In re Heritage Bond Litigation

• Decision Date: 06 January 2003
• Docket Number: Nos. CV 01-5752 DT(RCX), CV 02-383 DT(RCX), CV 02-993 DT(RCX), CV 02-2745 DT(AJWX), CV 02-6484 DT(RCX), CV 02-6841 DT(RCX), CV 02-6512 DT(AJWX).,s. CV 01-5752 DT(RCX), CV 02-383 DT(RCX), CV 02-993 DT(RCX), CV 02-2745 DT(AJWX), CV 02-6484 DT(RCX), CV 02-6841 DT(RCX), CV 02-6512 DT(AJWX).
• Citation: 289 F.Supp.2d 1132
• Court: U.S. District Court — Central District of California
• Parties: In re HERITAGE BOND LITIGATION

289 F.Supp.2d 1132

In re HERITAGE BOND LITIGATION

Nos. CV 01-5752 DT(RCX), CV 02-383 DT(RCX), CV 02-993 DT(RCX), CV 02-2745 DT(AJWX), CV 02-6484 DT(RCX), CV 02-6841 DT(RCX), CV 02-6512 DT(AJWX).

United States District Court, C.D. California.

January 6, 2003.

Robert J. Feldhake, Joshua Mark Wolff, Lisa A. Roquemore, Daniel M. Harkins, Michelle R. Johnson, Feldhake August & Roquemore, Stanley R. Jones, Stanley R. Jones Law Offices, Irvine, CA, for Plaintiffs.

G Cresswell Templeton, III, Steven W. Bacon, Paul M. Porter, Hill Farrer & Burrill, Los Angeles, CA, Jerold V. Goldstein, Jerold V. Goldstein Law Offices, Encino, CA, Eric N. Landau, Steven J. Aaronoff, Shawn M. Harpen, McDermott, Will & Emery, Irvine, CA, Michael Floyd Wright, Ronald S. Caswell, Case, Knowlson, Jordan & Wright, Los Angeles, CA, Gary Kurtz, Gary Kurtz Law Offices, Woodland Hills, CA, Curtis L. Metzgar, Bruce M. Butler, Even, Crandall, Wade & Lowe, Rancho Cucamonga, CA, F X Sean O'Doherty, Lissete Garcia, Gates, O'Doherty, Gonter & Guy, Los Angeles, CA, Victor A. Raphael, Michelle A. Jenkins, Gates, O'Doherty, Gonter & Guy, Irvine, CA, Michael

C. Robinson, Jr., Robinson, Di Lando & Whitaker, Los Angeles, CA, William E. Crockett, Steven R. Skirvin, Dion-Kindem & Crockett, Woodland Hills, CA, Michael H. Raichelson, Michelman & Robinson, Encino, CA, Christopher Frank Wong, Bryan Cave, Santa Monica, CA, Steven H. Schwartz, Schwartz & Jansen, Los Angeles, CA, Steven M. Green, Steven M. Green Law Offices, San Diego, CA, Sheldon E. Eisenberg, Santa Monica, CA, Dirk L. Vincent, Richard D. Gluck, Fairbank & Vincent, Los Angeles, CA, Kevin W. Alexander, Gordon & Rees, San Diego, CA, James F. Dlugosch, St Louis Park, MN, Jeffrey L. Sikkema, Dorsey & Whitney, Irvine, CA, Heather J. Klaas, Brian E. Palmer, Dorsey & Whitney, Minneapolis, MN, Diane L. Dragan, Nitz Walton & Heaton, Las Vegas, NV, Charles R. Grebing, Kimberly Diane Howatt, Wingert, Grebing, Brubaker & Ryan, Steven Cruz Uribe, Douglas M. Butz, K Elizabeth Dunn, Alan D. Leeth, Butz, Dunn, DeSantis & Bingham, San Diego, CA, Michael A. Taitelman, John Donald Guerrini, Freedman & Taitelman, Thomas M. Moore, Peter D. Sunukjian, Drinker, Biddle & Reath, Los Angeles, CA, Mark P. Epstein, Poeschl, Kohn & Epstein, Oakland, CA, for Defendants.

Robert Merlee Doby, III, Cantey & Hanger, Fort Worth, TX, for Plaintiff.

