Lawrence v. Cohn

• Citation: 778 F. Supp. 678
• Decision Date: 14 November 1991
• Docket Number: No. 90 Civ. 2396 (CSH).,90 Civ. 2396 (CSH).
• Parties: Alice LAWRENCE, Suzanne Lawrence, Richard Lawrence, and Marta Jo Lawrence, individually, and on Behalf of the Estate of Sylvan Lawrence, including the Residuary Trust, Plaintiffs, v. Seymour COHN, Defendant.
• Court: U.S. District Court — Southern District of New York

778 F. Supp. 678

Alice LAWRENCE, Suzanne Lawrence, Richard Lawrence, and Marta Jo Lawrence, individually, and on Behalf of the Estate of Sylvan Lawrence, including the Residuary Trust, Plaintiffs, v. Seymour COHN, Defendant.

No. 90 Civ. 2396 (CSH).

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

November 14, 1991.

Graubard, Mollen, Horowitz, Pomeranz & Shapiro (Elaine M. Reich, of counsel), New York City, for plaintiffs.

Shea & Gould (Milton S. Gould, of counsel), New York City, for defendant.

Weil Gotshal & Manges, New York City, for defendant as Executor of the Estate of Sylvan Lawrence, Deceased.

MEMORANDUM OPINION

HAIGHT, District Judge:

Plaintiffs are beneficiaries under the will of the late Sylvan Lawrence, who died in December, 1981. Defendant Seymour Cohn, Lawrence's brother, is sole executor of the Lawrence estate (the "Estate") and trustee of a residuary trust created by the will. The Lawrence will was admitted to probate by the Surrogate of New York County on January 29, 1982. On February 1, 1982, Letters Testamentary and Letters of Trusteeship were issued to defendant as sole executor and sole Trustee.

Plaintiffs accuse defendant Cohn of numerous acts of fraud and breaches of fiduciary duty. The parties have been engaged in litigation in the Surrogate's Court (Hon. Renee R. Roth) since 1983.

In 1990 plaintiffs filed the captioned action in this Court. They charge Cohn with violations of § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; and with violations of the RICO statute, 18 U.S.C. §§ 1962(a)(b) and (c).

To these federal claims plaintiff append claims for common law fraud, breach of contract, and unjust enrichment. They pray for the imposition of a constructive trust on certain partnership interests acquired by defendant; a conveyance of those interests to plaintiffs and/or the Estate; an accounting; compensatory damages (trebled under RICO); punitive damages; and attorneys' fees and costs.

Subject matter jurisdiction in this Court depends on the viability of the § 10(b) and RICO claims.¹ Defendant moves to dismiss the complaint under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. In the alternative, defendant asks that this Court abstain from exercising jurisdiction in deference to the Surrogate's Court, or stay proceedings here pending litigation there.

BACKGROUND

These factual recitations derive from the amended complaint's allegations, accepted as true on defendant's motion to dismiss.

Prior to the death of Sylvan Lawrence, Lawrence and Cohn were the sole general partners of a limited partnership known as Ninety-Five Wall Street Company (the "Limited Partnership"). The Limited Partnership's principal asset was and remains an office building located 95 Wall Street. At the inception of the Limited Partnership, Lawrence and Cohn owned at 60% interest as general partners; Jack R. Aron owned an 11% interest as a limited partner; Marvin H. Schur owned a 4% interest as a limited partner; Edward D. Roberts owned a 1% interest as a limited partner; Schur and Bernard E. Brandes, as trustees for the benefit of Robert Aron, owned a 12% interest as limited partners; and Schur and Brandes, as trustees for the benefit of Peter Arthur Aron, owned a 12% interest as limited partners.

The Limited Partnership agreement provided in ¶ 9:

If either Sylvan Lawrence or Seymour Cohn shall die, retire, or be adjudicated incompetent, the partnership shall not terminate and the other of them shall continue as the sole General Partner. The retired General Partner or the legal representatives of the deceased or incompetent General Partner shall be and become a Limited Partner and the share of such retired Partner or of such representatives in the profits, losses including depreciation, and the distributions shall be 30%. The interest of the remaining General Partner shall thereafter be 30%.

Under this provision, upon the death of Sylvan Lawrence his interest as a general partner in the Limited Partnership was automatically converted to a 30% limited partnership interest in favor of his Estate; and Cohn, individually, became the sole general partner with the exclusive right to manage and control the affairs of the Limited Partnership.

