Venturetek, L.P. v Rand Publ. Co., Inc.

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Venturetek, L.P. v Rand Publishing Co., Inc. 2004 NY Slip Op 30236(U) August 18, 2004 Supreme Court, New York County Docket Number: 0605046/1998 Judge: Herman Cahn Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1 ] SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY PRESENT: ('1 t i [ f . C' Justice MOTION DATE CJ MOTION SEQ. NO. \ ; ' ! MOTION CAL. NO. The following papers, numbered 1 to were read on this motion to/for Notice of Motion/ Order to Show Cause Answering Affidavits - Affidavits - Exhibits - Exhibits ... I I I I I PAPERS NUMBERED I -I Replying Affidavits Cross-Motion: 1 Yes 3 0 No Upon the foregoing papers, it is ordered that this motion 1 1 " . SEP - 2 2004 Dated: J-S. C. Check one: 1 FINAL DISPOSITION 7 1 SN-FINAL DISPOSITI N ON o [* 2 ] SIJPREME C O U R T Oh' 'YHE STATE OF NI7W YORK C:OUN'l'Y OF NEW Y O R K : IAS PART 4 9 x _ _ _ _ _ _ _ _ _ _ _ l l l _ _ _ _ _ _ I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - L. P., RICHARD ELKIN, ANTOINE DKRNHEIM, STACY BERNHEIM, VENTUHETEK, a n d GENSTAR, L T U . , i n d i v i d u a l l y a n d as s h a r e h o l d e r s of Iiclnd P u h l i s h i i - i y C o . , Inc. , Plaint.iff3 , Tndex No. 60 5 0 4 6/ 98 -against- KANL) E)IJRLITSIITNG CO., I N C . , MASON P . SLAINE, MICHAEL, E. DRNZlGKR, WARRIJRG F I N C U S VENTUHLS, L . E . a n d E . M . WARBURG, P I N C U S & CO., L.L.C., ( b ), p u r s u a n t . t.c CPLK :<O? D e I e n d a n t Mason P. S l a i n c m o v e s , f o r l e a v e t.o amend his a n s w e r t o p l a i n t i f f s ' sccond a m e r i d e d c o m p l a i n t t o a d d f o u r a d d i t - i o n a l a f f i r . m a t : i v e defer-i,r-;;escinci ; I co I I 1-1t e 1 (: 1; i n 1 I BACKGROUND T h e f a c t s u n d e r l y i n g t h i s m o t i o n h a v e been det..a i 1 et-l .i s e v c r a l prior decisions and o r d e r s 01 1 . h i s c o u r t , w i . t h whic:h i s presumed. 1.1 familiarity B r i e f l y , p l a i n t . i f f s a r e i n v e s t - . o r :-; ar1c.l shareholders i n Rand P u b l i s h i n g C o . , Inc. (Rand)I a sriiall Del aware c o r p o r a t i o n that a l l e g e d l y was f o r m e d for t.he pijr.po:-;e (.,I i nves1::i ng i n n i c h e t r a d e p u b l i c a t i o n s . pl aint-iffs alleged, inter alia, o n e of t h e c o m p a n y ' s t.hat, In their (::orrip 1 a i r - i i . , j ri 1 9 9 7 , c3eIIendant Slciintr', corporate o f f i c e r s a n d d i r e c t o r : ; , i~si~rpc+~.l v a r - i o u s c o r p o r a t e i n v e s t m e n t o p p o r t u n i t i e s bel oriyir-iy t o t < r : ~ ~ - ~ d ,hy [* 3 ] a(.