Frank R. Cruz, Barger & Wolen, Los Angeles, CA, Donald Colleluori, Figari & Davenport, Jonathan G. Erwin, Figari, Dabenport & Graves, Dallas, TX, Raymond A. Greenberg, Greenberg Law Firm, Calabasas, CA, Betsy C. Manifold, Francis A. Bottini, Jr., Wolf, Haldenstein, Adler, Freeman & Herz, San Diego, CA, Michael J. Schiff, Easton & Schiff, Los Angeles, CA, Frank J. Ozello, Jr., Gray York Duffy, Encino, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS EDWARD J. HENTGES, KENNETH R. LARSEN, JEROME E. TABOLICH, STEVEN W. ERICKSON, AND PAUL R. EKHOLM'S MOTION TO DISMISS CONSOLIDATED FOURTH AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 12(b)(6) AND 9(b)

TEVRIZIAN, District Judge.

I. Background

A. Factual Summary

Plaintiffs Betker Partners One, LP ("Betker One"), Betker Partners Three, LP ("Betker Three"), Betker Family Trust ("Betker Trust") (collectively, "Betker Plaintiffs"), and Lori and Michael O'Shea (all party Plaintiffs collectively, "Plaintiffs") bring this action over the alleged misuse of the proceeds of twelve bond offerings against Defendants U.S. Trust Corporation, N.A., U.S. Trust Company of Texas, N.A., and Bank of New York, Inc. (collectively, "Trustee Defendants"); Heritage Healthcare of America, Inc.("Heritage America"), Heritage Geriatric Housing Development VII, Inc., Heritage Geriatric Housing Development VIII, Inc., Heritage Geriatric Housing Development IX, Inc., Heritage Care of Chicago, Inc., Heritage Care of Sarasota, Inc. (collectively, "Heritage Entities"); Heritage Housing Development, Inc. ("HHD"); Health Care Holdings, LLC ("HCH"); CareContinuum, LLC; Heritage Acceptance Corporation; Affiliated Metropolitan Contractors, Inc.; Robert Kasirer ("Kasirer"), Jerold Goldstein ("Goldstein"), and O.V. Bertolini ("Bertolini") (collectively, "Heritage Principals"); Bruce Talley ("Talley"), Debra Kasirer, individually and as Trustee of the Debra Kasirer Trust, and Canon Realty Corporation ("Canon Realty") (collectively, "Canon Defendants"); Heritage Housing V, Inc.; BMHC Corp.; JDDJ Holdings, L.P.; James E. Iverson ("Iverson"), Victor P. Dhooge ("Dhooge"), John M. Clarey ("Clarey"), James F. Dlugosh ("Dlugosh"), Edward J. Hentges ("Hentges"), Kenneth R. Larsen ("Larsen"), Jerome E. Tabolich ("Tabolich"), Steven W. Erickson ("Erickson"), and Paul R. Ekholm ("Ekholm") (collectively, "Miller & Schroeder Principals"); Joel T. Boehm and Sabo & Green (collectively, "Attorney Defendants"); Valuation Counselors Group, Inc., Coddington Appraisal Services, and Capital Valuation Group (collectively "Defendant Appraisers"), Healthcare Financial Solutions, and Zelenkofske, Axelrod & Co, Ltd. (collectively, "Appraiser/Feasability Defendants").¹

Plaintiffs' Fourth Amended Complaint ("4AC") alleges twenty causes of action against the various Defendants as follows:

(1) Violation of Rule 10b-5 and Section 10(b) of the Securities and Exchange Act of 1934, against Heritage Entities, HHD, Kasirer, Goldstein and Bertolini (collectively, "Heritage Defendants") as to the Official Statements for the Last Eight (8) Heritage Bond Offerings Dated From December 22, 1997 to March 11, 1999;

(2) "Control Person" Liability Under Section 20(a) of The Securities Exchange Act of 1934, against Heritage Principals (Kasirer, Goldstein and Bertolini), HHD, and Miller & Schroeder Principals as to the Official Statements for the Last Eight (8) Heritage Bond Offerings Dated from December 22, 1997 to March 11, 1999;

