Opinion
Civil Action No. 94-5999 (NHP).
December 14, 1999.
Robert D. Zatorski, Esq., Peter S. Pearlman, Esq., COHN, LIFLAND, PEARLMAN, HERRMANN KNOPF, Saddle Brook, N.J. Attorneys for Plaintiff.
Lynne Berke, Thomas F. Crawford, Esq., THOMAS F. CRAWFORD ASSOCIATES, Pennsauken, N.J., Attorneys for Plaintiffs.
Leslie W. O'Keefe, Alice O'Donnell, Kevin H. Marino, Esq., KEVIN H. MARINO, P.C., Newark, N.J. Attorneys for Defendant.
William Geronimo, Gary W. Stuhltrager, Esq., Deptford, N.J., Attorney for Defendant.
Cardiff Broadcasting, Cardiff Partners "A", Hugh Francis, Esq., FRANCIS BERRY, Morristown, N.J., Attorney for Defendant.
Buckley Broadcasting Corporation, Barry H. Gottfried, Esq., FISHER, WAYLAND, COOPER, LEADER ZARAGOZA, LLP, Washington, DC, Attorneys for Defendant.
THE ORIGINAL OF THIS LETTER OPINION IS ON FILE WITH THE CLERK OF THE COURT
Dear Litigants:
This matter comes before the Court on the motion by defendant Buckley Broadcasting Corporation for summary judgment. This matter was decided pursuant to Federal Rule of Civil Procedure 78. For the reasons stated herein, the motion by defendant Buckley Broadcasting for summary judgment is GRANTED and plaintiff's Complaint is DISMISSED WITH PREJUDICE AS TO BUCKLEY BROADCASTING CORPORATION only insofar as it relates to the federal claim made pursuant to Section 12(1) claim of the Securities and Exchange Act of 1933. Because the Court will decline to exercise supplemental jurisdiction over the remaining state law claims, the Court will DISMISS THE COMPLAINT WITHOUT PREJUDICE AS TO THE STATE LAW CLAIMS AGAINST BUCKLEY BROADCASTING CORPORATION.
STATEMENT OF FACTS
Plaintiffs Lynn Berke, et al. (hereinafter "plaintiffs") allege that defendant Buckley Broadcasting Corporation was part of a fraudulent scheme wherein plaintiffs were solicited and induced to purchase "membership interests," or "units," in the Greater Columbian Basin Limited Liability Company (hereinafter "Greater Columbian"), a Nevada limited liability company. See Complaint, ¶ 4. Defendant Buckley Broadcasting Corporation is a corporation formed under the laws of the State of Delaware with its principal place of business in Greenwich, Connecticut. See id., ¶ 22. It owns and operates WOR Radio, a radio station with its principal offices in New York City. See id.The solicitation was purportedly an effort to raise funds to finance a wireless cable television system to be owned and managed by Greater Columbian in Walla Walla, Washington. See id., ¶ 4. Plaintiffs allege that the money was not used for that purpose but, instead, was illegally diverted to a company known as "Nationwide Wireless Company," a corporation which plaintiffs allege was created to form various limited liability companies for the purpose of promoting and selling securities in the form of the aforementioned "membership interests." See id.
The sale of these units was advertised by Harry I. "Sonny" Bloch (hereinafter "Bloch") on his nationally syndicated radio talk show, The Sonny Bloch Show. Bloch aired advertisements for these units on his radio station, urging listeners to call an "800" number and purchase units.See id., ¶ 9. When the listeners called, they were put in contact with various telemarketers, who would echo Bloch's endorsements and entice people to invest in the business. See id. Plaintiffs allege that the marketing campaign resulted from the various defendants participating in the scheme to defraud the public.
