Index Fund, Inc. v. Hagopian
| Decision Date | 23 December 1987 |
| Docket Number | No. 73 Civ. 2665 (CHT).,73 Civ. 2665 (CHT). |
| Citation | 677 F. Supp. 710 |
| Parties | INDEX FUND, INC., Plaintiff, v. Robert R. HAGOPIAN, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
COPYRIGHT MATERIAL OMITTED
Charles R. McGuinness, New York City, for plaintiff Index Fund, Inc.
Olshan, Grundman & Frome, New York City, for defendant Robert R. Hagopian; Thomas J. Fleming, of counsel.
Plaintiff Index Fund, Inc. ("Index Fund") brought this securities action over 14 years ago against numerous defendants alleging it was the victim of market manipulation which resulted in significant losses. After many years of on and off again activity of the parties, the sole remaining defendant Robert R. Hagopian1 ("Hagopian") submits two separate motions, pursuant to Fed.R.Civ.P. 56: the first is for summary judgment dismissing plaintiff's claims primarily on the ground of collateral estoppel; the second is for partial summary judgment to strike certain allegations in the complaint and to exclude in limine certain evidence. Although this litigation is no stranger to this court, and the underlying story has been told on several occasions over the past 14 years, it is necessary to repeat much of the past events in order to properly assess the arguments presently made.2 For the reasons stated below, the court grants both motions of defendant.
Late in 1969 a group of promoters in New York City organized Armstrong Investors, S.A. and Armstrong Capital, S.A. (hereinafter collectively called the "Armstrong Fund") to engage in the securities business as a so-called "off-shore" mutual fund. They also organized Everest Management Corporation ("Everest") to act as an investment adviser to Armstrong Fund. John Peter Galanis ("Galanis") and Akiyoshi Yamada ("Yamada") were two of the principal officers and directors of Everest. Defendant First National City Bank ("Citibank") approved and consented to have its subsidiary First National City Trust Company (Bahamas) Ltd. ("Cititrust"), a Bahamian corporation, act as transfer agent, registrar and corporate domiciliary for Armstrong Fund and to provide all but one of the officers and directors for Armstrong Fund. Once its structure was completed and during the first part of 1970, Armstrong Fund sold almost 4 million dollars of its stock which funds were to be used for investment purposes. The receipts were deposited with Cititrust in the Bahamas and then transferred to Citibank in New York where they were invested by Everest at the direction of Galanis and Yamada for the account of Armstrong Fund. However, a substantial majority of the funds of Armstrong Fund were invested in worthless unlisted securities, price manipulated by Galanis, Yamada and others participating in the scheme.
In 1970 Index Fund was a registered open-end investment company, a Massachusetts corporation with offices in San Francisco, California. Defendant Hagopian became president of Index Fund and chairman of its investment adviser, Meridian Management Corporation ("Meridian") in 1969. Hagopian's duties as president included the purchase, sale, delivery and receipt of stocks, bonds and other securities, cash or other forms of investment in the name and on behalf of Index Fund. Plaintiff claims that Hagopian, in consideration of bribes and other similar inducements by Galanis and Yamada, caused plaintiff to purchase from Armstrong Fund and other sources the following 17 securities involving 21 transactions on the following dates:
Trading Date Security
06/16/70 9,000 shs. Health Evaluations, Inc
06/16/70 35,000 shs. Regency for Men, Ltd
06/16/70 35,000 shs. Nationwide Marketing Associates
06/16/70 15,000 shs. Devon International, Ltd
06/16/70 22,700 shs. Computer Circuits, Inc
06/17/70 20,000 wts. Hair Extension Center, Inc
07/02/70 $225,000 p.a. Monarch Industries 6%/84
07/06/70 10,000 shs. First Co-Investors, Inc
07/07/70 15,000 shs. Haywood Manufacturing
07/08/70 2,500 shs. First Co-Investors, Inc.
07/15/70 16,000 shs. Synchronex Corp.
07/23/70 4,800 units Summit Group
07/29/70 9,500 shs. Microlab FXR
08/06/70 10,000 shs. Tranquilaire Mental Health
08/06/70 7,000 shs. Computerized Knitwear, Inc.
08/10/70 6,500 shs. Tranquilaire Mental Health
08/10/70 1,500 shs. Tranquilaire Mental Health
08/18/70 20,000 shs. Science Systems & Technology
08/21/70 $114,000 p.a. Cable Information Systems 7%/89
09/18/70 5,800 shs. Computer Studies, Inc.
09/25/70 1,000 shs. Computerized Knitwear, Inc.
