Block v. First Blood Associates, 86 Civ. 8811 (RWS)

• Decision Date: 06 July 1988
• Docket Number: 87 Civ. 4128 (RWS).,No. 86 Civ. 8811 (RWS),86 Civ. 8811 (RWS)
• Citation: 691 F. Supp. 685
• Parties: Stanley B. BLOCK, on behalf of himself and all others similarly situated, Plaintiff, v. FIRST BLOOD ASSOCIATES; A. Frederick Greenberg; Richard M. Greenberg; Anabasis Investments, N.V.; Mario P. Kassar; Andrew G. Vajna, and Carolco Pictures, Inc., Defendants. CAROLCO PICTURES, INC., Plaintiff, v. Howard B. SIROTA, an individual, Howard B. Sirota, P.C., a professional corporation, Stanley Block, an individual, and Does 1 through 100, Defendants.
• Court: U.S. District Court — Southern District of New York

691 F. Supp. 685

Stanley B. BLOCK, on behalf of himself and all others similarly situated, Plaintiff, v. FIRST BLOOD ASSOCIATES; A. Frederick Greenberg; Richard M. Greenberg; Anabasis Investments, N.V.; Mario P. Kassar; Andrew G. Vajna, and Carolco Pictures, Inc., Defendants.

CAROLCO PICTURES, INC., Plaintiff, v. Howard B. SIROTA, an individual, Howard B. Sirota, P.C., a professional corporation, Stanley Block, an individual, and Does 1 through 100, Defendants.

Nos. 86 Civ. 8811 (RWS), 87 Civ. 4128 (RWS).

United States District Court, S.D. New York.

July 6, 1988.

Rabin & Sirota, New York City, for plaintiff Stanley Block; I. Stephen Rabin, of counsel.

Kaye, Scholer, Fierman, Hays & Handler, New York City, for First Blood defendants; Jay G. Strum, John D. Chapman, of counsel.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for plaintiff Carolco Pictures, Inc.

Oberstein, Doniger & Fetter, Los Angeles, Cal., for plaintiff Carolco Pictures, Inc.

D'Amato & Lynch, New York City, for defendant Howard B. Sirota; Thomas F. Breen, of counsel.

Mark Brenner, New York City, for defendant Stanley Block.

OPINION

SWEET, District Judge.

Defendants Andrew G. Vajna ("Vajna") and Mario P. Kassar ("Kassar") in Block, et al. v. First Blood Assocs., et al., No. 86 Civ. 8811 ("Block"), have renewed their motion to dismiss the complaint of plaintiff Stanley B. Block ("Block") for lack of jurisdiction, and all of the Block defendants have moved pursuant to Fed.R.Civ.P. 56 for summary judgment dismissing the complaint. Block has moved for class certification under Fed.R.Civ.P. 23 and Local Rule 4(c) of the Civil Rules for the United States District Courts for the Southern and Eastern Districts of New York. In a related case, Carolco Pictures, Inc. v. Sirota, et al., No. 87 Civ. 4128 ("Carolco"), defendants Block and Howard B. Sirota ("Sirota") have moved for summary judgment under Rule 56 for an order dismissing the complaint. Plaintiff Carolco Pictures, Inc. ("Carolco") has moved to retransfer Carolco to the United States District Court for the Central District of California for remand to the state court.

These motions were argued and submitted together and because the disputes between the parties arise out of related facts and issues, the motions will be disposed of together. Upon the following facts and conclusions, the motion of Vajna and Kassar is granted and the complaint in Block will be dismissed with costs as to them. The motion for class certification in Block will be denied with leave granted to renew upon the conditions set forth below. The motions to retransfer Carolco and for summary judgment in Block and Carolco will be denied.

Prior Proceedings

On November 14, 1986 Block filed a three-count complaint against the First Blood Associates ("First Blood"), A. Frederick Greenberg ("F. Greenberg"), Richard M. Greenberg ("R. Greenberg") (collectively the "First Blood defendants"), Anabasis Investments, N.V. ("Anabasis"), Kassar, Vajna and Carolco. The first claim is asserted under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder (collectively, "10b-5") against all of the defendants and relates to a private placement memorandum issued by First Blood. The second claim alleges common law fraud and deceit, and the final claim alleges a breach of contract against the First Blood defendants.

Block's complaint alleges that First Blood is a limited partnership which falsely represented in its private placement memorandum (the "Memorandum") that it owned a film "First Blood" and that it would pay the limited partners ninety-eight percent of the net profits of the partnership. The complaint sets forth eight allegedly false representations in the Memorandum; in general, the complaint charges that the Memorandum was "false and misleading in that First Blood was not to and did not acquire genuine ownership of the film since actual ownership was retained by Anabasis." (Complt. ¶ 32(a)). Block contends that in purchasing his interest in First Blood he relied on these allegedly false representations and was damaged. The complaint further alleges that First Blood owes the limited partners cash distributions pursuant to the terms of the Memorandum.

