O'BRIEN v. National Property Analysts Partners

• Decision Date: 15 June 1990
• Docket Number: No. 88 Civ. 4153 (PKL).,88 Civ. 4153 (PKL).
• Citation: 739 F. Supp. 896
• Parties: James O'BRIEN, et al., on behalf of himself and all others similarly situated, Plaintiffs, v. NATIONAL PROPERTY ANALYSTS PARTNERS, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

739 F. Supp. 896

James O'BRIEN, et al., on behalf of himself and all others similarly situated, Plaintiffs, v. NATIONAL PROPERTY ANALYSTS PARTNERS, et al., Defendants.

No. 88 Civ. 4153 (PKL).

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

June 15, 1990.

Goldberg Weprin & Ustin, New York City, for plaintiffs Estate of Jerome Moskowitz, Kenneth Moskowitz, Robert Lifton and Abraham Portnoy; Jack Weprin, Andrew W. Albstein, Michael J. Marino, of counsel.

Kohn, Savett, Klein & Graf, P.C., Philadelphia, Pa., Sullivan & Damen, White Plains, N.Y., for defendant National Property Analysts Partners; Harold E. Kohn, Joseph C. Kohn, George W. Croner, Philadelphia, Pa., Amy K. Damen, White Plains, N.Y., of counsel.

ORDER AND OPINION

LEISURE, District Judge:

Plaintiff class filed a complaint alleging violations of the federal securities laws, the Racketeer Influenced and Corrupt Organizations Act, and state law in connection with the offering and sale of shares in limited partnerships involved in the development of shopping malls. On July 27, 1989, the Court approved a settlement of the class action, and set August 10, 1989 as the final date for members of the plaintiff class to opt out of the class for settlement purposes. Four members of the plaintiff class (the "movants"), who did not opt out of the class prior to August 10, 1989, have filed a motion pursuant to Fed.R.Civ.P. 60(b) to extend the period to opt out; to modify the settlement order excepting movants from the release provisions contained therein; to vacate the settlement order; and to exclude movants from the plaintiff class. Defendant National Property Analysts Partners ("NPA") has opposed movants' motion.

FACTUAL BACKGROUND

The Court assumes the parties' familiarity with the underlying facts of the case. Only those facts relevant to the disposition of the pending motion will be set forth. In brief, four members of the plaintiff class—the Estate of Jerome Moskowitz, as successor in interest to the deceased Jerome Moskowitz, Kenneth Moskowitz, Robert Lifton, and Abraham Portnoy—argue that the class settlement order should be vacated, or, in the alternative, that they should be allowed to opt out of the plaintiff class, due to state court lawsuits brought against them by defendant NPA. Movants claim that the notice of class action settlement was defective in that it did not inform the plaintiff class of the potential for lawsuits brought against them by NPA, and the effects of certain release provisions of the settlement agreement on plaintiffs' ability to defend those lawsuits.

Movants purchased limited partnership interests in NPA-sponsored limited partnerships involved in the development of three shopping malls. Upon purchase of these limited partnership interests, each movant executed a Negotiable Promissory Installment Note (the "Note") obligating him to make quarterly payments for a period of years in order to purchase fully his interest. The Notes clearly set out the schedule of payments due, starting in January 1984 and extending on a quarterly basis until October 1989.

Early in 1986, movants Jerome Moskowitz and Kenneth Moskowitz became dissatisfied with the operation of the limited partnerships, specifically with respect to the denial by the Internal Revenue Service of tax benefits which had been heralded by the offering memoranda issued by NPA. Affidavit of Hal Martin, sworn to on March 14, 1990, ¶ 5 ("Martin Aff.");¹ Affidavit of Kenneth Moskowitz, sworn to on March 14, 1990, ¶ 2 ("Moskowitz Aff."). After unsuccessful attempts to receive an explanation from NPA as to the apparent failure of the limited partnerships in this regard, Jerome and Kenneth Moskowitz withheld payments due on their Notes during the last three quarters of 1987. Martin Aff., ¶ 6; Moskowitz Aff., ¶¶ 4-5. After further discussions with Howard Levy, vice president of NPA, Jerome and Kenneth Moskowitz made 50% payments on their notes throughout 1988. Martin Aff., ¶ 7; Moskowitz Aff., ¶ 6. Neither Jerome nor Kenneth Moskowitz made any payments after January 1989, at which time the lawsuit against NPA had been commenced. Martin Aff., ¶ 8; Moskowitz Aff., ¶ 7. Jerome Moskowitz is currently $455,676.50 in arrears on his Note; Kenneth Moskowitz is $208,343.50 in arrears. See Ex. 1 to Affidavit of Howard M. Levy, sworn to on April 4, 1990, ¶ 2.