The aggregate cost to plaintiff for these worthless or inflated securities was $1,736,505.00. These securities were sold or otherwise disposed of by plaintiff during the period 1970-1972 for $726,354.00 resulting in an aggregate loss of $1,010,151.00.
At least as early as January 1971 Everest was under investigation by the Securities and Exchange Commission and subsequently in 1972 Hagopian was indicted for securities fraud. He pled guilty on January 22, 1973 with respect to Count 19 of the indictment which involved the purchase of Computerized Knitwear shares for $98,870.00, later sold for $36,698.00. At the time of sentencing on February 28, 1973, he admitted that he intentionally and knowingly purchased those shares for plaintiff for more than their actual value. There was no mention of any alleged bribery. Approximately two weeks before the instant action was filed by plaintiff against Hagopian and the other defendants hereinbefore referred to, plaintiff filed an action on May 30, 1973 against the Insurance Company of North America ("INA"), Index Fund, Inc. v. Insurance Co. of North America, 73 Civ. 2386 (CHT) ("Index I"). Plaintiff, having been organized pursuant to the Investment Company Act of 1940, was required to obtain a fidelity bond against larceny and embezzlement covering those of its officers who had access to its funds or securities or the authority to draw such funds or dispose of such securities.
In this earlier litigation plaintiff made the same claims of bribery and the resultant purchase of overpriced securities as it was to make in the instant suit against Hagopian. However, it chose to litigate only 8 of the 21 transactions incorporated in the later suit against Hagopian. The 8 transactions covered by the Index I action, and later incorporated in the 21 transactions which are the subject of the instant litigation were:
Quantity Security Trade Date
9,000 shs. Health Evaluations, Inc. 06/16/70
35,000 shs. Regency for Men, Ltd. 06/16/70
35,000 shs. Nationwide Marketing Associations 06/16/70
15,000 shs. Devon International, Ltd. 06/16/70
20,000 wts. Hair Extension Center, Inc. 06/17/70
15,000 shs. Haywood Manufacturing 07/07/70
4,800 units Summit Group 07/23/70
7,000 shs. Computerized Knitwear, Inc. 08/06/70
Plaintiff's claim against INA was that on or about June 1, 1970 Hagopian was bribed by and entered into a conspiracy with certain persons, not employees of plaintiff, to purchase certain securities at manipulated prices. That from June 16, 1970 to August 6, 1970 Hagopian purchased for plaintiff at inflated prices the securities above mentioned for a total expenditure of $1,034,840 and that these securities were sold from September 17, 1970 to December 13, 1972 for $301,594, resulting in a loss of $733,246.
A comparison of the complaint in "Index I" with the pleadings in the instant action makes it quite clear that the two cases involve the same allegations and issues. In both actions plaintiff has alleged that Hagopian received bribes from Galanis and Yamada, that Hagopian thereafter purchased securities for plaintiff at rigged or manipulated prices, and that plaintiff suffered $733,246 in losses in the Index I suit covering 8 transactions, and $1,010,151 in losses in the instant action covering the 8 transactions in Index I and an additional 13 transactions. It would therefore appear that the loss with respect to the additional 13 transactions only amounted to $276,905. In other words, plaintiff selected the transactions resulting in the greater loss in its suit against INA.
In June 1977 in Index I, after a three day trial which was conducted before this court, the jury found in plaintiff's favor on only one trade, the August 6, 1970 purchase of 7000 shares of Computerized Knitwear, Inc. The jury awarded Index Fund $98,870 which was the full cost to plaintiff. This court remitted the damages to $62,172, the amount of the actual loss, because it found that the "loss with respect to the purchase and sale of the stock of Computerized Knitwear, Inc. was the only concrete loss proved by the plaintiff." Moreover, "no direct evidence was introduced to link the other transactions to the dishonest acts of Hagopian." Index Fund, Inc. v. Insurance Co. of North America, 1977-1978 Transfer Binder Fed.Sec.L.Rep. (CCH) ¶ 96,198 at 92,404 n. 2 (S.D.N.Y. Oct. 17, 1977) Available on WESTLAW, 1977 WL 1048. On appeal, the circuit court affirmed this court's determination that plaintiff had proved a loss solely on the Computerized Knitwear trade.3 Index Fund Inc. v. Insurance Co. of North America, 580 F.2d 1158 (2d Cir.1978), cert. denied, 440 U.S. 912, 99 S.Ct. 1226, 59 L.Ed.2d 461 (1979). "The only direct evidence that Index Fund's losses resulted from dishonest or fraudulent activity by Hagopian was Hagopian's testimony and his plea of guilty to Count 19 which involved only the Computerized Knitwear transaction." Id. at 1163. Subsequent to the appeal, a judgment in favor of plaintiff was entered in the amount of $62,172, and defendant INA...
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