Friedman v. Meyers

• Decision Date: 14 May 1973
• Docket Number: Docket 73-1024.,No. 732,732
• Parties: Roslyn FRIEDMAN, Individually and for all other persons similarly situated, Plaintiff-Appellant, v. William MEYERS et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

482 F.2d 435 (1973)

Roslyn FRIEDMAN, Individually and for all other persons similarly situated, Plaintiff-Appellant, v. William MEYERS et al., Defendants-Appellees.

No. 732, Docket 73-1024.

United States Court of Appeals, Second Circuit.

Argued April 23, 1973.

Decided May 14, 1973.

Irving Lemov, New York City (Fuchsberg & Fuchsberg, New York City, of counsel), for plaintiff-appellant.

Frank R. Cohen, New York City (Farber & Cohen, New York City, of counsel), for defendants-appellees.

Before BREITENSTEIN,^* KAUFMAN and MANSFIELD, Circuit Judges.

MANSFIELD, Circuit Judge:

In this purported class action based on alleged fraudulent diversion and misappropriation of funds by promoters and managers of a real estate syndicate Roslyn Friedman, an investor in the venture, appeals from an order of the district court, Sylvester J. Ryan, Judge, granting summary judgment dismissing her complaint. Judge Ryan's order was based principally on his view that a decision dated November 5, 1970, in an action instituted in the New York Supreme Court, Kings County, by another investor in the venture, determined the issues "adversely to the plaintiff Friedman and those she purportedly represented." However, in January, 1973, while the appeal in the present case was pending, that decision was reversed on the merits by the New York Supreme Court, Appellate Division, Second Department. It further appears that genuine issues as to material facts are raised with respect to all of the other claims and defenses in the action. Accordingly, we reverse the order of the district court.

Plaintiff in the present case is one of 302 purchasers of part interests in a real estate syndicate known as Gair Industrial Buildings, which consists of 17 commercial buildings located in Brooklyn. The defendants William Meyers and his law partner, Joseph J. Schwartz, organized the venture in 1956, negotiating for the purchase of the buildings and employing a financial statement and salesmen to offer to their clients, friends and relatives the opportunity to invest in it on the understanding that each investor would receive a 12% per annum return on his or her investment. Plaintiff claims that after she invested in the venture the defendants engaged in various fraudulent acts which resulted in their misappropriating syndicate funds for their own use at the expense of herself and other investors similarly situated.

Federal jurisdiction is invoked on grounds of diversity of citizenship. 28 U.S.C. § 1332. Plaintiff is a resident of Connecticut, defendants are residents of New York, and the amount claimed by plaintiff exceeds $10,000. Since no order has been entered permitting maintenance of the action as a class suit, we limit ourselves to consideration of it as an individual diversity action.¹ Plaintiff's supplemental complaint² alleges that defendant Meyers, after obtaining the sum of $2,790,000 from investors on his representation that he would purchase the Gair premises for the investors in their names, conspired with the other defendants fraudulently to withhold financial benefits from them and to misappropriate their funds by taking title to the premises in the name of defendant Blackmer Realty Corp. and causing Blackmer to lease the premises to Schwartz. It is charged that Meyers, in breach of his fiduciary duties, thereby gained rental income from the premises for the personal benefit of Schwartz and himself, failing to notify plaintiff of the true rental value of the premises and fraudulently representing to investors that the lease was for their benefit.

The complaint sets forth six additional causes of action, including claims that defendants concealed and diverted to their own use money raised in excess of the purchase price of the premises, that they fraudulently caused a new mortgage to be placed on the premises without notifying investors, which decreased the investors' equity, and that on June 30, 1972, they fraudulently caused the premises to be sold for $6.5 million without the knowledge or consent of the investors pursuant to a scheme whereby defendants received $1,099,273.54 out of the sales price. Plaintiff seeks removal of Meyers as trustee and record owner of the premises, rescission of the lease between Blackmer and Schwartz, and damages.

Defendants deny the material allegations of the complaint and assert various affirmative defenses, including laches, the New York six-year statute of limitations, res judicata, ratification of the original transaction by plaintiff's acceptance of monthly payments for 16 years, and ratification by 96% of the investors of the June 30, 1972, sale of the premises. The res judicata defense was based on defendants' allegation that on November 5, 1970, in the New York Supreme Court, Kings County, action "by a member of plaintiff's class against one of the defendants (William Meyers) for the same claim as set forth in the plaintiff's complaint herein, judgment was rendered in defendant's favor dismissing plaintiff's action on the merits."

On August 2, 1972, defendants moved for summary judgment pursuant to Rule 56, F.R.Civ.P. Various affidavits in support of their motion, including that of Meyers, give their version of the facts and circumstances surrounding the investment of funds by plaintiff and other investors in the Gair Industrial Buildings syndication, the use of Blackmer as a conduit, the sale of the premises on June 30, 1972, and disclosures made to plaintiff and other investors. Attached to the supporting affidavits is a copy of a decision by Justice John H. Finn of the New York Supreme Court, Kings County, dated November 5, 1970, in an individual action instituted by an investor in the Gair Industrial Buildings syndicate named Brotman against William Meyers, seeking a judgment requiring him to "account concerning the operation, management, sale or transfer or mortgaging of the subject premises Gair Industrial Buildings and that he also account for all moneys received or disbursed since 1956."³ Although Justice Finn's opinion does not reveal the exact nature of the claims made by the plaintiff in the action before him or the grounds upon which the accounting was sought, it does state that "There is no charge or claim of any fraud or wrongdoing of any kind on the part of the defendant." Holding that "the mere acceptance by Meyers of a bare agency is not sufficient to entitle the principal to an accounting by the agent," Justice Finn granted the defendant's motion to dismiss the complaint and directed the entry of judgment accordingly.

In opposition to defendants' motion, plaintiff submitted the affidavits of herself, her attorney, and various investors in the syndicate, which directly support her complaint's principal allegations of fraud and take issue with defendants' assertions that disclosure was made of the material facts allegedly concealed. With respect to defendants' contention that the action was barred by laches and the New York statute of limitations, plaintiff and other investors state under oath that they did not learn of the earlier material nondisclosures relied upon by them until 1971, which was less than a year prior to commencement of plaintiff's suit. Furthermore, the alleged fraudulent sale of the premises in June 1972 post-dated the institution of the action and was incorporated in the supplemental complaint filed with the court's permission on October 27, 1972.

On November 27, 1972, Judge Ryan filed a memorandum decision in the form of a one-page endorsement granting defendants' motion for summary judgment.⁴ After describing defendants' motion and the general nature of the Gair Industrial Buildings venture, he disposed of the motion as follows:

"The record shows that the property involved in suit has been sold and that accounting claims were tried before Judge John H. Finn in the Supreme Court, Kings

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