Bhc Interim Funding, L.P. v. Finantra Capital
| Decision Date | 24 September 2003 |
| Docket Number | No. 02CIV.6553 (WK)(DFE).,02CIV.6553 (WK)(DFE). |
| Citation | 283 F.Supp.2d 968 |
| Court | U.S. District Court — Southern District of New York |
| Parties | BHC INTERIM FUNDING, L.P.; Travelers Investment Corporation, Plaintiffs, v. FINANTRA CAPITAL, INC., et al., Defendants. |
Joshua L. Mallin, Weg and Myers, P.C., New York City, for Plaintiffs.
Audrey Strauss, Fried, Frank, Harris, Shriver & Jacobson, New York City, for PricewaterhouseCoopers, LLP.
Stephen G. Rinehart, Jenkens & Gilchrist Parker Chapin LLP, New York City, for Charles Litt, Thomas Dwyer, and Arthur Press.
Barry J. Friedberg, Trachtenberg Rodes & Friedberg LLP, New York City, for Anthony Brada.
Defendants PricewaterhouseCoopers, LLP ("PwC") and Anthony Brada have filed motions under Fed.R.Civ.P. 12(b)(6) to dismiss the complaint as to these defendants. Defendants Charles Litt, Thomas Dwyer and Arthur J. Press have filed a joint motion to dismiss under Fed.R.Civ.P. 9(b) and 12(b)(6). Plaintiffs filed responses to the three motions, along with a cross-motion for leave to file an amended complaint.
The action was formerly on the docket of Judge Whitman Knapp of this court. Judge Knapp referred all the above motions to Magistrate Judge Douglas F. Eaton. Magistrate Judge Eaton granted plaintiffs' cross-motion for leave to file an amended complaint, and ruled that the amended complaint would be treated as the operative pleading in considering the pending motions to dismiss. He gave the moving defendants time to amend their reply papers, but they chose not to do so.
The claims in the amended complaint against defendants Litt, Dwyer and Arthur Press consist of both federal law claims and state law claims. All the claims against defendants PwC and Brada are under state law. Obviously this is a situation which presents jurisdictional problems, as will be discussed later.
On April 9, 2003 Magistrate Judge Eaton rendered his Report and Recommendation. He recommended that Judge Knapp (1) dismiss the federal claims as to Litt, Dwyer and Arthur Press with prejudice, and dismiss the state-law claims as to these defendants without prejudice; (2) dismiss all claims against PwC with prejudice, and (3) dismiss plaintiff BHC's claims against Brada with prejudice, and dismiss plaintiff Travelers' claims against Brada without prejudice.
Plaintiffs have filed objections to the Magistrate Judge's report, and the moving defendants have filed responses to the objections.
On April 16 the case was reassigned to the undersigned, Judge Thomas P. Griesa.
In my review of the Magistrate Judge's Report and Recommendation, it is necessary to start with the subject of jurisdiction. As indicated above, the amended complaint contains both federal and state law claims. As to defendants Litt, Dwyer and Arthur Press, the recommendation is that the federal claims be dismissed with prejudice, and that the state-law claims be dismissed without prejudice pursuant to 28 U.S.C. § 1367(c)(3). Thus the recommendation is to decline supplemental jurisdiction over the state-law claims against these three defendants. These defendants do not object to this treatment of jurisdiction, and I concur with it.
As to PwC, against which only state-law claims are pleaded, the Magistrate Judge asserted supplementary jurisdiction under 28 U.S.C. § 1367. Both plaintiffs and PwC agree to such jurisdiction. I concur.
As to Brada, also involved in state law claims only, the Magistrate Judge drew a fine line. He asserted supplementary jurisdiction over the claims against Brada made by one of the plaintiffs, BHC, and recommended that these claims should be dismissed with prejudice. However, he recommended that jurisdiction be declined as to the claims against Brada made by the other plaintiff, Travelers, and recommended that the latter claims be dismissed without prejudice pursuant to 28 U.S.C. § 1367(c)(3). Brada has no objection to this treatment of jurisdiction, and I concur.
I now turn to Magistrate Judge Eaton's recommendations on the merits, relating to the dismissal of counts in the amended complaint for failure to state legally cognizable claims. He dismissed these with prejudice. The Report and Recommendation of Magistrate Judge Eaton contains a remarkably painstaking and perceptive analysis of the relevant portions of the amended complaint, and a thorough statement of the legal authorities. The Magistrate Judge demonstrates conclusively why the various claims should be dismissed. Also, since an amended complaint was already filed following receipt of the motions (an unusual procedure, but actually helpful in disposing of the case), it is clear that no further amendment should be allowed, as the Magistrate Judge has held. For these reasons I concur in the findings and conclusions of the Report and adopt the Recommendations.
