Miltland Raleigh-Durham v. Myers

• Decision Date: 26 August 1992
• Docket Number: No. 89 Civ. 1530 (CBM).,89 Civ. 1530 (CBM).
• Citation: 807 F. Supp. 1025
• Parties: MILTLAND RALEIGH-DURHAM, Miltland Sacramento and Miltland Chicago-Santa Fe, Plaintiffs, v. Michael H. MYERS, Myers Miltland Raleigh-Durham Limited Partnership, Myers Miltland Sacramento Limited Partnership, Chicago-Santa Fe Partnership and Myers Financial Group, Defendants.
• Court: U.S. District Court — Southern District of New York

807 F. Supp. 1025

MILTLAND RALEIGH-DURHAM, Miltland Sacramento and Miltland Chicago-Santa Fe, Plaintiffs, v. Michael H. MYERS, Myers Miltland Raleigh-Durham Limited Partnership, Myers Miltland Sacramento Limited Partnership, Chicago-Santa Fe Partnership and Myers Financial Group, Defendants.

No. 89 Civ. 1530 (CBM).

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

August 26, 1992.

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Boyle, Vogeler & Haimes by Michael J. Levin, David S. Hoffner, New York City, for plaintiffs.

Merkin & Hemme by Donald Merkin, Jeanne Taber, La Jolla, CA, for defendants.

OPINION

MOTLEY, District Judge.

I. Introduction

A. Procedural history.

Plaintiffs, as limited partners, brought suit against three land investment limited partnerships and against the general partners, defendant Michael H. Myers ("Myers") and defendant Myers Financial Group, Inc. ("Myers Financial"). The case was tried before the court on November 4-15, 1991.

The parties submitted proposed findings of fact and conclusions of law keyed to the record on or about January 15, 1992. Reply papers were submitted on February 10, 1992. With its reply, defendants made three motions to strike evidence.

On February 24, 1992, plaintiffs notified the court by letter that Myers had filed a petition under Chapter 7 of the Bankruptcy Code on February 19, 1992 in the United States Bankruptcy Court for the Central District of California. Because of the automatic stay provisions of the Bankruptcy Code, 11 U.S.C. § 362(a)(1), which became effective upon the filing of Myers' bankruptcy petition, plaintiffs were stayed from taking further steps prosecuting their case against Myers until the automatic stay was modified.

On May 21, 1992, plaintiffs informed the court by letter that they had obtained from the Bankruptcy Court an Order modifying the automatic stay to allow this action to proceed to judgment. Plaintiffs attached a copy of the Bankruptcy Court's Order to their letter, which the court filed in this action. On May 28, 1992, plaintiffs responded to defendants' motions to strike evidence.

B. Plaintiffs' claims.

This case arises out of an extensive fraud on plaintiffs by Myers. Over a two year period, Myers induced plaintiffs to invest in three limited partnerships. In each case, either Myers or his wholly-owned corporation, Myers Financial, were the general partners. Contrary to his statements to plaintiffs that he would not obtain any benefit for himself at the inception of the transactions — representations which Myers intended not to fulfil — Myers secretly diverted substantial sums from the monies obtained from plaintiffs for his own purposes.

This repetitive fraud — conceived in 1984, implemented in 1985-1986 and subsequently concealed by Myers — forms the basis of plaintiffs' fraud claims against Myers and Myers Financial: (1) civil violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq. ("RICO"); (2) securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j, and Rule 10b-5 thereunder; (3) common law fraud; and (4) breach of fiduciary duty. In their Amended Complaint, plaintiffs also allege breach of contract against Myers.

By way of relief, plaintiffs seek the removal of Myers and Myers Financial as general partners of the limited partnerships, accountings by defendants, equitable liens on Myers' and Myers Financial's interests in the limited partnerships, rescission of the purchase of the land purchased by defendant Myers Miltland Raleigh Durham Limited Partnership ("the Durham Limited Partnership"), and constructive trusts or liens on the limited partnerships' properties. Plaintiffs also seek approximately $1 million in compensatory damages (trebled under RICO). Plaintiffs, however, would have to elect between recission and damages with respect to their breach of contract claim regarding the Durham Limited Partnership. On their breach of fiduciary duty and common law fraud claims, plaintiffs seek punitive damages of at least $5 million, a permanent injunction enjoining defendants from committing further wrongful acts, interest and the costs of this action, including attorney's fees.

The court finds that plaintiffs' have prevailed on each of their legal and equitable claims and are entitled to all the relief requested, except where a damage claim would be duplicative of other damage claims.

II. Findings of Fact

After hearing the evidence and weighing the testimony and exhibits received in evidence, as well as the credibility of the witnesses, the court makes the following findings of fact:

A. The Parties.

Plaintiff Miltland Raleigh-Durham (50 partners), plaintiff Miltland Sacramento (50 partners) and plaintiff Miltland Chicago-Santa Fe (39 partners) are a general partnerships under New York law. Each has its principal place of business at 1 Chase Manhattan Plaza, New York, N.Y., 10005, and is comprised of citizens of New York, New Jersey, Connecticut and California. (Pretrial Order, Undisputed Facts, ¶ 1-3).

