Fred Braun Corp. Profit Sharing Trust v. Smith

104 F.R.D. 45
CourtDistrict Court, S.D. New York
DecidedDecember 4, 1984
DocketNo. 83 Civ. 6613 (JFK)
StatusPublished
Cited by3 cases

This text of 104 F.R.D. 45 (Fred Braun Corp. Profit Sharing Trust v. Smith) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fred Braun Corp. Profit Sharing Trust v. Smith, 104 F.R.D. 45 (S.D.N.Y. 1984).

Opinion

OPINION AND ORDER

KEENAN, District Judge.

Plaintiffs have made two motions to amend their complaint, both in bankruptcy court. Prior to a decision on these motions, the case was remanded to this Court. 39 B.R. 966. Issue has not yet been joined in [47]*47this case with respect to one defendant, but it has for the three other defendants.

On June 10, 1983, Osage Exploration Company (“Osage”) filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. Osage is engaged in the exploration and development of oil and gas products.

The original complaint alleged that the defendants entered into a conspiracy to induce plaintiffs and other investors to purchase units in the oil and drilling programs of Osage by fraudulent misrepresentations and charged that the defendants thereby violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, the General Business Law of the State of New York, the Oklahoma Securities Act and the common law.

By Order to Show Cause, dated October 6, 1983, plaintiffs brought on a motion for leave to file a First Amendment Complaint to: (a) add Hamilton Robinson, Jr., as a new party plaintiff in the action; (b) add a new cause of action alleging that defendants violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”); (c) allege that an additional offering memorandum of Osage contained misrepresentations and failed to state material facts; and (d) delete the allegation that Osage was a co-conspirator. This motion is currently sub judice in this court.

In their motion for leave to file a Second Amended Complaint, plaintiffs seek to: (a) add seven additional parties plaintiff; (b) further specify the citizenship and residency of the parties; (c) add a new co-conspirator; and (d) delete immaterial allegations concerning Osage’s 1979 drilling program, known as the Hall Program.

Defendants challenge only two of the proposed amendments: the addition of a civil claim under RICO and the addition of seven more plaintiffs. For the reasons stated below, plaintiffs’ motions to amend their complaint are granted in all respects except for the addition of a civil RICO claim.

DISCUSSION

Rule 15(a) of the Federal Rules of Civil Procedure provides that “a party may amend his pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.” Accord Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). Leave to amend should be freely granted in the absence of any undue delay or prejudice to the opposing party. Id.; Clay v. Martin, 509 F.2d 109, 113 (2d Cir.1975); see 6 Wright & Miller, Federal Practice & Procedure: Civil § 1484 (1971 ed.).

1. Amending Complaint to Add Additional Plaintiffs

The first disputed amendment involves plaintiffs’ request to add seven more parties as plaintiffs. Plaintiffs contend that the claims of the new parties arise out of the same transactions and occurrences as those of the original plaintiffs and involve common questions of law and fact. As a result, granting leave to amend avoids a proliferation of multiplicitous lawsuits involving the same issues.

Defendants, on the other hand, argue that plaintiffs’ counsel has directly and indirectly solicited additional plaintiffs to participate in this action from among the investors in the oil drilling programs of Osage. Defendants’ counsel claims that several investors told his clients that they had been approached by plaintiffs in an effort to convince them to join as plaintiffs (Wentzel Aff. ¶ 2). Defendants’ counsel also claims that plaintiffs’ counsel has personally solicited additional parties to act as plaintiffs (Wentzel Aff. ¶ 3). Another person, Edward Presley, also claims to have been contacted by persons solicited by plaintiffs’ counsel (Presley Aff. ¶ 1-2). Defendants maintain that such solicitation, allegedly done in contravention of § 479 of the New York Judiciary Law and Disciplinary Rules 2-103 and 2-104 of the Code of Professional Responsibility adopted by the New York State Bar Association, warrants denial of plaintiffs’ motion to add party-[48]*48plaintiffs. To allow such an amendment, defendants declare, would unfairly prejudice them and “have the effect of placing this Court’s imprimatur on the specific improprieties of plaintiffs’ counsel” (Memorandum in Opposition at 3). The Court disagrees.

At the outset, the Court notes that it is not improper for the plaintiffs themselves to solicit persons to join them in a lawsuit. The sections of the Judiciary Law and Code of Professional Responsibility relied on by defendants apply only to lawyers.

This Court is aware of its responsibility to supervise the members of its bar. Hull v. Celanese Corp., 513 F.2d 568, 571 (2d Cir.1975). The method of conducting the inquiry is within the discretion of the Court charged with this responsibility. Lefrak v. Arabian American Oil Co., 527 F.2d 1136, 1140 (2d Cir.1975). The Second Circuit has endorsed judicial inquiries made on the basis of oral arguments and affidavits, id., and this is the method most appropriate in this case.

The affidavits connecting plaintiffs’ counsel to improper solicitation are third-hand in the case of Mr. Wentzel and second-hand in the case of Mr. Presley. It is difficult to imagine why defendants, in making these serious charges, did not produce affidavits of persons with personal knowledge of plaintiffs’ counsel’s alleged solicitation. Admittedly, those persons who consented to join as plaintiffs would probably not submit a supporting affidavit. But Mr. Wentzel’s affidavit refers, for example, to a person who says he is “sick and tired of being pestered” by plaintiffs’ counsel (Wentzel Aff. ¶ 4). Certainly, the affidavit of a person with personal knowledge of the alleged wrongdoing should have been submitted. At oral argument, defendants’ counsel failed to explain the absence of such evidence.

Plaintiffs’ counsel, in his affidavit, has denied soliciting proposed additional plaintiffs (Higginson Aff. ¶ 10). At oral argument, he reaffirmed his innocence and also denied directing his clients to make any solicitations. In the face of defense counsel’s sworn declarations of innocence, this Court cannot find wrongdoing on the basis of the hearsay evidence submitted by plaintiffs.

Defendants argue that if the Court doubts that plaintiffs’ counsel has made solicitations, defendants should be permitted the opportunity to examine each of the proposed plaintiffs by oral deposition to determine the facts under oath. Judge Mulligan, in Lefrak, 527 F.2d at 1141, however, articulated the problems with allowing such discovery:

We note in conclusion that we would be loathe in any event to mandate a procedure which would cast counsel in the role of prosecutor in a proceeding to determine how opposing counsel obtained his clients.

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104 F.R.D. 45, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fred-braun-corp-profit-sharing-trust-v-smith-nysd-1984.