Pahmer v. Greenberg
| Decision Date | 09 May 1996 |
| Docket Number | No. CV 89-4279 (RJD).,CV 89-4279 (RJD). |
| Citation | 926 F. Supp. 287 |
| Parties | Hal PAHMER, et al., Plaintiffs, v. Bruce GREENBERG, David Greenberg, Norman Nick, Stephen Cantor, Marvin Greenfield, Bernard Teitelbaum, C & G Ventures, Inc., Video USA Associates — 1, Limited Partnership, Video USA Associates — 1(b), Limited Partnership, Video USA Associates — 2(a), Limited Partnership, Video USA Associates — 2(b), Limited Partnership, Video USA Associates — 2(c), Limited Partnership, Video USA Associates — 2(d), Limited Partnership, Video USA Associates — 4, Limited Partnership, Video USA Associates, Inc. — # 1, Video USA Associates, Inc. — # 2, Video USA Associates, Inc. — # 4, Video USA Ltd., Video USA International Corp., Mast Capital Investors, Ltd., Touche Ross and Co., Deloitte & Touche, Martin Cianciaruso, Alan Friedman, Jerry Cohen, Ruffa & Hanover, P.C. and Samuel Konigsberg, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
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Stephen Powers, Fink Weinberger, New York City, for Plaintiffs.
Richard Goldstein, Shea & Gould, New York City, for Defendants Touche Ross, Alan Friedman, and Jerry Cohen.
Peter Kurshan, Herzfeld & Rubin, New York City, for Defendants Marvin Greenfield, Norman Nick, Mast Capital Investors, Ltd., Video USA Associates Inc., # 1, Video USA Associates Inc., # 2.
Glenn Backer, New York City, for Defendants Video USA Associates — 1, Video USA Associates — 1(b), Limited Partnership, Video USA Associates — 2(a), Limited Partnership, Video USA — 2(b), Limited Partnership, Video USA Associates USA — 2(c), Limited Partnership, Video USA — 2(d), Limited Partnership, Video USA — 4, Limited Partnership.
Michael Berger, New York City, for Defendant Video USA Associates Inc., # 4.
Kenneth Sussmane, Konigsberg, Sussmane & Zapfel, New York City, for Defendants Ruffa & Hanover and Samuel Konigsberg.
Plaintiffs, 116 limited partners who together invested approximately $13 million in seven limited partnerships, bring this action against the limited partnerships and the principals, promoters, employees, and retained professionals of the limited partnerships, alleging that defendants failed to disclose material facts, made material misrepresentations, committed a series of fraudulent activities, and engaged in a pattern of racketeering activity. In essence, plaintiffs allege that they were fraudulently induced to invest in the limited partnerships by three misleading private placement memoranda (the "Offering Memoranda") that included as exhibits financial projections prepared by accountants and proposed tax opinions prepared by lawyers.1 Plaintiffs bring this action for violations of section 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), Rule 10b-5 promulgated thereunder, section 12(2) of the Securities Act of 1933 ("1933 Act"), the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and the Martin Act. In addition, plaintiffs assert claims based on the common law of fraud, negligence, breach of fiduciary duty, and legal malpractice. Plaintiffs seek rescission, injunctive relief, and damages.
Defendants move to dismiss the amended complaint ("the complaint") on various grounds. The Primary Defendants (the Principals, the Limited Partnerships, the General Partners, the Managing Companies, and C & G Ventures) move to dismiss the section 10(b) and RICO claims under Rules 9(b) and 12(b)(6), to dismiss the RICO claims and the section 12(2) claim as time-barred, to dismiss the Martin Act claim for lack of a private cause of action, to dismiss the negligent misrepresentation and breach of fiduciary duty claims under Rule 9(b), and to dismiss the state law claims for lack of pendent jurisdiction. The Accountant Defendants (Touche Ross & Co., its successor in interest, Deloitte & Touche, and Touche Ross employees Alan Friedman and Jerry Cohen) move to dismiss the section 10(b) and RICO claims as time-barred, to dismiss the section 10(b) and RICO claims under Rules 9(b) and 12(b)(6), to dismiss the section 12(2) claim as time-barred, and to dismiss the state law claims for lack of pendent jurisdiction. Mast Capital moves to dismiss the section 10(b) and RICO claims under Rules 9(b) and 12(b)(6), to dismiss the RICO and section 12(2) claims as time-barred, and to dismiss the state law claims for lack of pendent jurisdiction. The Attorney Defendants (Ruffa & Hanover and Samuel Konigsberg) have not moved to dismiss the complaint.