Defendant Myers was at the time this action was commenced a citizen of Arizona. For a number of years prior to the events giving rise to plaintiffs' claims, and at all material times, Myers, individually and through legal entities, was a promoter and syndicator of real estate investments throughout the United States. (Pretrial Order, Undisputed Facts, ¶ 4).

Defendant Myers Financial is a Delaware corporation which had its principal place of business at the time this action was commenced in Tucson, Arizona, and at all relevant times was controlled by Myers. (Pretrial Order, Undisputed Facts ¶ 8). Myers and Myers Financial are referred to as the "Myers Defendants."

The Durham Limited Partnership and defendant Myers Miltland Sacramento Limited Partnership (the "Sacramento Limited Partnership") are Texas limited partnerships. Plaintiff Miltland Raleigh-Durham is the sole limited partner in the Durham Limited Partnership and plaintiff Miltland Sacramento is the sole limited partner in the Sacramento Limited Partnership. The sole general partner of both the Durham Limited Partnership and the Sacramento Limited Partnership is Myers. (Pretrial Order, Undisputed Facts, ¶ 5-6).

Defendant Chicago-Santa Fe Partnership (the "Chicago Limited Partnership") is an Illinois limited partnership. Plaintiff Miltland Chicago-Santa Fe is one of two limited partners in the partnership. The Chicago Limited Partnership's sole general partner is Myers Financial. (Pretrial Order, Undisputed Facts, ¶ 7).

B. Defendant Michael H. Myers.

Myers has been involved in the real estate business since 1962, when he became a salesman for the David Zone Company specializing in commercial income-producing property. (Myers, Tr. 633-34). In 1965, Myers formed the Myers Company in Seattle (Myers, Tr. 634), which he subsequently used as a vehicle for real estate investments. By 1975, the Myers Company had acquired, on behalf of its clients, approximately 200 pieces of property in three states. (Myers, Tr. 635).

In 1977, Myers founded the Talisman Corporation ("Talisman"), which subsequently became the Myers Capital Corporation ("Myers Capital"). (Myers, Tr. 636). Myers was the sole owner of Talisman and Myers Capital. (Myers, Tr. 503; Walker, Tr. 183). Until 1977, Myers functioned as a real estate broker and manager for real estate properties. (Myers, Tr. 636). Talisman was formed to become the managing general partner for private land syndications to be sponsored by Myers which would ultimately be sold through the broker-dealer National Association of Securities Dealers ("NASD") community. (Myers, Tr. 636).

In the course of the business of Talisman, and its successor, Myers Capital, Myers acquired raw land in his name which he transferred to limited partnerships, of which Talisman or Myers Capital was the general partner. (Myers, Tr. 636-39). The limited partnership interests were sold to public investors. (Myers, Tr. 637-39). After formation of the limited partnerships, the acquisition of the land from Myers and the syndication of the limited partnership interests, the limited partnerships were administered and managed by Talisman or Myers Capital. (Myers, Tr. 638-39). From November 1977 through July 1980, Talisman syndicated approximately six limited partnerships. (Myers, Tr. 639). In 1981, Talisman syndicated an additional fourteen or fifteen partnerships. (Myers, Tr. 640).

In 1982, with the growth of Myers' real estate business, Myers restructured his entities. He formed The Myers Group, which became the sole owner of the Myers Company and Myers Capital. (Myers, Tr. 640; Ashton-Blair, Tr. 432). Myers was the sole owner and president of The Myers Group. (Myers, Tr. 503; Ashton-Blair, Tr. 432). The Myers Company functioned as a real estate broker for the purchase and resale of the land purchased for the Myers sponsored limited partnerships. (Myers, Tr. 641). The Myers Company also had responsibility for demographic research and analysis in land management. (Myers, Tr. 641).

Also in 1982, Myers formed a captive broker-dealer, Syndex Securities Corporation ("Syndex"), which was registered with the NASD as a broker-dealer in securities. (Myers, Tr. 642). Syndex sold the limited partnership units in the limited partnerships sponsored by Myers Capital. (Myers, Tr. 642).

By 1984, Myers-controlled entities had syndicated roughly 42 limited partnerships which had purchased raw land throughout the United States. (Myers, Tr. 645). In 1985, Myers-controlled entities syndicated to public investors an additional 60 limited partnerships which had been formed to purchase raw land. (Myers, Tr. 645; Stark, Tr. 21). By 1985, Myers had been involved in the acquisition of, or had acquired, approximately 250 to 300 parcels of raw land, at an aggregate acquisition price of approximately $350,000,000 to $400,000,000. (Myers, Tr. 646).

C. Myers'...