The Limited Partnership also provided in ¶ 8(b) as follows:

In the event that any one or more of the Limited Partners (hereinafter called "Offering Limited Partner") shall receive and wish to accept a bona fide offer for the purchase of his interest in the partnership (hereinafter called the "Outside Offer"), the Limited Partner shall promptly notify the other Limited Partners thereof giving the name and address of the offeror ("Outside Offeror") and a copy of the Outside Offer containing all the terms and provisions thereof, and the other Limited Partners shall be privileged to purchase the interest of the Limited Partner on the same terms as the Outside Offer in the proportion that their respective interests bear to the aggregate interests of all of the Limited Partners other than the interest of the Offering Limited Partner.

If the Limited Partners have not agreed to purchase the interest of the Offering Limited Partner within 15 days after the Offering Limited Partner has advised them of the Outside Offer, then the rights of the Limited Partners or any of them to purchase the interest of the Offering Limited Partner shall cease and thereupon at the expiration of such 15 days, the Offering Limited Partner shall advise the General Partner of the Outside Offer, giving to the General Partner the name and address of the Outside Offeror and a copy of the Outside Offer containing all the terms and provisions thereof, and the General Partner shall have the right to purchase the interest of the Offering Limited Partner at the same price and terms as contained in the Outside Offer, provided the General Partner agrees so to do within 15 days after the giving of such notice to it.

On May 23, 1983, Cohn agreed with all of the then existing limited partners to purchase their limited partnership interests, exclusive of the 30% of the limited partnership interest Cohn held as legal representative of the Estate. As of that date, the following limited partners held a total 40% interest in the Limited Partnership: Robert Aron; Peter A. Aron; Marvin H. Schur; Edward R. Roberts; Jerome A. Manning, as trustee for the benefit of Tracy Elizabeth Aron, Michael Thomas Aron and Stephen Jack Aron; and Jacqueline A. Morrison and Jerome A. Manning as Trustees for the benefit of Sean Patrick Morrison. Cohn purchased those limited partnerships, totalling 40%, "as nominee for Seymour Cohn, as Executor of the Estate of Sylvan Lawrence, for Seymour Cohn individually, and for any combination thereof."

By order to show cause dated August 18, 1983, Cohn commenced a proceeding in the Surrogate's Court seeking the court's advice and direction (the "advice and direction proceeding") regarding who, as between him and the Estate, should own the 40% limited partnership interests acquired pursuant to the limited partners buy-out agreement entered into in May 1983. Cohn named the plaintiffs as respondents in the advice and direction proceeding.

On May 17, 1984, Cohn and the plaintiffs entered into a settlement taking the form of a purchase and sale agreement which provided for the final dispositions of the 40% limited partnership interests. Pursuant to that agreement, which the surrogate endorsed, the Estate obtained one-half of the 40% limited partnership interests acquired pursuant to the limited partners buy-out agreement, and Cohn acquired one-half individually.

Plaintiffs allege that prior to the May 1984 settlement purchase and sale agreement, Cohn fraudulently concealed from plaintiffs the true facts regarding the status of negotiations with lessees of space at 95 Wall Street, particularly Chemical Bank. The effect of those fraudulent omissions was to make the building appear less valuable than it was. Plaintiffs allege that had Cohn timely informed them of the true facts

Plaintiffs would not have signed the Purchase and Sale Agreement—in which the Estate relinquished and conveyed to Cohn individually a portion of its right to purchase the entire 40 percent limited partnership interests acquired pursuant to the Limited Partners Buy-Out Agreement —and would instead have caused the Estate to purchase the entire amount of such interest. Complaint at ¶ 92.

Plaintiffs allege consequent injury to themselves and to the Estate, including the residuary trust created under that will.

Plaintiffs allege further wrongdoing on the part of Cohn, commencing soon after the death of Lawrence. They allege that starting in 1983, Cohn doubled and then further increased the salary he drew from Sylvan Lawrence Co., the leasing, management and brokerage arm of the "master partnership" between Lawrence and Cohn as co-equal partners which held the title to numerous real estate properties in and around New York City. Plaintiffs further allege that Cohn has maintained inflated and improper reserves in the Estate as a pretext for not distributing monies to its beneficiaries. Plaintiffs allege that Cohn has continued in the fraudulent concealment of the 95 Wall Street transactions. They allege that he has wrongfully refused to wind up the affairs of the Estate, in furtherance of his plan to maintain control over its assets for the rest of his life.

It is fair to say that all these disputes have been the subject, over a number of years, of litigation in the Surrogate's Court.

Because defendant's motion to dismiss turns upon the viability of plaintiffs' federal claims, I consider them in order.

The § 10(b) claim

In his initial motion papers and at oral argument, defendant raised three issues concerning the legal sufficiency of plaintiffs' § 10(b) claim: whether the business interests involved constitute a "securit...