Morin v. Trupin

• Decision Date: 20 January 1993
• Docket Number: 90 Civ. 3475(RWS).,No. 88 Civ 5743(RWS),89 Civ. 6639(RWS),88 Civ 5743(RWS)
• Citation: 809 F. Supp. 1081
• Parties: Simeon MORIN, et al., Plaintiffs, v. Barry H. TRUPIN, et al., Defendants, Norman E. GAAR, Plaintiff, v. Barry H. TRUPIN, et al., Defendants, Michael P. ALBERTI, M.D., et al., Plaintiffs, v. Barry E. TRUPIN, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

809 F. Supp. 1081

Simeon MORIN, et al., Plaintiffs, v. Barry H. TRUPIN, et al., Defendants, Norman E. GAAR, Plaintiff, v. Barry H. TRUPIN, et al., Defendants, Michael P. ALBERTI, M.D., et al., Plaintiffs, v. Barry E. TRUPIN, et al., Defendants.

Nos. 88 Civ 5743(RWS), 89 Civ. 6639(RWS), 90 Civ. 3475(RWS).

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

January 6, 1993.

As Amended January 20, 1993.

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Fink Weinberger, P.C., New York City, for plaintiffs; by Stephen E. Power, Elisabeth Seieroe Maurer.

D'Amato & Lynch, New York City, for defendants Mintz, Fraade & Zeiger, Frederick M. Mintz and Alan Fraade; by Stephen F. Willig.

McDonough Marcus Cohn & Tretter, P.C., New York City, for defendant Stuart Becker & Co.; by Diane K. Kanca, Eugene H. Goldberg.

Eaton & Van Winkle, New York City, for defendants Continental Realty Corp. and Emanuel Organek; by Michele C. Petitt.

OPINION

SWEET, District Judge.

Plaintiffs in the Alberti action (the "Alberti Plaintiffs") have moved for the court to reconsider its order of November 18, 1991 (Morin v. Trupin, 778 F.Supp. 711 (S.D.N.Y.1991)), dismissing Robert Abrams, Stuart Becker and Stuart Becker & Co., P.C. (the "Becker Defendants" or "Becker"), and Mintz, Fraade, and Zeiger, P.C., Frederick M. Mintz and Alan Fraade (the "Mintz Fraade Defendants") with prejudice, and for leave to amend their Second Amended Complaint by filing their proposed Third Amended Complaint. Plaintiffs in the consolidated Morin action (the "Morin Plaintiffs") also have moved for leave to amend their Second Amended Consolidated Complaint, filed December 21, 1990, dismissing Robert Abrams, Stuart Becker and Stuart Becker, P.C., with prejudice, and dismissing the Mintz Fraade defendants without prejudice. The Morin Plaintiffs have also moved for leave to file their proposed Third Amended Consolidated Complaint, pursuant to Federal Rules of Civil Procedure, Rules 15(a) and 60(b). The motion to reconsider is granted, as is the motion to amend as set forth below.

The underlying disputes and principal parties which are the subject of these actions are recounted in prior opinions of the court, familiarity with which is assumed. See, e.g., Morin v. Trupin, 711 F.Supp. 97 (S.D.N.Y.1989) (filed April 13, 1989); Morin v. Trupin, 728 F.Supp. 952 (S.D.N.Y. 1989) (filed December 13, 1989); Morin v. Trupin, 738 F.Supp. 98 (S.D.N.Y.1990) (filed May 4, 1990); Morin v. Trupin, 747 F.Supp. 1051 (S.D.N.Y.1990) (filed September 29, 1990); Morin v. Trupin, 778 F.Supp. 711 (S.D.N.Y.1991) (filed November 18, 1991); and Morin v. Trupin, 799 F.Supp. 342 (filed July 28, 1992).

I. THE ALBERTI ACTION

Prior Proceedings

The Alberti Plaintiffs filed their original complaint in May, 1990. Additional Plaintiffs were added by Amended Complaint on June 28, 1990. The Becker defendants moved to dismiss the Alberti Amended Complaint pursuant to Federal Rules of Civil Procedure, Rules 9(b) and 12(b)(6), which motion was considered together with the complaint in Morin on September 29, 1990 (Morin v. Trupin, 747 F.Supp. 1051 (S.D.N.Y.1990)), and granted with leave to replead. The Alberti Plaintiffs' motion to strike Continental and Organek from the caption of their complaint and to amend their complaint was granted by order dated February 1, 1991.

This Second Amended Complaint was filed on February 22, 1991. It was considered together with the motion of the Morin Plaintiffs and was dismissed with prejudice against all defendants except the law firm Mintz, Fraade on November 18, 1991 (Morin v. Trupin, 778 F.Supp. 711 (S.D.N.Y. 1991)), for deficiencies in pleading and for being time-barred under Lampf. Certain plaintiffs were reinstated pursuant to Section 476 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (codified at § 27A of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa-1) in an opinion of this court filed on July 28, 1992 (Morin v. Trupin, 799 F.Supp. 342 (S.D.N.Y.1992)). The Alberti Plaintiffs now move for the Court to reconsider the dismissal with prejudice dated November 18, 1991 for deficiencies in pleading and for leave to reinstate their claims and to file a Third Amended Complaint for the same reasons given in the motion of the Morin Plaintiffs, considered here as well.

