Lawrence v. Cohn

• Decision Date: 25 February 1993
• Docket Number: No. 90 Civ. 2396 (CSH).,90 Civ. 2396 (CSH).
• Citation: 816 F. Supp. 191
• 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

816 F. Supp. 191

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.

February 25, 1993.

Graubard, Mollen, Horowitz, Pomeranz & Shapiro, New York City, for plaintiffs; Steven Mallis, of counsel.

Shea & Gould, New York City, for defendant Cohn; Milton S. Gould, of counsel.

MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

This case is before the Court on plaintiffs' motion under Rule 60(b), Fed.R.Civ.P., to vacate the Court's order of November 12, 1991, dismissing plaintiffs' federal securities claim on statute of limitations grounds and dismissing their other claims without prejudice.

Plaintiffs are beneficiaries under the will of the late Sylvan Lawrence, who died in December, 1981. The defendant, Seymour Cohn, Lawrence's brother, is the sole executor of the Lawrence estate (the "Estate") and a trustee of a residuary trust created by the will.

Plaintiffs allege that Cohn committed various acts of fraud and breached his fiduciary duty in connection with his duties as trustee of the Estate. These parties have been litigating the matter in the Surrogate's Court (Hon. Renee R. Roth) since 1983.

In 1990, plaintiffs filed this federal action. The amended complaint charges 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). Plaintiffs also allege pendent state claims for common law fraud, breach of contract, and unjust enrichment.

They seek imposition of a constructive trust on certain partnership interests acquired by defendant; a conveyance of those interests to the plaintiffs and/or the Estate; an accounting; compensatory damages (trebled under RICO); punitive damages; attorneys fees; and costs.

Defendant moved to dismiss the amended complaint on a number of grounds. By order dated November 12, 1991, the Court dismissed the 10b-5 claim as untimely under the statute of limitations, and declined to assert jurisdiction over the remaining claims, including the RICO claim, as they were being fully litigated in the state court. The Clerk of the Court entered an order of Judgment dismissing the case on November 25, 1991.

Plaintiffs noticed their appeal to the Second Circuit on December 12, 1991. A subsequent Order to Show Cause for Vacatur of Judgment and Order pursuant to Rule 60(b) was declined by this Court on January 8, 1992, as this Court was divested of jurisdiction upon the filing of the notice of appeal.

Upon the advice of staff counsel to the Second Circuit, plaintiffs wrote this Court on January 14, 1991, asking whether this Court would consider plaintiffs' Rule 60(b) motion if the Second Circuit were to remand the case for that purpose. By memorandum opinion and order dated January 24, 1992, this Court responded to plaintiffs' request: "Without expressing any view on the merits of such a motion, I am prepared to state, and do hereby state, that I would be willing to consider such a motion if the case is remanded."

By order dated February 4, 1992, the Second Circuit remanded the case to this Court for disposition of the Rule 60(b) motion. All other appellate proceedings were stayed pending the disposition of that motion.

BACKGROUND

The facts of the case are set forth more fully in the Court's November 12, 1991 opinion, 778 F.Supp. 678, familiarity with which is assumed. For the purposes of this motion, allegations in plaintiffs' amended complaint are taken as true.

Prior to his death, Lawrence and defendant 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 an office building located at 95 Wall Street. Lawrence and Cohn owned a 60% interest as general partners; the other 40% was held by a number of individuals as limited partners.

The Limited Partnership agreement provided that upon the death, retirement, or incompetency of one of the general partners (Lawrence or Cohn), the partnership would continue, with the remaining partner as the sole general partner with a 30% interest. The retired, deceased or incompetent partner (or his legal representatives) would become a limited partner with a 30% interest. Limited Partnership Agreement, ¶ 9. Accordingly, upon Lawrence's death, his interest as a general partner was automatically converted into a 30% limited partnership in favor of his Estate; Cohn became the sole general partner.

The Limited Partnership agreement further provided that in the event one of the limited partners wished to sell his interest, the other limited partners had the right of first refusal. (If more than one limited partner wished to partake in the purchase, they would do so in proportion to their respective interests.) If the limited partners did not wish to purchase the interest, the General Partners had the next right of refusal. Limited Partnership Agreement ¶ 8(b).

On May 23, 1983, defendant Cohn executed an agreement with the limited partners (exclusive of Lawrence's Estate) for the purchase of their partnership interests, which accounted for a 40% interest. On August 18, 1983, Cohn commenced a proceeding in the Surrogate's Court seeking that 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 in his buy-out of the limited partners. In connection with that proceeding, on January 6, 1984, Cohn submitted an affidavit outlining his opinion of the value of the limited partnership interests, and the wisdom of the Estate purchasing all or part of the interests up for sale.

On or about May 17, 1984, Cohn and the plaintiffs completed the signing of a settlement agreement providing for the disposition of the 40% limited partnership interest; one-half would be acquired by the Estate and one-half would be acquired by Cohn individually. This agreement was approved by the Surrogate on or about May 18, 1984.

Plaintiffs essentially allege that prior to the May 1984 agreement, Cohn fraudulently concealed from them the true facts regarding the status of negotiations with lessees of space at 95 Wall Street. The effect of those fraudulent omissions was to make the building appear less valuable than it was. Plaintiffs alleged 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.

Additionally, plaintiffs allege other wrongdoing on the part of Cohn beginning soon after Lawrence's death. They allege that Cohn seeks to retain control of the Estate so that he may continue to pillage it.

Needless to say, these issues have been the subject of litigation in the Surrogate's Court for almost a decade.

The November 12, 1991 opinion of this Court granted defendant's motion to dismiss, finding that plaintiffs' federal securities claims were time-barred in light of the recent Supreme Court decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), which held that § 10(b) and Rule 10b-5 claims are governed by a uniform federal limitations period. Lampf required that suit be brought within one year after discovery of the facts constituting the violation and within three years after the violation. The parties agree that the application of a one year/three year rule would bar plaintiffs § 10(b) claims.

The issue now pending before this Court is whether subsequent developments in the law make it appropriate to vacate the Court's November 12th order. That decision depends on what statute of limitations governs plaintiffs' § 10(b) claims.

DISCUSSION

Section 10(b) of the 1934 Act does not provide an explicit statute of limitations. At the time plaintiffs commenced this lawsuit on April 9, 1990, most courts in this Circuit adhered to the principle that the statute of limitations should be "borrowed" from the most analogous state statute; here, that mandated application of New York's "two year/six year" statute of limitations for fraud actions.¹

On December 8, 1990, the Second Circuit handed down its decision in Ceres Partners v. GEL Associates, 918 F.2d 349 (2d Cir.1990) ("Ceres"), which held that § 10(b) claims would be subject to a one year/three year statute of limitations, as was the practice in some other circuits. See In re Data Access Sys. Sec. Litig., 843 F.2d 1537 (3d Cir.1988). The Second Circuit, however, declined to decide whether this ruling would apply to cases pending at the time of decision, or only those filed subsequently.

That question was not answered until 1991 when the Circuit issued its decision in Welch v. Cadre Capital, 923 F.2d 989 (2d Cir.1991) ("Welch I"). Applying the factors set forth in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971) ("Chevron"), which are used to determine the retroactivity of a new rule, the Court in Welch I made it clear that the new one year/three year statute of limitations would apply only prospectively, to cases filed after November 8, 1990, the date the Ceres decision was handed down.

Welch I was the law in the Second Circuit until June 20, 1991, when the Supreme Court announced decisions in Lampf and James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991) ("Jim Beam"). In Lampf, 111 S.Ct....