-quir-iricj ¬our n i c h e p u b l j - s h i n g busi ne3s.c;e.c; for- InfoL-niat i o n V e r i t . i . i r e s I , - I , - C -, another i n f o r m a t i o n p u h l i s h i n q bi.isi S l a i n e h a d r e c e n t l y formed w i t h defendarit. K . M . rip Warhury, h Pii-ic::us (3u . , I,. L . c: - S l a i n c h a s c i c n i e d t h a t . t-hese I(.)i.ir a r q u i s i t i o n s wcrc: c o r p o r a t e o p p o r t . u n i t . i es beloriyiricj t.o R d r i d , ai-iii a r y u e d t I - i , _ ? t , i f t.hese w e re h u s i r i e s s o p p o r t u n i t i e s w h i c h s h o u l d h a v e o f f c r c d t o Rand, t-ime. Iri kjppti t . h c c:ompariy would rioi. h a v e h a d the rcSourc::r:?8t o piir-(::tia..;e i . h e s e p u b l i c a t i o n s , t.1-1~ (TIVPII q i v c n it..? l i m i t . e d c a s h pos i I. i 01) ai. e a r l i e r s u b m i s s i o n s on p r i o r m o t . i o n s , p l ;+i r-1t.i i-i-:-; have d i .sput.ed S1.ai ne 3 c o n l e n t i o n t h a t Rand w o u l d h;ivc ~:)CI C:I-I unable L o t a k e a d v a n t a q c o f t . h e s e oppo.rt.unj t . i es, a r y i i~t i y (.li,i1. R a n d .s i r i v e : - ; 1 . o r - / s ~ i a r - e h o l d e r w o u l d h a v e been w i l l i n g a n i d c i b l i t.o s i n v c s t . addit.] onal. c a p i - t a l i r i Rand, to e r i a h l e i L 1.0 m a k e suc.1-i acqui:;it i o n s . i n 1 9 9 8 , 1 n f o r m a t . i o n V e n t - u r e s went. pub1 i (.:, f l o l d-i r i g s , time, In(:- (IFII) , d s TrlLorrriai. i u r - 1 a n d h a s b e e n highly s u c c c s s f u l . At. t ti(.: Rand s i n v e s t o r s were o f f e r e d a n o p p o r t . u r i i t y t.o i r i v e s i 01 R a n d s a v a i l a b l e i - u n d s i n IHI s i n i t i a l p u b 1 i c: n f f c r i n q , ,:ill al (-1 ravvorabl e p r i c e , huI. t h e y d e c l i n e d t h i s o f f - e r and ~ ~ r c ~ ~ ~ : c ~t.o ~ c l i : . c l ~~ ~omnei-i(:e Lhe i r i s t a n t s u i t . . S 1 . a I . n e c o r i t . e n d s t.ha t. he has now u r i c o v e r e d e v i d e n r c , d i s c o v e r y , which est.nblishe.5 t h a t , position, pl a i ritj c o n t r a r y t.o p 1 a i n t . i fi-::: ffs V e n i . u r e t e k , A n L o i n e B e r n h e i m , Stacy tl-ir~oi.1~11i 1:)t i [:I [* 4 ] ner-I-ihcim, a n d Genst..ar, 1,tr.d. were n e i t h e r will i ny nor. a r i x i OLIY ti.) i n v e s l . a d d i t i o n a l m o n i e s i n Rand, t.o enablc i t m a k e t h e . , a c q u i s i t . i o n s a t issue VcntureLek, or-i Specifically, S l a i r - l e c o r i t . e r i d s t.l-iat i t s r e c e n t l y produced 1 9 9 6 ttlx ret.i.iri-i.s, repre:<erit.ed t.o t h e I n t e r n a l Revenue S e r v i c c t h a t i t had s u i ler P{.I c7 comp1et.e 1 o . r ; ~o f i t s $ 2 . 9 5 m i i l i o r i j.rivest.mr.rit. i n Ranc1 d u r i n g Lhat.. year - SI a i n e a r q u e s that. t.hi.c, rcprcser-it.ati o n i s ~ : ( . ) ~ n p l c y ~ . ~ l + i r i c o i n s i St.(::nt w i t h Venturetek's w i l l i rig c l a i m t-lhcit i L w o u l d h v e k:)c?c>ri a n d a n x i o u s t o i n v e s t . mure moncy i n l h n d , o r d c r t o m a k e the add.i t.i.oria1 a c q u i s i t i n n s . i 1.i -1 9137, i 11 .Sl.ainc f ~ z r t h c rd i - q ~ ~ s C h a t t . h j s r e p r e s e n t a t i o n was a d e l i b e r a t e t a x Lr-aiicl desi q n c c i (:)illy t.o reap s u b s L a i - i t i a1 t a x b e n e f i t s ¬or V e r i t . u r c ! t . ( ~ . k ' s p ; l r t r - i e ~ : ; , (.i:-; t h e r t l : w a 1 s n o qood-faith b a s i s for V e n l u r e t e k ' s c I riim(:d siri(:e Rarnd s t i l l had s l i