On February 19, 1987, Block moved for class certification. Pursuant to agreement of counsel, Block's Rule 23 motion was adjourned and considered in connection with the First Blood defendants' present motion for summary judgment.

On March 10, 1987, Vajna and Kassar moved to dismiss Block's complaint against them under Rule 12(b)(2) for lack of in personam jurisdiction. Anabasis, Carolco, Vajna and Kassar also moved to dismiss the complaint for failure to plead fraud with particularity as required by Fed.R. Civ.P. 9(b). By opinion dated June 9, 1987, both motions were denied with leave granted to Vajna and Kassar to renew after sixty days in order to afford Block an opportunity to take discovery directed at the jurisdictional issue. See Block v. First Blood Assocs., et al., 663 F.Supp. 50 (S.D. N.Y.1987). Thereafter, Block took the depositions of Vajna and Kassar on July 21 and July 22, 1987, respectively. Vajna and Kassar renewed their motion to dismiss on November 16, 1987.

On February 10, 1987, Carolco commenced its action by filing a complaint for defamation and interference with economic advantage, against defendants Sirota, Howard B. Sirota, P.C. (the "Sirota defendants"), Block and "Does 1 through 100", in the Superior Court of the State of California for the County of Los Angeles on or about February 10, 1987. The Carolco complaint alleges that Sirota and Block defamed Carolco by disseminating false information concerning Carolco and its proposed public offering, by preparing and distributing a draft of the Block complaint to Carolco's underwriters, by making false charges to the press, and by threatening litigation unless settlement payments were made. Carolco alleges damages resulting from a reduction in the amount sought in its public offering.

On March 18, 1987 the Sirota defendants filed and served their petition for removal of Carolco to the United States District Court for the Central District of California by reason of diversity of citizenship. Block joined in that removal petition on March 24, 1984. Thereafter, the Sirota defendants moved, pursuant to 28 U.S.C. § 1404, to transfer Carolco to the United States District Court for the Southern District of New York. By order dated April 28, 1987, the action was transferred to New York and, on June 25, 1987, assigned to this court.

On November 6, 1987, the United States Court of Appeals for the Ninth Circuit filed its opinion in Bryant v. Ford Motor Co., 844 F.2d 602 (9th Cir.1987), holding that "the presence of Doe defendants under California Doe defendant law destroys diversity and, thus, precludes removal" in all such cases. Bryant, 844 F.2d at 605. In a footnote, the Court declared that "this new rule will apply retroactively and that federal courts should remand pending cases containing allegations against unnamed Doe defendants to state court...." Id. at 606 n. 7. Based on the holding in Bryant, Carolco moved to retransfer Carolco on November 25, 1987. In response, Block and the Sirota defendants moved on November 30, 1987 for summary judgment dismissing the complaint.

By agreement of the parties all these motions were argued and submitted on March 11, 1988.

The Facts

First Blood was formed as a New York limited partnership on July 28, 1981 for the purpose of acquiring the rights to the film "First Blood" from Anabasis which is a privately-owned company organized under the laws of the Netherlands Antilles. The Greenbergs are the sole general partners of First Blood.

On September 1, 1982, under the form of a sale coupled with a service contract (the "Purchase Agreement"), First Blood purchased the film from Anabasis for $200,000 in cash and a recourse note totaling $18,942,000. The partnership also deposited $3,070,000 into a joint bank account for the payment of certain advertising expenses. At the closing, First Blood entered into a distribution agreement with Anabasis (the "Distribution Agreement"), under which First Blood granted "Anabasis the exclusive right to exploit the film on a worldwide basis in all media for a period commencing on the date of the Distribution Agreement and ending December 31, 1990" and "the exclusive right to exploit the film to the full extent such rights are possessed by the Partnership."

Anabasis agreed to pay the partnership certain "contingent license fees" and certain "additional license fees" if the film generated certain levels of "gross receipts." Contingent license fees were projected to be slightly in excess of the amount due on the recourse note until 1989, when they would increase substantially. From 1982 through 1989, contingent license fees were projected to equal approximately $2,000 per full partnership unit per year. "Additional license fees" were defined as various percentages of the film's gross receipts in excess of $45,000,000. The Distribution Agreement required Anabasis to pay the partnership "additional license fees as earned."

First Blood sought to take advantage of certain tax regulations in force at the time and to generate long term profits. A report prepared by Touche Ross & Co. set forth the partnership projected substantial tax benefits through 1987 and substantial profits beginning in 1989. A private placement memorandum (the "Memorandum") was issued by First Blood under which limited partnership units were offered to "`accredited' investors or who either alone or with their purchaser representative(s) have such knowledge and experience in financial and business sic that they are capable of evaluating the merits and risks of their prospective investments." The partnership offered twenty-eight limited partnership units for $200,000 each and accepted subscriptions for fractional units. Fifty-seven...