expectation that the enterprise would have any continuing vitality; its nature as a limited partnership which was formed to develop a single condominium project meant that the investors expected the enterprise to conclude its activities when its assets, the condominium units, were sold for cash. Without this expectation of continuity, defendant concludes the forced sale doctrine cannot be applied.
There are several reasons why defendant's contention is not convincing. First, it is factually incorrect: there was at least an element of expected continuity of the enterprise and the investment stemming from the planned creation of ground leases for the plaintiffs' benefit upon sale of the condominium units. But, more importantly, the existence of an expectation of continuity is ultimately irrelevant. There is nothing in any of the "forced sale" cases discussed in this section to indicate that the courts which decided those cases placed any significance whatsoever in the expected continuity of the enterprise in which the holders of the securities involved had invested. Moreover, defendant has not proffered any convincing rationale, much less authority, for its unique view of the forced sale doctrine. What is significant for purposes of this motion is plaintiffs' allegation that they had invested in an enterprise which was viable at the time of the transaction in question and that their investment was wrested from them and rendered worthless by the allegedly fraudulent activities of the defendants. That they may have expected the enterprise, and their securities, to be finite in nature, ending upon sale of the condominium units, is irrelevant; they certainly never expected that their securities would be disposed of and that the partnership would be terminated fraudulently and prematurely, before plaintiffs had an opportunity to earn a return on their investment. It seems that the best that defendant can legitimately claim is that at the time of the forced sale, there was no prospect of a return on the investment and that the general partners accordingly liquidated the enterprise lawfully in order to salvage as much as possible from the original investment. That is a viable claim, but, as the Court has indicated elsewhere in this opinion, it is a claim that cannot be resolved on this motion to dismiss.
D. Plaintiffs Have Alleged That They Have Suffered Damages Compensable Under § 10(b) And Rule 10b-5.
The construction lenders have claimed that plaintiffs have failed to allege damages compensable under § 10(b) and Rule 10b-5, and defendant Noonan has joined in that claim. Again, the Court disagrees.
Defendants correctly point out that under § 28(a) of the Act, 15 U.S.C. § 78bb(a), plaintiffs are limited to "actual damages." They claim further that at the time the settlement agreement in question was made, the lenders had the right, ultimately not exercised because of the settlement, to foreclose on the partnership's property. Thus, they conclude, no matter what the terms of the settlement were, the plaintiffs could not have been any worse off as a result of the settlement than if the lenders had simply foreclosed. Accordingly, defendants claim, plaintiffs have not alleged any "actual" damages compensable under the Act.
The problem with defendants' claim is that it asks the Court to make a determination of fact before trial, even before discovery, with no proper evidentiary record to serve as a basis for that finding. Plaintiffs point out that, if their allegations are taken as true (which, of course, they must be for purposes of a motion to dismiss), it is clear that plaintiffs would have been better off had the allegedly conspiratorial and unlawful settlement not taken place. For example, plaintiffs point out that foreclosure could have resulted in their receiving at least some of the resultant proceeds, whereas they were left with nothing as a result of the settlement; that if there had been no settlement, the partnership's $3.4 million counterclaim against defendant Noonan would have remained extant and might have resulted in a judgment of substantial proportions for plaintiffs; that absent the alleged conspiracy, the lenders might have forced the guarantors of the construction loan to meet their obligations, thus avoiding foreclosure; and that, similarly, the limited partners might have forced the general partners to fulfill their obligation, pursuant to the Partnership Agreement, to contribute sums needed for the project in excess of scheduled costs.
This is not to say that the scope of plaintiffs' damages is clear; further discovery may reveal that some of the possibilities listed above were in fact so remote as to render them useless as bases for measuring damages. However, all that the Court can say at this juncture is that the measure of damages is uncertain; such uncertainty is clearly no ground for dismissal.
Plaintiffs have stated a claim under § 10(b) and Rule 10b-5 upon which relief can be granted. Accordingly, the motions to the contrary filed by construction lenders, defendant Noonan, and defendants Stokes and Anderson must be denied.
An order in accordance with this opinion will be issued this date.
Charles R. Richey United States District Judge
In accordance with the Memorandum Opinion issued of even date herewith, it is, by the Court, this 20th day of July, 1977,
ORDERED, that the motion to dismiss filed by defendants Interim Mortgage Company, Chase Manhattan Mortgage Realty and Trust Company, Virginia Mortgage and Investment Company, Louis Russell, and Lela Constance Russell be, and the same hereby is, denied; and it is
FURTHER ORDERED, that the motion to dismiss filed by defendant R.S. Noonan, Inc., be, and the same hereby is, denied; and it is
FURTHER ORDERED, that, to the extent it raises issues related to the motions denied in the immediately preceding ORDERED paragraphs, the motion to dismiss filed by defendants Phyllis W. Stokes and Margot W. Anderson be, and the same hereby is, denied.
Charles R. Richey United States District Judge