(3) Violations of Section 12(a)(2) of The Securities Act of 1933, against the Heritage Entities;

(4) Violations of California Corporations Code Sections 25401 and 25501, against the Heritage Entities;

(5) Control Person Liability Under California Corporations Code Section 25504, against Heritage Principals, Miller & Schroeder Principals, and Talley as to the Official Statements for the Last Eight (8) Heritage Bond Offerings Dated from December 22, 1997 to March 11, 1999;

(6) Joint and Several Liability Under California Corporations Code Section 25504.1, against Heritage Principals, Iverson, Dhooge, Talley, Boehm, and Sabo & Green as to the Official Statements for the Last Eight (8) Heritage Bond Offerings Dated from December 22, 1997 to March 11, 1999;

(7) Joint and Several Liability Under California Corporations Code Section 25504.2, against Appraisal/Feasibility Defendants as to the Official Statements for the Last Seven (7) Heritage Bond Offerings Dated from July 10, 1997 to March 11, 1999;

(8) Negligent Misrepresentation, against Heritage Principals, Miller & Schroeder Principals, and Appraisal/Feasibility Defendants;

(9) Breach of Fiduciary Duty, against Talley;

(10) Negligence, against Talley;

(11) Breach of Contract, against Trustee Defendants;

(12) Negligence, against Trustee Defendants (13) Breach of Fiduciary Duty, against Trustee Defendants;

(14) Fraudulent Concealment, against Trustee Defendants;

(15) Intentional Misrepresentation, against Trustee Defendants;

(16) Negligent Misrepresentation, against Trustee Defendants;

(17) Bad Faith Breach of Implied Covenant of Good Faith and Fair Dealing, against Trustee Defendants;

(18) Avoidance of Fraudulent Transfers, against the Heritage Entities, HHD, HCH, Heritage Acceptance Corporation, CareContinuum, Affiliated Metropolitan Contractors, Kasirer, Goldstein, JDDJ, and BHMC;²

(19) Civil Conspiracy to Commit Fraud, against the Heritage Entities, HHD, HCH, Heritage Acceptance Corporation, CareContinuum, Affiliated Metropolitan Contractors, Kasirer, Goldstein, Boehm, and Sabo & Green³ (collectively "Conspiracy Defendants");

(20) Avoidance of Fraudulent Transfers to Debra Kasirer, against Debra Kasirer, individually and as Trustee of the Debra Kasirer Trust, and Canon Realty Corporation.

The particular motion at issue before the Court in this Order is Defendants Edward J. Hentges, Kenneth R. Larsen, Jerome E. Tabolich, Steven W. Erickson and Paul R. Ekholm's (collectively, "Moving Defendants") Motion to Dismiss Plaintiffs' Fourth Amended Complaint ("Motion"). Plaintiffs are informed and believe that Miller & Schroeder Financial, Inc. ("Miller & Schroeder"), a Minnesota Corporation doing business in California, was the sole underwriter for all of the Heritage entities except Heritage Chicago for which it was the co-underwriter. (4AC at ¶ 43). Miller & Schroeder was also the broker for each Plaintiff and each Plaintiff maintained a separate brokerage account with Miller & Schroeder. (Id.). Miller & Schroeder is not named as a defendant due to its January, 2002 filing for Chapter 7 bankruptcy relief, and the automatic stay pursuant to 11 U.S.C. § 362. (Id.).

Plaintiffs are informed and believe that Defendant Hentges, an individual residing in Minnesota, was at all relevant times an Executive Vice President and the Chief Compliance Officer of Miller & Schroeder who played an influential and material role in the Heritage bond offerings. (Id. at ¶ 48). Plaintiffs are informed and believe that Defendant Larsen, an individual residing in Minnesota, was at all relevant times the Chief Financial Officer of Miller & Schroeder, and played an influential and material role in the Heritage bond offerings. (Id. at ¶ 49). Plaintiffs are informed and believe that Defendants Tabolich and Erickson, individuals residing in Minnesota, were at all relevant times officers of Miller & Schroeder who played influential and material roles in the Heritage bond offerings. (Id. at ¶¶ 50 & 51). Plaintiffs are informed and believe that Defendant Ekholm, an individual residing in Minnesota, was at all relevant times a Senior...