Aberbach v. Wekiva Associates, Ltd.

• Decision Date: 06 April 1990
• Docket Number: No. 90-0208-CIV.,90-0208-CIV.
• Citation: 735 F. Supp. 1032
• Parties: Joel ABERBACH, Alan Geisler, Bernard and Cynthia Landers, Matthew Liebowitz, Maria and Peter Millheiser, David Perryman, Owen Perryman, Peter Vesgo, Bernard Pomeranc, and Phillip Pomeranc, Plaintiffs, v. WEKIVA ASSOCIATES, LTD., Neil S. Rollnick, General Partner, Lawrence N. Rosen, General Partner, Rollnick, Rosen & Linden, P.A., f/k/a Rollnick and Rosen, P.A., Shutts & Bowen, P.A., a partnership including professional associations, Jefferson National Bank, and Lawrence N. Rosen, Trustee, Defendants.
• Court: U.S. District Court — Southern District of Florida

735 F. Supp. 1032

Joel ABERBACH, Alan Geisler, Bernard and Cynthia Landers, Matthew Liebowitz, Maria and Peter Millheiser, David Perryman, Owen Perryman, Peter Vesgo, Bernard Pomeranc, and Phillip Pomeranc, Plaintiffs, v. WEKIVA ASSOCIATES, LTD., Neil S. Rollnick, General Partner, Lawrence N. Rosen, General Partner, Rollnick, Rosen & Linden, P.A., f/k/a Rollnick and Rosen, P.A., Shutts & Bowen, P.A., a partnership including professional associations, Jefferson National Bank, and Lawrence N. Rosen, Trustee, Defendants.

No. 90-0208-CIV.

United States District Court, S.D. Florida.

April 6, 1990.

COPYRIGHT MATERIAL OMITTED

Ronald M. Greenspan and Merrick L. Gross, Hornsby & Whisenand, Miami, Fla., for plaintiffs.

Laurence S. Litow, Schantz, Schatzman & Aaroson, P.A., Miami, Fla., for defendant Wekiva Associates, Ltd.

Theresa L. Girten, Haddad, Josephs & Jack, Coral Gables, Fla., for defendant Rollnick, Rosen and Linden, P.A. f/k/a Rollnick and Rosen, P.A.

Arthur J. Leibell, Reisman & Associates, Miami, Fla., for defendants Neil Rollnick and Lawrence N. Rosen.

Michael D. Katz, Katz, Barron, Squirero & Faust, Miami, Fla., for defendant Jefferson Nat. Bank.

ORDER DENYING DEFENDANTS JEFFERSON NATIONAL BANK'S; ROLLNICK, ROSEN & LINDEN, P.A.'S; WEKIVA ASSOCIATES, LIMITED'S; AND GENERAL PARTNERS' MOTIONS TO DISMISS;

ORDER DENYING IN PART AND GRANTING IN PART DEFENDANT TRUSTEE'S MOTION TO DISMISS

JAMES LAWRENCE KING, Chief Judge.

This cause comes before the court on defendants Jefferson National Bank's; Rollnick, Rosen & Linden, P.A.'s; Wekiva Associates, Limited's; and General Partners' and Trustee's motions to dismiss the complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6). Herein, the court considers not only the contents of the complaint and the papers filed by the parties, but also the parties' arguments in hearings held on the instant matter on Friday, March 30, 1990 and Monday, April 2, 1990.

On a motion to dismiss, the court must view the complaint in the light most favorable to plaintiff, Jenkins v. McKeithen, 395 U.S. 411, 421-22, 89 S.Ct. 1843, 1848-49, 23 L.Ed.2d 404 (1969), and may only grant the motion where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which could entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

I. JEFFERSON NATIONAL BANK'S MOTION TO DISMISS

Defendant Jefferson National Bank (hereinafter the "Bank") moves to dismiss the complaint on grounds that plaintiffs have not sufficiently pleaded a cause of action against the Bank under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. The Bank makes no motion as to plaintiffs' claim under Rule 10b-9, 17 C.F.R. § 240.10b-9, therefore the court will assume the validity of that cause of action. Plaintiffs charge the Bank with both primary and secondary liability.

A. Primary Liability

To state a claim for primary liability under Section 10(b) or Rule 10b-5, plaintiffs must plead that defendant committed "(1) a misstatement or omission (2) of a material fact (3) made with scienter (4) upon which the plaintiffs relied (5) that proximately caused the plaintiffs' loss." Gochnauer v. A.G. Edwards & Sons, Inc., 810 F.2d 1042, 1046 (11th Cir.1987). The court will address the elements of plaintiffs' cause of action seriatim.

