Block v. First Blood Associates

Decision Date15 March 1993
Docket NumberD,No. 90,90
Citation988 F.2d 344
PartiesFed. Sec. L. Rep. P 97,387, 25 Fed.R.Serv.3d 264 Stanley B. BLOCK; John C. Blazier; Joseph A. Clements; Dan W. Deloney; Wyatt C. Deloney; Ralph Diorio; Robert A. Epstein; Charles B. Filleman; Glenna Goodacre; Robert Goodacre; Joe E. Goodwin; Sarah Grace; Edmond J. Harris; Wesley H. Hocker; Roman Hought; W.R. Jacobsen; Robert L. Jordan; Ted Kotcheff; Frank H. Kush; David Laman; Hurdle H. Lea; David D. Maytag; Doyle E. Montgomery; Henry Nobel; Ron Maller; William H. Plummer; Edward E. Rottenberry; G. Walter Rottenberry; Michael J. Scarfia; Bill R. Sparks; Lewis F. Wood, Plaintiffs-Appellants, v. FIRST BLOOD ASSOCIATES; A. Frederick Greenberg; Richard M. Greenberg; Anabasis Investments, N.V.; Carolco Pictures, Inc.; Goldschmidt, Fredericks & Oshatz; Henry J. Goldschmidt; Lawrence E. Goldschmidt; Michael P. Oshatz; Leonard A. Messinger; Sanford J. Schlesinger; Edward I. Sussman; Mark A. Meyer; Touche Ross & Co., Defendants. FIRST BLOOD ASSOCIATES; A. Frederick Greenberg; Richard M. Greenberg, Defendants-Appellees, v. UNITED STATES of America, Intervenor. ocket 91-7558.
CourtU.S. Court of Appeals — Second Circuit

I. Stephen Rabin, New York City (Joseph P. Garland, Brian Murray, New York City of counsel), for plaintiffs-appellants.

Scott M. Berman, New York City (Jay G. Strum, Michael K. Rozen, Kaye, Scholer, Fierman, Hays & Handler, New York City, of counsel), for defendants-appellees.

Kay K. Gardiner, Asst. U.S. Atty. for S.D.N.Y., New York City (Otto G. Obermaier, U.S. Atty. for S.D.N.Y., Gabriel W. Gorenstein, Asst. U.S. Atty. for S.D.N.Y., New York City, Barbara Biddle, Scott R. McIntosh, Appellate Staff, Civ. Div., U.S. Dept. of Justice, Washington, DC, James R. Doty, General Counsel, Paul Gonson, Solicitor, Jacob H. Stillman, Associate Gen. Counsel, Leslie E. Smith, Sr. Sp. Counsel, Michael G. Lenett, Sr. Counsel, Kelly Rowe, Atty., S.E.C., Washington, DC), for intervenor and amicus curiae S.E.C.

Before PIERCE, MINER and WALKER, Circuit Judges.

MINER, Circuit Judge:

Plaintiff-appellant Stanley Block filed a class action in November 1986 against defendants-appellees First Blood Associates ("First Blood"), A. Frederick Greenberg and Richard M. Greenberg (collectively "the Greenbergs"), and against defendants Anabasis Investments, N.V. ("Anabasis") and Carolco Pictures, Inc. ("Carolco") after purportedly relying to his detriment on allegedly false statements made in a private placement memorandum issued by First Blood. In his complaint, Block alleged that all the defendants committed securities fraud, in violation of section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b) (1988), and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5 (1992), and committed the common law torts of fraud and deceit. Also alleged in the complaint was a breach of contract claim against First Blood.

In July of 1988 the district court denied Block's motion for class certification but granted him leave to renew upon a showing that a "meaningful number" of other investors shared with him an "identity of interest." See Block v. First Blood Assocs., 691 F.Supp. 685, 695-96 (S.D.N.Y.1988) ("Block II "). Block's second motion for class certification was filed in December 1988 and denied by the district court three months later. See Block v. First Blood Assocs., 125 F.R.D. 39 (S.D.N.Y.1989) ("Block III ").

In July of 1989 Block and twenty-nine other investors (collectively "the Investors") filed an amended complaint against the original defendants: First Blood; the Greenbergs; Anabasis; and Carolco; and added the following as defendants: Touche Ross & Co. ("Touche Ross"); the law firm of Goldschmidt, Fredericks & Oshatz; and its partners, Barry Fredericks, Henry Goldschmidt, Michael Oshatz, Leonard A. Messinger, Sanford Schlesinger, Edward Sussman and Mark Meyer. 1 In his amended complaint, Block reiterated the allegations in his first complaint, except the breach of contract claim against First Blood, and further alleged: section 10(b) and common law fraud and deceit against the newly added defendants; negligence and malpractice against the newly added defendants; breach of contract against Anabasis and Carolco; breach of fiduciary duty against First Blood and the Greenbergs; and negligent misrepresentation against all the defendants. The district court ordered that discovery be completed by November 14, 1990, and that a final pretrial order be submitted two weeks later.