Plaintiffs attempt to tie Buckley into this matter is based upon three agreements for syndication entered into between Bloch's syndicator, Broadcast Management Corporation (hereinafter "BMC"), and Buckley. See Buckley Declaration, ¶ 4. Pursuant to these contracts, Buckley would broadcast, via WOR, The Sonny Bloch Show for two hours each weekday night and, occasionally, on Sundays beginning in 1991. See id., ¶ 5. Similar to its arrangements with other broadcasting programs, Buckley received payments for the sale of commercial advertisements during The Sonny Bloch Show aired on WOR. See id., ¶ 6. As compensation to Bloch and BMC for providing the show, Buckley agreed to pay BMC a percentage of the gross amounts received for the advertising on that program. See id. That percentage was dependent upon which advertising agency was involved with placing a particular advertisement. See id. There is undisputed evidence in the record that Buckley never contracted for, nor did it receive, any commission or part of the profits that advertisers may have made from the sales of their products or investments advertised on The Sonny Bloch Show. See id., ¶ 9.
With respect to the specific allegations against Buckley, the Complaint reads:
51. Nationwide, the Nationwide Affiliates, the Broadcasters [which includes Buckley], the Marketers and the Salespeople induced plaintiffs to purchase the Units upon numerous representations, promises and assurances, the essence of which was that they were buying valuable Units in and that their payments would be used to finance a functional and operational wireless cable television system in Walla Walla, Washington. Each of those representations were false and untrue when made. In fact, the representations were made as part of and for the purpose of furthering a fraudulent scheme to sell worthless securities to plaintiffs.
52. The Broadcasters, knowing and or recklessly disregarding the false and unsupportable nature thereof, recklessly and/or maliciously broadcast the false representations and thereby participated in the fraudulent scheme.
53. Bloch and each Broadcaster participated directly in the promotion and sale of the Units, received a financial benefit from that sale and was motivated to do so by his/her and/or its and Nationwide's financial interest.
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55. During all of the time that Bloch was making the misrepresentations and omitting to state the material facts referred to above, he and the Broadcasters who syndicated and broadcast those statements knew that the people to and with whom he was speaking, including plaintiffs, relied upon him as a counsellor, guide, and advisor on the subject of investments; that they felt that he was speaking independently of influences from Nationwide, The Nationwide Affiliates and The Salespersons and other Marketers for their benefit and was providing help and guidance to the plaintiffs as their "advocate" and friend; that they believed that he has only their best interests at heart in the investment recommendations which he was making to them; and that they were ignorant of the fact that he was being paid by other promoters and sellers of this investment to make these recommendations to plaintiffs.
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109. The Broadcasters knew or should have known that Bloch was not reliable and had a history of making exaggerated and incorrect statements with respect to products and investments which he was promoting and of promoting products and investments which were of questionable quality.
110. Further, the Broadcasters knew or, absent gross recklessness, should have known that the format of The Sonny Bloch Show was so conceived and so established as to make it difficult, if not impossible for plaintiffs and other listeners to distinguish between paid advertising on one hand and Bloch's personal independent objective investment advice on the other and that under the circumstances listeners, including plaintiffs, were likely to believe that what was said as a paid advertisement was in fact objective independent advice and were apt to be damaged thereby.
112. The conduct of the Broadcasters in broadcasting Bloch and The Sonny Bloch Show without any reasonable oversight and without any regard for the show's format and Bloch's representations and conduct was grossly reckless and/or malicious under the circumstances.
DISCUSSION
I. Standard of Review for Summary JudgmentThe standard governing a summary judgment motion is set forth in Fed.R.Civ.P. 56(c), which provides, in pertinent part, that:
[t]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(c). A fact is material if it might affect the outcome of the suit under the governing substantive law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Procedurally, the movant has the initial burden of identifying evidence that it believes shows an absence of genuine issues of material fact.See Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). When the movant will bear the burden of proof at trial, the movant's burden can be discharged by showing that there is an absence of evidence to support the non-movant's case. Id. at 325. If the movant establishes the absence of a genuine issue of material fact, the burden shifts to the non-movant to do more than "simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
In this matter, there are no genuine issues of material fact and therefore, summary judgment is appropriate at this time.