With respect to the Primary Defendants, the Court declines to dismiss the section 10(b) claims, dismisses the section 1962(d) RICO claim for failure to state a claim, dismisses the section 12(2) claim as time-barred, dismisses the Martin Act claim for lack of a private cause of action, and retains pendent jurisdiction over the remaining state law claims. With respect to the Accountant Defendants and Mast Capital, the Court dismisses the complaint in its entirety. Plaintiffs' request to amend the complaint is granted in part and denied in part.
The complaint essentially alleges that defendants made material misrepresentations and omissions in connection with the sale of limited partnership interests, including the failure to disclose that David Greenberg, a convicted felon, was intimately involved in the offering of the limited partnership interests. The complaint goes on to allege that defendants installed themselves in salaried positions in various entities affiliated with the limited partnerships, misappropriated funds belonging to the limited partnerships, committed a series of insurance frauds, and concealed their fraudulent activities from plaintiffs. The Court notes the prolixity of the complaint and finds that the relatively straightforward fraudulent conduct that forms the basis of plaintiffs' allegations in no way justifies the 99-page, 14-cause-of-action, 307-paragraph complaint cluttered with boilerplate legalese.2
Because this is a motion to dismiss, the Court accepts as true all of the allegations in plaintiffs' complaint and draws all inferences in plaintiffs' favor. Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989). Defendants Bruce and David Greenberg, Norman Nick, Stephen Cantor and Marvin Greenfield (the "Principals" or "Principal Defendants") established seven limited partnerships, the stated purpose of which was to operate 92 video retail and rental outlets.3 The Principals created various corporations, Video USA Associates, Inc. — # 1, Video USA Associates, Inc. — #2, and Video USA Associates, Inc. — # 4 (the "General Partners"), to serve as general partners of the Limited Partnerships. In addition, the Principals created Video USA Ltd. and Video USA International Corp (collectively the "Managing Companies") to manage and operate the 92 Video USA stores. Defendant Bernard Teitelbaum was the office manager of Video USA Ltd., and defendant Martin Cianciaruso was its internal comptroller after April 1986.4
According to the complaint, the Principals, in offering the sale of interests in the Limited Partnerships, created and distributed three misleading private placement Offering Memoranda.5 Specifically, the Offering Memoranda failed to disclose that defendant David Greenberg, a convicted felon, was intimately involved in the offering of the Limited Partnership interests and in the planning and operation of the purported video retail chain. According to the complaint, David Greenberg was convicted of mail fraud and obstruction of justice in 1978. Moreover, although the Offering Memoranda identified D.A.G. Enterprises, Inc. as a shareholder of Video USA, Ltd., they did not disclose the fact that Adam Greenberg, the sole director, officer and shareholder of D.A.G. Enterprises, Inc., was David Greenberg's twelve-year-old son. Had these material facts been included in the Offering Memoranda, plaintiffs allege that they would not have invested in the Limited Partnerships.
The Principals were aided in the offer and sale of the Limited Partnerships interests by their broker/dealer, Mast Capital Investors, Ltd. ("Mast Capital"), who helped to prepare the three Offering Memoranda, and by their attorneys, the law firm of Ruffa & Hanover, P.C. and attorney Samuel Konigsberg ("Ruffa & Hanover"), who helped to prepare and review the Offering Memoranda and provided legal and tax advice to the Principals, General Partners, Managing Companies, Limited Partnerships, and Mast Capital.
The complaint alleges that Touche Ross, Cianciaruso, Cohen, and Friedland (collectively "Touche Ross") provided accounting, auditing, financial analysis and other nonauditing services to defendants in the preparation of the Offering Memoranda and accompanying exhibits. Cianciaruso, Cohen, and Friedman were certified public accountants employed by Touche Ross from 1984 until 1986. Complaint, ¶ 245. As a result of performing these services for defendants, the complaint alleges that Touche Ross became intimately familiar with the operations of Video USA, Ltd. and the other related entities. Specifically, plaintiffs allege that Touche Ross allowed the Principals to represent in the Offering Memoranda that Touche Ross had prepared the financial projections, had been retained to oversee internal controls and would conduct annual audits of the Limited Partnerships. Complaint ¶ 247. Plaintiffs allege that the Accountant Defendants "performed financial projections ... with the knowledge and intent ... that prospective purchasers of the limited partnership interests would rely on it." Complaint, ¶ 248. The Accountant Defendants failed to disclose material facts to plaintiffs, including, inter alia, the involvement of David Greenberg, defendants' misappropriations, self-dealing, insurance frauds and other wrongful conduct. Complaint ¶ 251-253. The Accountant Defendants also aided and abetted defendants in their...
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