On November 5, 1990, First Blood and the Greenbergs filed an amended answer, raising a statute of limitations defense for the first time. Three days later, we decided Ceres Partners v. GEL Associates, 918 F.2d 349 (2d Cir.1990), holding that section 10(b) claims must be brought within one year of discovery of the fraud but no more than three years after the fraud occurred. On November 19, First Blood and the Greenbergs moved for summary judgment The Investors appeal from the district court's dismissal of their claims, and Block appeals from the district court's refusal to grant his motion for class certification.

                to dismiss the Investors' action as time barred.   On April 30, 1991, the district court granted the defendants' motion and dismissed the action.   See Block v. First Blood Assocs., 763 F.Supp. 746 (S.D.N.Y.1991) ("Block V ").   The district court construed defendants' summary judgment motion as including a motion to amend their answer pursuant to Fed.R.Civ.P. 15(a) to plead a statute of limitations defense.   See id. at 747-48.   After granting the defendants leave to amend, see id. at 748-50, the district court found that the Investors' claims were time barred under the pre-Ceres statute of limitations because their action accrued in 1982--the date when the last plaintiff purchased shares in First Blood--and all the acts complained of took place at or before the purchase of the shares.   See id. at 750-51.   The district court also determined, upon applying retroactively the new limitations period announced in Ceres, that the Investors' action was time barred.   See id. at 751-52.   Finally, the district court dismissed the Investors' state law claims, apparently for lack of pendent jurisdiction.   See id. at 752

The facts giving rise to this action are set forth in five published opinions written by Judge Sweet, see Block V, 763 F.Supp. 746; Block v. First Blood Assocs., 743 F.Supp. 194 (S.D.N.Y.1990) ("Block IV "); Block III, 125 F.R.D. 39; Block II, 691 F.Supp. 685; Block v. First Blood Assocs., 663 F.Supp. 50 (S.D.N.Y.1987) ("Block I "). We assume familiarity with these opinions and therefore provide only a brief summary of the facts and circumstances giving rise to this action.

First Blood is a New York limited partnership formed in July 1981 for the purpose of acquiring the rights to the film First Blood (Carolco/Orion 1982) ("the film") from Anabasis, a privately-owned company organized under the laws of the Netherlands Antilles. The Greenbergs are the only general partners of First Blood. See Block II, 691 F.Supp. at 688.

In September 1982, through a sale and service contract ("the Purchase Agreement"), First Blood purchased the film from Anabasis for $200,000 in cash and a recourse note in the sum of $18,924,000. First Blood also entered into a distribution agreement with Anabasis ("the Distribution Agreement"), granting "Anabasis the exclusive right to exploit the film on a world-wide 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 [First Blood]." See id.

Anabasis agreed to pay First Blood certain "contingent license fees" and certain "additional license fees" if the film generated certain levels of "gross receipts." Contingent license fees were estimated to be slightly in excess of the amount due on the recourse note until 1989 (approximately $2000 per full partnership unit per year), after which they would increase substantially. "Additional license fees" included various percentages of the film's gross receipts in excess of $45,000,000. The Distribution Agreement required that Anabasis pay First Blood "additional license fees as earned." See id.

First Blood wanted to take advantage of certain tax regulations in force at the time and to generate long-term profits. Touche Ross prepared a report, projecting that substantial tax benefits would accrue to First Blood through 1987, to be followed by substantial profits beginning in 1989. First Blood issued a private placement memorandum ("the Memorandum") offering limited partnership units to " 'accredited' investors or [those investors] 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." First Blood offered twenty-eight limited partnership units for $200,000 each and accepted subscriptions for fractional units. Fifty-seven investors purchased full or The Memorandum limited the offering to sophisticated and wealthy investors. All prospective limited partners were required to complete a purchaser questionnaire, which required the investors to list their income tax rate, net worth, education, frequency of investment in marketable securities and previous investments purchased under the nonpublic offering exemption from registration of the Securities Act of 1933 ("the 1933 Act"), 15 U.S.C. § 77d (1988). See 691 F.Supp. at 688-89.

                fractional interests in First Blood, ranging from $50,000 to $400,000 in price.   See id

First Blood also required the limited partners purchasing a full partnership unit to assume $662,970 of the recourse note executed in favor of Anabasis ("the Assumption Agreement") or a share of the recourse note...

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