The vice president of NPA asserts that "NPA never waived any payments due on the Investor Notes executed by Jerome or Kenneth Moskowitz." Levy Aff., ¶ 5. By letter dated January 7, 1988, NPA informed Jerome Moskowitz that while NPA agreed to the 50% payments during 1988, all payments on the Notes executed by both Jerome and Kenneth Moskowitz would be eventually due. See Ex. 2 to Levy Aff. The deferred payment schedules "were made by NPA solely in an effort to accommodate financial difficulties encountered by Jerome and Kenneth Moskowitz." Levy Aff., ¶ 5.

Similarly, movants Robert Lifton and Kenneth Portnoy discontinued payments on their Notes during 1989. Lifton is currently $47,510 in arrears on his Notes, while Portnoy is $38,008 in arrears. See Ex. 1 to Levy Aff. Lifton asserts that he stopped making payments on his Notes when "it had become clear that the offering memorandum was inaccurate, and miscolored the prospects for success." Affidavit of Robert Lifton, sworn to on March 14, 1990, ¶ 4.

On June 15, 1988, the initial complaint was filed in this case. On June 8, 1989, the Court conditionally certified a plaintiff class consisting of all persons who had purchased or acquired interests in NPA-sponsored limited partnerships between 1975 and 1989. As a settlement of the class action was at that time partially consummated, the Court directed by order dated June 8, 1989 that the class be given notice of the proposed settlement agreement, and that a summary notice be published in a national newspaper pursuant to Fed.R.Civ.P. 23. During the last week of June 1989, a Notice of Class Action Determination, Proposed Partial Settlement and Hearing (the "Notice" or "Notice of Settlement") was mailed to all members of the plaintiff class, and summary notice was published in the Wall Street Journal on July 14, 1989.

The focus of the instant motion is the adequacy of the Notice in instructing class members of the full effects of the class action settlement. In brief, movants argue that the Notice was fatally deficient in that it did not advise the plaintiff class that those class members who had not completed full payment on their Notes might continue to be liable for those payments. Furthermore, movants claim that the release terms of the settlement agreement were unfair and misleading, in that they may prevent movants and those similarly situated from raising certain defenses to actions brought against them for collection of the Notes. Movants allege that they were intentionally deceived by NPA into believing that the class action settlement would settle all outstanding disagreements between the parties, including the amounts due on the Notes.

Section VI of the Notice, entitled "Release and Assignment of Claims and Termination of the Litigation," described the effects of the settlement on the claims asserted by the plaintiff class. More specifically, paragraph A reads:

If the proposed settlement is finally approved by the District Court, the litigation, the Complaint, and each and every claim set forth therein, and all claims that might have been asserted therein, shall be dismissed on the merits and with prejudice as to the Settling Defendants. Moreover, the Plaintiffs and all Settlement Class Members, shall be fully and forever barred and enjoined from instituting or prosecuting, either directly or indirectly against, any and all individual class claims, allegations, actions, causes of actions or rights, whether known or unknown, against the Settling Defendants, and all individual or class claims, allegations, actions, causes of action or rights, whether known or unknown, against any insurer or reinsurer of any Settling Defendant.

The Notice does not contain any provisions concerning the effects of the settlement agreement on claims brought by NPA against members of the plaintiff class, based on the Notes or otherwise. There is no language which states or implies that all claims brought by any party concerning the underlying transactions are forever barred.

The Notice advises the plaintiff class of the hearing held before the Court on July 27, 1989, and that requests for exclusion from the class must be postmarked on or before July 24, 1989. The Notice states that it is a "summary" of the proposed settlement, and that a copy of the full settlement agreement may be examined at the Office of the Clerk of the Court of the Southern District of New York. None of the movants requested exclusion from the class by mail as provided for in the Notice or appeared at the hearing held before the Court on July 27. At the hearing held before the Court, the time for plaintiff class members to opt out of the class was extended to August 10, 1989. No additional notice of this extension was mailed to the plaintiff class or published in a newspaper or journal.

NPA filed complaints dated July 17, 1989 in New York State Supreme Court in Manhattan against Jerome and Kenneth Moskowitz for payment of all amounts due on their Notes. The date of service of the summons and complaints is disputed by the parties. The accountant for Jerome and Kenneth Moskowitz states that the complaints were mailed "on or about ... July 27, 1989." Martin Aff., ¶ 4. Affidavits of service, however, indicate that service of the summons and complaints against Jerome and Kenneth Moskowitz took place at their place of business on July 20, 1989. Affidavits of Ralph L. Addonizio, sworn to on July 25, 1989, annexed as Ex. A to Affidavit of Elliot Schnapp, Esq., sworn to on April 3, 1990 ("Schnapp Aff.");² see also Schnapp Aff., ¶¶ 4-6. In an affidavit filed in reply to NPA's...