Oral argument was heard on July 1, 1992. Plaintiffs submitted reply papers after oral argument, on July 2, and defendants filed additional papers on July 10, July 13, and July 20, 1992. The motion was considered fully submitted at that time.

Facts

The Alberti Plaintiffs are fifty-three investors in a New York limited partnership known as the Sacramento Office Park Associates ("Sacramento Associates"), organized for the stated purpose of acquiring, owning, operating and leasing a two-building office park complex known as the Butano Buildings in Sacramento, California (the "Butano Property" or the "Sacramento Property").

Plaintiffs allege that in making their investments in Sacramento Associates, they relied upon false and misleading representations contained in the Sacramento Office Park Associates Series Private Placement Memorandum (the "Sacramento PPM"), solicitation letters, and sales and promotional literature (collectively the "Sacramento Offering Materials") and on oral representations by various defendants. The Sacramento Offering Materials allegedly contained misrepresentations regarding the manner in which the Butano Property was acquired for syndication, the value and commercial viability of the Butano Property, the application of the proceeds of the offering of limited partnership interests in Sacramento Associates, and the basis for and availability of the tax benefits described in the Sacramento PPM. All of the Plaintiffs in the Alberti action are alleged to have purchased their limited partnership interests in Sacramento Associates by February of 1985. They allege they only discovered the fraud despite their reasonable diligence when creditors of Sacramento Associates foreclosed on the Butano Property.

The Alberti Plaintiffs' Third Amended Complaint (hereinafter "Complaint") alleges that Barry Trupin ("Trupin"), the Rothschild Group ("Rothschild Group"), and numerous other defendants fraudulently induced the Plaintiffs to invest in the limited partnerships through allegedly unlawful securities offerings. The Rothschild Group consisted of a multitude of interconnected companies which bought and structured the syndication of interests in real estate and offered it to investors through private placement memoranda. The Plaintiffs allege, inter alia, that the value of these real estate interests was falsely inflated by transferring the properties to an ostensibly unaffiliated tax-exempt company at an inflated price and then transferring them back into the holdings of the Rothschild Group such that the properties would carry too much debt to earn a profit, as the inevitable result of the fraudulently inflated acquisition price and the mortgages designed to pay for it. Moreover, the Plaintiffs allege, the defendants knew that the promised tax deductions (based on interest payments for secondary mortgages incurred in the transfers of the Properties) would be disallowed by the I.R.S. because these mortgages were not incurred in a transfer from an unaffiliated entity and therefore would not be considered a legitimate partnership debt. Plaintiffs further allege that the I.R.S. was "wise" to Trupin and his schemes since it had already audited and disallowed several tax shelters previously offered by Trupin and Trupin-controlled companies.

The Alberti Plaintiffs allege the Third Amended Complaint now particularizes the allegations dismissed earlier. The details are culled from affidavits (generally, the "Affidavits") by five individuals in Trupin's organization or related entities, all of whom have recently signed releases with the Plaintiffs. The five Affidavits have been given by Gerald Schaffer ("Schaffer"), Frederick Gnesin ("Gnesin"), Sid Lieberman ("Lieberman"), Norman Leben ("Leben"), and Robert P. Ehrlich ("Ehrlich"). The issue in this case is whether the new pleadings in Morin and Alberti, based on these affidavits, should be permitted to be filed on the grounds that the Plaintiffs have presented the Court with newly-discovered evidence under Federal Rule of Civil Procedure, Rule 60, and have finally plead fraud with sufficient particularity to meet the requirements of Rule 9(b).

Discussion

Standard for the Action

Rule 15(a) states that while leave to amend a complaint after twenty days requires permission of the court, "leave shall be freely given when justice so requires." Since the prior Amended Complaint in the Alberti action was dismissed with prejudice (778 F.Supp. at 737), Mintz, Fraade and Becker state that leave should be denied here and ask for sanctions. They argue that leave to amend should be denied, chiefly on the grounds that to the extent that Plaintiffs' affidavits add new evidence, the Plaintiffs' delay in waiting until now to question the witnesses amounts to prejudicial delay.

Plaintiffs respond by alleging that they need do not rely on either the newness or the sufficiency of the evidence to justify repleading under Rule 60(b). Instead, they argue, since this Court's November 1991 decision was a partial, nonfinal judgment under Rule 54(b), it "is subject to revision at any time before the entry of judgment adjudicating all the claims and rights and liabilities of all the parties," id., and leave to replead under Rule 54 is governed solely by the Court's discretion.

The two rules are not as far apart as Plaintiff's Memorandum in Further Support make them seem. All dismissals in the Alberti action were with prejudice, but even if the dismissals are considered nonfinal, the standards under Rule 60(b) still apply:

Where a party seeks to avoid the law of the case by reopening factual issues based upon new evidence, it is appropriate for

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