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FILLORAMO v. JOHNSTON

October 25, 1988

NICHOLAS T. FILLORAMO, Plaintiff,
v.
JOHNSTON, LEMON & CO., INC., et al., Defendants



The opinion of the court was delivered by: LAMBERTH

 (FILLORAMO II)

 ROYCE C. LAMBERTH, UNITED STATES DISTRICT JUDGE

 Plaintiff Nicholas T. Filloramo brings this action against defendants Johnston, Lemon & Co. Inc., a stock brokerage firm, and Robert H. Boorman, Jr., a Johnston Lemon employee who acted as Filloramo's stockbroker from August, 1982 until sometime in early 1986. Filloramo claims violations of section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and brings common law counts of fraud and deceit, negligent misrepresentation, and breach of fiduciary duty. He also claims violations under "RICO", the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962(a), (c) and (d). Defendants have moved for summary judgment on all counts.

 In the Court's earlier Memorandum Opinion and Order of July 28, 1988, (Filloramo I) the Court granted defendants' motion for summary judgment as to plaintiff's claim under 18 U.S.C. § 1962(c), and conditionally denied defendant's motion for summary judgment as to the rest of plaintiff's RICO claims, as well as his federal securities law and common law claims, pending further briefing by the parties. The Court ordered further briefing as to application of the statute of limitations to plaintiff's non-RICO claims. For the reasons set forth below, the Court now grants in part defendants' motion for summary judgment as to plaintiff's non-RICO claims, and it orders the parties to provide further briefing as to the application of the statute of limitations to plaintiff's RICO claims.

 FACTS

 This action concerns 16 transactions over a three year period involving three stocks in plaintiff Filloramo's portfolio: Manor Care, Johnson Electronics and Megadata. In essence, Filloramo alleges that defendant Boorman first fraudulently induced him to sell his substantial holdings -- approximately $ 240,000 worth -- in Manor Care, and then fraudulently induced him to invest the proceeds in Johnson Electronics and Megadata. The scheme was motivated, under Filloramo's theory, by Johnston Lemon's twin desire to recoup $ 10,000 it gave Filloramo in settlement of an earlier, unrelated dispute, and also to push Johnson Electronics and Megadata stocks on its customers in the hope it would influence the two companies to hire Johnston Lemon as their investment banker.

 In his complaint, Filloramo alleges that when he eventually sold his holdings in Johnson Electronics and Megadata, he suffered losses of over $60,000; in the meantime, Manor Care had more than doubled in value to over $ 600,000.

 In the motion papers and discovery filed with the Court, the factual disputes are well defined (although somewhat hazily remembered by the principals). Filloramo contends that in late 1982, Boorman called to advise him that he should liquidate his substantial holdings in Manor Care, a company engaged in nursing care and related businesses. Boorman gave as a reason that the government had announced it would no longer reimburse nursing homes under its Medicaid program. Filloramo Deposition at 186-187. However, Manor Care had never significantly relied on Medicaid patients, and there was no reason to believe it would be adversely affected by a government cutback of such payments. Further, Boorman was aware of this, or should have been, since this information was contained in Johnston Lemon reports in existence at the time.

 Defendants for their part contend that Filloramo was also in possession and aware of the same information, since the same reports were sent to him on a regular basis. Further, although Boorman does not recall whether he advised Filloramo to sell his Manor Care holdings, Boorman Deposition at 54, he explicitly denies advising him to do so because of cutbacks in Medicaid reimbursements. Id. at 58.

 In three sales in December, 1982, Filloramo liquidated most of his holdings in Manor Care, 8,000 shares, for approximately $ 240,000. He continued to trade in the stock, in much smaller quantities, until January, 1984.

 Filloramo next alleges that sometime in 1983, he is not sure when but possibly in March, see Filloramo Deposition at 125, Boorman began to extol the prospects for Johnson Electronics. The tenor of his comments was that the company had a "pending" contract which would transform it into a $100 million company, and that such a contract was "imminent." As a result, Filloramo made an initial purchase of the stock in March, 1983. The contract never materialized.

 Nevertheless, Filloramo continued to purchase Johnson Electronics, making two purchases in September, 1983, and three purchases some two years later in August, 1985. Joint Pretrial Statement, Stipulated Facts at 2. Before each purchase, Boorman allegedly repeated the same story about the pending $ 100 million contract, telling Filloramo he was now in contact with the president of the company, that it would be signed within two or three months, and explaining away the obvious fact it had not yet been signed as earlier promised because of a design change or other delay. Filloramo Deposition at 130-137. Filloramo invested a total of about $ 80,000 in Johnson Electronics, and claims losses of about $ 22,000 when he liquidated his holdings in the stock in 1986.

 At his deposition, Boorman acknowledged recommending the stock to Filloramo, Boorman Deposition at 30, but he did not recall whether he made the representations alleged by Filloramo. Id. at 38. Defendants have produced no evidence that, if Boorman ...


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