Opinion
01 Civ. 10080 (RWS)
October 31, 2002
THOMAS J. FLEMING, ESQ., KENNETH J. RUBINSTEIN, ESQ., MICHAEL B. FISHER, ESQ., OLSHAN GRUNDMAN FROME ROSENZWEIG WOLOSKY, New York, NY, for Plaintiff.
EDWARD H. POMEPANZ, ESQ., NANCY R. SILLS, ESQ., GRAUBARD MILLER, New York, NY, for Defendant.
OPINION
Defendant Steven Chrust ("Chrust") has moved under Rule 56.1(b), Fed.R.Civ.P., for summary judgment to dismiss the complaint of plaintiff Steven A. Greenberg ("Greenberg"). For the reasons set forth below, the motion is denied.
Prior Proceedings
This action was filed on November 19, 2001. Chrust moved to dismiss the complaint and by opinion of April 26, 2002 (the "Opinion") the motion was granted in part and denied in part, stating:
The allegations in the complaint regarding Chrust's misrepresentation of his employment background and business acumen (i.e. that he resigned his position at Winstar, that he successfully aided small companies, and that he managed a successful hedge fund) satisfy the requirements f or a fraud claim. Greenberg has alleged that such representations were false and known to be false when made; that they were made to induce Greenberg to contribute his shares back to the company; and that Greenberg relied on these representations and was injured as a result.
* * *
Greenberg has, with sufficient particularity, specified the statements made by defendant which were fraudulent, identified who made the statements, when they were made (to plaintiff and others on various occasions prior to defendant's retention as chairman of the board) and why they were fraudulent.Greenberg v. Chrust, 198 F. Supp.2d 578, 583 (S.D.N.Y. 2002).
Discovery has proceeded but document production is not complete, and no depositions have been taken.
The instant motion was marked fully submitted on August 7, 2002.
The Facts
The facts are gleaned from the parties' Local Civil Rule 56.1(b) statements.
Chrust called Greenberg, a sophisticated businessman, in late 1998 concerning his possible involvement in Worlds.com ("Worlds"). Greenberg had founded a predecessor company and was a principal shareholder. Greenberg and Chrust held several meetings in late 1998 and 1999 during which Chrust made statements which are at issue in this action.
According to Greenberg, Chrust stated that he was no longer employed or affiliated with Winstar Communications, Inc. ("Winstar"), that he had resigned voluntarily as Vice Chairman and member of the board, that he had worked successfully with small companies in the past aiding in their financing, development and growth, and had managed a hedge fund with a growth rate of 25% annually, in which he personally invested approximately $10 million.
Worlds and SGC entered into a Financial Advisory and Consulting Agreement ("SGC consulting Agreement") on March 23, 1999. Greenberg and two other Worlds shareholders entered into an agreement dated April 13, 1999 in which they agreed to contribute certain amounts of their Worlds shares back to Worlds (the "Contribution Agreement"). Greenberg agreed to contribute 881,750 shares of his worlds stock back to Worlds.
Prior to entering into the Contribution Agreement, Greenberg owned at least 3,818,250 shares of Worlds common stock. (Greenberg alleges ownership of 4.7 million shares). Although the Contribution Agreement called for Greenberg to contribute his shares of worlds stock on April 13, 1999, he did not contribute his shares until October 1999. The responsibility for the delay is a factual issue.
Chrust entered into an agreement to continue rendering consulting assistance to Winstar for a period of one year after his resignation as Vice-Chairman. Public availability of that agreement with Winstar is a factual issue.
The SGC Consulting Agreement provides that SGC and Chrust could consult with other businesses, without limitation, while SGC was consulting with Worlds.
Chrust became chairman of Worlds which thereafter became insolvent. Chrust has extensive experience in evaluating investment opportunities in public and private technology and telecommunications companies, most, if not all, of which are bankrupt or on the verge of bankruptcy and are out of business according to Greenberg.
The issues in dispute concern the representations made by Chrust and whether the statements were true or false.
