Cocklereece v. Moran

• Decision Date: 27 January 1982
• Docket Number: Civ. A. No. 78-10 A.
• Citation: 532 F. Supp. 519
• Parties: Allan R. COCKLEREECE v. Dora Dodge MORAN, et al. v. Terrence B. PHILLIPS.
• Court: U.S. District Court — Northern District of Georgia

532 F. Supp. 519

Allan R. COCKLEREECE v. Dora Dodge MORAN, et al. v. Terrence B. PHILLIPS.

Civ. A. No. 78-10 A.

United States District Court, N. D. Georgia, Atlanta Division.

January 27, 1982.

COPYRIGHT MATERIAL OMITTED

Joseph J. Schafrik, Magaro & Schafrik, Martin D. Chitwood, Stowers, Roane & Carley, Atlanta, Ga., for plaintiffs.

Sidney O. Smith, Alston, Miller & Gaines, R. B. Bernhardt, Bonnie Futch, Atlanta, Ga., Irving M. Weiss, P.A., Pompano Beach, Fla., J. Britten Miller, Jr., Ellijah, Ga., Joseph Crooks, Jones, Bird & Howell, Paul W. Sloniowski, F. Carter Tate, Kidd, Pickens & Tate, J. M. Raffauf, Atlanta, Ga., for defendants.

ORDER

RICHARD C. FREEMAN, District Judge.

Plaintiff in this action for damages alleges violations of the federal and state securities laws, common law fraud, and breach of contract. The action is currently before the court on the motion of defendants Coopers and Lybrand (United States) (hereinafter "C&L(U.S.)") and Coopers and Lybrand (International) (hereinafter "C&L(I)") for summary judgment, Rule 56, Fed.R.Civ.P.

I. FACTUAL BACKGROUND

This case involves an alleged "advance money scheme." According to the plaintiff's complaint, in June 1977, T. P. McGlon visited the office of plaintiff's accountant and financial advisor, Terrence B. Phillips, and represented that various entities and associates, including James W. Feeney, Daniel and Dora Moran, Natural Resources, S.A., Darnley Investments, Ltd., Hartford Construction Company, Ltd., and Phillip J. Fleming (hereinafter "Funding Group") could make their assets available to obtain guaranteed loans for Phillips' clients. While discussing the possibility of this arrangement with Phillips, McGlon showed Phillips the 1975 financial statement of First Charter Corporation,¹ allegedly prepared by C&L(U.S.), and the 1976 financial statement of Tamarind Developments (Grand Bahama) Ltd. (hereinafter "Tarmarind"), prepared by C&L(Bahamas).² McGlon represented that he and Fleming owned a controlling interest in First Charter and fifty-four percent of Tamarind's stock, and that the assets of these two companies would be available for use in securing a loan. Phillips Dep. at 82.

In July 1977, allegedly as a consequence of this representation, Phillips arranged for the plaintiff to secure a $2,000,000 loan through the Funding Group for the purpose of purchasing McDaniel Printing Company, Inc. The transaction purportedly involved several components. Cocklereece agreed to advance $30,000 into escrow as a deposit. Complaint at ¶ 27; Defendants' Brief in Support of Motion for Summary Judgment, Exh. 1 (hereinafter "Defendants' Brief"). Upon receiving this sum, Feeney, president of Oaks-Darby Ltd., promised that the Funding Group would pledge their assets to a Panamanian bank in return for a $2,000,000 certificate of deposit drawn in the name of the Funding Group. Cocklereece Dep. at 23-24, 26. This certificate would then be placed in a domestic bank as collateral for a loan to be made out to Cocklereece. The terms of the financing were specified in a loan commitment letter sent by Feeney to Cocklereece:

The cost of said financing will be nine percent per year for the use of the Certificate of Deposit as more fully described in our conversations. The commitment will be issued for three years. Two years interest to be paid as described below with an option by borrower of one additional year of financing with the next years five percent interest being paid upon exercise of said option.

You will remit thirty thousand dollars upon signing of this agreement and an additional three hundred thirty thousand dollars to be paid upon closing.

Defendants' Brief, Exh. 1. Thus, Cocklereece agreed to pay a nine percent annual return on the $2,000,000 in advance for two years at the closing of the loan. Although Cocklereece paid the $30,000 escrow deposit to Oaks-Darby, the defendants did not procure the loan or return his money.

Plaintiff alleges that he agreed to pay the $30,000 to secure the loan on the basis of his accountant's evaluation of the financial statements of First Charter and Tamarind which were allegedly prepared by a C&L entity. These statements, submitted to Phillips by McGlon, were reviewed to determine whether the equity of the two companies was sufficient collateral to obtain a $2,000,000 certificate of deposit from a Panamanian bank. Allegedly, because the statements were essentially unqualified³ and reflected sufficient equity, plaintiff agreed to pay his money to the Funding Group.