1. Misstatement or omission

Under Section 10(b) and Rule 10b-5, defendant can be held liable for its omission to state a material fact only if it had a duty to disclose that fact. See Roberts v. Heim, 670 F.Supp. 1466, 1479-80 (N.D.Cal. 1987); In re Ramada Inns Securities Litigation, 550 F.Supp. 1127 (D.Del.1982). Cf. Chiarella v. United States, 445 U.S. 222, 230, 100 S.Ct. 1108, 1115, 63 L.Ed.2d 348 (1980). Here, plaintiff alleges three possible bases for defendant's duty to disclose: defendant's position as a general partner, defendant's role as escrow agent, and defendant's status as lender.

a. General Partner

Plaintiffs rely on the contents of the Commitment Letter and Mortgage Agreement to support their claim of a general partnership interest in the Bank, such as would impose on the Bank a duty to disclose. While the language of these two provisions provides only minimal support to plaintiffs' claim, on a motion to dismiss the court cannot say that plaintiffs can adduce no set of facts which could support their claim. Plaintiffs' allegations of the Bank's general partner status are not entirely devoid of merit so that the court can grant a motion to dismiss. Therefore, the Bank's motion to dismiss on this point is denied.

b. Escrow Agent

Plaintiffs contend that the Bank became an escrow agent, and thus owed a duty to disclose to the parties to the transaction, by the terms of the Private Placement Memorandum and the Subscription Agreement and by the Bank's acceptance of the Memorandum (taking into account the Bank's duty to review and accept all documents to the transaction under the Commitment Letter).

To establish an escrow under Florida law, "there must be an instrument embodying conditions mutually beneficial to both parties, agreed to by both parties, and it must be communicated to and deposited with a third party." Smith v. Macbeth, 119 Fla. 796, 161 So. 721, 724 (1935); see Shultz v. Sun Bank/Naples, N.A., 553 So.2d 202, 205 (Fla.App. 2nd Dist.1989) ("an escrow agreement must be in writing, and the funds must be delivered to a third party"). In this case, plaintiffs have fully plead all aspects of a valid escrow except the requirement that the res be deposited with the escrow holder. On that point, plaintiffs state that they were unaware that "certain escrow funds and documents would not be delivered to Jefferson," Complaint, Paragraph 40(a) (emphasis added); plaintiffs do not say that none of the res ever lay in the Bank's possession. Moreover, in their response to the Bank's motion to dismiss, plaintiffs advance that they

have also alleged that the res of the escrow was ultimately delivered to Jefferson. Complaint at Paragraph 17. There is no law in Florida that requires Plaintiffs to personally and physically deliver the res to Jefferson to constitute delivery. Delivery of a res to a third person in escrow is sufficient if the grantor by his act of delivery loses all control over the res.

Plaintiff's Response at 11. Paragraph 17 of the Complaint advances only that the "Memorandum and exhibits included the ... representation" that the res was delivered to the Bank. In sum, while plaintiffs do not affirmatively allege satisfaction of the Florida law elements of a valid escrow, they impliedly do so to put the Bank on notice of their claim. The court cannot say at this juncture that plaintiffs can prove no set of facts which would support the Bank's status as escrow holder. Therefore, the Bank's motion to dismiss on this point is similarly denied.

c. Lender

Plaintiffs do not contradict the Bank's contention that it had no duty to plaintiffs if it acted solely as a lender in the controverted transaction. The Bank can be liable if it acted as something more than a lender (but less than an escrow agent of general partner), however. Bank actions which reveal that it transcended its lender status—by assumption of fiduciary or agency roles, for instance — could lead to liability. See Schlifke v. Seafirst Corp., 866 F.2d 935, 945 (7th Cir.1989). Plaintiffs suggest that their complaint sufficiently pleads that the Bank transcended its status as lender when it acted as escrow holder or general partner, and when it allowed the general partners to draft documents on its behalf. Therefore, plaintiffs have alleged the existence of some circumstances which would lead investors to have particular trust in the Bank so as to create liability. Accordingly, the Bank's motion to dismiss on this point is denied.

2. Material Facts

Plaintiffs have sufficiently plead facts in their complaint so as to satisfy the materiality test of Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972).

3. Scienter

"`Severe recklessness' satisfies the scienter requirement" in the Eleventh Circuit. Woods v. Barnett Bank of Fort Lauderdale, 765 F.2d 1004, 1010 (11th Cir. 1985). Plaintiffs can meet that standard when they allege that the Bank committed

"those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it."

Id. (citing Broad v. Rockwell International Corp., 642 F.2d 929, 961-62 (5th Cir.) (en banc), cert. denied, 454 U.S. 965, 102 S.Ct. 506, 70 L.Ed.2d 380 (1981)). In addition, plaintiffs must adhere to Federal Rule of Civil Procedure 9(b), which requires a general allegation of intent in fraud cases. Plaintiffs have plead severe recklessness sufficiently here where they have set forth facts supporting the Bank's role as an escrow agent and general partner, as well as its knowledge of subscription documents and funds. This showing additionally meets the requirements of Rule 9(b). The Bank's motion to dismiss on this ground is denied.

4. Reliance

To aver reliance in this case, plaintiffs need not state that they actually relied on defendant's conduct. The Supreme Court has held that

under the circumstances of this case, involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of this decision.

Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972). Plaintiffs have...