II. Section 12(1) of the Securities Act of 1933
In order to be held liable under Section 12(1) of the Securities Exchange Act of 1933 (hereinafter "1933 Act") a person must be a "seller" of an unregistered security. See Securities Exchange Act of 1933, § 12(1), 15 U.S.C. § 77l (West 1999). In Pinter v. Dahl, 486 U.S. 622, 647 (1988), the United States Supreme Court stated that although the language of Section 12(1) "contemplates a buyer-seller relationship not unlike traditional contract privity," see id. at 642, the scope of Section 12(1) is not limited to those who pass along the title. See id. at 643. Instead, the Court opined that the term "seller" in the context of Section 12(1) consists of: (1) "the owner who passed title, or other interest in the security, to the buyer for value" and (2) "the person who successfully solicits the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner." See id. at 643-47. See also In re Westinghouse Securities Litigation, 90 F.3d 696 (3d Cir. 1996). Therefore, according to Pinter, both direct sellers and a person who engages in the active solicitation of an offer to buy can be "sellers" for purposes of Section 12(1).
In light of the aforementioned, a plaintiff must sufficiently allege facts in the Complaint showing that a defendant was a direct seller of securities or a person who engages in the active solicitation of an offer to buy in order to survive a motion for summary judgment. In re Westinghouse Securities Litigation, 90 F.3d 696, 716 (3d Cir. 1996).
In this matter, plaintiffs allege in the Complaint that defendants, including Buckley, were "sellers" within the meaning of the 1933 Act. However, plaintiffs' blanket allegation is insufficient; plaintiffs must allege facts to support an allegation that Buckley is a direct seller of securities or that Buckley solicited the purchase of the membership interests motivated, at least in part, by a desire to serve its own financial interests or those of the securities owner. For example, there is no factual allegation that Buckley gave plaintiffs a prospectus which induced them to purchase the membership interests. Likewise, there are no allegations that Buckley or its representatives made oral representations to induce the purchase of the membership interests. The Court cannot simply assume, without any factual allegations, that Buckley is a "seller."
Moreover, the fact that Buckley received payments for the sale of commercial advertisements during The Sonny Bloch Show on WOR pursuant to agreements with BMC is insufficient to deem Buckley an entity who "successfully solicits the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner." Other than a standard broadcasting agreement where Buckley would receive payments for the sale of commercial advertisements during The Sonny Bloch Show, there are no allegations that Buckley contracted for or received any commission or part of the profits that advertisers may have made from the sales of their products or investments advertised on The Sonny Bloch Show.
It is clear from the face of the Complaint that plaintiffs have not sufficiently alleged that Buckley is a "seller" of securities and, therefore, have not alleged any facts which would entitle them to relief. Thus, the motion by Buckley for summary judgment must be granted and plaintiffs' Complaint must be dismissed as to Buckley on this federal issue.
III. State Law Claims
Plaintiffs also claim, under the law of an unidentified State or States, that Buckley is liable for negligent misrepresentation, common law fraud, and gross recklessness and/or malice. See Complaint, Counts Seven, Eight, and Nine in connection with the Greater Columbian deal. The Court has dismissed the only federal claim against Buckley, but may exercise its supplemental jurisdiction over the remaining state claims pursuant to 28 U.S.C. § 1367(c). The Court, however, may decline to exercise its supplemental jurisdiction over a remaining claim where "the claim raises a novel or complex issue of State law." 28 U.S.C. § 1367(c)(1). See Lyon v. Whisman, 45 F.3d 758, 760 n. 4 (3d Cir. 1995).
The state law claims against Buckley raise unique issues with respect to radio broadcasting — i.e., a radio broadcaster's duties in connection with advertisements on syndicated programs broadcast on their stations. This claim is not interconnected with the claims remaining against the other defendants and the Court will therefore decline to exercise supplemental jurisdiction over the state law claims against Buckley. Any plaintiff who has standing to do so should bring an action against Buckley in a court of the appropriate state.
CONCLUSION
Based upon the foregoing, the motion by Buckley for summary judgment is hereby GRANTED and plaintiff's Complaint is DISMISSED WITH PREJUDICE AS TO BUCKLEY BROADCASTING CORPORATION only insofar as it relates to the federal claim made pursuant to Section 12(1) claim of the Securities and Exchange Act of 1933. Because the Court will decline to exercise supplemental jurisdiction over the remaining state law claims, the Court will DISMISS THE COMPLAINT WITHOUT PREJUDICE AS TO THE STATE LAW CLAIMS AGAINST BUCKLEY BROADCASTING CORPORATION.
An appropriate Order accompanies this Letter Opinion.