y h t l y .I (1) over. $ 2 m i l l i o r i i ri a s s c t s . S1 aine a d d i t i o n a l l y c o n t e n d s t h a t , i n a recent-ly rcccivc'd suppI.cmcntary resporise t o h i s i n t e r r o y a t - o r i e s , p l a i n t i f f s A n 1 . o i t i t ' nernheim, Sl.ac:y R e r n h e i m a n d G e r i s l - a r h a v c : now cor-iredetl t.li;i t I. ti(:? w o u l d noL h a v e invested f u r t . h e r - monies j n a n y er1Lil.y i r i v o l vi r - i g Slairie i ri 1996 o r 1'397. SI a i n c a r g u e s tLhat t h i d i r c c t l y corit.r-adic,ts t.hcse t h r e e p l a i n t i f f s ' s conccssior-1 e a r l i e r po:-;i t i OII, t h a l . I:.hey w c r e b o t h a b l e a n d w i l l i r i y t o i n v e s t . f u r - t . l - i c r moi-if:.'y 1 1 1 R a n d t o s u p p o r L t . h e a d d i t i o n a l a c q u i s i t - in n s . Based o n t . h i s new evidence, .Sl.ainc s e e k s to d:-;sert., a d d i t i o r - l a 1 a f f i r m a t i v c defenses, ( 1 ) t.hat. p l a i n t i f f -3- 711s Venturel.eI.:. .i:-; [* 5 ] e s t o p p e d b y i t . s t.ax f r a u d f r o m (5ajrni r i g i n t h i : ; a c t i o n t h ~ i tj . t st.i 1 1 r e g a r d e d Rand a s a v i a b l e i n v e s t m e n t i n 1 9 3 7 , a r i d t.h;-Ii w a s p r e p a r e d t.o j - r i v e s t a d d i t i o n a l c a p i t ; i l ( 2 ) that p l a i n t i f f s Antoi ne R e r n h e i m , C;enst.ai-, i n 1i;ind a t . t . t I c . t i i I iiit-:; .St.acy H e r r i h e i ~ n , cii-ii:d ar-e e s l o p p e d f r o m c l a i m i n g t h a t Hand should h;+vv hc-~eri g i v e n a n o p p o r t - u n ity t o ac:yui re t.he f ( . ) u r r.ii(:he p u b l i c ~Lii o n companies, o r t.hat_ t h e y suffered ariy d a m ~ g e sas a (~or-isecjuei.icl.cl(I) t i 1.5 L a . i l u r e t o be y i v c n s u c h a n 0 p p o r t u n i t . y ; a n d , Venturctck's ( 3 ) that. e q u i t a h l e c:laims a r e b a r red k:)y 1 . h ~d(-)(-:I.rir-ie 01 1.1ri c1e a n 11 a n d s . A d e c l a r a L o r y :judgment. t h a t , b y f o r m a l l y rcprC:Sct-it.ing t o t.h(-! T. !?. I y(-)veriirnenL t : h a t S l a i n c ! f u r t h e r speks t.o a s s c r t . a i t had s u f f e r e d c? t . o t . a l loss o n i t .f; i V e n t u r e t e k i r r c v o c a h l y abandoned Kand, ~ ~ ; ~ ) i . ~ r i ~ .ri i~ r ! i ~ -1.1 .1 1: l ~ r ~ 1 t.s i - i v ~ ' ~ t i m i ~i it ~ t i invest.meri t., dml t.lier-ehy for-feiL.ed a l l o f i t s r i g h t s , as a s h a r e h o l d e r o f l i d ~ n ( : l , nf rlecember 31 , 1996. hased A t l d i t i onal 1 y , or1 'chi..; , ~ ~ ~ . ~ ~ l i ~ : ~ [ ) r i r r i ~ i i ~ . the ( : n u i - i t . t . : r c l a i m a l s o s e e k s t.he i r r i p o s i L i o r i o ¬ a c o r i s Lr-ui.:Livcl' t r u s t on V c n t u r c t e k ' s s h a r e s i n R a n d , rem3 i ri f o r - the berietfi I. of l..lic+ i ny stit3retiol d e r s . F i n a l l y , based o n c e r t a i n dcpnsi t - i o n t.cst.l mony hy V e n t . u r e t e k ' s g e n e r a l p a r t n e r , e l i c i t e d on Novcmbcr 1 3 , 200.3, S l a i r i e seek:-; dcfcnsc, l e a v e t o add, a s a IourLl-i a d d i L i o n a l t . h a t . p l a i n