Several months later, after determining that his loan was not forthcoming, Cocklereece investigated the members of the Funding Group and examined the audit opinions and financial statements shown to his accountant. To his great surprise, Cocklereece discovered that he had been defrauded by the Funding Group. As to the C&L defendants, Cocklereece claims that the audit opinions of First Charter and Tamarind on which he relied contained accounting irregularities and, in addition, should have been qualified due to C&L's lack of independence. Cocklereece argues, if they had been qualified, he would not have advanced any money to the Funding Group.

In support of these contentions, the plaintiff points, inter alia, to the following: that various members of C&L(Bahamas) owned a majority interest in Tamarind at the time the audit was issued, Plaintiff's Brief in Opposition to Defendants' Motion for Summary Judgment (hereinafter "Plaintiff's Brief"), Exh. 3 at 7, Exh. 2 at 4-5; that C&L(Bahamas) had negotiated with McGlon and Fleming for Darnley Investments, Ltd.⁴ to acquire an option to purchase the majority stock in Tamarind, Id., Exh. 2 at 4; that C&L(Bahamas) was in business with McGlon and Fleming, Plaintiff's Brief at 5; and that McGlon and Fleming had a claim to title for a substantial interest in First Charter, Id., Exh. 3 at 9-10.

Defendants portray the details of the loan scheme in the same light as the plaintiff: Cocklereece gave $30,000 to Oaks-Darby on the assurance that Oaks-Darby would obtain for him a Panamanian certificate of deposit. However, the similarity ends there. Defendants argue that although McGlon represented that the Funding Group owned an interest in First Charter and Tamarind and would be able to pledge the assets of these entities to obtain a certificate of deposit, in fact, no member of the Funding Group owned any stock or interest in either of these two companies nor had any right to pledge their assets. Hence, "McGlon might just as well have represented to Cocklereece that the Funding Group owned 54% of IBM, General Motors, or any one or more of the Fortune 500 Companies." Defendants' Brief at 14.

With respect to C&L(I)'s alleged liability for the fraudulent loan scheme, defendants insist that C&L(I) did not prepare any financial statements involved in the lawsuit and had no relationship whatsoever with Tamarind, First Charter, Phillips, Cocklereece or any other member of the Funding Group and did not receive any of the $30,000 escrow deposit. As to C&L(U.S.)'s alleged involvement, defendants argue that the only nexus between C&L(U.S.) and the scheme is the 1975 First Charter Corporation opinion and First Charter Land Associates financial statement presented to Phillips as part of the back-up information substantiating the assets owned by the Funding Group. Defendants urge that the latter document was a forgery and was not prepared by C&L(U.S.).⁵

II. THE HISTORY OF THIS LAWSUIT

On January 5, 1978 the plaintiff filed suit based on diversity of citizenship against members of the Funding Group and related entities — Daniel and Dora Dodge Moran, Thomas P. McGlon, Phillip J. Fleming, James W. Feeney, Natural Resources, S.A., Intercontinental Investments, Inc., Darnley Investments, Ltd., Hartford Construction Company, Ltd., Michael Marion, Jean Feeney, Lionel Leeds, and Oaks-Darby, Ltd., alleging common law fraud and breach of contract. In July 1978, plaintiff's motion for leave to amend the complaint to add federal and state securities claims and to add C&L(I), C&L(U.S.), C&L(Bahamas), and other Funding Group members — Theresa McGlon, and Augustin J. San Fillipo — as defendants was granted. Thereafter, in August 1978, defendants C&L(I) and C&L(U.S.) filed a third party complaint against Terrence B. Phillips, plaintiff's accountant. Subsequently, by order dated September 29, 1980, C&L(Bahamas) was dismissed from the lawsuit for lack of personal jurisdiction; and by orders dated March 2, 1981 and May 6, 1981, several members of the Funding Group were voluntarily dismissed without prejudice.⁶

As amended, the plaintiff's complaint is cast in seven counts. Counts I and II allege common law fraud and breach of contract, respectively. Counts III, IV, VI, and VII state various causes of action under the Securities Act of 1933, 15 U.S.C. §§ 77o, 77c, 77l(1), (2), 77q(a), and the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78t, 78j(b). Finally, in Counts III, V, and VI, plaintiff asserts claims under the state securities laws, Ga.Code Ann. §§ 97-112, 114.

In support of their motion for summary judgment, defendants advance three principal arguments: (1) that none of the alleged errors or omissions in either the Tamarind or First Charter financial statements proximately caused the loss suffered by Cocklereece; (2) that, as a factual matter, C&L(I) did not participate in the fraudulent loan scheme and did not audit either the Tamarind or First Charter financial statements, and that C&L(U.S.) prepared neither the forged First Charter statement nor the Tamarind statement; and, (3) that the particular counts of the complaint are defective as a matter of law, and alternatively, that the counts are unsupported by evidence sufficient to survive a motion for summary judgment.⁷

In response, the plaintiff asserts that the defendants' motion should be denied on several grounds. First, plaintiff argues that the defendants are responsible...