Summary Judqment Is Denied
Summary judgment is frequently denied when outstanding discovery on material issues remains to be completed. See, e.g., Hellstrom v. U.S. Dep't of Veterans Affairs, 201 F.3d 94, 97 (2d Cir. 2000) (vacating grant of summary judgment in favor of defendants where plaintiff was "denied the opportunity to conduct discovery of any sort, and was even precluded from taking depositions"); Sutera v. Schereing Corp., 73 F.3d 13, 18 (2d Cir. 1995) (vacating district court's entry of summary judgment because "[a] party opposing a motion for summary judgment must have had the opportunity to discover information that is essential to his opposition to the motion") (internal citation and quotation marks omitted); Meloff v. New York Life Ins. Co., 51 F.3d 372, 375-76 (2d Cir. 1995) (vacating summary judgment where plaintiff was not allowed sufficient time in which to conduct discovery); Trebor Sportswear Co. v. The Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir. 1989) ("nonmoving party must have `had the opportunity to discover information that is essential to his opposition' to the motion for summary judgment"), quoting, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n. 5 (1986).
Greenberg has made an adequate showing under Rule 56(f), Fed.R.Civ.P., that documents relating to Chrust's departure from Winstar are necessary and relevant to the resolution of the factual issues raised by hearsay evidence which he has proffered. This motion will therefore be continued and denied at this time for that purpose.
Disputed Issues of Material Fact Exist Precluding Summary Judgment
"Summary judgment is appropriate only when the submissions of the parties, taken together, `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.'" Corcoran v. New York Power Auth., 935 F. Supp. 376, 383 (S.D.N.Y. 1996), citing, Rule 56(c), Fed.R.Civ.P. When deciding a motion for summary judgment, the Court must "view the evidence in a light most favorable to the non-moving party and draw all reasonable inferences in its favor." American Casualty Co. of Reading Pennsylvania v. Nordic Leasing, Inc., 42 F.3d 725, 728 (2d Cir. 1994).
The conflicting statements contained in the parties' submissions include the circumstances of Chrust's departure from Winstar, the representations Chrust made regarding his employment status prior to his retention by Worlds, his work with various small companies, and involvement with a hedge fund prior to his retention by Worlds, the provision and availability of certain materials regarding Chrust's background, and the cause for movement in Worlds' stock price between March 23, 1999 and April 13, 1999.
The main thrust of Chrust's argument is that the documentary evidence establishes that he voluntarily resigned from Winstar, had no duty to disclose his employment status with Winstar, and that in any case any failure to disclose was immaterial; and that any statements by Chrust as to his past successes are merely statements of opinion and therefore are non-actionable.
Whether or not Chrust was under a duty to disclose his employment depends upon the prior statements. See, e.g., In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 268 (2d Cir. 1993) ("a duty to disclose arises when disclosure is necessary to make prior statements not misleading");Peerless Mills, Inc. v. American Telephone Telegraph Co., 527 F.2d 445, 449 (2d Cir. 1975) ("There is no question but that one party to a business transaction is under a duty to disclose to the other such additional matters known to him in order to prevent his partial statement of the facts from being misleading").
Also at issue is whether the statements regarding Chrust's successes are merely statements of opinion and non-actionable. In re Klaiman, 202 B.R. 813, 816 (Bankr. D.Conn. 1996) ("To be actionable, the representation must be one of existing fact and not merely an expression of opinion, expectation or declaration of intention"), citing Schwartz v. Meyers, 130 B.R. 416 (Bankr. S.D.N.Y. 1991).
According to Greenberg, the statements related to what Chrust had done for numerous other small companies in the past. Like the situation in In re American Bank Note Holographics Secs. Litig., 93 F. Supp.2d 424, 443 (S.D.N.Y. 2000), the statements can be considered to represent past and/or present capacities.
Because issues of disputed material fact are present, summary judgment is not appropriate at this time.
Conclusion
The motion for summary judgment is denied at this time with leave granted to renew at the close of discovery.
The parties will meet and confer on a discovery schedule which should be completed within ninety (90) days unless the parties agree otherwise.
It is so ordered.