t ; f fs f a i l e d Pu r p o r t ed 1y , d11r i ng fi t.0 if f i r m i t i v r m i t . i g a t . e t h e i r- d a r i i , . - i g c + . s . i s depo si.t. . r 1 , V e r.1 t. ure I.e k ' s y e 1-1e L ;I 1 p ci i L 1-1 o i :( coriccdcd t h a t I H I h a s b e e n a v e r y successful c o m p a n y , -4- and tlhcit L [* 6 ] 4 its success 3.5 an j n v e s t m e n t . may p r o p e r l y be j u d q c ~ c l i n l i i ncI:i~.qht . R a s e d ciri t . h i s concession, S l a i n e c o n t e n d s t h a t . p l a i r e f u s a l 1.0 fts' ril..i allow Rand t o i n v e s t . it::; remclir-iir-iy assel-:< . i n Tt1.I ' :I' ir-iil.ia1 puublic o f f e r i n g i n 1 9 9 8 , constiLut.ed ; I ¬ a i 1 iur-c L c mi t:i.gc.it.c. darriayes. DISCUSSION General 1 y , moI.i o r i s f o r leavc t o arnend p l e a d i n q : ; s h ~ 1 . ci1h(:f 1 - l i b e r a l 1 y qrant:ed i n the absence o f prejudi cc o r s u r p r i : 302.5 [b]; Thomas C r i r r u n i n s C o n t r - . C:o. v Cit.V 1 6 6 [ I 17831; M a s t e r w e a r C:orp. v B e r n d r d , . 201)4]) However, of N P W Y o r k , 3 ALi3d 30.5 11 in a n effort t o c o n s e r v e j u d i c i a l ' 74 N Y - ' d kp-)t I~SC)LII(::C exarni.nat i r j n o f t h e u n d e r l y i n g m c r i t s o f the pr-(.)posed arr1i:ndmcni. w a r - r a r i L e c I whc!n ( : o n s i d e r i n g such r n o t . i o n s , arid, w h e r e t the, [' :I p l e a d i r - l g s a r c p a l p a b l y i n s u f f i c i e r i t a.5 ; I rriat.t.tl:r 01 1 aw v :Si.. I3arriahas Hosp., 301 AD2c3 474 [l"' Dcpt 20031; I ) r i v i s rhvis, F'.C:. l ' r a d i n y (30. i d i. 1 t - r ~ l e a v e t o amend s h o u l d be t3eni.c.d ( A r i ( : r - u n i ;3. of a c t i o n , II.)'I (I)L st.ate c:;duse i :-: & v M o r s o n , 2 8 6 AD2d 584 [l-" Dept. 20011; N o r i - L i I l e . , i l v Braddis A s s o c . , Inc. , 2 4 3 A D 2 d 107 (l'."Dept 19981 ) - -5- [* 7 ] 0 T h e allegedly i n c o n s i s t . e n t r e p r - e s e r i t . a t . i o n s madc b y Venl.rdr-et.ek on i t s 1 9 9 6 t a x reI:i1r,ri, even i f f i n a n c i a l l y i . 0 V e n t . u r c t . e k , wer-e no[-. rwde i n t - i c c o n t . e x l kjc3Ii~ I_ i <:i r 1 1 01 a I.e.ya1 p r o c e e d i r i y , a n d t h u s , do not warrant. a p p l i c a t i o n o f t h i s d o c : I . r . i HP (cf. F e r r i n q v M c r r i l l Lvnch & C o . , 2.14 AL12d 204 [l"' D t i p l . l(3971 [ p l a i n t i f f ' s appearrance b e f o r c t . h c S o c i a l :;ec:l.lrii.y A d m i n i st.r-tlt.ior1, w h i c h d i d n o t ent..ai.l a hearing, d i d n o t c o n s t i t u l - e the t.ypc of p r i o r l e y c i l proceed:i r i q I:.tiat. r a n f o r m b a s i s for [.he a p p l i c a t - i o n o f j u d i c i a l e s L o p p e l 1 ) - t.t.1~ N(-:)r. .i :-; t . h v do(:.t.ri r i c t a p p l . i c a b l c t o t . h e i n c o n s i s L e n t . pr1.si.t.i on.? t.cikCr1 hy [* 8 ] . H e r n h e i m s a n d GensLar d u r i n g t h e rourse o f t.I-iis p r o c e e c i i n c j i f p l a i n t i f f s s h o u l d be c o n s i d e r e d h e n e f i c i d r i e s 01 [ t i i s p r i o r r u l i n g s f d e n y i n y cli s m i