriot Group and oversaw all of its transactions. (Id. ¶ 58.)

After its formation, Patriot Partners distributed a Private Offering Memorandum ("POM") dated April 1, 1991. (Id. ¶ 28.) The POM explained that investors in Patriot Group would receive the benefit of Wasserman's investment prowess and assured investors that "the General Partner is accountable to the Partnership as a fiduciary, and consequently, must exercise good faith and integrity in handing Partnership affairs." (Id. ¶ 32.) A partnership agreement (the "Partnership Agreement") was annexed to the POM which by its terms governed "the business and affairs of the Partnership, [and] the respective rights and obligations of the Partners . . . ." (Id. ¶ 29.) In September, 1991, Soley was provided a copy of the POM. (Id. ¶ 31.) According to the Complaint, Wasserman asked Soley to become a limited partner in Patriot Partners, and based on his "numerous oral and written representations," Soley signed a subscription agreement (the "Subscription Agreement"), entered into the Partnership Agreement, and ultimately invested over $500,000 to become a limited partner. (Id. ¶ 33.)

Under the Partnership Agreement, Patriot Partners (according to the Complaint, "in effect Wasserman") was required to maintain accurate accounting records and provide various financial statements sixty days after the first three fiscal quarters and one-hundred and twenty days after the close of each fiscal year. (Id. ¶ 35.) Between 1991 and 2004, Wasserman provided Soley with annual letters purporting to disclose her contributions, withdrawals and year-end capital balance, though the letters were provided "sporadically." (Id. ¶ 36.) Wasserman also provided Soley with annual Schedule K-1 statements.*fn1 Soley asserts, however, that she never received the various other reports required by the Partnership Agreement. (Id.)

At Wasserman's request, in November, 1992, Soley made a $200,000 loan to Patriot Group which was evidenced by a demand promissory note. (Id. ¶ 58.) While the Complaint is far from clear on the point, it seems that the loan was made through an account Wasserman told Soley to open at Merrill Lynch funded with "approximately $200,000 in tax free bonds." (Id. ¶ 60.) The bonds were placed in the account "so that Patriot Group would have additional funds for short-term loans as needed." (Id.) While Wasserman assured Soley that Patriot Group would pay all the fees associated with the Merrill Lynch account, Soley ended up paying the fees. (Id.)

Soley alleges that, at Wasserman's request, she made over $1 million in loans to Patriot Group between 1992 and 1998. (Id. ¶ 63.)*fn2 At the request of Patriot Group's counsel, on June 10, 1997, Soley, Wasserman and John Soley signed a "Certificate" in connection with counsel's issuance of an opinion regarding Patriot Group's participation in a stock distribution. (Id. ¶ 61.) The Certificate states that Wasserman and John Soley are the sole partners of Patriot Group, but also that "Judy W. Soley has loaned funds to Patriot [Group] which may be deemed to constitute a beneficial interest in Patriot [Group]." (Id.) The Complaint states that as a result of her loans to Patriot Group, Soley became a creditor of the general partnership and that "[i]t was, at all times, her [Soley's] understanding that the loans would be repaid with interest." (Id. ¶ 64.)

In or around July, 1998, Wasserman asked Soley for $150,000, which he said was to be used as a short-term loan to Patriot Group. (Id. ¶ 37.) Wasserman told Soley to open and fund an account at Merrill Lynch for purposes of making the loan. (Id.) Soley then handed Wasserman a $150,000 check payable to Patriot Group and drawn on her Merrill Lynch margin account. (Id.) The Complaint alleges that, unbeknownst to Soley, Wasserman deposited the check in Soley's personal brokerage account at Fagenson & Co., Inc. ("Fagenson"). (Id. ¶ 38.) A few months later, Wasserman asked Soley for a $150,000 investment in Patriot Partners. (Id. ¶ 39.) Soley claims that "[a]s her trusted investment advisor," Wasserman asked Soley to make the investment from her Fagenson account and assured her that she had enough money in the account to make the investment. (Id.) Soley agreed to make the additional $150,000 investment in Patriot Partners, but she was unaware that the investment was made out of the "same money" she believed she had lent to Patriot Group. (Id.) Soley alleges, on information and belief, that the $150,000 investment was never credited to her Patriot Partners capital account. (Id. ¶ 41.) While the Complaint says that Soley agreed to make a $150,000 short-term loan to Patriot Group, and a $150,000 investment in Patriot Partners, Soley explained to Wasserman in an August 1, 1999 letter that she had been unable to reach him for weeks ...

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