Lawrence v. Cohn, 90 CIV.2396(CSH).

• Decision Date: 29 April 2002
• Docket Number: No. 90 CIV.2396(CSH).,90 CIV.2396(CSH).
• Citation: 197 F.Supp.2d 16
• Parties: Alice LAWRENCE, Suzanne Lawrence, Richard Lawrence, and Marta Jo Lawrence, individually, and on behalf of the Estate of Sylvan Lawrence, Plaintiffs, v. Seymour COHN, Defendant.
• Court: U.S. District Court — Southern District of New York

197 F.Supp.2d 16

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

No. 90 CIV.2396(CSH).

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

April 29, 2002.

Graubard Miller (Steven Mallis, Esq., C. Daniel Chill, Esq., Elaine M. Reich, Esq., Nancy R. Sills, Esq., of counsel), New York City, for Plaintiffs.

Robinson Silverman Pearce Aronsohn & Berman LLP (Mark Jon Sugarman, Esq., Daniel P. Waxman, Esq., Erin M. Naftali Esq., of counsel), New York City, for Defendant.

MEMORANDUM OPINION AND ORDER

HAIGHT, Senior District Judge.

Following full discovery, defendant Seymour Cohn moves pursuant to Rule 56(b), Fed.R.Civ.P., for summary judgment dismissing the plaintiffs' sole remaining claim alleging violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

Plaintiffs cross-move for partial summary judgment (a) dismissing defendant's first affirmative defense based upon the statute of limitations, (b) dismissing defendant's second affirmative defense alleging that plaintiffs lack standing, and (c) granting cross-relief by finding that plaintiffs are the sellers of a security under § 10(b) of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

This bitterly litigated case has generated a number of prior opinions, cited in the margin,¹ by this Court and by Magistrate Judge Dolinger. Familiarity with those opinions is assumed. This opinion recites the factual background only to the extent necessary to elucidate the present issues and the Court's bases for decision.

I. FACTUAL BACKGROUND

The surviving claim in the case, for securities fraud, arises from the purchase of a 40% interest in a Limited Partnership known as the Ninety-Five Wall Street Company (the "LP"), whose principal asset was an office building located at 95 Wall Street in Manhattan. The late Sylvan Lawrence and Seymour Cohn were brothers. Prior to the death of Lawrence, Lawrence and Cohn were the LP's only general partners, each owning 30% of the LP's assets. The remaining 40% was owned by the so-called "Aron Group" of limited partners. The Aron Group was comprised of a businessman named Jack Aron and members of his family or business associates.

Paragraph 9 of the Limited Partnership Agreement (the "LPA") provided that upon the death of Lawrence his interest as a general partner in the LP would automatically be converted to a 30% limited partnership in favor of his estate (the "Lawrence Estate" or the "Estate"). Cohn, in his individual capacity, would become the sole general partner with the exclusive right to manage and control the affairs of the LP. Cohn was also named the sole executor of the Lawrence Estate. Lawrence died in December 1981, thereby triggering the provisions of ¶ 9. Cohn qualified under the Lawrence will, and thereafter acted in the dual capacities of general partner of the LP and executor of the Lawrence Estate. Plaintiffs are the beneficiaries of the Estate.

In May 1983, Cohn agreed to purchase the Aron Group limited partners' interests, totalling 40% of the LP assets. That purchase agreement was exclusive of the 30% limited partnership interest Cohn controlled as legal representative of the Estate. According to the transaction documents, Cohn purchased the Aron Group limited partnership interests "as nominee for Seymour Cohn, as Executor of the Estate of Sylvan Lawrence, for Seymour Cohn individually, and for any combination thereof."

One may detect in those varied and alternative designations of Cohn's capacity the desirability of obtaining authoritative guidance with respect to the proper allocation of the 40% LP interests Cohn purchased from the Aron Group. For that guidance Cohn looked to the Surrogate. In August 1983, Cohn commenced an "advice and direction proceeding" in the Surrogate's Court (Roth, S.) regarding who, as between Cohn individually and the Estate, should own the 40% Aron Group limited partnership interests Cohn purchased in May 1983. Cohn named plaintiffs as respondents in the advice and direction proceeding.

Surrogate Roth never had to decide the question because in May 1984, Cohn and the plaintiffs entered into a settlement taking the form of a purchase and sale agreement which provided for the final distribution 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, and Cohn acquired one-half individually.

These events set the stage for plaintiffs' securities fraud claim. According to plaintiffs, they were misled into agreeing to the settlement distribution because Cohn fraudulently concealed the fact that Chemical Bank was prepared to take a net lease on the entire 95 Wall Street building on extremely favorable terms. Plaintiffs assert that if they had known of the Bank's position, they would have insisted on taking the entire 40% limited partnership interests, rather than sharing that 40% with Cohn.