i s s a l o f t . h i s a c t . i on tja:-;ed, Lvvl2ri court i r i 1piii.I. I upon tLheir p r e v i c - i u s 1 y a s s u m e d posit.i.or-1 I . h a t t . h e y were w i l l i n g ~: I I-IC. I ablc t o i n v c . s t . f u r t h c r monics i n lidrid, S l a i n e d o c s n o t :;c!c.k e : t op t t i e se p 1 iin C ifL s from t a k i1-1y a po si 1. i or.1 i I-i c: o 1-1 si :;t c r-i t I ; a I : t h a I. po s ri t io n . I(.] w i :I t.1 S 1 i ne appa Len I. 1y s e k s I (-1 e 5: t op 1.1-1F_' :; a . I(2 I ri s.: e ad I 1 p I a i . n t . i f f s from t.akinq a p o s i t i o n i n c o n s i s t e n t . w i t . h t l i e i r r e ce r-i 1. 1y st a t e d p CI si t i o n I t o w h ic;h e a c: h h a : i 1 1 cj w s1.1 brn i t t e d ri sw (:i I 1-1 veri f i c a t . j orif t h a t . t . h e y were u n w i l l i n q t o i n v c s t f u r t - t i e r m o r - l i wit.11 S l a i n c . The d o c t r i n e of j u d i c i a l e s t o p p e l i s not avail;lk)l u n d e r t h e s e circums I.anc;es i? . SI a i T-IC!'S m o t . i o n t.o a d d a n a f f i r m a t ivp d e t c n s c o f 111nr1rcir! h a n d s m u s t also be d e n i e d , as t h i s e q u i t a b l e d o c t r i n e i s o n l y available where t h e p l a i n t i f f i s yui.1t.y n f j m m o r a l or uri(..(jrisi.ioriable coriduc:l: I t h a t c o n d u c t is d i rect.1 y ~ - e l a I . e d (Lo 1.11~. s u h j e c : t . rriat.ter i n l i t i g a t i o n , a n d thc p a r t y s ~ c k i n c jt u iIiv(:jI,:i:, t . I i k : doc:l..r-irie was i n j u r e d b y such conduct. ( N a t i o n a l D i s t . j . 1 1 e r s h C u r p . v S c v n p p Corp. I kLclrori, Cliptii. l'/ N Y 2 d 1 2 [1966]; 2 / 4 A I l 2 d 330 11" L)ept 20001 ) . Ever] a s u m i i - i q t h t l t V e n t - u r e t e k c o m m i t t e d t a x f r a u d i n c l a i m i n g Kaiid a s ; I c:ompl(-.tc, l o s s o n i t s 1 9 9 6 t a x r e t u r n , S l a i n e c a n a l . l e g e n o i n j u r y frorri Verit.iir-et.ek' 5 alleged misconduct. T h c f a c t . u a l . al.1egat.i o r i s i.ri Sla i r i e ' s arneiided a n s w c r d l -7- [* 9 ] -8- [* 10 ] convey or re(:or-lvey p r o p e r t y ; p r o m i S F ; and t . h a t promise'' ( 3 ) a t r a n s f e r : i n r-elidnce ( 4) u n j u s t enrichment. a r i s i n q L r o m t . h e brcc~ck oir (Fodiman v Zoberq, 182 A D 2 d 493, 494 [ - I " 1.9931; s e e a l s o S h a r p v Kosmalskj., 40 N Y 2 d 119, I.?.] c : o n s t r i . ~ ( : t : i v et.rust. w i l l be imposed o n l y in t.1hose where " t.hi~ 1. i.ipon L&pt 119761 IA ( ~ : i r ~ . ~ . l I r ~ ~ ~ ~ ~ ' p r o p e r t y h a s been acquired i n su(.:h circurri:.; t - a n c c s i.ti;It holder of t h e legal t i t l e may n o t in good cor-iscicnce r e t . a i n benef i c i a i i n t e r e s t . ' " [citations o m i t t e d ] ) t.he! 1.1-i~. . Accordingly, it. i s O H D E R I 7 T ~ t h a t d e f e n d a n t Mason P. Slaine' s m o t . i . o r ~ Tor- 1 . e ; i v e I.(:) a m e n d h i s answer t o plaintiffs' second amended ( : o m p l a i nt is d c n j ed - DATED: A L I C J U ~1 8 , 2004 ~. ENTER : -9-

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