The parties should settle appropriate judgments.
SO ORDERED.
REPORT AND RECOMMENDATION TO JUDGE KNAPP
Plaintiffs BHC Interim Funding, L.P. ("BHC") and Travelers Investment Corporation ("Travelers") assert two federal claims and twelve state-law claims arising from BHC's failed loan to a subsidiary of defendant Finantra Capital, Inc. ("Finantra").
Defendants PricewaterhouseCoopers, LLP ("PwC") and Anthony Brada ("Brada") each filed a separate motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). Defendants Charles Litt, Thomas Dwyer, and Arthur J. Press (collectively "the Moving Directors") filed a joint motion to dismiss pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6). On December 9, 2002, plaintiffs filed separate responses to the three motions, along with a cross-motion for leave to file an Amended Complaint. All of the movants filed reply papers on January 17, 2003. On February 6, 2003, Judge Knapp referred this case to me for general pre-trial supervision and to write a Report and Recommendation on the three motions to dismiss. By Memorandum and Order dated February 11, I granted plaintiffs' cross-motion for leave to file an Amended Complaint, and I wrote that I would treat the Amended Complaint as the operative pleading in considering the pending motions to dismiss. (I gave the moving defendants until February 21 to add to their reply papers, but they chose not to.) I have decided to deny the requests for oral argument.
For the reasons stated below, I recommend that Judge Knapp (1) dismiss the federal claims as to Litt, Dwyer, and Arthur Press with prejudice, and dismiss the state-law claims as to Litt, Dwyer, and Arthur Press without prejudice; (2) dismiss all the claims against PwC with prejudice, and (3) dismiss BHC's claims against Brada with prejudice, and dismiss Travelers' claim against Brada without prejudice.
This case concerns a loan of $3.65 million made by BHC to fund part of Finantra's $20 million acquisition of Travelers. Finantra was a Florida-based finance company. (Am.Compl.¶¶ 1, 21.) In 1999, Finantra created a wholly-owned subsidiary, Travelers Acquisition Corporation ("TAQ")1, as a vehicle to acquire Travelers. On or about October 29, 1999, BHC loaned $3.65 million to TAQ, to be repaid on October 24, 2000. The terms of the Loan Agreement stated that Finantra agreed to (a) guarantee repayment of the loan, (b) deliver to BHC warrants to purchase common stock of both Travelers and Finantra, and (c) pledge all of the common stock of TAQ and TAQ's subsidiaries. ( Finantra also agreed to refrain from upstreaming or outstreaming Travelers' assets and from entering into any transactions with any officer, director, or employee of Travelers. In addition, Finantra agreed to hire "a large, reputable accounting firm to conduct independent audits" of Finantra and its subsidiaries. (Am. Compl.¶ 61.)
In December 1999, Finantra retained PwC. (Am.Compl.Exh. L.) PwC issued only one report on any Finantra financial statements—a clean report for the year ending December 31, 1999. During 2000, Finantra issued quarterly financial data in its Form 10-Q filings with the Securities and Exchange Commission ("SEC"); these filings disclosed on their face that they were unaudited.2 It appears to be undisputed that PwC reviewed this data, but never audited it or issued an opinion about it.
In October 2000, TAQ defaulted on the loan and Finantra defaulted on the guarantee. By agreement dated November 16, 2000, BHC extended the maturation date of the Loan Agreement to March 31, 2001.
In December 2000, Finantra retained PwC to perform an audit for 2000. (Am. Compl.Exh. M.) PwC began the work but suspended its audit in March 2001. (See 12/9/02 Cross-Motion by Pls., last exh., Exh. 2 at Tr. 358-60.) On April 4, 2001, TAQ again defaulted on the loan and Finantra again defaulted on the guarantee. BHC then foreclosed on the stock of Travelers, in which it had taken a security interest at the time of the October 1999 loan. (See Compendium filed with our Court on 10/18/02 by PwC, Tab O (5/11/01 8-K filing by Finantra).)
On August 16, 2002, BHC and Travelers filed their first Complaint.3 I shall now briefly outline the claims of the lead plaintiff BHC, as expanded in the Amended Complaint.
BHC alleges that it was induced to enter into the 1999 Loan Agreement through false and misleading statements and information provided by Finantra and its officers and directors. (Am.Compl.¶¶ 65-66.) The Amended Complaint refers generally to conduct by the "Finantra Officers and Directors," a term which is defined in the Amended Complaint to include Litt, Dwyer and Arthur Press among several other individuals. (Id. at ¶ 34.) Litt was a Director and the President of Finantra. (Id. at ¶ 26.) Dwyer and Arthur Press were outside Directors. It is alleged that Dwyer and Arthur Press were members of Finantra's ...
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