Plaintiffs' assertion inevitably prompts this question: What would have entitled the Lawrence Estate to insist on taking the entire 40% of Aron Group limited partnership interests, leaving nothing for Cohn as individual sole general partner? Plaintiffs contend that entitlement derives from a right of first refusal in the Estate's favor contained in ¶ 8(b) of the LPA. Defendant contends that ¶ 8(b) did not confer a right of first refusal on the Estate, and that without such a right plaintiffs have no claim, a conclusion plaintiffs do not accept, since their brief asserts an alternative common law theory of recovery. It is clear, however, that the existence vel non of a right of first refusal in the Estate's favor is a question of central importance.

A time came when defendant moved to dismiss the complaint under Rule 12(b)(6) for failure to state a claim upon which relief could be granted. I considered that motion in an opinion dated July 12, 1996 and reported at Lawrence v. Cohn, 932 F.Supp. 564 (S.D.N.Y.1996) ("the July 1996 Opinion"). The July 1996 Opinion concluded that plaintiffs' complaint stated a viable claim under section 10(b) of the 1934 Securities and Exchange Act and Rule 10-b5, but the Court would abstain from exercising jurisdiction over federal RICO and state law claims. 932 F.Supp. at 581-82.

Extensive discovery then ensued, under the able supervision of Magistrate Judge Dolinger. Defendant now moves for summary judgment in his favor on plaintiffs' surviving securities claim. Plaintiffs resist that motion.

II. DISCUSSION

A. Standard of Review

Summary judgment may be granted in favor of a defendant only where there are no genuine issues as to any material fact. Windham v. Time Warner, Inc., 275 F.3d 179, 187 (2d Cir.2001). Summary judgment is inappropriate if a review of the record shows sufficient evidence, when viewed in the light of the governing law, to permit a rational juror to find in plaintiff's favor. Id. The court must resolve all ambiguities and draw all inferences in favor of the non-moving party. Golden Pacific Bancorp v. F.D.I.C., 273 F.3d 509, 514 (2d Cir.2001).

The case at bar turns upon a question of contractual interpretation. "Summary judgment may be granted when the provisions of a contract convey a definite and precise meaning, absent any ambiguity." Mellon Bank, N.A. v. United Bank Corp. of New York, 31 F.3d 113, 115 (2d Cir. 1994) (citation and internal quotation marks omitted). Moreover, Second Circuit case law makes it plain that summary judgment may also be appropriate even where the contract is ambiguous. "The relevant inquiry in deciding a motion for summary judgment is whether `there is no genuine issue as to any material fact,' Fed. R.Civ.P. 56(c), `a situation that obtains not only when the language is unambiguous, but also when the language is ambiguous and there is relevant extrinsic evidence, but the extrinsic evidence creates no genuine issue of material fact and permits interpretation of the agreement as a matter of law.'" Shepley v. New Coleman Holdings Inc., 174 F.3d 65, 72 n. 5 (2d Cir.1999) (citing and quoting Nycal Corp. v. Inoco PLC, 988 F.Supp. 296, 299 & nn. 9-11 (S.D.N.Y.1997), aff'd, 166 F.3d 1201 (2d Cir.1998)).

B. The Import and Effect of the July 1996 Opinion Denying Cohn's Motion to Dismiss the Complaint

The briefs of counsel reveal an entertaining threshold dispute with respect to the import and effect of the Court's July 1966 Opinion, which inter alia denied defendant's motion to dismiss plaintiffs' securities claim.

Defendant Cohn, now moving for summary judgment after discovery, says of the Court's July 1996 Opinion, on the core issue of the existence vel non of a right of first refusal in favor of the Estate, "[T]his Court was unwilling to find that the language [of paragraph 8(b) of the LPA] unambiguously supported Cohn's position such that the Court could rule as a matter of law on this issue on a motion to dismiss," with the result that "this Court must apply the rules of construction applicable to the interpretation of ambiguous contractual provisions." Defendant's Main Brief at 13.

Plaintiffs say that in the July 1996 Opinion "the Court (a) construed the [LPA] as conferring a right of first refusal upon the Estate, (b) determined that such right of first refusal constituted a security, and (c) concluded that the Estate sold that security by relinquishing its right of first refusal in connection with a settlement agreement reached between the parties in a prior proceeding." Plaintiffs' Main Brief at 1-2.

Since the judge who wrote an opinion is uniquely qualified to interpret what he meant by it, I am able to say with some confidence that the defendant's understanding of the July 1996 Opinion is the correct one. Specifically, the intended meaning of the July 1996 ...